Kings Arms Yard VCT PLC : Annual Financial Report
Kings Arms Yard VCT PLC
As required by the UK Listing Authority's Disclosure and Transparency Rules 4.1 and 6.3, Kings Arms Yard VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2016.
This announcement was approved for release by the Board of Directors on 21 March 2017.
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 2016 (which have been audited) at: www.albion-ventures.co.uk/funds/KAY. The Annual Report and Financial Statements for the year to 31 December 2016 will be available as a PDF document via a link under 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
The Company is a Venture Capital Trust. The investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value as set out below.
- The Company intends to achieve its strategy by adopting an investment policy for new investments which over time will rebalance the portfolio such that approximately 50% of the portfolio comprises an asset-backed portfolio of more stable, ungeared businesses, principally operating in the healthcare, environmental and leisure sectors (the "Asset-Backed Portfolio"). The balance of the portfolio, other than funds retained for liquidity purposes, will be invested in a portfolio of higher growth businesses across a variety of sectors of the UK economy. These will range from more stable, income producing businesses to a limited number of higher risk technology companies (the "Growth Portfolio").
- In neither category would portfolio companies have any external borrowing with a charge ranking ahead of the Company. Up to two-thirds of qualifying investments by cost will comprise loan stock secured with a first charge on the portfolio company's assets.
- The Company's investment portfolio will thus be structured to provide a balance between income and capital growth for the longer term. The Asset-Backed Portfolio is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide highly diversified exposure through its portfolio of investments in unquoted UK companies.
- Funds held pending investment or for liquidity purposes will be held as cash on deposit or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
Under its Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of its adjusted share capital and reserves.
Financial calendar
| Record date for first dividend | 7 April 2017 |
| Payment date of first dividend | 28 April 2017 |
| Annual General Meeting | 11am on 17 May 2017 |
| Announcement of half-yearly results for the six months ending 30 June 2017 | August 2017 |
| Payment date of second dividend (subject to Board approval) | 31 October 2017 |
Financial highlights
| 21.4p | Net asset value per share as at 31 December 2016. |
| 2.3p | Basic and diluted total return per share. |
| 20.0p | Mid-market share price as at 31 December 2016. |
| 1.0p | Total tax free dividends per share paid in the year to 31 December 2016. |
| 0.5p | First tax free dividend per share declared for the year to 31 December 2017 payable on 28 April 2017. |
| 5.0% | Tax free dividend yield on share price (dividend per annum/share price as at 31 December 2016). |
| 11.5% | Total return on opening NAV per share as at 31 December 2016. |
| 31 December 2016 (pence per share) | 31 December 2015 (pence per share) | |
| Revenue return | 0.29 | 0.40 |
| Capital return | 2.03 | 1.37 |
| Dividends paid | 1.00 | 1.00 |
| Net asset value | 21.41 | 20.11 |
| Total shareholder return | From launch to 31 December 2010 (pence per share) | 1 January 2011 to 31 December 2016 (pence per share) | From launch to 31 December 2016 (pence per share) |
| Subscription price per share at launch | 100.00 | - | 100.00 |
| Dividends paid | 58.66 | 5.67 | 64.33 |
| (Decrease)/increase in net asset value | (83.40) | 4.81 | (78.59) |
| Total shareholder return | 75.26 | 10.48 | 85.74 |
The Directors have declared a first dividend of 0.5 pence per share for the year ending 31 December 2017, which will be paid on 28 April 2017 to shareholders on the register on 7 April 2017.
The above financial summary is for the Company, Kings Arms Yard VCT PLC only. Details of the financial performance of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be found on page 60 of the full Annual Report and Financial Statements.
Chairman's statement
Introduction
We are pleased to report a total shareholder return of 2.32 pence per share or 11.5% on opening net asset value for the year ended 31 December 2016. Investments during the year totalled £5.9 million of which £1.7 million were in new portfolio companies. The divestment of the legacy portfolio continues, with £3.1 million of the £3.5 million in realisations during the year being legacy companies, including those of Haemostatix and a reduction in our holding in Oxford Immunotec.
Results
Net asset value per share increased from 20.11p as at 31 December 2015 to 21.41p at 31 December 2016 after allowing for the payment of dividends totalling 1 penny per share during the year.
The Company recorded a positive total shareholder return of 2.32 pence per share, or £5.7 million for the year to 31 December 2016, driven by positive developments at a number of portfolio companies, including Antenova, Proveca, Active Lives Care and Ryefield Court Care.
As always, the Board has rigorously reassessed the carrying value of all portfolio investments and has reduced those wherever trading performance or market conditions made this necessary. Nevertheless, as the overall outcome shows, positive movements have significantly outweighed the setbacks.
During 2016, £5.9 million was invested into unquoted companies including £0.8 million into renewable energy projects, £3.0 million into the construction of three new care homes, and £2.1 million into the high growth portfolio, predominantly in the healthcare and technology sectors. Further information on all new investments is contained in the Strategic report. The portfolio now includes thirty five investments made since 2011 and the proportion of assets still invested in the legacy portfolio of investments made before 2011 has shrunk to 35% (2015: 42%).
For a detailed review of these disposals and other developments in the business please see the Strategic report below.
Dividend
We are pleased to declare a first dividend of 0.5p per share to be paid on 28 April 2017 to shareholders on the register on 7 April 2017 and anticipate that a second dividend will be paid later in the year in line with our current dividend target of 1 penny per share.
VCT qualifying status
As at 31 December 2016, 89% (2015: 90.5%) of total investments were in qualifying holdings. The Board continues to monitor this and all the VCT qualification requirements very carefully in order to ensure that qualifying investments comfortably exceed the minimum threshold of 70% required for the Company to continue to benefit from VCT tax status.
Albion VCTs Prospectus Top Up Offers 2016/2017
By 31 January 2017, the Company had raised £3.8 million from a first allotment of shares under the top up share offer launched on 29 November 2016. As a result of the strong demand for the Company's shares, the Board was able to announce on 22 February 2017 that subscription had reached its £6 million limit under the prospectus offer and was now closed. The next allotment will be on 28 March 2017.
Share buy-backs
It remains the Board's policy to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest, including the maintenance of sufficient resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board's intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit. During 2016, the Company purchased 4,912,000 Ordinary shares at an average price of 18.41 pence per share. Further information is shown in note 14.
Transactions with the Manager
Details of transactions that took place with the Manager during the year can be found in note 4 and principally relate to the management and incentive fees.
Performance incentive fee
The Board is pleased to announce that investment performance has exceeded the targets set by shareholders on 24 May 2013. Accordingly a management performance fee of £513,000 is due for the year ended 31 December 2016 following the fee of £242,000 earned in the previous year.
Further details can be found in the Strategic report below.
Annual General Meeting
The Annual General Meeting of the Company will be held at the City of London Club, 19 Old Broad Street, London, EC2N 1DS at 11.00am on 17 May 2017. Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 55 and 56 of the full Annual Report and Financial Statements.
The Board welcomes your attendance at the meeting as it gives an opportunity for shareholders to ask questions of the Board and Investment Manager. If you are unable to attend the Annual General Meeting in person, we would encourage you to make use of your proxy votes.
Risks and uncertainties
The outlook for the UK economy continues to be the key risk affecting your Company. The Company's 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.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Outlook and prospects
We are encouraged by the investment performance during 2016 and over the last five years. Whilst the economic outlook is more uncertain than it has been for some time, as is reflected in equity market volatility, the Board continues to have confidence in the long-term prospects of the increasingly diversified and balanced portfolio, and in the ability of our Manager to secure and nurture appropriate new investment opportunities.
Robin Field
Chairman
21 March 2017
Strategic report
Investment objective and policy
The Company is a Venture Capital Trust. The investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value as set out below.
The Company intends to achieve its strategy by adopting an investment policy for new investments which over time will rebalance the portfolio such that approximately 50% of the portfolio comprises an asset-backed portfolio of more stable, ungeared businesses, principally operating in the healthcare, environmental and leisure sectors (the "Asset-Backed Portfolio"). At 31 December 2016 the Asset-Backed Portfolio represented 42% of net assets (2015: 36%). The balance of the portfolio, other than funds retained for liquidity purposes, will be invested in a portfolio of higher growth businesses across a variety of sectors of the UK economy. These will range from more stable, income producing businesses to a limited number of higher risk technology companies (the "Growth Portfolio").
In neither category would portfolio companies have any external borrowing with a charge ranking ahead of the Company. Up to two-thirds of qualifying investments by cost will comprise loan stock secured with a first charge on the portfolio company's assets.
The Company's investment portfolio will thus be structured to provide a balance between income and capital growth for the longer term. The Asset-Backed Portfolio is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide highly diversified exposure through its portfolio of investments in unquoted UK companies.
Funds held pending investment or for liquidity purposes will be held as cash on deposit or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
Under its Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of its adjusted share capital and reserves.
Review of business and future changes
One of the key aims of the Manager has been to increase the income generated by the investment portfolio to the extent that it more than covers the ongoing investment management fee and other charges. This continues to be achieved, with total income for 2016 of £1.37m against total ongoing costs of £1.26m. The investment income generated is equivalent to a gross yield of 2.8% on the average net asset value for the year. As the Asset-Backed Portfolio increases in the current year, we would expect the Company's income to grow accordingly.
As outlined below, the Company has recorded significant capital uplift during the year. This is led by an uplift of £2.6m across the Asset-Backed Portfolio, £2.5m in the Growth Portfolio and £0.9m in the quoted investments. Key individual investment movements included £1.8m uplift in the valuation of our holding in Antenova Limited, £1.3m uplift in Proveca Limited, £1.1m uplift in Active Lives Care Limited and £1.0m uplift in Ryefield Court Care Limited, offset by a decline in the valuation of our holding in Elateral Group Limited of £1.6m and Sift Limited of £0.8m.
Details of significant events which have occurred since the end of the financial year are listed in note 18. Details of transactions with the Manager are shown in note 4.
Results and dividends
| Ordinary shares £'000 | |
| Net revenue return for the year ended 31 December 2016 | 719 |
| Net capital gain for the year ended 31 December 2016 | 4,958 |
| Total return for the year ended 31 December 2016 | 5,677 |
| Dividend of 0.5 pence per share paid on 29 April 2016 | (1,256) |
| Dividend of 0.5 pence per share paid on 31 October 2016 | (1,244) |
| Transferred to reserves | 3,177 |
| Net assets as at 31 December 2016 | 53,010 |
| Net asset value per share as at 31 December 2016 (pence) | 21.41 |
The Company paid dividends of 1 penny per share during the year ended 31 December 2016 (2015: 1 penny per share). The Directors have declared a first dividend of 0.5 pence per share for the year ending 31 December 2017, which will be paid on 28 April 2017 to shareholders on the register on 7 April 2017.
It is the Company's policy to maintain a sustainable, predictable dividend policy with the current level of annual pay-out set at the time that Albion Ventures took over as Manager at 1 penny per share. The dividend has been more than covered by the total return for the year.
As shown in the Income statement, investment income has remained relatively flat at £1,370,000 (2015: £1,412,000) although loan stock income increased to £1,257,000 (2015: £1,095,000). The capital gain for the year was significantly higher at £4,958,000 (2015: £2,966,000).
The total return for the year has increased to £5,677,000 (2015: £3,835,000), equating to a total return of 2.32 pence per share (2015: 1.77 pence per share).
The Balance sheet shows that the net asset value has increased over the last year to 21.41 pence per share (2015: 20.11 pence per share) which is due to continued strong performance of the asset-backed investments, as well as increased valuations in Antenova, Proveca, Anthropics and Oxford Immunotec in the growth sector.
There has been a net cash outflow for the year, mainly due to investments of £5.9 million, the payment of dividends and buy-back of shares. This was offset by the fundraising during the year, investment income and disposal of legacy investments.
Current portfolio sector allocation
The two pie charts at the end of this announcement outline firstly the different sectors in which the Company's assets, at carrying value, are currently invested, and secondly, delineates between those investments, at carrying value, by asset class.
Direction of portfolio
During 2016, investments were made to build 3 new residential care homes for the elderly, Active Lives Care, Ryefield Court Care and Shinfield Lodge Care in Oxford, Greater London and Reading respectively. These investments have increased the allocation to healthcare from 11% to 19% and, when combined with an investment in an anaerobic digestion plant, have contributed to an increase in the asset-backed element of the portfolio from 36% to 42%.
We anticipate the healthcare sector increasing in importance, as it is an area that the Manager has targeted for value creation and a good potential source of recurring income. The Company has reached its target percentage for the renewable energy sector, which now accounts for 22% of net assets compared to 24% at the end of the previous financial year.
Future prospects
The Company's performance record reflects the success of the strategy outlined above and has enabled the Company to maintain a predictable stream of dividend payments to shareholders. The Board believes that this model will continue to meet the investment objective and has the potential to continue to deliver attractive returns to shareholders and that a number of investments in the Growth Portfolio, both old and new, have strong prospects. Further details on the Company's outlook and prospects can be found in the Chairman's statement.
Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts, used in their own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following key performance indicators give a good indication that the Company is achieving its investment objective and policy. These are:
1. Total shareholder return relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the strong performance of the Company's total shareholder return against the FTSE All-Share Index total return, with dividends reinvested, from the appointment of Albion Ventures LLP on 1 January 2011. Details on the performance of the net asset value and return per share for the year are given above.
2. Net asset value per share and total shareholder return
Total shareholder return since inception increased by 2.8% to 85.74 pence per share for the year ended 31 December 2016.
3. Dividend distributions
Dividends paid in respect of the year ended 31 December 2016 were 1 penny per share (2015: 1 penny per share), in line with the Board's dividend objective. The cumulative dividend paid since inception is 64.33 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year to 31 December 2016 was 2.5% (2015: 2.6%). The ongoing charges ratio has been calculated using The Association of Investment Companies ("AIC") recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be approximately 2.5%.
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 22 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 and Finance Act 2016, which include:
- Restrictions over the age of investments;
- A prohibition on management buyouts or the purchase of existing businesses;
- An overall lifetime investment cap of £12 million from tax-advantaged funds into any portfolio company; and
- A VCT can only make qualifying investments or certain specified non-qualifying investments such as money market securities and short term deposits.
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.
Investment progress
During the year, there was a very active period of new investment, with a total of £5.9 million invested in new and existing portfolio companies. We continued to bias new investment activity towards asset-backed opportunities with the potential to produce a strong level of income, whilst still investing in companies providing the potential for significant capital growth. A total of £0.8 million was invested during the year into the renewable energy sector; £2.9 million into care homes; and £2.2 million in companies offering the potential of high growth.
Cash and liquid assets at the year-end decreased to £1.8 million (2015: £3.5 million), representing 3.3% of net asset value.
New investments were made in 6 companies and totalled £1.7 million during the year and included: an anaerobic digestion company - Earnside Energy Limited (£835,000); a digital marketing software company - Convertr Media Limited (£284,000); an automotive technology research company - Secured By Design Limited (£260,000); a predictive analytics company - Black Swan Data Limited (£170,000); a medical nutritional therapy company - Oviva AG (£91,000); and a sports marketing company - InCrowd Sports Limited (£36,000).
Follow-on investments were made in 16 portfolio companies and totalled £4.2 million during the year. The largest being £2.7 million into the construction of the two care homes (£1.4 million into Active Lives Care Limited and £1.3 million into Ryefield Court Care Limited); £374,000 into Proveca Limited and £300,000 into Elateral Group Limited.
During the year the Company sold its shares in Haemostatix for a mixture of cash and shares in AiM listed ErgoMed PLC and sold its entire holdings in Silent Herdsman realising proceeds of £146,000 with a realised loss on cost of £6,000. The Company also sold 100,000 Oxford Immunotec Global shares with proceeds of £1,061,000 and a realised gain of £672,000 on cost. Other realisations can be found in the realisations table on page 18 of the full Annual Report and Financial Statements.
The policy of increasing the income generating capacity of the Company continues to bear fruit. The Company received £1,257,000 of loan stock income during the year representing a rise of 15% on the £1,095,000 loan stock income received from the portfolio during the previous year.
The first pie chart at the end of this announcement outlines the different sectors in which the Company's assets, at carrying value, are currently invested.
Gearing
As defined by the Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10% of the adjusted capital and reserves, being £51,680,000 (2015: £43,434,000). As at 31 December 2016, the Company had no actual short term and long term gearing (2015: £nil). 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.
Management agreement
Under the Investment Management Agreement, Albion Ventures LLP provides investment management, company secretarial and administrative services to the Company. Albion Ventures LLP is entitled to an annual management fee of 2% of net asset value of the Company, payable quarterly in arrears, along with an annual administration fee of £50,000.
Under the terms of the Investment Management Agreement, the aggregate payable for management and administration (normal running costs) are subject to an aggregate annual cap of 3% of the year end closing net asset value, for accounting periods commencing after 31 December 2011.
The Investment 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 entitled to arrangement fees payable by portfolio companies (up to a maximum of 2% of the amount invested) and to fees charged for the monitoring of investments (up to a maximum of £20,000 per company per annum).
Performance incentive fee
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.
The performance hurdle is equal to the greater of the Starting NAV of 20 pence per share, increased by the increase in RPI plus 2 per cent per annum from the Start Date of 1 January 2014 (calculated on a simple and not compound basis) and the highest Total Return for any earlier period after the Start Date (the 'high watermark'). An annual fee (in respect of each share in issue) of an amount equal to 15 per cent of any excess of the Total Return (this being NAV per share plus dividends paid after the Start Date) as at the end of the relevant accounting period over the performance hurdle will be due to the Manager.
As at 31 December 2016, the total return of the Company since 1 January 2014 (the performance incentive fee start date) was 24.41 pence per share, compared to a performance hurdle rate of 23.01 pence per share. As a result, a performance incentive fee is payable to the Manager of £513,000 (2015: £242,000).
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company from the management and sale of existing investments, the continuing achievement of the 70% investment requirement for Venture Capital Trust status, the making of new investments in accordance with the investment policy, the long term prospects of current investments, a review of the Investment Management agreement and the services provided therein and benchmarking the performance of the Manager to other service providers.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive ("AIFMD")
The Board has appointed Albion Ventures LLP as the Company's AIFM as required by the AIFMD.
Share buy-back policy
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. The Board's policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest.
It is the Board's intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.
Further details of shares bought back during the year ended 31 December 2016 can be found in note 14.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414c of the Companies Act 2006 (the "Act") to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and 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 22 and 23 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 |
| Investment and performance risk | The risk of investment in poor quality assets, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company's current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager 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), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings. |
| VCT approval risk | The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs. |
| Regulatory and compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager's Compliance Officer. 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 Board meetings, and also as part of the review work undertaken by the Manager's Compliance Officer. The report on controls is also evaluated by the internal auditors. |
| Operational and internal control risk | The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager's business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Audit Committee reviews the Internal Audit Reports prepared by the Manager's internal auditors, PKF Littlejohn LLP. On an annual basis, the Audit Committee chairman meets with the internal audit Partner to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company's investment objective and policies. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP. |
| Economic and political 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. | The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of equity and secured loan stock in portfolio companies and has a policy of not normally permitting any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy back and follow on investments. |
| Market value of Ordinary shares | The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buyback cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust its buyback authorities, which are renewed each year. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors. |
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, the Directors have assessed the prospects of the Company over three years to 31 December 2019. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timelines for finding, assessing and completing investments.
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 this Strategic report the Company's income more than covers on-going expenses, and this income should increase as our asset-backed investments continue to mature. The portfolio is well balanced and geared towards long term growth delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company's income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.
In considering the viability of the Company, the Board took into account factors including the processes for mitigating risks, monitoring costs, managing 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 2019.
This Strategic report of the Company for the year ended 31 December 2016 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
Robin Field
Chairman
21 March 2017
Responsibility Statement
In preparing these Financial Statements for the year to 31 December 2016, the Directors of the Company, being Robin Field, Thomas Chambers and Martin Fiennes, 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 2016 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit of the Company for the year ended 31 December 2016 as required by DTR 4.1.12R;
-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 2016 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 26 of the full Annual Report and Financial Statements.
By order of the Board
Robin Field
Chairman
21 March 2017
Income statement
| Year ended 31 December 2016 | Year ended 31 December 2015 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments | 2 | - | 6,076 | 6,076 | - | 3,784 | 3,784 |
| Investment income | 3 | 1,370 | - | 1,370 | 1,412 | - | 1,412 |
| Investment management fee | 4 | (244) | (733) | (977) | (212) | (636) | (848) |
| Performance incentive fee | 4 | (128) | (385) | (513) | (60) | (182) | (242) |
| Other expenses | 5 | (279) | - | (279) | (271) | - | (271) |
| Profit on ordinary activities before tax | 719 | 4,958 | 5,677 | 869 | 2,966 | 3,835 | |
| Tax on ordinary activities | 7 | - | - | - | - | - | - |
| Profit and total comprehensive income attributable to shareholders | 719 | 4,958 | 5,677 | 869 | 2,966 | 3,835 | |
| Basic and diluted return per share (pence) * | 9 | 0.29 | 2.03 | 2.32 | 0.40 | 1.37 | 1.77 |
* 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.
Balance sheet
| 31 December 2016 | 31 December 2015 | ||
| Note | £'000 | £'000 | |
| Fixed assets investments | 10 | 51,601 | 41,257 |
| Current assets | |||
| Trade and other receivables less than one year | 12 | 476 | 388 |
| Cash and cash equivalents | 1,788 | 3,518 | |
| 2,264 | 3,906 | ||
| Total assets | 53,865 | 45,163 | |
| Creditors: amounts falling due within one year | |||
| Trade and other payables less than one year | 13 | (855) | (551) |
| Total assets less current liabilities | 53,010 | 44,612 | |
| Equity attributable to equityholders | |||
| Called up share capital | 14 | 2,840 | 2,533 |
| Share premium | 14,218 | 8,399 | |
| Capital redemption reserve | 11 | 11 | |
| Unrealised capital reserve | 12,526 | 7,170 | |
| Realised capital reserve | 3,432 | 3,830 | |
| Other distributable reserve | 19,983 | 22,669 | |
| Total equity shareholders' funds | 53,010 | 44,612 | |
| Basic and diluted net asset value per share (pence) * | 15 | 21.41 | 20.11 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The Financial Statements were approved by the Board of Directors and authorised for issue on 21 March 2017 and were signed on its behalf by:
Robin Field
Chairman
Company number: 03139019
Statement of changes in equity
| Called up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 31 December 2015 | 2,533 | 8,399 | 11 | 7,170 | 3,830 | 22,669 | 44,612 |
| Profit and total comprehensive income for the period | - | - | - | 5,718 | (760) | 719 | 5,677 |
| Transfer of previously unrealised gains on disposal or write off of investments | - | - | - | (362) | 362 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (905) | (905) |
| Issue of equity | 307 | 5,981 | - | - | - | - | 6,288 |
| Cost of issue of equity | - | (162) | - | - | - | - | (162) |
| Dividends paid | - | - | - | - | (2,500) | (2,500) | |
| At 31 December 2016 | 2,840 | 14,218 | 11 | 12,526 | 3,432 | 19,983 | 53,010 |
| At 31 December 2014 | 2,265 | 3,444 | 11 | 3,981 | 2,978 | 26,262 | 38,941 |
| Profit and total comprehensive income for the period | - | - | - | 3,523 | (557) | 869 | 3,835 |
| Transfer of previously unrealised gains on disposal or write off of investments | - | - | - | (334) | 334 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,192) | (1,192) |
| Issue of equity | 268 | 5,105 | - | - | - | - | 5,373 |
| Cost of issue of equity | - | (150) | - | - | - | - | (150) |
| Transfer from other distributable reserve to realised capital reserve | - | - | - | - | 1,075 | (1,075) | - |
| Dividends paid | - | - | - | - | - | (2,195) | (2,195) |
| At 31 December 2015 | 2,533 | 8,399 | 11 | 7,170 | 3,830 | 22,669 | 44,612 |
*These reserves amount to £23,415,000 (2015: £26,499,000) which is considered distributable.
The accompanying notes form an integral part of these Financial Statements.
Statement of cash flows
| Year ended 31 December 2016 | Year ended 31 December 2015 | ||
| Note | £'000 | £'000 | |
| Cash flow from operating activities | |||
| Investment income received | 902 | 1,036 | |
| Deposit interest received | 32 | 37 | |
| Dividend income received | 84 | 282 | |
| Investment management fee paid | (994) | (1,024) | |
| Performance incentive fee paid | (242) | - | |
| Other cash payments | (227) | (313) | |
| Exchange rate movement on a part disposal of an asset | 7 | (10) | |
| Net cash flow from operating activities | (438) | 8 | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments | (5,935) | (4,375) | |
| Disposal of fixed asset investments | 1,918 | 5,250 | |
| Net cash flow from investing activities | (4,017) | 875 | |
| Cash flow from financing activities | |||
| Issue of share capital | 14 | 5,880 | 5,059 |
| Cost of issue of equity | (2) | (2) | |
| Purchase of own shares (including costs) | 14 | (905) | (1,192) |
| Equity dividends paid* | (2,248) | (2,028) | |
| Net cash flow from financing activities | 2,725 | 1,837 | |
| (Decrease)/increase in cash and cash equivalents | (1,730) | 2,720 | |
| Cash and cash equivalents at start of the year | 3,518 | 798 | |
| Cash and cash equivalents at end of the year | 1,788 | 3,518 | |
| Cash and cash equivalents comprise: | |||
| Cash at bank and in hand | 1,788 | 3,518 | |
| Cash equivalents | - | - | |
| Total cash and cash equivalents | 1,788 | 3,518 |
* The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 8 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
The accompanying notes form an integral part of these Financial Statements.
Notes to the Financial Statements
1. Accounting policies
Basis of accounting
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").
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss ("FVTPL"). The Company values investments by following the IPEVCV Guidelines and further detail on the valuation techniques used are outlined below.
Company information can be found on page 2 of the full Annual Report and Financial Statements.
Fixed asset investments
The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are designated 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 Income statement 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.
Gains and losses on investments
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the year as a capital item and are allocated to unrealised capital reserve.
Investment income
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 other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
- 75 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.
Foreign exchange
The currency of the primary economic environment in which the Company operates (the functional currency) is pounds Sterling ("Sterling"), which is also the presentational currency of the Company. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each Balance sheet date, monetary items and non-monetary assets and liabilities that are measured at fair value, which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Exchange differences arising on settlement of monetary items and from retranslating at the Balance sheet date of investments and other financial instruments measured at FVPTL, and other monetary items, are included in the Income statement. Exchange differences relating to investments and other financial instruments measured at fair value are subsequently included in the unrealised capital reserve.
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.
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.
| 2. Gains on investments | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
| Unrealised gains on fixed asset investments | 5,718 | 3,523 |
| Realised gains on fixed asset investments | 358 | 261 |
| 6,076 | 3,784 |
| 3. Investment income | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
| Income recognised on investments | ||
| Interest from loans to portfolio companies | 1,257 | 1,095 |
| Dividends | 84 | 282 |
| Bank deposit interest | 29 | 35 |
| 1,370 | 1,412 |
| 4. Investment management and performance incentive fees | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
| Investment management fee charged to revenue | 244 | 212 |
| Investment management fee charged to capital | 733 | 636 |
| Performance incentive fee charged to revenue | 128 | 60 |
| Performance incentive fee charged to capital | 385 | 182 |
| 1,490 | 1,090 |
Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report.
During the year, services with a value of £977,000 (2015: £848,000) and £50,000 (2015: £50,000) were purchased by the Company from Albion Ventures LLP in respect of management and administration fees respectively. A performance incentive fee with a value of £513,000 (2015: £242,000) has been disclosed within the Income statement. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals was £786,000 (2015: £468,000).
Albion Ventures LLP is, from time to time, eligible to receive transaction fees and monitoring fee from portfolio companies. During the year ended 31 December 2016 Albion Ventures LLP received transaction fees from 19 portfolio companies and monitoring fees from 30 portfolio companies. Kings Arms Yard's share of these fees were, transactions fees of £53,000 and monitoring fees of £120,000 (2015: transaction fees: £52,000; monitoring fees: £137,000).
Albion Ventures LLP holds 88,543 (2015: 84,185) Ordinary shares in the Company.
| 5. Other expenses | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
| Administrative and secretarial services to the Manager | 50 | 50 |
| Directors' fees (note 6) | 72 | 65 |
| Auditor's remuneration for statutory audit services (excluding VAT) | 24 | 24 |
| Other expenses | 126 | 124 |
| 272 | 263 | |
| Foreign exchange cost | 7 | 8 |
| 279 | 271 |
| 6. Directors' fees | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 | |
| Amount payable to Directors | 66 | 60 | |
| National insurance | 6 | 5 | |
| 72 | 65 | ||
The Company's key management personnel are the Directors. Further information regarding Directors' remuneration can be found in the Directors' remuneration report on pages 32 and 33 of the full Annual Report and Financial Statements.
| 7. Tax on ordinary activities | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
| UK Corporation tax payable | - | - |
| Reconciliation of profit on ordinary activities to taxation charge | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
| Return on ordinary activities before taxation | 5,677 | 3,835 |
| Tax charge on profit at the standard UK corporation tax rate of 20% (2015: effective rate 20.25%) | 1,135 | 776 |
| Effects of: | ||
| Non-taxable gain | (1,215) | (766) |
| Non-taxable income | (17) | (57) |
| Unutilised management expenses | 97 | 47 |
| - | - |
The tax charge for the year shown in the Income statement is lower than the small company's rate of corporation tax in the UK of 20 per cent. (2015: effective rate 20.25 per cent.). The differences are explained above.
The Company has excess management expenses of £10,764,000 (2015: £10,279,000) that are available for offset against future profits. A deferred tax asset of £1,830,000 (2015: £2,056,000) has not been recognised in respect of those losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
| 8. Dividends | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
| First dividend of 0.5 pence per share paid on 30 April 2015 | - | 1,109 |
| Second dividend of 0.5 pence per share paid on 30 October 2015 | - | 1,116 |
| First dividend of 0.5 pence per share paid on 29 April 2016 | 1,256 | - |
| Second dividend of 0.5 pence per share paid on 31 October 2016 | 1,244 | - |
| Unclaimed dividends returned to Company | - | (30) |
| 2,500 | 2,195 |
The Directors have declared a first dividend of 0.5 pence per share for the year ending 31 December 2017, which will amount to approximately £1,330,000. This dividend will be paid on 28 April 2017 to shareholders on the register on 7 April 2017.
| 9. Basic and diluted return per share | ||||||
| Year ended 31 December 2016 | Year ended 31 December 2015 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Profit attributable to shareholders (£'000) | 719 | 4,958 | 5,677 | 869 | 2,966 | 3,835 |
| Weighted average shares in issue (excluding treasury shares) | 244,550,634 | 216,878,531 | ||||
| Return attributable per equity share (pence) | 0.29 | 2.03 | 2.32 | 0.40 | 1.37 | 1.77 |
The weighted average number of Ordinary shares is calculated excluding the treasury shares of 36,375,000 (2015: 31,463,000).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
| 10. Fixed asset investments Summary of fixed asset investments | 31 December 2016 £'000 | 31 December 2015 £'000 |
| Investments held at fair value through profit or loss Unquoted equity | 27,094 | 22,148 |
| Unquoted loan stock | 20,664 | 16,658 |
| Quoted equity | 3,843 | 2,451 |
| 51,601 | 41,257 |
| 31 December 2016 £'000 | 31 December 2015 £'000 | |
| Opening valuation | 41,257 | 38,055 |
| Purchases at cost | 7,405 | 4,373 |
| Disposal proceeds | (3,493) | (5,164) |
| Realised gains | 358 | 261 |
| Movement from current asset investments | - | 150 |
| Movement in loan stock accrued income | 355 | 59 |
| Movement in unrealised gains | 5,718 | 3,523 |
| Closing valuation | 51,601 | 41,257 |
| Movement in loan stock accrued income | ||
| Opening accumulated movement in loan stock accrued income | 187 | 128 |
| Movement in loan stock accrued income | 355 | 59 |
| Closing accumulated movement in loan stock accrued income | 543 | 187 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 7,158 | 4,069 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (362) | (1,111) |
| Transfer of previously unrealised losses to realised reserve on investment written off but still held | - | 778 |
| Movement from current asset investments | - | (100) |
| Movement in unrealised gains | 5,718 | 3,523 |
| Closing accumulated unrealised gains | 12,514 | 7,158 |
| Historical cost basis | ||
| Opening book cost | 33,912 | 33,858 |
| Purchases at cost | 7,405 | 4,373 |
| Sales at cost | (2,772) | (3,791) |
| Cost of investments written off but still held | - | (778) |
| Movement from current asset investments | - | 250 |
| Closing book cost | 38,544 | 33,912 |
Closing cost is net of amounts of £1,974,000 (2015: £1,974,000) written off in respect of investments still held at the Balance sheet date.
Amounts shown as cost represent the acquisition cost in the case of investments made by the Company and/or the valuation attributed to the investments acquired from other VCTs at the dates of merger, plus any subsequent acquisition cost.
Purchases and disposals detailed above may not agree to purchases and disposals in the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement debtors and creditors.
| Unquoted investment valuation methodologies Unquoted investments are valued in accordance with the IPEVCV guidelines as follows: | ||
| Valuation Methodologies | 31 December 2016 £'000 | 31 December 2015 £'000 |
| Net assets supported by third party valuation | 22,317 | 12,869 |
| Price of recent investment (reviewed for impairment or uplift) | 8,662 | 6,434 |
| Earnings multiple | 7,736 | 5,815 |
| Revenue multiple | 6,913 | 7,802 |
| Cost reviewed for impairment or uplift | 2,130 | 4,336 |
| Discount to offer price | - | 1,550 |
| 47,758 | 38,806 | |
Third party valuations are prepared by PricewaterhouseCoopers and independent RICS qualified surveyors in full compliance with the RICS Red Book.
Fair value investments had the following movements between valuation methodologies between 31 December 2015 and 31 December 2016.
| Change in valuation methodology (2015 to 2016) | Value as at 31 December 2016 £'000 | Explanatory Note | |
| Cost reviewed for impairment to net assets supported by third party valuation | 3,776 | Third party valuations prepared | |
| Revenue multiple to price of recent investment | 324 | Investment round has recently taken place | |
| Cost reviewed for impairment to price of recent investment | 104 | Investment round has recently taken place | |
| Cost reviewed for impairment to earnings multiple | 62 | More relevant valuation methodology | |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, the methods used are the most appropriate methods of valuation as at 31 December 2016.
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:
The table below sets out fair value measurements using FRS 102 s11.27 fair value hierarchy, which has been adopted early. The Company has one class of assets, being at fair value through profit and loss.
| Fair value hierarchy | Definition |
| Level 1 | The unadjusted quoted price in an active market |
| Level 2 | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
Quoted NASDAQ and LSE investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares, and loan stock are all valued according to Level 3 valuation methods.
| Level 3 reconciliation | 31 December 2016 £'000 | 31 December 2015 £'000 |
| Opening valuation | 38,806 | 34,865 |
| Purchases at cost | 5,938 | 4,373 |
| Unrealised gains | 4,792 | 3,802 |
| Movement in loan stock accrued income | 355 | 59 |
| Transfer to Level 1* | - | (228) |
| Realised net gains on disposal | 201 | 267 |
| Movement from current asset investments | - | 150 |
| Disposal proceeds | (2,334) | (4,482) |
| Closing valuation | 47,758 | 38,806 |
* During the year ended 31 December 2015 Xtera Communications Inc. was quoted on NASDAQ and transferred to Level 1 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. 58 per cent. of the portfolio of investments is based on cost, recent investment price or is loan stock, and as such the Board considers that the assumptions used for their valuations are the most reasonable. The Directors believe that changes to reasonable possible alternative assumptions (by adjusting the revenue and earnings multiples) for the valuations of the remainder of the portfolio companies could result in an increase in the valuation of investments by £1,706,000 or a decrease in the valuation of investments by £1,352,000.
For valuations based on earnings and revenue multiples, the Board considers that the most significant input is the price/earnings ratio; for valuations based on third party valuations, the Board considers that the most significant inputs are price/earnings ratio, discount factors and market value per room for care homes; which have been adjusted to drive the above sensitivities.
11. Significant holdings
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 ordinarily take a controlling interest or become involved in the management. The size and structure of companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The Company has interests of greater than 20% of the nominal value of any class (some of which are non-voting) of the allotted shares in the portfolio companies as at 31 December 2016 as described below. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102, they are measured at fair value and are not accounted for using the equity method.
| Company | Country of incorporation | Profit/(loss) before tax | Net assets/ (liabilities) | Number of shares held | % class and share type | % total voting rights |
| Academia Inc. | United States of America | n/a | n/a | 774,400 | 23.2% Preferred shares | 3.2% |
| Active Lives Care Limited | Great Britain | n/a* | 1,373,000 | 1,095,430 | 20.3% Ordinary shares | 20.3% |
| Antenova Limited | Great Britain | n/a* | 1,038,000 | 9,226,988 | 22.0% Preferred shares | 28.7% |
| Elateral Group Limited | Great Britain | (3,110,000) | (5,759,000) | 17,380,462 | 37.7% Ordinary shares | 37.7% |
| Proveca Limited | Great Britain | n/a* | (2,378,000) | 40,289 | 35.8% D Ordinary shares | 16.4% |
| Sift Digital Limited | Great Britain | n/a* | (403,000) | 33,671,618 | 38.6% Ordinary shares | 38.6% |
| Sift Limited | Great Britain | 181,000 | 1,795,000 | 33,671,618 | 42.1% Ordinary shares | 42.1% |
*The company files abbreviated accounts which does not disclose this information.
| 12. Trade and other receivables less than one year | ||
| 31 December 2016 £'000 | 31 December 2015 £'000 | |
| Trade and other receivables less than one year | 459 | 369 |
| Prepayments and accrued income | 17 | 19 |
| 476 | 388 | |
The Directors consider that the carrying amount of debtors is not materially different to their fair value.
| 13. Creditors: amounts falling due within one year | 31 December 2016 £'000 | 31 December 2015 £'000 |
| Trade creditors | 5 | 17 |
| Accruals | 838 | 522 |
| Other creditors | 12 | 12 |
| 855 | 551 |
The Directors consider that the carrying amount of creditors is not materially different to their fair value.
14. Called up share capital
| Allotted, called up and fully paid | £'000 |
| 253,303,558 Ordinary shares of 1 penny each at 31 December 2015 | 2,533 |
| 30,690,246 Ordinary shares of 1 penny each issued during the year | 307 |
| 283,993,804 Ordinary shares of 1 penny each at 31 December 2016 | 2,840 |
| 31,463,000 Ordinary shares of 1 penny each held in treasury at 31 December 2015 | (315) |
| 4,912,000 Ordinary shares purchased during the year to be held in treasury | (49) |
| 36,375,000 Ordinary shares of 1 penny each held in treasury at 31 December 2016 | (364) |
| 247,618,804 Ordinary shares of 1 penny each in circulation* at 31 December 2016 | 2,476 |
*Carrying one vote each
During the year the Company purchased 4,912,000 Ordinary shares (2015: 6,588,000) representing 1.7% of the issued Ordinary share capital as at 31 December 2016, at a cost of £905,000 (2015: £1,192,000), including stamp duty, to be held in treasury. The Company holds a total of 36,375,000 Ordinary shares in treasury, representing 12.8% of the issued Ordinary share capital as at 31 December 2016.
Under the terms of the Dividend Reinvestment Scheme, Circular dated 19 April 2011, the following new Ordinary shares of nominal value 1 penny per share were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net invested (£'000) | Opening market price on allotment date (pence per share) |
| 29 April 2016 | 636,545 | 6 | 19.61 | 123 | 18.50 |
| 31 October 2016 | 649,493 | 6 | 19.16 | 123 | 18.50 |
| 1,286,038 | 12 | 246 |
During the period from 1 January 2016 to 31 December 2016, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCT Prospectus Top Up Offers 2015/2016:
| 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 | 8,861,834 | 89 | 20.20 | 1,754 | 18.25 |
| 29 January 2016 | 4,851,404 | 48 | 20.30 | 961 | 18.25 |
| 31 March 2016 | 15,306,074 | 153 | 20.80 | 3,088 | 18.25 |
| 6 April 2016 | 175,236 | 2 | 20.60 | 35 | 18.25 |
| 6 April 2016 | 44,280 | - | 20.70 | 9 | 18.25 |
| 6 April 2016 | 165,380 | 2 | 20.80 | 33 | 18.25 |
| 29,404,208 | 294 | 5,880 |
15. Basic and diluted net asset value per share
The basic and diluted net asset value per share as at 31 December 2016 of 21.41 pence (2015: 20.11 pence) are based on net assets of £53,010,000 (2015: £44,612,000) divided by the 247,618,804 shares in issue (net of treasury shares) at that date (2015: 221,840,558).
16. Capital and financial instruments risk management
The Company's capital comprises Ordinary shares as described in note 14. The Company is permitted to buy back its own shares for cancellation or treasury purposes and this policy is described in more detail in the Chairman's statement.
The Company's financial instruments comprise equity and loan stock investments in unquoted and quoted companies, cash balances and liquid cash instruments and short term debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short term creditors. The Company does not use any derivatives for the management of its Balance sheet.
The principal financial instrument risks arising from the Company's operations are:
- investment (or market) risk (which comprises investment price, foreign currency on investments and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year and there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a venture capital trust, it is the Company's specific nature to evaluate and control the investment risk in its portfolio in unquoted and quoted investments, details of which are shown on pages 17 and 18 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 fair and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the Balance sheet date is the value of the fixed asset investment portfolio which is £51,601,000 (2015: £41,257,000). Fixed asset investments form 97% of the net asset value as at 31 December 2016 (2015: 92%).
More details regarding the classification of fixed asset investments are shown in note 10.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. As a venture capital trust the Company invests in unquoted companies in accordance with the investment policy set out on page 8 of the full Annual Report and Financial Statements. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. Furthermore, new unquoted investments are often made with up to two-thirds of the 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. The Directors monitor the Manager's compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV guidelines. Details of the sectors in which the Company is currently invested are shown in the pie chart at the end of this announcement.
As required under FRS 102 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% change based on the current economic climate. The impact of a 10% change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
The sensitivity of a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £5,160,000 (2015: £4,126,000).
Foreign currency risk
Foreign currency risk is the risk of exposure to movements in foreign exchange rates relative to sterling.
The majority of the Company's assets are denominated in sterling; however, the Company is exposed to US dollars through its investment in a US dollar denominated security. No hedging of the currency exposure is currently undertaken. The Manager monitors the Company's exposure and reports to the Board on a regular basis.
Investment and revenue received in currencies other than sterling is converted into sterling on or shortly after the date of investment or receipt of revenue as are any proceeds from the disposal of a foreign currency investment.
As at 31 December 2016, the Company held an investment denominated in US dollars of £2,260,000 (2015: £2,451,000).
During the year to 31 December 2016, sterling depreciated by 16.75% (2015: depreciated by 4.72%) against the US dollar.
Interest rate risk
The Company is exposed to fixed and floating rate interest rate risk on its financial assets. On the basis of the Company's analysis, it 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 £31,000 (2015: £34,000). Furthermore, it is considered that a fall of interest rates below current levels during the year would have been unlikely.
The weighted average effective interest rate applied to the Company's fixed rate fixed asset investments during the year was approximately 7.3% (2015: 7.3%). The weighted average period to maturity for the fixed rate fixed asset investments is approximately 5.6 years (2015: 6.4 years).
The Company's financial assets and liabilities as at 31 December 2016, denominated in pounds sterling, consist of the following:
| 31 December 2016 | 31 December 2015 | |||||||
| 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 | - | - | 27,094 | 27,094 | - | - | 22,148 | 22,148 |
| Quoted equity | - | - | 3,843 | 3,843 | - | - | 2,451 | 2,451 |
| Unquoted loan stock | 19,273 | 661 | 730 | 20,664 | 11,982 | 661 | 4,015 | 16,658 |
| Debtors * | - | - | 459 | 459 | - | - | 372 | 372 |
| Current liabilities | - | - | (855) | (855) | - | - | (551) | (551) |
| Cash | - | 1,788 | - | 1,788 | - | 3,518 | - | 3,518 |
| Total net assets | 19,273 | 2,449 | 31,271 | 52,993 | 11,982 | 4,179 | 28,435 | 44,596 |
* The debtors do not reconcile to the Balance sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its debtors, investment in unquoted loan stock and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock instruments prior to investment and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. In the past loan stock may or may not have a fixed or floating charge, which may or may not have been subordinated, over the assets of the portfolio company. However, for new investments, typically loan stock instruments will have a first fixed charge or a fixed and floating charge over the assets of the portfolio company in order to mitigate the gross credit risk.
The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.
The Manager and the Board formally review credit risk (including debtors) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company's total gross credit risk at 31 December 2016 was limited to £20,664,000 (2015: £16,658,000) of unquoted loan stock instruments, £1,788,000 (2015: £3,518,000) cash on deposit with banks and £459,000 (2015: £372,000) of other debtors.
The Company does not hold any assets as the result of the enforcement of security during the year and believes that the carrying values for past due assets are covered by the value of security held for these loan stock investments.
As at the Balance sheet date, cash and liquid investments held by the Company are held with the National Westminster Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group plc), Barclays Bank plc and UBS Wealth Management AG. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to regulatory supervision, with high credit ratings assigned by international credit-rating agencies.
The credit profile of unquoted loan stock is described under liquidity risk below.
Liquidity risk
Liquid assets are held as cash on current account, deposit or short term money market accounts or similar instruments. Under the terms of its Articles, the Company has the ability to borrow an amount equal to its adjusted capital and reserves of the latest published audited Balance sheet.
The Company has no committed borrowing facilities as at 31 December 2016 (2015: £nil) and had cash, before its current fundraising (raising £3.8 million in January 2017) of £1,788,000 (2015: £3,518,000). The Company had no investment commitments as at 31 December 2016 (2015: £2,396,000).
There are no externally imposed capital requirements other than the minimum statutory share capital requirements for public limited companies.
The main cash outflows are for new investments, the buy-back of shares and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. The Company's financial liabilities at 31 December 2016 are short term in nature and total £855,000 (2015: £551,000).
The carrying value of loan stock investments analysed by expected maturity dates is as follows:
| 31 December 2016 | 31 December 2015 | |||||||
| Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 1,119 | - | - | 1,119 | 2,081 | - | - | 2,081 |
| 1-2 years | 1,577 | - | - | 1,577 | 1,147 | - | - | 1,147 |
| 2-3 years | 6,113 | - | - | 6,113 | 1,417 | - | - | 1,417 |
| 3-5 years | 4,135 | - | - | 4,135 | 5,340 | - | - | 5,340 |
| 5 + years | 5,735 | 1,985 | - | 7,720 | 5,520 | 1,153 | - | 6,673 |
| Total | 18,679 | 1,985 | - | 20,664 | 15,505 | 1,153 | - | 16,658 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. This includes:
- loan stock valued at £1,985,000 yielding an average of 13% which has interest past due by less than one year.
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 of the Company's financial assets and liabilities as at 31 December 2016 are stated at fair value as determined by the Directors. There are no financial liabilities other than short term trade and other payables. The Company's financial liabilities are all non-interest bearing. It is the Directors' opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year and that the Company is subject to low financial risk as a result of having nil gearing and positive cash balances.
17. Commitments, contingencies and guarantees
As at 31 December 2016, the Company had no financial commitments (2015: £2,396,000).
There were no contingent liabilities or guarantees given by the Company as at 31 December 2016 (2015: £nil).
18. Post balance sheet events
Since the year end, the Company made the following investments:
- Investment of £190,000 in Quantexa Limited
- Investment of £123,000 in Black Swan Data Limited
- Investment of £6,000 in Beddlestead Farm Limited
Albion VCT Prospectus Top Up Offers 2016/2017
On 29 November 2016 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.
The following new Ordinary shares of nominal value 1 penny each were allotted under the Offers after 31 December 2016:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net Consideration Received £'000 | Opening market price on allotment date (pence per share) |
| 31 January 2017 | 4,249,243 | 42 | 20.90 | 870 | 19.00 |
| 31 January 2017 | 1,647,857 | 16 | 21.00 | 338 | 19.00 |
| 31 January 2017 | 12,460,938 | 125 | 21.10 | 2,550 | 19.00 |
| 18,358,038 | 3,758 |
As a result of the strong demand for the Company's shares the Board was able to announce on 22 February 2017 that subscription had reached its £6 million limit under the prospectus offer and is now closed.
19. Related party transactions
Other than transactions with the Manager as disclosed in note 4, there are no related party transactions or balances requiring disclosure.
20. 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 2016 and 31 December 2015, 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 2016, 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 17 May 2017 at 11.00am.
21. 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/funds/KAY, where the Report can be accessed as a PDF document via a link under the 'Financial Reports and Circulars' section.
LEI Code 213800DK8H27QY3J5R45
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Kings Arms Yard VCT PLC via Globenewswire
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