Albion Technology & General VCT PLC : Annual Fi...

Albion Technology & General VCT PLC

LEI number: 213800TKJUY376H3KN16

As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Technology & General VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2019.

This announcement was approved for release by the Board of Directors on 20 March 2020.

This announcement has not been audited.

The Annual Report and Financial Statements for the year ended 31 December 2019 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/AATG/31Dec19.pdf. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rules, including Rule 4.1.

Investment objective and policy
The Company’s investment objective is to provide investors with a regular and predictable source of dividend income, combined with the prospect of long-term capital growth, through a balanced portfolio of predominantly unquoted growth and technology businesses in a qualifying venture capital trust.

Investment policy
The Company will invest in a broad portfolio of unquoted growth and technology businesses. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified in terms of sectors and stages of maturity of portfolio companies.

VCT qualifying and non-qualifying investments

Application of the investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs (“VCT regulations”). The maximum amount invested in any one company is limited to any HMRC annual investment limits. It is intended that normally at least 80 per cent. of the Company's funds will be invested in VCT qualifying investments. The VCT regulations also have an impact on the type of investments and qualifying sectors in which the Company can make investment.

Funds held prior to investing in VCT qualifying assets or for liquidity purposes will be held as cash on deposit, invested in floating rate notes or similar instruments with banks or other financial institutions with high credit ratings or invested in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so). Investment in such open-ended equity funds will not exceed 7.5 per cent. of the Company’s assets at the time of investment.

Risk diversification and maximum exposures

Risk is spread by investing in a number of different businesses within VCT qualifying industry sectors using a mixture of securities. The maximum the Company will invest in a single company is 15 per cent. of the Company’s assets at cost at the time of investment. The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of investments' suitability for sale. It is possible that individual holdings may grow in value to a point where they represent a significantly higher proportion of total assets prior to a realisation opportunity being available.

Borrowing powers

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 have any intention of utilising long-term gearing.

Background to the Company

The Company is a venture capital trust which raised £14.3 million in December 2000 and 2002 and raised a further £35.0 million during 2006 through the launch of a C share issue. The Company has raised a further £40.0 million under the Albion VCTs Top Up Offers since January 2011.

On 15 November 2013, the Company acquired the assets and liabilities of Albion Income & Growth VCT PLC in exchange for new shares in the Company resulting in a further £28.1 million of net assets.

Financial calendar

Annual General Meeting	Noon on 3 June 2020
Record date for first dividend	5 June 2020
Payment of first dividend	30 June 2020
Announcement of half-yearly results for the six months ending 30 June 2020	September 2020

Financial highlights

185.58p	Total shareholder return per Ordinary share since launch
9.28p	Total return per share for the year ended 31 December 2019 (12.0% on opening net asset value per share)
4.0p	Total tax free dividend per Ordinary share paid in the year to 31 December 2019

82.58p

Net asset value per Ordinary share as at 31 December 2019

2.75%

Ongoing charges ratio for the year ended 31 December 2019

	31 December 2019 (pence per share)	31 December 2018 (pence per share)
Opening net asset value	77.40	71.90
Revenue return	0.47	0.40
Capital return	8.81	9.10
Total return	9.28	9.50
Dividends paid	(4.00)	(4.00)
Impact from share capital movements	(0.10)	-
Net asset value	82.58	77.40

Total shareholder return to 31 December 2019	Ordinary share  (pence per share)	C share  (pence per share) (1)	Income & Growth   (pence per share) (2)
Total dividends paid during the year ended:
31 December 2001	1.00	-	-
31 December 2002	2.00	-	-
31 December 2003	1.50	-	-
31 December 2004	7.50	-	-
31 December 2005	9.00	-	0.65
31 December 2006	8.00	0.50	2.60
31 December 2007	8.00	2.50	3.45
31 December 2008	16.00	4.50	3.50
31 December 2009	-	1.00	3.00
31 December 2010	8.00	3.00	3.00
31 December 2011	5.00	3.80	3.50
31 December 2012	5.00	3.90	3.50
31 December 2013	5.00	3.90	3.50
31 December 2014	5.00	3.90	3.90
31 December 2015	5.00	3.90	3.90
31 December 2016	5.00	3.90	3.90
31 December 2017	4.00	3.11	3.13
31 December 2018	4.00	3.11	3.13
31 December 2019	4.00	3.11	3.13
Total dividends paid to 31 December 2019	103.00	44.17	47.80
Net asset value as at 31 December 2019	82.58	64.24	64.52
Total shareholder return to 31 December 2019	185.58	108.41	112.32

In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 December 2020 of 2.0 pence per share to be paid on 30 June 2020 to shareholders on the register on 5 June 2020.

Notes
Total shareholder return for every 100 pence invested on initial allotment. The table above excludes tax benefits upon subscription.

(1) The C shares were converted into Ordinary shares on 31 March 2011. 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 0.7779 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.
(2) Albion Income & Growth VCT PLC was merged with Albion Technology & General VCT PLC on 15 November 2013. The net asset value per share and all dividends paid subsequent to the merger of the Income & Growth shares to the Ordinary shares are multiplied by the issue ratio of 0.7813 in respect of the Income & Growth shares’ return, in order to give an accurate picture of the shareholder value since launch relating to the Income & Growth shares. Prior to the merger, Albion Income & Growth VCT PLC had a financial year end of 30 September and as such, the above dividends per share relate to the relevant period.

Chairman’s statement

Introduction
These accounts are being published against the most extraordinary events affecting health around the world and sending our economies and markets into a tailspin. It is impossible to ignore these events, but I have attempted to report on the last year’s results as unemotionally as I can, but not without the hope for a restoration of some normality when I next report to you.

I am pleased to report the results for Albion Technology & General VCT PLC for the year to 31 December 2019. These show a total return of 9.28 pence per share, which is a 12.0% return on the opening net asset value per share and is the second consecutive year in which the Company has achieved a return of over 10%.

Results and dividends
As at 31 December 2019, the net asset value was 82.58 pence per share compared to 77.40 pence per share at 31 December 2018. The total return after tax was £10.2 million compared to £9.8 million in the year to 31 December 2018.

The Company paid dividends totalling 4.0 pence per share during the year ended 31 December 2019 (2018: 4.0 pence per share). The dividend objective of the Board is to provide shareholders with a strong, predictable dividend flow. The Company continues to target an annual dividend of 4.0 pence per share and has declared a first dividend for the year ending 31 December 2020 of 2.0 pence per share to be paid on 30 June 2020 to shareholders on the register on 5 June 2020.

Investment portfolio
The results for the year showed net gains on investments of £11.2 million, against gains of £10.7 million for the previous year, which was mainly driven by four significant investment disposals.   

Our holding in Process Systems Enterprise was sold to Siemens, for proceeds of £14.3 million (an uplift of £9.4 million in the year) and resulting in a 10 times return on the original investment cost. Following the successful sale of Grapeshot in 2018 this is the second time in just over a year that the Company has sold a technology investment for a ten times multiple.

We exited Radnor House Twickenham in November 2019 for proceeds of £7.1 million as part of a reorganisation of the Radnor House group. This has been one of our successful school investments and has resulted in an internal rate of return of just under 20% per annum over the past nine years. The Company has retained its stake in Radnor House Sevenoaks, which has further capacity to grow.

Our investments in the pub sector, Bravo Inns and Bravo Inns II, were also sold generating proceeds of £6.0 million combined. Over the life of our investment, including interest received, we generated a blended return of 1.7 times cost.

The sale of Earnside Energy completed during the period for £2.3 million. Including interest received during the time this investment was held, the sale resulted in a total return of 1.4 times original cost. Further details on the above disposals, and other realisations, can be found in the realisations table on page 24 of the full Annual Report and Financial Statements.

In addition to the above, Proveca increased in value by £719,000, Oviva by £376,000 and Oxsensis by £340,000 following funding rounds in which we participated. Against this, a further £628,000 write-down was realised on Mi-Pay, which sold its principal operating subsidiary, delisted and distributed the sale proceeds after the year end. Unrealised write-downs were made against our investment in Zift Channel Solutions (£491,000) and Convertr Media (£403,000) due to slow trading.

During the year, a total of £7.0 million was deployed into portfolio companies, of which £4.3 million was invested across seven new portfolio companies, all of which are likely to require further investment as the companies prove themselves and grow:  

• £1,486,000 into Cantab Research (T/A Speechmatics), a provider of low footprint automated speech recognition software which can be deployed in the cloud, on premise or on device across 29 languages;
• £1,402,000 into Elliptic Enterprises, a provider of Anti Money Laundering services to digital asset institutions;
• £400,000 into Avora, a developer of software to improve decision making through augmented analytics & machine learning;
• £380,000 into Limitless Technology, a provider of a customer service platform powered by the crowd and machine learning technology;
• £367,000 into Clear Review, a provider of talent management software to mid-market enterprises;
• £151,000 into Imandra, a provider of automated software testing and an enhanced learning experience for artificial neural networks; and
• £68,000 into Symetrica, a designer and manufacturer of radiation detection equipment.

A further £2.7 million was invested in existing portfolio companies, including £455,000 in Proveca, £342,000 in InCrowd Sports and £338,000 in Oxsensis.

Overall, 37% of the portfolio by value is profitable, measured by earnings before interest, tax and depreciation, with a number of our investments showing strong growth in fast-developing international markets.

Liquidity
Principally as a result of disposals, at 31 December 2019 the Company had cash balances of £32.5 million (2018: £7.1 million) which represents 37% (2018: 12%) of net assets. The Board therefore decided not to participate in the Albion VCTs Top Up Offers 2019/20. It is important for a venture capital fund, which by its nature has illiquid investments, to hold sufficient cash to manage operating costs, to service dividends and buy backs and most importantly to make follow on and new investments, when they arise. This must be balanced against the requirements of a venture capital trust to be invested in qualifying investments. In light of current economic conditions, it is reassuring to have significant cash and reserves. In the near term, we will assess what future investment and operational cash requirements the Company has and consider whether any of the existing cash balance should be distributed as a special dividend.

Risks and uncertainties
The highly uncertain outlook for the UK and Global economies is the key risk affecting the Company, with the extraordinary health risk clouding any evaluation of risk and returns for most companies in the developed world. Our underlying portfolio companies may be adversely affected by the Coronavirus Pandemic and recent quoted market turmoil, with financial measures becoming more draconian by the day. The Manager is continually assessing the exposure to these risks for each portfolio company, and appropriate actions, where possible, are being implemented.

The Manager has a clear focus to allocate resources to those sectors and opportunities where it believes growth can be both resilient and sustainable, with provision of cash to assist some portfolio companies in these extreme market conditions being a likelihood. The new VCT rules will result in the gradual reduction of the asset-based element of the portfolio in favour of growth and technology companies which will inevitably increase volatility over time.

A detailed analysis of the other principal risks and uncertainties facing the business is shown in the Strategic report below.

Fraud warning
We note over recent months an increase in the number of shareholders being contacted in connection with increasingly sophisticated but fraudulent financial scams. This is often by a phone call or an email which normally originates from outside of the UK, often claiming or appearing to come from a corporate finance firm and typically offering to buy your VCT shares at an inflated price. If you are contacted, we recommend that you do not respond with any personal information and say you are not interested.

The Manager maintains a page on their website in relation to fraud advice at www.albion.capital/investor-centre/fraud-advice.

If you are in any doubt, we recommend that you seek financial advice before taking any action. You can also call Shareholder relations on 020 7601 1850, or email [e-mail], if you wish to check whether any claims made are genuine.

Annual General Meeting
As a Board, we have been deliberating the potential impact of the Covid-19 outbreak on the arrangements for our upcoming Annual General Meeting (AGM). These arrangements will evolve and we will keep shareholders updated of any changes on our Manager's website at www.albion.capital/funds/AATG.

We are required by law to hold an AGM within six months of our financial year end and lengthy postponement or adjournment is not possible in this case. Our AGM will therefore be held at noon on 3 June 2020, at the offices of Albion Capital Group LLP, 1 Benjamin Street, London, EC1M 5QL. However, we are putting in place contingency arrangements which mean that the meeting is unlikely to follow the same format as in previous years but will still meet the minimum legal requirements for an AGM.  As a result, there will be no presentation from the Manager or from a portfolio company, and we will not be providing lunch after the AGM.

Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 68 and 69 of the full Annual Report and Financial Statements.

This year, we would strongly encourage shareholders to consider public health advice when deciding whether to attend the meeting. Shareholders’ views are important and the Board encourages shareholders’ to vote on the resolutions within the Notice of Annual General Meeting on pages 68 and 69 of the full Annual Report and Financial Statements using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the Annual General Meeting and recommends shareholders to vote in favour of all the resolutions being proposed. We encourage shareholders to submit their votes by proxy, rather than attending in person. If circumstances improve and you have submitted a proxy, you can still attend the meeting.

We always welcome questions from our shareholders at the AGM but this year, we would rather shareholders submit their questions to the Board before the AGM so we can ensure your questions are answered either at the meeting or afterwards.

You can submit questions up until noon on 2 June 2020 in the following ways:

• By email: send your questions to [e-mail] 
• By telephone: contact Shareholder relations on 020 7601 1850

The Directors current intention is to attend the AGM in person unless there has been a significant change in the current situation.

Share buy-backs
The current healthcare crisis, and resultant economic and market crises, continue to gather pace at the time of writing and the financial turmoil will have an effect on our investments, though, at this early stage, it is hard to assess the precise impact. While the investment valuations as at the date of publishing these audited accounts are our current best estimate, the fast-changing financial environment may mean that these need to be re-assessed. We will consequently be undertaking a new valuation exercise in early April, with a view to publishing an Interim Management Statement for the quarter to 31 March 2020 which will include a new, unaudited net asset value as at that date.

Given uncertainty on valuations caused by the Coronavirus and its impact on financial markets in recent times, the Board agreed to suspend the Company’s buy back operation on 18 March 2020, until such time as the Company can provide an updated valuation as at 31 March 2020 of the portfolio and the Company’s net asset value. The Board do not intend to  resume the Company’s buyback programme until after the announcement of  the 31 March 2020 unaudited net asset value.

Outlook and prospects
It is impossible to predict outlook against the dramatic events of the past few weeks. The Board has been encouraged by the successful exits of both technology and asset-based investments during the year as well as the strong returns over the past few years, although there is likely to be increased volatility within the portfolio in future years, given the increasing weighting to higher risk technology investments. Before the onset of the Covid-19 crisis, the performance and prospects of a number of companies within the investment portfolio gave us cause to be optimistic about the long term prospects and we hope this will continue to be the case.

In the meantime, however, the Board and the Manager continue to work to preserve value in these immensely difficult circumstances in the best interests of all our stakeholders.

Dr. N E Cross
Chairman
20 March 2020

Strategic report

Investment objective and policy
The Company’s investment objective is to provide investors with a regular and predictable source of dividend income, combined with the prospect of long-term capital growth, through a balanced portfolio of unquoted growth and technology businesses in a qualifying venture capital trust.

The Company will invest in a broad portfolio of unquoted growth and technology businesses. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified in terms of sectors and stages of maturity of portfolio companies.

The full investment policy can be found above.

Current portfolio sector allocation
The pie charts at the end of this announcement show the split of the portfolio valuation as at 31 December 2019 by: sector including cash; sector excluding cash; stage of investment; and number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 22 to 24 of the full Annual Report and Financial Statements.

Direction of portfolio
During the year, a greater focus has been given to growth and technology investments, which has resulted in a decrease of asset-based investments as a percentage of the portfolio. We expect that this will continue to decrease over time as the Company transitions towards a growth and technology portfolio.

The current portfolio remains well balanced in terms of sectors, with healthcare (including digital healthcare) accounting for 14 per cent., renewable energy for 12 per cent. and education for 7 per cent.. Following a number of exits in the year, the Company has a significant level of cash which will be deployed into the IT and other technology and healthcare (including digital healthcare) sectors. We therefore expect that the IT and other technology and healthcare (including digital healthcare) sectors to increase over the coming years.

Results and dividends	Ordinary shares
	£'000
Net revenue return for the year ended 31 December 2019	519
Net capital gain for the year ended 31 December 2019	9,645
Total return for the year ended 31 December 2019	10,164
Dividend of 2.0 pence per share paid on 28 June 2019	(2,237)
Dividend of 2.0 pence per share paid on 31 December 2019	(2,223)
Transferred to reserves	5,704
Net assets as at 31 December 2019	92,022
Net asset value per share as at 31 December 2019	82.58p

The Company paid dividends of 4.0 pence per share during the year ended 31 December 2019 (2018: 4.0 pence per share). The dividend objective of the Board is to provide shareholders with a strong, predictable dividend flow. The Board has declared a first dividend for the year ending 31 December 2020, of 2.0 pence per share to be paid on 30 June 2020 to shareholders on the register on 5 June 2020.

As shown in the Income statement below, investment income has increased to £1,416,000 (2018: £1,184,000). This is in part due to interest payments recommencing on investments where interest was previously being capitalised in order to fund further growth and dividends received from our holding in the SVS Albion OLIM UK Equity Income Fund. As a result, the revenue return to equity holders has increased to £519,000 (2018: £370,000). However, this is expected to decrease in the future due to a number of loan stock repayments and exits during the year.

The net capital gain for the year was £9,645,000 (2018: £9,389,000). This is mainly attributable to the realised gain in the year of £9,410,000 on the sale of Process Systems Enterprise, £783,000 on the sale of the pubs portfolio (Bravo Inns and Bravo Inns II), and uplifts in valuations for Proveca (£719,000), Oviva (£376,000), and Oxsensis (£340,000). These were partly offset by unrealised losses on Zift Channel Solutions (£491,000), Convertr Media (£403,000) and a realised loss of £628,000 for Mi-Pay. The total return for the period was 9.28 pence per share (2018: 9.50 pence per share).

The Balance sheet below shows that the net asset value per share has increased over the last year to 82.58 pence per share (2018: 77.40 pence per share). The increase in net asset value is attributed to the total return of 9.28 pence per share offset by the payment of 4.0 pence per share of dividends.

The cash inflow for the year was £25 million (2018: £3 million outflow). This was mainly as a result of £31.1 million received from the disposal of investments and receipt of deferred consideration and £7.8 million from the issue of new shares under the Albion VCTs Top Up Offers. This was offset by the £7.0 million of new and follow on investments, dividends paid of £3.8 million and buy-backs of £2.0 million of shares.

Review of business and outlook
A review of the Company’s business during the year and future prospects is contained in the Chairman’s statement above and in this Strategic report.

As a greater emphasis continues to be given to growth and technology investments, we expect that, asset-based investments will continue to decrease over time as a proportion of the portfolio. It is expected that with the number of loan stock repayments and exits in the year, income will become a lower component of total return in future years.

Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.

Future prospects
The Company’s portfolio remains well balanced across sectors and risk classes. Following a promising result for the year, and the performance of the growth and technology investments in recent years, the Board has confidence in the future performance of the Company. The Manager has a strong pipeline of investment opportunities in which the Company’s cash can be deployed.

Key performance indicators (“KPIs”) and alternative performance measures (“APMs”)
The Directors believe that the following KPIs and APMs, which are typical for venture capital trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs give a good indication that the Company is achieving its investment objective and policy. These are:

      1.     Net asset value per share and total shareholder return
Please see the “Total shareholder return to 31 December 2019” table above in the Financial highlights section which shows the NAV per share as at 31 December 2019 and total shareholder return. Total shareholder return is net asset value plus cumulative dividends paid since launch.

Total shareholder return increased by 9.18 pence to 185.58 pence per Ordinary share for the year ended 31 December 2019 (11.9 per cent. on the opening net asset value).

The graph on page 4 of the full Annual Report and Financial Statements reflects the total shareholder return performance of the Company relative to the FTSE All-share Index.

      2.     Shareholder return in the year †

2010	2011	2012	2013	2014	2015	2016	2017	2018	2019
3.0%	2.9%	4.6%	8.0%	2.5%	(4.7%)	3.6%	6.0%	13.2%	11.9%

Source: Albion Capital Group LLP

† Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.

Annual total return to shareholders has remained positive for the fourth consecutive year and for the year ended 31 December 2019 was 11.9%.
             
      3.     Dividend distributions
Dividends paid in respect of the year ended 31 December 2019 were 4.0 pence per share (2018: 4.0 pence per share), in line with the Board’s dividend objective. Cumulative dividends paid since inception are 103.0 pence per Ordinary share. The returns to Shareholders who have acquired shares through the C share issue in 2006 and the merger with Albion Income & Growth VCT in 2013 are shown in the “Total shareholder return to 31 December 2019” table above in the Financial highlights section. Shareholders who have acquired shares through Top Up Offers, the dividend reinvestment scheme or in the market outside the corporate events will be able to calculate their own returns based on the price at which they acquired their shares, the dividends they have received since the purchase and the current net asset value of their holding.

      4.     Ongoing charges
As agreed with the Manager in 2015, the ongoing charges ratio for the year to 31 December 2019 was capped at 2.75 per cent. (2018: 2.75 per cent.) from a previous cap of 3 per cent. with any excess over the cap being a reduction in the management fee. 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 2.75 per cent. (capped at 2.75 per cent.).

The reduction in management fees payable to Albion Capital Group LLP in the year, due to the expense cap, amounted to £136,000 (2018: £136,000).

      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 31 of the full Annual Report and Financial Statements.

The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2019. These showed that the Company has complied with all tests and continues to do so.

*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.

Gearing
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. Although the investment policy permits the Company to borrow, the Directors do not currently have any intention of utilising long-term gearing and have not done so in the past.

Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company under the Management agreement, as well as acting as the Company’s AIFM.

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 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 2.5 per cent. of the net asset value of the Company, payable quarterly in arrears. The total annual running costs of the Company, including fees payable to Albion, Directors’ fees, professional fees and the costs incurred by the Company in the ordinary course of business (but excluding any exceptional items and performance fees payable to Albion) are capped at an amount equal to 2.75 per cent. of the Company’s net assets, with any excess being met by Albion by way of a reduction in management fees.

Additionally, Albion agreed to reduce that proportion of its management fee relating to the investment in the SVS Albion OLIM UK Equity Income Fund (“OUEIF”) in order to avoid any double charging for the investment exposure.

The Manager is also entitled to an arrangement fee on investment, payable by each portfolio company, of approximately 2 per cent. of each investment made and monitoring fees where the Manager has a representative on the portfolio company’s board. Further details of the Manager’s fee can be found in note 5.

Management performance incentive
In order to provide the Manager with an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels per share.

Under the incentive arrangement, if the net asset value per share at the end of a financial period, when added to the aggregate dividends per share (both revenue and capital) paid to that date, exceeds £1 as increased at the rate of RPI plus 2 per cent. per annum uncompounded from the date of first admission to the Official List of the relevant class of share, then the Manager will be entitled to an incentive fee equal to 15 per cent. of such excess. In the event that the performance of the Company falls short of the target in any period, such shortfall must be made up in future periods before the Manager is entitled to any incentive in respect of such future periods.

The fee if applicable, will be payable annually. No performance fee has arisen during the year (2018: £nil). The performance threshold at 31 December 2019 was 199.72 pence for the Ordinary shares, 172.92 pence for the former C shares and 178.72 pence for the former Income & Growth shares which compare to total returns of 185.58 pence, 108.41 pence and 112.32 pence respectively, based on the latest NAV.

Investment and co-investment
The Company co-invests with other Albion Capital Group LLP managed venture capital trusts and funds. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.

Liquidity Management
The Board examines regularly both the liquidity of the Company’s shares in the secondary market, which is substantially influenced by the use of share buy back and share issuance, and the liquidity of the Company’s portfolio. The nature of a venture capital portfolio is longer term and relatively illiquid in the short term. Consequently, the Company maintains sufficient liquidity in cash and near cash assets to cover the operating costs of the Company and to meet dividend payments and share buy back, as well as to have the capacity to make fresh investments when the opportunities arise. Although the Company is authorised to borrow, in practice it does not borrow. The Board has no intention that the Company should borrow given the nature of the Company’s investments, a number of which have their own gearing.  Management of liquidity is one of the key operational issues that the Board discusses regularly with the Manager.

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. (80 per cent. from 1 January 2020 for the Company) qualifying holdings investment requirement for venture capital trust status;
• the long term prospects of the current portfolio of investments;
• a review of the Management agreement and the services provided therein;
• benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing: and
• the contribution made by the administration and secretarial team to the operation of the Company.

The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.

Alternative Investment Fund Managers Directive (“AIFMD”)
The Board appointed Albion Capital Group LLP as the Company’s AIFM in June 2014 as required by the AIFMD. The Manager became a full-scope Alternative Investment Fund Manager under the AIFMD on 1 October 2018. As a result, from that date, Ocorian (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties with respect to the Company.

Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.

The Board is very conscious of these wider responsibilities in the ways it promotes the Company’s culture and ensures, as part of its regular oversight, that the integrity of the Company’s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company’s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs, as well as visibility and openness in how the affairs are conducted.

The Board considers its significant stakeholder groups to be its Shareholders; suppliers, including direct agents of the Company such as the Manager to whom most executive functions are delegated; the community and the environment in the way that investments are made and managed.

The Company’s shareholders are key to the success of the Company. The Board seeks to create value for Shareholders by generating strong and sustainable returns to provide Shareholders with a strong, predictable dividend flow and the prospect of capital growth. The Company has in place a buyback back policy as an important means of providing market liquidity for Shareholders. Details regarding the current buy-back policy can be found above in the Chairman’s statement. These important components, performance, predictable income return and liquidity when required are fundamental tenets of the way in which the Company operates for its Shareholders.

Shareholders’ views are important. The Board encourages Shareholders to vote on the resolutions at the Annual General Meeting. The Company’s Annual General Meeting is used typically as an opportunity to communicate with investors, including through a presentation made by the investment management team. However, as detailed in the Chairman’s statement above, there will be no presentation from the Manager or from a portfolio company, and we will not be providing lunch, after this year’s AGM due to the impact of the Covid-19 outbreak. (Details of the location and time of the Annual General Meeting can be found in the Directors Report on page 33 of the full Annual Report and Financial Statements).

Shareholders are also encouraged to attend the annual Shareholders’ Seminar. The seminars include some of the portfolio companies sharing insights into their businesses and also have presentations from Albion executives on some of the key factors affecting the investment outlook, as well as a review of the past year and the plans for the year ahead. Details of the seminar events are placed on the Manager’s website. Representatives of the Board attend the seminars.

The Company is an externally managed investment company with no employees, and as such has nothing to report in relation to employee engagement but does keep close attention to how the Board operates as a cohesive and competent unit. The Company also has no customers in the traditional sense and, therefore, there is nothing to report in relation to relationships with customers.

The Company’s suppliers are fundamental to the operations of the Company, particularly Albion Capital Group LLP as the Manager, given that day-to-day management responsibilities are sub-contracted to the Manager. Details of the Manager’s and Board’s responsibilities can be found in the Statement of corporate governance on pages 36 to 40 of the full Annual Report and Financial Statements.

The contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities. The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found above in this report.

The Board receives reports on Environmental, Social and Governance (“ESG”) factors within its portfolio from Albion Capital Group LLP as it is a signatory of the UN Principles for Responsible Investment.  Further details of this are set out below.  ESG, without its specific definition, has always been at the heart of the responsible investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.
             
The Board, although non-executive, is fully engaged in both oversight and the general strategic direction of the Company. During the year the Board’s main strategic discussions focussed around cash management and deployment of cash for future investments, dividends and share buyback, resulting in the decision not to participate in the Albion VCTs Top Up Offers 2019/20. Time was also spent in ensuring the Board met Corporate Governance requirements which continue to evolve, including the introduction of the new AIC Code last year.

Environmental, Social, and Governance (“ESG”)
Albion Capital Group LLP became a signatory of the UN Principles for Responsible Investment (“UN PRI”) on 14 May 2019. The UN PRI is the world’s leading proponent of responsible investment, working to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.

Albion will make its first trial submission in 2020 against this framework and the first full submission in 2021. The trial process in 2020 will identify initial gaps in information being collected and areas that require action. This annual process will inform fuller ESG disclosure by 2021 and create a regular audit function to ensure continual improvement.
             
To ensure that the principles are starting to be translated into both the investment and portfolio management processes, since June 2019 all quarterly valuations and investment papers include a section covering relevant aspects of ESG for each investment. In addition, all fund level reports also include ESG sections and ESG will be included as a standing item on the agendas of all investment committees and Albion’s internal board meetings, and any findings are discussed at Board meetings. Reporting is intentionally light in the first instance, partly due to the stage and nature of investments and to encourage widespread adoption. The level of reporting is expected to build over time as the range of factors to consider increases and as our compliance with the UN PRI guidelines becomes apparent.

The Board and Manager have exercised conscious principles in making responsible investments throughout the life of the Company, not least in providing finance for nascent companies in a variety of important sectors such as technology, healthcare and renewable energy. In making the investments, the Manager is directly involved in the oversight and governance of these investments, including ensuring standards of reporting and visibility on business practices, all of which is reported to the Board of the Company.  By its nature, not least in making qualifying investments which fulfil the criteria set by HMRC, the Company has focused on sustainable and longer-term investment propositions, some of which will fail in the nature of small companies, but some of which will grow and serve important societal demands. One of the most important key performance indicators is the quality of the investment portfolio, which goes beyond the individual valuations and examines the prospects of each of the portfolio companies, as well as the sectors in which they operate – all requiring a longer- term view.

The Company adheres to the principles of the AIC Code of Corporate Governance and is also aware of other governance and other corporate conduct guidance which it meets as far as practical, including in the constitution of a diversified and independent board capable of providing constructive challenge but also, through its experience of the Company, continuity over the longer term investments the Company makes. 

Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 (the “Act”) to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no requirement for formal policies in these matters, however, it is it at the core our responsible investment as detailed above.

General Data Protection Regulation (“GDPR”)
The General Data Protection Regulation came into effect from 25 May 2018 with the objective of unifying data privacy requirements across the European Union. The Manager, Albion Capital Group LLP, has taken action to ensure that the Manager and the Company are compliant with the regulation. The Board also reviews that other suppliers of services to the Company are complying with the provisions of GDPR.

Further policies
The Company has adopted a number of further policies relating to:

• Environment
• Global greenhouse gas emissions
• Anti-bribery
• Anti-facilitation of tax evasion
• Diversity

and these are set out in the Directors’ report on pages 31 and 32 of the full Annual Report and Financial Statements.

Risk management
The Board carries out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable emerging risk has been the global pandemic which has impacted on not only public health and mobility but also has had an adverse impact on global traded markets, the impact of which, by its nature, is likely to be uncertain for some time, and at time of publishing the Annual Report and Accounts is severe.

The Directors have carried out a robust assessment of the Company’s disclosures below that describe the principal risks and explain how they are being managed or mitigated. 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, performance and valuation risk	The risk of investment in poor quality businesses, 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 volatile than larger, long established businesses. Investments in open-ended equity funds result in exposure to market risk through movements in price per unit. The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported.	To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The Board and Manager regularly reviews the deployment of cash resources into equity markets, the extent of exposure and performance of the exposure. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board.
VCT approval risk	The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status.	To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required.
Regulatory and compliance risk	The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies.	Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation, including legislation on the management of the Company, from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors.
Market value of Ordinary shares	The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors, including the ability to exercise share buybacks. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value.	The Company operates a share buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent. to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust and could not renew any buyback authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors.
Operational and internal control risk	The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could place assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.	The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year, and receives reports from the Manager on internal controls and risk management, including on matters relating to cyber security. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, PKF Littlejohn LLP. On an annual basis, the Audit Committee chairman meets with the internal audit partner to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security.  From 1 October 2018, Ocorian (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian (UK) Limited to ensure that Albion Capital is adhering to its duties as a full-scope Alternative Investment Fund Manager under the AIFMD. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
Economic, political and social risk	Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution. Economic risk challenges as a result of healthcare pandemics/infection.	The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy backs and follow on investments. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk. The Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term and influenced by global supply and demand factors.

Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2022. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timelines for finding, assessing and completing investments. The three year period also takes account of the potential impact of new regulations, should they be imposed, and how they may impact the Company over the longer term, and the availability of cash but cannot take into account the exogenous risks that are impacting on global economies at the date of these accounts.

The Directors have carried out a robust assessment of the emerging and principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the procedures in place to identify emerging risks and the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment. 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, as well as the existing cash resources of the Company. The portfolio is well balanced after the process of reducing the proportion of the portfolio’s holdings of older investments. 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 2022.

This Strategic report of the Company for the year ended 31 December 2019 has been prepared in accordance with the requirements of section 414A of 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,

Dr. N E Cross
Chairman
20 March 2020

Responsibility Statement
In preparing these financial statements for the year to 31 December 2019, the Directors of the Company, being Dr Neil Cross, Robin Archibald, Mary Anne Cordeiro, Modwenna Rees-Mogg 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 2019 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

 -the Chairman's statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

A detailed "Statement of Directors' responsibilities” is contained on page 35 within the full audited Annual Report and Financial Statements.

On behalf of the Board,

Dr N E Cross
Chairman
20 March 2020

Income statement                      

		Year ended 31 December 2019			Year ended 31 December 2018
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£’000	£’000	£’000	£’000	£’000	£’000
Gains on investments	3	-	11,170	11,170	-	10,709	10,709
Investment income	4	1,416	-	1,416	1,184	-	1,184
Investment management fee	5	(529)	(1,587)	(2,116)	(460)	(1,379)	(1,839)
Other expenses	6	(306)	-	(306)	(295)	-	(295)
Profit on ordinary activities before tax		581	9,583	10,164	429	9,330	9,759
Tax (charge)/credit on ordinary activities	8	(62)	62	-	(59)	59	-
Profit and total comprehensive income attributable to shareholders		519	9,645	10,164	370	9,389	9,759
Basic and diluted return per share (pence)*	10	0.47	8.81	9.28	0.40	9.10	9.50

* adjusted for treasury shares

The accompanying notes form an integral part of these Financial Statements.

The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies’ Statement of Recommended Practice.

Balance sheet  

		31 December 2019	31 December 2018
	Note	£’000	£’000
Fixed asset investments	11	57,468	70,737
Current assets
Current asset investments	13	2,193	1,921
Trade and other receivables less than one year	13	527	664
Cash and cash equivalents		32,468	7,142
		35,188	9,727
Total assets		92,656	80,464
Payables: amounts falling due within one year
Trade and other payables less than one year	14	(634)	(567)
Total assets less current liabilities		92,022	79,897
Equity attributable to equity holders
Called up share capital	15	1,296	1,187
Share premium		34,949	26,621
Capital redemption reserve		28	28
Unrealised capital reserve		13,708	16,697
Realised capital reserve		23,567	10,933
Other distributable reserve		18,474	24,431
Total equity shareholders’ funds		92,022	79,897
Basic and diluted net asset value per share (pence)*	16	82.58	77.40

* 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 20 March 2020 and were signed on its behalf by

Dr. N E Cross
Chairman
Company number: 04114310

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 2019	1,187	26,621	28	16,697	10,933	24,431	79,897
Return and total comprehensive income for the year	-	-	-	1,387	8,258	519	10,164
Transfer of previously unrealised gains on disposal of investments	-	-	-	(4,376)	4,376	-	-
Purchase of shares for treasury	-	-	-	-	-	(2,016)	(2,016)
Issue of equity	109	8,547	-	-	-	-	8,656
Cost of issue of equity	-	(219)	-	-	-	-	(219)
Dividends paid	-	-	-	-	-	(4,460)	(4,460)
As at 31 December 2019	1,296	34,949	28	13,708	23,567	18,474	92,022
As at 1 January 2018	1,143	23,469	28	9,692	8,549	29,767	72,648
Return and total comprehensive income for the year	-	-	-	8,910	479	370	9,759
Transfer of previously unrealised gains on disposal of investments	-	-	-	(1,905)	1,905	-	-
Purchase of shares for treasury	-	-	-	-	-	(1,570)	(1,570)
Issue of equity	44	3,233	-	-	-	-	3,277
Cost of issue of equity	-	(81)	-	-	-	-	(81)
Dividends paid	-	-	-	-	-	(4,136)	(4,136)
As at 31 December 2018	1,187	26,621	28	16,697	10,933	24,431	79,897

* These reserves amount to £42,041,000 (2018: £35,364,000) which is considered distributable.

Statement of cash flows

	Year ended 31 December 2019	Year ended 31 December 2018
	£’000	£’000
Cash flow from operating activities
Loan stock income received	1,360	1,098
Dividend income received	183	119
Deposit interest received	56	25
Investment management fee paid	(2,079)	(1,803)
Other cash payments	(291)	(293)
Corporation tax paid	-	-
Net cash flow from operating activities	(771)	(854)
Cash flow from investing activities
Purchase of current asset investments	-	(910)
Purchase of fixed asset investments	(7,022)	(4,354)
Disposal of fixed asset investments	31,142	5,621
Net cash flow from investing activities	24,120	357
Cash flow from financing activities
Issue of ordinary share capital	7,804	2,606
Cost of issue of equity	(17)	(15)
Dividends paid	(3,794)	(3,536)
Purchase of own shares (including costs)	(2,016)	(1,570)
Net cash flow from financing activities	1,977	(2,515)
Increase/(decrease) in cash and cash equivalents	25,326	(3,012)
Cash and cash equivalents at start of period	7,142	10,154
Cash and cash equivalents at end of period	32,468	7,142

  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 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 International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines as issued in 2018 and further detail on the valuation techniques used are outlined in note 2 below.

Company information can be found on page 2 of the full Annual Report and Financial Statements.

2. Accounting policies
Fixed and current 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 IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, revenue multiples, the level of third party offers received, cost or prices of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
• In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
   
  • the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
  • a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
  • market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.

Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.

Dividend income is not recognised as part of the fair value movement of an investment but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.

Current assets and payables
Receivables, payables and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables.

Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.

Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expected 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, performance incentive fees and expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:

• 75 per cent. of management fees and performance incentive fees are allocated to the realised capital reserve. 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.

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
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;
• expenses, together with the related taxation effect, charged in accordance with the above policies; and
• dividends paid to equity holders.

Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.

This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.

Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.

Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.

3. Gains on investments

	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
Unrealised gains on fixed asset investments	1,115	9,271
Unrealised gains/(losses) on current asset investments	272	(361)
Realised gains on fixed asset investments	9,783	1,799
	11,170	10,709

4. Investment income

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
Loan stock interest and other fixed returns	1,105	1,039
UK dividend income	253	119
Bank deposit interest	58	26
	1,416	1,184

5. Investment management fees

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
Investment management fee charged to revenue	529	460
Investment management fee charged to capital	1,587	1,379
	2,116	1,839

Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report above.  

During the year, services of a total value of £2,116,000 (2018: £1,839,000) were purchased by the Company from Albion Capital Group LLP in respect of management fees. At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £518,000 (2018: £482,000). The total annual running costs of the Company are capped at an amount equal to 2.75 per cent. of the Company’s net assets, with any excess being met by Albion by way of a reduction in management fees. During the year, the management fee was reduced by £136,000 as a result of this cap (2018: £136,000).

During the year, the Company was not charged by Albion Capital Group LLP in respect of Patrick Reeve’s services as a Director (2018: nil). 

Albion Capital Group LLP, its partners and staff (including Patrick Reeve) hold 1,245,570 Ordinary shares in the Company.

Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 December 2019, fees of £241,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2018: £214,000).

During the period, no further amounts (2018: £910,000) were invested into the SVS Albion OLIM UK Equity Income Fund (“OUEIF”) as part of the Company’s management of surplus liquid funds. To avoid double charging, Albion agreed to reduce its management fee relating to the investment in the OUEIF by 0.75 per cent. per annum, which represents the OUEIF management fee charged by OLIM. This resulted in a further reduction of the management fee of £16,000 (2018: £15,000).

6. Other expenses

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
Directors’ fees (including NIC)	108	101
Auditor’s remuneration for statutory audit services (excluding VAT)	31	28
Tax services	23	21
Other administrative expenses	144	145
	306	295

7. Directors’ fees
The amounts paid to and on behalf of the Directors during the year are as follows:

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
Directors’ fees	100	93
National insurance	8	8
	108	101

The Company’s key management personnel are the non-executive Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 41 to 43 of the full Annual Report and Financial Statements.

8. Tax on ordinary activities

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
UK corporation tax charge payable	-	-

Factors affecting the tax charge:

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
Return on ordinary activities before taxation	10,164	9,759
Tax charge on profit at the average companies rate of 19% (2018: 19%)	1,931	1,854
Factors affecting the charge:
Non-taxable gains	(2,122)	(2,035)
Income not taxable	(48)	(23)
Excess management expenses carried forward	239	204
	-	-

The tax charge for the year shown in the Income statement is lower than the average companies rate of corporation tax in the UK of 19 per cent. (2018: 19 per cent.). The differences are explained above.

Notes

(i)            Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii)           Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.

(iii)          The Company has excess management expenses of £3,606,000 (2018: £2,348,000) that are available for offset against future profits. A deferred tax asset of £613,000 (2018: £446,000) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.

9. Dividends

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
Dividend of 2.00p per share paid on 29 June 2018	-	2,081
Dividend of 2.00p per share paid on 31 December 2018	-	2,055
Dividend of 2.00p per share paid on 28 June 2019	2,237	-
Dividend of 2.00p per share paid on 31 December 2019	2,223	-
	4,460	4,136

In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 December 2020 of 2 pence per share. The dividend will be paid on 30 June 2020 to shareholders on the register on 5 June 2020. The total dividend will be approximately £2,229,000. All dividends are paid out of the other distributable reserve as shown on the Balance sheet.

10. Basic and diluted return per share

	Year ended 31 December 2019			Year ended 31 December 2018
	Revenue	Capital	Total	Revenue	Capital	Total
Profit attributable to equity shares (£’000)	519	9,645	10,164	370	9,389	9,759
Weighted average shares in issue (adjusted for treasury shares)		109,562,226		103,202,241
Return attributable per equity share (pence)	0.47	8.81	9.28	0.40	9.10	9.50

The weighted average number of shares is calculated adjusted for treasury shares of 18,196,470 (2018: 15,518,470).

There are no convertible instruments, derivatives or contingent share agreements in issue, and therefore no dilution affecting the return per share. The basic return per share is therefore the same as the diluted return per share.

11. Fixed asset investments

Investments held at fair value through profit or loss	31 December 2019 £’000	31 December 2018 £’000
Unquoted equity and preference shares	40,332	43,611
Quoted equity	135	799
Unquoted loan stock	17,001	26,327
	57,468	70,737

	31 December 2019 £’000	31 December 2018 £’000
Opening valuation	70,737	60,724
Purchases at cost	8,043	5,211
Disposal proceeds	(31,956)	(6,206)
Realised gains	9,783	1,799
Movement in loan stock accrued income	(255)	(62)
Unrealised gains	1,115	9,271
Closing valuation	57,468	70,737
Movement in loan stock accrued income
Opening accumulated loan stock accrued income	343	405
Movement in loan stock accrued income	(255)	(62)
Closing accumulated loan stock accrued income	88	343
Movement in unrealised gains
Opening accumulated unrealised gains	16,988	9,622
Transfer of previously unrealised gains to realised reserve on disposal of investments	(4,376)	(1,905)
Movement in unrealised gains	1,115	9,271
Closing accumulated unrealised gains	13,727	16,988
Historic cost basis
Opening book cost	53,406	50,697
Purchases at cost	8,043	5,211
Sales at cost	(17,796)	(2,502)
Closing book cost	43,653	53,406

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 receivables and payables.

The Company does not hold any assets as the result of the enforcement of security during the period and believes that the carrying values for both those valued below cost and past due assets are covered by the value of security held for these loan stock investments.

Unquoted fixed asset investments are valued at fair value in accordance with the IPEV guidelines as follows:

Valuation methodology	31 December 2019 £’000	31 December 2018 £’000
Cost and price of recent investment (reviewed for impairment or uplift)	32,087	24,948
Third party valuation – discounted cash flow	11,113	10,654
Net assets	5,487	5,487
Third party valuation - earnings multiple	4,729	16,707
Revenue multiple	1,845	7,543
Earnings multiple	2,072	2,117
Contracted sale price	-	2,482
	57,333	69,938

When using the cost or price of a recent investment in the valuations the Company looks to ‘re-calibrate’ this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (ie. using
multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.

The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and P/E multiples (based
on the most recent revenue, EBITDA or earnings achieved and equivalent corresponding revenue, EBITDA or earnings multiples of comparable companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the Company’s investments, being in growth and technology companies which are not normally expected to achieve profitability or scale for a number of years. Where an investment has achieved scale and profitability the Company would normally then expect to switch to using an EBITDA or earnings multiple methodology.

In the calibration exercise and in determining the valuation for the Company’s equity instruments, comparable trading multiples are used. In accordance with the Company’s policy, appropriate comparable companies based on industry, size, developmental stage, revenue generation and strategy are determined and a trading multiple for each comparable company identified is then calculated. The multiple is calculated by dividing the enterprise value of the comparable group by its revenue, EBITDA or earnings. The trading multiple is then adjusted for considerations such as illiquidity, marketability and other differences, advantages and disadvantages between the portfolio company and the comparable public companies based on company specific facts and circumstances.

Fair value investments had the following movements between valuation methodologies between 31 December 2018 and 31 December 2019:

Change in valuation methodology (2018 to 2019)	31 December 2019 £’000	Explanatory note
Revenue multiple to price of recent investment	256	Recent external funding round
Price of recent investment to revenue multiple	49	More appropriate 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 IPEV Guidelines. The Directors believe that, within these parameters, there are no other more relevant methods of valuation which would be reasonable as at 31 December 2019.

FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at FVTPL in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27.

Fair value hierarchy	Definition
Level 1	Unadjusted quoted prices in an active market
Level 2	Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3	Inputs to valuations not based on observable market data

Quoted investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.

Investments held at fair value through profit or loss (Level 3) had the following movements:

	31 December 2019			31 December 2018
	£’000			£’000
Opening balance	69,938			59,618
Purchases at cost	8,043			5,211
Disposals proceeds	(31,917)			(6,206)
Movement in loan stock accrued income	(255)			(62)
Realised gains	10,409			1,799
Unrealised gains	1,115			9,578
Closing balance	57,333			69,938

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. 80 per cent. of the portfolio of investments is based on cost, recent investment price, net assets 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 £470,000 or a decrease in the valuation of investments by £463,000. 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. 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 14.4B, they are measured at FVTPL 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 companies as at 31 December 2019 as described below:

Company		Registered postcode		Profit/(loss) before tax £’000	Net assets/(liabilities) £’000		Result for year ended	% class and share type	% total voting rights
Albion Investment Properties Limited		EC1M 5QL, UK		n/a*	(736)		31 December 2018	31.8% A Ordinary	31.8%
MHS 1 Limited		EC1M 5QL, UK		n/a*	(6,044)		31 August 2018	22.5% Ordinary	22.5%
memsstar Limited		EH3 9EP, UK		378	1,939		31 December 2018	67.3% A Ordinary	30.1%
Premier Leisure (Suffolk) Limited		EC1M 5QL, UK		n/a*	(1,507)		31 August 2018	25.8% Ordinary	25.8%
The Q Garden Company Limited		EC1M 5QL, UK		n/a*	(4,598)		31 August 2018	33.4% A Ordinary	33.4%
TWCL Limited		EC1M 5QL, UK		n/a*	(3,395)		31 December 2018	25.2% Ordinary	25.2%

*The company files filleted accounts which does not disclose this information.

13. Current assets

Current asset investments	31 December 2019	31 December 2018
	£’000	£’000
SVS Albion OLIM UK Equity Income Fund	2,193	1,921

Current asset investments at 31 December 2019 consist of cash invested in SVS Albion OLIM UK Equity Income Fund and is capable of realisation within 7 days. These fall into the level 1 fair value hierarchy as defined in note 11.

Trade and other receivables less than one year	31 December 2019	31 December 2018
	£’000	£’000
Prepayments and accrued income	22	19
Other receivables	73	5
Deferred consideration	432	640
	527	664

The Directors consider that the carrying amount of receivables is not materially different to their fair value.

14. Payables: amounts falling due within one year

	31 December 2019	31 December 2018
	£’000	£’000
Trade payables	15	6
Accruals and deferred income	619	561
	634	567

The Directors consider that the carrying amount of payables is not materially different to their fair value.

15. Called up share capital

Allotted, called up and fully paid	£’000
118,711,589 Ordinary shares of 1 penny each at 31 December 2018	1,187
10,912,848 Ordinary shares of 1 penny each issued during the year	109
129,624,437 Ordinary shares of 1 penny each at 31 December 2019	1,296
15,518,470 Ordinary shares of 1 penny each held in treasury at 31 December 2018	(155)
2,678,000 Ordinary shares purchased during the year to be held in treasury	(27)
18,196,470 Ordinary shares of 1 penny each held in treasury at 31 December 2019	(182)
111,427,967 Ordinary shares of 1 penny each in circulation* at 31 December 2019	1,114

* Carrying one vote each

The Company purchased 2,678,000 Ordinary shares (2018: 2,250,400) to be held in treasury at a cost of £2,016,000 including stamp duty (2018: £1,570,000) during the period to 31 December 2019. Total share buy backs in 2019 represents 2.1 per cent. (2018: 1.9  per cent.) of called-up share capital.

The Company holds a total of 18,196,470 shares (2018: 15,518,470) in treasury representing 14.0 per cent. (2018: 13.1 per cent.) of the issued Ordinary share capital at 31 December 2019.

Under the terms of the Dividend Reinvestment Scheme, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:

Date of allotment	Number of  shares allotted	Aggregate nominal value  of shares (£’000)	Issue price (pence per share)	Net invested (£’000)	Opening market price on allotment date (pence per share)
28 June 2019	440,639	4	76.60	322	72.00
31 December 2019	391,912	4	83.28	311	79.00
	832,551	8		633

During the period to 31 December 2019, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCTs Prospectus Top Up Offers 2018/19:

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)
1 April 2019	1,188,131	12	78.60	920	72.50
1 April 2019	287,073	3	79.00	222	72.50
1 April 2019	6,429,303	64	79.40	4,978	72.50
5 April 2019	1,795,802	18	79.40	1,390	73.50
12 April 2019	101,276	1	78.60	78	73.50
12 April 2019	4,049	-	79.00	3	73.50
12 April 2019	274,663	3	79.40	213	73.50
	10,080,297	101		7,804

16. Basic and diluted net asset value per share

	31 December 2019	31 December 2018
	(pence per share)	(pence per share)
Basic and diluted net asset value per Ordinary share	82.58	77.40

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 111,427,967 at 31 December 2019 (2018: 103,193,119).

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 above in the Chairman’s statement.

The Company’s financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances, receivables and payables 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 payables. The Company does not use any derivatives for the management of its Balance sheet.

The principal financial 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 22 to 24 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio company and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.

The Manager and the Board formally review investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.

The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of quoted and unquoted investments.

The maximum investment risk as at the Balance sheet date is the value of the fixed and current asset investment portfolio which is £59,661,000 (2018: £72,658,000). Fixed and current asset investments form 65 per cent. of the net asset value as at 31 December 2019 (2018: 91 per cent.).

More details regarding the classification of fixed and current asset investments are shown in notes 11 and 13.

Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. As a venture capital trust, the Company invests in accordance with the investment policy set out above. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. The Directors monitor the Manager’s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.

Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 22 to 24 of the full Annual Report and Financial Statements and in the Strategic report.

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 and current 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 and current asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £5,966,000 (2018: £7,266,000).

Interest rate risk
The Company is exposed to fixed and floating rate interest rate risk on its financial assets. On the basis of the Company’s analysis, it was estimated that a rise of 1% in all interest rates would have increased total return before tax for the year by approximately £147,000 (2018: £93,000). Furthermore, it was 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 4.6 per cent. (2018: 4.2 per cent.). The weighted average period to maturity for the unquoted loan stock is approximately 3.9 years (2018: 2.7 years).

The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:

	31 December 2019				31 December 2018
	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	-	-	40,332	40,332	-	-	43,611	43,611
Quoted equity	-	-	135	135	-	-	799	799
Unquoted loan stock	15,939	-	1,062	17,001	25,594	-	733	26,327
Current asset investments	-	-	2,193	2,193	-	-	1,921	1,921
Receivables*	-	-	509	509	-	-	646	646
Current liabilities	-	-	(634)	(634)	-	-	(567)	(567)
Cash	-	32,468	-	32,468	-	7,142	-	7,142
Total	15,939	32,468	43,597	92,004	25,594	7,142	47,143	79,879

*The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.

Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in unquoted loan stock, and through the holding of cash on deposit with banks.

The Manager evaluates credit risk on loan stock prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. For loan stock investments made prior to 6 April 2018, which account for 82.3 per cent. of loan stock value, typically loan stock instruments will have a fixed or floating charge, which may or may not be subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.

The Manager receives management accounts from portfolio companies, and members of the investment management team sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.

The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.

The Company’s total gross credit risk as at 31 December 2019 was limited to £17,001,000 (2018: £26,327,000) of unquoted loan stock instruments, £32,468,000 (2018: £7,142,000) cash deposits with banks and £527,000 (2018: £664,000) of other receivables.

At the Balance sheet date, the cash held by the Company was held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc and National Westminster Bank plc. Credit risk on cash transactions was mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.

The Company has an informal policy of limiting counterparty banking and floating rate note 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.

Liquidity risk
Liquid assets are held as cash on current account, on deposit, in bonds 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 £8,979,000 as at 31 December 2019 (2018: £7,783,000).

The Company has no committed borrowing facilities as at 31 December 2019 (2018: £nil). The Company had cash balances of £32,468,000 (2018: £7,142,000) and current asset investments of £2,193,000 (2018: £1,921,000), 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 £634,000 as at 31 December 2019 (2018: £567,000).

The carrying value of loan stock investments analysed by expected maturity dates is as follows:

	31 December 2019				31 December 2018
Redemption date	Fully performing £’000	Valued below cost £’000	Past due £’000	Total £’000	Fully performing £’000	Valued below cost £’000	Past due £’000	Total £’000
Less than one year	2,438	4,427	732	7,597	6,273	6,443	1,654	14,370
1-2 years	595	76	-	671	2,887	-	545	3,432
2-3 years	1,900	26	-	1,926	684	76	883	1,643
3-5 years	2,964	156	-	3,120	3,046	159	-	3,205
5+ years	3,264	-	423	3,687	3,256	-	421	3,677
Total	11,161	4,685	1,155	17,001	16,146	6,678	3,503	26,327

Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.

The cost of loan stock investments valued below cost is £5,409,000 (2018: £7,284,000).

In view of the factors identified above, the Board considers that the Company is subject to low liquidity risk.

Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 31 December 2019 are stated at fair value as determined by the Directors, with the exception of receivables, payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.

18. Commitments and contingencies
The Company had no financial commitments in respect of investments as at 31 December 2019 (2018: nil).

There were no contingent liabilities or guarantees given by the Company as at 31 December 2019 (2018: nil).
       
19. Post balance sheet events
Since 31 December 2019 the Company has had the following post balance sheet event:

      ·Investment of £1,632,000 in a new portfolio company, Concirrus Limited.

As mentioned in the Chairman’s Statement, our underlying portfolio companies may be adversely affected by the Coronavirus Pandemic following the year end. The Manager is continually assessing the exposure for each portfolio company, and appropriate actions, where possible, are being implemented.

20. Related party transactions
The Company had entered into an offer agreement relating to the Top Up Offers 2018/19 with the Company’s investment manager Albion Capital Group LLP (“Albion”), pursuant to which Albion received a fee of 2.5 per cent. of the gross proceeds of the Offer and out of which Albion paid the costs of the Offer, as detailed in the Prospectus.

Other than transactions with the Manager as disclosed in note 5 and that disclosed above, there are no other related party transactions 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 2019 and 31 December 2018, 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 2019, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.

22. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/AATG, where the Report can be accessed as a PDF document via a link in the 'Financial Reports and Circulars' section.

Attachment

• Split of Portfolio by sector, stage of investment and number of employees