Albion Venture Capital Trust PLC: Annual Financ...
Albion Venture Capital Trust PLC
LEI number: 213800JKELS32V2OK421
As required by the Financial Conduct 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 2022.
This announcement was approved for release by the Board of Directors on 29 June 2022.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 March 2022 (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/31Mar2022.pdf.
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.
Financial calendar
| Record date for first interim dividend | 8 July 2022 |
|
Payment of first interim dividend |
29 July 2022 |
| Annual General Meeting | Noon on 6 September 2022 |
| Announcement of Half-yearly results for the six months ending 30 September 2022 | December 2022 |
| Payment of second interim dividend (subject to Board approval) | 31 January 2023 |
Financial highlights
| 242.72p | Total shareholder value – being net asset value plus dividends paid per Ordinary share since launch† |
| 7.6% | Shareholder return for the year ended 31 March 2022† |
| 25.30 p | Total tax-free dividend per share paid during the year ended 31 March 2022 |
| 53.38 p | Net asset value per share as at 31 March 2022 |
†These are considered Alternative Performance Measures, see notes 2 and 3 in the Strategic report below for further explanation.
| 31 March 2022 | 31 March 2021 | |
| ( pence per share) | (pence per share) | |
| Opening net asset value | 73.13 | 70.13 |
| Capital return | 5.38 | 5.64 |
| Revenue return | 0.39 | 1.46 |
| Total return | 5.77 | 7.10 |
| Dividends paid | (25.30) | (4.24) |
| Impact from share capital movements | (0.22) | 0.14 |
| Net asset value | 53.38 | 73.13 |
|
Ordinary shares
( pence per share) |
|
| Total dividends paid to 31 March 2022 | 189.34 |
| Net asset value on 31 March 2022 | 53.38 |
| Total shareholder value to 31 March 2022 | 242.72 |
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/AAVC under the ‘Dividend History’ section.
The financial highlights above are for 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.
In addition to the dividends summarised above, the Board has declared a first dividend for the year endin g 31 March 2023 of 1. 3 3 pence per share to be paid on 29 July 2022 to shareholders on the register on 8 July 2022 .
Chairman’s statement
Introduction
I am delighted to announce that your Company has achieved a positive total return in total shareholder value of 5.55 pence per share, a 7.6% shareholder return for the year ended 31 March 2022 on the opening net asset value. The Company continues to benefit from the resilience of its portfolio companies, many of whom have shown growth over the past year, despite the ongoing uncertainty of the Covid-19 pandemic, the high levels of inflation both in the UK and across the world, and the war in Ukraine. There is still much uncertainty on how the economy and the markets will be affected by these ongoing disruptions. I am optimistic that our portfolio companies will continue to add value over the longer term, and we can still find new investment opportunities which will increase shareholder value, but inevitably there will be disruption ahead.
Results and dividends
As at 31 March 2022, the Net Asset Value (“NAV”) was £63.9 million or 53.38 pence per share, compared to £72.7 million or 73.13 pence per share as at 31 March 2021. The large decrease in the NAV was a result of the payment of total tax-free dividends of 25.30 pence per share during the year. The total return before taxation was £6.0 million compared to £7.3 million for the previous year. The positive progress in several of our portfolio companies is discussed later in this statement and in the Strategic report below.
In line with the variable dividend policy targeting around 5% of NAV per annum, the Company paid interim dividends totalling 3.30 pence per share during the year ended 31 March 2022 (31 March 2021: 4.24 pence per share). As a result of the successful sale of the Company’s three care homes, which generated substantial cash proceeds, the Company also paid special dividends totalling 22.00 pence per share during the year ended 31 March 2022 (31 March 2021: nil).
The Board has declared a first dividend for the year ending 31 March 2023 of 1.33 pence per share to be paid on 29 July 2022 to shareholders on the register on 8 July 2022.
Investment performance and progress
During the year, the Company completed the sale of Credit Kudos generating proceeds of £3.0 million and a return on cost of 5.2 times. The Company also sold Phrasee generating proceeds of £1.7 million and a return on cost of 3.2 times. These are both excellent results for the Company.
The results for the year showed net valuation gains on investments of £6.6 million. The key contributors were the uplifts on Cantab Research (T/A Speechmatics) and Elliptic Enterprises, both of which have been revalued after further externally led funding rounds. Phrasee and Credit Kudos also contributed to the valuation gain, due to their sales which completed during the year. However, our investments in Concirrus and Avora have seen write-downs following difficult trading conditions, in part because of the Covid-19 pandemic. We have also written-off our investment in Xperiome which went into administration.
The three largest investments in the Company’s portfolio, being Chonais River Hydro, Cantab Research (T/A Speechmatics) and Elliptic Enterprises, are valued at £9.8 million and represent 15 per cent. of the Company’s NAV.
The Company has been an active investor during the year investing a total of £7.8 million. Of this, £3.2 million was invested into six new portfolio companies, all of which are expected to require further investment as the companies prove themselves and grow:
- £0.9 million into NuvoAir Holdings a provider of digital therapeutics and decentralised clinical trials for respiratory conditions;
- £0.8 million into Gravitee TopCo (trading as Gravitee.io) an application programming interface (API) management platform;
- £0.6 million into Brytlyt which uses patented software and artificial intelligence (AI), combined with the superior computation power of graphics processing units (GPUs), to derive insights thousands of times faster than legacy systems;
- £0.5 million into PerchPeek, a digital relocation platform;
- £0.3 million into Accelex Technology, a data extraction and analytics technology for private capital markets; and
- £0.1 million into Regulatory Genome Development, a provider of machine readable structured regulatory content.
A further £4.6 million was invested into existing portfolio companies, the largest being: £1.3 million into Seldon Technologies; £0.7 million into TransFICC; £0.7 million into Elliptic; and £0.7 million into Speechmatics. Software and other technology now accounts for 39% of our portfolio (excluding cash), an increase of 6% from last year.
A full list of the Company’s investments and disposals, including their movements in value for the year, can be found in the Portfolio of investments section on pages 25 and 26 of the full Annual Report and Financial Statements.
Board Composition
After serving as a Director since the Company’s launch in 1996, and subsequently as Audit Committee Chairman, John Kerr will be retiring from the Board at the AGM on 6 September 2022. We have valued his contributions and wish him well in the future. Ann Berresford will succeed him as Audit Committee Chairman.
Following a formal selection process, Neeta Patel CBE will be appointed as a non-executive Director with effect from 1 July 2022. Neeta will be bringing over 35 years of experience in the technology sector to the Board and is currently a non-executive director of Allianz Technology Trust, CEO of the Centre for Entrepreneurs, a board advisor for Tech London Advocates and an entrepreneur mentor-in-residence at London Business School.
Principal and emerging r
isks
In addition to the risks around Covid-19, which have been a major factor for the past 2 years, the UK is experiencing its highest level of inflation in decades, as well as the uncertainty over the future course, and global impact, of Russia’s invasion of Ukraine. Our investment portfolio, while concentrated mainly in the technology and healthcare sectors, remains diversified in terms of both sub-sector and stage of maturity and, importantly, we believe it to be appropriately valued. While we would expect these valuations to be robust within the tolerance of normal market fluctuations, the potential but, unknown, scale of any further adverse events arising out of the increasingly volatile geopolitical backdrop remain a major risk factor.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Sunset Clause
In 2015 a VCT “sunset clause” was introduced as a requirement of a EU state aid notification. This provides that income tax relief will no longer be given to subscriptions made on or after 6 April 2025, unless the legislation is amended to make the scheme permanent or the “sunset clause” is extended. Our Manager, Albion Capital, is working, alongside the VCT industry, to demonstrate to Government the importance of VCTs as a source of early-stage capital to support entrepreneurs creating innovative growth businesses employing thousands of people throughout the UK. Given its importance, the Board expects that the VCT scheme will continue to attract Government support.
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 that such buy-backs should be at around a 5% discount to net asset value, in so far as market conditions and liquidity permit. The Board continues to review the use of buy-backs and is satisfied that it is an important means of providing market liquidity for shareholders.
Details of the Company’s share buy-backs during the year can be found in note 15.
Albion VCTs Prospectus Top Up Offers
Your Board, in conjunction with the boards of the other five VCTs managed by Albion Capital, launched a prospectus top up offer of new Ordinary shares on 6 January 2022. The Board announced on 16 February 2022 that, following strong demand, the Company had reached its £10 million limit under the Offer and was fully subscribed and closed to further applications.
The proceeds are being used to provide support to our existing portfolio companies and to enable us to take advantage of new investment opportunities. The first allotment of the shares under the Offer was on 25 February 2022 and the second allotment was on 13 April 2022. Further details can be found in notes 15 and 19 respectively.
Annual General
Meeting (“AGM”)
Based on the success of last year’s live webcast AGM, the Board has decided to adopt a virtual format for the AGM again this year. The AGM will be held at noon on 6 September 2022 via the Lumi platform. Information on how to participate in the live webcast can be found on the Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcomes questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform during the AGM. Alternatively, shareholders can email their questions to AAVCchair@albion.capital prior to the Meeting.
Shareholders' views are important, and the Board encourages shareholders to vote on the resolutions.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 36 and 37 and in the Notice of the Meeting on pages 72 to 75 of the full Annual Report and Financial Statements.
Outlook and prospects
The positive results for the year just ended demonstrate the resilience of our portfolio during what were challenging times. I am confident that our portfolio companies are well positioned to grow, despite the uncertainty around the longer-term impact of the pandemic, the current cost of living in the UK and across the world, and an increasingly volatile geopolitical and economic backdrop. The Board believes the Company is well placed to continue to deliver long term value to our shareholders, though remains mindful of the considerable uncertainty over the Global economy.
Richard Glover
Chairman
29 June 2022
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.
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.
The full investment policy can be found on page 3 of the full Annual Report and Financial Statements.
Current portfolio analysis
The pie charts at the end of this announcement show the split of the portfolio valuation as at 31 March 2022 by: sector; sector (excluding cash and net assets); stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, portfolio 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 25 and 26 of the full Annual Report and Financial Statements.
Direction of portfolio
The cash balance has decreased mainly due to the two special dividends totalling £22 million that were paid out to shareholders and further investments into higher growth technology companies during the year. The percentage of cash remains high at the year end, however this is largely a result of the allotment of £9 million of shares under the Top Up Offers in February 2022, as well as an additional £5 million from the disposals of Credit Kudos and Phrasee which both completed in March 2022. The shift away from asset-based companies continues, and the Company will continue to invest these funds into higher growth technology companies, including digital healthcare. The Manager has a significant speciality in software and other technology investing, which can be seen as a growing part of the portfolio, represented by a 10% increase this year. Healthcare technology is another area of particular strength, which has increased by 5%.
Further details on portfolio companies can be found in the Portfolio of investments on page 25 of the full Annual Report and Financial Statements.
| Results and dividends |
Ordinary shares
£'000 |
|
| Net capital return for the year ended 31 March 2022 | 5,554 | |
| Net revenue return for the year ended 31 March 2022 | 407 | |
| Total return for the year ended 31 March 2022 | 5,96 1 | |
| First interim and first special dividend of 16.83 pence per share paid on 30 July 2021 | (16,728) | |
| Second special dividend of 7.00 pence per share paid on 31 December 2021 | (7,141) | |
| Second interim dividend of 1.47 pence per share paid on 31 January 2022 | (1,523) | |
| Unclaimed dividends returned to the Company | 10 | |
| Transferred from reserves | (19,42 1 ) | |
| Net assets as at 31 March 2022 | 63,937 | |
| Net asset value as at 31 March 2022 (pence per share) | 53.38 |
The Company paid dividends totalling 25.30 pence per share during the year ended 31 March 2022 (2021: 4.24 pence per share). This included two special dividends of 15.00 pence per share and 7.00 pence per share paid to shareholders on 30 July 2021 and 31 December 2021, respectively. The Board has declared a first dividend for the year ending 31 March 2023, of 1.33 pence per share to be paid on 29 July 2022 to shareholders on the register on 8 July 2022.
As shown in the Company’s Income statement on page 54 of the full Annual Report and Financial Statements, the total return for the year was 5.77 pence per share (2021: 7.10 pence per share). The total investment income decreased to £1,037,000 (2021: £2,467,000), which was primarily due to the care homes sale in March 2021. The Company will continue to receive income from its renewable energy portfolio for the foreseeable future, however investment income is expected to be much lower over the next few years. The revenue return to equity holders has subsequently decreased to £407,000 (2021: £1,468,000).
The capital return on investments for the year of £6,553,000 (2021: £6,508,000), has been discussed in the Chairman’s statement above. The net asset value of the Company has decreased to 53.38 pence per share (2021: 73.13 pence per share), which was primarily due to the two special dividends totalling 22.00 pence per share paid to shareholders during the year. Whilst this reduced the Company’s assets, it provided a significant return to shareholders and more detail on these special dividends can be found in the Annual Report and Financial Statements for the year ended 31 March 2021 and the Half-yearly Financial report to 30 September 2021.
There was a net cash outflow for the Company of £18,894,000 for the year (2021: net inflow of £21,782,000), resulting from the payment of two special and interim dividends, the investment in fixed asset investments, operating activities and the buy-back of shares, offset by the issue of shares under the Albion VCTs Top Up Offers 2021/2022 and the disposal of fixed asset investments.
Review of business and future changes
A detailed review of the Company’s business during the year is contained in the Chairman’s statement. The total return before tax for the year was £6.0 million (2021: £7.3 million).
There is a continuing focus on growing the healthcare (including digital healthcare) and software and other technology sectors. The majority of these investment returns are delivered through equity and capital gains and therefore we expect our investment income to continually reduce in future years.
Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.
Future prospects
The Company’s portfolio remains well balanced across sectors and risk classes, and has largely weathered the pandemic so far. Although there remains much uncertainty, the Manager has a strong pipeline of investment opportunities in which the Company’s cash can be deployed. The Board considers that the current portfolio and the pipeline of opportunities should enable the Company to maintain a predictable stream of dividend payments to shareholders, as well as delivering long term growth for shareholders.
Key performance indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs (some of which are 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 relative to the FTSE All-Share Index total return, with dividends reinvested. The FTSE All-Share index is considered a reasonable benchmark as the Company is classed as a generalist UK VCT investor, and this index includes over 600 companies listed in the UK, including small-cap, covering a range of sectors. Details on the performance of the net asset value and return per share for the year are shown in the Chairman’s statement above.
2. Net asset value per share and total shareholder value
Total shareholder value increased by 5.55 pence to 242.72 pence per share for the year ended 31 March 2022.
3. Movement in shareholder value in the year†The graph on page 5 of the full Annual Report and Financial Statements shows the Company’s total shareholder return over the previous ten years, five years, three years and the past year, and the annual returns for the same period are detailed out below.
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| 1.4% | 2.8% | 7.4% | 7.5% | 11.8% | 7.4% | 10.5% | (4.9)% | 10.3% | 7.6% |
† Methodology: Calculated as the movement in total shareholder value for the year divided by the opening net asset value.
The table above shows that total shareholder value has continued to increase over the last 10 years, with an average return of 6.2% per annum.
4. Dividend distributions
The chart that follows shows the dividends paid in each year and the cumulative dividends paid since launch.
Dividends paid in respect of the year ended 31 March 2022 were 25.30 pence per share (2021: 4.24 pence per share). This included the payment of two special dividends amounting to 22.00 pence per share (2021: nil). Cumulative dividends paid since inception amount to 189.34 pence per Ordinary share.
5. Ongoing charges
The ongoing charges ratio for the year ended 31 March 2022 was 2.44% (2021: 2.37%). The ongoing charges ratio has been calculated using The Association of Investment Companies’ (“AIC”) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to increase to approximately 2.50% due to the reduction in the net asset value of the Company after the payment of the significant special dividends. The cap on the ongoing charges ratio is 2.50%.
6. VCT compliance*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on page 34 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 2022. 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 the Manager, Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. The Manager 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 £55,000 (2021: £54,000) 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
In order to align the interests of the Manager and the shareholders with regards to generating positive returns, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels.
The performance 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.
There was no management performance incentive fee payable during the year. As at 31 March 2022 the cumulative shortfall of the target return was 5.18 pence per share (31 March 2021: shortfall of 2.72 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 the Manager. 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 80 per cent. qualifying holdings investment requirement for VCT 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 the Manager as the Company’s AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides 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 in both the long and short term, 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 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 table below sets out the key stakeholders, details how the Board has engaged with these key stakeholders, and the effect of these considerations on the Company’s decisions and strategies during the year.
| Stakeholders | Engagement with Stakeholder | Outcome and decisions based on engagement |
| Shareholders | The key methods of engaging with Shareholders are as follows:
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| Suppliers | The key suppliers are:
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| Manager | The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance practice. |
|
| Portfolio companies | 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”) report on pages 19 to 21 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their stakeholders is also important to the Company. |
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| Community and environment | The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board. |
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Environmental, Social, and Governance (“ESG”) report
The Board and the Company’s Manager, Albion Capital Group LLP, take ESG very seriously and more detail can be found on this in the ESG report on pages 19 to 21 of the full Annual Report and Financial Statements.
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, however, it is at the core of its responsible investment strategy as detailed above.
General Data Protection Regulation
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union. GDPR forms part of the UK law after Brexit, now known as UK GDPR. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
Further policies
The Company has adopted a number of further policies relating to:
- Environment
- Global greenhouse gas emissions
- Anti-bribery
- Anti-facilitation of tax evasion
- Diversity
and these are set out in the Directors’ report on page 35 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates, together with 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 risks have been the global pandemic and the invasion of Ukraine which have impacted not only public health and mobility but also had an adverse impact on the economy, the full impact of which is likely to be uncertain for some time.
The Board has carried out a robust assessment of the Company’s principal risks and uncertainties and seeks to mitigate these risks through regular reviews of performance and monitoring progress and compliance. The Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, in the mitigation and management of these risks. More information on specific mitigation measures for the principal risks and uncertainties are explained below:
| Risk | Possible consequence | Risk assessment during the year | Risk management |
| Investment, performance and valuation risk | Investment in smaller unquoted growth businesses carries a higher degree of risk and is more volatile than investing in larger, long-established businesses. This could negatively impact shareholder returns. The Company relies on the judgement and reputation of the Manager to provide strong investment returns and valuations for shareholders. The Company’s investment valuation methodology is based on fair value, which for smaller unquoted growth businesses can be difficult to determine due to the lack of observable market data and the limitation of external reference points. |
Increased (due to high levels of inflation and the geopolitical risks following the invasion of Ukraine). | The Board places reliance upon the skills and expertise of the Manager and its track record of making successful investments in higher growth technology businesses. The Manager operates a structured investment appraisal and due diligence process. This includes a review from one external investment professional and comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are monitored by the Manager, through monthly portfolio updates and typically an investment manager sitting on portfolio company boards. The Board receives detailed reports on each investment and their valuation as part of their quarterly board meetings. Review and oversight by the non-executive Directors ensures that the risk to the Company’s and Manager’s reputation is kept to a minimum. Investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines, which represent current best practice for investment valuation and are reviewed by the Manager’s Valuation Committee. These procedures ensure that this increased risk continues to be mitigated where possible. |
| VCT approval and regulatory change risk | Any breach of section 274 of the Income Tax Act 2007, including any legislative changes, could result in the loss of the Company’s HMRC qualifying status and tax reliefs for investors. |
No change. | The Company’s VCT qualifying status is monitored monthly by the Manager and quarterly by the Board. The Board has appointed Philip Hare & Associates LLP as its taxation adviser, who independently confirms compliance, highlights areas of risk and informs on any legislative changes, including those which may arise from the withdrawal from the European Union. |
| 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. | No change. | The Board and the Manager receive regular updates on new regulation, including legislation on the management of the Company, from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. The Board ensures the Company is compliant as part of its quarterly Board meetings. The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited (the Company’s Depositary) to ensure the Manager is adhering to the AIFMD requirements. |
| Operational and internal control risk (including cyber and data security) | 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 IT systems and controls within the Manager’s business could place assets of the Company at risk, resulting in inaccurate information being passed to the Board or shareholders. This could additionally result in losses for the Company and its shareholders. |
No change. | The Company’s operations and IT systems are subject to rigorous internal controls which are reviewed on a regular basis and reported to the Board. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets, and has access to their internal audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to risk management, business continuity and cyber security. The Board reviews the systems and processes (including cyber and data security) in place for the Company’s key suppliers to ensure that there is an appropriate risk mitigation in place. |
| Economic and political risk | Events such as the Covid-19 pandemic, the impact of Brexit, an economic recession, fluctuation in inflation and interest rates, or significant political events could adversely affect the companies within the portfolio and consequently the Company’s net asset value. |
Increased (due to high levels of inflation and the geopolitical risks from the invasion of Ukraine). | The Company invests in a diversified portfolio of c.38 companies, predominantly in the United Kingdom, and has a policy of minimising any external bank borrowings within portfolio companies. Exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks. The inherent long-term nature of the portfolio helps to mitigate these exogenous risks. The Board and Manager are continuously assessing the resilience of the portfolio as a result of the ongoing economic and political risks, to ascertain where support is required. The Company has sufficient cash resources to cope with any such exigent and unexpected pressures. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel (3% of NAV). The Company’s investment policy and the Board’s scrutiny of the investment portfolio ensures that this increased risk continues to be mitigated where possible. |
| Liquidity risk | The Company may not have sufficient cash available to meet its financial obligations. The Company’s portfolio is primarily in smaller unquoted companies, which are inherently illiquid as there is no readily available market, and thus it may be difficult to realise their fair value at short notice. |
No change. | The Board reviews the Company’s three year cash flow forecasts on a quarterly basis. These include potential investment realisations (which are closely monitored by the Manager), Top Up Offers, dividend payments and operational expenditure. This ensures that there are sufficient cash resources available for the Company’s liabilities as they fall due. |
| Environmental, social and governance (“ESG”) risk | An insufficient ESG policy could lead to an increased negative impact on the environment, including the Company’s carbon footprint. Non-compliance with reporting requirements could lead to a fall in demand from investors, reputational damage and penalties. |
Increased (due to the new guidance issued on climate change reporting and increased importance to stakeholders). | The Manager is a signatory of the UN PRI and the Board is kept appraised of the evolving ESG policies at quarterly Board meetings. Full details of the specific procedures and risk mitigation can be found in the ESG report on pages 19 to 21 of the full Annual Report and Financial Statements. These procedures ensure that this increased risk continues to be mitigated where possible. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 March 2025. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities as they fall due. This is the period used by the Board as part of its strategic planning process, which includes: the estimated timelines for finding, assessing and completing investments; the potential impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that could threaten its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. The Board carefully assessed, and were satisfied with, the risk management processes in place to avoid or reduce the impact of these risks. The Board has carried out robust stress testing of cashflows which included assessing the resilience of portfolio companies, including the requirement for any future financial support, and evaluating the impact of high inflation, both within the Company and within its portfolio.
The Board has additionally considered the ability of the Company to comply with the ongoing conditions to ensure it maintains its VCT qualifying status under its current investment policy. As a result of the Board’s quarterly valuation reviews, it has concluded that the portfolio is well balanced and geared towards delivering long term growth and strong returns to shareholders.
The Board has 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 2025. The Board is mindful of the ongoing risks and will continue to ensure that appropriate safeguards are in place, in addition to monitoring the quarterly cashflow forecasts to ensure the Company has sufficient liquidity.
This Strategic report of the Company for the year ended 31 March 2022 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
29 June 2022
Statement of Directors’ responsibilities
In preparing these Financial Statements for the year to 31 March 2022, 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 2022 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 38 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Richard Glover
Chairman
29 June 2022
Income statement
| Year ended 31 March 2022 | Year ended 31 March 2021 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
|
Gains on investments |
3 | - | 6,553 | 6,553 | - | 6,508 | 6,508 |
| Investment income | 4 | 1,037 | - | 1,037 | 2,467 | - | 2,467 |
| Investment Manager’s fees* | 5 | (122) | (1,097) | (1,219) | (337) | (1,010) | (1,347) |
| Other expenses | 6 | (411) | - | (411) | (363) | - | (363) |
| Profit on ordinary activities before tax | 504 | 5,456 | 5,960 | 1,767 | 5,498 | 7,265 | |
| Tax (charge)/credit on ordinary activities | 8 | (97) | 98 | 1 | (299) | 192 | (107) |
| Profit and total comprehensive income attributable to shareholders | 407 | 5,554 | 5,961 | 1,468 | 5,690 | 7,158 | |
| Basic and diluted return per share (pence)** | 10 | 0.39 | 5.38 | 5.77 | 1.46 | 5.64 | 7.10 |
*For more information on the allocation between revenue and capital please see the accounting policies below.
** Adjusted for treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies’ Statement of Recommended Practice.
Balance sheet
| 31 March 2022 | 31 March 2021 | ||
| Note | £’000 | £’000 | |
| Fixed asset investments | 11 | 37,604 | 28,355 |
| Current assets | |||
| Trade and other receivables | 13 | 1,926 | 1,561 |
| Cash and cash equivalents | 24,668 | 43,562 | |
| 26,594 | 45,123 | ||
| Total assets | 64,198 | 73,478 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables | 14 | (261) | (790) |
| Total assets less current liabilities | 63,937 | 72,688 | |
| Equity attributable to equity holders | |||
| Called-up share capital | 15 | 1,369 | 1,165 |
| Share premium | 10,047 | 40,668 | |
| Capital redemption reserve | 22 | 7 | |
| Unrealised capital reserve | 6,550 | 3,588 | |
| Realised capital reserve | 7,693 | 21,829 | |
| Other distributable reserve | 38,256 | 5,431 | |
| Total equity shareholders’ funds | 63,937 | 72,688 | |
| Basic and diluted net asset value per share (pence)* | 16 | 53.38 | 73.13 |
*Excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors and authorised for issue on 29 June 2022, 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 2021 | 1,165 | 40,668 | 7 | 3,588 | 21,829 | 5,431 | 72,688 |
| Return and total comprehensive income for the year | - | - | - | 3,784 | 1,770 | 407 | 5,961 |
| Transfer of previously unrealised gains on realisations of investments | - | - | - | (822) | 822 | - | - |
| Purchase of shares for cancellation | (39) | - | 39 | - | - | (2,013) | (2,013) |
| Issue of equity | 243 | 12,694 | - | - | - | - | 12,937 |
| Cost of issue of equity | - | (254) | - | - | - | - | (254) |
| Reduction of share premium and capital redemption reserve | - | (43,061) | (24) | - | - | 43,085 | - |
| Net dividends paid (note 9) | - | - | - | - | (16,728) | (8,654) | (25,382) |
| At 31 March 2022 | 1,369 | 10,047 | 22 | 6,550 | 7,693 | 38,256 | 63,937 |
| At 1 April 2020 | 1,148 | 39,477 | 7 | 13,178 | 6,549 | 10,269 | 70,628 |
| Return and total comprehensive income for the year | - | - | - | 1,831 | 3,859 | 1,468 | 7,158 |
| Transfer of previously unrealised gains on realisations of investments | - | - | - | (11,421) | 11,421 | - | - |
| Purchase of treasury shares | - | - | - | - | - | (2,043) | (2,043) |
| Issue of equity | 17 | 1,225 | - | - | - | - | 1,242 |
| Cost of issue of equity | - | (34) | - | - | - | - | (34) |
| Net dividends paid (note 9) | - | - | - | - | - | (4,263) | (4,263) |
| At 31 March 2021 | 1,165 | 40,668 | 7 | 3,588 | 21,829 | 5,431 | 72,688 |
*Included within these reserves is an amount of £26,804,000 (2021: £27,260,000) which is considered distributable. Over the next four years an additional £17,585,000 will become distributable. This is due to the HMRC requirement that the Company cannot use capital raised in the past three years to make a payment or distribution to shareholders. On 1 April 2022, £567,000 became distributable in line with this.
The accompanying notes form an integral part of these Financial Statements.
Statement of cash flows
|
Year ended
31 March 2022 |
Year ended 31 March 2021 |
|
| £’000 | £’000 | |
| Cash flow from operating activities | ||
| Loan stock income received | 978 | 2,985 |
| Deposit interest received | 4 | 14 |
| Dividend income received | 7 | 24 |
| Investment Manager’s fees paid | (1,434) | (1,337) |
| Other cash payments | (389) | (378) |
| UK Corporation tax paid | (42) | (204) |
| Net cash flow from operating activities | (876) | 1,104 |
| Cash flow from investing activities | ||
| Purchase of fixed asset investments | (7,771) | (5,040) |
| Disposal of fixed asset investments | 4,649 | 30,620 |
| Net cash flow from investing activities | (3,122) | 25,580 |
| Cash flow from financing activities | ||
| Issue of share capital | 8,941 | 668 |
| Cost of issue of equity | (35) | (17) |
| Dividends paid* | (21,589) | (3,714) |
| Purchase of own shares (including costs) | (2,213) | (1,841) |
| Net cash flow from financing activities | (14,896) | (4,904) |
| (Decrease)/increase in cash and cash equivalents | (18,894) | 21,780 |
| Cash and cash equivalents at start of the year | 43,562 | 21,782 |
| Cash and cash equivalents at end of the year | 24,668 | 43,562 |
*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 and the timing of unclaimed dividends.
The accompanying notes form an integral part of these Financial Statements.
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”). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on pages 33 and 34 of the full Annual Report and Financial Statements.
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”) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines as updated in 2018 and further detail on the valuation techniques used are outlined 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, discounted cash flows 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 other distributable reserve when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables and cash are carried at amortised cost, in accordance with FRS 102. Debtors due after more than one year meet the definition of a financing transaction held at amortised cost, and interest will be recognised through capital over the credit period using the effective interest method. There are no financial liabilities other than payables.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock
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 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:
- 90% of management fees and 100% of performance incentive fees, if any, are allocated to the realised capital reserve. This has changed from 75% for both management fees and performance incentive fees in the year ended 31 March 2021, to better align with the Board’s expectation that over the long term the majority 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
Called-up share capital
This accounts for the nominal value of the Company’s shares.
Share premium
This accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs and transfers on cancellation of share premium once consent of the court is given.
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, less any transfers on cancellation of share premium once consent of the court is given.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
- gains and losses compared to cost on the realisation of investments, or permanent diminutions in value (including gains recognised on the realisation of investment where consideration is deferred that are not distributable as a matter of law);
- finance income in respect of the unwinding of the discount on deferred consideration that is not distributable as a matter of law;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares, transfers from the share premium and capital redemption reserve, and other non-capital realised movements.
Going concern
The Board has assessed the Company’s operation as a going concern. The Company has sufficient cash and liquid resources, its portfolio of investments is well diversified in terms of sector, and the major cash outflows of the Company (namely investments, buy-backs and dividends) are within the Company’s control. Cash flow forecasts are discussed quarterly at Board level with regards to going concern. The cash flow forecasts have been updated and stress tested. Accordingly, after making diligent enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence over a period of at least twelve months from the date of approval of the Financial Statements. For this reason, the Directors have adopted the going concern basis in preparing the accounts. The Directors do not consider there to be any material uncertainty over going concern.
Dividends
Dividends by the Company are accounted for when the liability to make the payment (record date) has been established.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.
3. Gains on investments
|
Year ended
31 March 2022 |
Year ended 31 March 2021 |
|
| £’000 | £’000 | |
| Unrealised gains on fixed asset investments | 3,784 | 1,831 |
| Realised gains on fixed asset investments | 2,546 | 4,626 |
| Finance income from deferred consideration | 223 | 51 |
| 6,553 | 6,508 |
4. Investment income
|
Year ended
31 March 2022 |
Year ended 31 March 2021 |
|
| £’000 | £’000 | |
| Loan stock interest | 1,026 | 2,432 |
| Dividend income | 7 | 24 |
| Bank interest | 4 | 11 |
| 1,037 | 2,467 |
5. Investment Manager’s fees
|
Year ended
31 March 2022 £’000 |
Year ended 31 March 2021 £’000 |
|
| Investment management fee charged to revenue | 122 | 337 |
| Investment management fee charged to capital | 1,097 | 1,010 |
| 1,219 | 1,347 |
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 £1,274,000 (2021: £1,401,000), were purchased by the Company from Albion Capital Group LLP; this includes £1,219,000 (2021: £1,347,000) of investment management fee and £55,000 (2021: £54,000) 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 £144,000 (2021: £359,000).
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 2022, fees of £155,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2021: £193,000).
Albion Capital Group LLP, its partners and staff hold a total of 1,324,035 shares in the Company as at 31 March 2022.
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 per cent. of the gross proceeds of the Offers and out of which Albion paid the costs of the Offers, as detailed in the Prospectus.
6. Other expenses
|
Year ended
31 March 2022 |
Year ended 31 March 2021 |
|
| £’000 | £’000 | |
| Directors’ fees (including NIC) | 103 | 101 |
| Auditor’s remuneration for statutory audit services (excluding VAT) | 39 | 37 |
| Secretarial and administration fee | 55 | 54 |
| Other administrative expenses | 214 | 171 |
| 411 | 363 |
7. Directors’ fees
The amounts paid to and on behalf of Directors during the year are as follows:
|
Year ended
31 March 2022 |
Year ended 31 March 2021 |
|
| £’000 | £’000 | |
| Directors’ fees | 95 | 93 |
| National insurance | 8 | 8 |
| 103 | 101 |
The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on page 46 of the full Annual Report and Financial Statements.
8. Tax
(credit
)/
charge on ordinary activities
| Year ended 31 March 2022 | Year ended 31 March 2021 | |||||
|
Revenue
£’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| UK corporation tax in respect of current year | 98 | (98) | - | 332 | (192) | 140 |
| UK corporation tax in respect of prior year | (1) | - | (1) | (33) | - | (33) |
| 97 | (98) | (1) | 299 | (192) | 107 | |
| Reconciliation of profit on ordinary activities to taxation charge |
Year ended
31 March 2022 £’000 |
Year ended 31 March 2021 £’000 |
|
Return on ordinary activities before taxation |
5,960 | 7,265 |
| Tax charge on profit at the standard rate of 19% (2021: 19%) | 1,132 | 1,380 |
| Factors affecting the charge: | ||
| Non-taxable gains | (1,245) | (1,236) |
| Income not taxable | (1) | (4) |
| Consortium relief in respect of prior years | - | (33) |
| Prior year refund | 1 | - |
| Excess management expenses carried forward | 11 2 | - |
| ( 1 ) | 107 |
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. (2021: 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) The Company has excess management expenses of £582,000 (2021: £nil) that are available for offset against future profits. A deferred tax asset of £146,000 (2021: £nil) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
9. Dividends
|
Year ended
31 March 2022 |
Year ended 31 March 2021 |
|||||
| £’000 | £’000 | |||||
| First interim and first special dividend of 16.83p per share paid on 30 July 2021 (31 July 2020: First interim dividend of 2.50p per share) | 16,728 | 2,541 | ||||
| Second special dividend of 7.00p per share paid on 31 December 2021 | 7,141 | - | ||||
| Second interim dividend of 1.47p per share paid on 31 January 2022 (29 January 2021: Second interim dividend of 1.74p per share) | 1,523 | 1,745 | ||||
| Unclaimed dividends | (10) | (23) | ||||
| 25,382 | 4,263 | |||||
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2023 of 1.33 pence per share to be paid on 29 July 2022 to shareholders on the register on 8 July 2022. The total dividend will be approximately £1,614,000.
During the year, unclaimed dividends older than twelve years of £10,000 (2021: £23,000) 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 2022 | Year ended 31 March 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Return attributable to equity shares (£’000) | 407 | 5,554 | 5,961 | 1,468 | 5,690 | 7,158 |
| Weighted average shares in issue (adjusted for treasury shares) | 103,265,706 | 100,836,952 | ||||
| Return attributable per equity share (pence) | 0.39 | 5.38 | 5.77 | 1.46 | 5.64 | 7.10 |
The weighted average number of shares is calculated after adjusting for treasury shares of 17,153,431 (2021: 17,153,431).
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
|
Investments held at fair value through profit or loss
|
31 March 2022
£’000 |
31 March 2021 £’000 |
| Unquoted equity | 24,388 | 17,563 |
| Unquoted loan stock | 12,460 | 10,792 |
| Quoted equity | 756 | - |
| 37,604 | 28,355 |
|
31 March 2022
£’000 |
31 March 2021 £’000 |
||||
| Opening valuation | 28,355 | 49,243 | |||
| Purchases at cost | 7,771 | 5,040 | |||
| Disposal proceeds | (4,899) | (31,883) | |||
| Realised gains | 2,546 | 4,677 | |||
| Movement in loan stock accrued income | 47 | (553) | |||
| Unrealised gains | 3,784 | 1,831 | |||
| Closing valuation | 37,604 | 28,355 | |||
| Movement in loan stock accrued income | |||||
| Opening accumulated loan stock accrued income | 199 | 752 | |||
| Movement in loan stock accrued income | 47 | (553) | |||
| Closing accumulated loan stock accrued income | 246 | 199 | |||
| Movement in unrealised gains | |||||
| Opening accumulated unrealised gains | 3,588 | 13,178 | |||
| Transfer of previously unrealised gains to realised reserve on realisations of investments | (822) | (11,421) | |||
| Unrealised gains | 3,784 | 1,831 | |||
| Closing accumulated unrealised gains | 6,550 | 3,588 | |||
| Historic cost basis | |||||
| Opening book cost | 24,568 | 35,313 | |||
| Purchases at cost | 7,771 | 5,040 | |||
| Disposals at cost | (1,531) | (15,785) | |||
| Closing book cost | 30,808 | 24,568 | |||
Purchases and disposals detailed above may not agree to purchases and disposals in the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement of receivables and payables.
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 2022 | 31 March 2021 | |
| Valuation methodology | £’000 | £’000 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 16,678 | 11,408 |
| Third party valuation – Discounted cash flow | 10,026 | 9,835 |
| Third party valuation - Earnings multiple | 3,085 | 2,196 |
| Net assets | 3,038 | 1,850 |
| Revenue multiple | 1,595 | 1,400 |
| Bid price | 756 | - |
| Earnings multiple | 2,426 | 1,666 |
| 37,604 | 28,355 |
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 2021 and 31 March 2022:
| Change in valuation methodology (2021 to 2022) |
Value as at
31 March 2022 £’000 |
Explanatory note |
| Cost and price of recent investment (reviewed for impairment or uplift) to revenue multiple | 1,595 | Revenue multiple more relevant based on current trading |
| Cost and price of recent investment (reviewed for impairment or uplift) to net assets | 1,292 | More appropriate valuation methodology |
| Cost and price of recent investment (reviewed for impairment or uplift) to bid price | 756 | IPO listing |
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 2022.
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 FRS 102 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.
Investments held at fair value through profit or loss (Level 3) had the following movements:
| 31 March 2022 | 31 March 2021 | |
| £’000 | £’000 | |
| Opening valuation | 28,355 | 49,243 |
| Purchases at cost | 7,771 | 5,040 |
| Movement from Level 3 to Level 1* | (356) | - |
| Unrealised gains | 3,384 | 1,831 |
| Movement in loan stock accrued income | 47 | (553) |
| Realised net gains on disposal | 2,546 | 4,677 |
| Disposal proceeds | (4,899) | (31,883) |
| Closing valuation | 36,848 | 28,355 |
*This relates to Arecor Therapeutics PLC, which listed on the AIM stock exchange during the period.
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. 79% of the portfolio of investments, consisting of equity and loan stock, is based on recent investment price, net assets and cost, which is considered and as such the Board believes that changes to reasonable possible alternative input assumptions (by adjusting the earnings and revenue multiples) for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 88% of the portfolio of investments. The main inputs considered for each type of valuation is as follows:
| Valuation technique | Portfolio company sector | Input | Base Case* | Change in input | Change in fair value of investments (£’000) | Change in NAV (pence per share) |
| Third party valuation – Discounted cashflow |
Renewable energy |
Discount rate |
5.5% |
+0.5% | 144 | 0.12 |
| -0.5% | (131) | (0.11) | ||||
| Third party valuation – Earnings multiple |
Education |
Earnings multiple |
22.5x |
2.25x | 186 | 0.16 |
| -2.25x | (186) | (0.16) |
*As detailed in the accounting policies above, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the valuation of the unquoted equity investments by £330,000 (1.4%) or a decrease in the valuation of unquoted equity investments by £317,000 (1.3%).
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The 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 2022 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 |
| Kew Green VCT (Stansted) Limited | EC1M 5QL, UK | n/a* | 3,001 | 31 December 2020 | 45.2% Ordinary | 45.2% |
*The company files filleted accounts which do not disclose this information.
13. Trade and other receivables
| 31 March 2022 | 31 March 2021 | |
| £’000 | £’000 | |
| Other receivables | 342 | 107 |
| UK corporation tax receivable | - | 97 |
| Prepayments | 24 | 21 |
| Deferred consideration over one year | 1,560 | 1,336 |
| 1,926 | 1,561 |
The deferred consideration over one year relates to the sale of G. Network Communications Limited in December 2020. These proceeds are receivable in January 2024, and have been discounted to present value at the prevailing market rate, including a provision for counterparty risk. This constitutes a financing transaction, and has been accounted for using the policy disclosed in note 2.
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
14. Trade and other payables
| 31 March 2022 | 31 March 2021 | |
| £’000 | £’000 | |
| Trade payables | 27 | 219 |
| UK Corporation tax payable | - | 140 |
| Accruals and deferred income | 234 | 431 |
| 261 | 790 |
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 |
| 116,549,525 Ordinary shares of 1 penny each at 31 March 2021 | 1,165 |
| 24,297,674 Ordinary shares of 1 penny each issued during the year | 243 |
| 3,919,566 Ordinary shares of 1 penny each cancelled during the year | (39) |
| 136,927,633 Ordinary shares of 1 penny each at 31 March 2022 | 1,369 |
| 17,153,431 Ordinary shares of 1 penny each held in treasury at 31 March 2021 | (172) |
| 17,153,431 Ordinary shares of 1 penny each held in treasury at 31 March 2022 | (172) |
| 119,774,202 Ordinary shares of 1 penny each in circulation* at 31 March 2022 | 1,198 |
* Carrying one vote each
The Company purchased 3,919,566 Ordinary shares to be cancelled (2021: 3,069,400 to be held in treasury) at a cost of £2,013,000 (2021: £2,043,000) representing 2.9 per cent. (2021: 2.6 per cent.) of its issued share capital as at 31 March 2022. The shares purchased for treasury in the prior year were funded from the other distributable reserve.
The Company holds a total of 17,153,431 shares (2021: 17,153,431) in treasury at a nominal value of £172,000, representing 12.5 per cent. of the issued Ordinary share capital as at 31 March 2022.
Under the terms of the Dividend Reinvestment Scheme Circular dated 10 July 2008, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares | Issue price (pence per | Net invested | Opening market price on allotment date |
| £’000 | share) | £’000 | ( pence per share) | ||
| 30 July 2021 | 4,358,920 | 44 | 56.30 | 2,437 | 53.50 |
| 31 December 2021 | 2,065,224 | 21 | 51.80 | 1,052 | 49.45 |
| 31 January 2022 | 508,281 | 5 | 50.33 | 254 | 47.40 |
| 6,932,425 | 69 | 3,743 |
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 2021/22:
| 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) | ||
| 25 February 2022 | 1,836,706 | 18 | 52.30 | 946 | 49.00 |
| 25 February 2022 | 760,552 | 8 | 52.50 | 391 | 49.00 |
| 25 February 2022 | 14,767,991 | 148 | 52.80 | 7,603 | 49.00 |
| 17,365,249 | 174 | 8,940 |
16. Basic and diluted net asset value per share
| 31 March 2022 | 31 March 2021 | |
| Basic and diluted net asset value per share (pence) | 53.38 | 73.13 |
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 119,774,202 Ordinary shares (2021: 99,396,094).
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 33 of the Directors’ report within the full Annual Report and Financial Statements.
The Company’s financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances and 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:
- Market and investment 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.
Market risk
As a Venture Capital Trust, it is the Company’s specific nature to evaluate the market risk of its portfolio in unquoted companies. Market risk is the exposure of the Company to the revaluation and devaluation of investments as a result of macroeconomic changes. The main driver of market risk is the dynamics of market quoted comparators, as well as the financial and operational performance of portfolio companies. The Board seeks to reduce this risk by having a spread of investments across a variety of sectors. More details on the sectors the Company invests in can be found in the pie chart on page 9.
The Manager and the Board formally review market 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.
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 10% based on the current economic climate. The impact of a 10% change has been selected as this 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.
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 £3,760,000. Further sensitivity analysis on fixed asset investments is included in note 11.
Investment risk (including investment price risk)
Investment risk (including 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 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 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 in the Strategic report above.
The maximum investment risk on the balance sheet date is the value of the fixed asset investment portfolio which is £37,604,000 (2021: £28,355,000). Fixed asset investments form 59 per cent. Of the net asset value on 31 March 2022 (2021: 39 per cent.).
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 £341,000 (2021: £327,000). 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 7.3 per cent. (2021: 11.9 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 6.0 years (2021: 6.9 years).
The Company’s financial assets and liabilities, all denominated in Sterling, consist of the following:
| 31 March 2022 | 31 March 2021 | |||||||
|
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 | - | - | 24,388 | 24,388 | - | - | 17,563 | 17,563 |
| Quoted equity | - | - | 756 | 756 | - | - | - | - |
| Unquoted loan stock | 11,922 | 233 | 305 | 12,460 | 10,233 | 247 | 312 | 10,792 |
| Receivables * | - | - | 1,902 | 1,902 | - | - | 1,443 | 1,443 |
| Payables* | - | - | (261) | (261) | - | - | (650) | (650) |
| Cash | - | 24,668 | - | 24,668 | - | 43,562 | - | 43,562 |
| 11,922 | 24,901 | 27,090 | 63,913 | 10,233 | 43,809 | 18,668 | 72,710 | |
* 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 78 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 2022 was limited to £12,460,000 of unquoted loan stock instruments (2021: £10,792,000), £24,668,000 cash deposits with banks (2021: £43,562,000) and £1,926,000 of other receivables (2021: £1,561,000).
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, National Westminster Bank plc and Société Générale S.A. 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.
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 £6,232,000 as at 31 March 2022 (2021: £5,596,000).
The Company has no committed borrowing facilities as at 31 March 2022 (2021: £nil) and had cash balances of £24,668,000 (2021: £43,562,000). 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 £261,000 as at 31 March 2022 (2021: £790,000).
The carrying value of loan stock investments as analysed by expected maturity dates is as follows:
| 31 March 2022 | 31 March 2021 | ||||||||
| 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 | 1,741 | 469 | 857 | 3,067 | 864 | 486 | 916 | 2,266 | |
| 1-2 years | - | - | - | - | - | 806 | - | 806 | |
| 2-3 years | 1,395 | - | 2 | 1,397 | - | - | - | - | |
| 3-5 years | 2,422 | - | - | 2,422 | 1,618 | - | 5 | 1,623 | |
| 5+ years | 5,154 | 420 | - | 5,574 | 5,649 | 448 | - | 6,097 | |
| Total | 10,712 | 889 | 859 | 12,460 | 8,131 | 1,740 | 921 | 10,792 | |
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 £1,045,000 (2021: £1,045,000).
The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both those valued below cost and past due assets are covered by the value of security held for these loan stock investments.
In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 31 March 2022 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 2022 (2021: £nil).
There are no contingent liabilities or guarantees given by the Company as at 31 March 2022 (2021: £nil).
19. Post balance sheet events
Since 31 March 2022 the Company has had the following material post balance sheet events:
- Investment of £711,000 in an existing portfolio company, Gravitee TopCo Limited (T/A Gravitee.io), an API management platform;
- Investment of £565,000 in a new portfolio company which provides insights and analytics to pharmaceutical companies about therapeutic areas;
- Investment of £435,000 in an existing portfolio company, Cantab Research Limited (T/A Speechmatics), a provider of low footprint automated speech recognition which can be deployed in the cloud, on premise or on device across over 31 languages; and
- Investment of £433,000 in a new portfolio company which is an autonomous debt resolution platform.
The following new Ordinary shares of nominal value 1 penny each were allotted under the Albion VCTs Prospectus Top Up Offers 2021/22 after 31 March 2022:
| 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) | ||
| 11 April 2022 | 446,260 | 4 | 52.30 | 230 | 48.60 |
| 11 April 2022 | 23,806 | - | 52.50 | 12 | 48.60 |
| 11 April 2022 | 1,126,685 | 11 | 52.80 | 580 | 48.60 |
| 1,596,751 | 16 | 822 |
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, and the Directors’ remuneration disclosed in the Directors’ remuneration report on page 46 of the full Annual Report and Financial Statements, there are no other related party transactions or balances requiring disclosure.
21. Other information
The information set out in this announcement does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 March 2022 and 31 March 2021, 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 2022, 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/31Mar2022.pdf.
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