Albion Enterprise VCT PLC: Annual Financial Report
Albion Enterprise VCT PLC
As required by the UK Listing Authority's Disclosure 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 2015.
This announcement was approved for release by the Board of Directors on 18 June 2015.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 31 March 2015 (which have been audited) at: www.albion-ventures.co.uk by clicking on 'Our Funds' and then 'Albion Enterprise VCT PLC'. The Annual Report and Financial Statements for the year to 31 March 2015 will be available as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objective and policy
The investment objective of Albion Enterprise VCT PLC (the "Company") is to provide investors with a regular and predictable source of income, combined with the prospect of longer term capital growth.
The Company achieves this by investing up to 50 per cent. of the net funds raised in an asset-based portfolio of more stable businesses (the "Asset-based Portfolio"). The balance of the net funds raised, other than funds retained for liquidity purposes, are invested in a portfolio of higher growth businesses across a variety of sectors of the UK economy. These range from more stable, income producing businesses to higher risk technology companies (the "Growth Portfolio"). In neither category do portfolio companies normally have any external borrowing with a charge ranking ahead of the Company. Up to two-thirds of qualifying investments by cost comprise loan stock secured with a first charge on the portfolio company's assets. Funds awaiting investment in Qualifying Investments or retained for liquidity purposes are held on deposit or invested in floating rate notes with banks or other financial institutions with high credit ratings assigned by international credit ratings agencies.
The Company's investment portfolio is structured to provide a balance between income and capital growth for the longer term. The Asset-based Portfolio is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide diversified exposure through its portfolio of investments in unquoted UK companies. Stock specific risk will be reduced by the Company's policy of holding a diversified portfolio of Qualifying Investments.
Financial calendar
| Record date for first dividend | 7 August 2015 |
| Annual General Meeting | 27 August 2015 |
| Payment date for first dividend | 28 August 2015 |
| Announcement of half-yearly results for the six months ended 30 September 2015 | November 2015 |
| Payment of second dividend (subject to Board approval) | 29 February 2016 |
Financial highlights
| 4.25p | Total return per share for the year ended 31 March 2015 |
| 5.0p | Total tax-free dividend per share paid during the year ended 31 March 2015 |
| 96.2p | Net asset value per share as at 31 March 2015 |
| 120.1p | Net asset value plus dividends since launch to 31 March 2015 |
| 31 March 2015 (pence per share) | 31 March 2014 (pence per share) | |
| Dividends paid | 5.00 | 5.00 |
| Revenue return | 2.07 | 1.70 |
| Capital return | 2.18 | 7.30 |
| Net asset value | 96.22 | 96.90 |
Total shareholder return to 31 March 2015:
| (pence per share) | |
| Total dividends paid during the year ended: | |
| 31 March 2008 | 0.70 |
| 31 March 2009 | 1.65 |
| 31 March 2010 | 2.00 |
| 31 March 2011 | 3.00 |
| 31 March 2012 | 3.00 |
| 31 March 2013 | 3.50 |
| 31 March 2014 | 5.00 |
| 31 March 2015 | 5.00 |
| Total dividends paid to 31 March 2015 | 23.85 |
| Net asset value as at 31 March 2015 | 96.22 |
| Total shareholder return to 31 March 2015 | 120.07 |
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2016, of 2.50 pence per share payable on 28 August 2015 to shareholders on the register as at 7 August 2015.
Notes
- The dividend of 0.70 pence per share paid during the period ended 31 March 2008 and the first dividend of 0.40 pence per share paid during the year ended 31 March 2009 were paid to shareholders who subscribed in the 2006/2007 offer only.
- All dividends paid by the Company are paid free of income tax. It is an H.M. Revenue & Customs requirement that dividend vouchers indicate the tax element should dividends have been subject to income tax. Investors should ignore this figure on the dividend voucher and need not disclose any income they receive from a VCT on their tax return.
- The net asset value of the Company is not its share price as quoted on the official list of the London Stock Exchange. The share price of the Company can be found in the Investment Companies - VCTs section of the Financial Times on a daily basis.
- Investors are reminded that it is common for shares in VCTs to trade at a discount to their net asset value as tax reliefs are only obtainable on initial subscription.
Chairman's statement
Introduction
The Company's results for the year to 31 March 2015 showed a total return of 4.25 pence per share, following the 9 pence per share total return for the previous year. The investment portfolio continues to develop an increasing level of maturity and it is encouraging that the income generated by the portfolio grew by 14 per cent. over that of the previous period.
Portfolio progress
The Taunton psychiatric hospital (Orchard Portman Group), in which we originally invested in 2010, was sold during the year at a value that provided a return of 1.6 times on cost. Just over £4.8 million was invested in unquoted companies in the year, of which the largest investment was a further £1.1 million into Radnor House, which has purchased a second independent day school, Combe Bank near Sevenoaks in Kent. In addition, £928,000 was invested in Exco Intouch, a healthcare IT company specialising in the monitoring of patients undergoing medical trials; and £650,000 was invested in Omprompt, a business which provides IT services to support corporate payment systems.
Existing companies performed well with strong progress at Radnor House, Masters Pharmaceuticals, Egress Software Technologies and Hilson Moran. In addition, the portfolio of renewable energy investments provides a growing income stream to the fund.
Results and dividends
As at 31 March 2015, the net asset value was 96.22 pence per share compared to 96.90 pence per share at the end of 31 March 2014. The revenue return before taxation was £847,000 compared to £712,000 for the previous year. The Company will pay a first dividend for the financial year to 31 March 2016 of 2.50 pence per share, in line with its policy of a 5 pence per share annual dividend. The dividend will be paid on 28 August 2015 to shareholders on the register as at 7 August 2015.
Discount management and 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 VCT's interests, including the maintenance of sufficient resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board's intention for such buy-backs to be in the region of a 5 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Transactions with the Manager
Details of the transactions that took place with the Manager for the year can be found in note 5.
Risks and uncertainties
Although growth in the UK has recovered well, the outlook for the UK and global economies continues to be the key risk affecting your Company. Investment risk is mitigated through a variety of processes, including our policy of ensuring that the Company has a first charge over portfolio companies' assets wherever possible and of ensuring that the portfolio is balanced through the inclusion of sectors that are less exposed to the business and consumer cycles. A detailed analysis of the other risk and uncertainties facing the business is shown in the Strategic report below.
Albion VCTs Top Up Offers
During the year the Company raised £3.8m under the Company's Offer as part of the Albion VCTs Top Up Offers launched in November 2013 and 2014, as shown in note 15. Since the year end, a further £3.1m has been raised under the Offer. The proceeds of the Offers will be used to provide further resources at a time when a number of attractive new investment opportunities are being seen.
Outlook and prospect
The company's portfolio is broadly balanced across a number of complimentary sectors and as a whole, it has the characteristics of both income generation and the prospects of capital growth. A number of portfolio companies are market leaders in their sectors and we look forward to the future with confidence.
Maxwell Packe
Chairman
18 June 2015
Strategic report
Investment objective and policy
The Company's investment objective is to provide investors with a regular and predictable source of income, combined with the prospect of longer term capital growth. The Company's investment portfolio is thus structured to provide a balance between income and capital growth for the longer term through a diversified, balanced approach to investment. The Asset-based Portfolio, which accounts for up to 50 per cent. of investments, is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide diversified exposure through its portfolio of high growth businesses across a variety of sectors in the UK economy. In neither category do portfolio companies normally have any external borrowing with a charge ranking ahead of the Company.
Current portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio valuation by industrial or commercial sector as at 31 March 2015. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 15 and 16 of the full Annual Report and Financial Statements.
Direction of portfolio
The sector analysis of the Company's investment portfolio shows that healthcare and renewable energy investment each account for 22 per cent. of the portfolio.
Looking ahead, the healthcare sector will continue to be a core area for investment, particularly in medical technology. Renewable energy projects are unlikely to increase, as the Board believes it has sufficient exposure to the target of 20 per cent. of the portfolio; their main role is to provide more stable, long term, inflation protected income flows to the Company. The IT sector of the portfolio has continued to grow as we target areas such as business process automation and security. The education investment, in the form of Radnor House School, has grown following the acquisition of Combe Bank School.
Results and dividend policy
| £'000 | |
| Net revenue return for the year | 728 |
| Realised and unrealised capital gain for the year | 767 |
| Dividend of 2.50 pence per share paid on 29 August 2014 | (875) |
| Dividend of 2.50 pence per share paid on 27 February 2015 | (916) |
| Transferred from reserves | (296) |
| Net assets as at 31 March 2015 | 34,662 |
| Net asset value per share as at 31 March 2015 | 96.22p |
The Company paid dividends totalling 5.00 pence per share during the year ended 31 March 2015 (2014: 5.00 pence per share). As described in the Chairman's statement, the Board has declared a first dividend of 2.50 pence per share for the year ending 31 March 2016. This dividend will be paid on 28 August 2015 to shareholders on the register as at 7 August 2015.
As shown in the Company's Income statement, investment income has increased to £1,258,000 (2014: £1,099,000) due to higher interest received on loan stock investments during the year, principally driven by the Company's successful renewable energy development programme.
The capital gain for the year of £767,000 (2014: £2,384,000), was mainly attributable to the upward unrealised revaluations in the Company's investment portfolio and the realised gain on the disposal of the Orchard Portman Group during the year.
The total return was 4.25 pence per share (2014: 9.00 pence per share). The Balance sheet shows that the net asset value has decreased over the last year to 96.22 pence per share (2014: 96.90 pence per share), the decrease in net asset value can be attributed to the payment of 5.00 pence per share of dividends offset by realised and unrealised gains and net revenue return.
The cash flow for the Company has been a net inflow of £107,000 for the year (2014: outflow £684,000), reflecting cash inflows from operations, disposal of investments and the issue of Ordinary shares under the Albion VCTs Top Up Offers, offset by dividends paid, new investments in the year and the buy-back of shares.
Review of business and future changes
Companies that are particularly worth noting include Radnor House School which under a strong management team has recently purchased a second school; Abcodia, which has completed a substantial further fundraising and whose diagnostic capabilities continue to develop; Egress whose email encryption services are focusing on both sides of the Atlantic; Exco Intouch whose healthcare IT services are showing good growth; and Hilson Moran where its services to the construction industry continue to benefit from strong demand.
The Directors do not foresee any major changes in the activity undertaken by the Company in the current year. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to providing both capital growth and a reliable dividend income to shareholders over the long term.
Details of significant events which have occurred since the end of the financial year are listed in note 21. Details of transactions with the Manager are shown in note 5.
Future prospects
The key drivers for returns within the portfolio are those sectors that are involved in the longer-term global trends. These include the importance of healthcare in an ageing population, sustainable energy against a background of climate change, education amid the need to improve the national skills base and the developing use of information technology in an environment of universal information. The portfolio is well positioned to take advantage of these changes, with a longer term aim of total return exceeding dividends.
It is encouraging to see that the revenue generated by the portfolio companies continues to grow and we look forward to further capital growth in the current year.
Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts, used in their 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 key performance indicators give a good indication that the Company is achieving its investment objective and policy. These are:
- Net asset value total return 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 net asset value total return against the FTSE All-Share Index total return, with dividends reinvested.
- Net asset value per share and cumulative net asset value total shareholder return
Net asset value per share decreased by 1.0 per cent. to 96.22 pence per share for the year ended 31 March 2015.
Cumulative NAV total shareholder return increased by 3.7 per cent. to 120.07 pence per share for the year ended 31 March 2015.
- Dividend distributions
Dividends paid in respect of the year ended 31 March 2015 were 5.00 pence per share (2014: 5.00 pence per share), in line with the Board's dividend objective. The cumulative dividend paid since inception is 23.85 pence per share.
- Ongoing charges
The ongoing charges ratio for the period to 17 November 2014 was 3.08 per cent. (2014: 3.1 per cent.) against a cap of 3.5 per cent. The Albion VCTs Prospectus Top Up Offers 2014/2015, issued on 17 November 2014, reduced the management fees cap from 3.5 per cent to 3 per cent. The ongoing charges ratio from 17 November 2014 to 31 March 2015 was 2.98 per cent. which is in line with this cap. The ongoing charges ratio has been calculated using the Association of Investment Companies' (AIC) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be approximately 2.9 per cent.
- Maintenance of VCT qualifying status
The Company continues to comply with H.M. Revenue & Customs ("HMRC") rules in order to maintain its status under Venture Capital Trust legislation as highlighted below.
VCT regulation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors' report on page 20 of the full Annual Report and Financial Statements.
As part of the EU rules relating to State Aid, new rules are being introduced under the Finance Act 2015, which would include the prohibition under certain circumstances of investment in companies which have been trading for more than 12 years.
Given the profile of the kind of company that the Company invests in, the Directors do not believe that such an update to the Finance Act would create a material change in the way the Company is currently run. However, until final legislation has been published, this remains a risk for the Company.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 March 2015. These showed that the Company has complied with all tests and continues to do so.
Gearing
As defined by the Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. The Directors do not intend to utilise long term gearing.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Ventures LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Ventures LLP also provides company secretarial and other accounting and administrative support to the Company. Further details regarding the terms of engagement of the Manager and the way the Board has evaluated the performance of the Manager are shown below.
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 2.5 per cent. of the net asset value of the Company, payable quarterly in arrears. Total annual expenses, including the management fee, are limited to 3.0 per cent. of the net asset value.
In line with common practice, the Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2 per cent. on each investment made and Directors' fees where the Investment Manager has a representative on the portfolio company's board.
Management performance incentive
In order to provide the Manager with an incentive to maximise the return to investors, the Company has entered into 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 per cent. of such excess return that is calculated for each financial year.
The minimum target level, comprising dividends and net asset value, will be equivalent to an annualised rate of return of the average base rate of the Royal Bank of Scotland plc plus 2 per cent. per annum on the original subscription price of £1. Any shortfall of the target return will be carried forward into subsequent periods and the incentive fee will only be paid once all previous and current target returns have been met.
The fee if applicable, will be payable annually. As of 31 March 2015 the total return amounted to 120.07 pence which compared to the hurdle of 131.60 pence per share at that date.
Investment and co-investment
The Company co-invests with other venture capital trusts and funds managed by Albion Ventures LLP. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of Venture Capital Trust status, the long term prospects of current investments, a review of the Management agreement and the services provided therein, and benchmarking the performance and remuneration of the Manager to other service providers. 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 has considered the impact on your Company of the AIFMD, an EU Directive that came into force in July 2013 to regulate the Managers of Alternative Investment Funds. The Board appointed Albion Ventures LLP as the Company's AIFM as required by the AIFMD. Albion Ventures LLP's registration as an AIFM was approved by the Financial Conduct Authority on 3 June 2014.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 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 policies in these matters and as such these requirements do not apply.
Further policies
The Company has adopted a number of further policies relating to:
- Environment
- Global greenhouse gas emissions
- Anti-bribery
- Diversity
and these are set out in the Directors' report on page 20 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates. The principal risks and uncertainties of the Company as identified by the Board and how they are managed are as follows:
| Risk | Possible consequence | Risk management |
| Economic 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. | To reduce this risk, in addition to investing equity in portfolio companies, the Company often invests in secured loan stock and has a policy of not normally permitting any external bank borrowings within portfolio companies. Additionally, the Manager has been rebalancing the sector exposure of the portfolio with a view to reducing reliance on consumer led sectors. |
| Investment risk | This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively impacts on the Company's reputation. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its strong track record for investing in this segment of the market. In addition, the Manager operates a formal and structured investment process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards) and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings. |
| Valuation risk | 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. | As described in note 2 of the Financial Statements, the unquoted investments; are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgments about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgments the valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. Asset-based investments are underpinned by independent third party professional valuations. |
| VCT approval risk | The Company's current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the tax relief on initial investment and loss of tax relief on any tax-free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares. | 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 Robertson Hare LLP (previously PricewaterhouseCoopers LLP) as its taxation adviser. Robertson Hare LLP reports 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 H.M. Revenue & Customs. |
| Compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | Board members and the Manager have experience of operating at senior levels within or advising quoted businesses. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. |
| Internal control risk | Failures in key controls, within the Board or 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 Audit Committee meets with the Manager's Internal Auditor, PKF Littlejohn LLP, when required, receiving a report regarding the last formal internal audit performed on the Manager, and providing the opportunity for the Audit Committee to ask specific and detailed questions. Patrick Reeve on behalf of the Chairman of the Audit Committee, met with the internal audit Partner of PKF Littlejohn LLP in January 2015 to discuss the most recent Internal Audit Report on the Manager. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Measures are in place to mitigate information risk in order to ensure the integrity, availability and confidentiality of information used within the business. |
| Reliance upon third parties risk | The Company is reliant upon the services of Albion Ventures LLP for the provision of investment management and administrative functions. | There are provisions within the Management agreement for the change of Manager under certain circumstances (for further detail, see the Management agreement paragraph within this Strategic Report). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP. |
| Financial risk | By its nature, as a venture capital trust, the Company is exposed to investment risk (which comprises investment price risk and cash flow interest rate risk), credit risk and liquidity risk. | The Company's policies for managing these risks and its financial instruments are outlined in full in note 19 to the Financial Statements. All of the Company's income and expenditure is denominated in sterling and hence the Company has no foreign currency risk. The Company is financed through equity and does not have any borrowings. The Company does not use derivative financial instruments for speculative purposes. |
This Strategic report of the Company for the year ended 31 March 2015 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.
On behalf of the Board,
Maxwell Packe
Chairman
18 June 2015
Responsibility statement
In preparing these Financial Statements for the year to 31 March 2015, the Directors of the Company, being Maxwell Packe, Lady Balfour of Burleigh, Lord St. John of Bletso and Patrick Reeve, confirm that to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 March 2015 for the Company have 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 and loss of the Company for the year ended 31 March 2015 as required by DTR 4.1.12.R;
- the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 31 March 2015 and description of principal risks and uncertainties that the Company faces); and
- the Chairman's statement and Strategic report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).
A detailed "Statement of Directors' responsibilities for the preparation of the Company's financial statements" is contained within the full audited Annual Report and Financial Statements.
By order of the Board
Maxwell Packe
Chairman
18 June 2015
Income statement
| Year ended 31 March 2015 | Year ended 31 March 2014 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments | 3 | - | 1,264 | 1,264 | - | 2,833 | 2,833 |
| Investment income | 4 | 1,258 | - | 1,258 | 1,099 | - | 1,099 |
| Investment management fees | 5 | (210) | (628) | (838) | (194) | (580) | (774) |
| Other expenses | 6 | (201) | - | (201) | (193) | - | (193) |
| Return on ordinary activities before tax | 847 | 636 | 1,483 | 712 | 2,253 | 2,965 | |
| Tax (charge)/credit on ordinary activities | 8 | (119) | 131 | 12 | (151) | 131 | (20) |
| Return attributable to shareholders | 728 | 767 | 1,495 | 561 | 2,384 | 2,945 | |
| Basic and diluted return per share (pence)* | 10 | 2.07 | 2.18 | 4.25 | 1.70 | 7.30 | 9.00 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with the Association of Investment Companies' Statement of Recommended Practice.
All revenue and capital items in the above statement derive from continuing operations.
There are no recognised gains or losses other than the results for the year disclosed above. Accordingly a statement of total recognised gains and losses is not required.
The difference between the reported return on ordinary activities before tax and the historical profit is due to the fair value movements on investments. As a result a note on historical cost profit and losses has not been prepared.
Balance sheet
| Note | 31 March 2015 £'000 | 31 March 2014 £'000 | |
| Fixed asset investments | 11 | 29,283 | 26,720 |
| Current assets | |||
| Trade and other debtors | 13 | 66 | 122 |
| Current asset investments | 13 | - | 43 |
| Cash at bank and in hand | 17 | 5,621 | 5,514 |
| 5,687 | 5,679 | ||
| Creditors: amounts falling due within one year | 14 | (308) | (343) |
| Net current assets | 5,379 | 5,336 | |
| Net assets | 34,662 | 32,056 | |
| Capital and reserves | |||
| Called up share capital | 15 | 409 | 367 |
| Share premium | 6,969 | 3,015 | |
| Capital redemption reserve | 104 | 104 | |
| Unrealised capital reserve | 4,189 | 4,164 | |
| Realised capital reserve | 814 | 72 | |
| Other distributable reserve | 22,177 | 24,334 | |
| Total equity shareholders' funds | 34,662 | 32,056 | |
| Basic and diluted net asset value per share (pence) * | 16 | 96.22 | 96.90 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and were authorised for issue on 18 June 2015 and were signed on its behalf by
Maxwell Packe
Chairman
Company number: 05990732
Reconciliation of movements in shareholders' funds
| 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 | |
| As at 1 April 2014 | 367 | 3,015 | 104 | 4,164 | 72 | 24,334 | 32,056 |
| Return for the period | - | - | - | 649 | 118 | 728 | 1,495 |
| Transfer of previously unrealised gains on sale of investments | - | - | - | (624) | 624 | - | - |
| Issue of share capital (net of costs) | 42 | 3,954 | - | - | - | - | 3,996 |
| Purchase of shares for treasury | - | - | - | - | - | (1,094) | (1,094) |
| Dividends paid | - | - | - | - | - | (1,791) | (1,791) |
| As at 31 March 2015 | 409 | 6,969 | 104 | 4,189 | 814 | 22,177 | 34,662 |
| As at 1 April 2013 | 345 | 290 | 97 | 1,810 | (536) | 27,593 | 29,599 |
| Return/(loss) for the period | - | - | - | 2,570 | (186) | 561 | 2,945 |
| Transfer of previously unrealised gains on sale of investments | - | - | - | (216) | 216 | - | - |
| Issue of share capital (net of costs) | 30 | 2,725 | - | - | - | - | 2,755 |
| Purchase of shares for cancellation | (1) | - | 1 | - | - | (81) | (81) |
| Purchase of shares for treasury | - | - | - | - | - | (1,501) | (1,501) |
| Cancellation of treasury shares | (6) | - | 6 | - | - | - | - |
| Dividends paid | - | - | - | - | - | (1,661) | (1,661) |
| Transfer from other distributable reserve | - | - | - | - | 578 | (578) | - |
| As at 31 March 2014 | 367 | 3,015 | 104 | 4,164 | 72 | 24,334 | 32,056 |
* Included within the aggregate of these reserves is an amount of £22,991,000 (2014: £24,406,000) which is considered distributable.
Cash flow statement
| Note | Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Operating activities | |||
| Dividend income received | 84 | 32 | |
| Loan stock income received | 1,047 | 1,028 | |
| Deposit interest received | 65 | 135 | |
| Investment management fees paid | (823) | (759) | |
| Other cash payments | (203) | (197) | |
| Net cash flow from operating activities | 18 | 170 | 239 |
| Taxation | |||
| UK corporation tax | (15) | (36) | |
| Capital expenditure and financial investments | |||
| Purchase of fixed asset investments | (4,918) | (4,406) | |
| Disposal of fixed asset investments | 3,579 | 2,455 | |
| Disposal of current asset investments | 177 | - | |
| Net cash flow from investing activities | (1,162) | (1,951) | |
| Equity dividends paid (net of cost of shares issued under the Dividend Reinvestment Scheme) | (1,580) | (1,496) | |
| Management of liquid resources | |||
| Disposal of current asset investments | - | 1,553 | |
| Net cash flow from management of liquid resources | - | 1,553 | |
| Net cash flow before financing | (2,587) | (1,691) | |
| Financing | |||
| Issue of ordinary share capital (net of issue costs) | 3,788 | 2,589 | |
| Purchase of own shares (including costs) | (1,094) | (1,582) | |
| Net cash flow from financing | 2,694 | 1,007 | |
| Cash flow in the year | 17 | 107 | (684) |
Notes to the Financial Statements
1. Accounting convention
The Financial Statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, in accordance with applicable United Kingdom law and accounting standards and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('AIC SORP') issued by the Association of Investment Companies ('AIC') in January 2009. Accounting policies have been applied consistently in current and prior periods.
2. Accounting policies
Investments
Quoted and unquoted equity investments, debt issued at a discount and convertible bonds
In accordance with FRS 26 "Financial Instruments Recognition and Measurement", quoted and unquoted equity, debt issued at a discount and convertible bonds are designated as fair value through profit or loss ("FVTPL"). Investments listed on recognised exchanges are valued at the closing bid prices at the end of the accounting period. Unquoted investments' fair value is determined by the Directors in accordance with the International Private Equity and Venture Capital Valuation Guidelines (IPEVCV guidelines).
Fair value movements on equity investments and gains and losses arising on the disposal of investments are reflected in the capital column of the Income statement in accordance with the AIC SORP. Realised gains or losses on the sale of investments will be reflected in the realised capital reserve, and unrealised gains or losses arising from the revaluation of investments will be reflected in the unrealised capital reserve.
Warrants and unquoted equity derived instruments
Warrants and unquoted equity derived instruments are only valued if there is additional value to the Company in exercising or converting as at the balance sheet date. Otherwise these instruments are held at nil value. The valuation techniques used are those used for the underlying equity investment.
Unquoted loan stock
Unquoted loan stocks (excluding debt issued at a discount and convertible bonds) are classified as loans and receivables as permitted by FRS 26 and measured at amortised cost using the effective interest rate method less impairment. Movements in amortised cost relating to interest income are reflected in the revenue column of the Income statement, and hence are reflected in the other distributable reserve, and movements in respect of capital provisions are reflected in the capital column of the Income statement and are reflected in the realised capital reserve following sale, or in the unrealised capital reserve on movements arising from revaluations of the fair value of the security.
For all unquoted loan stock, whether fully performing, past due or impaired, the Board considers that fair value is equal to or greater than the security value of these assets. For unquoted loan stock, the amount of the impairment is the difference between the asset's cost and the present value of estimated future cash flows, discounted at the original effective interest rate. The future cash flows are estimated based on the fair value of the security less the estimated selling costs.
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 revenue reserve when a share becomes ex-dividend.
Loan stock accrued interest is recognised in the Balance sheet as part of the carrying value of the loans and receivables at the end of each reporting period.
In accordance with the exemptions under FRS 9 "Associates and joint ventures", those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is accounted for according to FRS 26 "Financial instruments Recognition and Measurement" and measured at fair value through profit and loss.
Current asset investments
Contractual future contingent receipts on the disposal of fixed asset investments are designated at fair value through profit and loss and are subsequently measured at fair value.
Investment income
Unquoted equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis using the effective interest rate over the life of the financial instrument. Income which is not capable of being received within a reasonable period of time is reflected in the capital value of the investment.
Bank interest income
Interest income is recognised on an accrual basis using the rate of interest agreed with the bank.
Investment management fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the revenue account except the following which are charged through the realised capital reserve:
- 75 per cent. of management fees are allocated to the capital account to the extent that these relate to an enhancement in the value of the investments. This is in line with the Board's expectation that over the long term 75 per cent. of the Company's investment returns will be in the form of capital gains; and
- expenses which are incidental to the purchase or disposal of an investment.
Performance incentive fee
In the event that a performance incentive fee crystallises, the fee will be allocated between other distributable and realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns.
Taxation
Taxation is applied on a current basis in accordance with FRS 16 "Current tax". Taxation associated with capital expenses is applied in accordance with the SORP. In accordance with FRS 19 "Deferred tax", deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the Financial Statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
Reserves
Share premium account
This reserve accounts for the difference between the price paid for shares and the nominal value of the 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.
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 buyback of shares and other non-capital realised movements.
Dividends
In accordance with FRS 21 "Events after the balance sheet date", dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
3. Gains on investments
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Unrealised gains on fixed asset investments held at fair value through profit or loss | 591 | 2,463 |
| Unrealised reversals of impairments on fixed asset investments held at amortised cost | 58 | 94 |
| Unrealised gains on fixed asset investments sub-total | 649 | 2,557 |
| Unrealised gains on current asset investments held at fair value through profit or loss | - | 13 |
| Unrealised gains sub-total | 649 | 2,570 |
| Realised gains on fixed asset investments held at fair value through profit or loss | 574 | 405 |
| Realised gains/(losses) on fixed asset investments held at amortised cost | 9 | (142) |
| Realised gains on fixed asset investments sub-total | 583 | 263 |
| Realised gains on current asset investments held at fair value through profit or loss | 32 | - |
| Realised gains sub-total | 615 | 263 |
| 1,264 | 2,833 |
Investments measured at amortised cost are unquoted loan stock investments as described in note 2.
4. Investment income
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Income recognised on investments held at fair value through profit or loss | ||
| Dividend income | 76 | 40 |
| Interest on convertible bonds and debt issued at a discount | 468 | 370 |
| 544 | 410 | |
| Income recognised on investments held at amortised cost | ||
| Return on loan stock investments | 646 | 569 |
| Bank deposit interest | 68 | 120 |
| 714 | 689 | |
| 1,258 | 1,099 |
Interest income earned on impaired investments at 31 March 2015 amounted to £45,000 (2014: £48,000). These investments are all held at amortised cost.
All of the Company's income is derived from operations in the United Kingdom.
5. Investment management fees
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Investment management fee charged to revenue | 210 | 194 |
| Investment management fee charged to capital | 628 | 580 |
| 838 | 774 |
Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report.
During the year, services of a total value of £838,000 (2014: £774,000) were purchased by the Company from Albion Ventures LLP. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £216,000 (2014: £200,000).
Patrick Reeve is the Managing Partner of the Manager, Albion Ventures LLP. During the year, the Company was charged by Albion Ventures LLP £21,600 including VAT (2014: £21,600) in respect of his services as a Director. At the year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £5,400 (2014: £5,400).
Albion Ventures LLP is, from time to time, eligible to receive transaction fees and Directors' fees from portfolio companies. During the year ended 31 March 2015, fees of £194,000 attributable to the investments of the Company were received pursuant to these arrangements (2014: £169,000).
6. Other expenses
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Directors' fees and associated costs (inclusive of NIC and VAT) | 83 | 84 |
| Auditor's remuneration for statutory audit services (exclusive of VAT) | 25 | 24 |
| Other administrative expenses | 93 | 85 |
| 201 | 193 |
7. Directors' fees and associated costs
The amounts paid to and on behalf of the Directors during the year are as follows:
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Directors' fees | 74 | 74 |
| National insurance and/or VAT | 8 | 8 |
| Expenses | 1 | 2 |
| 83 | 84 |
Expenses charged related to travel expenses in furtherance of their duties as Directors. Further information regarding Directors' remuneration can be found in the Directors' remuneration report on pages 29 and 30 of the full Annual Report and Financial Statements.
8. Tax (charge)/credit on ordinary activities
| Year ended 31 March 2015 | Year ended 31 March 2014 | |||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| UK corporation tax in respect of the current year | (160) | 131 | (29) | (149) | 131 | (18) |
| UK corporation tax in respect of prior year | 41 | - | 41 | (2) | - | (2) |
| (119) | 131 | 12 | (151) | 131 | (20) | |
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Return on ordinary activities before tax | 1,483 | 2,965 |
| Tax charge on profit at the standard companies rate of 21% (2014: 23%) | (311) | (682) |
| Factors affecting the charge: | ||
| Non taxable gains | 265 | 652 |
| Income not taxable | 16 | 8 |
| Marginal relief | 1 | 4 |
| Adjusted in respect of prior year | 41 | (2) |
| 12 | (20) |
The tax charge for the year shown in the Income statement is lower than the standard companies rate of corporation tax in the UK of 21 per cent. (2014: 23 per cent.). The differences are explained above.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii) No deferred tax asset or liability has arisen in the year.
9. Dividends
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Dividend of 2.50p per share paid on 30 August 2013 | - | 820 |
| Dividend of 2.50p per share paid on 28 February 2014 | - | 841 |
| Dividend of 2.50p per share paid on 29 August 2014 | 875 | - |
| Dividend of 2.50p per share paid on 27 February 2015 | 916 | - |
| 1,791 | 1,661 |
Details of the consideration paid 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 2016 of 2.50 pence per share. This dividend will be paid on 28 August 2015 to shareholders on the register as at 7 August 2015. The total dividend will be approximately £983,000.
10. Basic and diluted return per share
| Year ended 31 March 2015 | Year ended 31 March 2014 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| The return per share has been based on the following figures: | ||||||
| Return attributable to equity shares (£'000) | 728 | 767 | 1,495 | 561 | 2,384 | 2,945 |
| Weighted average shares in issue (excluding treasury shares) | 35,154,858 | 32,920,511 | ||||
| Return attributable per equity share (pence) | 2.07 | 2.18 | 4.25 | 1.70 | 7.30 | 9.00 |
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 excluding treasury shares of 4,907,000 (2014: 3,674,000).
11. Fixed asset investments
| 31 March 2015 £'000 | 31 March 2014 £'000 | |
| Investments held at fair value through profit or loss Unquoted equity investments | 13,933 | 13,246 |
| Quoted equity | 514 | - |
| Unquoted debt issued at a discount and convertible bonds | 7,223 | 6,829 |
| 21,670 | 20,075 | |
| Investments held at amortised cost | ||
| Unquoted loan stock investments | 7,613 | 6,645 |
| 29,283 | 26,720 | |
| 31 March 2015 £'000 | 31 March 2014 £'000 | |
| Opening valuation | 26,720 | 22,088 |
| Purchases at cost | 4,859 | 4,458 |
| Disposal proceeds | (3,593) | (2,556) |
| Realised gains | 583 | 263 |
| Movement in loan stock revenue accrued income | 65 | (90) |
| Unrealised gains | 649 | 2,557 |
| Closing valuation | 29,283 | 26,720 |
| Movement in loan stock revenue accrued income | ||
| Opening accumulated movement in loan stock revenue accrued income | 49 | 139 |
| Movement in loan stock revenue accrued income | 65 | (90) |
| Closing accumulated movement in loan stock revenue accrued income | 114 | 49 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 4,120 | 1,780 |
| Movement in unrealised gains | 649 | 2,557 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (580) | (216) |
| Closing accumulated unrealised gains | 4,189 | 4,120 |
| Historic cost basis | ||
| Opening book cost | 22,551 | 20,169 |
| Purchases at cost | 4,859 | 4,458 |
| Sales at cost | (2,430) | (2,076) |
| Closing book cost | 24,980 | 22,551 |
The amounts shown for the purchase and disposal of fixed assets included in the cash flow statement differ from the amounts shown above, due to deferred consideration shown as a debtor, and investment settlement debtors and creditors.
The Directors believe that the carrying value of loan stock measured at amortised cost is not materially different to fair value. The Company does not hold any assets as a result of an enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted equity investments and convertible and discounted debt are valued at fair value in accordance with the IPEVCV guidelines as follows:
| 31 March 2015 | 31 March 2014 | |
| Valuation methodology | £'000 | £'000 |
| Net asset value supported by third party | 9,062 | 9,196 |
| Cost and price of recent investment (reviewed for impairment) | 4,557 | 5,665 |
| Revenue multiple | 4,190 | 3,070 |
| Earnings multiple | 2,251 | 1,228 |
| Agreed new investment price | 1,096 | 916 |
| 21,156 | 20,075 |
Fair value investments had the following movements between valuation methodologies between 31 March 2014 and 31 March 2015:
| Change in valuationmethodology (2014 to 2015) | Value as at 31 March 2015 £'000 | Explanatory note |
| Cost to revenue multiple | 2,159 | More recent information available |
| Cost and price of recent investment to agreed new investment price | 1,096 | Agreed new investment price |
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 IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 March 2015.
FRS 29 'Financial Instruments: Disclosures' 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 according to the following definitions:
| Fair value hierarchy | Definition |
| Level 1 | Unadjusted quoted (bid) prices applied |
| Level 2 | Inputs to valuation are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
Quoted AiM investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares, convertible loan stock and debt issued at a discount are all valued according to Level 3 valuation methods.
Investments held at fair value through profit or loss (level 3) had the following movements in the year to 31 March 2015:
| 31 March 2015 | 31 March 2014 | |||||
| Equity | Discounted debt and convertible loan stock | Total | Equity | Discounted debt and convertible loan stock | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening balance | 13,246 | 6,829 | 20,075 | 8,243 | 6,638 | 14,881 |
| Purchases at cost | 1,270 | 941 | 2,211 | 2,917 | 1,350 | 4,267 |
| Disposal proceeds | (1,715) | (169) | (1,884) | (437) | (1,430) | (1,867) |
| Transfer to Level 1* | (909) | (504) | (1,413) | - | - | - |
| Realised gain | 568 | 6 | 574 | 221 | 302 | 523 |
| Debt/equity swap | 295 | (295) | - | 58 | (58) | - |
| Movement in loan stock revenue accrued income | - | 11 | 11 | - | (33) | (33) |
| Unrealised gain | 1,178 | 404 | 1,582 | 2,244 | 60 | 2,304 |
| Closing balance | 13,933 | 7,223 | 21,156 | 13,246 | 6,829 | 20,075 |
*During the year Mi-Pay Group plc was quoted on AiM and transferred to Level 1 in the fair value hierarchy.
FRS 29 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. The valuation methodology applied to 69 per cent. of the equity, discounted debt and convertible bond investments (by valuation) is based on third-party independent evidence and recent investment price or new investments supported by cash. The Directors believe that changes to reasonable possible alternative input assumptions for the valuation of the remainder of the portfolio could result in an increase in the valuation of investments by £533,000 or a decrease in the valuation of investments by £505,000.
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company.
The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio company as at 31 March 2015 as described below:
| Company | Country of origin | Principal activity | % class and share type | % total voting rights |
| Greenenerco Limited | United Kingdom | Renewable energy | 28.6% A Ordinary | 28.6% |
The above investment is held as part of an investment portfolio and therefore, as permitted by FRS 9, it is measured at fair value and not accounted for using the equity method.
13. Current assets
| Trade and other debtors | 31 March 2015 | 31 March 2014 |
| £'000 | £'000 | |
| Prepayments and accrued income | 16 | 13 |
| UK corporation tax refundable - prior year | 36 | - |
| Other debtors | 14 | 109 |
| 66 | 122 |
The Directors consider that the carrying amount of debtors is not materially different to their fair value.
| 31 March 2015 | 31 March 2014 | |
| Current asset investments | £'000 | £'000 |
| Contingent future receipts from the disposal of fixed asset investments | - | 43 |
The fair value hierarchy applied to contingent future receipts on disposal of fixed asset investments is Level 3.
14. Creditors: amounts falling due within one year
| 31 March 2015 | 31 March 2014 | |
| £'000 | £'000 | |
| Trade creditors | 6 | 10 |
| Accruals and deferred income | 274 | 254 |
| UK corporation tax payable - current year | 28 | 18 |
| Other creditors | - | 61 |
| 308 | 343 |
The Directors consider that the carrying amount of creditors is not materially different to their fair value.
15. Called up share capital
| 31 March 2015 £'000 | 31 March 2014 £'000 | |
| Allotted, called up and fully paid 40,931,339 Ordinary shares of 1 penny each (2014: 36,744,386) | 409 | 367 |
Voting rights
36,024,339 shares of 1 penny each (net of treasury shares) (2014: 33,070,386).
The Company purchased 1,233,000 shares (2014: 1,757,000) to be held in treasury at a cost of £1,094,000 (2014: £1,501,000) representing 3.4 per cent. of the shares in issue (excluding treasury shares) as at 31 March 2015.
The Company did not purchase any shares for cancellation (2014: 91,000 at a cost of £81,000).
The Company did not cancel any shares from treasury during the year to 31 March 2015 (2014: 682,255), leaving a balance of 4,907,000 shares (2014: 3,674,000) in treasury representing 12 per cent. (2014: 9.99 per cent.) of the shares in issue as at 31 March 2015.
Under the terms of the Dividend Reinvestment Scheme Circular, the following 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 Consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 29 August 2014 | 104,186 | 1 | 94.73 | 96 | 90.00 |
| 27 February 2015 | 117,754 | 1 | 94.47 | 109 | 88.00 |
| 221,940 | 2 | 205 |
During the year the following Ordinary shares of nominal value 1 penny each were allotted under the terms of the Albion VCTs Top Up Offers 2013/2014, the Albion VCTs Prospectus Top Up Offers 2013/2014 and the Albion VCT Prospectus Top Up Offers 2014/2015:
| 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) |
| 5 April 2014 (Prospectus) | 1,191,908 | 12 | 98.50 | 1,139 | 90.00 |
| 5 April 2014 | 432,079 | 4 | 98.50 | 413 | 90.00 |
| 5 April 2014 | 13,833 | - | 98.00 | 13 | 90.00 |
| 5 April 2014 | 12,772 | - | 97.50 | 12 | 90.00 |
| 4 July 2014 (Prospectus) | 269,955 | 3 | 99.90 | 262 | 90.00 |
| 4 July 2014 | 22,475 | - | 99.90 | 22 | 90.00 |
| 4 July 2014 | 4,024 | - | 99.40 | 4 | 90.00 |
| 4 July 2014 | 6,486 | - | 98.90 | 6 | 90.00 |
| 30 September 2014 (Prospectus) | 464,714 | 5 | 97.70 | 440 | 90.00 |
| 30 September 2014 | 186,488 | 2 | 97.70 | 177 | 90.00 |
| 30 January 2015 (Prospectus) | 928,180 | 9 | 97.70 | 889 | 89.00 |
| 30 January 2015 (Prospectus) | 432,099 | 4 | 98.20 | 414 | 89.00 |
| 3,965,013 | 40 | 3,791 |
16. Basic and diluted net asset value per share
| 31 March 2015 | 31 March 2014 | |
| (pence per share) | (pence per share) | |
| Basic and diluted net asset value per share | 96.22 | 96.90 |
The basic and diluted net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon total shares in issue (less treasury shares) of 36,024,339 Ordinary shares (2014: 33,070,386) at 31 March 2015.
17. Analysis of changes in cash during the year
| 31 March 2015 £'000 | 31 March 2014 £'000 | |
| Opening cash balances | 5,514 | 6,198 |
| Net cash flow | 107 | (684) |
| Closing cash balances | 5,621 | 5,514 |
18. Reconciliation of net return on ordinary activities before taxation to net cash flow from operating activities
| Year ended 31 March 2015 £'000 | Year ended 31 March 2014 £'000 | |
| Revenue return on ordinary activities before taxation | 847 | 712 |
| Investment management fee charged to capital | (628) | (580) |
| Movement in accrued amortised loan stock interest | (65) | 90 |
| Decrease in debtors | 4 | 6 |
| Increase in creditors | 12 | 11 |
| Net cash flow from operating activities | 170 | 239 |
19. 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 in the Chairman's statement.
The Company's financial instruments comprise equity and loan stock investments in unquoted and quoted companies, contingent receipts on disposal of fixed asset investments, long term cash deposits, cash balances, short term debtors and creditors 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 creditors. The Company does not use any derivatives for the management of its Balance sheet.
The principal risks arising from the Company's operations are:
- Investment (or market) risk (which comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a venture capital trust, it is the Company's specific nature to evaluate and control the investment risk of its portfolio in unquoted investments, details of which are shown on pages 15 and 16 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio companies and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.
The Manager and the Board formally reviews investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the balance sheet date is the value of the fixed and current asset investment portfolio which is £29,283,000 (2014: £26,763,000). Fixed and current asset investments form 84 per cent. of the net asset value as at 31 March 2015 (2014: 83 per cent.).
More details regarding the classification of fixed and current asset investments are shown in notes 11 and 13.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. To mitigate the investment price risk for the Company as a whole, the strategy of the Company is to invest in a broad spread of industries with approximately 65 per cent. of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 15 and 16 of the full Annual Report and Financial Statements.
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 IPEVCV Guidelines.
As required under FRS 29 'Financial Instruments: Disclosures', the Board is required to illustrate by way of a sensitivity analysis, the degree of exposure to market risk. The Board considers that the value of the fixed and current asset investment portfolio is sensitive to a 10 per cent. change based on the current economic climate. The impact of a 10 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
The sensitivity of a 10 per cent. increase or decrease in the valuation of the fixed and current asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £2,928,000 (2014: £2,676,000).
Interest rate risk
It is the Company's policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company's analysis, it is estimated that a rise of 1.0 per cent. in all interest rates would have increased total return before tax for the year by approximately £52,000 (2014: £59,000). Furthermore, it is 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 fixed rate assets during the year was approximately 8.3 per cent. (2014: 8.2 per cent.). The weighted average period to expected maturity for the fixed rate assets is approximately 6.0 years (2014: 7.5 years).
The Company's financial assets and liabilities as at 31 March 2015, all denominated in pounds sterling, consist of the following:
| 31 March 2015 | 31 March 2014 | |||||||
| 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 | - | - | 13,933 | 13,933 | - | - | 13,246 | 13,246 |
| Quoted equity | - | - | 514 | 514 | - | - | - | - |
| Discounted debt and convertible loan stock | 6,134 | - | 1,089 | 7,223 | 5,612 | - | 1,217 | 6,829 |
| Unquoted loan stock | 7,613 | - | - | 7,613 | 6,645 | - | - | 6,645 |
| Current asset investments | - | - | - | - | - | - | 43 | 43 |
| Debtors* | - | - | 21 | 21 | - | - | 112 | 112 |
| Cash | - | 5,621 | - | 5,621 | - | 5,514 | - | 5,514 |
| Current liabilities* | - | - | (280) | (280) | - | - | (325) | (325) |
| 13,747 | 5,621 | 15,277 | 34,645 | 12,257 | 5,514 | 14,293 | 32,064 | |
*The debtors and current liabilities do not reconcile to the Balance sheet as prepayments and tax receivable/(payable) are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its debtors, contingent future receipts, 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. Typically loan stock instruments have a first fixed charge or a fixed and floating charge 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 debtors) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company's total gross credit risk as at 31 March 2015 was limited to £14,836,000 (2014: £13,474,000) of unquoted loan stock instruments (all of which are secured on the assets of the portfolio company), £5,621,000 (2014: £5,514,000) of cash deposits with banks and £nil of contingent future receipts (2014: £43,000).
As at the balance sheet date, the cash held by the Company is held with the 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 is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The Company has an informal policy of limiting counterparty banking and floating rate note exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk below.
The cost, impairment and carrying value of impaired loan stocks held at amortised cost at 31 March 2015 and 31 March 2014 are as follows:
| 31 March 2015 | 31 March 2014 | |||||
| Cost £'000 | Impairment £'000 | Carrying value £'000 | Cost £'000 | Impairment £'000 | Carrying value £'000 | |
| Impaired loan stock | 666 | (77) | 589 | 915 | (305) | 610 |
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.
Liquidity risk
Liquid assets are held as cash on current account, 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 per cent. of its adjusted share capital and reserves, which amounts to £3,367,000 (2014: £3,119,000) as at 31 March 2015.
The Company has no committed borrowing facilities as at 31 March 2015 (2014: £nil) and had cash balances of £5,621,000 (2014: £5,514,000), which are considered to be readily realisable within the timescales required to make cash available for investment. The main cash outflows are for new investments, share buy-backs and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company's financial liabilities are short term in nature and total £308,000 as at 31 March 2015 (2014: £343,000).
The carrying value of loan stock investments held at amortised cost and at fair value through profit or loss at 31 March 2015 as analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 3,893 | 708 | 112 | 4,713 |
| 1-2 years | 545 | 32 | 475 | 1,052 |
| 2-3 years | 547 | 157 | - | 704 |
| 3-5 years | 3,272 | 1,143 | 2 | 4,417 |
| Greater than 5 years | 3,950 | - | - | 3,950 |
| Total | 12,207 | 2,040 | 589 | 14,836 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.
Loan stock categorised as past due includes:
- Loan stock with a carrying value of £1,555,000 has interest overdue for less than 6 months, yielded 8.35 per cent. on cost; and
- Loan stock with a carrying value of £485,000 has loan stock interest past due of less than 12 months.
The carrying value of loan stock investments held at amortised cost at 31 March 2014 as analysed by expected maturity dates was as follows:
Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 486 | 445 | 131 | 1,062 |
| 1-2 years | 4,151 | - | 479 | 4,630 |
| 2-3 years | 700 | 26 | - | 726 |
| 3-5 years | 2,255 | 121 | - | 2,376 |
| Greater than 5 years | 2,819 | 1,861 | - | 4,680 |
| Total | 10,411 | 2,453 | 610 | 13,474 |
In view of the factors identified above, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company's financial assets and liabilities as at 31 March 2015, are stated at fair value as determined by the Directors, with the exception of loans and receivables included within investments, cash balances, debtors and creditors, which are carried at amortised cost, in accordance with FRS 26. The Directors believe that the current carrying value of loan stock is not materially different to the fair value. There are no financial liabilities other than creditors. 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.
20. Commitments and contingencies
As at 31 March 2015, the Company had the following financial commitments in respect of investments:
- Radnor House School (Holdings) Limited; £620,000
- Abcodia Limited; £126,000
- Proveca Limited; £90,000
- MyMeds&Me Limited; £36,000
21. Post balance sheet events
Since 31 March 2015 the Company has had the following post balance sheet events:
- Investment of £186,000 in Abcodia Limited
- Investment of £172,000 in DySIS Medical Limited
- Investment of £90,000 in Proveca Limited
- Investment of £88,000 in Exco Intouch Limited
- Investment of £59,000 in Grapeshot Limited
- Investment of £36,000 in MyMeds&Me Limited
Shares issued under the Albion VCTs Prospectus Top Up Offers 2014/2015:
| 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) | ||
| 2 April 2015 | 3,295,686 | 33 | 97.40 | 3,114 | 87.50 |
22. Related party transactions
Other than transactions with the Manager as disclosed in note 5, there are no related party transactions or balances requiring disclosure.
23. 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 2015 and 31 March 2014, 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 2015, 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.
The Company's Annual General Meeting will be held at The City of London Club, 19 Old Broad Street, London, EC2N 1DS on 27 August 2015 at 11.00am.
24. 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-ventures.co.uk under the 'Our Funds' section, by clicking on 'Albion Enterprise VCT PLC', where the Report can be accessed as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Albion Enterprise VCT PLC via Globenewswire
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