Albion Enterprise VCT PLC: Annual Financial Report
Albion Enterprise VCT PLC
As required by the UK Listing Authority's Disclosure and Transparency Rules 4.1 and 6.3, Albion Enterprise VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 March 2016.
This announcement was approved for release by the Board of Directors on 29 June 2016.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 31 March 2016 (which have been audited) at: www.albion-ventures.co.uk/funds/AAEV.The Annual Report and Financial Statements for the year to 31 March 2016 will be available as a PDF document via a link in the 'Investor Centre' 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
The investment objective of Albion Enterprise VCT PLC (the "Company") is to provide investors with a regular and predictable source of income, combined with the prospect of longer term capital growth.
The Company achieves this by investing up to 50 per cent. of the net funds raised in an asset-based portfolio of more stable businesses (the "Asset-based Portfolio"). The balance of the net funds raised, other than funds retained for liquidity purposes, are invested in a portfolio of higher growth businesses across a variety of sectors of the UK economy. These range from more stable, income producing businesses to higher risk technology companies (the "Growth Portfolio"). In neither category do portfolio companies normally have any external borrowing with a 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 awaiting investment in Qualifying Investments or retained for liquidity purposes are held on deposit with banks with high credit ratings assigned by international credit ratings agencies.
The Company's investment portfolio is structured to provide a balance between income and capital growth for the longer term. The Asset-based Portfolio is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide diversified exposure through its portfolio of investments in unquoted UK companies. Stock specific risk will be reduced by the Company's policy of holding a diversified portfolio of Qualifying Investments.
Financial calendar
| Record date for first dividend | 5 August 2016 |
| Annual General Meeting | 11:00am on 25 August 2016 |
| Payment date for first dividend | 31 August 2016 |
| Announcement of half-yearly results for the six months ended 30 September 2016 | November 2016 |
| Payment of second dividend (subject to Board approval) | February 2017 |
Financial highlights
| 5.3p | Total return per share for the year ended 31 March 2016 |
| 5.0p | Total tax-free dividend per share paid during the year ended 31 March 2016 |
| 96.4p | Net asset value per share as at 31 March 2016 |
| 125.3p | Total shareholder return since launch to 31 March 2016 |
| 5.5% | Tax free yield on share price (dividend per annum/share price as at 31 March 2016) |
| 31 March 2016 (pence per share) | 31 March 2015 (pence per share) | |
| Dividends paid | 5.00 | 5.00 |
| Revenue return | 1.85 | 2.07 |
| Capital return | 3.48 | 2.18 |
| Net asset value | 96.41 | 96.22 |
Total shareholder return to 31 March 2016:
| Total dividends paid during the year ended: | (pence per share) |
| 31 March 2008 | 0.70 |
| 31 March 2009 | 1.65 |
| 31 March 2010 | 2.00 |
| 31 March 2011 | 3.00 |
| 31 March 2012 | 3.00 |
| 31 March 2013 | 3.50 |
| 31 March 2014 | 5.00 |
| 31 March 2015 | 5.00 |
| 31 March 2016 | 5.00 |
| Total dividends paid to 31 March 2016 | 28.85 |
| Net asset value as at 31 March 2016 | 96.41 |
| Total shareholder return to 31 March 2016 | 125.26 |
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2017, of 2.50 pence per share to be paid on 31 August 2016 to shareholders on the register as at 5 August 2016.
Notes
- The dividend of 0.70 pence per share paid during the period ended 31 March 2008 and the first dividend of 0.40 pence per share paid during the year ended 31 March 2009 were paid to shareholders who subscribed in the 2006/2007 offer only.
- All dividends paid by the Company are paid free of income tax. It is an H.M. Revenue & Customs requirement that dividend vouchers indicate the tax element should dividends have been subject to income tax. Investors should ignore this figure on the dividend voucher and need not disclose any income they receive from a VCT on their tax return.
- The net asset value of the Company is not its share price as quoted on the official list of the London Stock Exchange. The share price of the Company can be found in the Investment Companies - VCTs section of the Financial Times on a daily basis.
- Investors are reminded that it is common for shares in VCTs to trade at a discount to their net asset value as tax reliefs are only obtainable on initial subscription.
Chairman's statement
Introduction
The Company achieved a total return of 5.33 pence per share, following the 4.25 pence per share total return for the previous year. We are encouraged by the continued development of the investment portfolio, while the income generated by the portfolio grew by 9 per cent. over that for the previous period.
Portfolio progress
During the year over £2.9 million was invested in new and existing companies, including £635,000 into Radnor House to help purchase the Combe Bank School in Sevenoaks, Kent; follow-on investments of £457,000 into DySIS Medical, £304,000 into Relayware and £181,000 into Proveca. In addition, investments were made in new portfolio companies including Panaseer which provides cyber security services; Innovation Broking, which provides business insurance broking services for SMEs; and InCrowd Sports, which provides specialist consumer services to users of sports arenas. The key exits in the period were the sales of Silent Herdsman and Lowcosttravelgroup. Further information can be found in the realisations table on page 18 of the full Annual Report and Financial Statements.
Companies that performed particularly well during the period included Egress Software, whose encrypted email services achieved excellent growth; Radnor House School, where the existing Twickenham school is now close to being full; and Exco Intouch where the company's healthcare IT products are seeing strong customer demand. Against this, further provision was taken against DySIS Medical where sales, although encouraging, remain slower than hoped for. Importantly, however, the efficacy of DySIS' cervical cancer scanning products continue to be proven, with over 80,000 scans now achieved. Further details can be found in the Portfolio of investments section on pages 17 and 18 of the full Annual Report and Financial Statements.
Results and dividends
As at 31 March 2016, the net asset value was 96.41 pence per share compared to 96.22 pence per share at 31 March 2015. The revenue return before taxation was £911,000 compared to £847,000 for the previous year. The Company will pay a first dividend for the financial year to 31 March 2017 of 2.50 pence per share, in line with its policy of a 5 pence per share annual dividend. The dividend will be paid on 31 August 2016 to shareholders on the register as at 5 August 2016.
Discount management and share buy-backs
It remains the Board's policy to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interests, including the maintenance of sufficient resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. 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.
Changes in VCT legislation
The July 2015 budget introduced a number of changes to VCT legislation, including restrictions over the age of investments; a prohibition on management buyouts or the purchase of existing businesses; and an overall lifetime investment cap of £12 million from tax-advantaged funds into any portfolio company. While these changes are significant, the Manager's assessment is that had these been in place previously they would have affected only a relatively small number of the investments 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 as a result.
Transactions with the Manager
Details of the transactions that took place with the Manager for the year can be found in note 5.
Risks and uncertainties
The outlook for the UK and global economies continues to be the key risk affecting your Company. The recent referendum calling for Britain to withdraw from the European Union is likely to have an effect on the Company and its investments, although the extent of this is not quantifiable at this time.
If the referendum to leave the European Union has a material adverse effect on the UK economy, the Company and its investment portfolio will not be immune. Any effect cannot be quantified now but we would expect it to be felt most in those sectors which are most exposed to the consumer and business cycle.
The regulatory environment in which the Company operates has had significant input from rules developed within the European Union and the Company cannot currently evaluate what changes may occur in a separate UK regulatory environment although the Treasury has always been supportive of the venture capital sector in the past.
Withdrawal from the European Union may create new instabilities in markets generally and these instabilities may affect the valuation and market liquidity of the Company's existing investments as well as the availability or pricing of new investments.
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 and of ensuring that the portfolio is balanced through the inclusion of sectors that are less exposed to the business and consumer cycles. A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Albion VCTs Top Up Offers
In November 2015, the Company announced the launch of the Albion VCTs Prospectus Top Up Offers 2015/2016. In aggregate, the Albion VCTs aimed to raise up to £36 million across six of the VCTs managed by Albion Ventures LLP, with the Company aiming to raise up to £6 million.
During the year the Company raised £10.1m under the Company's Offer as part of the Albion VCTs Top Up Offers 2014/2015 and 2015/2016, as shown in note 15. The proceeds of the Offers will be used to provide further resources at a time when a number of attractive new investment opportunities are being seen. The Company was pleased to announce on 23 March 2016 that it had reached its £6m limit under its Offer which was fully subscribed and closed.
Outlook and prospect
A number of companies in our portfolio have exciting growth opportunities and overall we remain strongly positive of the Company's medium term prospects.
Maxwell Packe
Chairman
29 June 2016
Strategic report
Investment objective and policy
The Company's investment objective is to provide investors with a regular and predictable source of income, combined with the prospect of longer term capital growth. The Company's investment portfolio is thus structured to provide a balance between income and capital growth for the longer term through a diversified, balanced approach to investment. The Asset-based Portfolio, which accounts for up to 50 per cent. of investments, is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide diversified exposure through its portfolio of high growth businesses across a variety of sectors in the UK economy. In neither category do portfolio companies normally have any external borrowing with a charge ranking ahead of the Company.
Current portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio valuation by industrial or commercial sector as at 31 March 2016. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 17 and 18 of the full Annual Report and Financial Statements.
Direction of portfolio
The analysis of the Company's investment portfolio shows that the healthcare and renewable energy sectors continue to be the largest elements of the portfolio.
Looking ahead, we see healthcare continuing to be the largest sector for investment, followed by IT and other technology, where we continue to review and invest in a number of key longer term areas such as cyber security and the management of data. These two sectors are balanced by asset based areas such as education, with our two Radnor House schools, and renewable energy, neither of which are likely to be increasing in the future.
Results and dividend policy
| £'000 | |
| Net revenue return for the year ended 31 March 2016 | 752 |
| Net capital gain for the year ended 31 March 2016 | 1,410 |
| Total return for the year ended 31 March 2016 | 2,162 |
| Dividend of 2.50 pence per share paid on 28 August 2015 | (999) |
| Dividend of 2.50 pence per share paid on 29 February 2016 | (1,088) |
| Transferred to reserves | 75 |
| Net assets as at 31 March 2016 | 44,470 |
| Net asset value per share as at 31 March 2016 (pence) | 96.41 |
The Company paid dividends totaling 5.00 pence per share during the year ended 31 March 2016 (2015: 5.00 pence per share). As described in the Chairman's statement, the Board has declared a first dividend of 2.50 pence per share for the year ending 31 March 2017. This dividend will be paid on 31 August 2016 to shareholders on the register as at 5 August 2016.
As shown in the Company's Income statement, investment income has increased to £1,367,000 (2015: £1,258,000) due to higher interest received on loan stock investments during the year, principally driven by the Company's successful renewable energy development programme. Income continues to more than cover ongoing expenses.
The capital gain for the year of £1,410,000 (2015: £767,000), was mainly attributable to the upward unrealised revaluations in the Company's investment portfolio.
The total return was 5.33 pence per share (2015: 4.25 pence per share). The Balance sheet shows that the net asset value has increased slightly over the last year to 96.41 pence per share (2015: 96.22 pence per share), attributable to the increased valuations as explained below.
The cash flow for the Company has been a net inflow of £3,359,000 for the year (2015: net inflow of £107,000), reflecting cash inflows from operations, disposal of investments and the issue of Ordinary shares under the Albion VCTs Top Up Offers which raised £10.1 million (£2.6 million received after the year end), offset by dividends paid, new investments in the year and the buy-back of shares.
Review of business and future changes
A review of the Company's portfolio performance and progress during the year is contained in the Chairman's statement. Total gains on investments for the year were £2.0 million (2015: £1.3 million). The key contributors to this were the increase in valuations of Exco Intouch of £860,000, Radnor House School of £460,000 and Egress Software Technologies of £321,000. These gains more than offset the reduction in value of a small number of our investments, the largest being DySIS Medical of £303,000 and Proveca of £180,000. Two of our small investments, Silent Herdsman and Lowcosttravelgroup, were sold during the year for a loss on opening value of £58,000.
Companies that are particularly worth noting include Radnor House School which under a strong management team has recently purchased a second school; Abcodia, which has completed a substantial further fundraising and whose diagnostic capabilities continue to develop; Egress, whose email encryption services are focusing on both sides of the Atlantic; Exco Intouch, whose healthcare IT services are showing good growth; and Hilson Moran, where its services to the construction industry continue to benefit from strong demand.
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.
Details of significant events which have occurred since the end of the financial year are listed in note 20. 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 which received Royal Assent on 18 November 2015, which include:
- Restrictions over the age of investments;
- A prohibition on management buyouts or the purchase of existing businesses; and
- An overall lifetime investment cap of £12 million from tax-advantaged funds into any portfolio company.
Further restrictions have been introduced on non-qualifying investments with effect from 6 April 2016 (VCTs will only be able to make certain limited non-qualifying investments for liquidity purposes).
While these changes are significant, the Manager's assessment is that had they been in place previously, these 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 March 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 the 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.
It is encouraging to see that the revenue generated by the portfolio companies continues to grow and we look forward to further capital growth in the current year.
Key performance indicators
The Directors believe that the following key performance indicators, 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 key performance indicators give a good indication that the Company is achieving its investment objective and policy. These are:
- Net asset value total return relative to FTSE All Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the Company's net asset value total return against the FTSE All-Share Index total return, with dividends reinvested.
- Net asset value per share and total shareholder return
Net asset value per share increased by 0.2 per cent. to 96.41 pence per share for the year ended 31 March 2016.
Total shareholder return increased by 4.3 per cent. to 125.26 pence per share for the year ended 31 March 2016.
- Dividend distributions
Dividends paid in respect of the year ended 31 March 2016 were 5.00 pence per share (2015: 5.00 pence per share), in line with the Board's dividend objective. The cumulative dividend paid since inception is 28.85 pence per share.
- Ongoing charges
The ongoing charges ratio for year to 31 March 2016 was 3.0 per cent. (2015: 3.08 per cent.) against a cap of 3.0 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 year ahead to be approximately 3.0 per cent.
- Maintenance of VCT qualifying status
The Company continues to comply with H.M. Revenue & Customs ("HMRC") rules in order to maintain its status under Venture Capital Trust legislation as highlighted above.
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 can be terminated by either party on 12 months' notice. The Management agreement is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 2.5 per cent. of the net asset value of the Company, payable 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 Directors' fees where the Investment Manager has a representative on the portfolio company's board.
Management performance incentive
In order to provide the Manager with an incentive to maximise the return to investors, the Company has entered into a Management performance incentive arrangement with the Manager. Under the incentive arrangement, the Company will pay an incentive fee to the Manager of an amount equal to 20 per cent. of such excess return that is calculated for each financial year.
The minimum target level, comprising dividends and net asset value, will be equivalent to an annualised rate of return of the average base rate of the Royal Bank of Scotland plc plus 2 per cent. per annum on the original subscription price of £1. Any shortfall of the target return will be carried forward into subsequent periods and the incentive fee will only be paid once all previous and current target returns have been met.
For the year to 31 March 2016, no incentive fee became due to the Manager (2015: £nil).
The fee if applicable, will be payable annually. As of 31 March 2016 the total return amounted to 125.26 pence which compared to the hurdle of 130.58 pence per share at that date.
Investment and co-investment
The Company co-invests with other venture capital trusts and funds managed by Albion Ventures LLP. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of Venture Capital Trust status, the long term prospects of current investments, a review of the Management agreement and the services provided therein, and benchmarking the performance and remuneration of the Manager to other service providers. The Board believes that it is in the interest 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 in June 2014 as required by the AIFMD.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 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.
Risk management
The Board carries out a robust 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 |
| Economic 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. | To reduce this risk, in addition to investing equity in portfolio companies, the Company often invests in secured loan stock and has a policy of not normally permitting any external bank borrowings within portfolio companies. Additionally, the Manager has been rebalancing the sector exposure of the portfolio with a view to reducing reliance on consumer led sectors. |
| VCT approval risk | The Company's current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the tax relief on initial investment and loss of tax relief on any tax-free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares. | 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. Philip Hare & Associates LLP reports 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. |
| Investment risk | This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively impacts on the Company's reputation. 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 strong track record for investing in this segment of the market. In addition, the Manager operates a formal and structured investment 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) and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings. |
| Valuation risk | 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. | As described in note 2 of the Financial Statements, the investments held by the Company are classified at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgements about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgements the valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. The values of a number of investments are also supported by independent third party professional valuations and the Board critically reviews key valuations on a quarterly basis. |
| 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 businesses. 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 via 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 Manager 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. |
| Internal control risk | Failures in key controls, within the Board or within the Manager's business, could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Audit Committee meets with the Manager's Internal Auditor, PKF Littlejohn LLP, when required, receiving a report regarding the last formal internal audit performed on the Manager, and providing the opportunity for the Audit Committee to ask specific and detailed questions. Patrick Reeve on behalf of the Board, met with the internal audit Partner of PKF Littlejohn LLP in January 2016 to discuss the most recent Internal Audit Report on the Manager. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Further details regarding the Board's management and review of the Company's internal controls through the implementation of the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting are detailed on page 29 of the full Annual Report and Financial Statements. Measures are in place to mitigate information risk in order to ensure the integrity, availability and confidentiality of information used within the business. |
| Reliance upon third parties risk | The Company is reliant upon the services of Albion Ventures LLP for the provision of investment management and administrative functions. | There are provisions within the Management agreement for the change of Manager under certain circumstances (for further detail, see the Management agreement paragraph within this Strategic report). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP. |
| Financial risk | By its nature, as a venture capital trust, the Company is exposed to investment risk (which comprises investment price risk and cash flow interest rate risk), credit risk and liquidity risk. | The Company's policies for managing these risks and its financial instruments are outlined in full in note 18 to the Financial Statements. All of the Company's income and expenditure is denominated in sterling and hence the Company has no foreign currency risk. The Company is financed through equity and does not have any borrowings. The Company does not use derivative financial instruments for speculative purposes. |
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 published by the AIC in February 2015, the Directors have assessed the prospects of the Company over three years to 31 March 2019. The Directors have taken a three year period as the Code does not specify a time period, except it must be longer than 12 months. 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 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 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. The Company's income more than covers on-going expenses which going forward should increase as our asset-backed investments continue to mature. 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 March 2019.
This Strategic report of the Company for the year ended 31 March 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,
Maxwell Packe
Chairman
29 June 2016
Responsibility statement
In preparing these Financial Statements for the year to 31 March 2016, the Directors of the Company, being Maxwell Packe, Lady Balfour of Burleigh, Lord St John of Bletso 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 March 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 March 2016 as required by DTR 4.1.12.R;
- 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 March 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
Maxwell Packe
Chairman
29 June 2016
Income statement
| Year ended 31 March 2016 | Year ended 31 March 2015 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments | 3 | - | 2,003 | 2,003 | - | 1,264 | 1,264 |
| Investment income | 4 | 1,367 | - | 1,367 | 1,258 | - | 1,258 |
| Investment management fees | 5 | (247) | (741) | (988) | (210) | (628) | (838) |
| Other expenses | 6 | (209) | - | (209) | (201) | - | (201) |
| Return on ordinary activities before tax | 911 | 1,262 | 2,173 | 847 | 636 | 1,483 | |
| Tax (charge)/credit on ordinary activities | 8 | (159) | 148 | (11) | (119) | 131 | 12 |
| Return and total comprehensive income attributable to shareholders | 752 | 1,410 | 2,162 | 728 | 767 | 1,495 | |
| Basic and diluted return per share (pence)* | 10 | 1.85 | 3.48 | 5.33 | 2.07 | 2.18 | 4.25 |
* 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.
There is no other comprehensive income other than the results for the year disclosed above. Accordingly a Statement of total comprehensive income is not required.
The difference between the reported return on ordinary activities before tax and the historical profit is due to the fair value movements on investments.
Balance sheet
| Note | 31 March 2016 £'000 | 31 March 2015 £'000 | |
| Fixed asset investments | 11 | 32,971 | 29,283 |
| Current assets | |||
| Trade and other receivables less than one year | 13 | 2,880 | 66 |
| Cash at bank and in hand | 8,980 | 5,621 | |
| 11,860 | 5,687 | ||
| Total assets | 44,831 | 34,970 | |
| Creditors: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (361) | (308) |
| Total assets less current liabilities | 44,470 | 34,662 | |
| Equity attributable to equityholders | |||
| Called up share capital | 15 | 518 | 409 |
| Share premium | 17,285 | 6,969 | |
| Capital redemption reserve | 104 | 104 | |
| Unrealised capital reserve | 6,389 | 4,189 | |
| Realised capital reserve | 24 | 814 | |
| Other distributable reserve | 20,150 | 22,177 | |
| Total equity shareholders' funds | 44,470 | 34,662 | |
| Basic and diluted net asset value per share (pence) * | 16 | 96.41 | 96.22 |
* 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 were authorised for issue on 29 June 2016 and were signed on its behalf by
Maxwell Packe
Chairman
Company number: 05990732
Statement of changes in equity
| Called up share capital £'000 | Share premium £'000 | Capital redemption reserve £'000 | Unrealised capital reserve £'000 | Realised capital reserve* £'000 | Other distributable reserve* £'000 | Total £'000 | |
| As at 1 April 2015 | 409 | 6,969 | 104 | 4,189 | 814 | 22,177 | 34,662 |
| Return/(loss) and total comprehensive income for the year | - | - | - | 2,047 | (637) | 752 | 2,162 |
| Transfer of previously unrealised losses on sale of investments | - | - | - | 153 | (153) | - | - |
| Issue of equity | 109 | 10,610 | - | - | - | - | 10,719 |
| Cost of issue of equity | - | (294) | - | - | - | - | (294) |
| Purchase of shares for treasury | - | - | - | - | - | (692) | (692) |
| Dividends paid | - | - | - | - | - | (2,087) | (2,087) |
| As at 31 March 2016 | 518 | 17,285 | 104 | 6,389 | 24 | 20,150 | 44,470 |
| As at 1 April 2014 | 367 | 3,015 | 104 | 4,164 | 72 | 24,334 | 32,056 |
| Return and total comprehensive income for the year | - | - | - | 649 | 118 | 728 | 1,495 |
| Transfer of previously unrealised gains on sale of investments | - | - | - | (624) | 624 | - | - |
| Issue of equity | 42 | 4,045 | - | - | - | - | 4,087 |
| Cost of issue of equity | - | (91) | - | - | - | - | (91) |
| Purchase of shares for treasury | - | - | - | - | - | (1,094) | (1,094) |
| Dividends paid | - | - | - | - | - | (1,791) | (1,791) |
| As at 31 March 2015 | 409 | 6,969 | 104 | 4,189 | 814 | 22,177 | 34,662 |
* Included within the aggregate of these reserves is an amount of £20,174,000 (2015: £22,991,000) which is considered distributable.
Statement of cash flows
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | ||
| Cash flow from operating activities | |||
| Loan stock income received | 1,098 | 1,047 | |
| Dividend income received | 117 | 84 | |
| Deposit interest received | 84 | 65 | |
| Investment management fees paid | (927) | (823) | |
| Other cash payments | (208) | (203) | |
| UK corporation tax refund/(paid) | 8 | (15) | |
| Net cash flow from operating activities | 172 | 155 | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments | (2,941) | (4,918) | |
| Disposal of fixed asset investments | 1,114 | 3,579 | |
| Disposal of current asset investments | - | 177 | |
| Net cash flow from investing activities | (1,827) | (1,162) | |
| Cash flow from financing activities | |||
| Issue of ordinary share capital | 7,499 | 3,791 | |
| Cost of issue of equity | (7) | (3) | |
| Dividends paid | (1,786) | (1,580) | |
| Purchase of own shares (including costs) | (692) | (1,094) | |
| Net cash flow from financing activities | 5,014 | 1,114 | |
| Increase in cash and cash equivalents | 3,359 | 107 | |
| Cash and cash equivalents at start of period | 5,621 | 5,514 | |
| Cash and cash equivalents at end of period | 8,980 | 5,621 | |
| Cash and cash equivalents comprise | |||
| Cash at bank and in hand | 8,980 | 5,621 | |
| Cash equivalents | - | - | |
| Total cash and cash equivalents | 8,980 | 5,621 | |
Notes to the Financial Statements
1. Accounting convention
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"). This is the first period in which the Financial Statements have been prepared under FRS 102 which became mandatory for companies with a financial year beginning from 1 January 2015. On adoption of, and in accordance with FRS 102, loans and receivables previously measured at amortised cost using the effective interest rate method less impairment have been classified at fair value through profit and loss ("FVTPL"). This has not led to a material change in value and so has not led to a restatement of comparatives. Further details can be found in note 17.
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 FVTPL. The Company values investments by following the International Private Equity and Venture Capital Valuation Guidelines ("IPEVCV") and further detail on the valuation techniques used are outlined in note 2 below.
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
Unquoted 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 accrual 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 revenue account 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 and transfers to the Other distributable reserve.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the 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 2013 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.
3. Gains on investments
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | |
| Unrealised gains on fixed asset investments | 2,047 | 649 |
| Realised (losses)/gains on fixed asset investments | (44) | 583 |
| Realised gains on current asset investments | - | 32 |
| Realised (losses)/gains sub-total | (44) | 615 |
| | 2,003 | 1,264 |
4. Investment income
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | |
| Income recognised on investments | ||
| Loan stock interest and other fixed returns | 1,166 | 1,114 |
| UK dividend income | 117 | 76 |
| Bank deposit interest | 84 | 68 |
| 1,367 | 1,258 |
Interest income earned on impaired investments at 31 March 2016 amounted to £45,000 (2015: £45,000).
All of the Company's income is derived from operations in the United Kingdom.
5. Investment management fees
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | |
| Investment management fee charged to revenue | 247 | 210 |
| Investment management fee charged to capital | 741 | 628 |
| 988 | 838 |
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 £988,000 (2015: £838,000) were purchased by the Company from Albion Ventures LLP. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £278,000 (2015: £216,000).
Patrick Reeve is the Managing Partner of the Manager, Albion Ventures LLP. During the year, the Company was charged by Albion Ventures LLP £21,600 including VAT (2015: £21,600) in respect of his services as a Director. At the year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £5,400 (2015: £5,400).
Albion Ventures LLP, the Manager, holds 16,398 Ordinary shares in the Company.
Albion Ventures LLP is, from time to time, eligible to receive transaction fees and Directors' fees from portfolio companies. During the year ended 31 March 2016, fees of £162,000 attributable to the investments of the Company were received pursuant to these arrangements (2015: £194,000).
6. Other expenses
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | |
| Directors' fees and associated costs (inclusive of NIC and VAT) | 85 | 83 |
| Auditor's remuneration for statutory audit services (exclusive of VAT) | 27 | 25 |
| Other administrative expenses | 97 | 93 |
| 209 | 201 |
7. Directors' fees and associated costs
The amounts paid to and on behalf of the Directors during the year are as follows:
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | |
| Directors' fees | 74 | 74 |
| National insurance and/or VAT | 8 | 8 |
| Expenses | 3 | 1 |
| 85 | 83 |
The Company's key management personnel are the Directors. Expenses charged related to travel expenses in furtherance of their duties as 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 (charge)/credit on ordinary activities
| Year ended 31 March 2016 | Year ended 31 March 2015 | |||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| UK corporation tax in respect of the current year | (159) | 148 | (11) | (160) | 131 | (29) |
| UK corporation tax in respect of prior year | - | - | - | 41 | - | 41 |
| (159) | 148 | (11) | (119) | 131 | 12 | |
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | |
| Return on ordinary activities before tax | 2,173 | 1,483 |
| Tax charge on profit at the standard companies rate of 20% (2015: 21%) | (435) | (311) |
| Factors affecting the charge: | ||
| Non taxable gains | 401 | 265 |
| Income not taxable | 23 | 16 |
| Marginal relief | - | 1 |
| Adjusted in respect of prior year | - | 41 |
| (11) | 12 |
The tax charge for the year shown in the Income statement is lower than the standard companies rate of corporation tax in the UK of 20 per cent. (2015: 21 per cent.). The differences are explained above.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii) No deferred tax asset or liability has arisen in the year.
9. Dividends
| Year ended 31 March 2016 £'000 | Year ended 31 March 2015 £'000 | |
| Dividend of 2.50p per share paid on 29 August 2014 | - | 875 |
| Dividend of 2.50p per share paid on 27 February 2015 | - | 916 |
| Dividend of 2.50p per share paid on 28 August 2015 | 999 | - |
| Dividend of 2.50p per share paid on 29 February 2016 | 1,088 | - |
| 2,087 | 1,791 |
Details of the consideration paid under the Dividend Reinvestment Scheme included in the dividends above can be found in note 15.
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2017 of 2.50 pence per share. This dividend will be paid on 31 August 2016 to shareholders on the register as at 5 August 2016. The total dividend will be approximately £1,156,000.
10. Basic and diluted return per share
| Year ended 31 March 2016 | Year ended 31 March 2015 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| The return per share has been based on the following figures: | ||||||
| Return attributable to equity shares (£'000) | 911 | 1,262 | 2,173 | 728 | 767 | 1,495 |
| Weighted average shares in issue (excluding treasury shares) | 40,534,139 | 35,154,858 | ||||
| Return attributable per equity share (pence) | 1.85 | 3.48 | 5.33 | 2.07 | 2.18 | 4.25 |
There are no convertible instruments, derivatives or contingent share agreements in issue for the Company, and therefore no dilution affecting the return per share. The basic return per share is therefore the same as the diluted return per share.
The weighted average number of shares is calculated excluding treasury shares of 5,670,000 (2015: 4,907,000).
11. Fixed asset investments
| 31 March 2016 £'000 | 31 March 2015 £'000 | |
| Investments held at fair value through profit or loss Unquoted equity and preference shares (Level C (ii)) | 16,734 | 13,933 |
| Quoted equity (Level A) | 605 | 514 |
| Unquoted loan stock (Level C (ii)) | 15,632 | 14,836 |
| 32,971 | 29,283 | |
| | ||
| 31 March 2016 £'000 | 31 March 2015 £'000 | |
| Opening valuation | 29,283 | 26,720 |
| Purchases at cost | 2,941 | 4,859 |
| Disposal proceeds | (1,324) | (3,593) |
| Realised (losses)/gains | (44) | 583 |
| Movement in loan stock revenue accrued income | 67 | 65 |
| Unrealised gains | 2,047 | 649 |
| Closing valuation | 32,971 | 29,283 |
| Movement in loan stock revenue accrued income | ||
| Opening accumulated movement in loan stock revenue accrued income | 114 | 49 |
| Movement in loan stock revenue accrued income | 67 | 65 |
| Closing accumulated movement in loan stock revenue accrued income | 181 | 114 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 4,189 | 4,120 |
| Movement in unrealised gains | 2,047 | 649 |
| Transfer of previously unrealised losses/(gains) to realised reserve on disposal of investments | 153 | (580) |
| Closing accumulated unrealised gains | 6,389 | 4,189 |
| Historic cost basis | ||
| Opening book cost | 24,980 | 22,551 |
| Purchases at cost | 2,941 | 4,859 |
| Sales at cost | (1,521) | (2,430) |
| Closing book cost | 26,400 | 24,980 |
The amounts shown for the purchase and disposal of fixed assets included in the cash flow statement differ from the amounts shown above, due to deferred consideration shown as a debtor, and investment settlement debtors and creditors.
The Company does not hold any assets as the result of an 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:
| 31 March 2016 | 31 March 2015 | |
| Valuation methodology | £'000 | £'000 |
| Valuation supported by third party valuation | 15,851 | 14,603 |
| Cost and price of recent investment | 7,365 | 5,330 |
| Revenue multiple | 6,128 | 4,617 |
| Earnings multiple | 2,448 | 3,123 |
| Discount to third party offer | 574 | - |
| Agreed new investment price | - | 1,096 |
| 32,366 | 28,769 |
Note: As per FRS 102 adoption the unquoted fixed asset investments for 2015 has been re-classified to include £7,613,000 of investments at fair value that were previously held under amortised cost.
Full valuations are prepared by independent RICS qualified surveyors in full compliance with the RICS Red Book.
Fair value investments had the following movements between valuation methodologies between 31 March 2015 and 31 March 2016:
| Change in valuationmethodology (2015 to 2016) | Value as at 31 March 2016 £'000 | Explanatory note |
| Cost to price of recent investment | 1,865 | Agreed new investment price |
| Cost to revenue multiple | 1,786 | More recent information available |
| Agreed new investment price to price of recent investment | 1,279 | Agreed new investment price |
| Revenue multiple to price of recent investment | 1,029 | Agreed new investment price |
| Cost to discount to third party offer | 410 | More recent information available |
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 March 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 according to the following definitions:
| Fair value hierarchy | Definition |
| Level A | Quoted prices in an active market |
| Level B | Price of a recent transaction for identical instruments |
| Level C (i) | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level C (ii) | Inputs to valuations not based on observable market data |
Quoted AiM investments are valued according to Level A valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level C (ii) valuation methods.
Investments held at fair value through profit or loss (Level C (ii)) had the following movements in the year to 31 March 2016:
| 31 March 2016 | 31 March 2015 | |||||
| Equity | Unquoted loan stock | Total | Equity | Unquoted loan stock | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening balance | 13,933 | 14,836 | 28,769 | 13,246 | 6,829 | 20,075 |
| Reclassification to fair value* | - | - | - | - | 7,613 | 7,613 |
| Opening balance (revised) | 13,933 | 14,836 | 28,769 | 13,246 | 14,442 | 27,688 |
| Additions | 1,484 | 1,458 | 2,942 | 1,270 | 941 | 2,211 |
| Disposals | (547) | (777) | (1,324) | (1,715) | (169) | (1,884) |
| Transfer to Level A** | - | - | - | (909) | (504) | (1,413) |
| Realised (losses)/gains | (51) | 7 | (44) | 568 | 6 | 574 |
| Debt/equity swap | 293 | (293) | - | 295 | (295) | - |
| Accrued loan stock interest | - | 67 | 67 | - | 11 | 11 |
| Unrealised gains | 1,622 | 334 | 1,956 | 1,178 | 404 | 1,582 |
| Closing balance | 16,734 | 15,632 | 32,366 | 13,933 | 14,836 | 28,769 |
* As per FRS 102 adoption the unquoted loan stock balance for 2015 has been re-classified to include £7,613,000 of investments at fair value that were previously held under amortised cost.
**During the prior year Mi-Pay Group plc was quoted on AiM and transferred to Level A in the fair value hierarchy.
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. The valuation methodology applied to 74 per cent. of the unquoted equity and loan stock investments (by valuation) is based on third-party independent evidence, recent investment price or agreed offer price. The Directors believe that changes to reasonable possible alternative input assumptions (by adjusting the revenue and earnings multiples) for the valuations of five of the significant portfolio companies could result in an increase in the valuation of investments by £642,000 or a decrease in the valuation of investments by £784,000.
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The 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 accounted for using the equity method.
The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio company as at 31 March 2016 as described below:
Company | Country of incorporation | Profit before tax £'000 | Net assets £'000 | Result for year ended | % class and share type | % total voting rights |
| Greenenerco Limited | Great Britain | 229 | 539 | 31 March 2015 | 28.6% A Ordinary | 28.6% |
13. Current assets
| Trade and other receivables less than one year | 31 March 2016 | 31 March 2015 |
| £'000 | £'000 | |
| Fundraising debtor* | 2,635 | - |
| Deferred consideration** | 223 | - |
| Prepayments and accrued income | 18 | 16 |
| Other debtors | 4 | 14 |
| UK corporation tax refundable - prior year | - | 36 |
| 2,880 | 66 |
*The shares were allotted on 31 March 2016 but the monies was received by the Company in April 2016.
**Deferred consideration relates to deferred consideration from the sale of Silent Herdsman Holdings Limited (£132,000) and Lowcosttravelgroup Limited (£91,000).
The Directors consider that the carrying amount of debtors is not materially different to their fair value.
14. Creditors: amounts falling due within one year
| 31 March 2016 | 31 March 2015 | |
| £'000 | £'000 | |
| Trade creditors | 18 | 6 |
| Accruals and deferred income | 332 | 274 |
| UK corporation tax payable | 11 | 28 |
| 361 | 308 |
The Directors consider that the carrying amount of creditors is not materially different to their fair value.
15. Called up share capital
| 31 March 2016 £'000 | 31 March 2015 £'000 | |
| Allotted, called up and fully paid 51,796,503 Ordinary shares of 1 penny each (2015: 40,931,339) | 518 | 409 |
Voting rights
46,126,503 shares of 1 penny each (net of treasury shares) (2015: 36,024,339).
The Company purchased 763,000 shares (2015: 1,233,000) to be held in treasury at a nominal value of £7,630 and a cost of £692,000 (2015: £1,094,000) representing 1.7 per cent. of the shares in issue (excluding treasury shares) as at 31 March 2016.
The Company did not cancel any shares from treasury during the year to 31 March 2016 (2015: nil), leaving a balance of 5,670,000 shares (2015: 4,907,000) in treasury representing 11 per cent. (2015: 12 per cent.) of the shares in issue as at 31 March 2016 with a nominal value of £56,700.
Under the terms of the Dividend Reinvestment Scheme Circular, the following Ordinary shares of nominal value 1 penny each were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net Consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 28 August 2015 | 143,182 | 1 | 96.51 | 134 | 90.50 |
| 29 February 2016 | 169,337 | 2 | 95.71 | 157 | 91.50 |
| 312,519 | 3 | 291 |
During the year the following Ordinary shares of nominal value 1 penny each were allotted under the terms of the Albion VCTs Prospectus Top Up Offers 2014/2015 and the Albion VCTs Prospectus Top Up Offers 2015/2016:
| 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) |
| 2 April 2015 | 3,295,686 | 33 | 97.40 | 3,114 | 87.50 |
| 30 June 2015 | 609,587 | 6 | 99.20 | 586 | 87.50 |
| 30 June 2015 | 37,437 | - | 98.20 | 36 | 87.50 |
| 30 June 2015 | 11,988 | - | 98.70 | 12 | 87.50 |
| 30 September 2015 | 673,394 | 7 | 99.50 | 650 | 90.50 |
| 29 January 2016 | 2,023,935 | 20 | 99.70 | 1,978 | 91.50 |
| 29 January 2016 | 1,149,078 | 11 | 100.20 | 1,123 | 91.50 |
| 31 March 2016 | 2,751,540 | 28 | 98.70 | 2,635 | 91.50 |
| 10,552,645 | 105 | 10,134 |
16. Basic and diluted net asset value per share
| 31 March 2016 | 31 March 2015 | |
| (pence per share) | (pence per share) | |
| Basic and diluted net asset value per share | 96.41 | 96.22 |
The basic and diluted net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon total shares in issue (less treasury shares) of 46,126,503 Ordinary shares (2015: 36,024,339) at 31 March 2016.
17. First time adoption of FRS 102
In the prior year Financial Statements unquoted loan stock (excluding convertible bonds and debt issued at a discount) were classified as loans and receivables as permitted by FRS 26 and measured at amortised cost using the Effective Interest Rate method less impairment. This is the first year of application of FRS 102, if FRS 102 had been applied in the prior year and unquoted loan stock had been valued at "fair value" this would have seen a decrease in value of loan stock by £16,000 which would have been a 0.11 per cent. difference as a percentage of total loan stock valuation. The first time adoption of FRS 102 had no material impact, therefore no restatement of comparatives is necessary.
18. 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 in the Chairman's statement.
The Company's financial instruments comprise equity and loan stock investments in unquoted and quoted companies, cash balances, short term debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate cash flow 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.
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and to provide an adequate return to shareholders by allocating its capital to assets commensurate with the level of risk.
By its nature, the Company has an amount of capital, at least 70 per cent. (as measured under the tax legislation) of which is and must be, and remain, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. The Company accordingly has limited scope to manage its capital structure in the light of changes in economic conditions and the risk characteristics of the underlying assets. Subject to this overall constraint upon changing the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets if so required to maintain a level of liquidity to remain a going concern.
Although, as the Investment Policy implies, the Board would consider levels of gearing, there are no current plans to do so. It regards the net assets of the Company as the Company's capital, as the levels of liabilities are small and the management of them is not directly related to managing the return to shareholders. There has been no change in this approach from the previous year.
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 unquoted investments, details of which are shown on pages 17 and 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 companies 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 reviews 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 and quoted investments.
The maximum investment risk as at the balance sheet date is the value of the fixed asset investment portfolio which is £32,971,000 (2015: £29,283,000). Fixed asset investments form 74 per cent. of the net asset value as at 31 March 2016 (2015: 84 per cent.).
More details regarding the classification of fixed asset investments is 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 approximately 65 per cent. 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 17 and 18 of the full Annual Report and Financial Statements.
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. 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 £3,297,000 (2015: £2,928,000).
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 1.0 per cent. in all interest rates would have increased total return before tax for the year by approximately £66,000 (2015: £52,000). 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 unquoted loan stock during the year was approximately 8.8 per cent. (2015: 8.3 per cent.). The weighted average period to expected maturity for the unquoted loan stock is approximately 5.4 years (2015: 6.0 years).
The Company's financial assets and liabilities as at 31 March 2016, all denominated in pounds sterling, consist of the following:
| 31 March 2016 | 31 March 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 | - | - | 16,734 | 16,734 | - | - | 13,933 | 13,933 |
| Quoted equity | - | - | 605 | 605 | - | - | 514 | 514 |
| Unquoted loan stock* | 15,090 | - | 542 | 15,632 | 13,747 | - | 1,089 | 14,836 |
| Debtors** | - | - | 2,868 | 2,868 | - | - | 21 | 21 |
| Cash | - | 8,980 | - | 8,980 | - | 5,621 | - | 5,621 |
| Current liabilities** | - | - | (350) | (350) | - | - | (280) | (280) |
| 15,090 | 8,980 | 20,399 | 44,469 | 13,747 | 5,621 | 15,277 | 34,645 | |
*Including convertible loan stock and debt issued at a discount.
**The debtors and current liabilities do not reconcile to the Balance sheet as prepayments and tax payable are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its debtors, contingent future receipts, 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 as at 31 March 2016 was limited to £15,632,000 (2015: £14,836,000) of unquoted loan stock instruments (all of which are secured on the assets of the portfolio company), £8,980,000 (2015: £5,621,000) of cash deposits with banks and £2,861,000 (2015: £50,000) of other debtors.
As at the balance sheet date, the cash held by the Company is held with the Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group plc), 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 below.
The cost, impairment and carrying value of impaired loan stocks held at fair value through profit and loss as at 31 March 2016 and 31 March 2015 are as follows:
| 31 March 2016 | 31 March 2015 | |||||
| Cost £'000 | Impairment £'000 | Carrying value £'000 | Cost £'000 | Impairment £'000 | Carrying value £'000 | |
| Impaired loan stock | 667 | (99) | 568 | 666 | (77) | 589 |
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.
Liquidity risk
Liquid assets are held as cash on current account, 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 share capital and reserves of the latest published audited Balance sheet, which amounts to £4,331,000 (2015: £3,367,000) as at 31 March 2016.
The Company has no committed borrowing facilities as at 31 March 2016 (2015: £nil) and had cash balances of £8,980,000 (2015: £5,621,000), which are considered to be readily realisable within the timescales required to make cash available for investment. The main cash outflows are for new investments, share buy-backs and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company's financial liabilities are short term in nature and total £361,000 as at 31 March 2016 (2015: £308,000).
The carrying value of loan stock investments at 31 March 2016 as analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 3,419 | 921 | 553 | 4,893 |
| 1-2 years | 706 | 174 | - | 880 |
| 2-3 years | 1,587 | - | - | 1,587 |
| 3-5 years | 3,613 | 645 | 15 | 4,273 |
| Greater than 5 years | 3,999 | - | - | 3,999 |
| Total | 13,324 | 1,740 | 568 | 15,632 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.
Loan stock categorised as past due includes:
- Loan stock with a carrying value of £1,481,000 yielding an average 11.0 per cent. which has loan stock interest past due by less than 12 months.
- Loan stock with a carrying value of £42,000 had loan stock interest past due of greater than 12 months but less than 2 years.
- Loan stock with a carrying value of £174,000 had loan stock interest past due of more than 2 years.
The carrying value of loan stock investments at 31 March 2015 as analysed by expected maturity dates was as follows:
Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 3,893 | 708 | 112 | 4,713 |
| 1-2 years | 545 | 32 | 475 | 1,052 |
| 2-3 years | 547 | 157 | - | 704 |
| 3-5 years | 3,272 | 1,143 | 2 | 4,417 |
| Greater than 5 years | 3,950 | - | - | 3,950 |
| Total | 12,207 | 2,040 | 589 | 14,836 |
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 March 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.
19. Commitments and contingencies
As at 31 March 2016, the Company had the following financial commitments in respect of investments:
- DySIS Medical Limited: £168,000
- Grapeshot Limited; £115,000
- Proveca Limited; £36,000
There are no contingent liabilities or guarantees given by the Company as at 31 March 2016 (31 March 2015: nil).
20. Post balance sheet events
Since 31 March 2016 the Company has had the following post balance sheet events:
- Escrow proceeds of £33,000 from the disposal of Lowcosttravelgroup Limited
- Investment of £190,000 in Black Swan Limited
- Investment of £168,000 in DySIS Medical Limited
- Investment of £141,000 in Cisiv Limited
- Investment of £115,000 in Grapeshot Limited
The following Ordinary shares of nominal value 1 penny each were allotted under the Albion VCTs Prospectus Top Up Offers after 31 March 2016:
| 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) | ||
| 6 April 2016 | 52,994 | 0.5 | 98.70 | 51 | 91.50 |
| 6 April 2016 | 7,296 | - | 98.20 | 7 | 91.50 |
| 6 April 2016 | 53,319 | 0.5 | 97.70 | 51 | 91.50 |
| 113,609 | 1 | 109 |
21. Related party transactions
Other than transactions with the Manager as disclosed in note 5, there are no related party transactions or balances requiring disclosure.
22. 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 March 2016 and 31 March 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 March 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 August 2016 at 11.00am.
23. 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/AAEV , where the Report can be accessed as a PDF document via a link in the 'Financial Reports and Circulars' section.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Albion Enterprise VCT PLC via Globenewswire
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