Albion Technology & General VCT PLC - Ordinary ...
As required by the UK Listing Authority's Disclosure 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 2015.
This announcement was approved for release by the Board of Directors on 23 March 2016.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 31 December 2015 (which have been audited) at: www.albion-ventures.co.uk by clicking on 'Our Funds' and then 'Albion Technology & General VCT PLC'. The Annual Report and Financial Statements for the year to 31 December 2015 will be available as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objective and policy
Albion Technology & General VCT PLC's investment strategy is to provide investors with a regular and predictable source of dividend income combined with the prospect of longer term capital growth.
This is achieved in two ways. Firstly, by controlling the VCT's exposure to technology risk through ensuring that many of the companies in the non-technology portfolio have property as their major asset, with no external borrowings. Secondly, by balancing the investment portfolio by sector, so that those areas such as leisure and business services, which are susceptible to changes in consumer sentiment, are complemented by sectors with more predictable long term characteristics, such as healthcare and the environment.
The Company offers investors the opportunity to participate in a balanced portfolio of technology and non-technology businesses. The Company's investment portfolio is intended to be split approximately as follows:
- 40 per cent. in unquoted UK technology-related companies; and
- 60 per cent. in unquoted UK non-technology companies.
This split is subject to the availability of good quality new investments arising within the UK technology and non-technology sectors.
Background to the Company
The Company is a venture capital trust which raised £14.3 million in December 2000 and 2002, and raised a further £35.0 million during 2006 through the launch of a C share issue. The Company has raised a further £17.6m under the Albion VCTs Top Up Offers since January 2011.
On 15 November 2013, the Company acquired the assets and liabilities of Albion Income & Growth VCT PLC ("Income & Growth") in exchange for new shares in the Company ("the Merger") resulting in a further £28.1 million of net assets. Each Income & Growth shareholder received 0.7813 shares in the Company for each Income & Growth share that they held at the date of the Merger.
Financial calendar
| Record date for first dividend | 15 January 2016 |
| Payment of first dividend | 29 January 2016 |
| Record date for second dividend | 15 April 2016 |
| Payment of second dividend | 29 April 2016 |
| Annual General Meeting | 11.00 am on 8 June 2016 |
| Payment of third dividend (subject to Board approval) | 30 June 2016 |
| Announcement of half-yearly results for the six months ended 30 June 2016 | August 2016 |
| Payment of fourth dividend (subject to Board approval) | 31 October 2016 |
Financial summary
| 159.92p | Net asset value plus dividends paid per Ordinary share since launch. |
| 88.40p | Net asset value plus dividends paid per C share since launch. |
| 92.25p | Net asset value plus dividends paid per Income & Growth share since launch. |
| 5.00p | Tax free dividend per share paid during the year ended 31 December 2015. |
| 73.92p | Net asset value per share as at 31 December 2015. |
| 31 December 2015 (pence per share) | 31 December 2014 (pence per share) | |
| Dividends paid | 5.00 | 5.00 |
| Revenue return | 1.54 | 1.25 |
| Capital (loss)/return | (5.58) | 0.79 |
| Net asset value | 73.92 | 82.85 |
| Total shareholder return to 31 December 2015: | |||
| Ordinary share (pence per share) (i) | C share (pence per share) (i)(ii) | Income & Growth VCT PLC (pence per share) (i)(iii) | |
| Total dividends paid during the year ended: | |||
| 31 December 2001 | 1.00 | - | - |
| 31 December 2002 | 2.00 | - | - |
| 31 December 2003 | 1.50 | - | - |
| 31 December 2004 | 7.50 | - | - |
| 31 December 2005 | 9.00 | - | 0.65 |
| 31 December 2006 | 8.00 | 0.50 | 2.60 |
| 31 December 2007 | 8.00 | 2.50 | 3.45 |
| 31 December 2008 | 16.00 | 4.50 | 3.50 |
| 31 December 2009 | - | 1.00 | 3.00 |
| 31 December 2010 | 8.00 | 3.00 | 3.00 |
| 31 December 2011 | 5.00 | 3.80 | 3.50 |
| 31 December 2012 | 5.00 | 3.90 | 3.50 |
| 31 December 2013 | 5.00 | 3.90 | 3.50 |
| 31 December 2014 | 5.00 | 3.90 | 3.90 |
| 31 December 2015 | 5.00 | 3.90 | 3.90 |
| Total dividends paid to 31 December 2015 | 86.00 | 30.90 | 34.50 |
| Net asset value as at 31 December 2015 | 73.92 | 57.50 | 57.75 |
| Total shareholder return to 31 December 2015 | 159.92 | 88.40 | 92.25 |
In addition to the dividends paid above, the Board declared a first dividend for the year ending 31 December 2016 of 1.25 pence per Ordinary share paid on 29 January 2016 to shareholders on the register as at 15 January 2016. The Board has declared a second dividend for the year ending 31 December 2016 of 1.25 pence per Ordinary share to be paid on 29 April 2016 to shareholders on the register as at 15 April 2016.
Notes
(i) Excludes tax benefits upon subscription.
(ii) The C shares were converted into Ordinary shares on 31 March 2011. The net asset value per share and all dividends paid subsequent to the conversion of the C shares to the Ordinary shares are multiplied by the conversion factor of 0.7779 in respect of the C shares' return, in order to give an accurate picture of the shareholder value since launch relating to the C shares.
(iii) Albion Income & Growth VCT PLC was merged with Albion Technology & General VCT PLC on 15 November 2013. The net asset value per share and all dividends paid subsequent to the merger of the Income & Growth shares to the Ordinary shares are multiplied by the issue ratio of 0.7813 in respect of the Income & Growth shares' return, in order to give an accurate picture of the shareholder value since launch relating to the Income & Growth shares. Prior to the merger, Albion Income & Growth VCT PLC had a financial year end of 30 September and as such, the above dividends per share relate to the relevant period.
Chairman's statement
Introduction
The results for Albion Technology & General VCT for the year to 31 December 2015 were poor and showed a negative total return of 4.0 pence per share, against positive returns of 2.0 pence per share for 2014 and 7.9 pence per share for 2013.
The results reflect a disappointing performance by five of our portfolio companies. The Board, having worked with the Manager to review the portfolio, sets out below the steps that have been, and are being taken, to ensure that as far as reasonably practical with a venture capital portfolio, a line is drawn under these results to ensure a restoration of growth prospects.
Repositioning the portfolio
As I said in my interim statement, whilst the performance of the Ordinary shares has remained, in aggregate, strong since launch, with a total return before tax reliefs of 159.9 pence for every 100 pence invested, the performance of the C shares and the former Income & Growth shares, the majority of whose funds were raised at the peak of the market in 2005/06, have been weak, at 88.4 pence and 92.3 pence respectively, per 100 pence invested.
Investments made in the period between 2006 and 2008 were characterised mainly by either property-backed businesses made at the high point of the property cycle, or by technology-oriented businesses with a capital intensive business model. We recognise now that we invested too much in this latter category, and in particular in cash-hungry businesses targeting early stage global markets which, despite their longer term potential, have been too ambitious for small, venture-backed companies such as the ones that we back. As you will appreciate, the nature of a VCT requires that investment be made over a relatively short time scale after the relevant fund-raising and, with hindsight, our market timing for investment was unfortunate.
Since the crash of 2008, all three share classes have seen a recovery from the significant mark down in total return. The disappointment of the Board, however, has been that, after a stronger performance in 2013, performance went into reverse over the subsequent 24 months, particularly in the capital-intensive segment of the portfolio described above. This is in contrast to the performance of other Albion VCTs, which have a much lower proportion of investments made in the second half of the last decade, and which have as a result been able to develop more capital efficient business models for investment.
Accordingly, while a number of the investments made prior to 2009 have the potential for further growth in value, last year the Board agreed a policy with the Manager to undertake a programme to reduce sharply the proportion in the portfolio of those investments as a percentage of the overall portfolio, principally through a process of orderly divestment. Following a number of disposals during the second part of the year, this proportion has fallen from 58 per cent. at 30 June last year, to 41 per cent. now. Our aim is to reduce this to below 30 per cent. by the year end, whilst working to maximise the disposal proceeds and to try and contain any further asset deterioration, which has been particularly marked in the second half of this year.
A significant part of the work to re-align the portfolio has now been done, though additional disposals are underway and further are planned in the current financial year. However, a restoration to the growth prospects previously enjoyed, and which are being achieved in other portfolios managed by Albion, will not be immediate as it depends not only on completion of the reconfiguring of the portfolio but on achieving growth and value from newer investments made. The Company has substantially more cash available for new investments than in previous years.
In the meantime, having challenged all the elements of the Company's investment strategy and how the Company operates, the focus will remain on preserving value, continuing with the policy of paying an annual dividend of 5 pence per share, as well as maintaining the share buy-back policy to help provide secondary market liquidity in an otherwise thin market for secondary purchases of VCT shares in general. In addition to supporting these aims, the net proceeds of realisations, income from the portfolio and issuance of new equity will continue to be deployed into sectors which we hope will exhibit strong growth prospects, with particular emphasis on healthcare, capital efficient segments of IT, and other areas where value looks to be supported by longer term demographic and global trends.
Investments
The main write-downs over the course of the year, with the majority occurring in the second half of the year, were in respect of our investments in Lowcosttravel, Rostima, Blackbay, AMS Sciences, and the Weybridge Healthclub. Though these were offset to a certain degree by the realised appreciation on the successful sale of our Kensington Healthclub, unrealised appreciation on our renewable energy investments, and on our school, Radnor House. The realised and unrealised capital losses on our investments for the year were £3.7 million, a very disappointing outcome and considerably poorer than we expected at the start of the year.
In the latter half of the year our investment in Lowcosttravelgroup was sold for £2.2 million of which £1.6 million is deferred over the next fourteen months; once these deferred payments are received and including income received, we will have achieved a total multiple of cost of 1.1 times. Slower trading led to a difficult exit environment resulting in a write down of £2.6 million compared to our carrying value at 31 December 2014.
We also sold Rostima, which provides rostering software for ports internationally, for a nominal sum, resulting in a write-down of £2.3 million for the year; although a leader in its field, it had difficulties penetrating a complex global market. The reductions in valuations of Blackbay, AMS Sciences and the Weybridge Healthclub, meanwhile, were all against a background of an increasingly competitive environment in their respective markets and contributed in aggregate to further reductions in carrying value of £3.3 million in the year.
Against this, we sold our Kensington Healthclub for £2.7 million above its valuation at the previous year end, whilst strong market conditions and excellent trading respectively led to an increase in third party valuations of our renewable energy businesses, and Radnor House School of £1.7 million.
During the year, a total of £7.8 million was invested in new and existing portfolio companies, including £1.2 million into Radnor House, to purchase Combe Bank School in Sevenoaks, Kent. We also invested £2 million into our renewable energy businesses, which now brings our investment programme into that sector to an end; we do, however, think that its prospects are strong, and intend to be a long-term holder of these cash generative projects. We also invested into two new businesses; Innovation Broking, which provides specialist insurance broking services to SMEs; and Panaseer, which advises large corporates on their cyber security issues (and which we see as being a core area for investment by the Albion VCTs.)
Expenses ratio and new expenses cap
In addition to the portfolio repositioning detailed above, the Board has reviewed other ways of helping to improve performance. In light of this review, we have increased the level of net income available to the Company by reducing the total expense ratio from 3.0 per cent. of net assets to 2.75 per cent. This has been applied retrospectively to the start of 2015 and has resulted in a reduction of overheads of £76,000, through a reduction in the investment management fee. This reduced proportion of overheads will continue for future years. The Board also conducted a review of all the other direct and indirect overheads to find ways of containing expenditure, but concluded that there were not significant savings to be made in future, the greater emphasis being on the performance of the portfolio over the medium to longer term.
Risks and uncertainties
Other than investment performance, the key risks facing the VCT are from the broader economy. Despite some continued growth in the UK, the outlook for the domestic economy and an increasingly uncertain global situation, including a broader deflationary environment, continue to be the key risks affecting your Company. The Manager is clear in focussing efforts to allocate resources to those sectors and opportunities where growth can be both resilient and sustainable. Importantly, however, investment risk is mitigated through a variety of processes including our policy of ensuring that the Company has a first charge over portfolio companies' assets wherever possible. We can never guarantee that future investments will avoid the failings of some of the previous investments but the rebalancing of the portfolio will result in a different make up of investment types compared to the make up in 2008/2009, with resilience and asset cover being key drivers.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Discount management and share buy-backs
It remains the Board's primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. Therefore, the Board's policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the VCT's interest. In order to ensure that these conditions are satisfied, the Company will limit the sum available for buy-backs for the 6 month period to 30 June 2016 to £1 million. It is the Board's intention for such buy-backs to be in the region of a 5 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Transactions with the Manager
Details of transactions that took place with the Manager during the year can be found in note 5 and principally relate to the investment management fee. As noted above, the investment management fee will be lower than in previous years in relative terms as a result of the lowering of the expense cap.
Results and dividends
As at 31 December 2015, the net asset value was 73.9 pence per share. The Board declared a first dividend for the year ending 31 December 2016 of 1.25 pence per Ordinary share paid on 29 January 2016 to shareholders on the register as at 15 January 2016. The Company will pay the second of four quarterly dividends for the financial year to 31 December 2016 of 1.25 pence per Ordinary share on 29 April 2016 to shareholders on the register as at 15 April 2016.
The Board has considered the level at which dividends are paid, recognising that they should be paid, as far as practical from net income earned, realised capital profits and reserves, which is not the case this year. However, the Board and Manager believe that maintenance of dividends at the current level is a cornerstone of the investment proposition for shareholders in the Company and intend to continue to pay at the same rate for the foreseeable future, for so long as it does not impede the VCT's ability to continue to invest in appropriate unquoted opportunities.
Albion VCTs Prospectus Top Up Offers 2015/2016
In November 2015, the Company announced the launch of the Albion VCTs Prospectus Top Up Offers 2015/2016. In aggregate, the Albion VCTs will be aiming to raise up to £36 million across six of the VCTs managed by Albion Ventures LLP, with the Company aiming to raise up to £6 million. Of this, £2.9 million was allotted on 29 January 2016.
The funds raised by each Company pursuant to its Offer will be added to the liquid resources available for investment so as to put each Company into a position to take advantage of attractive investment opportunities over the next two to three years. Accordingly, the proceeds of the Offers will be applied in accordance with the respective Companies' investment policies. A prospectus has been published and can be obtained from www.albion-ventures.co.uk. The Company continues to participate in the Top Up Offers and also benefits from receipts from dividend reinvestment, the net proceeds of which are invested in new investment opportunities and to provide additional working capital in the Company.
Outlook and prospects
Despite the poor results for the year, it is important to recognise that approximately 73 per cent. of the VCT's investments by value are in companies which are making an operating profit. In addition, we do believe that the great majority of the investments continuing in the portfolio have good prospects. The portfolio repositioning exercise is designed to limit further downside on that portion of the portfolio which has less clear prospects, and free up cash for investment in more areas with greater growth prospects and more dependable income streams. These are concentrated sectors which we believe have long term resonance, including healthcare, where the Manager has considerable expertise, specific areas within the IT sector, and asset-based opportunities which are less exposed to the consumer and business cycle.
It would be rash to make any promises on the shorter-term prospects for the portfolio, but its balance and underlying constituents do give us cause for optimism over the medium term. The Board is working closely with the Manager as part of an extensive review, with the intent of providing better shareholder value than has been achieved during the last twenty four months. However, venture capital investment by its nature is longer term and value can take time to develop. The Manager continues to see attractive investment opportunities for all the Albion portfolios and the Company should be in a better position to participate in these opportunities going forward.
Dr N E Cross
Chairman
23 March 2016
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 allowing investors the opportunity to participate in a balanced portfolio of technology and non-technology businesses. It is intended that the Company's investment portfolio will be split approximately as follows:
- 40 per cent. in unquoted UK technology related companies; and
- 60 per cent. in unquoted UK non-technology companies.
This split is subject to the availability of good quality new investments arising within the UK technology and non-technology sectors.
The Company pursues a longer term investment approach, with a view to providing shareholders with a strong, predictable dividend flow, combined with the prospects of capital growth. This is achieved in two ways. Firstly, by controlling the VCT's exposure to technology risk through ensuring that many of the companies in the non-technology portfolio have property as their major asset with no external borrowings. Secondly, by balancing the investment portfolio by sector, so that those areas such as leisure and business services, which are susceptible to changes in consumer sentiment, are complemented by sectors with more predictable long term characteristics, such as healthcare and the environment.
Current portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio valuation by industrial or commercial sector as at 31 December 2015. Details of the principal investments made by the Company are shown in the Portfolio of Investments on pages 19 to 21 of the full Annual Report and Financial Statements.
Direction of portfolio
As detailed in the Chairman's statement, the Board has agreed a policy with the Manager to undertake a programme to reduce the proportion of those investments which were made at the high point in the market, before 2009. At 31 December 2015, these amounted to £25.2 million, or 41 per cent. of the Company's assets. Sales are currently underway on two of these investments, with book values at the year-end of £2.5 million and sales agents have been or are about to be appointed, on a further three, with book values currently of £6.7 million. As regards the balance of the pre-2009 portfolio, we would view a number of investments, with current book values of £11.5 million, as having sufficiently attractive long term prospects, to be retained within the portfolio for the medium term.
The current portfolio is well balanced in terms of sectors, despite the disposal programme referred to above, with education accounting for 14 per cent. and renewable energy at 17 per cent. Pubs are expected to account for 7 per cent. of the portfolio going forward, with concentration on the successful, cash generative portfolio operated by Bravo Inns. A number of new asset-based areas are under review and it is anticipated that the healthcare segment of the portfolio will increase after the recent disposals.
Results and dividend policy
| Ordinary shares | |
| £'000 | |
| Net revenue return for the year ended 31 December 2015 | 1,273 |
| Net capital loss for the year ended 31 December 2015 | (4,606) |
| Total loss for the year ended 31 December 2015 | (3,333) |
| Dividend of 1.25 pence per share paid on 9 February 2015 | (979) |
| Dividend of 1.25 pence per share paid on 30 April 2015 | (1,050) |
| Dividend of 1.25 pence per share paid on 30 June 2015 | (1,035) |
| Dividend of 1.25 pence per share paid on 30 October 2015 | (1,058) |
| Transferred from reserves | (7,455) |
| Net assets as at 31 December 2015 | 61,791 |
| Net asset value per share as at 31 December 2015 | 73.92p |
The Company paid dividends of 5.00 pence per share during the year ended 31 December 2015 (2014: 5.00 pence per share). The dividend objective of the Board is to provide Shareholders with a strong, predictable dividend flow, with a dividend target of 5.00 pence per share per year, subject to the availability of distributable reserves. As shown in the Chairman's statement, the Board declared a first dividend for the year ending 31 December 2016 of 1.25 pence per share which was paid on 29 January 2016. The Board has declared a second dividend for the year ending 31 December 2016, of 1.25 pence per share to be paid on 29 April 2016 to shareholders on the register as at 15 April 2016.
As shown in the Income statement, investment income has increased to £2,165,000 (2014: £1,940,000). As a result, the revenue return to equity holders has increased to £1,273,000 (2014: £970,000).
The capital loss for the year was a disappointing £4,606,000 (2014: gain of £617,000). This is mainly attributable to the disposals of Lowcosttravelgroup Limited (£2.6m lower than its value at the previous year-end) and Rostima Holdings Limited (£2.1m lower than its value at the previous year-end); and the unrealised revaluation movements in the Company's investment portfolio which included losses in Blackbay Limited (£1.5m), AMS Sciences Limited (£936k) and The Weybridge Club Limited (£895k). These were offset partially with uplifts in valuations for Radnor House Holdings Limited (£734k) and the sale of Kensington Health Clubs Limited realising an uplift in the year of £2.7m. The total loss was 4.04 pence per share (2014: return of 2.04 pence per share).
The Balance sheet shows that the net asset value per share has decreased over the last year to 73.92 pence per share (2014: 82.85 pence per share). The decrease in net asset value can mainly be attributed to the loss of 4.04 pence per share and the payment of 5.00 pence per share of dividends.
The cash flow for the business was positive for the year reflecting cash inflows from operations, disposal of investments and the issue of Ordinary shares under the Albion VCTs Top Up Offers which raised £5.8 million, offset by dividends paid, new investments in the year and the buy-back of shares for a cost of £2 million.
Review of business and outlook
A detailed review of the Company's business during the year and future prospects is contained in the Chairman's statement above and in this Strategic report.
As detailed in the "Repositioning the portfolio" section in the Chairman's statement, the Manager will continue with the policy of disposing of a number of the pre-2009 investments and re-aligning the portfolio with particular emphasis on healthcare, capital efficient segments of IT, and other areas where value looks to be supported by longer term demographic and global trends. The Directors do not foresee any major changes in the activity undertaken by the Company in the current year. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to providing both capital growth and a reliable dividend income to shareholders over the long term.
Details of significant events which have occurred since the end of the financial year are listed in note 21. Details of transactions with the Manager are shown in note 5.
VCT regulation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors' report on page 25 of the full Annual Report and Financial Statements.
As part of the Government's wider review of the VCT regime, new rules have been introduced under the Finance Act (No.2) 2015 which received Royal Assent on 18 November 2015, which include:
- Restrictions over the age of investments;
- A prohibition on management buyouts or the purchase of existing businesses; and
- An overall lifetime investment cap of £12 million from tax-advantaged funds into any portfolio company.
While these changes are significant, the Company has been advised that, had they been in place previously, they would have affected only a relatively small minority of the investments that we have made into new portfolio companies over recent years. The Board's current view is that there will be no material change in our investment policy and the application of it as a result.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2015. These showed that the Company has complied with all tests and continues to do so.
Future prospects
The results for the year were disappointing, however the Board, alongside the Manager, has undertaken a rigorous review critically analysing the current portfolio in order to identify a strategy to deliver growth for the Company. This review, has helped to highlight that the bulk of the portfolio is profitable with good prospects. Our core task therefore, remains to concentrate on building up and creating value in the portfolio, especially where significant latent value lies.
Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following key performance indicators give a good indication that the Company is achieving its investment objective and policy, although the last two years have represented a setback on asset value performance. This is being addressed but may take time to take effect given the longer term nature of venture capital investment. These are:
1. Net asset value per share and total shareholder return
Please see the "Total shareholder return to 31 December 2015" table at the start of this announcement or on page 6 in the Financial summary section of the full Annual Report and Financial Statements which shows the NAV per share as at 31 December 2015 and cumulative NAV total shareholder return split by Ordinary shares, C shares and Income & Growth shares.
Total shareholder return is net asset value plus cumulative dividends paid since launch to date.
Total return to shareholders decreased by 2.4 per cent. to 159.92 pence per share for the year ended 31 December 2015.
2. Dividend distributions
Dividends paid in respect of the year ended 31 December 2015 were 5.00 pence per share (2014: 5.00 pence per share), in line with the Boards dividend objective. Cumulative dividends paid since inception are 86.00 pence per share.
3. Ongoing charges
The ongoing charges ratio for the year to 31 December 2015 was 2.75 per cent. (2014: 2.9 per cent.). As mentioned in the Chairman's statement, the ongoing charges cap was reduced from 3 per cent. to 2.75 per cent. during the year. The ongoing charges ratio has been calculated using The Association of Investment Companies' (AIC) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be 2.75 per cent. (capped at 2.75 per cent.).
Gearing
As defined by the Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. The Directors do not currently have any intention to utilise long term gearing.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Ventures LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Ventures LLP also provides company secretarial and other accounting and administrative support to the Company. Further details regarding the terms of engagement of the Manager and the way the Board has evaluated the performance of the Manager are shown below.
Management agreement
Under the Management agreement, the Manager provides investment management, secretarial and administrative services to the Company. The Management agreement can be terminated by either party on 12 months' notice 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 2.5 per cent. of the net asset value of the Company, payable quarterly in arrears. The total annual running costs of the Company, including fees payable to Albion, 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) are capped at an amount equal to 2.75 per cent. (3.0 per cent. 2014) of the Company's net assets, with any excess being met by Albion by way of a reduction in management fees.
In line with common practice, the Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2 per cent. of each investment made and Directors' fees where the Investment Manager has a representative on the portfolio company's board.
Management performance incentive
In order to provide the Manager with an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels per share.
Under the incentive arrangement, if the net asset value per share at the end of a financial period, when added to the aggregate dividends per share (both revenue and capital) paid to that date, exceeds £1 as increased at the rate of RPI plus 2 per cent. per annum uncompounded from the date of first admission to the Official List of the relevant class of share, then the Manager will be entitled to an incentive fee equal to 15 per cent. of such excess. In the event that the performance of the Company falls short of the target in any period, such shortfall must be made up in future periods before the Manager is entitled to any incentive in respect of such future periods. The fee if applicable, will be payable annually. No performance fee has arisen during the year (2014: £nil).
The performance threshold at 31 December 2015 was 182.3 pence for the Ordinary shares, 154.8 pence for the former C shares and 160.7 pence for the former Income & Growth shares which compare to total returns of 159.9 pence, 88.4 pence and 92.3 pence respectively, based on the latest NAV.
Investment and co-investment
The Company co-invests with other Albion Ventures LLP venture capital trusts and funds. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 70 per cent. investment requirement for venture capital trust status, the long term prospects of current investments, a review of the Management agreement and the services provided therein, and benchmarking the performance of the Manager to other service providers including the performance of other Albion VCTs that the Manager is responsible for managing. The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive ("AIFMD")
The Board appointed Albion Ventures LLP as the Company's AIFM in June 2014 as required by the AIFMD.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Act to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no policies in these matters and as such these requirements do not apply.
Further policies
The Company has adopted a number of further policies relating to:
- Environment
- Global greenhouse gas emissions
- Anti-bribery
- Diversity
and these are set out in the Directors' report on pages 25 and 26 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates. The principal risks and uncertainties of the Company as identified by the Board and how they are managed are as follows:
| Risk | Possible consequence | Risk management |
| Economic risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways. | To reduce this risk, in addition to investing equity in portfolio companies, the Company often invests in secured loan stock and has a policy of not normally permitting any external bank borrowings within portfolio companies. Additionally, the Manager has been rebalancing the sector exposure of the portfolio with a view to reducing reliance on consumer led sectors. |
| Investment risk | This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively impacts on the Company's current and future valuation. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its strong track record over many years of successfully investing in this segment of the market. In addition, the Manager operates a formal and structured investment process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards) and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings. |
Valuation risk | The Company's investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. | As described in note 2 of the Financial Statements, the investments held by the Company are classified at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgments about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgments the valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. The values of a number of investments are also underpinned by independent third party professional valuations and the Board critically reviews key valuations on a quarterly basis. |
| VCT approval risk | The Company's current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing any tax relief received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser. Philip Hare & Associates LLP reports quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs. |
| Compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | Board members and the Manager have experience of operating at senior levels within or advising quoted businesses. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks via the Manager's Compliance Officer. The Manager reports monthly to its Board on any issues arising from compliance or regulation. These controls are also reviewed as part of the quarterly Manager Board meetings, and also as part of the review work undertaken by the Manager's Compliance Officer. The report on controls is also evaluated by the internal auditors. |
| Internal control risk | Failures in key controls, within the Board or within the Manager's business, could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Audit Committee meets with the Manager's Internal Auditor, PKF Littlejohn LLP, when required, receiving a report regarding the last formal internal audit performed on the Manager, and providing the opportunity for the Audit Committee to ask specific and detailed questions. Robin Archibald, as Chairman of the Audit Committee, met with the internal audit Partner of PKF Littlejohn LLP in January 2016 to discuss the most recent Internal Audit Report on the Manager. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Further details regarding the Board's management and review of the Company's internal controls through the implementation of the Turnbull guidance are detailed on page 32 of the full Annual Report and Financial Statements. Measures are in place to mitigate information risk in order to ensure the integrity, availability and confidentiality of information used within the business. |
| Reliance upon third parties risk | The Company is reliant upon the services of Albion Ventures LLP for the provision of investment management and administrative functions. | There are provisions within the management agreement for the change of Manager under certain circumstances (for further detail, see the Management agreement paragraph within this Strategic report). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP. |
| Financial risk | By its nature, as a venture capital trust, the Company is exposed to investment risk (which comprises investment price risk and cash flow interest rate risk), credit risk and liquidity risk. | The Company's policies for managing these risks and its financial instruments are outlined in full in note 19 to the Financial Statements. All of the Company's income and expenditure is denominated in sterling and hence the Company has no foreign currency risk. The Company is financed through equity and does not have any borrowings. The Company does not use derivative financial instruments for speculative purposes. |
| Reputational risk | Arises from broader performance and ethical issues, including investment in businesses and sectors that are inconsistent with the values of the Board and the VCT or, the Boards of portfolio companies take actions which similarly are inconsistent with the values of the VCT. | The Board clearly articulates to the Investment Manager its broader aims and standards including those sectors which are consistent with the values of the Board. The Board regularly reviews the performance and investment strategy of the Investment Manager. The Investment Manager periodically attends Board meetings of the VCT's portfolio companies and across the portfolio receives periodic management information and is alert to potential threats to reputation. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in September 2014 and principle 21 of the AIC Code of Corporate Governance published by the AIC in February 2015, the Directors have assessed the prospects of the Company over three years to 31 December 2018. The Directors have taken a three year period as the Code does not specify a time period, except it must be longer than 12 months. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and that looking to five years would incorporate too much uncertainty and not have any meaningful benefit to shareholders. It is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size.
The Directors have carried out a robust assessment of the principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment. The Board deliberated over the importance of the Manager and the processes that they have in place for dealing with the principal risks.
The Board assessed the ability of the Company to raise finance. As explained in the Chairman's statement above and in this Strategic report the repositioning of the portfolio will secure the long term future for the Company. The portfolio is well balanced after the process of reducing the proportion of the portfolios holdings in investments made prior to the crash in 2008 and geared towards long term growth delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company's income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.
Taking into account the processes for mitigating risks, monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model and the balance of the portfolio the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2018.
This Strategic report of the Company for the year ended 31 December 2015 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the "Act"). The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Act.
On behalf of the Board,
Dr. N E Cross
Chairman
23 March 2016
Responsibility Statement
In preparing these financial statements for the year to 31 December 2015, the Directors of the Company, being Dr Neil Cross, Robin Archibald, Mary Anne Cordeiro, Modwenna Rees-Mogg and Patrick Reeve, confirm that to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2015 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 loss of the Company for the year ended 31 December 2015 as required by DTR 4.1.12.R;
-the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 31 December 2015 and description of principal risks and uncertainties that the Company faces); and
-the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).
A detailed "Statement of Directors' responsibilities" is contained on page 28 within the full audited Annual Report and Financial Statements.
By order of the Board
Dr N E Cross
Chairman
23 March 2016
Income statement
| Year ended 31 December 2015 | Year ended 31 December 2014 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| (Losses)/gains on investments | 3 | - | (3,684) | (3,684) | - | 1,573 | 1,573 |
| Investment income | 4 | 2,165 | - | 2,165 | 1,940 | - | 1,940 |
| Investment management fees | 5 | (386) | (1,157) | (1,543) | (401) | (1,205) | (1,606) |
| Other expenses | 6 | (239) | - | (239) | (331) | - | (331) |
| Return/(loss) on ordinary activities before tax | 1,540 | (4,841) | (3,301) | 1,208 | 368 | 1,576 | |
| Tax (charge)/credit on ordinary activities | 8 | (267) | 235 | (32) | (238) | 249 | 11 |
| Return/(loss) and total comprehensive income attributable to shareholders | 1,273 | (4,606) | (3,333) | 970 | 617 | 1,587 | |
| Basic and diluted return/(loss) per share (pence)* | 10 | 1.54 | (5.58) | (4.04) | 1.25 | 0.79 | 2.04 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies' Statement of Recommended Practice.
There is no other comprehensive income other than the results for the year disclosed above. Accordingly a Statement of total comprehensive income is not required.
The difference between the reported profit/(loss) on ordinary activities before tax and the historical profit/(loss) is due to the fair value movements on investments. As a result a note on historical cost profit and losses has not been prepared.
Balance sheet
| 31 December 2015 | 31 December 2014 | ||
| Note | £'000 | £'000 | |
| Fixed asset | |||
| Investments | 11 | 52,711 | 63,520 |
| Current assets | |||
| Trade and other receivables less than one year | 13 | 1,982 | 518 |
| Cash at bank and in hand | 7,509 | 1,449 | |
| 9,491 | 1,967 | ||
| Total assets | 62,202 | 65,487 | |
| Creditors: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (411) | (601) |
| Total assets less current liabilities | 61,791 | 64,886 | |
| Equity attributable to equityholders | |||
| Called up share capital | 15 | 919 | 840 |
| Share premium | 40,171 | 33,917 | |
| Capital redemption reserve | 28 | 28 | |
| Unrealised capital reserve | (424) | (632) | |
| Realised capital reserve | 13,229 | 11,515 | |
| Other distributable reserve | 7,868 | 19,218 | |
| Total equity shareholders' funds | 61,791 | 64,886 | |
| Basic and diluted net asset value per share (pence)* | 16 | 73.92 | 82.85 |
* 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 23 March 2016 and were signed on its behalf by
Dr. N E Cross
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 2015 | 840 | 33,917 | 28 | (632) | 11,515 | 19,218 | 64,886 |
| (Loss)/return and total comprehensive income for the year | - | - | - | (1,632) | (2,974) | 1,273 | (3,333) |
| Transfer of previously unrealised losses on disposal of investments | - | - | - | 1,840 | (1,840) | - | - |
| Purchase of shares for treasury | - | - | - | - | - | (1,973) | (1,973) |
| Issue of equity | 79 | 6,429 | - | - | - | - | 6,508 |
| Cost of issue of equity | - | (175) | - | - | - | - | (175) |
| Transfer from other distributable reserve to realised capital reserve** | - | - | - | - | 6,528 | (6,528) | - |
| Dividends paid | - | - | - | - | - | (4,122) | (4,122) |
| As at 31 December 2015 | 919 | 40,171 | 28 | (424) | 13,229 | 7,868 | 61,791 |
| As at 1 January 2014 | 799 | 30,031 | 21 | (4,166) | 10,792 | 27,354 | 64,831 |
| Return/(loss) and total comprehensive income for the year | - | - | - | 1,687 | (1,070) | 970 | 1,587 |
| Transfer of previously unrealised losses on disposal of investments | - | - | - | 1,846 | (1,846) | - | - |
| Purchase of shares for cancellation | (7) | - | 7 | - | - | (563) | (563) |
| Purchase of shares for treasury | - | - | - | - | - | (1,028) | (1,028) |
| Issue of equity | 48 | 3,994 | - | - | - | - | 4,042 |
| Cost of issue of equity | - | (108) | - | - | - | - | (108) |
| Transfer from other distributable reserve to realised capital reserve** | - | - | - | - | 3,639 | (3,639) | - |
| Dividends paid | - | - | - | - | - | (3,876) | (3,876) |
| As at 31 December 2014 | 840 | 33,917 | 28 | (632) | 11,515 | 19,218 | 64,886 |
* Included within these reserves is an amount of £20,673,000 (2014: £30,101,000) which is considered distributable.
** A transfer of £6,528,000 representing gross realised losses on disposal of investments during the year ended 31 December 2015 (2014: £3,639,000) has been made from the other distributable reserve to the realised capital reserve.
Statement of cash flows
| Year ended 31 December 2015 | Year ended 31 December 2014 | ||
| Note | £'000 | £'000 | |
| Cash flow from operating activities | |||
| Loan stock income received | 1,949 | 1,852 | |
| Deposit interest received | 35 | 24 | |
| Dividend income received | 85 | 49 | |
| Investment management fees paid | (1,742) | (1,501) | |
| Other cash payments | (261) | (255) | |
| Corporation tax paid | - | - | |
| Net cash flow from operating activities | 17 | 66 | 169 |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments | (7,622) | (5,514) | |
| Disposal of fixed asset investments | 13,381 | 4,849 | |
| Disposal of current asset investments | - | 262 | |
| Net cash flow from investing activities | 5,759 | (403) | |
| Cash flow from financing activities | |||
| Issue of ordinary share capital | 5,832 | 3,562 | |
| Cost of issue of equity | (11) | (9) | |
| Dividends paid | (3,613) | (3,491) | |
| Purchase of own shares (including costs) | (1,973) | (1,591) | |
| Costs of Merger (paid on behalf of the Company and Albion Income & Growth VCT PLC) | - | (14) | |
| Net cash flow from financing activities | 235 | (1,543) | |
| Increase/(decrease) in cash and cash equivalents | 6,060 | (1,777) | |
| Cash and cash equivalents at start of period | 1,449 | 3,226 | |
| Cash and cash equivalents at end of period | 7,509 | 1,449 | |
| Cash and cash equivalents comprise | |||
| Cash at bank and in hand | 7,509 | 1,449 | |
| Cash equivalents | - | - | |
| Total cash and cash equivalents | 7,509 | 1,449 | |
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 ("FRS 102"), and with the 2014 Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by The Association of Investment Companies ("AIC"). This is the first period in which the Financial Statements have been prepared under FRS 102 which became mandatory for companies with a financial year beginning from 1 January 2015. On adoption of, and in accordance with FRS 102, loans and receivables previously measured at amortised cost using the effective interest rate method less impairment have been classified at fair value through profit and loss ("FVTPL"). This has not led to a material change in value and so has not led to a restatement of comparatives, please see the transition note 18.
The preparation of the Financial Statements requires management to make judgments and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgments relate to the determination of carrying value of investments at FVTPL. The Company values investments by following the IPEVCV Guidelines and further detail on the valuation techniques used are outlined below.
2. Accounting policies
Fixed asset investments
The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the income statement).
Subsequently, the investments are valued at 'fair value', which is measured as follows:
- Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;
- Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEVCV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, prices of recent investment rounds, net assets and industry valuation benchmarks. Where the Company has an investment in an early stage enterprise, the price of a recent investment round is often the most appropriate approach to determining fair value. In situations where a period of time has elapsed since the date of the most recent transaction, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company's business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.
Debtors and creditors and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than creditors.
Investment income
Unquoted equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised when the Company's right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fees 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:
- 75 per cent. of management fees are allocated to the realised capital reserve. This is in line with the Board's expectation that over the long term 75 per cent. of the Company's investment returns will be in the form of capital gains; and
- expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.
Performance incentive fee
Any performance incentive fee will be allocated between other distributable and realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns.
Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.
Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the financial statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT in the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.
Reserves
Share premium account
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs and transfers to the other distributable reserve.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company's own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
- gains and losses compared to cost on the realisation of investments;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
3. (Losses)/gains on investments
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| Unrealised (losses)/gains on fixed asset investments | (1,632) | 1,687 |
| Unrealised (losses)/gains sub-total | (1,632) | 1,687 |
| Realised losses on fixed asset investments | (2,052) | (250) |
| Realised gains on current asset investments | - | 136 |
| Realised losses sub-total | (2,052) | (114) |
| (3,684) | 1,573 | |
| 4. Investment income | ||
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| Income recognised on investments | ||
| Loan stock interest and other fixed returns | 2,042 | 1,871 |
| UK dividend income | 85 | 48 |
| Bank deposit interest | 38 | 21 |
| 2,165 | 1,940 | |
| Interest income earned on impaired investments at 31 December 2015 amounted to £215,000 (2014: £506,000). 5. Investment management fees | ||
| Year ended 1 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| Investment management fee charged to revenue | 386 | 401 |
| Investment management fee charged to capital | 1,157 | 1,205 |
| 1,543 | 1,606 | |
Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report.
During the year, services of a total value of £1,543,000 (2014: £1,606,000) were purchased by the Company from Albion Ventures LLP in respect of management fees. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals was £310,000 (2014: £509,000).
During the year, the Company was not charged by Albion Ventures LLP in respect of Patrick Reeve's services as a Director (2014: nil).
Albion Ventures LLP, the Manager, holds 21,610 Ordinary shares in the Company.
Albion Ventures LLP is, from time to time, eligible to receive transaction fees and Directors' fees from portfolio companies. During the year ended 31 December 2015, fees of £273,000 attributable to the investments of the Company were received by Albion Ventures LLP pursuant to these arrangements (2014: £274,000).
6. Other expenses
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| Directors' fees (including NIC) | 81 | 82 |
| Other administrative expenses | 117 | 131 |
| Tax services | 15 | 17 |
| Auditor's remuneration for statutory audit services (excluding VAT) | 26 | 25 |
| Impairment of accrued interest | - | 76 |
| 239 | 331 | |
| 7. Directors' fees The amounts paid to and on behalf of the Directors during the year are as follows: | ||
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| Directors' fees | 76 | 76 |
| National insurance | 5 | 6 |
| 81 | 82 | |
| Further information regarding Directors' remuneration can be found in the Directors' remuneration report on pages 34 to 36 of the full Annual Report and Financial Statements. 8. Tax (charge)/credit on ordinary activities | ||
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| UK corporation tax charge in respect of current year | (32) | - |
| UK corporation tax credit in respect of prior years | - | 11 |
| (32) | 11 | |
| Factors affecting the tax charge: | ||
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| (Loss)/return on ordinary activities before taxation | (3,301) | 1,576 |
| Tax credit/(charge) on profit at the small companies rate of 20 per cent. | 660 | (315) |
| Factors affecting the charge: | ||
| Non-taxable (losses)/gains | (737) | 314 |
| Income not taxable | 17 | 10 |
| Excess management expenses utilised/(carried forward) | 28 | (9) |
| Adjustment in respect of prior years | - | 11 |
| (32) | 11 | |
The tax charge for the year shown in the Income statement is lower than the small companies rate of corporation tax in the UK of 20 per cent. (2014: 20 per cent.). The differences are explained above.
Consortium relief is recognised in the accounts in the period in which the claim is submitted to HMRC and is shown as tax in respect of prior year.
Notes
| (i) | Venture Capital Trusts are not subject to corporation tax on capital gains. |
| (ii) | Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP. |
| (iii) | The Company has no excess management expenses (2014: £137,000) available for offset against future profits |
9. Dividends
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| Ordinary shares' dividend of 1.25p per share paid on 31 January 2014 | - | 945 |
| Ordinary shares' dividend of 1.25p per share paid on 30 April 2014 | - | 977 |
| Ordinary shares' dividend of 1.25p per share paid on 30 June 2014 | - | 977 |
| Ordinary shares' dividend of 1.25p per share paid on 31 October 2014 | - | 977 |
| Ordinary shares' dividend of 1.25p per share paid on 9 February 2015 | 979 | - |
| Ordinary shares' dividend of 1.25p per share paid on 30 April 2015 | 1,050 | - |
| Ordinary shares' dividend of 1.25p per share paid on 30 June 2015 | 1,035 | - |
| Ordinary shares' dividend of 1.25p per share paid on 30 October 2015 | 1,058 | - |
| 4,122 | 3,876 |
In addition to the dividends summarised above, the Board declared a first dividend for the year ending 31 December 2016 of 1.25 pence per Ordinary share. This dividend was paid on 29 January 2016 to shareholders on the register as at 15 January 2016. The total dividend was £1,045,000. The Board has declared a second dividend for the year ending 31 December 2016 of 1.25 pence per Ordinary share. The dividend will be paid on 29 April 2016 to shareholders on the register as at 15 April 2016. The total dividend will be approximately £1,095,000.
10. Basic and diluted return/(loss) per share
| Year ended 31 December 2015 | Year ended 31 December 2014 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Return/(loss) attributable to equity shares (£'000) | 1,273 | (4,606) | (3,333) | 970 | 617 | 1,587 |
| Weighted average shares in issue (excluding treasury shares) | 82,538,109 | 77,721,693 | ||||
| Return/(loss) attributable per equity share (pence) | 1.54 | (5.58) | (4.04) | 1.25 | 0.79 | 2.04 |
The weighted average number of shares is calculated excluding treasury shares of 8,282,070 (2014: 5,665,070).
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.
11. Fixed asset investments
| 31 December 2015 £'000 | 31 December 2014 £'000 | |
| Investments held at fair value through profit or loss | ||
| Unquoted equity and preference shares | 20,014 | 26,088 |
| Quoted equity | 2,394 | 2,438 |
| Unquoted loan stock | 30,303 | 34,994 |
| 52,711 | 63,520 | |
| 31 December 2015 £'000 | 31 December 2014 £'000 | |
| Opening valuation | 63,520 | 61,637 |
| Purchases at cost | 7,765 | 5,628 |
| Disposal proceeds | (14,983) | (5,126) |
| Realised losses | (2,052) | (250) |
| Movement in loan stock accrued income | 93 | (57) |
| Unrealised (losses)/gains | (1,632) | 1,687 |
| Closing valuation | 52,711 | 63,520 |
| Movement in loan stock accrued income | ||
| Opening accumulated movement in loan stock accrued income | 94 | 151 |
| Movement in loan stock accrued income | 93 | (57) |
| Closing accumulated movement in loan stock accrued income | 187 | 94 |
| Movement in unrealised losses | ||
| Opening accumulated unrealised losses | (680) | (4,306) |
| Transfer of previously unrealised losses to realised reserve on disposal of investments | 1,840 | 1,939 |
| Movement in unrealised gains | (1,632) | 1,687 |
| Closing accumulated unrealised losses | (472) | (680) |
| Historic cost basis | ||
| Opening book cost | 64,106 | 65,793 |
| Purchases at cost | 7,765 | 5,628 |
| Sales at cost | (18,875) | (7,315) |
| Closing book cost | 52,996 | 64,106 |
Purchases and disposals detailed above do not agree to the Cash flow statement due to restructuring of investments, conversion of convertible loan stock and settlement debtors and creditors.
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 impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted fixed asset investments are valued at fair value in accordance with the IPEVCV guidelines as follows:
| Valuation methodology | 31 December 2015 £'000 | 31 December 2014* £'000 |
| Net asset value supported by third party or desktop valuation | 25,557 | 23,582 |
| Revenue multiple | 12,391 | 14,566 |
| Cost and price of recent investment (reviewed for impairment) | 6,189 | 9,153 |
| Earnings multiple | 4,593 | 9,541 |
| Discount to third party offer | 1,587 | 4,238 |
| 50,317 | 61,080 |
*As per FRS 102 adoption the unquoted fixed asset investments for 2014 has been adjusted to include £23,519,000 of investments at fair value that were previously held under amortised cost.
Fair value investments had the following movements between valuation methodologies between 31 December 2014 and 31 December 2015:
| Change in valuationmethodology (2014 to 2015) | Value as at 31 December 2015 £'000 | Explanatory note |
| Cost to net asset value supported by third party valuation | 2,782 | Third party valuation has recently taken place |
| Net asset value supported by third party valuation to discount to third party offer | 1,587 | Third party offer received |
| Cost to revenue multiple | 1,151 | More recent information available |
| Cost to price of recent investment | 1,250 | Agreed new investment price |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 December 2015.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy according to the following definitions:
| Fair value hierarchy | Definition |
| Level A | Quoted prices in an active market |
| Level B | Price of a recent transaction for identical instruments |
| Level C (i) | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level C (ii) | Inputs to valuations not based on observable market data |
Quoted AiM investments are valued according to Level A valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level C (ii) valuation methods.
Investments held at fair value through profit or loss (Level C (ii)) had the following movements in the year to 31 December 2015:
| 31 December 2015 | 31 December 2014 | |||||
| Equity | Unquoted loan stock | Total | Equity | Unquoted loan stock | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening balance | 26,086 | 34,994 | 61,080 | 25,093 | 10,609 | 35,702 |
| Adjustment to fair value* | - | - | - | - | 23,519 | 23,519 |
| Opening balance (adjusted to fair value) | 26,086 | 34,994 | 61,080 | 25,093 | 34,128 | 59,221 |
| Additions | 1,211 | 6,176 | 7,387 | 1,185 | 3,250 | 4,435 |
| Disposals | (6,557) | (8,344) | (14,901) | (2,528) | (222) | (2,750) |
| Transfer to Level A** | - | - | - | (3,014) | (839) | (3,853) |
| Accrued loan stock interest | - | 93 | 93 | - | 35 | 35 |
| Realised (losses)/gains | (1,391) | (742) | (2,133) | 1,077 | (1,497) | (420) |
| Debt/equity swap and restructurings | 434 | (434) | - | 1,421 | (240) | 1,181 |
| Unrealised gains | 231 | (1,440) | (1,209) | 2,852 | 379 | 3,231 |
| Closing balance | 20,014 | 30,303 | 50,317 | 26,086 | 34,994 | 61,080 |
*As per FRS 102 adoption the unquoted loan stock balance for 2014 has been adjusted to include £23,519,000 of investments at fair value that were previously held under amortised cost.
** During 2014 Mi-Pay Group plc was quoted on AiM and transferred to Level A fair value hierarchy.
FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. The valuation methodology applied to 66 per cent. of the unquoted equity and loan stock investments (by valuation) is based on third-party independent evidence, cost, recent investment price and agreed offer price. The Directors believe that changes to reasonable possible alternative assumptions (by adjusting the revenue and earnings multiples) for the valuations of four of the significant portfolio companies could result in an increase in the valuation of investments by £2,991,000 or a decrease in the valuation of investments by £2,488,000.
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management. 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 9.9B, they are measured at fair value through profit and loss and not accounted for using the equity method.
The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 31 December 2015 as described below:
Company | Country of incorporation | Profit/(loss) before tax £'000 | Net assets/ (liabilities) £'000 | Result for year ended | % class and share type | % total voting rights |
| Albion Investment Properties Limited | Great Britain | n/a* | (969) | 31 December 2014 | 22.6% A Ordinary | 22.6% |
| AMS Sciences Limited | Great Britain | n/a* | 1,081 | 30 June 2014 | 41.7% Ordinary | 41.7% |
| Blackbay Limited | Great Britain | (1,747) | (4,141) | 31 December 2014 | 67.1% A Ordinary | 23.5% |
| Bravo Inns Limited | Great Britain | n/a* | (255) | 31 March 2015 | 28.8% Ordinary | 28.8% |
| Mi-Pay Group PLC | Great Britain | (4,820) | 544 | 31 December 2014 | 21.6% Ordinary | 21.6% |
| memsstar Limited | Great Britain | (226) | 2,304 | 31 December 2014 | 67.3% A Ordinary | 30.1% |
| Premier Leisure (Suffolk) Limited | Great Britain | n/a* | 936 | 30 June 2014 | 25.8% Ordinary | 25.8% |
| The Charnwood Pub Company Limited | Great Britain | n/a* | (2,752) | 31 March 2015 | 22.5% Ordinary | 22.5% |
| The Q Garden Company Limited | Great Britain | n/a* | (5,858) | 31 January 2015 | 33.4% A Ordinary | 33.4% |
| The Weybridge Club Limited | Great Britain | (1,918) | (5,687) | 30 September 2014 | 25.2% Ordinary | 25.2% |
*The company files abbreviated accounts which does not disclose this information.
13. Current assets
| Trade and other receivables less than one year | 31 December 2015 | 31 December 2014 |
| £'000 | £'000 | |
| Prepayments and accrued income | 22 | 21 |
| Other debtors | 123 | 497 |
| Deferred consideration* | 1,837 | - |
| 1,982 | 518 | |
| *Deferred consideration relates to deferred consideration from the sale of Lowcosttravelgroup Limited (£1,588,000) and Kensington Health Clubs Limited (£249,000). The Directors consider that the carrying amount of debtors is not materially different to their fair value. 14. Creditors: amounts falling due within one year | ||
| 31 December 2015 | 31 December 2014 | |
| £'000 | £'000 | |
| Trade creditors | 19 | 119 |
| Accruals and deferred income | 360 | 482 |
| UK corporation tax payable | 32 | - |
| 411 | 601 | |
| The Directors consider that the carrying amount of creditors is not materially different to their fair value. 15. Called up share capital | ||
| 31 December 2015 £'000 | 31 December 2014 £'000 | |
| Allotted, called up and fully paid | ||
| 91,872,004 Ordinary shares of 1 penny each (2014: 83,983,306 Ordinary shares) | 919 | 840 |
Voting rights
83,589,934 Ordinary shares of 1 penny each in the Company (net of treasury shares) (2014: 78,318,236 Ordinary shares (net of treasury shares)).
During the period the Company did not purchase any Ordinary shares for cancellation (2014: 702,000 shares at a cost of £563,000 including stamp duty). The shares purchased for cancellation in 2014 were funded by the other distributable reserve.
The Company purchased 2,617,000 Ordinary shares (2014: 1,324,000) to be held in treasury at a cost of £1,973,000 including stamp duty (2014: £1,028,000) during the period to 31 December 2015. The Company did not cancel any shares from treasury during the period to 31 December 2015 (2014: nil) leaving a balance of 8,282,070 Ordinary shares in treasury (2014: 5,665,070) which represents 9.0 per cent. of the issued share capital as at 31 December 2015.
Under the terms of the dividend reinvestment scheme, the following Ordinary shares of nominal value 1 penny each were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 9 February 2015 | 134,362 | 1 | 79.69 | 105 | 77.00 |
| 30 April 2015 | 158,319 | 2 | 80.35 | 125 | 76.00 |
| 30 June 2015 | 171,137 | 2 | 77.94 | 131 | 76.00 |
| 30 October 2015 | 180,600 | 2 | 77.94 | 140 | 76.00 |
| 644,418 | 501 |
During the period to 31 December 2015, the Company issued the following New Ordinary shares of nominal value 1 penny each under the Albion VCTs Prospectus Top Up Offers 2014/2015:
Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 30 January 2015 | 1,185,345 | 12 | 81.40 | 945 | 77.00 |
| 30 January 2015 | 565,178 | 6 | 81.80 | 451 | 77.00 |
| 2 April 2015 | 3,789,380 | 38 | 84.20 | 3,095 | 76.50 |
| 30 June 2015 | 765,445 | 8 | 80.40 | 597 | 76.00 |
| 30 June 2015 | 37,392 | - | 79.60 | 29 | 76.00 |
| 30 June 2015 | 14,166 | - | 80.00 | 11 | 76.00 |
| 30 September 2015 | 887,374 | 9 | 81.70 | 704 | 76.00 |
| 7,244,280 | 5,832 |
16. Basic and diluted net asset value per share
| 31 December 2015 | 31 December 2014 | |
| (pence per share) | (pence per share) | |
| Basic and diluted net asset value per Ordinary share | 73.92 | 82.85 |
The basic and diluted net asset values per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (less treasury shares) of 83,589,934 Ordinary shares (2014: 78,318,236 Ordinary shares) at 31 December 2015.
17. Reconciliation of net return on ordinary activities before taxation to net cash flow from operating activities
| Year ended 31 December 2015 £'000 | Year ended 31 December 2014 £'000 | |
| Revenue return on ordinary activities before taxation | 1,540 | 1,208 |
| Investment management fee charged to capital | (1,157) | (1,205) |
| Movement in accrued loan stock interest | (93) | 57 |
| (Increase)/decrease in debtors | (6) | 1 |
| (Decrease)/increase in creditors | (218) | 108 |
| Net cash flow from operating activities | 66 | 169 |
18. First time adoption of FRS 102
In the prior year Financial Statements unquoted loan stock (excluding convertible bonds and debt issued at a discount) were classified as loans and receivables as permitted by FRS 26 and measured at amortised cost using the Effective Interest Rate method less impairment. This is the first year of application of FRS 102, if FRS 102 had been applied in the prior year and unquoted loan stock had been valued at "fair value" this would have seen an increase in value of loan stock by £50,000 which would have been a 0.14% difference as a percentage of total loan stock valuation. The first time adoption of FRS 102 had no material impact, therefore no restatement of comparatives is necessary.
19. Capital and financial instruments risk management
The Company's capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes and this is described in more detail in the Chairman's statement.
The Company's financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances and debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate cash flow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short term creditors. The Company does not use any derivatives for the management of its Balance sheet.
The principal 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 19 to 21 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 £52,711,000 (2014: £63,520,000). Fixed asset investments form 85 per cent. of the net asset value as at 31 December 2015 (2014: 98 per cent.).
More details regarding the classification of fixed asset investments are shown in notes 11 and 13.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. To mitigate the investment price risk for the Company as a whole, the strategy of the Company is to invest in a broad spread of industries with up to two-thirds of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 19 to 21 of the full Annual Report and Financial Statements and in the Strategic report.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines.
As required under FRS 102 section 34.29, the Board is required to illustrate by way of a sensitivity analysis the degree of exposure to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a 10 per cent. change based on the current economic climate. The impact of a 10 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
The sensitivity of a 10 per cent. increase or decrease in the valuation of the fixed asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £5,271,000 (2014: £6,352,000).
Interest rate risk
It is the Company's policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company's analysis, it is estimated that a rise of one percentage point in all interest rates would have increased total return before tax for the year by approximately £25,000 (2014: £14,000). Furthermore, it is considered that a fall of interest rates below current levels during the year would have been very unlikely.
The weighted average effective interest rate applied to the Company's unquoted loan stock during the year was approximately 5.4 per cent. (2014: 5.1 per cent.). The weighted average period to maturity for the unquoted loan stock is approximately 3.4 years (2014: 3.4 years).
The Company's financial assets and liabilities as at 31 December 2015, all denominated in pounds sterling, consist of the following:
| 31 December 2015 | 31 December 2014 | |||||||
| Fixed rate £'000 | Floating rate £'000 | Non-interest bearing £'000 | Total £'000 | Fixed rate £'000 | Floating rate £'000 | Non-interest bearing £'000 | Total £'000 | |
| Unquoted equity | - | - | 20,014 | 20,014 | - | - | 26,088 | 26,088 |
| Quoted equity | - | - | 2,394 | 2,394 | - | - | 2,438 | 2,438 |
| Unquoted loan stock* | 26,283 | - | 4,020 | 30,303 | 31,543 | - | 3,451 | 34,994 |
| Debtors** | - | - | 1,963 | 1,963 | - | - | 499 | 499 |
| Current liabilities** | - | - | (379) | (379) | - | - | (601) | (601) |
| Cash | - | 7,509 | - | 7,509 | - | 1,449 | - | 1,449 |
| Total | 26,283 | 7,509 | 28,012 | 61,804 | 31,543 | 1,449 | 31,875 | 64,867 |
*Including convertible loan stock and debt issued at a discount.
**The debtors and current liabilities do not reconcile to the balance sheet as prepayments and tax payable are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its debtors, 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. Typically loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company in order to mitigate the gross credit risk. The Manager receives management accounts from portfolio companies, and members of the investment management team sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.
The Manager and the Board formally review credit risk (including debtors) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company's total gross credit risk as at 31 December 2015 was limited to £30,303,000 (2014: £34,994,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £7,509,000 (2014: £1,449,000) cash deposits with banks and £1,959,000 (2014: £497,000) of other debtors.
As at the balance sheet date, the cash held by the Company is held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc and National Westminster Bank plc. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The Company has an informal policy of limiting counterparty banking and floating rate note exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk below.
The cost, impairment and carrying value of impaired loan stocks in the Ordinary share portfolio held at fair value through profit and loss at 31 December 2015 and 31 December 2014 are as follows:
| 31 December 2015 | 31 December 2014 | |||||
| Cost £'000 | Impairment £'000 | Carrying value £'000 | Cost £'000 | Impairment £'000 | Carrying value £'000 | |
| Impaired loan stock | 9,893 | (3,175) | 6,718 | 14,988 | (3,091) | 11,897 |
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board deem the security value to be the carrying value.
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 per cent. of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £5,965,000 as at 31 December 2015 (2014: £6,288,000).
The Company has no committed borrowing facilities as at 31 December 2015 (2014: £nil). The Company had cash balances of £7,509,000 (2014: £1,449,000). The main cash outflows are for new investments, share buy-backs and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company's financial liabilities are short term in nature and total £411,000 as at 31 December 2015 (2014: £601,000).
The carrying value of loan stock investments at 31 December 2015, as analysed by expected maturity dates was as follows:
| Redemption date | Fully performing £'000 | Impaired £'000 | Past due £'000 | Total £'000 |
| Less than one year | 9,420 | 4,846 | 144 | 14,410 |
| 1-2 years | 1,906 | 1,769 | - | 3,675 |
| 2-3 years | 793 | - | 1,037 | 1,830 |
| 3-5 years | 5,413 | 103 | 1,049 | 6,565 |
| +5 years | 2,992 | - | 831 | 3,823 |
| Total | 20,524 | 6,718 | 3,061 | 30,303 |
| Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. Loan stock categorised as past due includes:
The carrying value of loan stock investments at 31 December 2014, as analysed by expected maturity dates, was as follows: | ||||
| Redemption date | Fully performing loan stock £'000 | Impaired loan stock £'000 | Past due loan stock £'000 | Total £'000 |
| Less than one year | 9,373 | 10,226 | 168 | 19,767 |
| 1-2 years | 3,269 | 1,646 | - | 4,915 |
| 2-3 years | 1,144 | - | - | 1,144 |
| 3-5 years | 1,549 | 25 | 2,318 | 3,892 |
| +5 years | 3,826 | - | 1,450 | 5,276 |
| Total | 19,161 | 11,897 | 3,936 | 34,994 |
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 2015 are stated at fair value as determined by the Directors, with the exception of debtors and creditors and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than creditors. The Company's financial liabilities are all non-interest bearing. It is the Directors' opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
20. Commitments and contingencies
The Company had the following financial commitments in respect of investments:
- Grapeshot Limited: £90,000
- DySIS Medical Limited: £70,000
- Aridhia Informatics Limited: £58,000
21. Post balance sheet events
Since 31 December 2015 the Company has had the following post balance sheet events:
- Disposal of Silent Herdsman Holdings Limited for £361,000 of which £115,000 is deferred and held in escrow;
- Investment of £111,000 in Earnside Energy Limited;
- Investment of £84,000 in InCrowd Sports Limited;
- Investment of £70,000 in DySIS Medical Limited;
- Investment of £58,000 in Aridhia Informatics Limited;
- Investment of £56,000 in Proveca Limited; and
- Investment of £52,000 in The Weybridge Club Limited
On 17 November 2015 the Company announced the publication of a prospectus in relation to an offer for subscription for new Ordinary shares. A Securities Note, which forms part of the prospectus, has been sent to shareholders.
A copy of the prospectus may be obtained from www.albion-ventures.co.uk.
The following Ordinary shares of nominal value 1 penny each were allotted under the Offers after 31 December 2015:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 29 January 2016 | 2,651,878 | 27 | 77.50 | 2,014 | 73.25 |
| 29 January 2016 | 1,207,352 | 12 | 77.90 | 917 | 73.25 |
| 3,859,230 | 2,931 |
Under the terms of the dividend reinvestment scheme, the following Ordinary shares of nominal value 1 penny each were allotted after 31 December 2015:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 29 January 2016 | 186,693 | 2 | 75.86 | 140 | 73.25 |
22. Related party transactions
Other than transactions with the Manager as disclosed in note 5, there are no other related party transactions requiring disclosure.
23. Other Information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 December 2015 and 31 December 2014, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 December 2015, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
The Company's Annual General Meeting will be held at The City of London Club, 19 Old Broad Street, London, EC2N 1DS on 8 June 2016 at 11.00am.
24. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion-ventures.co.uk under the 'Our Funds' section, by clicking on 'Albion Technology & General VCT PLC', where the Report can be accessed as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Albion Technology & General VCT PLC - Ordinary Shares via Globenewswire
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