ALBION TECHNOLOGY & GENERAL VCT PLC: ANNUAL FIN...
Albion Technology & General VCT PLC
LEI number: 213800TKJUY376H3KN16
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Technology & General VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2022.
This announcement was approved for release by the Board of Directors on 6 April 2023.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 December 2022 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/AATG/31Dec2022.pdf.
Investment o bjective and policy
The Company’s investment objective is to provide investors with a regular and predictable source of dividend income, combined with the prospect of long-term capital growth, through a balanced portfolio of predominantly unquoted growth and technology businesses in a qualifying Venture Capital Trust (“VCT”).
Investment policy
The Company will invest in a broad portfolio of unquoted growth and technology businesses. 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 in terms of sectors and stages of maturity of portfolio companies.
VCT qualifying and non-qualifying investments
Application of the investment policy is designed to ensure that the Company continues to qualify, and remains approved as, a VCT by HM Revenue and Customs (“VCT regulations”). The maximum amount invested in any one company is limited to any HMRC annual investment limits. It is intended that normally at least 80%. 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 an investment.
Funds held to invest in VCT qualifying assets or for liquidity purposes will be held as cash on deposit or invested in floating rate notes or similar instruments with banks or other financial institutions with high credit ratings. They may also be 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 7.5% 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 VCT qualifying industry sectors using a mix of securities. The maximum the Company will invest in a single company is 15% of the Company’s assets at cost at the time of investment. The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of investments’ suitability for sale. It is possible that individual holdings may grow in value to a point where they represent a significantly higher proportion of total assets prior to a realisation opportunity being available.
Borrowing powers
The Company’s maximum exposure in relation to gearing is restricted to 10% of the adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.
Financial c alendar
| Record date for first dividend | 2 June 2023 |
| Annual General Meeting | Noon on 6 June 2023 |
| Payment date of first dividend |
30 June 2023 |
| Announcement of Half-yearly results for the six months ending 30 June 2023 | September 2023 |
Financial summary
| ( 3.74) p | Decrease in total shareholder value for the year ended 31 December 2022 (2021: increase of 14.98p)†† |
| ( 4.64) % | Total loss on opening net asset value per share (2021: gain of 21.6%)†† |
| 3. 99 p | Total tax-free dividends per Ordinary share paid in the year ended 31 December 2022 (a dividend yield of 4.9% on opening net asset value) (2021: 3.68p with a dividend yield of 5.3%) |
|
72.92p
|
Net asset value per Ordinary share as at 31 December 2022 (2021: 80.65p) |
| 196.54p | Total shareholder value as at 31 December 2022† (2021: 200.28p)†† |
†
Total shareholder
value
at
31 December 2022 is calculated using net asset value per share at 31 December 2022 plus dividends paid per Ordinary share since launch to 31 December 2022.
†
†
These are considered Alternative Performance Measures, see note 2
in
the Strategic report
below
for further explanation.
| Movements in net asset value | 31 December 20 2 2 (pence per share) | 31 December 2021 (pence per share) | ||
| Opening net asset value | 80.65 | 69.35 | ||
| Capital (loss)/return | (4.5 1 ) | 14.93 | ||
| Revenue return | 0. 46 | 0.37 | ||
| Total (loss)/return | (4.05) | 15.30 | ||
| Ordinary dividends paid | (3. 99 ) | (3.68) | ||
| Impact from share capital movements | 0.3 1 | (0.32) | ||
| Net asset value | 72.92 | 80.65 | ||
| Total shareholder value |
Ordinary share
( pence per share) |
|||
| Total dividends paid since launch to 31 December 202 2 | 123.62 | |||
| Net asset value as at 31 December 2022 | 72.92 | |||
| Total shareholder value to 31 December 202 2 | 196.54 | |||
In addition to the dividends noted above, the Board has declared a first dividend for the year ending 31 December 2023 of 1.82 pence per share to be paid on 30 June 2023 to shareholders on the register on 2 June 2023.
For historic shareholders, further details regarding the total shareholder value for C Shares and Albion Income and Growth VCT PLC can be found at www.albion.capital/funds/AATG under the ‘Financial Summary for Previous Funds’ section.
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/AATG under the ‘Dividend History’ section.
Chairman’s statement
Introduction
The Company’s portfolio has faced an uncertain macroeconomic and geopolitical environment during the financial year under review. With the war in Ukraine, high inflation, increasing interest rates, combined with political instability, there has been considerable market volatility impacting the Company and its portfolio.
The Company returned a loss in the year ended 31 December 2022 of 3.74 pence per share, which represents a 4.6% loss on opening net asset value. Notwithstanding these disappointing results, which are not surprising given the economic environment in the financial year, the Board remains encouraged by the potential of the portfolio to deliver positive longer term returns.
Results and dividends
As at 31 December 2022, the net asset value was 72.92 pence per share compared to 80.65 pence per share at 31 December 2021. The total loss after tax was £6.3 million compared to £19.9 million total return in the year to 31 December 2021.
In line with our variable dividend policy targeting around 5% of NAV per annum, the Company paid semi-annual dividends totalling 3.99 pence per share for the year to 31 December 2022 (2021: 3.68 pence per share). The Board has declared a first dividend for the year ending 31 December 2023 of 1.82 pence per share to be paid on 30 June 2023 to shareholders on the register on 2 June 2023.
Investment p ortfolio
The results for the year showed net losses on investments of £4.5 million, against gains of £21.5 million for the previous year; the results are largely driven by unrealised losses across the portfolio. Oxsensis decreased in value by £4.1 million, Black Swan Data by £2.1 million, and Oviva by £1.1 million, all as a result of difficult trading conditions. Against these losses, there have been unrealised gains, including a £1.1 million uplift in Convertr Media, and realised gains including the disposal of Credit Kudos and MyMeds&Me, both of which are detailed below. Quantexa, the largest company in our portfolio (14% of net asset value), continues to show strong revenue growth which has counter-balanced the well-publicised pressure on technology sector valuations and has not seen a valuation movement during the reported year. After the year end Quantexa completed an externally led Series E fundraising, and further details are in the Updated NAV announcement section below.
The Company had a number of investment realisations in the year with proceeds totalling £11.5 million, leading to realised gains during the year of £1.6 million. The notable exits included Credit Kudos delivering 5.2 times return on cost, Phrasee delivering 3.5 times cost and MyMeds&Me delivering 3.4 times cost. Further details on the above disposals, and other realisations, can be found in the realisations table on page 30 of the full Annual Report and Financial Statements.
During a busy year for the Manager, a total of £16.7 million was invested into portfolio companies, of which £9.2 million was invested across fifteen new portfolio companies, all of which are likely to require further investment as they develop and grow. The average age of the fifteen new portfolio companies was four years, demonstrating the Company’s focus on investing in earlier-stage businesses and building value over the longer term. The five largest new investments during the year were:
- £1.5 million into Peppy Health, a platform providing expert support for underserved areas of health and wellness (e.g. menopause) via content, video, chat support as an employment benefit for employees;
- £1.4 million into Toqio FinTech which bridges the gap between financial services and financial outcomes by providing an orchestration platform to any business large or small which wishes to launch a financial product;
- £0.9 million into PeakData, a software platform that uses big data analytics and AI to collate data from across the web to provide insights and analytics for the world’s top pharmaceutical companies, key opinion leaders and healthcare professionals before and after the launch of new therapies;
- £0.8 million into GX Molecular (trading as CS Genetics), a developer of a wet-phase approach to single cell indexing in a single tube that enables increased scalability and high quality single-cell analysis; and
- £0.7 million into OutThink, a software platform to measure and manage human risk for enterprises.
A further £7.5 million was invested into existing portfolio companies, the largest being: £1.4 million into Cantab Research (trading as Speechmatics), £1.1 million into Runa Network (previously WeGift) and £1.0 million into Black Swan Data.
The three largest investments in the Company’s portfolio, being Quantexa, Radnor House School and Proveca, are valued at £26.9 million and represent 22.2% of the Company’s net asset value.
Overall, 33% of the portfolio by value is trading profitably, measured by earnings before interest, tax and depreciation, with a number of our investments showing strong growth in fast-developing markets.
More information on each of the investments made by the Company can be found on the Manager’s website at www.albion.capital.
Board
composition
I have had the privilege of serving as a Director of the Company for nine years, including two as Chairman, and I will retire at the Annual General Meeting in June 2023. I am delighted that Clive Richardson, an existing Board member, will succeed me as Chairman. Mary Anne Cordeiro, who has also served nine years, will retire from the Board and Margaret Payn will become SID when Mary Anne stands down.
The Board, as part of its ongoing succession planning, is well advanced in the process of recruiting for new Directors, which will be announced in due course. The aim continues to be a small and focussed Board. We will aim to continue to be a diverse Board, as has been the case during the Company’s life, and with collective competence to the fore.
Risks and uncertainties
The Company faces a number of significant risks, including higher interest rates, inflation, the ongoing impact of Russia’s invasion of Ukraine, and potentially a period of economic stagnation, or even recession, in the UK. This complex backdrop is factored into how the Company is managed, including in its management of cash.
The concentration risk to the technology sector, which is part of the Company’s stated investment objective, is noted as technology company valuations have become more volatile in the current economic climate.
The Manager is continually assessing the exposure to these risks for each portfolio company and appropriate actions, where possible, are being implemented. This includes the potential provision of further financial support to portfolio companies where necessary.
A detailed analysis of the principal risks and uncertainties facing the business is shown in the Strategic report below.
Share buy- backs
It remains a primary objective to maintain sufficient cash resources for investment in new and existing portfolio companies, for the continued payment of dividends to shareholders and to provide liquidity in the secondary market through share buy-backs. The Board’s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s best interest. It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit. The Board continues to review the use of buy-backs and is satisfied that it is an important means of providing market liquidity for shareholders. Details of shares bought back during the year can be found in note 16.
The Company also manages a relatively high level of distributable reserves which can be used for share buy-backs and the payment of dividends. Following shareholder approval last year, additional distributable reserves were created through the reclassification of the share premium account balance.
Albion VCTs’ Prospectus Top Up Offers
Your Board, in conjunction with the Boards of five other VCTs managed by Albion Capital Group LLP, launched a Prospectus Top Up Offer of new Ordinary shares on 6 January 2022 and applications reached its £24 million limit under the Offer on 29 March 2022.
A new Prospectus Top Up Offer was launched on 10 October 2022. The Board announced on 18 January 2023 that, following strong demand for the Company’s shares, it had elected to exercise the over-allotment facility, taking the total amount under offer to £15.5 million. An allotment was scheduled to take place on 24 February 2023. However due to positive developments in the Albion managed portfolio impacting on post balance sheet valuations and, following advice, the date of the second allotment was deferred to 31 March 2023 for the 2022/2023 tax year. On 22 March 2023, the Company was pleased to announce that it had reached its limit under its latest Offer which was fully subscribed and closed to further applications.
The funds raised by the Company pursuant to the Offer will be added to the cash resources available for investment, putting the Company into a position to take advantage of investment opportunities over the next two to three years. The proceeds of the Offer will be applied in accordance with the Company’s investment policy.
Updated NAV Announcement
post year
end
On 2 March 2023, a NAV update was announced with a pleasing 4.63 pence per share uplift, representing a 6.35% increase on the previously announced 31 December 2022 NAV. This update resulted from Quantexa, a company within the portfolio, undergoing an external fundraising process, which was not known at 31 December 2022. This transaction has since completed and was announced by Quantexa on 4 April 2023.
Annual General Meeting
The Annual General Meeting (“AGM”) will be held at noon on 6 June 2023 via the Lumi platform. Information on how to participate in the live webcast can be found on the Manager’s website at www.albion.capital/vct-hub/agms-events. The notice of the AGM is at the end of this document.
The Board welcomes questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform, or in person. Alternatively, shareholders can email their questions to AATGchair@albion.capital prior to the Meeting.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 51 and 52 of the full Annual Report and Financial Statements and in the Notice of the Meeting on pages 93 to 96 of the full Annual Report and Financial Statements.
The Board encourages shareholders to vote on the Company business at the AGM, irrespective of attendance, and strongly recommends that shareholders should vote in favour of all the resolutions being proposed at the meeting.
Outlook and prospects
Continuing risks and uncertainties, largely outside the Company’s control, make it difficult to be entirely confident about what lies ahead. The portfolio is well diversified with companies at different stages of maturity and targeted at sectors such as software, FinTech and healthcare. These are sectors where we believe growth can be resilient and sustainable. The recently announced 6.35% NAV uplift since the year end gives the Board further confidence that the Company is well positioned in the current economic climate to generate long term value for shareholders.
Robin Archibald
Chairman
6 April 2023
Strategic report
Investment objective and policy
The Company’s investment objective is to provide investors with a regular and predictable source of dividend income, combined with the prospect of long-term capital growth, through a balanced portfolio of unquoted growth and technology businesses in a qualifying VCT.
The Company will invest in a broad portfolio of unquoted growth and technology businesses. 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 in terms of sectors and stages of maturity of portfolio companies.
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 as at 31 December 2022 by sector, stage of investment and number of employees. This is a useful way of assessing how the Company and its portfolio are diversified across sector, portfolio companies’ maturity measured by revenues and their size measured by the number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 28 to 30 of the full Annual Report and Financial Statements.
Direction of portfolio
The current portfolio remains well-balanced both in terms of stage of investment and sectors, with FinTech accounting for 23%, software and other technology accounting for 19%, healthcare (including digital healthcare) accounting for 17%, renewable energy accounting for 9% and other (including education) accounting for 8%.
Due to the share allotments under the 2021/22 and 2022/23 Prospectus Top Up Offers, and the exits during the year, cash is a significant proportion of the portfolio at 22%. The Company will use these funds to support those portfolio companies that require it, as well as to capitalise on any new investment opportunities that arise. We therefore expect that proportion of investments in the FinTech, software and other technology and healthcare sectors (including digital healthcare) will increase, and that the proportion of asset-based investments will decrease over the coming years.
| Results and dividends | |
| £ ’ 000 | |
| Net capital loss for the year ended 31 December 2022 | (7,021) |
| Net revenue return for the year ended 31 December 2022 | 720 |
| Total loss for the year ended 31 December 20 2 2 | (6,30 1 ) |
| Dividend of 2.02 pence per share paid on 30 June 2022 | (3,240) |
| Dividend of 1.97 pence per share paid on 31 December 2022 | (3,267) |
| Transferred from reserve s | (12,808) |
| Net assets as at 31 December 2022 | 121,247 |
| Net asset value per share as at 31 December 20 2 2 | 72.92p |
The Company paid ordinary dividends of 3.99 pence per share during the year ended 31 December 2022 (2021: 3.68 pence per share). The Board has a variable dividend policy which targets an annual dividend yield of around 5% on the prevailing net asset value. The Board has declared a first dividend for the year ending 31 December 2023 of 1.82 pence per share to be paid on 30 June 2023 to shareholders on the register on 2 June 2023.
As shown in the Income statement below, investment income has increased to £1,631,000 (2021: £1,077,000). This is largely due to the receipt of dividends which include a dividend declared by memsstar immediately prior to the disposal in the year. As a result, there was an overall revenue gain to shareholders of £720,000 (2021: £476,000).
The net capital loss for the year was £7,021,000 (2021: gain of £19,412,000). The net loss was generated largely due to a fall in the unrealised movement in valuation of investments, partially offset by gains on disposals. The gain in 2021 was primarily due to the largest portfolio company, Quantexa. Further information on this together with key valuation movements during the year are outlined in the Investment portfolio section of the Chairman’s statement. The total loss for the period was 4.05 pence per share (2021: gain of 15.30 pence per share).
The Balance sheet below shows that the net asset value per share decreased over the year ended 31 December 2022 to 72.92 pence per share (2021: 80.65 pence per share).
The cash inflow for the year was £12.2 million (2021: £2.9 million). This resulted mainly from the issue of new Ordinary shares under the Top Up Offers, disposal proceeds and loan stock income, offset by new investments, dividends paid, share buy-backs and ongoing expenses.
Review of business and
outlook
A review of the Company’s business during the year and its future prospects is contained in the Chairman’s statement above and in this Strategic report.
There is a continuing focus on growing investments in the FinTech, healthcare and other software and technology sectors, and, therefore, we expect the portfolio to increase its weighting in these sectors.
Investment income largely comprises loan stock interest on our renewable energy investments, which the Company intends to hold for the longer term. As a result, loan stock income is expected to remain relatively flat over the near term and most of the Company’s investment returns are expected to be delivered via capital gains. Dividend income is likely to reduce next year, as memsstar declared a large dividend prior to its disposal in the year.
On 2 March 2023, a NAV update was announced with a 4.63 pence per share uplift (6.35%), as detailed in the Chairman’s statement above.
Future prospects
The Company’s financial results for the ended 31 December 2022 demonstrate that the portfolio remains well balanced across sectors and risk classes, and is largely weathering the ongoing global issues caused as a result of higher levels of interest rates and inflation and other economic headwinds. Although there remains much uncertainty, the Board considers that the Company has the potential to deliver long term growth, whilst maintaining predictable dividend payments to shareholders.
Key P erformance I ndicators (“KPI s ”) and A lternative P erformance M easures (“APM s ”)
The Directors believe that the following KPIs and APMs, which are typical for VCTs, used in the Board’s 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. Net asset value per share and total shareholder value
Please see the “Total shareholder value to 31 December 2022” table above in the Financial summary section which shows the NAV per share as at 31 December 2022 and total shareholder value. Total shareholder value is net asset value plus cumulative dividends paid since launch.
Total shareholder value decreased by 3.74 pence to 196.54 pence per Ordinary share for the year ended 31 December 2022 (4.6% on the opening net asset value).
The graph on page 8 of the full Annual Report and Financial Statements reflects the total shareholder value performance of the Company relative to the FTSE All-share Index over the last ten years.
2. Movement in shareholder value in the year †
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| 8.0% | 2.5% | (4.7%) | 3.6% | 6.0% | 13.2% | 11.9% | (0.3%) | 21.6% | (4.6%) |
† Calculated as the movement in total shareholder value for the year compared with the opening net asset value.
The figures in the table above show that total shareholder value, despite some annual volatility, mean that the Company has delivered an average increase of 5.7% per annum over the past ten years.
The returns to shareholders who have acquired shares through the C share issue in 2006 and the merger with Albion Income & Growth VCT in 2013 are shown on the Company’s Webpage on the Manager’s website at www.albion.capital/funds/AATG under “Financial Summary for Previous Funds”. Shareholders who have acquired shares through Top Up Offers, the dividend reinvestment scheme or in the market outside the corporate events will be able to calculate their own returns based on the price at which they acquired their shares, the dividends they have received since the purchase and the current net asset value of their holding.
3. Dividend distributions
Dividends paid in respect of the year ended 31 December 2022 were 3.99 pence per share (2021: 3.68 pence per share). Cumulative dividends paid since inception were 123.62 pence per Ordinary share.
4. Ongoing charges
As agreed with the Manager in 2015, the ongoing charges ratio for the year ended 31 December 2022 was capped at 2.75% (2021: 2.75%) with any excess over the cap being a reduction in the management fee. Following the reduction to the management fee in the year, the ongoing charges ratio has decreased to 2.55% (2021: 2.75%). 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 reserves) as a percentage of the average net assets attributable to shareholders.
5. 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 VCT legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on pages 47 and 48 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 December 2022 and are reviewed during the year. These reviews confirmed that the Company has complied with all tests.
*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 the share capital and reserves adjusted for any dividends declared. Although the investment policy permits the Company to borrow, the Directors do not currently have any intention of utilising long-term gearing and have not done so in the past.
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 under the Management Agreement, as well as acting as the Company’s Alternative Investment Fund Manager (“AIFM”).
Management
A
gr
eement
A resolution was passed (with 95.6% of votes cast in favour of the resolution) at the General Meeting on 26 May 2022 which specifically covered changes to the Management Agreement.
The changes to the Management Agreement included: lowering the Management fee from 2.5% of net asset value to 2.0% of net asset value, backdated to 1 January 2022; introduction of a capped administration fee; and revisions to the performance incentive arrangements. Full details are available in the Circular dated 13 April 2022 which can be found on the Manager’s website at www.albion.capital/funds/AATG/circular2022.pdf.
Under these new management arrangements, the ongoing operating costs for the year ended 31 December 2022 have been reduced by £246,000.
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 and 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 2.0% of the net asset value of the Company, payable quarterly in arrears. The total annual running costs of the Company, including management fees payable to Albion Capital Group LLP, Directors’ fees, professional fees and the costs incurred by the Company in the ordinary course of business (but excluding any exceptional items and performance fees payable to Albion Capital Group LLP) are capped at an amount equal to 2.75% of the Company’s net assets, with any excess being met by Albion Capital Group LLP by way of a reduction in management fees.
In some instances, the Manager is entitled to an arrangement fee, payable by a portfolio company in which the Company invests, in the region of 2.0% of the investment made, and also monitoring fees where the Manager has a representative on the portfolio company’s board; these fees are payable by the investee company. Further details of the Manager’s fee can be found in note 5 to the financial statements.
Management performance incentive
Under the performance incentive arrangement, the Manager will receive an incentive fee calculated annually on a five year average rolling basis, equal to 15% of the performance over a 5% hurdle (applied to the opening net asset value each year in line with the current dividend target). This fee will only become payable when average returns to shareholders are in excess of 5% per annum over a five year period. The first payment of a performance fee, if earned, will be in 2024 based on the audited results of the five years ending 31 December 2023.
Details of the calculation of the performance incentive provision can be found in note 15. For the year ended 31 December 2022, the total provision for the performance incentive earned is £272,000 (2021: £nil).
Investment and co-investment
The Company co-invests with other Albion Capital Group LLP managed VCTs. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of cash available for investment in each of the entities and the HMRC VCT qualifying tests.
Liquidity Management
The Board examines regularly both the liquidity of the Company’s shares in the secondary market, which is substantially influenced by the use of share buybacks and share issuance, and the liquidity of the Company’s portfolio. The nature of investments in a venture capital portfolio is longer term and these are relatively illiquid in the short term. Consequently, the Company maintains sufficient liquidity in cash and near cash assets to cover the operating costs of the Company and to meet dividend payments and share buy-backs, as well as to have the capacity to make fresh investments when the opportunities arise. Although the Company is authorised to borrow, in practice it does not borrow. The Board has no intention that the Company should borrow given the nature of the Company’s investments, a number of which have their own gearing. Management of liquidity is one of the key operational areas that the Board discusses regularly with the Manager.
Evaluation of the Manager
The Board, through the Management Engagement Committee, has evaluated the performance of the Manager based on:
- returns generated by the Company;
- continued compliance with the VCT regulation;
- long-term prospects of the current portfolio of investments;
- management of treasury, including use of share buy-backs and participation in fund raising;
- a review of the Management Agreement and the services provided therein;
- benchmarking the performance of the Manager to other service providers, including the performance of other VCTs that the Manager is responsible for managing: and
- the contribution made by the administration and secretarial team to the operation of the Company.
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 became a full-scope AIFM under the AIFMD in 2018. As a result, from that date, Ocorian Depositary (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties with respect to the Company. Having the Depositary provides another level of oversight over the safe-keeping of the Company’s assets.
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 on how the Board operates as a cohesive and competent unit. The Company also has no customers in the traditional sense and, therefore, there is also nothing to report in relation to relationships with customers.
The table below sets out the key stakeholders 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.
| Stakeholder | Engagement with Stakeholder | Outcome and decisions based on engagement |
| Shareholders | The key methods of engaging with Shareholders are as follows:
|
|
| 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. |
|
| Suppliers | The key suppliers with regular engagement with the Company often through the Manager are:
|
|
| Portfolio companies | The portfolio companies are considered key stakeholders, because they are principal drivers of value for the Company. As discussed in the Environmental, Social and Governance (“ESG”) report on pages 36 to 39 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their own stakeholders and the wider community is also important to the Company. |
|
| Community and environment | The Company as an investment company, with no employees and no customers, has no direct effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board and considered as part of the review of Company operations. |
|
Social and
c
ommunity
i
ssues,
e
mployees
and
h
uman
r
ights
The Board recognises the requirement under section 414C of the Companies Act 2006 (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 the effectiveness of these policies. As an externally managed investment company with no employees, the Company has no requirement for formal policies in these matters, however, it is at the core of its responsible investment approach.
General Data Protection Regulation (“GDPR”)
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union. GDPR forms part of the UK law after Brexit, now known as UK GDPR. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
Further policies
The Company has adopted a number of further policies relating to:
- Environment
- Global greenhouse gas emissions
- Anti-bribery
- Anti-facilitation of tax evasion
- Diversity
These are set out in the Directors’ report on page 49 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates, together with changes to the environment and individual risks. The Board also identifies emerging risks which might affect the Company. In the year ended 31 December 2022 the most noticeable continuing risk to operational and investment risk has been the heightened geopolitical risk and its effect on the economy, with inflation remaining high, interest rates increasing and pricing volatility in world markets, particularly affecting growth stocks. The full impact on the Company’s portfolio is likely to be uncertain for some time.
The Board has carried out a robust assessment of the Company’s principal risks and uncertainties and seeks to mitigate these risks through regular reviews of performance and monitoring progress and compliance. The Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, in the mitigation and management of these risks. More information on specific mitigation measures for the principal risks and uncertainties are explained below:
| Possible consequence | Risk assessment during the year | Risk management |
| RISK: 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 investment purposes, are more volatile than larger, long-established businesses. The Company’s investment policy creates concentration risk to the technology sector (including FinTech and HealthTech), as well as to the health sector generally. 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. |
Increased in the year due to the heightened economic and geopolitical issues as referred to above. Earlier stage technology companies have suffered from a particularly significant de-rating in the past 9 months, and volatility continues to be seen in valuations for these types of assets. |
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 2021/22 and 2022/23 Top-Ups followed 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 2022. 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. |
| RISK: 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. | No change in the year. | 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 formal assurance, 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, and 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. |
| RISK: Cyber and data security | ||
| The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key IT systems and controls within the Manager’s business could place assets of the Company at risk, result in loss of sensitive data (including shareholder data), or loss of access to systems resulting in a lack of timely communication to market. | No change in the year. | The Manager has a dedicated in-house IT support to assist in the management of the IT infrastructure and improve the IT control environment. The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Board receives reports from the Manager on its internal controls and risk management, including on matters relating to cyber security. The Audit and Risk Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets and has access to their internal audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has sufficient systems and controls in place including those in relation to business continuity and cyber security. The Manager also has a formal risk group in place which meets every six months, with cyber risk being discussed at Board meetings. |
| RISK: Reliance on key agents and personnel | ||
| 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 or loss of key personnel, 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. |
No change in the year. | 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 the Manager 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. |
| RISK: Economic, political and social risk | ||
| Changes in economic conditions, including; higher 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. |
Increased in the year, due to the high levels of inflation, rising interest rates and the geopolitical risks from the invasion of Ukraine. | 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 Board and Manager continuously assess the resilience of the portfolio, the Company and its operations and the robustness of the Company’s external agents, 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 uncertain times. The portfolio is diversified and exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel. |
| RISK: Discount risk | ||
| 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 (“NAV”) and prospective NAV, 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 NAV. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the NAV at different times, depending on supply and demand, market conditions, general investor sentiment and other factors, including the ability to exercise share buybacks. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying NAV. | No change in the year. | The Company operates a share buy-back policy, which aims to limit the discount at which the shares trade to around 5% to NAV, 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 and could not renew any buyback authorities. New Ordinary shares are issued at sufficient premium to NAV to cover the costs of issue and to avoid asset value dilution to existing investors. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company for the three years to 31 December 2025. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate as a going concern and meet its liabilities as they fall due. This is the period used by the Board as part of its strategic planning process, which includes: the estimated timelines for finding, assessing and completing investments; the potential impact of any new regulations; and the availability of cash.
As noted above, t he Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that could threaten its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. The Board 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 carefully assessed, and was satisfied with, the risk management processes in place to avoid or reduce the impact of these risks. Inflation remaining high, interest costs increasing and the impact on growth stocks against a geopolitically uncertain environment remain risks that need to be considered against the practical management of the Company’s net assets and its operational requirements. The Board has carried out robust stress testing of cashflows which included; factoring in higher levels of inflation when budgeting for future expenses ; only including proceeds from investment disposals where there is a high probability of completion ; assessing the resilience of portfolio companies given the current decline in the global economy, including the requirement for any future financial support ; and the ability to fulfil interest requirements on debt instruments.
The Board assessed the ability of the Company to raise finance and deploy capital, as well as the existing cash resources of the Company by looking at cashflow forecasts and the future pipeline of investments . The Board has additionally considered the ability of the Company to comply with the ongoing conditions to ensure it maintains its VCT qualifying status under its current investment policy. As a result of the Board’s quarterly valuation reviews, it has concluded that the portfolio is well balanced and geared towards delivering long term growth and strong returns to shareholders. 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. It is also satisfied that the Company can maintain its VCT qualifying status.
Taking into account the processes for mitigating risks, monitoring costs, implementing share buy-backs and issuance of new shares, the
Manager
’
s compliance with the investment objective, achievement of the VCT qualifying status, policies and business model and the balance
of the portfolio, the Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and
meet its liabilities as they fall due over the three year period to 31 December 202
5
. The Board is mindful of the ongoing and emerging risks
and will continue to ensure that appropriate safeguards are in place, in addition to monitoring the quarterly cashflow forecasts to ensure the
Company has sufficient liquidity
to meet its operational and investment needs
.
Companies Act 2006
This Strategic report of the Company for the year ended
31 December
2022 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
Robin Archibald
Chairman
6 April 2023
Responsibility Statement
In preparing these financial statements for the year to 31 December 2022, the Directors of the Company, being Robin Archibald, Margaret Payn, Mary Anne Cordeiro, Patrick Reeve and Clive Richardson, 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 December 2022 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
-the Chairman’s statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.
We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.
A detailed “Statement of Directors’ responsibilities” is contained on page 53 within the full audited Annual Report and Financial Statements.
On behalf of the Board,
Robin Archibald
Chairman
6 April 2023
Income statement
| Year ended 31 December 20 2 2 | Year ended 31 December 2021 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| (Losses)/gains on investments | 3 | - | (4,480) | (4,480) | - | 21,527 | 21,527 |
| Investment income | 4 | 1, 631 | - | 1, 631 | 1,077 | - | 1,077 |
| Investment Manager’s fees | 5 | ( 2 5 3 ) | ( 2, 541 ) | (2, 794 ) | (235) | (2,115) | (2,350) |
| Other expenses | 6 | ( 658 ) | - | ( 658 ) | (366) | - | (366) |
| (Loss)/profit on ordinary activities before tax | 72 0 | (7,02 1 ) | (6,30 1 ) | 476 | 19,412 | 19,888 | |
| Tax charge on ordinary activities | 8 | - | - | - | - | - | - |
| (Loss)/profit and total comprehensive income attributable to shareholders | 72 0 | (7,02 1 ) | (6,30 1 ) | 476 | 19,412 | 19,888 | |
| Basic and diluted (loss)/profit per share (pence)* | 10 | 0. 46 | (4.5 1 ) | (4.0 5 ) | 0.37 | 14.93 | 15.30 |
*Adjusted for treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies’ Statement of Recommended Practice.
Balance sheet
| 31 December 20 2 2 | 31 December 2021 | ||
| Note | £’000 | £’000 | |
| Fixed asset investments | 11 | 92,301 | 90,535 |
| Current assets | |||
| Trade and other receivables | 13 | 3,456 | 2,878 |
| Cash in bank and in hand | 26,594 | 14,361 | |
| 30,050 | 17,239 | ||
| Payables: amounts falling due within one year | |||
| Trade and other payables | 14 | ( 832 ) | (780) |
| Net current assets | 29,218 | 16,459 | |
| Total assets less current liabilities | 121,519 | 106,994 | |
| Provisions falling due after one year | 15 | (27 2 ) | - |
| Net assets | 121,24 7 | 106,994 | |
| Equity attributable to equity holders | |||
| Called-up share capital | 16 | 1,905 | 1,536 |
| Share premium | 5,53 4 | 52,687 | |
| Capital redemption reserve | - | 48 | |
| Unrealised capital reserve | 24,828 | 33,469 | |
| Realised capital reserve | 19,879 | 18,259 | |
| Other distributable reserve | 69,10 1 | 995 | |
| Total equity shareholders’ funds | 121,247 | 106,994 | |
| Basic and diluted net asset value per share (pence)* | 17 | 72.92 |
80.65 |
*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 6 April 2023 and were signed on its behalf by
Robin Archibald
Chairman
Company number: 04114310
Statement of changes in equity
|
Called
-
up
share
capital |
Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 January 202 2 | 1,536 | 52,687 | 48 | 33,469 | 18,259 | 995 | 106,994 |
| (Loss)/profit and total comprehensive income for the year | - | - | - | ( 6,498 ) | (523) | 72 0 | (6,301) |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | ( 2,143 ) |
2,143 |
- | - |
| Purchase of shares for treasury | - | - | - | - | - | ( 2,51 2 ) | ( 2,51 2 ) |
| Issue of equity | 3 69 | 29, 943 | - | - | - | - | 30, 312 |
| Cost of issue of equity | - | ( 739 ) | - | - | - | - | ( 739 ) |
| Cancellation of share premium and capital redemption reserve | - | (76, 357 ) | (4 8 ) | - | - | 76,40 5 | - |
| Dividends paid | - | - | - | - | - | (6,5 07 ) | ( 6,5 07 ) |
| As at 31 December 20 2 2 | 1,905 | 5 ,53 4 | - | 24,828 | 19,879 | 69,10 1 | 1 21,247 |
| As at 1 January 202 1 | 1,307 | 37,036 | 48 | 13,595 | 23,617 | 2,425 | 78,028 |
| Profit/(loss) and total comprehensive income for the year | - | - | - | 20,761 | (1,349) | 476 | 19,888 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (887) |
887 |
- | - |
| Purchase of shares for treasury | - | - | - | - | - | (1,906) | (1,906) |
| Issue of equity | 229 | 16,056 | - | - | - | - | 16,285 |
| Cost of issue of equity | - | (405) | - | - | - | - | (405) |
| Dividends paid | - | - | - | - | (4,896) | - | (4,896) |
| As at 31 December 202 1 | 1,536 | 52,687 | 48 | 33,469 | 18,259 | 995 | 106,994 |
*Included within these reserves are amounts of £31,907,000 (2021: £17,035,000) which are considered distributable. Over the next three years an additional £50,403,000 will become distributable. This is due to the HMRC requirement that the Company cannot use capital raised in the past three years to make a payment or distribution to shareholders. On 1 January 2023, £8,437,000 became distributable in line with this.
Statement of cash flows
|
Year
ended
31 December 20 2 2 |
Year ended 31 December 2021 |
|
| £’000 | £’000 | |
| Cash flow from operating activities | ||
| Loan stock income received | 1 , 199 | 674 |
| Dividend income received | 1 32 | 15 |
| Deposit interest received | 1 09 | 1 |
| Investment management fee paid | (2, 586 ) | (2,166) |
| Other cash payments | ( 591 ) | (373) |
| Corporation tax paid | - | - |
| Net cash flow from operating activities | (1, 73 7 ) | (1,849) |
| Cash flow from investing activities | ||
| Purchase of fixed asset investments | ( 16,108 ) | (8,229) |
| Proceeds from disposals of fixed asset investments | 9,530 | 3,910 |
| Net cash flow from investing activities | ( 6,57 8 ) | (4,319) |
| Cash flow from financing activities | ||
| Issue of share capital | 28,484 | 15,120 |
| Cost of issue of equity | (3 6 ) | (37) |
| Dividends paid* | ( 5,387 ) | (4,099) |
| Purchase of own shares | ( 2,513 ) | (1,906) |
| Net cash flow from financing activities | 20,548 | 9,078 |
| Increase in cash in bank and in hand | 12,233 | 2,910 |
| Cash in bank and in hand at start of period | 14,361 | 11,451 |
| Cash in bank and in hand at end of period | 26,594 | 14,361 |
*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.
Notes to the Financial Statements
-
Basis of preparation
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on page 47 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 2022 and further detail on the valuation techniques used are outlined in note 2 below.
Company information can be found on page 4 of the full Annual Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% 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 Fair Value Through Profit and Loss (“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 no 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 prices of recent investment rounds, net assets and industry valuation benchmarks. Where the 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 the 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, other valuation techniques are employed to conclude on the fair value as of the measurement 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; or
- a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based; or
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 and are 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.
Provisions falling due after one
year
Provisions falling due after one year relate to the performance incentive fee payable to the Manager. The provision requires management to make judgements and estimates under the Basis of Preparation. The performance incentive fee provision is the best estimate of the probable amounts payable in respect of the five-year performance measurement period for the performance incentive fee. The most significant assumption when calculating this amount, is that of future performance. This has been calculated by reference to the Company’s five year rolling historic returns and has been corroborated by a portfolio return analysis using appropriate benchmarks.
Investment income
E
quity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expected settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fee
, performance incentive fee
and expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
- 90% of management fees and 100% of performance incentive fees, if any, are allocated to the realised capital reserve.
- 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.
Share capital and
r
eserves
Called
-
up share
capital
This accounts for the nominal value of the shares.
Share
premium
This accounts for the difference between the price paid for the Company’s shares and the nominal value of those shares, less issue costs.
Capital redemption
reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company’s own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Realised capital
reserve
The following are disclosed in this reserve:
- gains and losses compared to cost on the realisation of investments, or permanent diminutions in value (including gains recognised on the realisation of investments where consideration is deferred that are not distributable as a matter of law);
- finance income in respect of the unwinding of the discount on deferred consideration that is not distributable as a matter of law;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named “other distributable reserve”.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in which the liability to make the payment has been established 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 early stage companies principally based in the UK.
3 . (Losses) / gains on investments
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
| Unrealised (losses)/gains on fixed asset investments | (6,49 8 ) | 20,761 |
| Realised gains on fixed asset investments | 1,647 | 448 |
| Unwinding of discount on deferred consideration | 371 | 318 |
| (4,4 80 ) | 21,527 |
4 . Invest ment income
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
| Loan stock interest | 978 | 1,060 |
| Dividend income | 544 | 15 |
| Bank deposit interest | 109 | 2 |
| 1, 631 | 1,077 |
5 . Investment management fees
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
| Investment management fee charged to revenue | 2 53 | 235 |
| Investment management fee charged to capital | 2, 269 | 2,115 |
| Total investment management fee | 2, 522 | 2,350 |
| Movement in provision for performance incentive fee charged to capital | 272 | - |
| 2,794 | 2,350 |
Further details of the Management Agreement under which the investment management fee and performance incentive fee are paid are given in the Strategic report above.
During the year, services of a total value of £2,522,000 (2021: £2,350,000) were purchased by the Company from Albion Capital Group LLP in respect of management fees. At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £597,000 (2021: £660,000). The total annual running costs of the Company are capped at an amount equal to 2.75% 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 nil as the running costs remained below the cap (2021: reduced by £231,000).
A provision of £272,000 has been recognised based on the Directors’ best estimate and included in relation to potential performance incentive fees which arise from performance to 31 December 2022, which would become payable over the periods to 31 December 2026. The first payment will only become payable after the adoption of the accounts at the 2024 AGM based on actual year end performance, in relation to the five-year period ending 31 December 2023. Further details can be found in note 15.
During the year, the Company was not charged by Albion Capital Group LLP in respect of Patrick Reeve’s services as a Director (2021: nil).
Albion Capital Group LLP, its partners and staff (including Patrick Reeve) held 1,596,085 Ordinary shares in the Company as at 31 December 2022.
Albion Capital Group LLP is, from time-to-time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 December 2022, fees of £345,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2021: £207,000).
The Company has entered into an offer agreement relating to the Offers with the Company’s Manager, Albion Capital Group LLP (“Albion”), pursuant to which Albion will receive a fee of 2.5% of the gross proceeds of the Offers and out of which Albion will pay the costs of the Offers, as detailed in the Prospectus.
6 . Other expenses
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
|
Directors’ fees (including NIC) |
1 04 | 111 |
| Auditor’s remuneration for statutory audit services (excluding VAT) | 4 8 | 38 |
| Tax services | 18 | 18 |
| Other administrative expenses | 488 | 199 |
| 658 | 366 |
7 . Directors’ fees
The amounts paid to and on behalf of the Directors during the year are as follows:
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
|
Directors’ fees |
95 | 103 |
| National insurance | 9 | 8 |
| 1 04 | 111 |
The Company’s key management personnel are the non-executive Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 61 to 64 of the full Annual Report and Financial Statements.
8 . Tax on ordinary activities
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
|
UK corporation tax charge |
- | - |
Factors affecting the tax charge:
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
|
(Loss)/profit on ordinary activities before taxation |
(6,301) | 19,888 |
| Tax (credit)/charge on (loss)/profit at the average companies rate of 19% (2021: 19%) | (1,197) | 3,779 |
| Factors affecting the charge: | ||
| Non-taxable losses/(gains) | 851 | (4,090) |
| Income not taxable | ( 103 ) | (3) |
| Excess management expenses carried forward | 449 | 314 |
| - | - |
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% (2021: 19%). The differences are explained above. From April 2023 the Company’s rate of corporation tax will increase in the UK from 19% to 25%.
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 £9,378,000 (2021: £7,063,000) that are available for offset against future profits. A deferred tax asset of £2,345,000 (2021: £1,766,000) 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.
(iv) There is no expiry date on timing differences, unused tax losses or tax credits.
9 . Dividends
|
Year
ended
31 December 20 2 2 £’000 |
Year ended 31 December 2021 £’000 |
|
| First dividend of 2.02p per share paid on 30 June 2022 (30 June 2021: 1.73p per share) | 3,24 0 | 2,306 |
| Second dividend of 1.97p per share paid on 30 December 2022 (31 December 2021: 1.95p per share) | 3,2 67 | 2,590 |
| 6,5 0 7 | 4,896 |
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 December 2023 of 1.82 pence per share. The dividend will be paid on 30 June 2023 to shareholders on the register on 2 June 2023. The total dividend will be approximately £3,252,000.
10. Basic and diluted return/ (loss) per share
| Year ended 31 December 20 2 2 | Year ended 31 December 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Profit/(loss) attributable to equity shares (£’000) | 721 | (7,022) | (6,301) | 476 | 19,412 | 19,888 |
| Weighted average shares in issue (adjusted for treasury shares) |
155,471,219 |
130,014,383 | ||||
| Return/(loss) attributable per equity share (pence) | 0 .46 | (4.5 1 ) | ( 4.0 5 ) | 0.37 | 14.93 | 15.30 |
The weighted average number of shares is calculated after adjusting for treasury shares of 24,236,401 (2021: 20,904,204).
There are no convertible instruments, derivatives or contingent share agreements in issue, and therefore no dilution affecting the return/(loss) per share. The basic return/(loss) per share is therefore the same as the diluted return/(loss) per share.
1 1 . Fixed asset investments
| Investments held at fair value through profit or loss |
31 December 20
2
2
£’000 |
31 December 2021 £’000 |
| Unquoted equity and preference shares | 74,217 | 70,209 |
| Quoted equity | 437 | 936 |
| Unquoted loan stock | 17,647 | 19,390 |
| 92,301 | 90,535 |
|
31 December 20
2
2
£’000 |
31 December 2021 £’000 |
|
| Opening valuation | 90,535 | 65,152 |
| Purchases at cost | 18,289 | 7,681 |
| Disposal proceeds | ( 11,451 ) | (3,893) |
| Realised gains | 1,647 | 448 |
| Movement in loan stock accrued income | ( 221 ) | 386 |
| Unrealised (losses)/gains | (6, 498 ) | 20,761 |
| Closing valuation | 92,301 | 90,535 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 473 | 87 |
| Movement in loan stock accrued income | (221) | 386 |
| Closing accumulated loan stock accrued income | 252 | 473 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 33,421 | 13,547 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | ( 2,143 ) | (887) |
| Movement in unrealised gains | (6,49 8 ) | 20,761 |
| Closing accumulated unrealised gains | 24,7 80 | 33,421 |
| Historic cost basis | ||
| Opening book cost | 56,64 1 | 51,518 |
| Purchases at cost | 18,289 | 7,681 |
| Sales at cost | ( 7,661 ) | (2,558) |
| Closing book cost | 67,269 | 56,641 |
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 of receivables and payables.
Fixed asset investments are valued at fair value in accordance with the IPEV guidelines as follows:
| Valuation methodology |
31 December 20
2
2
£’000 |
31 December 2021 £’000 |
| Cost and price of recent investment (calibrated and reviewed for impairment) | 51,900 | 41,065 |
| Revenue multiple | 19,194 | 20,019 |
| Third party valuation – discounted cash flow | 10,428 | 9,987 |
| Third party valuation – earnings multiple | 8,019 | 7,017 |
| Net assets | 2,228 | 1,797 |
| Bid Price | 437 | 936 |
| Discounted offer price | 95 | 9,137 |
| Earnings multiple | - | 577 |
| 92,301 | 90,535 |
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 background to the transaction is also considered when the price of investment may not be an appropriate measure of fair value, for example, disproportionate dilution of existing investors from a new investor coming on board or the market conditions at the time of investment no longer being a true reflection of fair value.
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 re-classifications between valuation methodologies:
| Change in valuation methodology (20 2 1 to 20 2 2 ) |
Valuation at 31 December 20 2 2 £’000 |
Explanatory note | |
| Cost and price of recent investment (calibrated and reviewed for impairment) to revenue multiple | 1,912 | More appropriate valuation methodology | |
| Cost and price of recent investment (calibrated and reviewed for impairment) to third party valuation – earnings multiple | 1,116 | More appropriate valuation methodology | |
| Cost and price of recent investment (calibrated and reviewed for impairment) to discounted offer price | 95 | Based on recent offer price | |
| Discounted offer price to revenue multiple | 3,137 | Sale not expected in the short term | |
| Revenue multiple to cost and price of recent investment (calibrated and reviewed for impairment) | 4,322 | Valuation based on recent funding round | |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, there are no other more relevant methods of valuation which would be reasonable as at 31 December 2022.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at FVTPL in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS 102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | 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 December 20 2 2 | 31 December 2021 | |||
| £’000 | £’000 | |||
| Opening balance | 89,599 | 65,152 | ||
| Purchases at cost | 18,289 | 7,681 | ||
| Disposals proceeds | ( 11,288 ) | (3,893) | ||
| Movement in loan stock accrued income | (221) | 386 | ||
| Realised gains | 1,708 | 448 | ||
| Unrealised (losses)/gains | (6,222) | 20,129 | ||
| Transfer to level 1 | - | (304) | ||
| Closing balance | 91,86 5 | 89,599 | ||
The Directors are required to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 77% of the portfolio of investments, consisting of equity and loan stock, is based on recent investment price, discounted offer price, net assets and cost, and as such the Board believes that changes to reasonable possible alternative input assumptions (by adjusting the earnings and revenue multiples) for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 86% of all the portfolio of investments. The main inputs considered for each type of valuation are as follows:
| Valuation technique | Portfolio company sector | Input | Base Case* | Change in input | Change in f air v alue of i nvestments (£’000) | Change in NAV (pence per share) |
| Revenue multiple |
Healthcare (including digital care) |
Revenue multiple |
5.4x |
+0.5x | 407 | 0.24 |
| -0.5x | (407) | (0.24) | ||||
| Third party valuation – discounted cash flow |
Renewable energy |
Discount rate |
5.5% |
+0.5% | 58 | 0.04 |
| -0.5% | (53) | (0.03) | ||||
| Third party valuation – earnings multiple |
Other (including education) |
Earnings multiple |
22.5x |
+2.25x | 400 | 0.24 |
| -2.25x | (400) | (0.24) |
*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 £865,000 (1.2%) or a decrease in the valuation of equity investments by £860,000 (1.2%).
1 2 . Significant interests
The principal activity of the Company is to select and hold a portfolio of investments. Although the Company, through the Manager, will, in some cases, be represented on the Board of the portfolio company, it will not take a controlling interest or become involved in the management. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102 section 14.4B, they are measured at FVTPL 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 following portfolio companies as at 31 December 2022 as described below:
|
Company |
Registered postcode |
Loss
before tax
£’000 |
Net
liabilities £’000 |
Result for year ended |
% class and share type | % total voting rights | ||||
| MHS 1 Limited | EC1M 5QL, UK | (1,017) | (9,982) | 31 August 2021 | 22.5% Ordinary | 22.5% | ||||
| Premier Leisure (Suffolk) Limited | EC1M 5QL, UK | n/a* | (1,504) | 31 August 2021 | 25.8% Ordinary | 25.8% | ||||
| The Q Garden Company Limited | EC1M 5QL, UK | n/a* | (4,600) | 31 August 2021 | 33.4% A Ordinary | 33.4% | ||||
*Filleted accounts which do not disclose this information.
1 3 . Current assets
| Trade and other receivables | 31 December 20 2 2 | 31 December 2021 |
| £’000 | £’000 | |
| Prepayments and accrued income | 30 | 25 |
| Other receivables | 420 | 546 |
| Deferred consideration under one year | 4 16 | 88 |
| Deferred consideration over one year | 2, 590 | 2,219 |
| 3,456 | 2,878 |
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.
1 4 . Payables : amounts falling due within one year
| 31 December 20 2 2 | 31 December 2021 | |
| £’000 | £’000 | |
| Trade payables | 13 | 7 |
| Accruals and deferred income | 819 | 773 |
| 832 | 780 |
The Directors consider that the carrying amount of payables is not materially different to their fair value.
15. Provisions and significant estimates
|
31 December
2022
£’000 |
31 December 2021 £’000 |
|
| Opening provision | - | - |
| Charged to profit and loss | 272 | - |
| Closing provision | 272 | - |
In accordance with the AIC SORP and FRS 102, a provision for a performance incentive fee (“PIF") is required to be estimated and accounted for in the financial statements. The PIF is calculated on a five-year rolling average performance basis, with a 5% hurdle applied to the opening net asset value each year, which is in line with our current dividend target. The first five year performance period will take into account the audited results of the five years ending 31 December 2023.
Any PIF will only be paid on actual year end audited results, and this provision is the Board’s best estimate of the potential obligation relating to the inclusion of realised performance from 1 January 2019 to 31 December 2022 in any future five-year rolling period.
The most significant assumption when calculating this amount, is that of future performance. Audited financial results for the period from 1 January 2019 to 31 December 2022 are included in the calculation; a forecast has been used for future years assuming performance is achieved in line with the five year historic rolling average. The provision included in the financial statements has been calculated on this basis and has been corroborated by a portfolio return analysis using appropriate benchmarks.
The average return per annum over each rolling five year period since the Company’s inception in 2000 to the date of approval of the new performance fee arrangements was 5.85% This smooths the performance through the various economic events and cycles seen since inception. This has resulted in a provision of £272,000 at 31 December 2022. The amount due at 31 December 2022 is nil (2021: nil).
1 6 . Called - up share capital
| Allotted, called - up and fully paid | £’000 |
| 153,563,297 Ordinary shares of 1 penny each at 31 December 2021 | 1,536 |
| 36,947,257 Ordinary shares of 1 penny each issued during the year | 369 |
| 1 90,510,554 Ordinary shares of 1 penny each at 31 December 20 2 2 | 1, 905 |
| 20,904,204 Ordinary shares of 1 penny each held in treasury at 31 December 2021 | (209) |
| 3,332,197 Ordinary shares of 1 penny each purchased for treasury during the year | (33) |
| 24,236,401 Ordinary shares of 1 penny each held in treasury at 31 December 20 2 2 | ( 2 42 ) |
| Voting rights of 166,274,153 Ordinary shares of 1 penny each at 31 December 20 2 2 | 1, 663 |
The Company purchased 3,332,197 Ordinary shares to be held in treasury (2021: 2,707,734) at a cost of £2,512,000 including stamp duty (2021: £1,906,000) during the year ended 31 December 2022. Total share buy backs in 2022 represents 1.7% (2021: 1.8%) of called-up share capital.
The Company holds a total of 24,236,401 shares (2021: 20,904,204) in treasury representing 12.7% (2021: 13.6%) of the issued Ordinary share capital at 31 December 2022.
Under the terms of the Dividend Reinvestment Scheme, 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) |
| 30 June 2022 | 715,031 | 7 | 80.03 | 554 | 76.50 |
| 30 December 2022 | 729,882 | 7 | 75.97 | 535 | 72.50 |
| 1, 444,913 | 1,089 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2021/22, 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 consideration received (£’000) | Opening market price on allotment date (pence per share) |
| 25 February 2022 | 1,308,032 | 13 | 81.90 | 1,055 | 77.00 |
| 25 February 2022 | 443,854 | 4 | 82.30 | 358 | 77.00 |
| 25 February 2022 | 12,172,712 | 122 | 82.80 | 9,828 | 77.00 |
| 31 March 2022 | 14,154,989 | 142 | 82.80 | 11,428 | 77.00 |
| 11 April 2022 | 170,608 | 2 | 81.90 | 138 | 77.00 |
| 11 April 2022 | 13,972 | - | 82.30 | 11 | 77.00 |
| 11 April 2022 | 737,806 | 7 | 82.80 | 596 | 77.00 |
| 29,001,973 | 23,414 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2022/23, 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 consideration received (£’000) | Opening market price on allotment date (pence per share) |
| 2 December 2022 | 1,473,524 | 15 | 79.20 | 1,150 | 74.50 |
| 2 December 2022 | 273,558 | 3 | 79.60 | 213 | 74.50 |
| 2 December 2022 | 4,753,289 | 48 | 80.00 | 3,707 | 74.50 |
| 6,500,371 | 5,070 |
1 7 . Basic and diluted n et asset value per share
| 31 December 20 2 2 | 31 December 2021 | |
| ( pence per share) | (pence per share) | |
| Basic and diluted net asset value per share | 72.92 | 80.65 |
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 166,274,153 at 31 December 2022 (2021: 132,659,093).
1
8
. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 16. The Company is permitted to buy back its own shares for cancellation or treasury purposes.
The Company’s financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances, 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 financial 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 quoted and unquoted investments, details of which are shown on pages 28 to 30 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 company 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 review 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 quoted and unquoted investments.
The maximum investment risk as at the Balance sheet date is the value of the fixed asset investment portfolio which is £92,301,000 (2021: £90,535,000). Fixed asset investments form 76% of the net asset value as at 31 December 2022 (2021: 85%).
More details regarding the classification of fixed asset investments are shown in note 11.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. As a Venture Capital Trust, the Company invests in accordance with the investment policy set out above. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. The Directors monitor the Manager’s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 28 to 30 of the full Annual Report and Financial Statements and in the Strategic report.
As required under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the extent to which the assets are exposed to market risk. In order to show the impact of sensitivity in market movements on the Company, 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 £9,230,000. A 20% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £18,460,000.
Further sensitivity analysis on fixed asset investments is included in note 11.
I
nterest rate risk
The Company is exposed to fixed and floating rate interest rate risk on its financial assets. On the basis of the Company’s analysis, it was estimated that a rise of 1% in all interest rates would have increased the investment income for the year by approximately £205,000 (2021: £129,000). 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 6.7% (2021: 7.1%). The weighted average period to maturity for the unquoted loan stock is approximately 3.7 years (2021: 3.4 years).
The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 31 December 20 2 2 | 31 December 2021 | |||||||
|
Fixed rate £’000 |
Floating rate
£’000 |
Non-interest bearing
£’000 |
Total
£’000 |
Fixed rate £’000 |
Floating rate £’000 |
Non-interest bearing £’000 |
Total £’000 |
|
|
Unquoted equity |
- | - | 74,217 | 74,217 | - | - | 70,209 | 70,209 |
| Quoted equity | - | - | 437 | 437 | - | - | 936 | 936 |
| Unquoted loan stock | 1 5,884 | - | 1, 764 | 17,648 | 18,700 | - | 690 | 19,390 |
| Receivables* | - | - | 3,426 | 3,426 | - | - | 2,853 | 2,853 |
| Current liabilities | - | - | ( 832 ) | ( 832 ) | - | - | (780) | (780) |
| Cash | - | 26,594 | - | 26,594 | - | 14,361 | - | 14,361 |
| Total | 15,884 | 26,594 | 79,012 | 121,490 | 18,700 | 14,361 | 73,908 | 106,969 |
*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 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 70.3% of loan stock value, typically loan stock instruments will have a fixed or floating charge, which may or may not be 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 sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.
The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company’s total gross credit risk as at 31 December 2022 was limited to £17,647,000 (2021: £19,390,000) of unquoted loan stock instruments, £26,594,000 (2021: £14,361,000) cash deposits with banks and £3,456,000 (2021: £2,878,000) of other receivables.
At the Balance sheet date, cash in bank and in hand held by the Company were held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc, Bank of Montreal, Société Générale S.A. and National Westminster Bank plc. Credit risk on cash transactions was mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The Company has an informal policy of limiting counterparty banking and floating rate note exposure to a maximum of 20% 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, on deposit, in bonds 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 capital and reserves of the latest published audited Balance sheet, which amounts to £11,800,000 as at 31 December 2022 (2021: £10,373,000).
The Company has no committed borrowing facilities as at 31 December 2022 (2021: £nil). The Company had cash balances of £26,594,000 (2021: £14,361,000). 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. The Company’s financial liabilities which are short term in nature total £832,000 as at 31 December 2022 (2021: £780,000).
The carrying value of loan stock investments analysed by expected maturity dates is as follows:
| 31 December 20 2 2 | 31 December 2021 | |||||||
| Redemption date |
Fully performing
£’000 |
Valued below
cost
£’000 |
Past due
£’000 |
Total
£’000 |
Fully performing £’000 |
Valued below cost £’000 |
Past due £’000 |
Total £’000 |
| Less than one year | 5,390 | - | 4,054 | 9,444 | 4,436 | 2,746 | 620 | 7,802 |
| 1-2 years | 3,369 | - | 6 3 | 3,432 | 195 | 1 | - | 196 |
| 2-3 years | 117 | - | - | 117 | 3,571 | 6 | 64 | 3,641 |
| 3-5 years | 478 | - | - | 478 | 4,525 | - | - | 4,525 |
| 5+ years | 3,724 | - | 45 2 | 4,176 | 2,871 | - | 355 | 3,226 |
| Total | 13,07 8 | - | 4,5 69 | 17,647 | 15,598 | 2,753 | 1,039 | 19,390 |
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 £26,000 (2021: £3,743,000).
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 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 December 2022 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.
1
9
. Commitments and contingencies
The Company had no financial commitments in respect of investments as at 31 December 2022 (2021: nil).
There were no contingent liabilities or guarantees given by the Company as at 31 December 2022 (2021: nil).
20
. Post balance sheet events
Since the year end, the Company has not made any material investment transactions.
On 2 March 2023, a NAV update was announced with a 4.63 pence per share uplift, representing a 6.35% increase on the 31 December 2022 NAV. This uplift is a result of a portfolio company, Quantexa, undergoing an external fundraising process after the year end. This was not known at 31 December 2022 and therefore this is a non-adjusting post balance sheet event. This transaction has since completed and was announced by Quantexa on 4 April 2023.
The Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCTs’ Prospectus Top Up Offers 2022/23:
|
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) |
| 31 March 2023 | 12,395,704 | 124 | 79.60 | 9,621 | 74.00 |
2
1
.
Related
p
arty
t
ransactions
Other than transactions with the Manager as disclosed in note 5, the Directors’ remuneration disclosed in the Directors’ remuneration report on pages 61 to 64 of the full Annual Report and Financial Statements, and that disclosed above, there are no other related party transactions 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 December 2022 and 31 December 2021, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 December 2022, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under Section 498 (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/AATG/31Dec2022.pdf.
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