Albion Enterprise VCT PLC: Annual Financial Report
Source: GlobeNewswireAlbion Enterprise VCT PLC
LEI number: 213800OVSRDHRJBMO720
As required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Enterprise VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 March 2021.
This announcement was approved for release by the Board of Directors on 28 June 2021.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 March 2021 (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/AAEV/31Mar2021.pdf.
Investment policy
Albion Enterprise VCT PLC (the “Company”) is a Venture Capital Trust and the investment objective of the Company is to provide investors with a regular source of income, combined with the prospect of longer term capital growth.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.
VCT qualifying and non-VCT qualifying investments
Application of the investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs (“VCT regulations”). The maximum amount invested in any one company is limited to relevant HMRC annual investment limits. It is intended that normally at least 80 per cent. of the Company's funds will be invested in VCT qualifying investments. The VCT regulations also have an impact on the type of investments and qualifying sectors in which the Company can make investment.
Funds held prior to investing in VCT qualifying assets or for liquidity purposes will be held as cash on deposit, invested in floating rate notes or similar instruments with banks or other financial institutions with high credit ratings or invested in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so). Investment in such open-ended equity funds will not exceed 10 per cent. of the Company’s assets at the time of investment.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single 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 is 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 its adjusted share capital and reserves.
Financial calendar
| Record date for first dividend | 6 August 2021 |
| Payment date for first dividend | 31 August 2021 |
| Annual General Meeting | Noon on 11 August 2021 |
| Announcement of Half-yearly results for the six months ending 30 September 2021 | November 2021 |
Financial highlights
| 13.50p | Total return per share for the year ended 31 March 2021† |
| 12.67% | Shareholder return for the year ended 31 March 2021† |
| 5.44p | Total tax-free dividend per share paid during the year ended 31 March 2021 |
| 114.60p | Net asset value per share on 31 March 2021 |
| 170.89p | Total shareholder value to 31 March 2021† |
†These are considered APMs, see notes 2 and 3 in the Strategic report below for further explanation.
| 31 March 2021 (pence per share) | 31 March 2020 (pence per share) | |
| Opening net asset value | 106.54 | 117.76 |
| Capital return/(loss) | 13.96 | (6.31) |
| Revenue (loss)/return | (0.51) | 0.61 |
| Total return/(loss) | 13.45 | (5.70) |
| Dividends paid | (5.44) | (6.00) |
| Impact from share capital movements | 0.05 | 0.48 |
| Net asset value | 114.60 | 106.54 |
| Total dividends paid to 31 March 2021 | 56.29 |
| Net asset value on 31 March 2021 | 114.60 |
| Total shareholder value to 31 March 2021 | 170.89 |
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/AAEV under the ‘Dividend History’ section.
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2022, of 2.87 pence per Ordinary share to be paid on 31 August 2021 to shareholders on the register on 6 August 2021.
Chairman’s statement
Introduction
We are pleased to report a positive total return for the year of 13.45 pence per share, despite the Covid-19 pandemic being extremely challenging for so many businesses. This represents a 12.6% gain on opening net asset value. Last year’s results were reported in the early days of the pandemic and, as such, were negatively impacted by the uncertainty of the time. One year later and, although there is still uncertainty, we have seen not only resilience but in many cases growth from our portfolio, with many of our companies continuing to provide products and services that are considered innovative and essential to their customers.
Results and dividends
On 31 March 2021 the net asset value was 114.60 pence per share compared to 106.54 pence per share on 31 March 2020. The total return before taxation was £9.2 million compared to a loss of £3.7 million for the previous year. The positive progress of a number of our portfolio companies is discussed later in this statement and in the Strategic report below. These excellent results for the year have resulted in a performance incentive fee payable to the Manager of £288,000. More detail on the calculation of this fee can be found in the Strategic report below.
In line with our variable dividend policy targeting around 5% of NAV per annum the Company paid dividends totalling 5.44 pence per share during the year to 31 March 2021 (2020: 6.00 pence per share). The Company will pay a first dividend for the financial year to 31 March 2022 of 2.87 pence per share on 31 August 2021 to shareholders on the register on 6 August 2021, being 2.5% of the latest reported NAV.
Investment performance and progress
There have been several disposals during the year with proceeds of £5.3 million (2020: £15.5 million). The sale of OmPrompt Holdings in March resulted in a return of 2.3 times cost, and generated proceeds of £2.3 million. The sale of G.Network Communications in December delivered a strong headline total return of 3.8 times cost, although the terms of the sale will see the majority of the proceeds being received in three years’ time. Portfolio companies Clear Review and SBD Automotive were also sold in the year, generating 2.1 times cost in both instances. Further details on these sales can be found in the table on page 25 of the full Annual Report and Financial Statements.
As announced in the Half-yearly results to 30 September 2020, the Company disposed of its investment in the SVS Albion OLIM UK Equity Income Fund (“OUEIF”) incurring a loss of £0.9m, which followed a period of poor performance. The fund was particularly impacted by the Covid-19 driven falls in UK quoted equities and the negative outlook for the UK Equity Income sector. The Board intends to redeploy the proceeds into innovative unquoted growth companies where the Company is seeing resilient growth.
Several of our portfolio companies have performed extremely well despite the pandemic, and this has contributed to the valuation uplift in the year. Quantexa, has been revalued after a further externally led funding round, this contributed £2.5 million to the net valuation gains of £10.9 million in the year. Proveca continues to trade well both within the UK and the EU and, together with Egress Software Technologies, has contributed £3.5 million to this uplift. Inevitably some of our portfolio companies continue to be impacted by the pandemic, with Mirada Medical being written down by £2.7 million this year due to sales to hospitals being delayed by the pandemic.
The Company has been an active investor during the year with more than £7.3 million invested in new and existing companies. The Company has invested £2.7 million in five new portfolio companies, all of which are targeted to require further investment as the companies prove themselves and grow:
• £1.4 million into Threadneedle Software Holdings (trading as Solidatus), a provider of data lineage software to enterprise customers in regulated sectors, which allows them to rapidly discover, visualise, catalogue and understand how data flows through their systems;
• £0.6 million into The Voucher Market (trading as WeGift), a cloud platform that enables corporates to purchase digital gift cards and to distribute them to employees and customers;
• £0.4 million into Seldon Technologies, a software company that enables enterprises to deploy Machine Learning models in production;
• £0.2 million into TransFICC, a provider of a connectivity solution, connecting financial institutions with trading venues via a single API; and
• £0.1 million into uMedeor (trading as uMed), a software platform that enables life science organisations to use patient data, in a compliant way, to recruit participants for clinical trials.
A further £4.6 million was invested into 13 existing portfolio companies, of which the largest were: £1.4 million into Quantexa as part of a larger externally led funding round to support the growth of its analytics platform which helps detect and protect against financial crime; £0.9 million into Healios to continue providing psychological care to children and adolescents using a family centric approach; and £0.7 million into Black Swan Data, to support the restructure of its business to focus primarily on predictive analytics for consumer brands. A review of business and future prospects is included in the Strategic report below.
Portfolio update announcement
As mentioned in the RNS announcement on 21 June 2021, I am pleased to report that two companies within the portfolio are undergoing external fundraising processes, which result in an uplift to the net asset value. These are non-adjusting post balance sheet events for the purposes of this audited Annual Report and Financial Statements. When quantifying the effect at the date of this Report, this results in an increase of 7.81 pence per share (6.8%) to the audited 31 March 2021 net asset value of 114.60p per share.
A further update will be made in due course, if required, otherwise further information will be included in the Interim Management Statement for the period to 30 June 2021, at which point the entire portfolio will have been revalued to take account of recent events. This is expected to be announced in August 2021.
Risks and uncertainties
The wide reaching implications of the Covid-19 crisis continues to be the key risk facing the Company, including its impact on the UK and Global economies. There may still also be further implications following the UK’s departure from the European Union which may adversely affect our underlying portfolio companies. The Manager is continually assessing the exposure to such risks for each portfolio company and, where possible, appropriate mitigating actions are being taken.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Board composition
Lord St John of Bletso retired from the Board on 30 November 2020. He acted as Chairman of our Audit Committee and as Senior Independent Director. The Dowager Lady Balfour of Burleigh wishes to retire from the Board and will not seek re-election at the Annual General Meeting. We will miss their very positive contributions to our deliberations and wish them both well in the future.
Rhodri Whitlock joined the Board on 19 January 2021 and assumed the role of chairman of our Audit Committee. Following The Dowager Lady Balfour of Burleigh’s retirement, Christopher Burrows will assume the role of Senior Independent Director.
In order to provide the Board with more capacity for succession planning, a resolution is being proposed at the forthcoming Annual General Meeting (“AGM”) to increase the cap on Directors remuneration from £100,000 to £125,000 per annum. There is no intention of increasing Directors’ fees in the near term, but the new level proposed under the Articles of Association provides extra flexibility in the case, for example, of an additional Board member being appointed prior to the retirement of an existing Director.
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.
Albion VCTs Top Up Offers
Your Board, in conjunction with the boards of other VCTs managed by Albion Capital Group LLP, launched a prospectus top up offer of new Ordinary shares on 5 January 2021. The Board announced on 21 January 2021 that, following strong demand, it would utilise the over-allotment facility, bringing the total to be raised to £9 million. The Offer was fully subscribed and closed to further applications on 5 February 2021.
The proceeds raised by the Company pursuant to the offer will be added to the liquid resources available for investment, positioning the Company to take advantage of investment opportunities over the next two to three years. Details on the share allotments during and after the financial year end can be found in notes 15 and 19 respectively.
Annual General Meeting
The Board has been considering the current rules around the Covid-19 pandemic on the arrangements for our forthcoming Annual General Meeting (“AGM”). These arrangements may be subject to change, and we will keep shareholders up to date on our Manager's website at www.albion.capital/vct-hub/agms-events.
We are required by law to hold an AGM within six months of our financial year end. The Board considered last year’s live streamed AGM to have been a success and therefore, in the interests of continued caution and the ongoing uncertainty from the continued delay to the roadmap of lockdown lifting, the Board has decided to repeat that format this year. The AGM will be held at noon on 11 August 2021, at the registered office, being 1 Benjamin Street, London, EC1M 5QL. Shareholders will be able to attend the event via the free platform, Hopin.
Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 69 to 72 and in the Directors’ report on pages 34 and 35 of the full Annual Report and Financial Statements.
It will not be possible to allow shareholders entry into the building where the AGM is held, due to the ongoing uncertainty around large indoor meetings. The Directors will attend in person to ensure a quorum and allow the continuation of this AGM. There will also be a representative of Albion Capital Group LLP as Company Secretary.
At least two weeks prior to the AGM registration details will be sent to all shareholders who have an email address registered with Computershare. Shareholders who do not have an email address registered with Computershare should get in touch with marketing@albion.capital for information about the AGM. To encourage shareholder engagement, the AGM will include a presentation from the Manager, the formal business of the AGM and answering questions we receive from shareholders.
Shareholders can submit their questions to the Board in advance of the AGM up until noon on 10 August 2021 by emailing AAEVchair@albion.capital. Alternatively there is a facility on the Hopin platform to submit questions whilst attending the event. The Chairman will cover as many questions as possible in the time allocated. Following the AGM, a summary of responses will be published on the Managers website at www.albion.capital/funds/AAEV.
Shareholders’ views are important, and the Board encourages shareholders to vote on the resolutions using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the Annual General Meeting and recommends shareholders to vote in favour of all the resolutions being proposed.
Outlook and prospect
These positive results, including the non-adjusting post balance sheet events referred to above, demonstrate the resilience of our portfolio which is both diversified and targeted at sectors such as software and healthcare which have proved resilient during the Covid-19 pandemic. Although there is still much uncertainty around the longer term impact of the pandemic, I am confident that our portfolio companies are well positioned to grow, providing products and services critical to their customers, and therefore well placed to continue to deliver long term value to our shareholders.
Maxwell Packe
Chairman
28 June 2021
Strategic report
Investment policy
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.
The full investment policy can be found above.
Current portfolio sector allocation
The pie charts at the end of this announcement show the split of the portfolio valuation on 31 March 2021 by: sector; stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, portfolio companies’ maturity measured by revenues and their size measured by the number of people employed. As the Company continues to invest in software and other technology companies, FinTech (which is technology specifically applicable to financial services companies) becomes a more prominent investment, and therefore is included as a subsector below. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 24 and 25 of the full Annual Report and Financial Statements.
Direction of portfolio
Due to the share allotment on 26 February 2021 under the 2020/21 Prospectus Top Up Offer, cash is a significant proportion of the portfolio at 29%. These funds will be invested predominantly into higher growth technology companies, and therefore the shift away from asset based companies will continue. The Company has a significant speciality in FinTech investing, which can be seen as a growing part of the portfolio, represented by a 6% increase this year. Healthcare technology is another area of particular strength, which has increased by 2% over the last year.
Results and dividend policy
| £'000 | |
| Net capital return for the year ended 31 March 2021 | 9,578 |
| Net revenue loss for the year ended 31 March 2021 | (349) |
| Total return for the year ended 31 March 2021 | 9,229 |
| Dividend of 2.70 pence per share paid on 28 August 2020 | (1,836) |
| Dividend of 2.74 pence per share paid on 26 February 2021 | (1,854) |
| Reclaimed dividends | 2 |
| Transferred to reserves | 5,541 |
| Net assets on 31 March 2021 | 85,398 |
| Net asset value on 31 March 2021 (pence per share) | 114.60 |
The Company paid dividends totalling 5.44 pence per share during the year ended 31 March 2021 (2020: 6.00 pence per share). The Board has declared a first dividend for the year ending 31 March 2022, of 2.87 pence per Ordinary share to be paid on 31 August 2021 to shareholders on the register on 6 August 2021.
As shown in the Company’s Income statement below, the total return for the year was 13.45 pence per share (2020: loss of 5.70 pence per share). Investment income decreased to £543,000 (2020: £1,157,000), which is a significant decrease on last year, mainly due to reduced distributions from the SVS Albion OLIM UK Equity Income Fund which was sold during the year, as well as the repayment of the G.Network Communications accrued interest in the previous year.
The capital return on investments for the year of £10,892,000 (2020: loss of £2,884,000) has been explained in the Chairman’s statement above. This has led to a significant increase in net asset value to 114.60 pence per share (2020: 106.54 pence per share), which can be seen on the Balance sheet below. This increase in net asset value is after taking account of the payment of 5.44 pence per share of dividends during the year.
There was a net cash inflow for the Company of £2,919,000 for the year (2020: net inflow of £17,069,000), which has arisen from both the disposal of fixed and current asset investments and the issue of Ordinary shares under the Albion VCTs Top Up Offers, reduced by the investment in fixed asset investments, dividends paid, operating activities and the buy back of shares.
Review of business and future changes
A detailed review of the Company’s business during the year is contained in the Chairman’s statement above. Total gains on investments for the year were £10.9 million (2020: loss of £2.9 million).
There is a continuing focus on growing the FinTech, healthcare and other software and technology sectors. The majority of these investment returns are delivered through equity and capital gains, and we therefore expect our investment income to continue to be similar to the current level, as most of this is derived from the existing renewable energy portion of our portfolio.
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 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 pipeline will continue to enable the Company to maintain a predictable stream of dividend payments to shareholders, and ultimately continue to deliver long term growth.
Key performance indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs and APMs, which are typical for Venture Capital Trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs give a good indication that the Company is achieving its investment objective and policy. These are:
1. Total shareholder value relative to FTSE All Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the Company’s total shareholder value 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.
2. Net asset value per share and total shareholder value
Total shareholder value increased by 13.50 pence per share to 170.89 pence per share for the year ended 31 March 2021 (return of 12.67% on opening net asset value).
3. Shareholder return in the year†
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| 0.9% | 13.5% | 9.7% | 4.5% | 5.4% | 10.8% | 12.4% | 13.1% | (4.4)% | 12.7% |
Source: Albion Capital Group LLP
†Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.
4. Dividend distributions
Dividends paid in respect of the year ended 31 March 2021 were 5.44 pence per share (2020: 6.00 pence per share), a yield of 5.1% on opening net asset value. The cumulative dividends paid since inception total 56.29 pence per share.
5. Ongoing charges
The ongoing charges ratio for the year ended 31 March 2021 was 2.5% (2020: 2.7%). 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 ongoing charges cap is 2.5%, which has resulted in a saving of £53,000 to shareholders during the year (2020: £24,000).
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 32 of the full Annual Report and Financial Statements.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 March 2021. 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% of its adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.
Management agreement
Under the Management agreement, the Manager provides investment management, secretarial and administrative services to the Company. The Management agreement can be terminated by either party on 12 months’ notice. The Management agreement is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 2% of the net asset value of the Company paid quarterly in arrears, along with an administration fee of 0.2% of the net asset value.
Additionally, for the period that the Company held the investment in the SVS Albion OLIM UK Equity Income Fund (“OUEIF”), Albion Capital Group LLP reduced the proportion of its management fee relating to the investment in the OUEIF by 0.75%, which represented the OUEIF management fee charged by OLIM, to avoid any double charging for the investment exposure.
Total annual expenses, including the management fee, are limited to 2.5% of the net asset value, since 1 October 2019.
The Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2% on each investment made and also monitoring fees where the Manager has a representative on the portfolio company’s board.
Further details on the management fee can be found in note 5.
Management performance incentive fee
In order to align the interests of the Manager and the shareholders with regards to generating positive returns, the Company has a Management performance incentive arrangement with the Manager. Under the incentive arrangement, the Company will pay an incentive fee to the Manager of an amount equal to 20% of such excess return that is calculated for each financial year.
The performance fee 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 the higher of the average base rate of the Royal Bank of Scotland plus 2% or RPI plus 2%. The hurdle is calculated every year, based on the starting rate of 100 pence per share in 2007.
For the year ended 31 March 2021, the total return of the Company since launch (the performance incentive fee start date) amounted to 170.89 pence per share, compared to the higher hurdle of 168.79 pence per share. As a result, a performance incentive fee of £288,000 is payable to the Manager (2020: £nil).
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% qualifying holdings investment requirement for VCT status;
• the long term prospects of the current portfolio of investments;
• the management of treasury, including use of buy-backs and participation in fund raising;
• a review of the Management agreement and the services provided therein; and
• benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive (“AIFMD”)
The Board appointed Albion Capital Group LLP as the Company’s AIFM in 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 stakeholders the Board considers most relevant, 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 Stakeholders | Decision outcomes based on engagement |
| Shareholders | The key methods of engaging with Shareholders are as follows:
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| Suppliers | The key suppliers with regular engagement from the Manager 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. |
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| 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”) section below, 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”)
The Company’s Manager, Albion Capital Group LLP, takes the concept of sustainable and responsible investment very seriously for existing investments and in reviewing new investment opportunities. In turn, the Board is kept appraised of ESG issues in connection with both the portfolio and in how Company affairs are conducted more generally as a regular part of Board oversight.
Albion Capital Group LLP is a signatory of the UN PRI. The UN PRI is the world’s leading proponent of responsible investment, working to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
The Board and Manager have exercised conscious principles in making responsible investments throughout the life of the Company, not least in providing finance for promising companies in a variety of important sectors such as technology, healthcare and renewable energy. In making the investments, the Manager is directly involved in the oversight and governance of these investments, including ensuring standards of reporting and visibility on business practices, all of which are reported to the Board of the Company. By its nature, not least in making qualifying investments which fulfil the criteria set by HMRC, the Company has focused on sustainable and longer-term investment propositions, some of which will fail (in the nature of all small companies), but some of which will grow and serve important societal demands. One of the most important drivers of performance is the quality of the investment portfolio, which goes beyond the individual valuations and examines the prospects of each of the portfolio companies, as well as the sectors in which they operate – all requiring a longer- term view.
In the nature of venture capital investment, Albion Capital Group LLP is more intimately involved in the affairs of portfolio companies than might be the case for funds invested in listed securities. As such, Albion Capital Group LLP is in a position to influence good governance and behaviour in the portfolio companies, many of which are relatively small companies without the support of a larger company’s administration and advisory infrastructure.
The Company adheres to the principles of the AIC Code of Corporate Governance and is also aware of other governance and corporate conduct guidance which it meets as far as practical, including in the constitution of a diversified and independent Board capable of providing constructive challenge.
The Company's portfolio is currently invested in healthcare, renewable energy, education, FinTech, software and other technology (which includes cyber security and data protection), with the most significant percentage of the Company’s portfolio invested in sectors and companies which would be seen by many measures to be both sustainable and socially aware on the services they render.
Albion Capital Group LLP incorporates ESG considerations into its investment decisions. These form part of its process to create value for investors and develop sustainable long-term strategies for portfolio companies. Albion Capital Group LLP reports ESG criteria to UN PRI annually and to the Board quarterly.
ESG principles are integrated at the pre-investment, investment and exit stages. This is reflected in transparency of reporting, governance principles adopted by the Company and the portfolio companies, and increasingly in the positive environmental or socially impactful nature of investments made. Albion Capital Group LLP, where relevant, considers climate-specific issues in its investment policies and activities. However, as the majority of the Company’s portfolio consists of small (2-250 full time employees), private, typically software companies with limited environmental impact, climate change is not considered to be a significant risk, and actions are proportionate to that risk.
Pre-investment stage
An exclusion list is used to rule out investments in unsustainable areas, or in areas which might be perceived as socially detrimental. ESG due diligence is performed on each potential portfolio company to identify any sustainability risks associated with the investment. Identified sustainability risks are ranked from low to high and are reported to the relevant investment committee. The investment committee considers each potential investment. If sustainability risks are identified, mitigations are assessed and, if necessary, mitigation plans are put in place. If this is not deemed sufficient, the committee would consider the appropriate level and structure of funding to balance the associated risks. If this is not possible, investment committee approval will not be provided, and the investment will not proceed.
Investment stage
All new and existing portfolio companies are asked to report against an ESG Balanced Score Card annually. The ESG Balanced Score Card contains a number of sustainability factors against which a portfolio company will be assessed in order to determine the potential sustainability risks and opportunities arising from the investment. The score cards form part of the Manager’s internal review meetings alongside discussions around other risk factors, and any outstanding issues are addressed in collaboration with the portfolio companies’ senior management.
Exit stage
Albion Capital Group LLP aims to ensure that good ESG practices remain in place following exit. For example, by ensuring that the portfolio company creates a self-sustaining ESG management system during our period of ownership, wherever feasible.
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.
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 33 of the full Annual Report and Financial Statements.
General Data Protection Regulation
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union, and continues to apply in the United Kingdom after Brexit. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates, 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 risk has been the global pandemic which has impacted not only public health and mobility but also has had an adverse impact on the economy, the full impact of which is likely to be uncertain for some time.
The Directors have carried out a robust assessment of the Company’s principal risks and uncertainties, and explain how they are being mitigated as follows. They are satisfied that there has not been a material change in the Company’s exposure against each of the identified risks below.
| Risk | Possible consequence | Risk management |
| Investment, performance and valuation risk | The risk of investment in poor quality businesses, which could reduce the returns to shareholders and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust purposes, are more volatile than larger, long established businesses. The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager for all investments, and at least one external investment professional for investments greater than £1 million in aggregate across all the Albion managed VCTs. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The Board and Manager regularly review the deployment of investments and cash resources available to the Company in assessing liquidity required for servicing the Company’s buy-backs, dividend payments and operational expenses. The decision to issue a Prospectus for the 2020/21 Top-Up was due to careful analysis of these factors. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines updated in 2018. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. |
| VCT approval risk | The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust management, used to operating within the requirements of the Venture Capital Trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the Venture Capital Trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required. |
| Regulatory and compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the Financial Conduct Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board every two months. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors. |
| Operational and internal control risk | The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year and receives reports from the Manager on its internal controls and risk management, including on matters relating to cyber security. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. Ocorian Depositary (UK) Limited is the Company’s Depositary, appointed to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited to ensure that Albion Capital is adhering to its policies and procedures as required by the AIFMD. In addition, the Board annually reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual. |
| Economic, political and social risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection. The political risk with the most uncertainty for the future of the UK economy, which the Company largely operates in, is Brexit. The current significant exogenous risk to the Company, the wider population and economy, is the Covid-19 pandemic. | The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow-on investments. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term. The Company largely operates within the UK, and increasingly the US, and therefore impacts from Brexit are reduced as there are few cross-border transactions with Europe. Since 2016, the portfolio of companies has not seen any significant impacts from the uncertainty around Brexit, nor since the end of the transition period (1 January 2021). The Board and Manager are continuously assessing the resilience of the portfolio, the Company and its operations and the robustness of the Company’s external agents during the health crisis, as well as considering longer term impacts on how the Company might be positioned in how it invests and operates. Ensuring liquidity in the portfolio to cope with exigent and unexpected pressures on the finances of the portfolio and the Company is an important part of the risk mitigation in these uncertain times. The portfolio is structured as an all-weather portfolio with c.60 companies which are diversified as discussed above. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel. |
| Emerging risks | The Board meets at least four times a year to discuss current affairs and any potential emerging risks which could affect the Company. The key emerging risk affecting the Company is the Environmental (including climate change), Social and Governance requirements, both from a regulatory and investor preferences standpoint. There is the risk of loss of funding from investors, as well as the risk of penalties from regulatory non-compliance. | The ESG section below details the Company’s work towards these risks, and highlights the importance of these, above the statutory reporting requirements, to the Company. Whilst the Company itself has limited impact on climate change, due to no employees nor greenhouse gas emissions, the Board works closely with the Manager to ensure the Manager themselves are working towards reducing their impact on the environment, and that the Manager takes account of ESG factors, including climate change, when making new investment decisions. With specific respect to the Company, a key operation is increasing the use of electronic communications with Shareholders, where that preference has been specified. |
| Market value of Ordinary shares | The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buy-back policy, which is designed to limit the discount at which the Ordinary shares trade to around 5% to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buy-back authorities. The Company’s corporate broker, appointed during the year, helps to ensure that the discount is appropriate. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors. |
| Reputational risk | The Company relies on the judgement and reputation of the Manager which is itself subject to the risk of loss. | The Board regularly questions the Manager on its ethics, procedures, safeguards and investment philosophy, which should consequently result in the risk to reputational damage being minimised. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and principle 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 March 2024. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board requires from the Manager and the estimated timelines for finding, assessing and completing investments. The three year period also takes account of the potential impact of new regulations, should they be imposed, and how they may impact the Company over the longer term, and the availability of cash, but cannot take into account the full extent of the exogenous risks that are impacting on global economies at the date of these accounts.
The Directors have carried out a robust assessment of the emerging and principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the procedures in place to identify emerging risks and the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment, including any potential impact from Brexit. The Board, after careful consideration, believes that Brexit will have no major impact on the going concern of the Company, primarily due to the markets our portfolio companies target, which in most cases are the UK and increasingly, the US, for our software and technology businesses. Portfolio companies targeting European markets have also shown resilience so far. The coronavirus (Covid-19) pandemic therefore remains the largest uncertainty impacting on the Company. In light of this continuing uncertainty, robust stress tested cashflows, process resilience and contingencies have been examined in trying to deal with the principal risks faced by the Company.
The Board assessed the ability of the Company to raise finance and deploy capital, as well as the existing cash resources of the Company. The portfolio is well balanced and geared towards long term growth, delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company’s income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.
Taking into account the processes for mitigating risks, monitoring costs, share buy-backs and issuance, the Manager’s compliance with the investment objective, policies and business model and the balance of the portfolio, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 March 2024.
This Strategic report of the Company for the year ended 31 March 2021 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.
For and on behalf of the Board
Maxwell Packe
Chairman
28 June 2021
Responsibility Statement
In preparing these financial statements for the year ended 31 March 2021, the Directors of the Company, being Maxwell Packe, The Dowager Lady Balfour of Burleigh, Christopher Burrows, Patrick Reeve, and Rhodri Whitlock confirm that to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 March 2021 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 36 within the full audited Annual Report and Financial Statements.
On behalf of the Board,
Maxwell Packe
Chairman
28 June 2021
Income statement
| Year ended 31 March 2021 | Year ended 31 March 2020 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gains/(losses) on investments | 3 | - | 10,892 | 10,892 | - | (2,884) | (2,884) |
| Investment income | 4 | 543 | - | 543 | 1,157 | - | 1,157 |
| Investment management fee | 5 | (366) | (1,098) | (1,464) | (396) | (1,189) | (1,585) |
| Performance incentive fee | 5 | (72) | (216) | (288) | - | - | - |
| Other expenses | 6 | (454) | - | (454) | (363) | - | (363) |
(Loss)/return on ordinary activities before taxation | (349) | 9,578 | 9,229 | 398 | (4,073) | (3,675) | |
| Tax on ordinary activities | 8 | - | - | - | - | - | - |
(Loss)/return and total comprehensive income attributable to shareholders | (349) | 9,578 | 9,229 | 398 | (4,073) | (3,675) | |
Basic and diluted (loss)/return per share (pence)* | 10 | (0.51) | 13.96 | 13.45 | 0.61 | (6.31) | (5.70) |
* adjusted for treasury shares
The accompanying notes below form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies’ Statement of Recommended Practice.
Balance sheet
| Note | 31 March 2021 £’000 | 31 March 2020 £’000 | |
| Fixed asset investments | 11 | 60,615 | 47,859 |
Current assets | |||
| Current asset investments | 13 | - | 3,501 |
| Trade and other receivables | 13 | 1,772 | 182 |
| Cash and cash equivalents | 24,429 | 21,510 | |
| 26,201 | 25,193 | ||
| Total assets | 86,816 | 73,052 | |
Payables: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (1,418) | (499) |
| Total assets less current liabilities | 85,398 | 72,553 | |
Equity attributable to equity holders | |||
| Called-up share capital | 15 | 852 | 770 |
| Share premium | 53,258 | 44,183 | |
| Capital redemption reserve | 104 | 104 | |
| Unrealised capital reserve | 17,538 | 8,636 | |
| Realised capital reserve | 14,728 | 14,052 | |
| Other distributable reserve | (1,082) | 4,808 | |
| Total equity shareholders’ funds | 85,398 | 72,553 | |
| Basic and diluted net asset value per share (pence) * | 16 | 114.60 | 106.54 |
* excluding treasury shares
The accompanying notes below form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and were authorised for issue on 28 June 2021 and were signed on its behalf by
Maxwell Packe
Chairman
Company number: 05990732
Statement of changes in equity
| Called-up share capital £’000 | Share premium £’000 | Capital redemption reserve £’000 | Unrealised capital reserve £’000 | Realised capital reserve* £’000 | Other distributable reserve* £’000 | Total £’000 | |
| On 1 April 2020 | 770 | 44,183 | 104 | 8,636 | 14,052 | 4,808 | 72,553 |
| Return/(loss) and total comprehensive income for the year | - | - | - | 8,836 | 742 | (349) | 9,229 |
| Transfer of previously unrealised losses on disposal of investments | - | - | - | 66 | (66) | - | - |
| Issue of equity | 82 | 9,277 | - | - | - | - | 9,359 |
| Cost of issue of equity | - | (202) | - | - | - | - | (202) |
| Purchase of own shares for treasury | - | - | - | - | - | (1,853) | (1,853) |
| Dividends paid | - | - | - | - | - | (3,688) | (3,688) |
| On 31 March 2021 | 852 | 53,258 | 104 | 17,538 | 14,728 | (1,082) | 85,398 |
| On 1 April 2019 | 650 | 30,255 | 104 | 18,672 | 8,089 | 9,618 | 67,388 |
| Return/(loss) and total comprehensive income for the year | - | - | - | (5,996) | 1,923 | 398 | (3,675) |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (4,040) | 4,040 | - | - |
| Issue of equity | 120 | 14,270 | - | - | - | - | 14,390 |
| Cost of issue of equity | - | (342) | - | - | - | - | (342) |
| Purchase of own shares for treasury | - | - | - | - | - | (1,252) | (1,252) |
| Dividends paid | - | - | - | - | - | (3,956) | (3,956) |
| On 31 March 2020 | 770 | 44,183 | 104 | 8,636 | 14,052 | 4,808 | 72,553 |
* These reserves amount to £13,646,000 (2020: £18,860,000) which is considered distributable.
Statement of cash flows
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | ||
| Cash flow from operating activities | |||
| Investment income received | 434 | 1,001 | |
| Dividend income received | 94 | 310 | |
| Deposit interest received | 17 | 71 | |
| Investment management fee paid | (1,403) | (1,648) | |
| Performance incentive fee paid | - | (1,332) | |
| Other cash payments | (465) | (307) | |
| Net cash flow from operating activities | (1,323) | (1,905) | |
| Cash flow from investing activities | |||
| Purchase of current asset investments | - | (1,194) | |
| Disposal of current asset investments | 3,691 | - | |
| Purchase of fixed asset investments | (7,324) | (5,340) | |
| Disposal of fixed asset investments | 3,683 | 16,656 | |
| Net cash flow from investing activities | 50 | 10,122 | |
| Cash flow from financing activities | |||
| Issue of share capital | 8,568 | 13,432 | |
| Cost of issue of equity | (17) | (17) | |
| Dividends paid* | (3,094) | (3,311) | |
| Purchase of own shares (including costs) | (1,265) | (1,252) | |
| Net cash flow from financing activities | 4,192 | 8,852 | |
| Increase in cash and cash equivalents | 2,919 | 17,069 | |
| Cash and cash equivalents at start of the year | 21,510 | 4,441 | |
| Cash and cash equivalents at end of the year | 24,429 | 21,510 |
* The 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 the unclaimed dividends.
Notes to the Financial Statements
1. Accounting convention
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 31 and 32 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 in note 2 below.
Company information is shown on page 2 of the full Annual Report and Financial Statements.
2. Accounting policies
Fixed and current asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at ‘fair value’, which is measured as follows:
- Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations.
- Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, revenue multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
- In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.
Current assets and payables
Receivables (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 income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
- 75% of management fees and performance incentive fees, if any, are allocated to the realised capital reserve. This is in line with the Board’s expectation that over the long term 75% 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 for 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 reserve accounts for the nominal value of the Company’s shares.
Share premium
This reserve accounts for the difference between the price paid for the Company’s shares and the nominal value of those shares, less issue costs and transfers to the other distributable reserve.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company’s own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
- gains and losses compared to cost on the realisation of investments, or permanent diminutions in value;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2013 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
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/(losses) on investments
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | |
| Unrealised gains/(losses) on fixed asset investments | 8,836 | (4,661) |
| Unrealised losses on current asset investments | - | (1,335) |
| Realised gains on fixed asset investments | 1,866 | 3,112 |
| Realised gains on current asset investments | 190 | - |
| 10,892 | (2,884) |
4. Investment income
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | |
| Loan stock interest | 434 | 776 |
| Dividend income | 94 | 310 |
| Bank deposit interest | 15 | 71 |
| 543 | 1,157 |
5. Investment management fees
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | |
| Investment management fee charged to revenue | 366 | 396 |
| Investment management fee charged to capital | 1,098 | 1,189 |
| Performance incentive fee charged to revenue | 72 | - |
| Performance incentive fee charged to capital | 216 | - |
| 1,752 | 1,585 |
Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report above.
During the year, services of a total value of £1,905,000 (2020: £1,659,000) were purchased by the Company from Albion Capital Group LLP; this includes £1,464,000 (2020: £1,585,000) of management fee and £153,000 (2020: £74,000) of administration fee; and a performance incentive fee of £288,000 (2020: £nil). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £739,000 (2020: £384,000). The total annual running costs of the Company are capped at an amount equal to 2.5% of the Company’s net assets, with any excess being met by Albion Capital Group LLP by way of a reduction in management fees. During the year, the management fee was reduced by £53,000 as a result of this cap (2020: £24,000).
During the year, the Company was not charged by Albion Capital Group LLP in respect of Patrick Reeve’s services as a Director (2020: £nil).
Albion Capital Group LLP, its partners and staff hold a total of 584,126 shares in the Company on 31 March 2021.
The Manager is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 March 2021, fees of £205,000 attributable to the investments of the Company were received pursuant to these arrangements (2020: £186,000).
The Company has entered into an offer agreement relating to the Offers with the Manager, Albion Capital Group LLP, pursuant to which Albion Capital will receive a fee of 2.5% of the gross proceeds of the Offers and out of which Albion Capital will pay the costs of the Offers, as detailed in the Prospectus.
The SVS Albion OLIM UK Equity Income Fund (“OUEIF”) was disposed of in October 2020. Prior to the disposal, and to avoid double charging, Albion agreed to reduce its management fee relating to the investment in the OUEIF by 0.75% per annum, which represented the OUEIF management fee charged by OLIM. This resulted in a further reduction of the management fee of £15,000 (2020: £32,000). Further details on the OUEIF disposal can be found in the Chairman’s statement above.
6. Other expenses
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | |
| Directors’ fees (including NIC) | 95 | 99 |
| Auditor’s remuneration for statutory audit services (exclusive of VAT) | 37 | 34 |
| Administration fee | 153 | 74 |
| Other administrative expenses | 169 | 156 |
| 454 | 363 |
7. Directors’ fees
The amounts paid to and on behalf of the Directors during the year are as follows:
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | |
| Directors’ fees | 88 | 91 |
| National insurance | 7 | 8 |
| 95 | 99 |
The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 42 to 44 of the full Annual Report and Financial Statements.
8. Tax on ordinary activities
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | |
| UK corporation tax charge in respect of current year | - | - |
| - | - |
| Factors affecting the tax charge: | Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 |
Return/(loss) on ordinary activities before taxation | 9,229 | (3,675) |
| Tax charge on profit at the average companies rate of 19% (2020: 19%) | 1,754 | (698) |
| Factors affecting the charge: | ||
| Non-taxable (gains)/losses | (2,069) | 548 |
| Income not taxable | (18) | (59) |
| Excess management expenses carried forward | 333 | 209 |
| - | - |
The tax charge for the year shown in the Income statement is lower than the average companies rate of corporation tax in the UK of 19% (2020: 19%). The differences are explained above.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii) The Company has excess management expenses of £8,090,000 (2020: £6,249,000) that are available for offset against future profits. A deferred tax asset of £1,537,000 (2020: £1,062,000) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
9. Dividends
| Year ended 31 March 2021 £’000 | Year ended 31 March 2020 £’000 | |
| First dividend of 2.70p per share paid on 28 August 2020 (30 August 2019 – 3.00p per share) | 1,836 | 1,911 |
| Second dividend of 2.74p per share paid on 26 February 2021 (28 February 2020 – 3.00p per share) | 1,854 | 2,045 |
| Unclaimed dividends | (2) | - |
| 3,688 | 3,956 |
Details of the consideration issued under the Dividend Reinvestment Scheme included in the dividends above can be found in note 15.
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2022 of 2.87 pence per share to be paid on 31 August 2021 to shareholders on the register on 6 August 2021. The total dividend will be approximately £2,150,000.
10. Basic and diluted return per share
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| (Loss)/return attributable to equity shares (£’000) | (349) | 9,578 | 9,229 | 398 | (4,073) | (3,675) |
| Weighted average shares in issue (adjusted for treasury shares) | 68,620,876 | 64,506,507 | ||||
| (Loss)/return attributable per equity share (pence) | (0.51) | 13.96 | 13.45 | 0.61 | (6.31) | (5.70) |
There are no convertible instruments, derivatives or contingent share agreements in issue for the Company, and therefore no dilution affecting the return per share. The basic return per share is therefore the same as the diluted return per share.
The weighted average number of shares is calculated after adjusting for treasury shares of 10,713,420 (2020: 8,945,314).
11. Fixed asset investments
| Investments held at fair value through profit or loss | 31 March 2021 £’000 | 31 March 2020 £’000 | |
| Unquoted equity and preference shares | 48,450 | 37,560 | |
| Unquoted loan stock | 12,165 | 10,299 | |
| 60,615 | 47,859 | ||
| 31 March 2021 £’000 | 31 March 2020 £’000 | ||
| Opening valuation | 47,859 | 59,146 | |
| Purchases at cost | 7,324 | 6,035 | |
| Disposal proceeds | (5,270) | (15,549) | |
| Realised gains | 1,866 | 3,112 | |
| Movement in loan stock revenue accrued income | - | (224) | |
| Unrealised gains/(losses) | 8,836 | (4,661) | |
| Closing valuation | 60,615 | 47,859 | |
| Movement in loan stock revenue accrued income | |||
| Opening accumulated loan stock revenue accrued income | 1 | 225 | |
| Movement in loan stock revenue accrued income | - | (224) | |
| Closing accumulated loan stock revenue accrued income | 1 | 1 | |
| Movement in unrealised gains | |||
| Opening accumulated unrealised gains | 10,129 | 18,829 | |
| Movement in unrealised gains | 8,836 | (4,661) | |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (1,426) | (4,040) | |
| Closing accumulated unrealised gains | 17,539 | 10,129 | |
| Historic cost basis | |||
| Opening book cost | 37,730 | 40,092 | |
| Purchases at cost | 7,324 | 6,035 | |
| Sales at cost | (1,978) | (8,397) | |
| Closing book cost | 43,076 | 37,730 | |
Purchases and disposals detailed above do not agree to the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement debtors and creditors.
Unquoted fixed asset investments are valued at fair value in accordance with the IPEV guidelines as follows:
| 31 March 2021 | 31 March 2020 | |
| Valuation methodology | £’000 | £’000 |
| Revenue multiple | 25,130 | 20,268 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 23,438 | 16,754 |
| Third party valuation – Discounted cash flow | 6,448 | 6,693 |
| Third party valuation – Earnings multiple | 3,053 | 2,823 |
| Earnings multiple | 2,405 | 789 |
| Net assets | 141 | 532 |
| 60,615 | 47,859 |
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 2020 and 31 March 2021:
| Change in valuation methodology (2020 to 2021) | Value on 31 March 2021 £’000 | Explanatory note |
| Cost and price of recent investment (reviewed for impairment or uplift) to revenue multiple | 7,194 | More appropriate valuation methodology. |
| Revenue multiple to cost and price of recent investment (reviewed for impairment or uplift) | 3,393 | Funding round led to new methodology. |
| Cost to earnings multiple | 2,036 | More appropriate valuation methodology. |
| Net assets to cost and price of recent investment (reviewed for impairment or uplift) | 573 | External funding round led to new methodology. |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, these are the most relevant methods of valuation which would be reasonable on 31 March 2021.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | Unadjusted quoted prices in an active market |
| Level 2 | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
Quoted investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.
Investments held at fair value through profit or loss (Level 3) had the following movements:
| 31 March 2021 | 31 March 2020 | |||
| £’000 | £’000 | |||
| Opening balance | 47,859 | 58,857 | ||
| Additions | 7,324 | 6,074 | ||
| Disposals | (5,270) | (15,549) | ||
| Realised gains | 1,866 | 3,362 | ||
| Accrued loan stock interest | - | (224) | ||
| Unrealised gains/(losses) | 8,836 | (4,661) | ||
| Closing balance | 60,615 | 47,859 | ||
There are no Level 1 or 2 investments, nor have there been any transfers between Levels during the course of the year.
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. 55% of the portfolio of investments, consisting of equity and loan stock, is based on recent investment price, net assets and cost. For the remainder of the portfolio, the Board has considered the reasonable possible alternative input assumptions on the valuation of the portfolio and believes that changes to inputs (by adjusting the earnings and revenue multiples) could lead to a change in the fair value of the portfolio. The Board has reviewed the Manager’s adjusted inputs for a number of the largest portfolio companies (by value) which covers 29% of the portfolio. This has resulted in a total coverage of 84% 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) |
| Revenue multiple | Other software & technology | Revenue multiple | 5.6x | +0.5 | 923 | 1.24 |
| -0.5 | (915) | (1.23) | ||||
| Revenue multiple | Healthcare (including digital healthcare) | Revenue multiple | 5.2x | +0.2 | 177 | 0.24 |
| -0.7 | (639) | (0.86) | ||||
| Revenue multiple | Other software & technology | Revenue multiple | 6.0x | +1.4 | 505 | 0.68 |
| -2.0 | (714) | (0.96) |
*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 equity investments by £1,605,000 (3.3%) or a decrease in the valuation of equity investments by £2,268,000 (4.7%).
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 investment listed below is held as part of an investment portfolio and therefore, as permitted by FRS 102 section 9.9B, it is measured at fair value through profit and loss and not accounted for using the equity method.
The Company has interests of greater than 20% of the nominal value of any class of the allotted shares in the portfolio company on 31 March 2021 as described below:
| Company | Registered address and country of incorporation | Principal activity | Profit/(loss) before tax £’000 | Aggregate capital and reserves £’000 | Result for year ended | % class and share type | % total voting rights |
| Greenenerco Limited | EC1M 5QL, UK | Owner and operator of a wind project | n/a* | 575 | 31 March 2020 | 28.6% A Ordinary | 28.6% |
*The company files filleted accounts which do not disclose this information.
13. Current assets
| Current asset investments | 31 March 2021 | 31 March 2020 |
| £’000 | £’000 | |
| SVS Albion OLIM UK Equity Income Fund | - | 3,501 |
For further details on the disposal of the SVS Albion OLIM UK Equity Income Fund, please see the Chairman’s statement above.
| Trade and other receivables | 31 March 2021 | 31 March 2020 |
| £’000 | £’000 | |
| Deferred consideration under one year | 149 | 162 |
| Deferred consideration over one year | 1,600 | - |
| Prepayments and accrued income | 21 | 16 |
| Other debtors | 2 | 4 |
| 1,772 | 182 |
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. Payables: amounts falling due within one year
| 31 March 2021 | 31 March 2020 | |
| £’000 | £’000 | |
| Accruals and deferred income | 812 | 469 |
| Trade payables | 606 | 30 |
| 1,418 | 499 |
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 shares: | £’000 |
| 77,044,547 Ordinary shares of 1 penny each at 31 March 2020 | 770 |
| 8,187,553 Ordinary shares of 1 penny each issued during the year | 82 |
| 85,232,100 Ordinary shares of 1 penny each at 31 March 2021 | 852 |
| 8,945,314 Ordinary shares of 1 penny each held in treasury at 31 March 2020 | (89) |
| 1,768,106 Ordinary shares purchased during the year to be held in treasury | (18) |
| 10,713,420 Ordinary shares of 1 penny each held in treasury at 31 March 2021 | (107) |
| Voting rights of 74,518,680 Ordinary shares of 1 penny each at 31 March 2021 | 745 |
The Company purchased 1,768,106 shares (2020: 1,123,871) to be held in treasury at a nominal value of £17,681 and a cost of £1,853,000 (2020: £1,252,000) representing 2.1% of the shares in issue on 31 March 2021, leading to a balance of 10,713,420 shares (2020: 8,945,314) in treasury representing 12.6% (2020: 11.6%) of the shares in issue on 31 March 2021.
Under the terms of the Dividend Reinvestment Scheme Circular (dated 26 November 2009), the following new Ordinary shares of nominal value 1 penny each were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net invested (£’000) | Opening market price on allotment date (pence per share) |
| 28 August 2020 | 286,480 | 3 | 103.84 | 296 | 98.00 |
| 26 February 2021 | 262,339 | 3 | 112.23 | 293 | 106.50 |
| 548,819 | 589 |
During the year the following new Ordinary shares of nominal value 1 penny each were allotted under the terms of the Albion VCTs Prospectus Top Up Offers 2019/20 and 2020/21:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net consideration received (£’000) | Opening market price on allotment date (pence per share) |
| 30 April 2020 | 90,192 | 1 | 108.20 | 96 | 95.00 |
| 30 April 2020 | 102,334 | 1 | 109.30 | 109 | 95.00 |
| 26 February 2021 | 1,516,559 | 15 | 114.00 | 1,703 | 106.50 |
| 26 February 2021 | 378,823 | 4 | 114.60 | 425 | 106.50 |
| 26 February 2021 | 5,550,826 | 56 | 115.20 | 6,235 | 106.50 |
| 7,638,734 | 8,568 |
16. Basic and diluted net asset value per share
| 31 March 2021 | 31 March 2020 | |
| (pence per share) | (pence per share) | |
| Basic and diluted net asset value per Ordinary share | 114.60 | 106.54 |
The basic and diluted net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon total shares in issue (excluding treasury shares) of 74,518,680 Ordinary shares (2020: 68,099,233) at 31 March 2021.
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 31 of the Directors’ report of the full Annual Report and Financial Statements.
The Company’s financial instruments comprise equity and loan stock investments in unquoted and quoted companies, cash balances, short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow and revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.
The principal 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 apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
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, details of which are shown on pages 24 and 25 of the full Annual Report and Financial Statements. 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 at the end of this announcement.
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.
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 £6,062,000. 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 portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the pie chart at the end of this announcement.
The maximum investment risk on the balance sheet date is the value of the fixed asset investment portfolio which is £60,615,000 (2020: fixed and current assets; £51,360,000). Fixed asset investments form 71% of the net asset value on 31 March 2021 (2020: fixed and current assets; 71%).
More details regarding the classification of fixed asset investments are shown in note 11.
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% in all interest rates would have increased total return before tax for the year by approximately £230,000 (2020: £178,000). Furthermore, it was considered that a fall of interest rates below current levels during the year would have been very unlikely.
The weighted average effective interest rate applied to the Company’s unquoted loan stock during the year was approximately 4.9% (2020: 7.2%). The weighted average period to expected maturity for the unquoted loan stock is approximately 4.5 years (2020: 5.1 years).
The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 31 March 2021 | 31 March 2020 | |||||||
| 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 | - | - | 48,450 | 48,450 | - | - | 37,560 | 37,560 |
| Unquoted loan stock | 11,508 | - | 657 | 12,165 | 9,426 | - | 873 | 10,299 |
| Current asset investments | - | - | - | - | - | - | 3,501 | 3,501 |
| Receivables* | - | - | 1,751 | 1,751 | - | - | 167 | 167 |
| Current liabilities | - | - | (1,418) | (1,418) | - | - | (499) | (499) |
| Cash | - | 24,429 | - | 24,429 | - | 21,510 | - | 21,510 |
| 11,508 | 24,429 | 49,440 | 85,377 | 9,426 | 21,510 | 41,602 | 72,538 | |
*The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in unquoted loan stock and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock 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 68.6% 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 on 31 March 2021 was limited to £12,165,000 (2020: £10,299,000) of unquoted loan stock instruments, £24,429,000 (2020: £21,510,000) of cash deposits with banks and £1,751,000 (2020: £167,000) of other receivables.
At the balance sheet date, the cash held by the Company was held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group plc), Barclays Bank plc and National Westminster Bank plc. Credit risk on cash transactions was mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The Company has an informal policy of limiting counterparty banking exposure to a maximum of 20% of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk below.
Liquidity risk
Liquid assets are held as cash on current account, cash on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10% of its adjusted share capital and reserves of the latest published audited Balance sheet, which amounts to £8,325,000 (2020: £7,071,000) on 31 March 2021.
The Company has no committed borrowing facilities on 31 March 2021 (2020: nil) and had cash of £24,429,000 (2020: £21,510,000). The main cash outflows are for new investments, share buy-backs and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company’s financial liabilities are short term in nature and total £1,418,000 on 31 March 2021 (2020: £499,000).
The carrying value of loan stock investments as analysed by expected maturity dates is as follows:
| 31 March 2021 | 31 March 2020 | |||||||
| 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 | 2,752 | - | 206 | 2,958 | 2,392 | - | 73 | 2,465 |
| 1-2 years | 1,362 | 656 | 45 | 2,063 | 466 | - | 132 | 598 |
| 2-3 years | 93 | - | 161 | 254 | 958 | - | 866 | 1,824 |
| 3-5 years | 4,322 | - | 8 | 4,330 | 1,761 | - | 209 | 1,970 |
| Greater than 5 years | 2,560 | - | - | 2,560 | 3,442 | - | - | 3,442 |
| Total | 11,089 | 656 | 420 | 12,165 | 9,019 | - | 1,280 | 10,299 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.
The cost of loan stock investments valued below cost is £510,000 (2020: £1,760,000).
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 on 31 March 2021 are stated at fair value as determined by the Directors, with the exception of receivables (including debtors due after more than one year), payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
18. Commitments and contingencies
On 31 March 2021, the Company had no financial commitments (2020: £139,000).
There were no contingent liabilities or guarantees given by the Company on 31 March 2021 (2020: nil).
19. Post balance sheet events
Since 31 March 2021 the Company has had the following post balance sheet events:
- As announced on 21 June 2021, and outlined in the Chairman's statement above, two companies within the portfolio are undergoing external fundraising processes. The Manager’s current view of the effect of these events on the valuations, as at the date of this Report, is an increase of 7.81 pence per share (6.8%) to the audited 31 March 2021 net asset value of 114.60p per share;
- Investment of £763,000 in a new portfolio company, Gravitee Topco Limited, an open source API management platform that enables enterprises to manage their APIs through their lifecycle;
- Investment of £644,000 in a new portfolio company, NuvoAir AB, a digital therapeutics and decentralised clinical trials product for respiratory conditions;
- Investment of £531,000 in an existing portfolio company, uMotif Limited, a patient engagement and data capture platform for use in real world and observational research;
- Investment of £269,000 in an existing portfolio company, Panaseer Limited, a provider of cyber security services;
- Investment of £265,000 in a new portfolio company, Accelex Technology Limited (T/A Accelex), a data extraction and analytics technology for private capital markets; and
- Investment of £34,000 in an existing portfolio company, Abcodia Limited, a provider of validation and discovery of serum biomarkers.
The following new Ordinary shares of nominal value 1 penny each were allotted under the Albion VCTs Prospectus Top Up Offers 2020/21 after 31 March 2021:
| 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) | ||
| 9 April 2021 | 144,118 | 1 | 114.00 | 162 | 106.50 |
| 9 April 2021 | 9,249 | - | 114.60 | 10 | 106.50 |
| 9 April 2021 | 229,987 | 2 | 115.20 | 258 | 106.50 |
| 383,354 | 430 |
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 pages 42 to 44 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 2021 and 31 March 2020, 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 2021, 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/AAEV, where the Report can be accessed as a PDF document via a link in the 'Financial Reports and Circulars' section.
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