Albion Development VCT PLC: Annual Financial Re...
Albion Development VCT PLC
As required by the UK Listing Authority's Disclosure and Transparency Rules 4.1 and 6.3, Albion Development VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2016.
This announcement was approved for release by the Board of Directors on 23 March 2017.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 31 December 2016 (which have been audited) at: www.albion-ventures.co.uk/funds/AADV.The Annual Report and Financial Statements for the year to 31 December 2016 will be available as a PDF document via a link in the 'Financial Reports and Circulars' section. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objective and policy
Albion Development VCT PLC's (the "Company's") investment policy is intended to provide investors with a regular and predictable source of dividend income combined with the prospects of long term capital growth. This is achieved by establishing a diversified portfolio of holdings in smaller, unquoted companies whilst at the same time selecting and structuring investments in such a way as to reduce the risks normally associated with investment in such companies. It is intended that this will be achieved as follows:
- Through investment in a number of higher risk companies with greater growth prospects in sectors such as software and computer services, and medical technology.
- This is balanced by investment in more stable, often asset-backed investments that provide a strong income stream. These include asset-based businesses in the leisure, healthcare, education and renewable energy sectors, as well as stable and profitable businesses in other sectors. Such investments will constitute the majority of investments by cost.
- In neither category do portfolio companies normally have any external borrowings with a prior charge ranking ahead of the Company.
- Up to two-thirds of qualifying investments by cost comprise loan stock secured with a first charge on the portfolio company's assets.
Under its Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of its adjusted share capital and reserves.
Background to the Company
The Company is a venture capital trust which raised a total of £33.3 million through the issue of shares between 1999 and 2004. The C shares merged with the Ordinary shares in 2007.
A further £6.3 million was raised through an issue of new D shares in 2009/2010. The D shares converted to Ordinary shares on 31 March 2015 on the basis of their respective audited net asset value per share at 31 December 2014, in line with the original prospectus. Accordingly, D shareholders received 1.4975 Ordinary shares for each D share they owned.
An additional £23.7 million has been raised for the Ordinary shares through the Albion VCTs Top Up Offers since January 2011. The funds raised have been invested in accordance with the Company's existing investment policy.
Financial calendar
| Record date for first dividend | 5 May 2017 |
| Annual General Meeting | 12pm on 25 May 2017 |
| Payment of first dividend | 31 May 2017 |
| Announcement of half-yearly results for the six months ending 30 June 2017 | August 2017 |
| Payment of second dividend (subject to Board approval) | 29 September 2017 |
Financial highlights
| 158.5p | Total shareholder return per Ordinary share from launch to 31 December 2016. |
| 6.6% | Total return on opening net asset value for the year ended 31 December 2016. |
| 4.0p | Target tax free dividend per Ordinary share for the year ahead (5.0p paid per Ordinary share during the year ended 31 December 2016). |
| 70.7p | Net asset value per Ordinary share as at 31 December 2016. |
| Ordinary shares | ||||
| 31 December 2016 pence per share | 31 December 2015 pence per share | |||
| Dividends paid | 5.0 | 5.0 | ||
| Revenue return | 0.9 | 1.5 | ||
| Capital return | 3.8 | 1.6 | ||
| Net asset value | 70.7 | 71.1 | ||
Total shareholder return to 31 December 2016:
| Ordinary shares (pence per share) (ii) | C shares (pence per share) (ii) (iv) | D shares (pence per share)(ii) (v) | |
| Total dividends paid during the year ended: | |||
| 31 December 1999(i) | 1.0 | - | - |
| 31 December 2000 | 2.9 | - | - |
| 31 December 2001 | 3.9 | - | - |
| 31 December 2002 | 4.2 | - | - |
| 31 December 2003(iii) | 4.5 | 0.7 | - |
| 31 December 2004 | 4.0 | 2.0 | - |
| 31 December 2005 | 5.2 | 5.9 | - |
| 31 December 2006 | 3.0 | 4.5 | - |
| 31 December 2007(iv) | 5.0 | 5.3 | - |
| 31 December 2008 | 12.0 | 12.8 | - |
| 31 December 2009 | 4.0 | 4.3 | - |
| 31 December 2010 | 8.0 | 8.6 | 1.0 |
| 31 December 2011 | 5.0 | 5.4 | 2.5 |
| 31 December 2012 | 5.0 | 5.4 | 3.5 |
| 31 December 2013 | 5.0 | 5.4 | 5.0 |
| 31 December 2014 | 5.0 | 5.4 | 5.0 |
| 31 December 2015(v) | 5.0 | 5.4 | 7.5 |
| 31 December 2016 | 5.0 | 5.4 | 7.5 |
| Total dividends paid to 31 December 2016 | 87.8 | 76.5 | 32.0 |
| Net asset value as at 31 December 2016 | 70.7 | 75.8 | 105.9 |
| Total shareholder return to 31 December 2016 | 158.5 | 152.3 | 137.9 |
In line with the annual dividend target of 4.0 pence per share, the Board has declared a first dividend for the year ending 31 December 2017 of 2.0 pence per Ordinary share payable on 31 May 2017 to shareholders on the register on 5 May 2017.
Notes
(i) Assuming subscription for Ordinary shares by the First Closing on 26 January 1999.
(ii) Excludes tax benefits upon subscription.
(iii) Those subscribing for C shares after 30 June 2003 were not entitled to the interim dividend.
(iv) The C shares were converted into Ordinary shares on 31 March 2007, with a conversion ratio of 1.0715 Ordinary shares for each C share. The net asset value per share and all dividends paid subsequent to the conversion of the C shares to the Ordinary shares are multiplied by the conversion factor of 1.0715 in respect of the C shares return, in order to give an accurate picture of the shareholder value since launch relating to the C shares.
(v) The D shares were converted into Ordinary shares on 31 March 2015, with a conversion ratio of 1.4975 Ordinary shares for each D share. The net asset value per share and all dividends paid subsequent to the conversion of the D shares to the Ordinary shares are multiplied by the conversion factor of 1.4975 in respect of the D shares return, in order to give an accurate picture of the shareholder value since launch relating to the D shares.
Chairman's statement
Introduction
The results for Albion Development VCT PLC for the year to 31 December 2016 showed total return of 4.7 pence per Ordinary share, compared to 3.1 pence per Ordinary share for 2015, with a number of important changes taking place within the portfolio.
Investment performance and progress
The results for the year recorded net gains on investments of £2.9 million, against £1.4 million for the previous year. The key elements within this included the successful sale of Exco InTouch, the digital health business, which was sold for around three times original cost. Following the year end, we also sold AMS Sciences and exchanged contracts for the sale of Blackbay, both at valuations above the previous holding value and also our holding in Masters Pharmaceuticals. In addition, strong trading at Radnor House (Sevenoaks) led to a material revaluation of that school, while Proveca, which develops paediatric drugs, gained its first regulatory approval. Egress was also written up following continued strong growth. Against this, slow progress at Abcodia and Cisiv both led to write-downs.
In addition to Exco InTouch, the assets held by The Charnwood Pub Company and Q Gardens were also disposed of during the year. Meanwhile, £1.3 million was invested in five new portfolio companies, including Black Swan Data (predictive analytics services), Secured by Design (an international automative consultancy) and Convertr Media (digital marketing software). A further £1.4 million was invested in existing portfolio companies, including £464,000 into Proveca, to bring its newly approved drug, Sialanar, to market.
Overall, 61 per cent. of the portfolio by value is now profitable, measured by earnings before interest and tax, with a number of our investments showing strong growth in fast-developing international markets.
For a review of business and future prospects please see the Strategic report below.
Risks and uncertainties
Other than investment performance, the key risks facing the Company are from the broader economy. Despite some continued growth in the UK, the outlook for the domestic economy following the decision to leave the EU and an uncertain global situation, continue to be the key risks affecting your Company. The Manager is clear in focussing efforts to allocate resources to those sectors and opportunities where growth can be both resilient and sustainable. Importantly, however, investment risk is mitigated through a variety of processes including our policy of ensuring that the Company has a first charge over portfolio companies' assets wherever possible. We can never guarantee that future investments will avoid the failings of some of the previous investments but the rebalancing of the portfolio has resulted in a spread of investments that is carefully balanced between stability and growth.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Board composition
Andy Phillipps retired from the Board on 17 March 2017 after nine years with the Company. I would like to thank him for his excellent work, and many years of wise counsel and service. Ben Larkin was appointed as a Director on 5 December 2016. Ben has extensive experience in corporate restructuring, turnaround, and insolvency, with particular experience in real estate restructurings, and is currently a partner at Jones Day.
Share buy-backs
It remains the Board's primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders, including in considering the proposed change to investment policy for non-qualifying investments. Therefore, 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.
During the year, the Company purchased 1,299,000 Ordinary shares to be held in treasury at a cost of £864,000 (2015: £649,000), representing 2.2 per cent. of the opening shares in issue.
Transactions with the Manager
Details of transactions that took place with the Manager during the year can be found in note 5 and principally relate to the management fee.
Dividends and results
It was announced on 3 November 2016 that the Company's dividend target is changing. The Company paid dividends totalling 5.0 pence per share during the financial year in line with the Company's policy, which it has maintained for the last six years. For much of the period, however, the dividend has not been fully covered by total returns, resulting in a gradual decline in NAV per share over the years. In an economic environment of persistently low interest rates, the Board considers a recalibration of the annual dividend target to 4.0 pence per share to be more appropriate, representing a dividend yield on current NAV of 5.7 per cent.. This target will apply from 2017. A first dividend of 2.0 pence per share will be paid on 31 May 2017 to shareholders on the register on 5 May 2017.
As at 31 December 2016, the net asset value was 70.7 pence per share compared to 71.1 pence at 31 December 2015. The total return after tax was £2.9 million compared to £1.6 million in the year to 31 December 2015.
Albion VCTs Prospectus Top Up Offers
In November 2016, the Company announced the launch of the Albion VCTs Prospectus Top Up Offers 2016/2017. In aggregate, the Albion VCTs raised £34 million across six of the VCTs managed by Albion Ventures LLP, with the Company raising £4 million. The Offers have now closed.
The funds raised by each Company pursuant to its Offer has been added to the liquid resources available for investment so as to put each Company into a position to take advantage of attractive investment opportunities over the next two to three years. Accordingly, the proceeds of the Offers are being applied in accordance with the respective Companies' investment policies. The Company continues to participate in the Top Up Offers and also benefits from receipts from dividend reinvestment, the net proceeds of which are invested in new investment opportunities and to provide additional working capital in the Company.
Outlook and prospects
There has been considerable progress within the portfolio since the start of 2016, and it now seems well balanced for the future. The combination of steady cash generation seen in the asset-based sectors of renewable energy, leisure and education, combined with measured and incremental investment in the growth sectors that the Manager knows well, such as medical technology and specific areas within IT such as cyber security, gives us confidence in the direction of the Company and the returns to shareholders.
Geoffrey Vero
Chairman
23 March 2017
Strategic report
Investment objective and policy
The Company's investment policy is intended to provide investors with a regular and predictable source of dividend income combined with the prospects of long term capital growth. This is achieved by establishing a diversified portfolio of holdings in smaller, unquoted companies whilst at the same time selecting and structuring investments in such a way as to manage and mitigate the risks normally associated with investment in such companies. It is intended that this will be achieved as follows:
- Through investment in a number of higher risk companies with greater growth prospects in sectors such as software and computer services, and medical technology.
- This is balanced by investment in more stable, often asset-backed investments that provide a strong income stream. These include asset-based businesses in the leisure, healthcare, education and renewable energy sectors, as well as stable and profitable businesses in other sectors. Such investments will constitute the majority of investments by cost.
- In neither category do portfolio companies normally have any external borrowings with a prior charge ranking ahead of the Company.
- Up to two-thirds of qualifying investments by cost comprise loan stock secured with a first charge on the portfolio company's assets.
Funds held pending investment or for liquidity purposes will be held as cash on deposit or in floating rate notes or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
Under its Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of its adjusted share capital and reserves.
Current portfolio sector allocation
As mentioned above, it is intended that the Company's investment portfolio will be split between higher risk companies with greater growth prospects, balanced by investment in more stable companies, which are often asset-backed, that provide a strong income stream combined with a protection of capital. The pie chart at the end of this announcement shows the split of the portfolio valuation by industrial or commercial sector as at 31 December 2016. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 16 to 18 of the full Annual Report and Financial Statements.
Direction of portfolio
The sector analysis of the Company's investment portfolio at the end of this announcement shows that healthcare now accounts for 15 per cent compared to 18 per cent. in the previous financial year as a result of the disposal of the investment in Exco InTouch. IT and software now accounts for 17 per cent. of the portfolio compared to 16 per cent. previously following the investment deployed into Secured By Design.
The current portfolio is well balanced in terms of sectors, with renewable energy at 21 per cent., education accounting for 12 per cent., and leisure at 6 per cent. Cash balances have increased to 23 per cent. of the portfolio and it is anticipated that investments will be deployed into a number of new asset-based areas and the IT segment of the portfolio.
Results and dividend policy
| Ordinary shares | |||
| £'000 | |||
| Net revenue return for the year | 549 | ||
| Net capital gain for the year | 2,313 | ||
| Total return for the year ended 31 December 2016 | 2,862 | ||
| Dividend of 2.5 pence per share paid on 31 May 2016 | (1,572) | ||
| Dividend of 2.5 pence per share paid on 30 September 2016 | (1,564) | ||
| Transferred from reserves | (274) | ||
| Net assets as at 31 December 2016 | 44,085 | ||
| Net asset value per share as at 31 December 2016 (pence) | 70.7 |
The Company paid dividends totalling 5.0 pence per Ordinary share (2015: 5.0 pence per Ordinary share).
As described in the Chairman's statement, the Board has declared a first dividend for the year ending 31 December 2017 of 2.0 pence per Ordinary share payable on 31 May 2017 to shareholders on the register on 5 May 2017.
As shown in the Income statement, the total investment income decreased to £1,114,000 (2015: £1,335,000). This is in part due to the disposal of income producing investments in the prior year as well as capitalising interest on a number of companies in order to fund further acquisitions. As a result, the revenue return to equity holders has decreased to £549,000 (2015: £769,000).
The total capital return for the year was £2,313,000 (2015: £850,000). This is mainly attributable to the successful sale of Exco InTouch, where a gain on opening value of £1.3 million was realised and unrealised revaluation movements in the Company's investment portfolio, in particular, increases in Radnor House School (Holdings), Proveca and Egress Software Technologies, outweighing reductions in Abcodia and Cisiv.
The total return was 4.7 pence per share (2015: 3.1 pence per share). The Balance sheet shows that the net asset value has decreased slightly over the last year to 70.7 pence per share (2015: 71.1 pence per share). The decrease in net asset value can be attributed to the payment of 5.0 pence per Ordinary share of dividends offset by the total return for the year.
The cash flow was positive for the year mainly as a result of the disposal of investments and the issue of Ordinary shares, offset by a number of new investments made and dividends paid during the year.
Review of business and future changes
The results for the year to 31 December 2016 show total shareholder return of 158.5 pence per Ordinary share since launch (2015: 153.9 pence per share). We believe there should be further progress in the current year, with selected disposals and new investments, and focus on our core area of IT/Software alongside new asset-based areas.
The Directors do not foresee any major changes in the activity undertaken by the Company in the current year. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to providing both capital growth and a reliable dividend income to shareholders over the long term.
A detailed review of the Company's business during the year is contained in the Chairman's statement.
Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.
VCT regulation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors' report on page 22 of the full Annual Report and Financial Statements.
As part of the Government's wider review of the VCT regime, new rules have been introduced under the Finance Act (No.2) 2015 and Finance Act 2016, which include:
- Restrictions over the age of investments;
- A prohibition on management buyouts or the purchase of existing businesses;
- An overall lifetime investment cap of £12 million from tax-advantaged funds into any portfolio company; and
- A VCT can only make qualifying investments or certain specified non-qualifying investments such as money market securities and short term deposits.
While these changes are significant, the Company has been advised that, had they been in place previously, they would have affected only a relatively small minority of the investments that we have made into new portfolio companies over recent years. The Board's current view is that there will be no material change in our investment policy and the application of it as a result.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2016. These showed that the Company has complied with all tests and continues to do so.
Future prospects
The key drivers for returns within the portfolio are those sectors that are involved in longer-term global trends. These include the importance of healthcare in an ageing population, sustainable energy against a background of climate change, education amid the need to improve the national skills base and the developing use of information technology in an environment of universal information. The portfolio is well positioned to take advantage of these changes, with a longer term aim of total return exceeding dividends.
Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following key performance indicators give a good indication that the Company is achieving its investment objective and policy. These are:
- Total shareholder return relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the total shareholder return against the FTSE All-Share Index total return, in both instances with dividends reinvested. Details on the performance of the net asset value and return per share for the year are shown in the Chairman's statement.
- Net asset value per share and total shareholder return
Total return to shareholders increased by 3.0 per cent. to 158.5 pence per Ordinary share for the year ended 31 December 2016 as a result of the positive total return of 4.7 pence per share.
- Dividend distributions
Dividends paid in respect of the year ended 31 December 2016 were 5.0 pence per share (2015: 5.0 pence per share). Cumulative dividends paid since inception are 87.8 pence per share. The dividend target for the 2017 financial year is 4.0 pence per share as outlined in the Chairman's statement.
- Ongoing charges
The ongoing charges ratio for the year to 31 December 2016 was 2.7 per cent. (2015: 2.8 per cent.). 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 next year to remain broadly at this current level.
Gearing
As defined by the Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. The Directors do not currently have any intention to utilise long term gearing.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Ventures LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Ventures LLP also provides company secretarial and other accounting and administrative support to the Company.
Management agreement
Under the Management agreement, the Manager provides investment management, secretarial and administrative services to the Company. The Management agreement may be terminated by either party on 12 months' notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 2.25 per cent. of the net asset value of the Company paid quarterly in arrears.
Total annual expenses, including the management fee, are limited to 3.0 per cent. of the net asset value.
In line with common practice, the Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2 per cent. on each investment made and also monitoring fees where the Manager has a representative on the portfolio company's board.
Management performance incentive
The management performance incentive structure sets a minimum target level whereby no performance fee is payable to the Manager until the total return exceeds 6.5 pence per share per annum from a base on 1 January 2007 of 98.7 pence for the Ordinary shares and 100 pence for the D shares from 6 April 2010. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable. To the extent that the total return exceeds the threshold over the relevant period, a performance fee will be paid to the Manager of an amount equal to 20 per cent. of the excess.
As at 31 December 2016, the total return since 1 January 2007 for Ordinary Shares was 129.7 pence and the total return since 6 April 2010 for the former D Shares was 137.9 pence, and the hurdle was 163.7 pence for Ordinary Shares and 143.8 pence for the former D Shares.
Any performance fee payable will be calculated based on the above hurdles, escalating at 6.5p per annum, and in respect of the relevant proportion of that share class' share of the Company's net assets as at 31 December 2014.
There was no management performance incentive fee payable during the year (2015: nil).
Investment and co-investment
The Company co-invests with other Albion Ventures LLP managed venture capital trusts and funds. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 70 per cent. investment requirement for venture capital trust status, the long term prospects of the current portfolio of investments, a review of the Management agreement and the services provided therein, and benchmarking the performance of the Manager to other service providers. 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 Ventures LLP as the Company's AIFM as required by the AIFMD.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Act to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no policies in these matters and as such these requirements do not apply.
Further policies
The Company has adopted a number of further policies relating to:
- Environment
- Global greenhouse gas emissions
- Anti-bribery
- Diversity
and these are set out in the Directors' report on pages 22 and 23 of the full Annual Report and Financial Statements.
Share buy-back policy
It remains the Board's primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board's policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest.
It is the Board's intention for such buy-backs to be in the region of a 5 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Further details of shares bought back during the year ended 31 December 2016 can be found in note 15 of the Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates. The principal risks and uncertainties of the Company as identified by the Board and how they are managed are as follows:
| Risk | Possible consequence | Risk management |
| Investment and performance risk | The risk of investment in poor quality assets, which could reduce the capital and income 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 fragile than larger, long established businesses. | 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 and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on investments 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. |
| VCT approval risk | The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs. |
| 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 from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager's Compliance Officer. The Manager reports monthly to its Board on any issues arising from compliance or regulation. 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. |
| Economic and political risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways. | The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of equity and secured loan stock in portfolio companies and has a policy of not normally permitting 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. |
| Market value of Ordinary shares | The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buy-back policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust its buy-back authorities, which are renewed each year. 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. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in September 2014 and principle 21 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2019. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is also considered the most appropriate given the forecasts that the Board require from the Manager, and the estimated timelines for finding, assessing and completing investments.
The Directors have carried out a robust assessment of the 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 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. The Board deliberated over the importance of the Manager and the processes that they have in place for dealing with the principal risks.
The Board assessed the ability of the Company to raise finance and deploy capital. 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 price discount, 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 2019.
This Strategic report of the Company for the year ended 31 December 2016 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.
On behalf of the Board,
Geoffrey Vero
Chairman
23 March 2017
Responsibility statement
In preparing these Financial Statements for the year to 31 December 2016, the Directors of the Company, being Geoffrey Vero, Jonathan Thornton, Ben Larkin and Patrick Reeve, confirm that to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2016 for the Company have 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 and loss of the Company for the year ended 31 December 2016 as required by DTR 4.1.12R;
- the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 31 December 2016 and description of principal risks and uncertainties that the Company faces); and
- the Chairman's statement and Strategic report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).
A detailed "Statement of Directors' responsibilities" is contained on page 25 within the full audited Annual Report and Financial Statements.
By order of the Board
Geoffrey Vero
Chairman
23 March 2017
Income statement
| Year ended 31 December 2016 | Year ended 31 December 2015 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments | 3 | - | 2,911 | 2,911 | - | 1,367 | 1,367 |
| Investment income | 4 | 1,114 | - | 1,114 | 1,335 | - | 1,335 |
| Investment management fees | 5 | (239) | (717) | (956) | (215) | (646) | (861) |
| Other expenses | 6 | (210) | - | (210) | (202) | - | (202) |
| Profit on ordinary activities before tax | 665 | 2,194 | 2,859 | 918 | 721 | 1,639 | |
| Tax (charge)/credit on ordinary activities | 8 | (116) | 119 | 3 | (149) | 129 | (20) |
| Profit and total comprehensive income attributable to shareholders | 549 | 2,313 | 2,862 | 769 | 850 | 1,619 | |
| Basic and diluted return per share (pence)* | 10 | 0.9 | 3.8 | 4.7 | 1.5 | 1.6 | 3.1 |
* excluding 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 2016 | 31 December 2015 | ||
| Note | £'000 | £'000 | |
| Fixed asset investments | 11 | 33,798 | 31,565 |
| Current assets | |||
| Trade and other receivables less than one year | 13 | 441 | 685 |
| Cash and cash equivalents | 10,153 | 6,972 | |
| 10,594 | 7,657 | ||
| Total assets | 44,392 | 39,222 | |
| Creditors: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (307) | (322) |
| Total assets less current liabilities | 44,085 | 38,900 | |
| Equity attributable to equityholders | |||
| Called up share capital | 15 | 689 | 600 |
| Share premium | 17,886 | 11,652 | |
| Capital redemption reserve | 12 | 12 | |
| Unrealised capital reserve | 7,253 | 4,883 | |
| Realised capital reserve | 4,763 | 4,820 | |
| Other distributable reserve | 13,482 | 16,933 | |
| Total equity shareholders' funds | 44,085 | 38,900 | |
| Basic and diluted net asset value per share (pence)* | 16 | 70.7 | 71.1 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 23 March 2017 and were signed on its behalf by
Geoffrey Vero
Chairman
Company number: 03654040
Statement of changes in equity
| Called up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| As at 1 January 2016 | 600 | 11,652 | 12 | 4,883 | 4,820 | 16,933 | 38,900 | ||
| Profit/(loss) and total comprehensive income for the period | - | - | - | 1,690 | 623 | 549 | 2,862 | ||
| Transfer of unrealised losses on disposal or write off of investments | - | - | - | 680 | (680) | - | - | ||
| Purchase of shares for treasury | - | - | - | - | - | (864) | (864) | ||
| Issue of equity | 89 | 6,389 | - | - | - | - | 6,478 | ||
| Cost of issue of equity | - | (155) | - | - | - | - | (155) | ||
| Dividends paid | - | - | - | - | - | (3,136) | (3,136) | ||
| As at 31 December 2016 | 689 | 17,886 | 12 | 7,253 | 4,763 | 13,482 | 44,085 | ||
| As at 1 January 2015 | 482 | 5,560 | 12 | 1,954 | 4,500 | 21,927 | 34,435 | ||
| Profit/(loss) and total comprehensive income for the period | - | - | - | 1,971 | (1,121) | 769 | 1,619 | ||
| Transfer of unrealised losses on disposal or write off of investments | - | - | - | 958 | (958) | - | - | ||
| Purchase of shares for treasury | - | - | - | - | - | (649) | (649) | ||
| Issue of equity | 118 | 6,275 | - | - | - | (33) | 6,360 | ||
| Cost of issue of equity | - | (183) | - | - | - | - | (183) | ||
| Transfer from other distributable reserve to realised capital reserve | - | - | - | - | 2,399 | (2,399) | - | ||
| Dividends paid | - | - | - | - | - | (2,682) | (2,682) | ||
| As at 31 December 2015 | 600 | 11,652 | 12 | 4,883 | 4,820 | 16,933 | 38,900 | ||
* These reserves amount to £18,245,000 (2015: £21,753,000) which is considered distributable.
Statement of cash flows
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Cash flow from operating activities | ||
| Loan stock income received | 767 | 1,076 |
| Deposit interest received | 96 | 64 |
| Dividend income received | 74 | 82 |
| Investment management fees paid | (926) | (835) |
| Other cash payments | (217) | (213) |
| Corporation tax paid | (20) | - |
| Net cash flow from operating activities | (226) | 174 |
| Cash flow from investing activities | ||
| Purchase of fixed asset investments | (2,715) | (3,995) |
| Disposal of fixed asset investments | 3,797 | 3,302 |
| Net cash flow from investing activities | 1,082 | (693) |
| Cash flow from financing activities | ||
| Issue of share capital | 5,820 | 5,807 |
| Cost of issue of shares (including D share conversion in 2015) | - | (17) |
| Equity dividends paid | (2,631) | (2,295) |
| Purchase of own shares (including costs) | (864) | (649) |
| Net cash flow from financing activities | 2,325 | 2,846 |
| Increase in cash and cash equivalents | 3,181 | 2,327 |
| Cash and cash equivalents at start of period | 6,972 | 4,645 |
| Cash and cash equivalents at end of period | 10,153 | 6,972 |
| Cash and cash equivalents comprise: | ||
| Cash at bank and in hand | 10,153 | 6,972 |
| Cash equivalents | - | - |
| Total cash and cash equivalents | 10,153 | 6,972 |
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 ("FRS 102"), and with the 2014 Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by The Association of Investment Companies ("AIC").
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"). The Company values investments by following the IPEVCV Guidelines and further detail on the valuation techniques used are in note 2 below.
Company information is shown on page 2 of the full Annual Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The 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 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the income statement).
Subsequently, the investments are valued at 'fair value', which is measured as follows:
- Investments 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 IPEVCV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, prices of recent investment rounds, net assets and industry valuation benchmarks. Where the Company has an investment in an early stage enterprise, the price of a recent investment round is often the most appropriate approach to determining fair value. In situations where a period of time has elapsed since the date of the most recent transaction, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company's business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.
Debtors and creditors and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than creditors.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock and other preferred 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 fees 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 per cent. of management fees are allocated to the capital account to the extent that these relate to an enhancement in the value of the investments. This is in line with the Board's expectation that over the long term 75 per cent. 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.
Performance incentive fee
In the event that a performance incentive fee crystallises, the fee will be allocated between other distributable and realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns.
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
Share premium account
This reserve accounts for the difference between the price paid for shares and the nominal value of the 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 diminutions 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 equity and debt. The Company invests in smaller companies principally based in the UK.
3. Gains on investments
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Unrealised gains on fixed asset investments | 1,690 | 1,971 |
| Realised gains/(losses) on fixed asset investments | 1,221 | (604) |
| 2,911 | 1,367 |
4. Investment income
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Income recognised on investments | ||
| Loan stock interest and other fixed returns | 949 | 1,186 |
| UK dividend income | 74 | 82 |
| Bank deposit interest | 91 | 67 |
| 1,114 | 1,335 |
Interest income earned on impaired investments at 31 December 2016 amounted to £42,000 (2015: £45,000).
5. Investment management fees
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Investment management fee charged to revenue | 239 | 215 |
| Investment management fee charged to capital | 717 | 646 |
| 956 | 861 |
Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report.
During the year, services of a total value of £956,000 (2015: £861,000) were purchased by the Company from Albion Ventures LLP in respect of management fees. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals was £248,000 (2015: £219,000).
During the year, the Company was not charged by Albion Ventures LLP in respect of Patrick Reeve's services as a Director (2015: £nil).
Albion Ventures LLP, the Manager, holds 42,188 Ordinary shares in the Company.
Albion Ventures LLP is, from time to time, eligible to receive transaction fees and monitoring fees from portfolio companies. During the year ended 31 December 2016, fees of £150,000 attributable to the investments of the Company were received by Albion Ventures LLP pursuant to these arrangements (2015: £179,000).
6. Other expenses
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Directors' fees (including NIC) | 76 | 67 |
| Auditor's remuneration for statutory audit services (excluding VAT) | 26 | 27 |
| Other administrative expenses | 108 | 108 |
| 210 | 202 |
7. Directors' fees
The amounts paid to the Directors during the year are as follows:
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Directors' fees | 71 | 62 |
| National insurance | 5 | 5 |
| 76 | 67 |
The Company's key management personnel are the Directors. Further information regarding Directors' remuneration can be found in the Directors' remuneration report on pages 31 and 32 of the full Annual Report and Financial Statements.
8. Tax on ordinary activities
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| UK corporation tax charge in respect of current year | - | 39 |
| UK corporation tax credit in respect of prior years | (3) | (19) |
| (3) | 20 |
Factors affecting the tax charge:
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Return on ordinary activities before taxation | 2,859 | 1,639 |
| Tax charge on profit at the small companies rate of 20 per cent. (2015: 20 per cent.) | 572 | 328 |
| Factors affecting the charge: | ||
| Non-taxable gains | (582) | (273) |
| Income not taxable | (15) | (16) |
| Excess management expenses carried forward | 25 | - |
| Adjustment in respect of prior years | (3) | (19) |
| (3) | 20 |
The tax (credit)/charge for the year shown in the Income statement is lower than the companies rate of corporation tax in the UK of 20 per cent. (2015: 20 per cent.). The differences are explained above.
Consortium relief is recognised in the accounts in the period in which the claim is submitted to HMRC and is shown as tax in respect of prior years.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii) The Company has excess management expenses of £123,000 (2015: £nil) that are available for offset against future profits. A deferred tax asset of £25,000 (2015: £nil) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits
9. Dividends
| Year ended 31 December 2016 | Year ended 31 December 2015 | |
| £'000 | £'000 | |
| Dividend of 2.5p per Ordinary share paid on 29 May 2015 | - | 1,335 |
| Dividend of 2.5p per Ordinary share paid on 30 September 2015 | - | 1,347 |
| Dividend of 2.5p per Ordinary share paid on 31 May 2016 | 1,572 | - |
| Dividend of 2.5p per Ordinary share paid on 30 September 2016 | 1,564 | - |
| 3,136 | 2,682 |
In addition to the dividends summarised above, the Board has declared a first dividend of 2.0 pence per Ordinary share for the year ending 31 December 2017, payable on 31 May 2017 to shareholders on the register on 5 May 2017. The total dividend will be approximately £1,354,000.
10. Basic and diluted return per share
| Year ended 31 December 2016 | Year ended 31 December 2015 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Profit attributable to equity shares (£'000) | 549 | 2,313 | 2,862 | 769 | 850 | 1,619 |
| Weighted average shares in issue (excluding treasury shares) | 61,380,295 | 52,626,429 | ||||
| Return attributable per equity share (pence) | 0.9 | 3.8 | 4.7 | 1.5 | 1.6 | 3.1 |
The weighted average number of Ordinary shares is calculated excluding the treasury shares of 6,556,700 (2015: 5,257,700).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
11. Fixed asset investments
| 31 December 2016 £'000 | 31 December 2015 £'000 | |
| Investments held at fair value through profit or loss | ||
| Unquoted equity and preference shares | 15,322 | 13,777 |
| Unquoted loan stock | 18,172 | 17,394 |
| Quoted equity | 304 | 394 |
| 33,798 | 31,565 |
| 31 December 2016 £'000 | 31 December 2015 £'000 | |
| Opening valuation | 31,565 | 29,873 |
| Purchases at cost | 2,715 | 4,007 |
| Disposal proceeds | (3,575) | (3,792) |
| Realised gains/(losses) | 1,221 | (604) |
| Movement in loan stock accrued income | 182 | 110 |
| Unrealised gains | 1,690 | 1,971 |
| Closing valuation | 33,798 | 31,565 |
| Movement in loan stock accrued income | ||
| Opening accumulated movement in loan stock accrued income | 244 | 134 |
| Movement in loan stock accrued income | 182 | 110 |
| Closing accumulated movement in loan stock accrued income | 426 | 244 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 4,706 | 1,777 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (540) | (1,072) |
| Transfer of previously unrealised losses to realised reserves on investments written off but still held | 1,221 | 2,030 |
| Movement in unrealised gains | 1,690 | 1,971 |
| Closing accumulated unrealised gains | 7,077 | 4,706 |
| Historic cost basis | ||
| Opening book cost | 26,614 | 27,962 |
| Purchases at cost | 2,715 | 4,007 |
| Sales at cost | (1,812) | (3,325) |
| Cost of investments written off but still held | (1,221) | (2,030) |
| Closing book cost | 26,297 | 26,614 |
Purchases and disposals detailed above do not agree to the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement debtors and creditors.
The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted fixed asset investments are valued at fair value in accordance with the IPEVCV guidelines as follows:
| Valuation methodology | 31 December 2016 £'000 | 31 December 2015 £'000 |
| Valuation supported by third party or desktop valuation | 17,922 | 16,804 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 8,304 | 5,418 |
| Revenue multiple | 5,195 | 6,812 |
| Earnings multiple | 1,916 | 1,902 |
| Discount to third party offer | 158 | 235 |
| 33,494 | 31,171 |
Fair value investments had the following movements between valuation methodologies between 31 December 2015 and 31 December 2016:
| Change in valuation methodology (2015 to 2016) | Value as at 31 December 2016 £'000 | Explanatory note |
| Revenue multiple to price of recent investment | 893 | Recent external funding round |
| Revenue multiple to third party offer | 158 | More relevant valuation methodology |
| Cost (reviewed for impairment) to earnings multiple | 115 | More relevant valuation methodology |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 December 2016.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27, which has been adopted early.
| Fair value hierarchy | Definition |
| Level 1 | Unadjusted quoted prices in an active market |
| Level 2 | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
Quoted investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.
Investments held at fair value through profit or loss (Level 3) had the following movements in the year to 31 December 2016:
| 31 December 2016 | 31 December 2015 | |||||
| Equity | Loan stock | Total | Equity | Loan stock | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening balance | 13,777 | 17,394 | 31,171 | 12,349 | 17,123 | 29,472 |
| Additions | 1,775 | 940 | 2,715 | 1,123 | 2,821 | 3,944 |
| Disposals | (1,896) | (1,679) | (3,575) | (1,690) | (2,102) | (3,792) |
| Accrued loan stock interest | - | 182 | 182 | - | 110 | 110 |
| Realised gains/(losses) | 675 | 546 | 1,221 | (467) | (137) | (604) |
| Debt/equity swap and restructurings | 5 | (5) | - | 480 | (480) | - |
| Unrealised gains | 986 | 793 | 1,779 | 1,982 | 59 | 2,041 |
| Closing balance | 15,322 | 18,173 | 33,495 | 13,777 | 17,394 | 31,171 |
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. 66 per cent. of the portfolio of investments is based on cost, recent investment price, agreed offer price or is loan stock, and as such the Board considers that the assumptions used for their valuations are the most reasonable. The Directors believe that changes to reasonable possible alternative assumptions (by adjusting the revenue and earnings multiples) for the valuations of the remainder of the portfolio companies could result in an increase in the valuation of investments by £603,000 or a decrease in the valuation of investments by £686,000. For valuations based on earnings and revenue multiples, the Board considers that the most significant input is the price/earnings ratio; for valuations based on third party valuations, the Board considers that the most significant inputs are price/earnings ratio, discount factors and market values for buildings; which have been adjusted to drive the above sensitivities.
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102 section 9.9B, they are measured at fair value through profit and loss and not consolidated as subsidiaries.
The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 31 December 2016 as described below:
| Company | Country of incorporation | Profit/(loss) before tax £'000 | Net assets/ (liabilities) £'000 | Result for year ended | Principal activity | % class and share type | % total voting rights held by the Company |
| Albion Investment Properties Limited | Great Britain | n/a* | (988) | 31 December 2015 | Owner of residential property | 68.2% A Ordinary | 68.2% |
* The company files abbreviated accounts which does not disclose this information.
13. Current assets
| Trade and other receivables less than one year | 31 December 2016 | 31 December 2015 |
| £'000 | £'000 | |
| Prepayments and accrued income | 15 | 19 |
| Corporation tax receivable | 3 | 19 |
| Other debtors | 423 | 647 |
| 441 | 685 |
14. Creditors: amounts falling due within one year
| 31 December 2016 | 31 December 2015 | |
| £'000 | £'000 | |
| Accruals and deferred income | 303 | 266 |
| Trade creditors | 4 | 17 |
| UK corporation tax payable | - | 39 |
| 307 | 322 |
15. Called up share capital
| Allotted, called up and fully paid shares: | |||
| Ordinary shares | 31 December 2016 £'000 | ||
| 59,965,643 Ordinary shares of 1 penny each at 31 December 2015 | 600 | ||
| 8,917,931 Ordinary shares of 1 penny each issued during the year | 89 | ||
| 68,883,574 Ordinary shares of 1 penny each at 31 December 2016 | 689 | ||
| 5,257,700 Ordinary shares of 1 penny each held in treasury at 31 December 2015 | (53) | ||
| 1,299,000 Ordinary shares of 1 penny each purchased during the year to be held in treasury | (13) | ||
| 6,556,700 Ordinary shares of 1 penny each held in treasury at 31 December 2016 | (66) | ||
| Voting rights of 62,326,874 Ordinary shares of 1 penny each at 31 December 2016 | 623 | ||
The Company purchased 1,299,000 Ordinary shares (2015: 951,000) at a cost of £864,000 including stamp duty (2015: £649,000) to be held in treasury during the year to 31 December 2016. Total share buy backs in 2016 represents 1.9% (2015: 1.6%) of called-up share capital as at 31 December 2016.
Under the terms of the Dividend Reinvestment Scheme, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:
Date of allotment | Number of shares issued | Aggregate nominal amount of shares (£'000) | Issue price (pence per share) | Net invested (£'000) | Opening market price on allotment date (pence per share) |
| 31 May 2016 | 366,881 | 4 | 68.6 | 247 | 68.0 |
| 30 September 2016 | 381,011 | 4 | 66.8 | 253 | 66.3 |
| 747,892 | 503 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2015/2016, the following new Ordinary shares of nominal value 1 penny each, were allotted during the year:
| Date of allotment | Number of shares issued | Aggregate nominal amount of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 29 January 2016 | 2,807,295 | 28 | 72.8 | 2,003 | 68.3 |
| 29 January 2016 | 1,581,367 | 16 | 73.2 | 1,129 | 68.3 |
| 31 March 2016 | 3,604,114 | 36 | 73.3 | 2,562 | 68.0 |
| 6 April 2016 | 103,435 | 1 | 72.6 | 73 | 68.0 |
| 6 April 2016 | 12,554 | - | 73.0 | 9 | 68.0 |
| 6 April 2016 | 61,274 | 1 | 73.3 | 44 | 68.0 |
| 8,170,039 | 82 | 5,820 |
16. Basic and diluted net asset value per share
| 31 December 2016 (pence per share) | 31 December 2015 (pence per share) | ||
| Basic and diluted net asset value per Ordinary share | 70.7 | 71.1 |
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 (less treasury shares) of 62,326,874 Ordinary shares as at 31 December 2016 (2015: 54,707,943).
17. Capital and financial instruments risk management
The Company's capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail on page 21 of the Directors' report in the full Annual Report and Financial Statements.
The Company's financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances and debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short term creditors. The Company does not use any derivatives for the management of its Balance sheet.
The principal 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 apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a venture capital trust, it is the Company's specific nature to evaluate and control the investment risk of its portfolio in quoted and unquoted investments, details of which are shown on pages 16 to 18 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio company and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.
The Manager and the Board formally review investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the Balance sheet date is the value of the fixed asset investment portfolio which is £33,798,000 (2015: £31,565,000). Fixed asset investments form 77 per cent. of net asset value as at 31 December 2016 (2015: 81 per cent.).
More details regarding the classification of fixed asset investments are shown in note 11.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. To mitigate the investment price risk for the Company as a whole, the strategy of the Company is to invest in a broad spread of industries with up to two-thirds of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 16 to 18 of the full Annual Report and Financial Statements and in the Strategic report.
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 IPEVCV Guidelines.
As required under FRS 102 section 34.29, the Board is required to illustrate by way of a sensitivity analysis the degree of exposure to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a 10 per cent. change based on the current economic climate. The impact of a 10 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
The sensitivity of a 10 per cent. (2015: 10 per cent.) increase or decrease in the valuation of the fixed asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £3,379,800 (2015: £3,156,500).
Interest rate risk
The Company is exposed to fixed and floating rate 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 one percentage point in all interest rates would have increased total return before tax for the year by approximately £89,000 (2015: £35,000). Furthermore, it is considered that a fall of interest rates below current levels during the year would have been very unlikely.
The weighted average effective interest rate applied to the Company's fixed rate assets during the year was approximately 6.2 per cent. (2015: 7.4 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 5.9 years (2015: 6.5 years).
The Company's financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 31 December 2016 | 31 December 2015 | |||||||
| 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 | - | - | 15,322 | 15,322 | - | - | 13,777 | 13,777 |
| Quoted equity | - | - | 304 | 304 | - | - | 394 | 394 |
| Unquoted loan stock | 17,345 | 209 | 618 | 18,172 | 16,889 | - | 505 | 17,394 |
| Debtors* | - | - | 423 | 423 | - | - | 655 | 655 |
| Current liabilities* | - | - | (307) | (307) | - | - | (283) | (283) |
| Cash | - | 10,153 | - | 10,153 | - | 6,972 | - | 6,972 |
| Total | 17,345 | 10,362 | 16,360 | 44,067 | 16,889 | 6,972 | 15,048 | 38,909 |
*The debtors and current liabilities do not reconcile to the Balance sheet as prepayments and tax payable/refundable 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 debtors, investment in unquoted loan stock, and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. Typically loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company in order to mitigate the gross credit risk. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk.
The Manager and the Board formally review credit risk (including debtors) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company's total gross credit risk for Ordinary shares at 31 December 2016 was limited to £18,172,000 (2015: £17,394,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £10,153,000 (2015: £6,972,000) of cash deposits with banks and £441,000 (2015: £647,000) of other debtors.
As at the Balance sheet date, the cash held by the Company is held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc and National Westminster Bank plc. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The Company has an informal policy of limiting counterparty banking exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk shown below.
The cost, impairment and carrying value of impaired loan stock in the portfolio held at fair value through profit and loss are as follows:
| 31 December 2016 | 31 December 2015 | |||||
| Cost £'000 | Impairment £'000 | Carrying value £'000 | Cost £'000 | Impairment £'000 | Carrying value £'000 | |
| Impaired loan stock | 2,987 | (645) | 2,342 | 3,287 | (865) | 2,422 |
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board consider the security value approximates to the carrying value.
Liquidity risk
Liquid assets are held as cash on current account, cash on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £4,273,000 as at 31 December 2016 (2015: £3,742,000).
The Company had no committed borrowing facilities as at 31 December 2016 (2015: nil) and the Company had cash and fixed term deposit balances of £10,153,000 (2015: £6,972,000). The main cash outflows are for new investments, buy-back of shares and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts. All of the Company's financial liabilities are short term in nature and total £307,000 (2015: £283,000).
The carrying value of loan stock investments at 31 December 2016, analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Impaired £'000 | Past due £'000 | Total £'000 |
| Less than one year | 3,946 | 1,351 | 634 | 5,931 |
| 1-2 years | 1,035 | 968 | 243 | 2,246 |
| 2-3 years | 777 | - | 221 | 998 |
| 3-5 years | 3,013 | 23 | 52 | 3,088 |
| Greater than 5 years | 4,214 | - | 1,695 | 5,909 |
| 12,985 | 2,342 | 2,845 | 18,172 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.
The average annual interest yield on the total cost of past due loan stock is 8.4 per cent. (2015: 4.1 per cent.).
The carrying value of the loan stock investments at 31 December 2015, analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Impaired £'000 | Past due £'000 | Total £'000 |
| Less than one year | 3,676 | 1,910 | 7 | 5,593 |
| 1-2 years | 714 | 475 | - | 1,189 |
| 2-3 years | 340 | - | 629 | 969 |
| 3-5 years | 3,326 | 37 | 425 | 3,788 |
| Greater than 5 years | 4,250 | - | 1,605 | 5,855 |
| 12,306 | 2,422 | 2,666 | 17,394 |
In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company's financial assets and liabilities as at 31 December 2016 are stated at fair value as determined by the Directors, with the exception of debtors and creditors and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than creditors. The Company's financial liabilities are all non-interest bearing. It is the Directors' opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
18. Contingencies and commitments
As at 31 December 2016, the Company had no financial commitments (2015: £214,000).
There were no contingent liabilities or guarantees given by the Company as at 31 December 2016 (2015: £nil).
19. Post balance sheet events
Since the year end, the Company had the following material investment transactions:
- Disposal of Masters Pharmaceuticals Limited for £497,000;
- Disposal of AMS Sciences Limited for £169,000 of which £30,000 is deferred and held in escrow;
- Investment of £315,000 in Quantexa Limited;
- Investment of £155,000 in Black Swan Data Limited.
On 29 November 2016 the Company announced the publication of a prospectus in relation to an offer for subscription for new Ordinary shares. A Securities Note, which forms part of the prospectus, has been sent to shareholders.
The following new Ordinary shares of nominal value 1 penny each were allotted under the Offers after 31 December 2016:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 31 January 2017 | 1,203,858 | 12 | 70.4 | 831 | 64.8 |
| 31 January 2017 31 January 2017 | 621,281 3,549,732 | 6 36 | 70.7 71.1 | 428 2,448 | 64.8 64.8 |
| 5,374,871 | 54 | 3,707 |
The Board is pleased to announce that it has reached its £4 million limit under its Offer, which as of 30 January 2017 was fully subscribed and has now closed.
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, there are no other related party transactions or balances requiring disclosure.
21. Other information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 December 2016 and 31 December 2015, 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 2016, 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.
The Company's Annual General Meeting will be held at The City of London Club, 19 Old Broad Street, London, EC2N 1DS on 25 May 2017 at 12.00pm.
22. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion-ventures.co.uk/funds/AADV , where the Report can be accessed as a PDF document via a link in the 'Financial Reports and Circulars' section.
LEI Code 213800FDDMBD9QLHLB38
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Albion Development VCT PLC - Ordinary Shares via Globenewswire
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