Kings Arms Yard VCT PLC: Half-yearly Financial ...
Kings Arms Yard VCT PLC
LEI Code 213800DK8H27QY3J5R45
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.2, Kings Arms Yard VCT PLC today makes public its information relating to the Half-yearly Financial Report (which is unaudited) for the six months to 30 June 2019. This announcement was approved by the Board of Directors on 27 August 2019.
The full Half-yearly Financial Report (which is unaudited) for the period to 30 June 2019, will shortly be sent to shareholders and will be available on the Albion Capital Group LLP website by clicking www.albion.capital/funds/KAY/30Jun2019.pdf.
Investment policy
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.
Funds held pending investment or for liquidity purposes are held as cash on deposit or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within venture capital trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company’s assets at cost, thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company’s maximum exposure in relation to gearing is restricted to the amount equal to its adjusted capital and reserves.
Financial calendar
| Record date for second dividend | 4 October 2019 |
| Payment date of second dividend | 31 October 2019 |
| Financial year end | 31 December |
Financial highlights
| Unaudited six months ended 30 June 2019 | Unaudited six months ended 30 June 2018 | Audited year ended 31 December 2018 | ||||
| (pence per share) | (pence per share) | (pence per share) | ||||
| Opening net asset value | 22.78 | 21.60 | 21.60 | |||
| Revenue return | 0.24 | 0.15 | 0.34 | |||
| Capital return | 0.11 | 1.62 | 2.04 | |||
| Total return | 0.35 | 1.77 | 2.38 | |||
| Dividends paid | (0.60) | (0.60) | (1.20) | |||
| Impact of fundraising/buybacks | - | (0.03) | - | |||
| Net asset value | 22.53 | 22.74 | 22.78 | |||
| Total shareholder return | From Launch to 31 December 2010 (pence per share) | 1 January 2011 to 30 June 2019 (pence per share) | From Launch to 30 June 2019 (pence per share) |
| Subscription price per share at launch | 100.00 | - | 100.00 |
| Dividends paid | 58.66 | 8.47 | 67.13 |
| (Decrease)/increase in net asset value | (83.40) | 5.93 | (77.47) |
| Total shareholderreturn | 75.26 | 14.40 | 89.66 |
| Current annual dividend objective (pence per share) | 1.20 |
The Directors have declared a second dividend of 0.60 pence per share for the year ending 31 December 2019, which will be paid on 31 October 2019 to shareholders on the register on 4 October 2019.
The above financial summary is for the Company, Kings Arms Yard VCT PLC only.
Interim management report
Introduction
The total return for the six month period to 30 June 2019 was 0.35 pence per share (1.5% on opening net asset value), compared to a total return of 1.77 pence per share for the six month period to 30 June 2018.
Results
Net asset value decreased from 22.78 pence per share at 31 December 2018 to 22.53 pence per share at 30 June 2019, following the payment of a 0.60 pence per share dividend on 30 April 2019.
Dividends
Progress to date gives the Board confidence in the sustainability of our dividend policy and we are therefore pleased to announce a further dividend of 0.60 pence per share to be paid on 31 October 2019, to shareholders on the register on 4 October 2019. The annual dividend target per share of 1.20 pence represents a tax free yield of 5.5% on the mid-market share price of 21.90 pence per share as at 30 June 2019. The Company continues to offer a Dividend Reinvestment Scheme whereby shareholders can elect to receive dividends in the form of new shares.
Valuations
The net effect of the Board’s regular portfolio revaluation has been an overall gain on investments of £0.9m. The key movements in the period include: a £1.3m uplift in the valuation of Proveca, a £0.3m uplift in the valuation of OmPrompt Holdings, offset by a £1.0m reduction in the valuation of Anthropics Technology.
Further details of the portfolio of investments can be found below.
Investment activity
There has been a good level of investment activity in the six months ended 30 June 2019. The Company has invested £1.1m into four new portfolio companies, with the expectation of further funding rounds over time to support success. In addition, the Company invested £2.0m to support growth in existing portfolio companies. New investments in the period included:
- An initial investment of £510,000 (Albion VCTs: £3.0m) in Avora, a developer of software to improve decision making through augmented analytics and machine learning;
- An initial investment of £260,000 (Albion VCTs: £2.0m) in Limitless Technology, a provider of a customer service platform powered by the crowd and machine learning technology;
- An initial investment of £203,000 (Albion VCTs: £1.9m) in Clear Review, a provider of Human Resources software to mid-market enterprises;
- An initial investment of £91,000 (Albion VCTs: £0.8m) in Imandra, a provider of automated software testing and an enhanced learning experience for artificial neural networks.
In the period, the Company sold all of its remaining quoted securities in ErgoMed generating proceeds of £1.2m representing realised gain on cost of £0.4m. In addition, the Company sold its entire holding in Earnside Energy, generating proceeds of £0.9m and achieving a return, including interest, of 1.1 times cost. For more information please see the realisations table below.
Portfolio sector allocation
The pie chart at the end of this announcement outlines the different sectors in which the Company’s assets, at carrying value, are currently held.
Board composition
As mentioned in the year end Chairman’s statement, the Board was pleased to announce the appointment of Fiona Wollocombe as a Director of the Company from 1 May 2019. The Board welcomes Fiona and looks forward to working closely with her over the coming years.
Transactions with the Manager
Details of transactions with the Manager for the reporting period can be found in note 4. Details of related party transactions can be found in note 10.
Albion VCTs Top Up Offers
The Company is pleased to announce that its participation in the Albion VCTs Prospectus Top Up Offers 2018/19 was fully subscribed and closed early raising net proceeds of £7.8m. Further details can be found in note 7. The proceeds of the Offer are being deployed into new investments as mentioned above and supporting further funding of existing portfolio companies to promote growth.
Share buy-backs
It remains the Board’s policy to buy-back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest. This includes the maintenance of sufficient cash resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board’s intention over time for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.
Risks and uncertainties
The outlook for the UK economy continues to be the key risk affecting the Company, and the withdrawal of the UK from the European Union may well have an impact on the Company and its investments, although it is difficult to quantify at this time. The Manager has performed an assessment of portfolio companies to assess exposure to Europe, and appropriate actions, where possible, have been implemented.
The Company’s investment risk is mitigated through a variety of processes, including investing in a diversified portfolio in terms of sector and stage of maturity and by seeking investment opportunities where it is believed growth can be both resilient and sustainable.
Other risks and uncertainties remain unchanged and are detailed in note 12 below.
Outlook
Your Board remains conscious of the dangers, both regional and global, to the macroeconomic environment but is confident that our widely diversified portfolio continues to offer the opportunity of significant long term growth.
We believe that the success of the individual businesses in which our Company is invested will ultimately prove more significant than any short term economic disturbances.
Robin Field
Chairman
27 August 2019
Responsibility statement
The Directors, Robin Field, Thomas Chambers, Martin Fiennes and Fiona Wollocombe, are responsible for preparing the Half-yearly Financial Report. In preparing these condensed Financial Statements for the period to 30 June 2019 we, the Directors of the Company, confirm that to the best of our knowledge:
(a) the condensed set of Financial Statements, which has been prepared in accordance with Financial Reporting Standard 104 “Interim Financial Reporting”, gives a true and fair view of the assets, liabilities, financial position and profit and loss of the Company as required by DTR 4.2.4R;
(b) the Interim management report, includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
(c) the Interim management report, includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).
This Half-yearly Financial Report has not been audited or reviewed by the Auditor.
For and on behalf of the Board
Robin Field
Chairman
27 August 2019
Portfolio of investments
| As at 30 June 2019 | ||||||
| Fixed asset investments | % voting rights | Cost(1) £’000 | Cumulative movement in value £’000 | Value £’000 | Change in value for the period(2) £’000 | |
| Active Lives Care Limited | 20.3 | 4,395 | 3,170 | 7,565 | (65) | |
| Proveca Limited | 15.1 | 2,259 | 3,358 | 5,617 | 1,328 | |
| Ryefield Court Care Limited | 18.7 | 3,070 | 2,358 | 5,428 | 9 | |
| Egress Software Technologies Limited | 4.8 | 1,644 | 2,901 | 4,545 | - | |
| Chonais River Hydro Limited | 6.5 | 2,428 | 930 | 3,358 | (24) | |
| Antenova Limited | 28.7 | 1,733 | 1,230 | 2,963 | 231 | |
| Perpetuum Limited | 13.1 | 2,636 | (136) | 2,500 | (30) | |
| The Street by Street Solar Programme Limited | 10.0 | 1,040 | 792 | 1,832 | 30 | |
| Quantexa Limited | 1.8 | 438 | 1,378 | 1,816 | - | |
| Regenerco Renewable Energy Limited | 9.8 | 988 | 611 | 1,599 | 32 | |
| Alto Prodotto Wind Limited | 11.1 | 934 | 623 | 1,557 | (16) | |
| Elateral Group Limited | 47.9 | 5,113 | (3,695) | 1,418 | (192) | |
| G.Network Communications Limited | 2.8 | 635 | 754 | 1,389 | 32 | |
| MyMeds&Me Limited | 15.4 | 1,459 | (77) | 1,382 | - | |
| OmPrompt Holdings Limited | 14.8 | 1,377 | (45) | 1,332 | 340 | |
| Bravo Inns II Limited | 5.0 | 800 | 404 | 1,204 | 128 | |
| Academia Inc. | 3.0 | 351 | 792 | 1,143 | (25) | |
| Dragon Hydro Limited | 17.2 | 711 | 405 | 1,116 | (32) | |
| Shinfield Lodge Care Limited | 2.9 | 535 | 512 | 1,047 | 34 | |
| Sandcroft Avenue Limited | 5.3 | 954 | (50) | 904 | (88) | |
| Symetrica Limited | 3.7 | 535 | 348 | 883 | (127) | |
| Gharagain River Hyrdo Limited | 5.0 | 620 | 177 | 797 | (7) | |
| Sift Limited | 42.1 | 2,306 | (1,565) | 741 | 38 | |
| AVESI Limited | 14.8 | 484 | 214 | 698 | (11) | |
| Black Swan Data Limited | 1.4 | 671 | - | 671 | - | |
| Beddlestead Limited | 5.1 | 606 | (2) | 604 | (1) | |
| The Evewell (Harley Street) Limited | 4.7 | 583 | - | 583 | - | |
| Secured By Design Limited | 1.7 | 260 | 294 | 554 | 133 | |
| MPP Global Solutions Limited | 1.9 | 550 | - | 550 | - | |
| Avora Limited | 3.2 | 510 | - | 510 | - | |
| Anthropics Technology Limited | 13.8 | 19 | 482 | 501 | (969) | |
| Mirada Medical Limited | 1.8 | 390 | 90 | 480 | (11) | |
| Convertr Media Limited | 3.1 | 471 | 8 | 479 | (179) | |
| Greenenerco Limited | 8.6 | 274 | 194 | 468 | 9 | |
| Locum’s Nest Limited | 4.3 | 375 | 23 | 398 | - | |
| Koru Kids Limited | 1.7 | 204 | 192 | 396 | 192 | |
| Oviva AG | 2.1 | 367 | 11 | 378 | 8 | |
| Phrasee Limited | 1.8 | 374 | - | 374 | - | |
| Zift Channel Solutions Inc. | 0.6 | 321 | 45 | 366 | 3 | |
| Panaseer Limited | 1.5 | 253 | 98 | 351 | - | |
| Cisiv Limited | 3.1 | 278 | (11) | 267 | - | |
| Limitless Technology Limited | 1.7 | 260 | - | 260 | - | |
| Abcodia Limited | 4.3 | 735 | (475) | 260 | - | |
| Celoxica Holdings plc | 4.4 | 513 | (255) | 258 | - | |
| Arecor Limited | 1.2 | 220 | - | 220 | - | |
| The Wentworth Wooden Jigsaw Company Limited | 5.4 | - | 211 | 211 | 39 | |
| Clear Review Limited | 1.6 | 203 | - | 203 | - | |
| Forward Clinical Limited | 1.5 | 160 | - | 160 | - | |
| Erin Solar Limited | 5.7 | 160 | (7) | 153 | - | |
| InCrowd Sports Limited | 1.5 | 126 | 12 | 138 | - | |
| uMotif Limited | 1.0 | 160 | (48) | 112 | (48) | |
| Innovation Broking Group Limited | 4.5 | 45 | 53 | 98 | 20 | |
| Imandra Inc. | 1.0 | 91 | - | 91 | - | |
| Aridhia Informatics Limited | 2.1 | 409 | (322) | 87 | (78) | |
| Healios Limited | 0.8 | 80 | - | 80 | - | |
| Harvest AD Limited(i) | - | 70 | 5 | 75 | (2) | |
| ePatient Network Limited (T/A Raremark) | 1.2 | 115 | (42) | 73 | (42) | |
| Xention Limited | 10.6 | 38 | (28) | 10 | - | |
| Other holdings (6 companies) | 27 | (21) | 6 | - | ||
| Total fixed asset investments | 47,363 | 15,896 | 63,259 | 659 | ||
- Amounts shown as cost represent the acquisition cost in the case of investments originally made by the Company and/or the valuation attributed to the investments acquired from Quester VCT 2 plc and Quester VCT 3 plc at the date of the merger in 2005, and those acquired from Kings Arms Yard VCT 2 PLC at the merger on 30 September 2011, plus any subsequent acquisition costs, as reduced in certain cases by amounts written off as representing an impairment value.
- The column shows the movement in the period from the opening balance as at 1 January 2019 to the closing balance as at 30 June 2019 after adjustments for additions and disposals.
(i) Early stage investment of convertible loan stock.
| Realisations in the period to 30 June 2019 | Cost £’000 | Opening carrying value £’000 | Disposal proceeds £’000 | Realised gain on cost £’000 | Gain/(loss) on opening or acquired value £’000 |
| Disposals: | |||||
| ErgoMed PLC | 841 | 925 | 1,210 | 369 | 285 |
| Earnside Energy Limited | 835 | 934 | 901 | 66 | (33) |
| Loan stock repayments, restructurings and other: | |||||
| Mirada Medical Limited | 208 | 264 | 281 | 73 | 17 |
| Anthropics Technology Limited | - | 207 | 207 | 207 | - |
| Alto Prodotto Wind Limited | 18 | 27 | 27 | 9 | - |
| Greenenerco Limited | 6 | 9 | 9 | 3 | - |
| Escrow adjustments | - | - | 153 | 153 | 153 |
| Total | 1,908 | 2,366 | 2,788 | 880 | 422 |
| Total change in value of investments for the period | 659 | ||||
| Movement in loan stock accrued interest | 157 | ||||
| Unrealised gains on fixed asset investments sub-total | 816 | ||||
| Realised gains in current period | 422 | ||||
| Unrealised losses on current asset investments | (373) | ||||
| Total gains on investments as per Income statement | 865 | ||||
Condensed income statement
| Unaudited six months ended 30 June 2019 | Unaudited six months ended 30 June 2018 | Audited year ended 31 December 2018 | ||||||||
| Note | Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
| Gains on investments | 2 | - | 865 | 865 | - | 5,778 | 5,778 | - | 7,644 | 7,644 |
| Investment income | 3 | 1,112 | - | 1,112 | 918 | - | 918 | 1,834 | - | 1,834 |
| Investment management fee | 4 | (175) | (524) | (699) | (162) | (486) | (648) | (336) | (1,007) | (1,343) |
| Performance incentive fee | 4 | - | - | - | (142) | (426) | (568) | (159) | (478) | (637) |
| Other expenses | (163) | - | (163) | (159) | - | (159) | (308) | - | (308) | |
| Profit on ordinary activities before tax | 774 | 341 | 1,115 | 455 | 4,866 | 5,321 | 1,031 | 6,159 | 7,190 | |
| Tax on ordinary activities | - | - | - | - | - | - | - | - | - | |
| Profit and total comprehensive income attributable to shareholders | 774 | 341 | 1,115 | 455 | 4,866 | 5,321 | 1,031 | 6,159 | 7,190 | |
| Basic and diluted return per share (pence)* | 6 | 0.24 | 0.11 | 0.35 | 0.15 | 1.62 | 1.77 | 0.34 | 2.04 | 2.38 |
*excluding treasury shares
The accompanying notes form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2018 and the audited statutory accounts for the year ended 31 December 2018.
The total column of this Condensed 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.
Condensed balance sheet
| Note | Unaudited 30 June 2019 £’000 | Unaudited 30 June 2018 £’000 | Audited 31 December 2018 £’000 | |||
| Fixed asset investments | 63,259 | 57,778 | 61,639 | |||
| Current assets Current asset investments | - | 373 | 373 | |||
| Trade and other receivables less than one year | 887 | 713 | 731 | |||
| Cash and cash equivalents | 11,872 | 11,689 | 7,485 | |||
| 12,759 | 12,775 | 8,589 | ||||
| Total assets | 76,018 | 70,553 | 70,228 | |||
| Payables: amounts falling due within one year | ||||||
| Trade and other payables less than one year | (449) | (1,032) | (1,078) | |||
| Total assets less current liabilities | 75,569 | 69,521 | 69,150 | |||
| Equity attributable to equity holders | ||||||
| Called up share capital | 7 | 3,872 | 3,509 | 3,519 | ||
| Share premium | 35,595 | 27,693 | 27,896 | |||
| Capital redemption reserve | 11 | 11 | 11 | |||
| Unrealised capital reserve | 15,343 | 12,770 | 15,358 | |||
| Realised capital reserve | 8,995 | 9,934 | 8,639 | |||
| Other distributable reserve | 11,753 | 15,604 | 13,727 | |||
| Total equity shareholders’ funds | 75,569 | 69,521 | 69,150 | |||
| Basic and diluted net asset value per share (pence)* | 22.53 | 22.74 | 22.78 |
*excluding treasury shares
The accompanying notes form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2018 and the audited statutory accounts for the year ended 31 December 2018.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 27 August 2019 and were signed on its behalf by
Robin Field
Chairman
Company number: 03139019
Condensed statement of changes in equity
| Called up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| At 1 January 2019 | 3,519 | 27,896 | 11 | 15,358 | 8,639 | 13,727 | 69,150 |
| Profit/(loss) and total comprehensive income for the period | - | - | - | 443 | (102) | 774 | 1,115 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (458) | 458 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (745) | (745) |
| Issue of equity | 353 | 7,888 | - | - | - | - | 8,241 |
| Cost of issue of equity | - | (189) | - | - | - | - | (189) |
| Dividends paid | - | - | - | - | - | (2,003) | (2,003) |
| At 30 June 2019 | 3,872 | 35,595 | 11 | 15,343 | 8,995 | 11,753 | 75,569 |
| At 1 January 2018 | 3,321 | 23,841 | 11 | 12,118 | 5,720 | 17,481 | 62,492 |
| Profit and total comprehensive income for the period | - | - | - | 3,352 | 1,514 | 455 | 5,321 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (2,700) | 2,700 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (495) | (495) |
| Issue of equity | 188 | 3,952 | - | - | - | - | 4,140 |
| Cost of issue of equity | - | (100) | - | - | - | - | (100) |
| Dividends paid | - | - | - | - | - | (1,837) | (1,837) |
| At 30 June 2018 | 3,509 | 27,693 | 11 | 12,770 | 9,934 | 15,604 | 69,521 |
| At 1 January 2018 | 3,321 | 23,841 | 11 | 12,118 | 5,720 | 17,481 | 62,492 |
| Profit and total comprehensive income for the period | - | - | - | 6,102 | 57 | 1,031 | 7,190 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (2,862) | 2,862 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,145) | (1,145) |
| Issue of equity | 198 | 4,157 | - | - | - | - | 4,355 |
| Cost of issue of equity | - | (102) | - | - | - | - | (102) |
| Dividends paid | - | - | - | - | - | (3,640) | (3,640) |
| At 31 December 2018 | 3,519 | 27,896 | 11 | 15,358 | 8,639 | 13,727 | 69,150 |
*The total distributable reserves are £20,748,000 (30 June 2018: £25,538,000; 31 December 2018: £22,366,000).
The accompanying notes form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2018 and the audited statutory accounts for the year ended 31 December 2018.
Condensed statement of cash flows
| Unaudited six months ended 30 June 2019 £’000 | Unaudited six months ended 30 June 2018 £’000 | Audited year ended 31 December 2018 £’000 | ||||
| Cash flow from operating activities | ||||||
| Investment income received | 1,020 | 596 | 1,437 | |||
| Deposit interest received | 18 | 9 | 23 | |||
| Dividend income received | 228 | 32 | 185 | |||
| Investment management fee paid | (694) | (609) | (1,292) | |||
| Performance incentive fee paid | (637) | - | - | |||
| Other cash payments | (154) | (173) | (311) | |||
| UK corporation tax paid | - | - | - | |||
| Net cash flow from operating activities | (219) | (145) | 42 | |||
| Cash flow from investing activities | ||||||
| Purchase of fixed asset investments | (3,053) | (2,304) | (4,618) | |||
| Disposal of fixed asset investments | 2,344 | 5,688 | 5,904 | |||
| Net cash flow from investing activities | (709) | 3,384 | 1,286 | |||
| Cash flow from financing activities | ||||||
| Issue of share capital | 7,804 | 3,826 | 3,826 | |||
| Cost of issue of equity | (2) | (2) | (4) | |||
| Purchase of own shares (including costs) | (745) | (448) | (1,146) | |||
| Equity dividends paid* | (1,742) | (1,626) | (3,219) | |||
| Net cash flow from financing activities | 5,315 | 1,750 | (543) | |||
| Increase in cash and cash equivalents | 4,387 | 4,989 | 785 | |||
| Cash and cash equivalents at start of period | 7,485 | 6,700 | 6,700 | |||
| Cash and cash equivalents at end of period | 11,872 | 11,689 | 7,485 | |||
| Cash and cash equivalents comprise: | ||||||
| Cash at bank | 11,872 | 11,689 | 7,485 | |||
| Cash equivalents | - | - | - | |||
| Total cash and cash equivalents | 11,872 | 11,689 | 7,485 |
* The equity dividend paid in the cash flow is different to the dividend disclosed in note 5 due to the non-cash effect of the Dividend Reinvestment Scheme.
The accompanying notes form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2018 and the audited statutory accounts for the year ended 31 December 2018.
Notes to the condensed Financial Statements
1. Accounting policies
Basis of accounting
The condensed Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), Financial Reporting Standard 104 – Interim Financial Reporting (“FRS 104”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”).
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss (“FVTPL”). The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines and further detail on the valuation techniques used are outlined below.
The Half-yearly Financial Report has not been audited, nor has it been reviewed by the auditor pursuant to the FRC’s guidance on Review of interim financial information.
Company information can be found on page 2 of the Half-yearly Financial Report.
Fixed asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, are designated by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at ‘fair value’, which is measured as follows:
- Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;
- Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, 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.
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the Income statement when a share becomes ex-dividend.
Receivables and payables and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables.
Current asset investments
Contractual future contingent receipts on the disposal of investments are designated at FVTPL and are subsequently measured at fair value.
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 period as a capital item and are 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 and other preferred income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expected settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
• 75 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 period 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.
2. Gains on investments
| Unaudited six months ended 30 June 2019 £’000 | Unaudited six months ended 30 June 2018 £’000 | Audited year ended 31 December 2018 £’000 | ||||
| Unrealised gains on fixed asset investments | 816 | 2,979 | 5,729 | |||
| Unrealised (losses)/gains on current asset investments | (373) | 373 | 373 | |||
| Realised gains on fixed asset investments | 422 | 2,426 | 1,542 | |||
| 865 | 5,778 | 7,644 | ||||
3. Investment income
| Unaudited six months ended 30 June 2019 £’000 | Unaudited six months ended 30 June 2018 £’000 | Audited year ended 31 December 2018 £’000 | |||
| Interest from loans to portfolio companies | 863 | 743 | 1,625 | ||
| Dividends | 231 | 165 | 185 | ||
| Bank deposit interest | 18 | 10 | 24 | ||
| 1,112 | 918 | 1,834 |
4. Investment management fee and performance incentive fee
| Unaudited six months ended 30 June 2019 £’000 | Unaudited six months ended 30 June 2018 £’000 | Audited year ended 31 December 2018 £’000 | |||
| Investment management fee charged to revenue | 175 | 162 | 336 | ||
| Investment management fee charged to capital | 524 | 486 | 1,007 | ||
| Performance incentive fee charged to revenue | - | 142 | 159 | ||
| Performance incentive fee charged to capital | - | 426 | 478 | ||
| 699 | 1,216 | 1,980 |
Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report on pages 11 and 12 of the Annual Report and Financial Statements for the year ended 31 December 2018.
During the period, services with a value of £699,000 (30 June 2018: £648,000; 31 December 2018: £1,343,000) and £25,000 (30 June 2018: £25,000; 31 December 2018: £50,000) were purchased by the Company from Albion Capital Group LLP in respect of management and administration fees respectively. At the period end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £366,000 (30 June 2018: £348,000; 31 December 2018: £360,000). For the period to 30 June 2019, no performance incentive fee has been accrued (30 June 2018: £568,000; 31 December 2018: £637,000).
Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the period, fees of £168,000 (30 June 2018: £145,000; 31 December 2018: £241,000) attributable to the investments of the Company were paid pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff hold 1,011,225 Ordinary shares in the Company.
The Company entered into an offer agreement relating to the Offers with the Company’s investment manager Albion Capital Group LLP (“Albion”), pursuant to which Albion received a fee of 2.5% of the gross proceeds of the Offers and out of which Albion paid the costs of the Offers, as detailed in the Prospectus. The Offers closed on 5 April 2019.
5. Dividends
| Unaudited six months ended 30 June 2019 £’000 | Unaudited six months ended 30 June 2018 £’000 | Audited year ended 31 December 2018 £’000 | |
| First dividend of 0.6 pence per share paid on 30 April 2018 | - | 1,842 | 1,842 |
| Second dividend of 0.6 pence per share paid on 31 October 2018 | - | - | 1,831 |
| First dividend of 0.6 pence per share paid on 30 April 2019 | 2,010 | - | - |
| Unclaimed dividends returned to the Company | (7) | (5) | (33) |
| 2,003 | 1,837 | 3,640 |
The Directors have declared a second dividend of 0.60 pence per share for the year ending 31 December 2019, which will be paid on 31 October 2019 to shareholders on the register on 4 October 2019.
6. Basic and diluted return per share
| Unaudited six months ended 30 June 2019 | Unaudited six months ended 30 June 2018 | Audited year ended 31 December 2018 | ||||
| Revenue | Capital | Revenue | Capital | Revenue | Capital | |
| Profit attributable to shareholders (£’000) | 774 | 341 | 455 | 4,866 | 1,031 | 6,159 |
| Weighted average shares in issue (excluding treasury shares) | 319,703,183 | 299,536,878 | 302,182,990 | |||
| Return attributable per equity share (pence) | 0.24 | 0.11 | 0.15 | 1.62 | 0.34 | 2.04 |
The weighted average number of Ordinary shares is calculated excluding treasury shares of 51,789,000 (30 June 2018: 45,209,000; 31 December 2018: 48,273,000).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
7. Called up share capital
| Unaudited 30 June 2019 £’000 | Unaudited 30 June 2018 £’000 | Audited 31 December 2018 £’000 | |||
| Allotted, issued and fully paid: 387,227,906 Ordinary shares of 1 penny each (30 June 2018: 350,885,505; 31 December 2018: 351,855,773) | 3,872 | 3,509 | 3,519 |
Voting rights
335,438,906 Ordinary shares of 1 penny each (net of treasury shares) (30 June 2018: 305,676,505; 31 December 2018: 303,582,773).
The Company operates a share buy-back programme, as detailed in the Interim management report above. During the period the Company purchased 3,516,000 Ordinary shares with a nominal value of £35,160 (30 June 2018: 2,438,000; 31 December 2018: 5,502,000) representing 0.9% of the issued called up share capital as at 30 June 2019, at a cost of £745,000 (30 June 2018: £495,000; 31 December 2018: £1,145,000), including stamp duty, to be held in treasury. The Company holds a total of 51,789,000 Ordinary shares in treasury, representing 13.4% of the issued Ordinary share capital as at 30 June 2019.
During the period from 1 January 2019 to 30 June 2019, the Company issued the following new Ordinary shares of 1 penny each under the terms of the Dividend Reinvestment Scheme Circular dated 19 April 2011:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net invested (£’000) | Opening market price on allotment date (pence per share) |
| 30 April 2019 | 1,127,911 | 11 | 22.18 | 248 | 21.00 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2018/19, the following new Ordinary shares of nominal value 1 penny each were allotted during the period to 30 June 2019:
Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net consideration received (£’000) | Opening market price on allotment date (pence per share) |
| 1 April 2019 | 4,206,012 | 42 | 23.20 | 961 | 21.60 |
| 1 April 2019 | 943,355 | 9 | 23.30 | 216 | 21.60 |
| 1 April 2019 | 21,793,720 | 218 | 23.40 | 4,972 | 21.60 |
| 5 April 2019 | 5,377,583 | 54 | 23.40 | 1,227 | 21.00 |
| 12 April 2019 | 511,635 | 5 | 22.60 | 114 | 21.00 |
| 12 April 2019 | 124,228 | 1 | 22.70 | 28 | 21.00 |
| 12 April 2019 | 1,287,689 | 13 | 22.80 | 286 | 21.00 |
| 34,244,222 | 342 | 7,804 |
8. Commitments, contingencies and guarantees
As at 30 June 2019, the Company had no financial commitments (30 June 2018: £nil; 31 December 2018: £nil).
There were no contingent liabilities or guarantees given by the Company as at 30 June 2019 (30 June 2018: £nil; 31 December 2018: £nil).
9. Post balance sheet events
Since 30 June 2019, the Company has had the following post balance sheet events:
·Investment of £500,000 in Perpetuum Limited;
·Investment of £488,000 in a company that provides Anti Money Laundering services to digital asset institutions;
·Disposal of The Wentworth Wooden Jigsaw Company Limited for £211,000;
·Investment of £141,000 in Koru Kids Limited;
·Investment of £23,000 in The Evewell (Harley Street) Limited; and
·Investment of £11,000 in Convertr Media Limited.
10. Related party disclosures
Other than transactions with the Manager as disclosed in note 4, there are no related party transactions or balances requiring disclosure.
11. Going concern
The Board’s assessment of liquidity risk remains unchanged and is detailed on page 60 of the Annual Report and Financial Statements for the year ended 31 December 2018.
The Company has adequate cash and liquid resources. The portfolio of investments is diversified in terms of sector, and the major cash outflows of the Company (namely investments, dividends and share buy-backs) are within the Company’s control. Accordingly, after making diligent enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors have adopted the going concern basis in preparing this Half-yearly Financial Report and this is in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued by the Financial Reporting Council in September 2014.
12. Risks and uncertainties
In addition to the current economic risks outlined in the Interim management report, the Board considers that the Company faces the following major risks and uncertainties:
1. Investment and performance risk
The risk of investment in poor quality assets, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more volatile than larger, long established businesses.
To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on 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.
2. 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.
3. Regulatory and compliance risk
The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies.
Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer. The Manager reports monthly to its Board on any issues arising from compliance or regulation. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors.
4. 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 matters relating to cyber security. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. From 1 October 2018, Ocorian (UK) Limited were appointed as Depository to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian (UK) Limited to ensure that Albion Capital is adhering to its duties as a full-scope Alternative Investment Fund Manager under the AIFMD. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policies. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
5. Economic and political risk
Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company’s prospects in a number of ways.
The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of instruments in portfolio companies and has a policy of not normally permitting any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow on investments.
6. 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 buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buybacks cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buyback authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors.
13. Other information
The information set out in this Half-yearly Financial Report does not constitute the Company’s statutory accounts within the terms of section 435 of the Companies Act 2006 for the periods ended 30 June 2019 and 30 June 2018, and is unaudited. The information for the year ended 31 December 2018 does not constitute statutory accounts within the terms of section 434 of the Companies Act 2006 and is derived from the statutory accounts for that financial year, which have been delivered to the Registrar of Companies. The Auditor reported on those accounts; their report was unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
14. Publication
This Half-yearly Financial Report is being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/KAY, where the Report can be accessed from the 'Financial Reports and Circulars' section.
Attachment
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