Albion Venture Capital Trust PLC: Annual Financ...

Albion Venture Capital Trust PLC: Annual Financial Report

Albion Venture Capital Trust PLC
LEI number: 213800JKELS32V2OK421

As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Venture Capital Trust PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 March 2020.

This announcement was approved for release by the Board of Directors on 1 July 2020.

This announcement has not been audited.

The Annual Report and Financial Statements for the year ended 31 March 2020 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/AAVC/31Mar2020.pdf.

The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rules, including Rule 4.1.

Investment policy

Albion Venture Capital Trust PLC (the “Company”) is a venture capital trust and the investment policy is intended to produce a regular dividend stream with an appreciation in capital value.

The Company will invest in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments may take the form of equity or a mixture of equity and loans.

Allocation of funds will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company. Funds held pending investment or for liquidity purposes will be held as cash on deposit.

Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within venture capital trust qualifying industry sectors. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company's assets at cost, thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.

Gearing
The Company's maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves.

Background to the Company

The Company is a venture capital trust which raised a total of £39.7 million through an issue of Ordinary shares in 1996 and through an issue of C shares in the following year. The C shares merged with the Ordinary shares in 2001. The Company has raised a further £40.6 million under the Albion VCTs Top Up Offers since 2011.

On 25 September 2012, the Company acquired the assets and liabilities of Albion Prime VCT PLC (“Prime”) in exchange for new shares in the Company, resulting in a further £14.3 million of net assets.

Financial calendar

Record date for first dividend	10 July 2020

Payment of first dividend	31 July 2020

Annual General Meeting	Noon on 19 August 2020

Announcement of half-yearly results for the six months ending 30 September 2020	December 2020

Payment of second dividend (subject to Board approval)	29 January 2021

Financial summary

(4.10)p	Basic and diluted total loss per share for the year ended 31 March 2020

5.00p	Total tax-free dividend per share paid during the year ended 31 March 2020

70.13p	Net asset value per share as at 31 March 2020

229.93p	Total shareholder value to 31 March 2020

6.3%

Annualised return since launch (without tax relief)

	31 March 2020	31 March 2019
	(pence per share)	(pence per share)

Opening net asset value	79.00	76.00
Capital (loss)/return	*(5.98)*	5.73
Revenue return	*1.88*	2.13
Total (loss)/return	(4.10)	7.86
Impact from share capital movements	0.23	0.14
Dividends paid	(5.00)	(5.00)
Net asset value	70.13	79.00

Total shareholder value to 31 March 2020	Ordinary shares (pence per share)
Total dividends paid during the year ended: 31 March 1997	2.00
31 March 1998	5.20
31 March 1999	11.05
31 March 2000	3.00
31 March 2001	8.55
31 March 2002	7.60
31 March 2003	7.70
31 March 2004	8.20
31 March 2005	9.75
31 March 2006	11.75
31 March 2007	10.00
31 March 2008	10.00
31 March 2009	10.00
31 March 2010	5.00
31 March 2011	5.00
31 March 2012	5.00
31 March 2013	5.00
31 March 2014	5.00
31 March 2015	5.00
31 March 2016	5.00
31 March 2017	5.00
31 March 2018	5.00
31 March 2019	5.00
31 March 2020	5.00
Total dividends paid to 31 March 2020	159.80

Net asset value as at 31 March 2020	70.13

Total shareholder value to 31 March 2020	229.93

The financial summary above is for the Company, Albion Venture Capital Trust PLC Ordinary shares only. Details of the financial performance of the C shares and Albion Prime VCT PLC, which have been merged into the Company, can be found at www.albion.capital/funds/AAVC under the ‘Financial summary for previous funds’ section.

The details of the new dividend policy can be found in the Chairman’s statement below.

Notes

• Dividends paid before 5 April 1999 were paid to qualifying shareholders inclusive of the associated tax credit. The dividends for the
year to 31 March 1999 were maximised in order to take advantage of this tax credit.

Chairman’s statement

Introduction
Shareholders will be acutely aware that the world has been plunged into a healthcare emergency, the full extent of which cannot yet be assessed. It is also too early to gauge the economic consequences of the coronavirus (Covid-19) but it is unlikely that any investment company will remain unaffected and a global recession is widely predicted. As a Board we have undergone a robust revaluation process to quantify the effect on our portfolio, although there is still much uncertainty resulting from the pandemic. In spite of this, we have had some good exits in the year, and our renewable energy portfolio remains widely unaffected which to some extent offsets the effect of coronavirus (Covid-19).

Results
As at 31 March 2020, the net asset value was £70.6 million or 70.13 pence per share, compared to £67.5 million or 79.00 pence per share as at 31 March 2019, after the payment of total tax-free dividends of 5 pence per share.

This was driven by a total loss of 4.10 pence per share for the year compared to a return of 7.86 pence per share for the year ended 31 March 2019, which was an exceptional year. The total loss before taxation was £3.8 million compared to a gain of £6.9 million in the previous year.

Further details can be found in the Strategic report below.

Investment performance and progress
We had a number of successful exits during the year resulting in proceeds of £12.3 million. Following a reorganisation, our school Radnor House Twickenham, which was trading at mature levels, was sold generating proceeds of £3.3 million. The Company first invested in Radnor House Twickenham in 2010 and achieved a return of 3.75 times cost (including interest received). The Company has an ongoing investment in Radnor House School (TopCo) which owns Radnor House School Sevenoaks.

Our final two investments in the pub sector, Bravo Inns and Bravo Inns II, were also sold generating combined proceeds of £2.3 million. The return generated on cost over the life of the investment, including interest received, was 1.7 times.

As highlighted in my Chairman’s statement last year, at the beginning of this financial year we sold The Stanwell Hotel near Heathrow generating proceeds of £3.4 million (a return of 0.9 times cost including interest received), and Earnside Energy, our anaerobic digestion plant in Scotland, generating proceeds of £1.7 million (a return of 1.3 times cost including interest received).

However, the final quarter of the year saw a reduction in value of our unquoted portfolio due to the impact of the coronavirus (Covid-19) pandemic. Of our larger investments, our hotel at Stansted Airport has been particularly badly hit, with a correspondingly proportionate reduction in its valuation. Meanwhile, although the valuations of our care homes have also fallen, their operations are proving to be robust in challenging circumstances and are accepting new residents under a strict protocol to minimise risk. The total reduction in value of the Company’s investments during the year was £4.9 million.

The onset of the pandemic, in the final quarter of the year, did not hamper the Company’s investment activities with £5.1 million invested in new and existing companies. The Company has invested £4.7 million in eight new portfolio companies, all of which are expected to require further investment as the companies prove themselves and grow:

£1,244,000 into Elliptic Enterprises, a provider of Anti Money Laundering services to digital asset institutions;
£1,144,000 into Cantab Research (trading as 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;
£975,000 into Concirrus, a software provider bringing real-time behavioural data analytics to the marine and transport insurance industries;
£487,000 into Credit Kudos, a challenger credit bureau helping lenders optimise and automate their affordability and risk assessments;
£384,000 into Clear Review, a provider of talent management software to mid market enterprises;
£320,000 into Limitless Technology, a provider of a customer service platform powered by the crowd and machine learning technology;
£121,000 into Imandra, a provider of automated software testing and an enhanced learning experience for artificial neural networks; and
£71,000 into Symetrica, a designer and manufacturer of radiation detection equipment.

Following these new and follow on investments made, growth and technology now accounts for 9% of our portfolio, an increase from 3% last year.

Further details of the portfolio and disposals made during the year can be found on pages 23 and 24 of the full Annual Report and Financial Statements.

New Dividend Policy

The Board is aware of the importance of dividends to shareholders and it remains its intention to continue to pay regular dividends, as far as liquidity permits. Given the uncertainty that the current pandemic has created and the volatile nature of investing in small unquoted growth businesses, the Board considers it appropriate to move to a variable dividend policy targeting an annual dividend yield of around 5.0%. Semi-annual dividends will be paid calculated as 2.50% of the most recently announced net asset value when the dividend is declared (in most cases this will be the net asset value announced in the Half-yearly Financial Report or in the Annual Report and Financial Statements). This has the advantage of avoiding unsustainably high dividends if the net asset value falls, whilst rewarding shareholders more immediately if the net asset value rises.

This new policy will take effect from the second dividend for the financial year ending 31 March 2021 and dividends declared thereafter. The first dividend for the financial year ending 31 March 2021 will be paid in line with the existing policy.

The Company will therefore pay a first dividend for the financial year ending 31 March 2021 of 2.50 pence per share on 31 July 2020 to shareholders on the register on 10 July 2020.

Risks and uncertainties
The implication of the financial turmoil arising from the coronavirus (Covid-19) crisis is the key risk facing the Company, including its impact on the UK and Global economies. There are also potential implications of the UK leaving the European Union which may adversely affect our underlying portfolio companies. The Manager is continually assessing the exposure to these risks for each portfolio company, and appropriate actions, where possible, are being implemented.

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

Board composition
As previously announced, the Company’s Director and Chairman of the Remuneration Committee, Jeff Warren, sadly died on 6 January 2020. Jeff had been a Director of the Company for over 12 years. His good humour and wise counsel are sorely missed.

As I highlighted in my Chairman’s statement last year Ebbe Dinesen retired on 1 August 2019 after over 6 years with the Company.

On 21 April 2020, following a formal selection process, the Board was pleased to announce the appointment of Richard Wilson as a Director of the Company on 1 May 2020. Richard is highly experienced in the asset management sector and was CEO of BMO Global Asset Management and previously CEO of F&C Asset Management plc. Richard began his asset management career as a UK equity manager with HSBC Asset Management (formerly Midland Montagu) and then joined Deutsche Asset Management (formerly Morgan Grenfell), where he rose to managing director of global equities. From Deutsche, he moved to Gartmore Investment Management in 2003 as head of international equity investments prior to joining F&C in 2004.

Richard will serve on the Company’s Audit Committee, Renumeration Committee and Nomination Committee. Richard will stand for election at the forthcoming Annual General Meeting to be held on 19 August 2020. The Board welcomes Richard and looks forward to working closely with him over the coming years.

New management performance incentive
At the General Meeting held on 21 August 2019, an ordinary resolution was proposed to approve the changes to the Company’s Management Agreement, as detailed in the circular sent to shareholders on 1 July 2019. Whilst the majority of shareholders supported the changes, with 70.4% of the votes cast in favour of the resolution, the Board noted that more than 20% of the shareholder votes were against the resolution.

This prompted the Board, in accordance with the UK Corporate Governance Code, to carry out a consultation process with those shareholders whose shareholdings represented a majority of the votes that voted against the resolution to more fully understand the reasons for their opposition. Of the total number of shares that voted against the resolution, 59% were contacted directly by me. Responses were received from a number of shareholders and the Board took time to carefully reflect on this feedback.

As announced on 6 February 2020, although there was no clear unanimous reason for the opposition to the proposed changes, the Board re-negotiated with the Manager to reduce their share of returns achieved in excess of the hurdle from 20% to 15% which will be deemed to have taken effect from 1 April 2019. All other terms, as detailed in the circular will remain the same.

Corporate broker and share buy-backs
The Board was pleased to announce on 17 June 2020 the appointment of Panmure Gordon (UK) Limited as corporate broker.

Given uncertainty on valuations caused by coronavirus (Covid-19) 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 the release of this Annual Report and Financial Statements, which includes the Company’s audited net asset value.

With this announcement of the Annual Report and Financial Statements for the year ended 31 March 2020, the Board is pleased to announce the resumption of its share buy-back policy, subject to the overall constraint that such purchases are in the Company’s interest, including the maintenance of sufficient resources for investment in existing and new portfolio companies and the continued payment of dividends to shareholders. However, the level of share buybacks until the announcement of the Company’s interim results, expected during December 2020 shall be limited to £750,000.

It is the Board’s intention for such buy-backs to be at around a 5 per cent. discount to net asset value, so far as market conditions and liquidity permit.

Albion VCTs Top Up Offers
During the year, your Board, in conjunction with the boards of four of the other VCTs managed by Albion Capital Group LLP, launched a prospectus top up offer of new Ordinary shares on 22 October 2019. The Board was pleased to announce the Offer closed on 11 December 2019, at which time the Board elected to not exercise the over allotment facility, having raised £6 million. The proceeds are being used to support our existing portfolio companies through the current health pandemic and make new investments. The first allotment of shares under the Offer was on 31 January 2020 and the second allotment was on 30 April 2020. Further details can be found in note 15 and note 19.

Annual General Meeting

As a Board, we are considering the potential impact of the coronavirus (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/AAVC.

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 19 August 2020, at the registered office being, 1 Benjamin Street, London, EC1M 5QL.

Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 67 to 70 and in the Directors’ report on page 33 and 34 of the full Annual Report and Financial Statements.

Based on the current government advice and social distancing guidelines, shareholders will not be allowed entry into the building where the AGM is held. The quorum for the meeting is two, therefore at least one Director will attend in person as well as a representative of Albion Capital Group LLP as Company Secretary to allow the continuation of this AGM. Our Articles of Association do not currently allow hybrid or wholly virtual AGMs, however as outlined below a resolution is being proposed to allow this in the future.

In order to maintain shareholder engagement, the Board have decided to live stream the AGM, which will include a presentation from the Manager, the formal business of the AGM and the answering of some of the questions we receive from Shareholders in advance of the Meeting. Registration details for the live stream will be available at www.albion.capital/funds/AAVC prior to the Meeting.

We always welcome questions from our shareholders at the AGM, but this year we request that shareholders submit their questions to the Board before the AGM. Shareholders can submit questions up until noon on 18 August 2020 in the following ways:
• By email: send your questions to AAVCchair@albion.capital
• By telephone: contact Shareholder relations on 020 7601 1850

Following the Meeting, a summary of responses will be published on the Managers website at www.albion.capital/funds/AAVC.

Shareholders’ views are important, and the Board encourages shareholders to vote on the resolutions using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the Annual General Meeting and recommends shareholders to vote in favour of all the resolutions being proposed.

Virtual and Hybrid Annual General Meetings
The Company’s Articles of Association do not currently allow for hybrid or virtual meetings. The coronavirus (Covid-19) pandemic, and the resulting social distancing rules, have brought to the Board’s attention the importance of the ability to continue to interact with shareholders during unprecedented times. A resolution will be proposed at the upcoming AGM to update the Articles of Association in order to allow the Company to have the flexibility to hold hybrid or virtual meetings in the future if required.

Electronic Communications

To ensure efficient Shareholder communication the Board is actively encouraging Shareholders who are currently receiving hard copy information to change their preferences to electronic communications. To encourage the change, for every Shareholder signing up to receive electronic communications the Manager will donate £1 towards a coronavirus (Covid-19) supporting charity chosen by the Albion team.

There are many reasons why we think this is the right thing to do including less human contact, speed, reduced paper use and cost savings for the Company. All the information and documents relating to the Company can be found on the Company’s webpage on the Manager’s website at www.albion.capital/funds/AAVC.

We encourage shareholders to sign up to electronic communications by registering on the Computershare website at www.investorcentre.co.uk . Once registered, Shareholders are able to update their electronic communication details for all their Albion managed VCT’s, and can also update their address or bank details, as well as see their dividend payment history. Alternatively, please contact shareholder relations at info@albion.capital who will also be able to assist.

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. Details of how to sell shares through reputable channels can also be found here.

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 info@albion.capital, if you wish to check whether any claims made are genuine.

Outlook and prospects

Our asset-based portfolio as a whole is proving to be resilient, while the new technology investments currently being made are in fast-growing Global markets with significant potential to create value. This means that, whilst the portfolio may be further impacted by the economic consequences of the coronavirus (Covid-19) pandemic, we remain confident the Company has the potential to continue to deliver long term returns to shareholders.

Richard Glover
Chairman
1 July 2020

Strategic report

Investment policy
The Company will invest in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments may take the form of equity or a mixture of equity and loans.

The full investment policy can be found above.

Current portfolio analysis
The pie charts at the end of this announcement show the split of the portfolio valuation as at 31 March 2020 by: sector; stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, investee companies maturity measured by revenues and their size measured by the number of people employed. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 23 and 24 of the full Annual Report and Financial Statements.

Direction of portfolio
During the year the Company sold a number of its asset-backed businesses which has resulted in asset-based investments decreasing as a proportion of the portfolio. Due to the proceeds from the disposals and recent fundraisings, cash and cash equivalents accounted for 30% of the net asset value as at 31 March 2020 (2019: 9%). In line with the Company’s investment policy, these funds will be invested into growth and technology businesses, which now represents 9% of the portfolio (2019: 3%). We expect this percentage to continue to increase in the coming years.

Further details on portfolio companies can be found in the Portfolio of investments on page 23 of the full Annual Report and Financial Statements.

Results and dividends	Ordinary shares £'000

Net capital loss for the year ended 31 March 2020	(5,751)
Net revenue return for the year ended 31 March 2020	1,810
Total loss for the year ended 31 March 2020	(3,941)
Dividend of 2.50 pence per share paid on 31 July 2019	(2,382)
Dividend of 2.50 pence per share paid on 31 January 2020	(2,365)
Unclaimed dividends returned to the Company	22
Transferred from reserves	(8,666)

Net assets as at 31 March 2020	70,628

Net asset value as at 31 March 2020 (pence per share)	70.13

The Company paid dividends totalling 5.00 pence per share during the year ended 31 March 2020 (2019: 5.00 pence per share). The Board has declared a first dividend for the year ending 31 March 2021, of 2.50 pence per share to be paid on 31 July 2020 to shareholders on the register on 10 July 2020. The details of the new dividend policy can be found in the Chairman’s statement above.

The capital loss on investments for the year of £4,925,000 (2019: gain of £5,707,000), was mainly attributable to the coronavirus (Covid-19) impact on the Company’s investment portfolio. A number of our portfolio companies have experienced a devaluation, with significant write-downs being to our three care homes, Active Lives Care, Ryefield Court Care, and Shinfield Lodge Care together with our remaining hotel (owned by Kew Green (VCT) Stansted) and our wedding venue (owned by Beddlestead). A full analysis of the Portfolio of investments can be seen on pages 23 and 24 of the full Annual Report and Financial Statements.

The Balance sheet below shows that the net asset value has decreased over the year to 70.13 pence per share (2019: 79.00 pence per share). This decrease in net asset value is attributable to the total loss of 4.10 pence per share coupled with the payment of 5.00 pence per share in dividends.

There was a net cash inflow for the Company of £15,577,000 for the year (2019: net outflow of £557,000), from the disposal of fixed asset investments and the issue of Ordinary shares under the Albion VCTs Top Up Offers, offset by the investment in fixed asset investments, dividends paid, operating activities and the buy-back of shares.

Review of business and future changes
A detailed review of the Company’s business during the year is contained in the Chairman’s statement above. The total loss before tax for the year was £3.8 million (2019: gain of £6.9 million).

The continued focus on growing the technology and healthcare sectors, as well as the strong exits this year from our final two pub investments, one of our hotels, and one of our schools, has resulted in a decrease of the asset-based sector as a percentage of our portfolio. As a consequence, we expect our investment income to reduce in future years, as most of our loan stock interest is received from the asset-based portion of the portfolio. We expect the growth and technology sector to deliver capital returns rather than revenue.

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 world is currently navigating a global pandemic, which will likely leave no company unaffected. The Board believes that the Company’s portfolio is well balanced, and with a significant proportion in cash (30% of the net asset value), the Company is well positioned to support our portfolio companies through the current situation and will hopefully be able to deliver returns to shareholders over the longer term.

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

1. Total shareholder value relative to FTSE All Share Index total return

The graph on page 4 of the full Annual Report and Financial Statements shows the Company’s total shareholder value against the FTSE All-Share Index total return, with dividends reinvested. Details on the performance of the net asset value and return per share for the year are shown in the Chairman’s statement.

2. Net asset value per share and total shareholder value

Total shareholder value decreased by 3.87 pence per Ordinary share for the year ended 31 March 2020 (loss of 4.9 per cent. on opening net asset value).

3. Shareholder value in the year^†

2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
4.8%	3.2%	1.4%	2.8%	7.4%	7.5%	11.8%	7.4%	10.5%	(4.9)%

Source: Albion Capital Group LLP

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

4. Dividend distributions

Dividends paid in respect of the year ended 31 March 2020 were 5.00 pence per share (2019: 5.00 pence per share). Cumulative dividends paid since inception amount to 159.80 pence per Ordinary share.

5. Ongoing charges

The ongoing charges ratio for the year ended 31 March 2020 was 2.4% (2019: 2.4%). The ongoing charges ratio has been calculated using The Association of Investment Companies’ (“AIC”) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. From 1 April 2019, as approved at the General Meeting on 21 August 2019, the ongoing charges cap was reduced from 3.0% to 2.5%.

6. VCT regulation*

The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on pages 31 and 32 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 March 2020. These showed that the Company has complied with all tests and continues to do so.

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

Gearing
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.

Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.

Management agreement
Under the Management agreement, the Manager provides investment management, secretarial and administrative services to the Company. The Management agreement can be terminated by either party on 12 months’ notice. The Management agreement is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 1.9 per cent. of the net asset value of the Company, and an annual secretarial and administrative fee of £53,000 (2019: £52,000) increased annually by RPI. These fees are payable quarterly in arrears. Total annual expenses, including the management fee, are limited to 2.5% of the net asset value.

In line with common practice, the Manager is also entitled to an arrangement fee, payable by each new portfolio company, of approximately 2 per cent. on each new investment made and any applicable monitoring fees.

Management performance incentive
At the 2019 General Meeting, a resolution was passed by 70.4% of shareholders that the existing management performance incentive arrangements be amended in line with the change of investment policy, to invest in a broader range of businesses, including higher risk technology companies, as approved at the 2018 Annual General Meeting. Full details can be found in the circular sent to shareholders on 1 July 2019. The Board believes that an effective performance incentive is in the best interests of shareholders, firstly, because it reinforces the interests of the Manager with those of shareholders and secondly, because, in a competitive environment for venture capital professionals, it enables the Manger to hire and retain quality investment staff.

The new hurdle requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company compared with the previous accounting date exceeds RPI plus 2%. The hurdle will be calculated every year, based on the previous year’s closing NAV per Share. The starting NAV is 79.00 pence per share, being the audited net asset value at 31 March 2019. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable. As detailed in the Chairman’s statement above, in light of the consultation process undertaken with those shareholders who voted against the proposed changes, the Board renegotiated with the Manager for the excess share to be reduced from 20% to 15% of the returns achieved in excess of the hurdle. All other terms set out in the circular remain the same.

There was no management performance incentive fee payable during the year. As at 31 March 2020 the cumulative shortfall of the target return was 7.53 pence per share and this amount needs to be made up in following accounting periods before an incentive fee becomes payable.

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

Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 70 per cent. (80 per cent. from 1 April 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, and benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing.

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 is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian (UK) Limited is the appointed Depositary and oversees 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 regular dividends and the prospect of capital growth. During the year, the Board has approved a new dividend policy, further details of which can be found in the Chairman’s statement above.

The Board temporarily suspended buybacks on 18 March 2020 due to the increasing uncertainty of the net asset value at the time. As outlined in the Chairman’s statement above, the buybacks will be resumed on the announcement of this Annual Report and Financial Statements. The buyback policy is an important means of providing market liquidity for Shareholders.

Shareholders’ views are important and the Board encourages Shareholders to vote on the resolutions at the Annual General Meeting (“AGM”). The Company’s AGM is typically used as an opportunity to communicate with investors, including through a presentation made by the investment management team. However, due to the impact of the coronavirus outbreak, special circumstances are required for this year’s AGM and further details are in the Chairman’s statement above. Details of the location and time of the AGM 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, which the Manager is hoping to hold, (public health advice permitting). The seminar includes some of the portfolio companies sharing insights into their businesses and also presentations from Albion executives on some of the key factors affecting the investment outlook, as well as a review of the past year and the plans for the year ahead. Details of the seminar event are placed on the Manager’s website. Representatives of the Board attend the seminar.

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

The 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 and 37 of the full Annual Report and Financial Statements.

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

As outlined in this report and in the Chairman’s statement above, changes to the Management Agreement from 1 April 2019 between the Company and the Manager were approved by way of an ordinary resolution at the General Meeting held on 21 August 2019. The Board believes that these two changes; reducing the ongoing expenses cap from 3.0% to 2.5% and; the implementation of a new performance incentive scheme are in the best interests of Shareholders. Full details can be found in the circular sent to Shareholders on 1 July 2019 and the General Meeting update announced on 6 February 2020.

The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. However, as discussed in the Environmental, Social and Governance (“ESG”) section below, the portfolio companies’ impact on their stakeholders is also important to the Company. In most cases, an Albion executive has a place on the board of a portfolio company, in order to help with both business operation decisions, as well as good ESG practice.

The Board receives reports on ESG factors within its portfolio from the Manager as it is a signatory of the UN Principles for Responsible Investment. 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 buybacks, resulting in the decision 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”)
The Manager 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.

The Manager made its first trial submission in 2020 against this framework and will make 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 the Manager’s internal board meetings, and any findings are discussed at fund board meetings (VCTs and LP funds). 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. The quality of the investment portfolio 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.

Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Act to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters and as such these requirements do not apply.

Further policies
The Company is not required to have any formal policies, however it has adopted a number of further policies relating to:

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

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

General Data Protection Regulation
The General Data Protection Regulation came into effect on 25 May 2018 with the objective of unifying data privacy requirements across the European Union. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.

Risk management
The Board carries out a regular review of the risk environment in which the Company operates, 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.

The Directors have carried out a robust assessment of the Company’s principal risks and uncertainties, and explain how they are being managed or mitigated as follows:

Risk	Possible consequence	Risk management
Investment, performance and valuation risk	The risk of investment in poor quality businesses, which could reduce the 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 unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines updated in 2018. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board.
VCT approval risk	The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status.	To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required.
Regulatory and compliance risk	The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies.	Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own Board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors.
Operational and internal control risk	The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.	The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year, and receives reports from the Manager on 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. 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 policies and procedures as required by the AIFMD. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
Economic, political and social risk	Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection. The current risk to the Company, and the wider population and economy, is the coronavirus (Covid-19) pandemic.	The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow on investments. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term. With regards to coronavirus (Covid-19), the Manager is having ongoing discussions with all portfolio companies, in order to ascertain where support is most needed. Cash comprises a significant proportion of net assets, following a strong year of exits and the most recent Top Up, which can be used in part to help mitigate any immediate cashflow problems for these portfolio companies. The portfolio is structured as an all-weather portfolio with c.35 companies which are diversified as discussed above. Exposure is small to at-risk sectors that include leisure, hospitality, retail and travel.
Market value of Ordinary shares	The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value.	The Company operates a share buy-back policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent of net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buy-back authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors.
Reputational risk	The Company relies on the judgement and reputation of the Manager which is itself subject to the risk of loss.	The Board regularly questions the Manager on its ethics, procedures, safeguards and investment philosophy, which should consequently result in the risk to reputation being minimised.

Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and principle 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 March 2023. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board 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 fully 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 have deliberated at length the potential impact of the coronavirus (Covid-19) pandemic on the Company. They have thoroughly examined cashflows with stressed assumptions, and also 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 and geared towards long term growth, delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company’s income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.

Taking into account the processes for mitigating risks, monitoring costs, share price discount, the Manager’s compliance with the investment objective, policies and business model and the balance of the portfolio the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 March 2023.

This Strategic report of the Company for the year ended 31 March 2020 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Act.

Richard Glover
Chairman
1 July 2020

Responsibility statement

In preparing these Financial Statements for the year to 31 March 2020, the Directors of the Company, being Richard Glover, John Kerr, Ann Berresford and Richard Wilson, confirm to the best of their knowledge:

summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 March 2020 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
the Chairman’s statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

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 of the full Annual Report and Financial Statements.

For and on behalf of the Board

Richard Glover

Chairman

1 July 2020

Income statement

		Year ended 31 March 2020			Year ended 31 March 2019
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£’000	£’000	£’000	£’000	£’000	£’000
(Losses)/gains on investments	3	-	(4,925)	(4,925)	-	5,707	5,707
Investment income	4	2,858	-	2,858	2,842	-	2,842
Investment management fees	5	(340)	(1,020)	(1,360)	(318)	(954)	(1,272)
Other expenses	6	(375)	-	(375)	(357)	-	(357)
(Loss)/profit on ordinary activities before tax		2,143	(5,945)	(3,802)	2,167	4,753	6,920
Tax (charge)/credit on ordinary activities	8	(333)	194	(139)	(330)	181	(149)
(Loss)/profit and total comprehensive income attributable to shareholders		1,810	(5,751)	(3,941)	1,837	4,934	6,771
Basic and diluted (loss)/return per share (pence)*	10	1.88	(5.98)	(4.10)	2.13	5.73	7.86

* adjusted for treasury shares

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

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

Balance sheet

		31 March 2020	31 March 2019
	Note	£’000	£’000

Fixed asset investments	11	49,243	61,459

Current assets
Trade and other receivables less than one year	13	252	514
Cash and cash equivalents		21,782	6,205
		22,034	6,719

Total assets		71,277	68,178

Payables: amounts falling due within one year
Trade and other payables	14	(649)	(631)


Total assets less current liabilities		70,628	67,547

Equity attributable to equity holders
Called up share capital	15	1,148	970
Share premium		39,477	26,042
Capital redemption reserve		7	7
Unrealised capital reserve		13,178	19,327
Realised capital reserve		6,549	6,151
Other distributable reserve		10,269	15,050
Total equity shareholders’ funds		70,628	67,547

Basic and diluted net asset value per share (pence)*	16	70.13	79.00

* excluding treasury shares

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

These Financial Statements were approved by the Board of Directors and authorised for issue on 1 July 2020, and were signed on its behalf by

Richard Glover
Chairman

Company number: 03142609

Statement of changes in equity

	Called up share capital	Share premium	Capital redemption reserve	Unrealised capital reserve	Realised capital reserve*	Other distributable reserve*	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April 2019	970	26,042	7	19,327	6,151	15,050	67,547
(Loss)/return and total comprehensive income for the year	-	-	-	(5,217)	(534)	1,810	(3,941)
Transfer of previously unrealised gains on realisations of investments	-	-	-	(932)	932	-	-
Purchase of treasury shares	-	-	-	-	-	(1,866)	(1,866)
Issue of equity	178	13,751	-	-	-	-	13,929
Cost of issue of equity	-	(316)	-	-	-	-	(316)
Net dividends paid (note 9)	-	-	-	-	-	(4,725)	(4,725)
At 31 March 2020	1,148	39,477	7	13,178	6,549	10,269	70,628
At 1 April 2018	962	25,475	7	13,789	6,755	18,791	65,779
Return/(loss) and total comprehensive income for the year	-	-	-	5,782	(848)	1,837	6,771
Transfer of previously unrealised gains on realisations of investments	-	-	-	(244)	244	-	-
Purchase of treasury shares	-	-	-	-	-	(1,300)	(1,300)
Issue of equity	8	570	-	-	-	-	578
Cost of issue of equity	-	(3)	-	-	-	-	(3)
Net dividends paid (note 9)	-	-	-	-	-	(4,278)	(4,278)
At 31 March 2019	970	26,042	7	19,327	6,151	15,050	67,547

* These reserves amount to £16,818,000 (2019: £21,201,000) which is considered distributable.

Statement of cash flows

	Year ended 31 March 2020	Year ended 31 March 2019
	£’000	£’000
Cash flow from operating activities
Loan stock income received	2,810	2,868
Deposit interest received	87	30
Dividend income received	50	56
Investment management fees paid	(1,345)	(1,263)
Other cash payments	(360)	(350)
UK Corporation tax paid	(178)	(68)
Net cash flow from operating activities	1,064	1,273

Cash flow from investing activities
Purchase of fixed asset investments	(4,650)	(2,292)
Disposal of fixed asset investments	12,129	5,449
Net cash flow from investing activities	7,479	3,157

Cash flow from financing activities
Issue of share capital	13,019	-
Cost of issue of equity	(32)	(3)
Dividends paid*	(4,087)	(3,683)
Purchase of own shares (including costs)	(1,866)	(1,301)
Net cash flow from financing activities	7,034	(4,987)

Increase/(decrease) in cash and cash equivalents	15,577	(557)
Cash and cash equivalents at start of the year	6,205	6,762
Cash and cash equivalents at end of the year	21,782	6,205

*The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.

Notes to the Financial Statements

1. Basis of preparation
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”) in October 2019. The Financial Statements have been prepared on a going concern basis.

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 in note 2 below.

Company information is shown on page 2 of the full Annual Report and Financial Statements.

2. Accounting policies
Fixed asset investments

The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.

In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.

Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).

Subsequently, the investments are valued at ‘fair value’, which is measured as follows:

Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations.
Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.

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

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

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

Gains and losses on investments
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the year as a capital item and allocated to the unrealised capital reserve.

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

Unquoted loan stock
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.

Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.

Investment management fees, performance incentive fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:

75 per cent. of management fees 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. (Losses)/gains on investments

	Year ended 31 March 2020	Year ended 31 March 2019
	£’000	£’000
Unrealised (losses)/gains on fixed asset investments	(5,217)	5,782
Realised gains/(losses) on fixed asset investments	292	(75)
(Losses)/gains on investments	(4,925)	5,707

4. Investment income

	Year ended 31 March 2020	Year ended 31 March 2019
	£’000	£’000

Loan stock interest and other fixed returns	2,719	2,755
Dividend income	50	56
Bank interest	89	31
	2,858	2,842

5. Investment management fees

	Year ended 31 March 2020 £’000	Year ended 31 March 2019 £’000
Investment management fee charged to revenue	340	318
Investment management fee charged to capital	1,020	954
	1,360	1,272

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

During the year, services of a total value of £1,413,000 (2019: £1,324,000), were purchased by the Company from Albion Capital Group LLP; this includes £1,360,000 (2019: £1,272,000) of investment management fee and £53,000 (2019: £52,000) of secretarial and administration fee. At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed within payables was £349,000 (2019: £334,000).

Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 March 2020, fees of £232,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2019: £137,000).

Albion Capital Group LLP, its partners and staff hold a total of 861,962 shares in the Company as at 31 March 2020.

The Company has entered into an offer agreement relating to the Offers with the Company’s investment manager Albion Capital Group LLP (“Albion”), pursuant to which Albion will receive a fee of 2.5 per cent. of the gross proceeds of the Offers and out of which Albion will pay the costs of the Offers, as detailed in the Prospectus.

6. Other expenses

	Year ended 31 March 2020	Year ended 31 March 2019
	£’000	£’000
Directors’ fees (inc. NIC)	106	132
Auditor’s remuneration for statutory audit services (exc. VAT)	34	28
Secretarial and administration fee	53	52
Other administrative expenses	182	145
	375	357

7. Directors’ fees

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

	Year ended 31 March 2020	Year ended 31 March 2019
	£’000	£’000
Directors’ fees	97	121
National insurance	9	11
	106	132

The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on page 42 of the full Annual Report and Financial Statements.

8. Tax charge/(credit) on ordinary activities

	Year ended 31 March 2020			Year ended 31 March 2019
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
UK corporation tax in respect of current year	397	(194)	203	401	(181)	220
UK corporation tax in respect of prior year	(64)	-	(64)	(71)	-	(71)
Total	333	(194)	139	330	(181)	149

Factors affecting the tax charge:

	Year ended 31 March 2020 £’000	Year ended 31 March 2019 £’000
(Loss)/return on ordinary activities before taxation	(3,802)	6,920

Tax (credit)/charge on (loss)/profit at the standard rate of 19% (2019: 19%)	(722)	1,315

Factors affecting the charge:
Non-taxable losses/(gains)	935	(1,084)
Income not taxable	(10)	(11)
Consortium relief in respect of prior years	(64)	(71)
	139	149

The tax charge for the year shown in the Income statement is lower than the standard rate of corporation tax in the UK of 19 per cent. (2019: 19 per cent.). The differences are explained above.

Consortium relief is recognised in the accounts in the period in which the claim is submitted to HMRC and is shown as tax in respect of prior year.

Notes

(i)            Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii)           Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii)          No deferred tax asset or liability has arisen in the year.

9. Dividends

	Year ended 31 March 2020		Year ended 31 March 2019
	£’000		£’000
Dividend of 2.50p per share paid on 31 July 2018		-	2,160
Dividend of 2.50p per share paid on 31 January 2019		-	2,140
Dividend of 2.50p per share paid on 31 July 2019		2,382	-
Dividend of 2.50p per share paid on 31 January 2020		2,365	-
Unclaimed dividends		(22)	(22)
		4,725	4,278

In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2021 of 2.50 pence per share to be paid on 31 July 2020 to shareholders on the register on 10 July 2020. The total dividend will be approximately £2,541,000. All dividends are paid from the other distributable reserve. The details of the new dividend policy can be found in the Chairman’s statement above.

During the year, unclaimed dividends older than twelve years of £22,000 (2019: £22,000) were returned to the Company in accordance with the terms of the Articles of Association and have been accounted for on an accruals basis.

10. Basic and diluted return per share

	Year ended 31 March 2020			Year ended 31 March 2019
	Revenue	Capital	Total	Revenue	Capital	Total
The (loss)/return per share has been based on the following figures:
(Loss)/return attributable to equity shares (£’000)	1,810	(5,751)	(3,941)	1,837	4,934	6,771
Weighted average shares in issue (adjusted for treasury shares)		96,167,014			86,066,296
(Loss)/return attributable per equity share (pence)	1.88	(5.98)	(4.10)	2.13	5.73	7.86

The weighted average number of shares is calculated after adjusting for treasury shares of 14,084,031 (2019: 11,517,188).

There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.

11. Fixed asset investments

	31 March 2020 £’000	31 March 2019 £’000
Investments held at fair value through profit or loss Unquoted equity	25,773	29,550
Unquoted loan stock	23,470		31,909
	49,243		61,459

	31 March 2020 £’000	31 March 2019 £’000
Opening valuation	61,459	59,451
Purchases at cost	5,090	1,851
Disposal proceeds	(12,295)	(5,438)
Realised gains/(losses)	292	(75)
Movement in loan stock accrued income	(86)	(113)
Unrealised (losses)/gains	(5,217)	5,782
Closing valuation	49,243	61,459

Movement in loan stock accrued income
Opening accumulated loan stock accrued income	838	951
Movement in loan stock accrued income	(86)	(113)
Closing accumulated loan stock accrued income	752	838

Movement in unrealised gains
Opening accumulated unrealised gains	19,327	13,789
Transfer of previously unrealised gains to realised reserve on realisations of investments	(932)	(244)
Unrealised (losses)/gains	(5,217)	5,782
Closing accumulated unrealised gains	13,178	19,327

Historic cost basis
Opening book cost	41,294	44,712
Purchases at cost	5,090	1,851
Sales at cost	(11,071)	(5,269)
Closing book cost	35,313	41,294

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

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

	31 March 2020	31 March 2019
Valuation methodology	£’000	£’000
Third party valuation - Earnings multiple	28,110	37,919
Third party valuation – Discounted cash flow	9,968	10,195
Cost or price of recent investment (reviewed for impairment or uplift)	6,607	5,095
Revenue multiple	2,524	-
Net assets	2,034	3,155
Offer price	-	5,095
	49,243	61,459

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

The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and P/E multiples (based on the most recent revenue, EBITDA or earnings achieved and equivalent corresponding revenue, EBITDA or earnings multiples of comparable companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the 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 March 2019 and 31 March 2020:

Change in valuation methodology (2019 to 2020)	Value as at 31 March 2020 £’000	Explanatory note
Cost to revenue multiple	1,060	More appropriate valuation methodology
Cost to net assets	180	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 March 2020.

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

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

All fixed asset investments (unquoted equity, preference shares and loan stock) are valued according to Level 3 valuation methods. The Level 3 valuation movements are therefore the same as the fixed asset investment valuation movements above.

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. 58 per cent. of the portfolio of investments is based on cost or price of recent investment, 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 for the valuations of the remainder of the portfolio companies could result in an increase in the valuation of investments by £1,217,000 or a decrease in the valuation of investments by £2,053,000. For valuations based on third party valuations, the Board considers that the most significant inputs are earnings multiples and market value per room for care homes, and discount rates for renewable energy investments, which have been adjusted to drive the above sensitivities.

12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102, they are measured at fair value 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 (some of which are non-voting) of the allotted shares in the portfolio companies as at 31 March 2020 as described below.

Company	Registered address and country of incorporation	Profit/(loss) before tax £’000	Aggregate capital and reserves £’000	Results for year ended:	% class and share type	% total voting rights
Active Lives Care Limited	EC1M 5QL, UK	n/a*	(2,288)	31 December 2018	22.2% Ordinary	22.2%
Kew Green VCT (Stansted) Limited	EC1M 5QL, UK	680	3,573	31 August 2018	45.2% Ordinary	45.2%
Ryefield Court Care Limited	EC1M 5QL, UK	(312)	(1,692)	30 April 2019	23.6% Ordinary	23.6%
Shinfield Lodge Care Limited	EC1M 5QL, UK	n/a*	(714)	31 December 2018	35.3% Ordinary	35.3%

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

13. Current assets

	31 March 2020	31 March 2019
Trade and other receivables	£’000	£’000
Other receivables	172	22
Investments awaiting completion	-	441
UK corporation tax receivable	64	42
Prepayments and accrued income	16	9
	252	514

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 March 2020	31 March 2019
	£’000	£’000
Trade payables	13	12
UK Corporation tax payable	203	220
Accruals and deferred income	433	399
	649	631

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
97,018,262 Ordinary shares of 1 penny each at 31 March 2019	970
17,771,277 Ordinary shares of 1 penny each issued during the year	178
114,789,539 Ordinary shares of 1 penny each at 31 March 2020	1,148

11,517,188 Ordinary shares of 1 penny each held in treasury at 31 March 2019	(115)
2,566,843 Ordinary shares purchased during the year to be held in treasury	(26)
14,084,031 Ordinary shares of 1 penny each held in treasury at 31 March 2020	(141)

*100,705,508 Ordinary shares of 1 penny each in circulation at 31 March 2020**	1,007

* Carrying one vote each

The Company purchased 2,566,843 Ordinary shares (2019: 1,787,000) to be held in treasury at a cost of £1,866,000 (2019: £1,300,000) representing 2.2 per cent. (2019: 1.8 per cent.) of its issued share capital as at 31 March 2020. The shares purchased for treasury were funded from the other distributable reserve.

The Company holds a total of 14,084,031 shares (2019: 11,517,188) in treasury at a nominal value of £141,000, representing 12.3 per cent. of the issued Ordinary share capital as at 31 March 2020.

Under the terms of the Dividend Reinvestment Scheme Circular dated 10 July 2008, the following new Ordinary shares of nominal value 1 penny per share were allotted during the year:

Date of allotment	Number of shares allotted	Aggregate nominal value of shares	Issue price (pence per	Net invested	Opening market price on allotment date
		£’000	share)	£’000	(pence per share)
31 July 2019	414,275	4	76.50	302	72.75
31 January 2020	408,664	4	75.46	292	71.25
	822,939	8		594

During the year, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCTs Prospectus Top Up Offers 2018/19 and the Albion VCTs Prospectus Top Up Offers 2019/20:

Date of allotment	Number of shares allotted	Aggregate nominal value of shares	Issue price (pence per	Net consideration received	Opening market price on allotment date
		£’000	share)	£’000	(pence per share)
1 April 2019	2,517,008	25	78.90	1,956	73.00
1 April 2019	554,593	5	79.30	431	73.00
1 April 2019	6,375,602	64	79.70	4,955	73.00
12 April 2019	290,390	3	78.90	226	73.75
12 April 2019	40,353	-	79.30	31	73.75
12 April 2019	288,765	3	79.70	224	73.75
31 January 2020	2,668,571	27	76.70	2,016	71.25
31 January 2020	592,553	6	77.00	447	71.25
31 January 2020	3,620,503	36	77.40	2,733	71.25
	16,948,338	169		13,019

16. Basic and diluted net asset value per share

	31 March 2020	31 March 2019
Basic and diluted net asset value per share (pence)	70.13	79.00

The basic and diluted net asset value per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (adjusted for treasury shares) of 100,705,508 Ordinary shares (2019: 85,501,074).

17. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail on page 30 of the Directors’ report of the full Annual Report and Financial Statements.

The Company’s financial instruments comprise equity and loan stock investments in unquoted companies, cash balances and short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.

The principal risks arising from the Company’s operations are:

Investment (or market) risk (which comprises investment price and cash flow interest rate risk);
credit risk; and
liquidity risk.

The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year and there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.

Investment risk
As a venture capital trust, it is the Company’s specific nature to evaluate and control the investment risk of its portfolio in unquoted investments, details of which are shown on pages 23 and 24 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio companies and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.

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

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

The maximum investment risk as at the Balance sheet date is the value of the fixed investment portfolio which is £49,243,000 (2019: £61,459,000). Fixed asset investments form 70 per cent. of the net asset value as at 31 March 2020 (2019: 91 per cent.).

More details regarding the classification of fixed asset investments are shown in note 11.

Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. 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 pie chart at the end of this announcement.

As required under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the extent to which the assets are exposed to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a change of between 10% to 20% based on the current economic climate. The impact of a 10% to 20% change has been selected as this is a range which is considered reasonable given the current level of volatility observed. When considering the appropriate level of sensitivity to be applied, the Board has considered both historic performance and future expectations.

At the lower end of the range, the sensitivity of a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £4,924,000 At the higher end of the range, the sensitivity of a 20% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £9,849,000.

Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company’s analysis, it was estimated that a rise of 1 per cent. in all interest rates would have increased total return before tax for the year by approximately £222,000 (2019: £102,000). Furthermore, it was considered that a fall of interest rates below current levels during the year would have been unlikely.

The weighted average effective interest rate applied to the Company’s fixed rate assets during the year was approximately 12.8 per cent. (2019: 9.5 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 6.0 years (2019: 4.5 years).

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

	31 March 2020				31 March 2019
	Fixed rate £’000	Floating rate £’000	Non-interest bearing £’000	Total £’000	Fixed rate £’000	Floating rate £’000	Non-interest bearing £’000	Total £’000
Unquoted equity	-	-	25,773	25,773	-	-	29,550	29,550
Unquoted loan stock	22,730	257	483	23,470	31,311	270	328	31,909
Receivables*	-	-	175	175	-	-	465	465
Payables*	-	-	(446)	(446)	-	-	(411)	(411)
Cash	-	21,782	-	21,782	-	6,205	-	6,205
	22,730	22,039	25,985	70,754	31,311	6,475	29,932	67,718

* The receivables and payables do not reconcile to the Balance sheet as prepayments and tax receivable/(payable) are not included in the above table.

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

The Manager evaluates credit risk on loan stock and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. For loan stock investments made prior to 6 April 2018, which account for 92.5 per cent. of loan stock by value, typically loan stock instruments have a fixed or floating charge, which may or may not have been subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.

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

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

The Company’s total gross credit risk as at 31 March 2020 was limited to £23,470,000 of unquoted loan stock instruments (2019: £31,909,000), £21,782,000 cash deposits with banks (2019: £6,205,000) and £252,000 of other receivables (2019: £514,000).

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 the unquoted loan stock is described under liquidity risk.

Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.

Liquidity risk
Liquid assets are held as cash on current account, on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £6,809,000 as at 31 March 2020 (2019: £6,516,000).

The Company has no committed borrowing facilities as at 31 March 2020 (2019: £nil) and had cash balances of £21,782,000 (2019: £6,205,000). The main cash outflows are for new investments, buy-back of shares and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company’s financial liabilities are short term in nature and total £649,000 for the year to 31 March 2019 (2019: £631,000).

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

	31 March 2020				31 March 2019
Redemption date	Fully performing £’000	Past due £’000	Valued below cost £’000	Total £’000	Fully performing £’000	Past due £’000	Valued below cost £’000	Total £’000
Less than one year	7,643	488	917	9,048	6,368	2,318	4,305	12,991
1-2 years	2,110	-	-	2,110	4,403	299	-	4,702
2-3 years	544	-	-	544	2,110	1,061	-	3,171
3-5 years	1,511	-	-	1,511	820	-	-	820
5+ years	9,809	448	-	10,257	9,725	500	-	10,225
Total	21,617	936	917	23,470	23,426	4,178	4,305	31,909

Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. The cost of loan stock valued below cost is £1,026,000 (2019: £5,039,000).

In view of the information shown, the Board considers that the Company is subject to low liquidity risk.

Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 31 March 2020 are stated at fair value as determined by the Directors, with the exception of receivables, payables and cash which are carried at amortised cost. 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 at 31 March 2020.

There are no contingent liabilities or guarantees given by the Company as at 31 March 2020 (31 March 2019: nil).

19. Post balance sheet events
Since 31 March 2020 the Company has had the following post balance sheet events:

Investment of £286,000 in TransFICC Limited;
Investment of £97,000 in Credit Kudos Limited;
Investment of £30,000 in The Evewell (Harley Street) Limited; and
Investment of £12,000 in Symetrica Limited.

Albion VCTs Prospectus Top Up Offers 2019/20

The following new Ordinary shares of nominal value 1 penny per share were allotted under the Albion VCTs Prospectus Top Up Offers 2019/20 after 31 March 2020:

Date of allotment	Number of shares allotted	Aggregate nominal value of shares	Issue price (pence per	Net consideration received	Opening market price on allotment date
		£’000	share)	£’000	(pence per share)
30 April 2020	193,917	2	72.50	138	63.50
30 April 2020	742,072	7	73.20	530	63.50
	935,989	9		668

20. Related party transactions

Other than transactions with the Manager as disclosed in note 5, there are no related party transactions or balances requiring disclosure.

21. Other information

The information set out in this announcement does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 March 2020 and 31 March 2019, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 March 2020, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.

22. Publication

The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/AAVC/31Mar2020.pdf.

Attachment

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

Companies

Albion Venture Capital Trust (AAVC)

Friday, 15th November 2024

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1 hour ago Mitie Group

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