TIDMKAY
Kings Arms Yard VCT PLC
LEI Code 213800DK8H27QY3J5R45
As required by the UK Listing Authority's Disclosure Guidance 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 2020.
The announcement was approved for release by the Board of Directors on
26 March 2021.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31
December 2020 (which have been audited), will shortly be sent to
shareholders. Copies of the full Annual Report and Financial Statements
will be shown via the Albion Capital Group LLP website by clicking
https://www.globenewswire.com/Tracker?data=IeaQ627d2CsGwLaH7G-fn1rTKtV44hImf4qCvoti41Tf0JNbnyzaXB03QO6DUX43ZkbcXJLXW3QYi3WElID5N83V_kGj_egcrxoVqJ0IvSKDKMs77N4OzyXu5EoOgnrX9xKjSDwu3V9j87C8uw-NWlZTdVGVED-qFnPx30w7ui8=
www.albion.capital/funds/KAY/31Dec2020.pdf.
The information contained in the Annual Report and Financial Statements
will include information as required by the Disclosure Guidance and
Transparency Rule's, including Rule 4.1.
Investment policy
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment
policy is intended to produce a regular and predictable dividend stream
with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses
across a variety of sectors of the UK economy including higher risk
technology companies. Allocation of assets will be determined by the
investment opportunities which become available but efforts will be made
to ensure that the portfolio is diversified both in terms of sector and
stage of maturity of company.
Funds held pending investment or for liquidity purposes are held as cash
on deposit or similar instruments with banks or other financial
institutions with high credit ratings assigned by international credit
rating agencies.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within
venture capital trust qualifying industry sectors using a mixture of
securities. The maximum amount which the Company will invest in a single
portfolio company is 15 per cent. of the Company's assets at cost, thus
ensuring a spread of investment risk. The value of an individual
investment may increase over time as a result of trading progress and it
is possible that it may grow in value to a point where it represents a
significantly higher proportion of total assets prior to a realisation
opportunity being available.
The Company's maximum exposure in relation to gearing is restricted to
the amount equal to its adjusted capital and reserves.
Financial calendar
Record date for first dividend 16 April 2021
Payment date for first dividend 30 April 2021
Annual General Meeting Noon on 10 June 2021
Announcement of half-yearly results for the six months September 2021
ending 30 June 2021
Financial highlights
21.84p Net asset value per share as at 31 December 2020
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0.91p Basic and diluted return per share
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1.11p Total tax free dividends per share paid in the year
to 31 December 2020
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0.60p First tax free dividend per share declared for the
year to 31 December 2021 payable on 30 April 2021
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4.24% Shareholder return for the year ended 31 December
2020
---------------------------------------------------
Shareholder return is calculated by the movement in total shareholder
value for the year divided by the opening net asset value.
31 December 2020 (pence 31 December 2019 (pence
per share) per share)
Opening net asset value 22.02 22.78
Capital return/(loss) 0.59 (0.02)
Revenue return 0.32 0.44
------------------------ -------------------------
Total return 0.91 0.42
Dividends paid (1.11) (1.20)
Impact from share capital
movements 0.02 0.02
------------------------ -------------------------
Net asset value 21.84 22.02
------------------------- ------------------------ -------------------------
Shareholder return and shareholder value (pence per share)
Shareholder return from launch to 1 January 2011
Subscription price per share at launch 100.00
Total dividends paid to 1 January 2011 58.66
Decrease in net asset value (83.40)
-------------------
Total shareholder value to 1 January 2011 75.26
-------------------
Shareholder return from 1 January 2011 to 31 December
2020 (period that Albion Capital has been investment
manager):
Total dividends paid 10.18
Increase in net asset value 5.24
-------------------
Total shareholder return from 1 January 2011 to 31
December 2020 15.42
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Shareholder value since launch:
Total dividends paid to 31 December 2020 68.84
Net asset value as at 31 December 2020 21.84
-------------------
Total shareholder value as at 31 December 2020 90.68
------------------------------------------------------------ -------------------
The Directors have declared a first dividend of 0.60 pence per share for
the year ending 31 December 2021, which will be paid on 30 April 2021 to
shareholders on the register on 16 April 2021.
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 at
https://www.globenewswire.com/Tracker?data=IeaQ627d2CsGwLaH7G-fn1rTKtV44hImf4qCvoti41TM2uULHJe2qXD3rnGBOjMW7ugCavQn379K_R5pMzaaHftLhqMxwlLw7QDdDH4hLeGviMd29_jGoSiohzj82pQG
www.albion.capital/funds/KAY under the 'Financial summary for previous
funds' section.
Chairman's statement
Introduction
The Covid-19 pandemic made 2020 a challenging year for every business
but our Company has emerged in a stronger state than might have been
predicted twelve months ago, with a positive return on our opening net
asset value. As I will elaborate below, the proportion of our assets
held in the legacy portfolio selected by previous managers has declined
to less than 9% of our total and the remainder of our portfolio,
selected since January 2011, has performed strongly. Within 2020 and
since the year end we have seen some significant improvements in value
and a number of very positive asset realisations.
Results and performance
The total return for the year was 0.91 pence per share, which is a 4.2%
return on opening net asset value (excluding dividends paid). Realised
and unrealised gains on investments amounted to GBP3.3 million for the
year. Key contributors were the uplifts in the valuations of Proveca
(GBP2.4m), which continues to trade well both within the UK and EU,
OmPrompt Holdings (GBP1.7m), which was sold after the year end, and
Quantexa (GBP1.6m), which has been revalued after a successful further
funding round. This was offset by write downs in Perpetuum (GBP1.8m) and
Elateral Group (GBP1.2m).
Net asset value per share decreased by 0.18 pence to 21.84 pence over
the year to 31 December 2020, after allowing for the payment of
dividends totalling 1.11 pence per share. It is worthy of note that this
aggregate performance was the result of an overall gain of 1.81 pence
per share from investments made since the appointment of Albion Capital
as Manager in January 2011 and a loss of 0.91 pence per share from the
continually shrinking legacy portfolio.
Investment realisations
The sale of G.Network Communications has been completed, with a strong
headline total return of 3.8 times cost, although the terms of the sale
will see proceeds being received in three years' time. In the current
year, this still reflects a substantial GBP0.9 million of realised gains,
with the proceeds having been appropriately discounted. Another strong
exit returning 2.1 times cost was our holding in Clear Review, which was
sold to Advanced Computer Software Group. Further details on
realisations can be found in the realisations table on page 25 of the
full Annual Report and Financial Statements.
Following the year end, in March 2021, the Company completed the sale of
its three care homes for the elderly; Active Lives Care, Ryefield Court
Care, and Shinfield Lodge Care. These homes were trading at mature
occupancy levels. The first investments in the homes were made over 5
years ago and the sale will generate a 2.4 times return on cost
(including interest received) and an internal rate of return of 20%
p.a., an excellent result for the Company. The Company also completed
the sale of OmPrompt Holdings in March 2021 realising proceeds of GBP3.0
million. If the full escrow amount is received, we will have generated a
2.6 times return on cost (including interest received) and an internal
rate of return of 19% p.a..
Following these investment realisations, which result in a significant
cash holding, the Company is well placed to take advantage of the strong
pipeline of investment opportunities which have been, and will be,
identified by the Manager. The Board intends to monitor the new
investment activity, and the requirement to comply with the HMRC 80%
qualifying investments level, over the coming months. An update will be
provided to shareholders in the Half-yearly Financial Report, including
the potential payment of a special dividend.
Portfolio
The Company holds a widely diversified selection of businesses, with key
investments in the healthcare (including digital healthcare), renewable
energy, software and other technology sectors.
During the year a total of GBP4.0 million was invested into new and
existing portfolio companies. Of this, GBP1.6 million was invested into
6 new portfolio companies, the majority of which are software
businesses. Follow on investments were made into 12 existing portfolio
companies and accounted for GBP2.4 million of cash.
The portfolio now comprises a total of 66 companies of which 13 are
legacy investments made before the present Manager was appointed in
January 2011.
The Board has reassessed the carrying value of all portfolio investments
and has revalued those wherever trading performance or market conditions
made this appropriate. The overall outcome shows a net positive gain on
investments of GBP3.3 million.
For a detailed review of these additions, disposals and other
developments in the business please see the Strategic report below.
Dividend
The Company paid dividends totalling 1.11 pence per share during the
year ended 31 December 2020 (2019: 1.20 pence per share).
As set out in the Half yearly Financial Report to 30 June 2020, the
Board considered it appropriate to move to a variable dividend policy
targeting an annual dividend yield of around 5%, based on prevailing net
asset value rather than at a fixed rate, as it has been in the past.
Semi-annual dividends are intended to be calculated as 2.5% of the most
recently announced net asset value when the dividend is declared (in
most cases this will be the net asset value announced in the Half-yearly
Financial Report or in the Annual Report and Financial Statements).
The Board is therefore pleased to declare a first dividend for the year
ending 31 December 2021 of 0.60 pence per share (2020: 0.60 pence per
share) being 2.5% of the net asset value rounded up to the nearest tenth
of a penny to be paid on 30 April 2021 to shareholders on the register
on 16 April 2021. In declaring this dividend the Board is very conscious
of our target annual dividend yield of 5% and of the positive
developments since the year end.
Board continuity
This year's AGM will mark my 12th anniversary as Chairman of this
Company and I will be stepping down at the end of the General Meeting. I
am delighted to say that Fiona Wollocombe has agreed to take the Chair
on my departure. Kings Arms Yard is now a very different company from
that of which I joined the Board in 2009, and I would like to take this
opportunity to thank my board colleagues and our Manager, Albion Capital,
for all they have done to make it the thriving investment opportunity
that I now believe it to be.
In order to provide the Board with more capacity for succession planning,
a resolution is being proposed at the forthcoming Annual General Meeting
("AGM") to increase the cap on Directors remuneration from GBP100,000 to
GBP125,000 per annum. There is no current intention of increasing
Directors fees materially in the near term, but the new level proposed
under the Articles of Association provides extra flexibility in the case,
for example, of an additional Board member being appointed prior to the
retirement of an existing Director.
VCT qualifying status
As at 31 December 2020, the HMRC value of qualifying investments of our
portfolio (which includes a 12 month disregard for disposals) was 98%
(2019: 100%). The Board continues to monitor this and all the VCT
qualification requirements very carefully in order to ensure that all
requirements are met and that qualifying investments comfortably exceed
the current minimum threshold of 80% which is required for the Company
to continue to benefit from VCT tax status.
Albion VCTs Prospectus Top Up Offers
Your Board, in conjunction with the boards of four of the other VCTs
managed by Albion Capital Group LLP, launched a prospectus top up offer
of new Ordinary shares on 5 January 2021. The Board announced on 15
February 2021 that, following strong demand, it would utilise the
over-allotment facility, bringing the total to be raised to GBP15
million. The Offer was fully subscribed and closed to further
applications on 26 February 2021.
The proceeds are being used to provide support to our existing portfolio
companies and to enable us to take advantage of new investment
opportunities. The first allotment of the shares under the Offer was on
26 February 2021. Details of share allotments made during and after the
financial year end can be found in notes 15 and 19 respectively.
Share buy-backs
It remains the Board's primary objective to maintain sufficient
resources for investment in new and existing 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 per cent.
discount to net asset value, so far as market conditions and liquidity
permit. The Board continues to review the use of buy-backs and is
satisfied that it is an important means of providing market liquidity
for shareholders.
Annual General Meeting
The Board has been considering the current rules around the Covid-19
pandemic on the arrangements for our forthcoming AGM. These arrangements
may be subject to change, and we will keep shareholders up to date on
our Manager's website at www.albion.capital/vct-hub/agms-events.
We are required by law to hold an AGM within six months of our financial
year end. Whilst the roadmap announced by the government gives a target
of no earlier than 21 June 2021 as the date all legal limits on mixing
will be lifted, the Board has decided not to delay the AGM, as the
roadmap is clear that data rather than dates are the true driver of
restrictions. Were we to schedule a conventional AGM in the last few
days of June and restrictions on mixing not be lifted as we all hope, we
might face a scramble at very short notice to inform shareholders of
Covid complying arrangements. The Board consider last years' AGM to have
been satisfactorily live streamed, and therefore we will plan for
something similar at an AGM to be held at noon on 10 June 2021, at the
Company's registered office, 1 Benjamin Street, London, EC1M 5QL.
The quorum for the meeting is two, therefore two shareholders who are
also Directors will attend in person to allow the continuation of this
AGM. There will also be a representative of Albion Capital Group LLP as
Company Secretary. As Covid-19 restrictions will still be in place at
the time of the AGM, no other shareholders will be allowed entry into
the building where the AGM is held. Our Articles of Association do not
currently allow hybrid or wholly virtual AGMs, but as outlined below a
resolution is being proposed to allow this in the future.
The AGM will include a presentation from the Manager, formal business
and the answering of questions from shareholders. We will do all we can
to improve on the shareholder engagement that we attempted last year.
Registration details for the live stream will be available at
www.albion.capital/funds/KAY prior to the Meeting.
We always welcome questions from our shareholders at the AGM, and, while
we will make every attempt to allow the real time submission and
answering of questions this cannot yet be guaranteed, so we request that
shareholders submit questions to the Board in advance of the AGM.
Shareholders can submit questions up until noon on 8 June 2021 by email
to: KAYchair@albion.capital
https://www.globenewswire.com/Tracker?data=2wLsk7wrPlY3p4UPXhvsZlURm2nNZdflKs8y8goVF0-vZuOfKaQjf355KYJT4YSp0wUAI9Seky9OuCRuFQ400IDL49b09tn2pUMDJ9HGXLk=
. If we are able to offer additional interactive questions and answers
details will be posted on www.albion.capital/funds/KAY prior to the
Meeting along with the registration details. Following the Meeting, a
summary of responses will be published at www.albion.capital/funds/KAY.
Shareholders' views are important, and the Board encourages shareholders
to vote on the resolutions using the proxy form enclosed with this
Annual Report and Financial Statements, or electronically at
www.investorcentre.co.uk/eproxy. The Board has carefully considered the
business to be approved at the AGM and recommends shareholders to vote
in favour of all the resolutions being proposed.
Full details of the business to be conducted at the AGM are given in the
Notice of the Meeting on pages 71 to 73 and in the Directors' report on
pages 35 and 36 of the full Annual Report and Financial Statements.
Virtual and hybrid Annual General Meetings
As noted above, the Company's Articles of Association do not currently
allow for hybrid or virtual meetings. The Covid-19 pandemic, and the
resulting social distancing rules, have brought to the Board's attention
the importance of the ability to continue to interact with shareholders
during unprecedented times and, more generally, of improving
communication with those shareholders who find it difficult to attend a
physical meeting. A resolution will be proposed at the upcoming AGM to
update the Articles of Association to allow the Company to have the
flexibility to hold hybrid or virtual meetings in the future, if
required.
Risks and uncertainties
2020 brought in a period of economic and social uncertainty rarely
experienced in living memory. There may still also be further potential
implications of the UK's departure from the European Union which may
adversely affect our underlying portfolio companies. The Manager is
continually assessing the exposure to such risks for each portfolio
company, and where possible appropriate mitigating actions are being
taken.
The Manager has a clear focus to allocate resources to those sectors and
opportunities where it believes growth can be both resilient and
sustainable, with provision of cash to assist some portfolio companies
in these extreme market conditions being a priority.
A detailed analysis of the other risks and uncertainties facing the
business is shown in the Strategic report below.
Outlook and prospects
Your Board has been pleased with the strength our Company has
demonstrated during the events of the past fifteen months. No one can
tell what other surprises the future will deal us but we continue to
believe that investing in a diversified portfolio of fast growing young
companies with new ideas and a bias towards technology is an attractive
strategy and we remain confident of its long term prospects.
Robin Field
Chairman
26 March 2021
Strategic report
Investment policy
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment
policy is intended to produce a regular and predictable dividend stream
with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses
across a variety of sectors of the UK economy including higher risk
technology companies. Allocation of assets will be determined by the
investment opportunities which become available but efforts will be made
to ensure that the portfolio is diversified both in terms of sector and
stage of maturity of company.
The full investment policy can be found above.
Review of business and future changes
As outlined below, the Company has recorded a capital uplift during the
year as a result of realised and unrealised gains of GBP3.3 million. Key
individual investment movements included a GBP2.4m uplift in Proveca
Limited, a GBP1.7m uplift in OmPrompt Holdings Limited, and a GBP1.6m
uplift in Quantexa Limited. This was partially offset by a reduction in
the valuation of Perpetuum Limited of GBP1.8m and a further write down
in the valuation of Elateral Group Limited of GBP1.2m.
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
GBP'000
Net capital return for the year ended 31 December
2020 2,201
Net revenue return for the year ended 31 December
2020 1,183
Total return for the year ended 31 December 2020 3,384
Dividend of 0.60 pence per share paid on 30 April
2020 (2,256)
Dividend of 0.51 pence per share paid on 30 October
2020 (1,910)
Unclaimed dividends returned to the Company 16
Transferred from reserves (766)
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Net assets as at 31 December 2020 81,709
=======
Net asset value per share as at 31 December 2020 (pence) 21.84p
--------------------------------------------------------- -------
The Company paid dividends of 1.11 pence per share during the year ended
31 December 2020 (2019: 1.20 pence per share). As described in the
Chairman's statement, the Board has moved to a variable dividend policy
which targets an annual dividend yield of around 5% on the prevailing
net asset value. As a result the Board has declared a first dividend of
0.60 pence per share (2020: 0.60 pence per share) for the year ending 31
December 2021, which will be paid on 30 April 2021 to shareholders on
the register on 16 April 2021.
As shown in the Income statement, investment income has decreased to
GBP1,922,000 (2019: GBP2,144,000) due to loan stock income decreasing to
GBP1,678,000 (2019: GBP1,855,000). The capital gain of GBP2,201,000 for
the year (2019: loss of GBP90,000) was primarily due to the uplifts in
the valuations of Proveca, OmPrompt Holdings, and Quantexa, offset by
the portion of the management fee charged to capital and the decrease in
valuation of Perpetuum and Elateral Group.
The total return for the year was GBP3,384,000 (2019: GBP1,359,000),
equating to a return of 0.91 pence per share (2019: 0.42 pence per
share).
The Balance sheet shows that the net asset value has decreased over the
last year to 21.84 pence per share (2019: 22.02 pence per share).
There has been a net cash inflow of GBP1,399,000 for the year (2019:
GBP2,382,000), mainly resulting from the issue of Ordinary shares under
the Albion VCTs Top Up Offers 2019/20. Cash inflow from fundraising has
been utilised by investments into new and existing portfolio companies,
dividends paid, operating activities and the buy-back of shares.
Cash and cash equivalents at the year-end increased to GBP11.3 million
(2019: GBP9.9 million), representing 14% of net asset value.
Current portfolio sector allocation
The pie charts at the end of this announcement show the split of the
portfolio valuation as at 31 December 2020 by: sector; stage of
investment; and number of employees. This is a useful way of assessing
how the Company and its portfolio is diversified across sectors,
portfolio companies' maturity measured by revenues and their size
measured by the number of people employed. Details of the principal
investments made by the Company are shown in the Portfolio of
investments on pages 23 to 25 of the full Annual Report and Financial
Statements.
Direction of portfolio
As at 31 December 2020 the portfolio remains well balanced in terms of
sectors and stage of maturity, with software and other technology being
the largest element of the portfolio. During the year, a greater focus
has been given to growth and technology investments, which has resulted
in a decrease of asset-based investments as a percentage of the
portfolio. Following the sale of the Company's three care homes after
the year end, which make up the majority of the Healthcare services
sector, the Company will continue to invest into higher growth
businesses in line with the Company's investment policy.
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 world is currently
navigating a global pandemic, which will likely leave no company
unaffected. The Company's portfolio is well balanced across sectors and
risk classes and the Board believes that the Company has the potential
to continue to deliver returns to shareholders. Further details on the
Company's outlook and prospects can be found in the Chairman's
statement.
Key Performance Indicators ("KPIs") and Alternative Performance Measures
("APMs")
The Directors believe that the following KPIs and APMs, which are
typical for Venture Capital Trusts, used in 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 KPIs and APMs give a good indication that the Company is
achieving its investment objective and policy. These are:
1. Total shareholder value relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements
shows the strong performance of the Company's total shareholder value
against the FTSE All-Share Index total return, with dividends reinvested,
from the appointment of Albion Capital Group LLP on 1 January 2011.
The Directors consider the FTSE All-Share Index to be the most
appropriate indicative benchmark for the Company as it contains a large
range of sectors within the UK economy similar to a generalist VCT.
Investors should, however, be reminded that shares in VCTs generally
trade at a discount to their net asset values.
2. Net asset value per share and total shareholder value
Total shareholder value since inception increased by 0.93 pence per
share (4.2% on opening NAV) to 90.68 pence per share for the year ended
31 December 2020.
3. Movement in shareholder value in the year
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
---- ----- ----- ------ ---- ----- ---- ----- ---- ----
4.6% 19.2% 13.5% (0.7%) 9.3% 11.4% 5.6% 11.0% 1.9% 4.2%
---- ----- ----- ------ ---- ----- ---- ----- ---- ----
Calculated as the movement in total shareholder value for the year
divided by the opening net asset value.
Source: Albion Capital Group LLP
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2020 were 1.11
pence per share (2019: 1.20 pence per share).
As noted in the Half-yearly Financial Report to 30 June 2020, the Board
considered it more appropriate to move to a new variable dividend policy
targeting an annual dividend yield of around 5%. Semi-annual dividends
are now paid calculated as 2.5% of the most recently announced net asset
value when the dividend is declared. This annual dividend target for the
2021 financial year will remain in line with this new policy. The
cumulative dividend paid since inception is 68.84 pence per share.
5. Ongoing charges
The ongoing charges ratio for the year to 31 December 2020 was 2.4%
(2019: 2.4%). 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 2.4%.
6. 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
pages 33 and 34 of the full Annual Report and Financial Statements.
The relevant tests to measure compliance have been carried out and
independently reviewed for the year ended 31 December 2020. These showed
that the Company has complied with all tests and continues to do so.
*VCT compliance is not a numerical measure of performance and thus
cannot be defined as an APM.
Investment progress
During the year, GBP4.0 million of cash was invested in new and existing
portfolio companies, predominantly in the healthcare and technology
sectors. New investments were made in 6 companies and totalled GBP1.6
million during the year and included:
-- Seldon Technologies (GBP418,000), a software company that enables
enterprises to deploy Machine Learning models in production;
-- The Voucher Market (T/A WeGift) (GBP361,000), a cloud platform that
enables corporates to purchase digital gift cards and to distribute them
to employees and customers;
-- Concirrus (GBP308,000), a software provider bringing real-time
behavioural data analytics to the marine and transport insurance
industries;
-- Credit Kudos (GBP185,000), a challenger credit bureau helping lenders
optimise and automate their affordability and risk assessments;
-- TransFICC (GBP156,000), a provider of a connectivity solution, connecting
financial institutions with trading venues via a single API; and
-- uMedeor (T/A uMed) (GBP152,000), a middleware technology platform that
enables life science organisations to conduct medical research
programmes.
Follow-on investments were made in 12 portfolio companies and totalled
GBP2.4 million during the year. The three largest being: GBP891,000 into
Quantexa, following an externally led fundraising round to support the
growth of its analytics platform which helps detect and protect against
financial crime; GBP274,000 into Phrasee, a provider of an AI platform
that generates optimised marketing campaigns; and GBP236,000 into Black
Swan Data, a company that provides predictive analytics for consumer
brands.
During the year the Company sold its entire holding in G. Network
Communications, although terms of the sale will see proceeds being
received in three years' time. In the current year, this still reflects
a substantial GBP0.9 million of realised gains, with the proceeds having
been appropriately discounted. The Company also sold its holding in
Clear Review generating proceeds of GBP0.4 million and a realised gain
on cost of GBP0.2 million. Other realisations can be found in the
realisations table on page 25 of the full Annual Report and Financial
Statements.
The pie chart at the end of this announcement outlines the different
sectors in which the Company's assets, at carrying value, are currently
invested.
Operational arrangements
The Company has delegated the investment management of the portfolio to
Albion Capital Group LLP, which is authorised and regulated by the
Financial Conduct Authority. Albion Capital Group LLP also provides
company secretarial and other accounting and administrative support to
the Company.
Management agreement
Under the Investment Management Agreement, Albion Capital Group LLP
provides investment management, company secretarial and administrative
services to the Company. Albion Capital Group 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
GBP50,000.
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 also entitled to an arrangement fee on investment,
payable by each portfolio company, of approximately 2% of each
investment made and monitoring fees where the Manager has a
representative on the portfolio company's board. Further details of the
Manager's fee can be found in note 4.
Performance incentive fee
As 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 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% 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.
There was no management performance incentive payable during the year
(2019: GBPnil). As at 31 December 2020, the total return of the Company
since 1 January 2014 (the performance incentive fee start date) was
29.35 pence per share, compared to a performance hurdle rate of 29.46
pence per share, resulting in a shortfall of 0.11 pence per share. This
amount needs to be made up in future accounting periods before any
incentive fee becomes payable.
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 80% (70% pre 1
January 2020) qualifying investment holdings requirement for the Venture
Capital Trust status, the making of new investments in accordance with
the investment policy, the long term prospects of current portfolio
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 appointed Albion Capital Group LLP as the Company's AIFM in
2014 as required by the AIFMD. The Manager is a full-scope Alternative
Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited
is the appointed Depositary and oversees the custody and cash
arrangements and provides other AIFMD duties with respect to the
Company.
Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to
promote the success of the Company for the benefit of its members as a
whole, having regard to the interests of other stakeholders in the
Company, such as suppliers, and to do so with an understanding of the
impact on the community and environment and with high standards of
business conduct, which includes acting fairly between members of the
Company.
The Board is very conscious of these wider responsibilities in the way
it promotes the Company's culture and ensures, as part of its regular
oversight, that the integrity of the Company's affairs is foremost in
the way the activities are managed and promoted. This includes regular
engagement with the wider stakeholders of the Company and being alert to
issues that might damage the Company's standing in the way that it
operates. The Board works very closely with the Manager in reviewing how
stakeholder issues are handled, ensuring good governance and
responsibility in managing the Company's affairs, as well as visibility
and openness in how the affairs are conducted.
The Board considers its significant stakeholder groups to be: its
Shareholders; suppliers, including direct agents of the Company such as
the Manager to whom most executive functions are delegated; the
community and the environment in the way that investments are made and
managed. The Board also considers the portfolio companies to be
stakeholders in the long-term success of the Company. By the nature of
venture capital investment, the Manager is closely involved with all the
portfolio companies.
The Company's Shareholders are key to the success of the Company. The
Board seeks to create value for Shareholders by generating strong and
sustainable returns to provide Shareholders with a strong, predictable
dividend flow and the prospect of capital growth. During the year, the
Board has approved a new dividend policy, further details of which can
be found in the Chairman's statement. The new variable policy has the
advantage of avoiding unsustainably high dividends if the net asset
value falls, whilst rewarding shareholder more immediately if the net
asset value rises.
The Board temporarily suspended buy-backs on 18 March 2020 due to the
increasing uncertainty of the net asset value at the time. Buy-backs
were resumed from 22 April 2020 after the announcement of the Interim
Management Statement which included the net asset value for 31 March
2020. The buyback policy is an important means of providing market
liquidity for Shareholders and the Company bought back GBP1.1 million of
shares during the year.
Shareholders' views are important and the Board encourages shareholders
to vote on the resolutions at the Annual General Meeting. The Company's
Annual General Meeting is used typically as an opportunity to
communicate with investors, including through a presentation made by the
investment management team. However, due to the impact of the
coronavirus (Covid-19) pandemic, special circumstances are required
again for this year's Annual General Meeting and further details are in
the Chairman's statement.
The Company is an externally managed investment company with no
employees and as such has nothing to report in relation to employee
engagement but does keep close attention to how the Board operates as a
cohesive and competent unit. The Company also has no customers in the
traditional sense and therefore there is nothing to report in relation
to relationships with customers.
The Company's suppliers are fundamental to the operations of the Company,
particularly Albion Capital Group LLP as the Manager, given that
day-to-day management responsibilities are sub-contracted to the
Manager. The Board takes close account of how the Manager operates, with
very close contact during the year and not just at scheduled Board
meetings. Details of the Manager's and Board's responsibilities can be
found in the Statement of corporate governance on pages 38 and 39 of the
full Annual Report and Financial Statements.
The contractual arrangements with all the principal suppliers to the
Company are reviewed regularly and formally once a year, alongside the
performance of the suppliers in acquitting their responsibilities. The
performance of the Manager in managing the portfolio and in providing
company secretarial, administration and accounting services is reviewed
in detail each year, which includes reviewing comparator engagement
terms and portfolio performance. Further details on the evaluation of
the Manager, and the decision to continue the appointment of the Manager
for the forthcoming year, can be found in this report above.
The portfolio companies are considered key stakeholders, not least
because they are principal drivers of value for the Company. As
discussed in the Environmental, Social and Governance ("ESG") section
below, the portfolio companies' impact on their stakeholders is also
important to the Company. In most cases, an Albion executive has a place
on the board of a portfolio company, in order to help with both business
operation decisions, as well as good ESG practice.
The Board receives reports on ESG factors within its portfolio from the
Manager as it is a signatory of the UN Principles for Responsible
Investment ("UN PRI"). Further details of this are set out below. ESG,
without its specific definition, has always been at the heart of the
responsible investing that the Company engages in and in how the Company
conducts itself with all of its stakeholders.
The Board, although non-executive, is fully engaged in both oversight
and the general strategic direction of the Company. During the year the
Board's main strategic discussions focussed around cash management and
deployment of cash for future investments, dividends and share buybacks,
resulting in the decision to participate in the Albion VCTs Top Up
Offers 2020/21. Time was also spent in ensuring the Board met Corporate
Governance requirements which continue to evolve. During the year the
Board held a further meeting in addition to its scheduled quarterly
meetings to discuss the effect of the coronavirus (Covid-19) pandemic on
the Company's portfolio.
Environmental, Social, and Governance ("ESG")
The Company's Manager, Albion Capital Group LLP, takes the concept of
sustainable and responsible investment very seriously for existing
investments and in reviewing new investment opportunities. In turn, the
Board is kept appraised of ESG issues in connection with both the
portfolio and in how Company affairs are conducted more generally as a
regular part of Board oversight.
Albion Capital Group LLP is a signatory of the UN PRI. The UN PRI is the
world's leading proponent of responsible investment, working to
understand the investment implications of ESG factors and to support its
international network of investor signatories in incorporating these
factors into their investment and ownership decisions.
The Board and Manager have exercised conscious principles in making
responsible investments throughout the life of the Company, not least in
providing finance for promising companies in a variety of important
sectors such as technology, healthcare and renewable energy. In making
the investments, the Manager is directly involved in the oversight and
governance of these investments, including ensuring standards of
reporting and visibility on business practices, all of which are
reported to the Board of the Company. By its nature, not least in making
qualifying investments which fulfil the criteria set by HMRC, the
Company has focused on sustainable and longer-term investment
propositions, some of which will fail (in the nature of all small
companies), but some of which will grow and serve important societal
demands. One of the most important drivers of performance is the quality
of the investment portfolio, which goes beyond the individual valuations
and examines the prospects of each of the portfolio companies, as well
as the sectors in which they operate -- all requiring a longer- term
view.
In the nature of venture capital investment, Albion Capital Group LLP is
more intimately involved in the affairs of portfolio companies than
might be the case for funds invested in listed securities. As such,
Albion Capital Group LLP is in a position to influence good governance
and behaviour in the portfolio companies, many of which are relatively
small companies without the support of a larger company's administration
and advisory infrastructure.
The Company adheres to the principles of the AIC Code of Corporate
Governance and is also aware of other governance and corporate conduct
guidance which it meets as far as practical, including in the
constitution of a diversified and independent Board capable of providing
constructive challenge.
The Company's portfolio is currently invested in healthcare, renewable
energy, education, software and other technology (which includes cyber
security and data protection), with the most significant percentage of
the Company's portfolio invested in sectors and companies which would be
seen by many measures to be both sustainable and socially aware on the
services they render.
Albion Capital Group LLP incorporates ESG considerations into its
investment decisions. These form part of its process to create value for
investors and develop sustainable long-term strategies for portfolio
companies. Albion Capital Group LLP reports ESG criteria to UN PRI
(annually) and to the Board quarterly.
ESG principles are integrated at the pre-investment, investment and exit
stages. This is reflected in transparency of reporting, governance
principles adopted by the Company and the portfolio companies, and
increasingly in the positive environmental or socially impactful nature
of investments made. Albion Capital Group LLP, where relevant, considers
climate-specific issues in its investment policies and activities.
However, as the majority of the Company's portfolio consists of small
(2-250 Full Time Employees), private, typically software companies with
limited environmental impact, climate change is not considered to be a
significant risk, and actions are proportionate to that risk.
Pre-investment stage
An exclusion list is used to rule out investments in unsustainable areas,
or in areas which might be perceived as socially detrimental. ESG due
diligence is performed on each potential portfolio company to identify
any sustainability risks associated with the investment. Identified
sustainability risks are ranked from low to high and are reported to the
relevant investment committee. The investment committee considers each
potential investment. If sustainability risks are identified,
mitigations are assessed and, if necessary, mitigation plans are put in
place. If this is not deemed sufficient, the committee would consider
the appropriate level and structure of funding to balance the associated
risks. If this is not possible, investment committee approval will not
be provided, and the investment will not proceed.
Investment stage
All new and existing portfolio companies are asked to report against an
ESG Balanced Score Card annually. The ESG Balanced Score Card contains a
number of sustainability factors against which a portfolio company will
be assessed in order to determine the potential sustainability risks and
opportunities arising from the investment. The score cards form part of
the Manager's internal review meetings alongside discussions around
other risk factors, and any outstanding issues are addressed in
collaboration with the portfolio companies' senior management.
Exit stage
Albion Capital Group LLP aims to ensure that good ESG practices remain
in place following exit. For example, by ensuring that the company
creates a self-sustaining ESG management system during our period of
ownership, wherever feasible.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the 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 formal policies in these matters, however, it is at the core of its
responsible investment strategy as detailed above.
General Data Protection Regulation
The General Data Protection Regulation has the objective of unifying
data privacy requirements across the European Union, and continues to
apply in the United Kingdom after Brexit. The Manager continues to take
action to ensure that the Manager and the Company are compliant with the
regulation.
Further policies
The Company has adopted a number of further policies relating to:
-- Environment
-- Global greenhouse gas emissions
-- Anti-bribery
-- Anti-facilitation of tax evasion
-- Diversity
and these are set out in the Directors' report on page 34 of the full
Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which
the Company operates, together with changes to the environment and
individual risks. The Board also identifies emerging risks which might
impact on the Company. In the period the most noticeable risk has been
the global pandemic which has impacted not only public health and
mobility but also has had an adverse impact on the economy, the full
impact of which is likely to be uncertain for some time.
The Directors have carried out a robust assessment of the Company's
principal risks and uncertainties, and explain how they are being
mitigated as follows:
Risk Possible consequence Risk management
------------ --------------------------------------------------------------- -------------------------------------------------------------
Investment, The risk of investment in poor quality businesses, To reduce this risk, the Board places reliance upon
performance which could reduce the returns to shareholders, and the skills and expertise of the Manager and its track
and could negatively impact on the Company's current and record over many years of making successful investments
valuation future valuations. in this segment of the market. In addition, the Manager
risk By nature, smaller unquoted businesses, such as those operates a formal and structured investment appraisal
that qualify for Venture Capital Trust purposes, are and review process, which includes an Investment Committee,
more volatile than larger, long established businesses. comprising investment professionals from the Manager
Investments in open-ended equity funds result in exposure for all investments, and at least one external investment
to market risk through movements in price per unit. professional for investments greater than GBP1 million
The Company's investment valuation methodology is in aggregate across all the Albion managed VCTs. The
reliant on the accuracy and completeness of information Manager also invites and takes account of comments
that is issued by portfolio companies. In particular, from non-executive Directors of the Company on matters
the Directors may not be aware of or take into account discussed at the Investment Committee meetings. Investments
certain events or circumstances which occur after are actively and regularly monitored by the Manager
the information issued by such companies is reported. (investment managers normally sit on portfolio company
boards), including the level of diversification in
the portfolio, and the Board receives detailed reports
on each investment as part of the Manager's report
at quarterly board meetings. The Board and Manager
regularly review the deployment of investments and
cash resources available to the Company in assessing
liquidity required for servicing the Company's buy-backs,
dividend payments and operational expenses.
The unquoted investments held by the Company are designated
at fair value through profit or loss and valued in
accordance with the International Private Equity and
Venture Capital Valuation Guidelines as updated in
2018. These guidelines set out recommendations, intended
to represent current best practice on the valuation
of venture capital investments. The valuation takes
into account all known material facts up to the date
of approval of the Financial Statements by the Board.
------------ --------------------------------------------------------------- -------------------------------------------------------------
VCT approval The Company must comply with section 274 of the Income To reduce this risk, the Board has appointed the Manager,
risk Tax Act 2007 which enables its investors to take advantage which has a team with significant experience in Venture
of tax relief on their investment and on future returns. Capital Trust management, and are used to operating
Breach of any of the rules enabling the Company to within the requirements of the Venture Capital Trust
hold VCT status could result in the loss of that status. 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 portfolio company is also pre-cleared
with our professional advisers or H.M. Revenue & Customs.
The Company monitors closely the extent of qualifying
holdings and addresses this as required.
------------ --------------------------------------------------------------- -------------------------------------------------------------
Regulatory The Company is listed on The London Stock Exchange Board members and the Manager have experience of operating
and and is required to comply with the rules of the UK at senior levels within or advising quoted companies.
compliance Listing Authority, as well as with the Companies Act, In addition, the Board and the Manager receive regular
risk Accounting Standards and other legislation. Failure updates on new regulation, including legislation on
to comply with these regulations could result in a the management of the Company, from its auditor, lawyers
delisting of the Company's shares, or other penalties and other professional bodies. The Company is subject
under the Companies Act or from financial reporting to compliance checks through the Manager's compliance
oversight bodies. officer, and any issues arising from compliance or
regulation are reported to its own board on a monthly
basis. 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 The Company relies on a number of third parties, in The Company and its operations are subject to a series
and internal particular the Manager, for the provision of investment of rigorous internal controls and review procedures
control management and administrative functions. Failures exercised throughout the year, and receives reports
risk in key systems and controls within the Manager's business from the Manager on its internal controls and risk
could place assets of the Company at risk or result management, including on matters relating to cyber
in reduced or inaccurate information being passed security.
to the Board or to shareholders. The Audit Committee reviews the Internal Audit Reports
prepared by the Manager's internal auditors, PKF Littlejohn
LLP and has access to the internal audit partner of
PKF Littlejohn LLP to provide an opportunity to ask
specific detailed questions in order to satisfy itself
that the Manager has strong systems and controls in
place including those in relation to business continuity
and cyber security.
From 1 October 2018, Ocorian Depositary (UK) Limited
was appointed as Depositary to oversee the custody
and cash arrangements and provide other AIFMD duties.
The Board reviews the quarterly reports prepared by
Ocorian Depositary (UK) Limited to ensure that Albion
Capital is adhering to its duties as a full-scope
Alternative Investment Fund Manager under the AIFMD.
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
policy. The Manager and other service providers have
also demonstrated to the Board that there is no undue
reliance placed upon any one individual.
------------ --------------------------------------------------------------- -------------------------------------------------------------
Economic, Changes in economic conditions, including, for example, The Company invests in a diversified portfolio of
political interest rates, rates of inflation, industry conditions, companies across a number of industry sectors and
and social competition, political and diplomatic events, such in addition often invests in a mixture of instruments
risk as the impact of Brexit, and other factors could substantially in portfolio companies and has a policy of minimising
and adversely affect the Company's prospects in a any external bank borrowings within portfolio companies.
number of ways. This also includes risks of social At any given time, the Company has sufficient cash
upheaval, including from infection and population resources to meet its operating requirements, including
re-distribution, as well as economic risk challenges share buy-backs and follow on investments.
as a result of healthcare pandemics/infection. In common with most commercial operations, exogenous
The current significant exogenous risk to the Company, risks over which the Company has no control are always
the wider population and economy, is the Covid-19 a risk and the Company does what it can to address
pandemic. these risks where possible, not least as the nature
of the investments the Company makes are long term.
The Board and Manager are continuously assessing the
resilience of the portfolio, the Company and its operations
and the robustness of the Company's external agents
during the health crisis, as well as considering longer
term impacts on how the Company might be positioned
in how it invests and operates. Ensuring liquidity
in the portfolio to cope with exigent and unexpected
pressures on the finances of the portfolio and the
Company is an important part of the risk mitigation
in these uncertain times. The portfolio is structured
as an all-weather portfolio with c.66 companies, which
are diversified as discussed above. Exposure is relatively
small to at-risk sectors that include leisure, hospitality,
retail and travel.
------------ --------------------------------------------------------------- -------------------------------------------------------------
Market value The market value of Ordinary shares can fluctuate. The Company operates a share buyback policy, which
of Ordinary The market value of an Ordinary share, as well as is designed to limit the discount at which the Ordinary
shares being affected by its net asset value and prospective shares trade to around 5 per cent. to net asset value,
net asset value, also takes into account its dividend by providing a purchaser through the Company in absence
yield and prevailing interest rates. As such, the of market purchasers. From time to time buy-backs
market value of an Ordinary share may vary considerably cannot be applied, for example when the Company is
from its underlying net asset value. The market prices subject to a close period, or if it were to exhaust
of shares in quoted investment companies can, therefore, and could not renew any buyback authorities.
be at a discount or premium to the net asset value New Ordinary shares are issued at sufficient premium
at different times, depending on supply and demand, to net asset value to cover the costs of issue and
market conditions, general investor sentiment and to avoid asset value dilution to existing investors.
other factors, including the ability to exercise share
buybacks. Accordingly, the market price of the Ordinary
shares may not fully reflect their underlying net
asset value.
------------ --------------------------------------------------------------- -------------------------------------------------------------
Reputational The Company relies on the judgement and reputation The Board regularly questions the Manager on its ethics,
risk of the Manager which is itself subject to the risk procedures, safeguards and investment philosophy,
of losses. which should consequently result in the risk to reputational
damage being minimised.
------------ --------------------------------------------------------------- -------------------------------------------------------------
Viability statement
In accordance with the FRC UK Corporate Governance Code published in
2018 and provision 36 of the AIC Code of Corporate Governance, the
Directors have assessed the prospects of the Company over three years to
31 December 2023. The Directors believe that three years is a reasonable
period in which they can assess the ability of the Company to continue
to operate and meet its liabilities as they fall due and is also the
period used by the Board in the strategic planning process and is
considered reasonable for a business of our nature and size. The three
year period is considered the most appropriate given the forecasts that
the Board requires from the Manager and the estimated timelines for
finding, assessing and completing investments. The three year period
also takes account of the potential impact of new regulations, should
they be imposed, and how they may impact the Company over the longer
term, and the availability of cash, but cannot take into account the
full extent of the exogenous risks that are impacting on global
economies at the date of these accounts.
The Directors have carried out a robust assessment of the emerging and
principal risks facing the Company as explained above, including those
that could threaten its business model, future performance, solvency or
liquidity. The Board also considered the procedures in place to identify
emerging risks and the risk management processes in place to avoid or
reduce the impact of the underlying risks. The Board focused on the
major factors which affect the economic, regulatory and political
environment, including any potential impact from Brexit. The Board,
after careful consideration, believes that Brexit will have no major
impact on the going concern of the Company, primarily due to the markets
our portfolio companies target, which in most cases are the UK and
increasingly, the US, for our software and technology businesses.
Portfolio companies targeting European markets have also shown
resilience so far. The coronavirus (Covid-19) pandemic therefore remains
the largest uncertainty impacting on the Company. In light of this
continuing uncertainty, robust stress tested cashflows, process
resilience and contingencies have been examined in trying to deal with
the principal risks faced by the Company.
The Board assessed the ability of the Company to raise finance and
deploy capital, as well as the existing cash resources of the Company.
The portfolio is well balanced and geared towards long term growth
delivering dividends and capital growth to shareholders. In assessing
the prospects of the Company, the Directors have considered the cash
flow by looking at the Company's income and expenditure projections and
funding pipeline over the assessment period of three years and they
appear realistic.
Taking into account the processes for mitigating risks, monitoring costs,
share buy-backs and issuance, the Manager's compliance with the
investment objective, policies and business model and the balance of the
portfolio, the Directors have concluded that there is a reasonable
expectation that the Company will be able to continue in operation and
meet its liabilities as they fall due over the three year period to 31
December 2023.
This Strategic report of the Company for the year ended 31 December 2020
has been prepared in accordance with the requirements of section 414A of
the Companies Act 2006 (the "Act"). The purpose of this report is to
provide Shareholders with sufficient information to enable them to
assess the extent to which the Directors have performed their duty to
promote the success of the Company in accordance with Section 172 of the
Act.
For and on behalf of the Board
Robin Field
Chairman
26 March 2021
Responsibility statement
In preparing these Financial Statements for the year to 31 December
2020, the Directors of the Company, being Robin Field, Thomas Chambers,
Martin Fiennes and Fiona Wollocombe, confirm 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
2020 for the Company has been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law) and give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
-- the Chairman's statement and Strategic report include a fair review of
the development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties it faces.
We consider that the Annual Report and Financial Statements, taken as a
whole, are fair, balanced, and understandable and provide the
information necessary for shareholders to asses the Company's position,
performance, business model and strategy.
A detailed "Statement of Directors' responsibilities" is contained on
page 37 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Robin Field
Chairman
26 March 2021
Income statement
Year ended 31 December Year ended 31 December
2020 2019
---------------------------------------------------------- ---- -------------------------- --------------------------
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------------- ---- ------- ------- -------- ------- ------- --------
Gains on investments 2 - 3,333 3,333 - 1,002 1,002
Investment income 3 1,922 - 1,922 2,144 - 2,144
Investment management fee 4 (377) (1,132) (1,509) (364) (1,092) (1,456)
Other expenses 5 (362) - (362) (331) - (331)
Profit/(loss) on ordinary activities before tax 1,183 2,201 3,384 1,449 (90) 1,359
Tax on ordinary activities 7 - - - - - -
------- ------- -------- ------- ------- --------
Profit/(loss) and total comprehensive income attributable
to shareholders 1,183 2,201 3,384 1,449 (90) 1,359
------- ------- -------- ------- ------- --------
Basic and diluted return/(loss) per share (pence)* 9 0.32 0.59 0.91 0.44 (0.02) 0.42
------- ------- -------- ------- ------- --------
*adjusted for treasury shares
The accompanying notes form an integral part of these Financial
Statements.
The total column of this Income statement represents the profit and loss
account of the Company. The supplementary revenue and capital columns
have been prepared in accordance with The Association of Investment
Companies' Statement of Recommended Practice.
Balance sheet
31 December 2020 31 December 2019
Note GBP'000 GBP'000
------------------------------------ ---- ---------------- ----------------
Fixed assets investments 10 69,652 63,960
Current assets
Trade and other receivables 12 1,293 115
Cash and cash equivalents 11,266 9,867
---------------- ----------------
12,559 9,982
Total assets 82,211 73,942
Payables: amounts falling due within
one year
Trade and other payables 13 (502) (486)
---------------- ----------------
Total assets less current
liabilities 81,709 73,456
---------------- ----------------
Equity attributable to equityholders
Called-up share capital 14 4,346 3,883
Share premium 45,481 35,825
Capital redemption reserve 11 11
Unrealised capital reserve 16,786 14,707
Realised capital reserve 9,322 9,200
Other distributable reserve 5,763 9,830
---------------- ----------------
Total equity shareholders' funds 81,709 73,456
---------------- ----------------
Basic and diluted net asset value
per share (pence)* 15 21.84 22.02
---------------- ----------------
*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 26 March 2021 and were signed on its behalf by:
Robin Field
Chairman
Company number: 03139019
Statement of changes in equity
Called-up Unrealised Realised Other
share Share capital capital distributable
capital premium Capital redemption reserve reserve reserve* reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------- --------- ------- ---------------------------- ---------- -------- ------------- -------
At 1 January 2020 3,883 35,825 11 14,707 9,200 9,830 73,456
Profit/(loss) and total comprehensive income for the
period - - - 3,013 (812) 1,183 3,384
Transfer of previously unrealised gains on disposal
of investments - - - (934) 934 - -
Purchase of own shares for treasury - - - - - (1,100) (1,100)
Issue of equity 462 9,892 - - - - 10,354
Cost of issue of equity - (236) - - - - (236)
Dividends paid - - - - - (4,150) (4,150)
--------- ------- ---------------------------- ---------- -------- ------------- -------
At 31 December 2020 4,346 45,481 11 16,786 9,322 5,763 81,709
--------- ------- ---------------------------- ---------- -------- ------------- -------
At 1 January 2019 3,519 27,896 11 15,358 8,639 13,727 69,150
Profit/(loss) and total comprehensive income for the
period - - - 274 (364) 1,449 1,359
Transfer of previously unrealised gains on disposal
of investments - - - (925) 925 - -
Purchase of own shares for treasury - - - - - (1,367) (1,367)
Issue of equity 364 8,120 - - - - 8,484
Cost of issue of equity - (191) - - - - (191)
Dividends paid - - - - - (3,979) (3,979)
--------- ------- ---------------------------- ---------- -------- ------------- -------
At 31 December 2019 3,883 35,825 11 14,707 9,200 9,830 73,456
----------------------------------------------------- --------- ------- ---------------------------- ---------- -------- ------------- -------
*These reserves amount to GBP15,085,000 (2019: GBP19,030,000) which is
considered distributable.
The accompanying notes form an integral part of these Financial
Statements.
Statement of cash flows
Year ended Year ended
31 December 2020 31 December 2019
GBP'000 GBP'000
---------------------------------- -------------------- -----------------
Cash flow from operating
activities
Investment income received 1,467 2,000
Deposit interest received 25 35
Dividend income received 220 254
Investment management fee paid (1,499) (1,425)
Performance incentive fee paid** - (637)
Other cash payments (359) (309)
UK corporation tax paid - -
-------------------- -----------------
Net cash flow from operating
activities (146) (82)
Cash flow from investing
activities
Purchase of fixed asset investments (3,990) (5,637)
Disposal of fixed asset investments 639 5,172
Net cash flow from investing
activities (3,351) (465)
-------------------- -----------------
Cash flow from financing
activities
Issue of share capital 9,588 7,804
Cost of issue of equity (4) (4)
Purchase of own shares (including
costs) (1,100) (1,367)
Equity dividends paid* (3,588) (3,504)
Net cash flow from financing
activities 4,896 2,929
-------------------- -----------------
Increase in cash and cash
equivalents 1,399 2,382
Cash and cash equivalents at start
of the year 9,867 7,485
Cash and cash equivalents at end of
the year 11,266 9,867
----------------------------------- -------------------- -----------------
* 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 performance incentive fee for the year ended 31 December 2018 was
paid in the year ended 31 December 2019.
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
applicable United Kingdom law and accounting standards, including
Financial Reporting Standard 102 ("FRS 102"), and with the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies
and Venture Capital Trusts" ("SORP") issued by The Association of
Investment Companies ("AIC"). The Financial Statements have been
prepared on a going concern basis and further details can be found in
the Directors' report on pages 32 and 33 of the full Annual Report and
Financial Statements.
The preparation of the Financial Statements requires management to make
judgements and estimates that affect the application of policies and
reported amounts of assets, liabilities, income and expenses. The most
critical estimates and judgements relate to the determination of
carrying value of investments at fair value through profit and loss
("FVTPL") in accordance with FRS 102 sections 11 and 12. The Company
values investments by following the International Private Equity and
Venture Capital Valuation ("IPEV") Guidelines as updated in 2018 and
further detail on the valuation techniques used are outlined 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 IPEV
Guidelines. Indicators of fair value are derived using established
methodologies including earnings multiples, revenue multiples, the level
of third party offers received, cost or price of recent investment rounds,
net assets and industry valuation benchmarks. Where price of recent
investment is used as a starting point for estimating fair value at
subsequent measurement dates, this has been benchmarked using an
appropriate valuation technique permitted by the IPEV guidelines.
-- In situations where cost or price of recent investment is used,
consideration is given to the circumstances of the portfolio company
since that date in determining fair value. This includes consideration of
whether there is any evidence of deterioration or strong definable
evidence of an increase in value. In the absence of these indicators, the
investment in question is valued at the amount reported at the previous
reporting date. Examples of events or changes that could indicate a
diminution include:
-- the performance and/or prospects of the underlying business are
significantly below the expectations on which the investment was
based;
-- a significant adverse change either in the portfolio company's
business or in the technological, market, economic, legal or
regulatory environment in which the business operates; or
-- market conditions have deteriorated, which may be indicated by a
fall in the share prices of quoted businesses operating in the
same or related sectors.
Investments are recognised as financial assets on legal completion of
the investment contract and are de-recognised on legal completion of the
sale of an investment.
Dividend income is not recognised as part of the fair value movement of
an investment, but is recognised separately as investment income through
the Income statement when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables
and cash are carried at amortised cost, in accordance with FRS 102.
Debtors due after more than one year meet the definition of a financing
transaction held at amortised cost, and interest will be recognised
through capital over the credit period using the effective interest
method. There are no financial liabilities other than payables.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted
ex-dividend.
Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are recognised
when the Company's right to receive payment and expect settlement is
established. Where interest is rolled up and/or payable at redemption
then it is recognised as income unless there is reasonable doubt as to
its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of
interest agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are
charged through the other distributable reserve except the following
which are charged through the realised capital reserve:
-- 75% of management fees and performance incentive fees, if any, are
allocated to the realised capital reserve. This is in line with the
Board's expectation that over the long term 75% of the Company's
investment returns will be in the form of capital gains; and
-- expenses which are incidental to the purchase or disposal of an
investment are charged through the realised capital reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS 102.
Current tax is tax payable (refundable) in respect of the taxable profit
(tax loss) for the current period or past reporting periods using the
tax rates and laws that have been enacted or substantively enacted at
the financial reporting date. Taxation associated with capital expenses
is applied in accordance with the SORP.
Deferred tax is provided in full on all timing differences at the
reporting date. Timing differences are differences between taxable
profits and total comprehensive income as stated in the financial
statements that arise from the inclusion of income and expenses in tax
assessments in periods different from those in which they are recognised
in the financial statements. As a VCT the Company has an exemption from
tax on capital gains. The Company intends to continue meeting the
conditions required to obtain approval as a VCT 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
Called-up share capital
This reserve accounts for the nominal value of the shares.
Share premium
This reserve accounts for the difference between the price paid for the
Company's shares and the nominal value of those shares, less issue
costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is
diminished through the repurchase and cancellation of the Company's own
shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year
end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
-- gains and losses compared to cost on the realisation of
investments or permanent diminution in value;
-- expenses, together with the related taxation effect,
charged in accordance with the above policies; and
-- dividends paid to equity holders where paid out by
capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were
combined in 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.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
operating segment of business, being investment in smaller companies
principally based in the UK.
Year ended Year ended
31 December 2020 31 December 2019
2. Gains on investments GBP'000 GBP'000
---------------------------------------- ----------------- -----------------
Unrealised gains on fixed asset
investments 3,013 647
Unrealised losses on current asset
investments - (373)
Realised gains on fixed asset
investments 320 728
3,333 1,002
----------------- -----------------
Year ended Year ended
31 December 2020 31 December 2019
3. Investment income GBP'000 GBP'000
--------------------- ----------------- -----------------
Loan stock interest 1,678 1,855
Dividends 220 254
Bank interest 24 35
1,922 2,144
----------------- -----------------
Year ended Year ended
31 December 2020 31 December 2019
4. Investment management fee GBP'000 GBP'000
---------------------------------------- ----------------- -----------------
Investment management fee charged to
revenue 377 364
Investment management fee charged to
capital 1,132 1,092
1,509 1,456
----------------- -----------------
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 GBP1,509,000 (2019:
GBP1,456,000) and GBP50,000 (2019: GBP50,000) were purchased by the
Company from Albion Capital Group LLP in respect of management and
administration fees respectively. There was no performance incentive fee
due during the year (2019: GBPnil). At the financial year end, the
amount due to Albion Capital Group LLP in respect of these services
disclosed within payables was GBP400,000 (2019: GBP391,000).
Albion Capital Group LLP is, from time-to-time, eligible to receive
arrangement fees and monitoring fees from portfolio companies. During
the year ended 31 December 2020, fees of GBP183,000 (31 December 2019:
GBP200,000) attributable to the investments of the Company were paid
pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff hold 1,429,708 Ordinary
shares in the Company as at 31 December 2020.
The Company has entered into an offer agreement relating to the Offers
with the Company's investment manager Albion Capital Group LLP, pursuant
to which Albion Capital will receive a fee of 2.5% of the gross proceeds
of the Offers and out of which Albion Capital will pay the costs of the
Offers, as detailed in the Prospectus.
Year ended Year ended
31 December 2020 31 December 2019
5. Other expenses GBP'000 GBP'000
---------------------------------------------------- ----------------- -----------------
Directors' fees (inc. NIC) 99 91
Auditor's remuneration for statutory audit services
(excluding VAT) 31 29
Secretarial and administration fee 50 50
Other administrative expenses 182 161
362 331
----------------- -----------------
Year ended Year ended
31 December 2020 31 December 2019
6. Directors' fees GBP'000 GBP'000
------------------- ------------------ -----------------
Directors' fees 91 84
National insurance 8 7
99 91
----------------- -----------------
The Company's key management personnel are the Directors. Further
information regarding Directors' remuneration can be found in the
Directors' remuneration report on pages 43 to 45 of the full Annual
Report and Financial Statements.
Year ended Year ended
31 December 2020 31 December 2019
7. Tax on ordinary activities GBP'000 GBP'000
----------------------------------------------------- ------------------ ------------------
UK Corporation tax payable - -
------------------ ------------------
Year ended Year ended
Reconciliation of profit on ordinary activities to 31 December 2020 31 December 2019
taxation charge GBP'000 GBP'000
----------------------------------------------------- ------------------ ------------------
Return on ordinary activities before taxation 3,384 1,359
------------------ ------------------
Tax charge on profit at the effective UK corporation
tax rate of 19.00% (2019: 19.00%) 643 258
Effects of:
Non-taxable gains (633) (190)
Non-taxable income (42) (48)
Unutilised management expenses/(Prior year excess
management expenses utilised) 32 (20)
------------------ ------------------
- -
------------------ ------------------
The tax charge for the year shown in the Income statement is lower than
the effective rate of corporation tax in the UK of 19.00% (2019:
19.00%). The differences are explained above.
The Company has excess management expenses of GBP11,601,000 (2019:
GBP11,431,000) that are available for offset against future profits. A
deferred tax asset of GBP2,204,000 (2019: GBP1,943,000) 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.
Year ended Year ended
31 December 2020 31 December 2019
8. Dividends GBP'000 GBP'000
--------------------------------------------------- ----------------- -----------------
First dividend of 0.60 pence per share paid on 30
April 2019 - 2,010
Second dividend of 0.60 pence per share paid on 31
October 2019 - 2,005
First dividend of 0.60 pence per share paid on 30
April 2020 2,256 -
Second dividend of 0.51 pence per share paid on 30
October 2020 1,910 -
Unclaimed dividends returned to the Company (16) (36)
----------------- -----------------
4,150 3,979
----------------- -----------------
The Directors have declared a first dividend of 0.60 pence per share for
the year ending 31 December 2021, which will amount to approximately
GBP2,645,000. This dividend will be paid on 30 April 2021 to
shareholders on the register on 16 April 2021.
9. Basic and diluted return/(loss) per share
Year ended 31 December Year ended 31 December
2020 2019
Revenue Capital Total Revenue Capital Total
-------------------------------------------------------- ------- ------- ------- ------- ------- -----
Return/(loss) attributable to shareholders (GBP'000) 1,183 2,201 3,384 1,449 (90) 1,359
Weighted average shares in issue (adjusted for treasury
shares) 372,282,416 327,246,191
Return/(loss) attributable per equity share (pence) 0.32 0.59 0.91 0.44 (0.02) 0.42
The weighted average number of Ordinary shares is calculated after
adjusting for treasury shares of 60,491,609 (2019: 54,723,000).
There are no convertible instruments, derivatives or contingent share
agreements in issue so basic and diluted return per share are the same.
31 December 2020 31 December 2019
10. Fixed asset investments GBP'000 GBP'000
------------------------------------------------------ ---------------- ----------------
Investments held at fair value through profit or loss
Unquoted equity and preference shares 51,072 44,833
Unquoted loan stock 18,580 19,127
69,652 63,960
---------------- ----------------
31 December 2020 31 December 2019
GBP'000 GBP'000
---------------------------------------------------- ---------------- ----------------
Opening valuation 63,960 61,639
Purchases at cost 3,991 6,136
Disposal proceeds (1,842) (5,043)
Realised gains 320 728
Movement in loan stock accrued income 210 (147)
Movement in unrealised gains 3,013 647
---------------- ----------------
Closing valuation 69,652 63,960
---------------- ----------------
Movement in loan stock accrued income
Opening accumulated loan stock accrued income 579 726
Movement in loan stock accrued income 210 (147)
---------------- ----------------
Closing accumulated loan stock accrued income 789 579
---------------- ----------------
Movement in unrealised gains
Opening accumulated unrealised gains 14,695 14,973
Transfer of previously unrealised gains to realised
reserve on disposal of investments (934) (925)
Movement in unrealised gains 3,013 647
---------------- ----------------
Closing accumulated unrealised gains 16,774 14,695
---------------- ----------------
Historical cost basis
Opening book cost 48,686 45,940
Purchases at cost 3,991 6,136
Sales at cost (588) (3,390)
Closing book cost 52,089 48,686
---------------- ----------------
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 of
receivables and payables.
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 investments are valued in accordance with the IPEV guidelines
as follows:
31 December 2020 31 December 2019
Valuation Methodologies GBP'000 GBP'000
-------------------------------------------------- ---------------- ----------------
Revenue multiple 20,597 4,156
Discounted offer price 19,252 -
Cost and price of recent investment (reviewed for
impairment or uplift) 14,585 30,035
Third party valuation -- Discounted cash flow 11,413 11,523
Earnings multiple 3,152 3,926
Net assets 653 231
Third party valuation -- Earnings multiple - 14,089
69,652 63,960
---------------- ----------------
When using the cost or price of recent investment in the valuations, the
Company looks to re-calibrate this price at each valuation point by
reviewing progress within the investment, comparing against the initial
investment thesis, assessing if there are any significant events or
milestones that would indicate the value of the investment has changed
and considering whether a market-based methodology (i.e. Using multiples
from comparable public companies) or a discounted cashflow forecast
would be more appropriate.
The main inputs into the calibration exercise, and for the valuation
models using multiples, are revenue, EBITDA and P/E multiples (based on
the most recent revenue, EBITDA or earnings achieved and equivalent
corresponding revenue, EBITDA or earnings multiples of comparable
companies), quality of earnings assessments and comparability difference
adjustments. Revenue multiples are often used, rather than EBITDA or
earnings, due to the nature of the Company's investments, being in
growth and technology companies which are not normally expected to
achieve profitability or scale for a number of years. Where an
investment has achieved scale and profitability the Company would
normally then expect to switch to using an EBITDA or earnings multiple
methodology.
In the calibration exercise and in determining the valuation for the
Company's equity instruments, comparable trading multiples are used. In
accordance with the Company's policy, appropriate comparable companies
based on industry, size, developmental stage, revenue generation and
strategy are determined and a trading multiple for each comparable
company identified is then calculated. The multiple is calculated by
dividing the enterprise value of the comparable group by its revenue,
EBITDA or earnings. The trading multiple is then adjusted for
considerations such as illiquidity, marketability and other differences,
advantages and disadvantages between the portfolio company and the
comparable public companies based on company specific facts and
circumstances.
Fair value investments had the following movements between valuation
methodologies between 31 December 2019 and 31 December 2020:
Change in valuation methodology Value as at Explanatory Note
(2019 to 2020) 31 December 2020
GBP'000
-------------------------------------------------------- ------------------- --------------------------------------------------
Cost and price of recent investment (reviewed for 18,037 Discounted revenue multiple more relevant based on
impairment) to revenue multiple current trading
Third party valuation -- Earnings multiple to discounted 14,948 Third party offer accepted and completed after the
offer price year end
Cost and price of recent investment (reviewed for 4,304 Third party offer accepted
impairment) to discounted offer price
Cost and price of recent investment (reviewed for 304 Covid-19 impact on portfolio company has led to
impairment) to net assets revaluation
Revenue multiple to net assets 139 Covid-19 impact on portfolio company has led to
revaluation
The valuation will be the most appropriate valuation methodology for an
investment within its market, with regard to the financial health of the
investment and the IPEV Guidelines. The Directors believe that, within
these parameters, these are the most appropriate methods of valuation as
at 31 December 2020.
FRS 102 and the SORP requires the Company to disclose the inputs to the
valuation methods applied to its investments measured at FVTPL in a fair
value hierarchy. The table below sets out fair value hierarchy
definitions using FRS 102 s.11.27.
Fair value hierarchy Definition
-------------------- ----------------------------------------------------
Level 1 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
-------------------- ----------------------------------------------------
Unquoted equity, preference shares, and loan stock are all valued
according to Level 3 valuation methods.
Investments held at fair value through profit or loss (Level 3) had the
following movements:
31 December 2020 31 December 2019
GBP'000 GBP'000
-------------------------------------- ---------------- ----------------
Opening valuation 63,960 60,714
Purchases at cost 3,991 6,136
Unrealised gains 3,013 647
Movement in loan stock accrued income 210 (147)
Realised net gains on disposal 320 443
Disposal proceeds (1,842) (3,832)
Closing valuation 69,652 63,960
---------------- ----------------
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. 63% of the portfolio of investments,
consisting of equity and loan stock, is based on recent investment price,
discounted offer price and net assets and cost, and as such the Board
believe that changes to reasonable possible alternative input
assumptions (by adjusting the earnings and revenue multiples) for the
valuation of the remainder of the portfolio could lead to a significant
change in the fair value of the portfolio. Therefore, for the remainder
of the portfolio, the Board has adjusted the inputs for a number of the
largest portfolio companies (by value) resulting in a total coverage of
81% of the portfolio of investments. The main inputs considered for each
type of valuation is as follows:
Change in
fair value
Portfolio of Change in NAV
Valuation company Base investments (pence per
technique sector Input Case* (GBP'000) share)
----------- ----------- --------- --------- ----------- -----------------
Software
Revenue and other Revenue
multiple technology multiple Range 1,037 0.28
----------- ----------- --------- --------- ----------- -----------------
(1,010) (0.27)
--------------------------------- --------- ----------- -----------------
Third party
valuation
--
Discounted Renewable Discount
cash flow energy rate 5.8% 112 0.03
----------- ----------- --------- --------- ----------- -----------------
(101) (0.03)
--------------------------------- --------- ----------- -----------------
Software
Earnings and other Earnings
multiple technology multiple 7.7x 143 0.04
----------- ----------- --------- --------- ----------- -----------------
(124) (0.03)
--------------------------------- --------- ----------- -----------------
*As detailed in the accounting policies, the base case is based on
market comparables, discounted where appropriate for marketability, in
accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the
valuation of the equity investments by GBP1,497,000 (2.9%) or a decrease
in the valuation of equity investments by GBP1,438,000 (2.8%).
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 2020 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.
Registered
address and Profit/(loss) % total
country of before tax Aggregate capital and reserves % class and voting
Company incorporation GBP'000 GBP'000 share type rights
--------- -------------- -------------- ------------------------------ --------------- -------
Academia 23.2% Preferred
Inc. CA 94108, USA n/a n/a shares 3.0%
Active
Lives
Care 20.3% Ordinary
Limited EC1M 5QL, UK (274) (2,562) shares 20.3%
22.0% Preferred
shares; 33.0%
Antenova Ordinary
Limited EC4A 3TW, UK n/a* 2,515 shares 28.7%
48.1% Ordinary
Elateral shares; 46.5%
Group Preferred
Limited GU9 7XX, UK (1,396) (9,284) shares 47.9%
Sift 42.1% Ordinary
Limited BS1 4EX, UK n/a* 74 shares 42.1%
*The company files filleted accounts which does not disclose this
information.
12. Current assets
31 December 2020 31 December 2019
Trade and other receivables GBP'000 GBP'000
-------------------------------------- ---------------- ----------------
Other receivables - 29
Prepayments and accrued income 19 15
Deferred consideration under one year 124 71
Deferred consideration over one year 1,150 -
1,293 115
---------------- ----------------
The deferred consideration over one year relates to the sale of
G.Network Communications Limited in December 2020. These proceeds are
receivable in January 2024, and have been discounted to present value at
the prevailing market rate, including a provision for counterparty risk.
This constitutes a financing transaction, and has been accounted for
using the policy disclosed in note 1.
The Directors consider that the carrying amount of receivables is not
materially different to their fair value.
31 December 2020 31 December 2019
13. Payables: amounts falling due within one year GBP'000 GBP'000
-------------------------------------------------- ---------------- ----------------
Trade payables 15 22
Accruals and deferred income 487 464
502 486
---------------- ----------------
The Directors consider that the carrying amount of payables is not
materially different to their fair value.
14. Called-up share capital
Allotted, called-up and fully paid GBP'000
------------------------------------------------------------ -------
388,335,260 Ordinary shares of 1 penny each at 31
December 2019 3,883
46,222,217 Ordinary shares of 1 penny each issued
during the year 462
------------------------------------------------------------ -------
434,557,477 Ordinary shares of 1 penny each at 31
December 2020 4,346
------------------------------------------------------------ -------
54,723,000 Ordinary shares of 1 penny each held in
treasury at 31 December 2019 (547)
5,768,609 Ordinary shares purchased during the year
to be held in treasury (58)
------------------------------------------------------------ -------
60,491,609 Ordinary shares of 1 penny each held in
treasury at 31 December 2020 (605)
------------------------------------------------------------ -------
374,065,868 Ordinary shares of 1 penny each in circulation*
at 31 December 2020 3,741
------------------------------------------------------------ -------
*Carrying one vote each
During the year the Company purchased 5,768,609 Ordinary shares (2019:
6,450,000) representing 1.3% of the issued Ordinary share capital as at
31 December 2020, at a cost of GBP1,100,000 (2019: GBP1,367,000),
including stamp duty, to be held in treasury. The Company holds a total
of 60,491,609 Ordinary shares in treasury, representing 13.9% of the
issued Ordinary share capital as at 31 December 2020.
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:
Aggregate
nominal
value
of shares Issue price Net invested Opening market price on allotment date
Date of allotment Number of shares allotted (GBP'000) (pence per share) (GBP'000) (pence per share)
------------------ ------------------------- ---------- ------------------ ------------ --------------------------------------
30 April 2020 1,521,895 15 19.19 290 18.50
30 October 2020 1,220,692 12 19.79 240 18.80
----------
2,742,587 27 530
------------------------- ---------- ------------
During the period from 1 January 2020 to 31 December 2020, the Company
issued the following new Ordinary shares of nominal value 1 penny each
under the Albion VCT Prospectus Top Up Offers 2019/20:
Aggregate
nominal
value
Number of shares of shares Issue price Net consideration received Opening market price on allotment date
Date of allotment allotted (GBP'000) (pence per share) (GBP'000) (pence per share)
------------------ ---------------- ---------- ------------------ ---------------------------- --------------------------------------
31 January 2020 5,082,101 51 22.40 1,121 21.10
31 January 2020 1,019,398 10 22.50 225 21.10
31 January 2020 36,336,304 363 22.70 8,042 21.10
30 April 2020 418,451 4 19.50 80 18.50
30 April 2020 623,376 6 19.70 120 18.50
43,479,630 435 9,588
---------------- ---------- ----------------------------
15. Basic and diluted net asset value per share
31 December 2020 (pence 31 December 2019 (pence
per share) per share)
------------------------ ----------------------- ------------------------
Basic and diluted net
asset value per Ordinary
share 21.84 22.02
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 (adjusting for treasury shares) of
374,065,868 Ordinary shares as at 31 December 2020 (2019: 333,612,260).
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 companies, cash balances and liquid cash
instruments and short term receivables and payables 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 payables. 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 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 23 and 24 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 GBP69,652,000 (2019:
GBP63,960,000). Fixed asset investments form 85% of the net asset value
as at 31 December 2020 (2019: 87%).
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. The management of risk within the
venture capital portfolio is addressed through careful investment
selection, by diversification across different industry segments, by
maintaining a wide spread of holdings in terms of financing stage and by
limitation of the size of individual holdings. The Directors monitor the
Manager's compliance with the investment policy, review and agree
policies for managing this risk and monitor the overall level of risk on
the investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for
an investment within its market, with regard to the financial health of
the investment and the IPEV guidelines. Details of the 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 extent to which the assets are exposed to
market risk. The Board considers that the value of the fixed asset
investment portfolio is sensitive to a change of 10% based on the
current economic climate. The impact of a 10% change has been selected
as this is considered reasonable given the current level of volatility
observed. When considering the appropriate level of sensitivity to be
applied, the Board has considered both historic performance and future
expectations.
The sensitivity of a 10% increase or decrease in the valuation of the
fixed asset investment portfolio (keeping all other variables constant)
would increase or decrease the net asset value and return for the year
by GBP6,965,000. Further sensitivity analysis on fixed asset investments
is included in note 10.
Interest rate risk
It is the Company's policy to accept a degree of interest rate risk on
its financial assets through the effect of interest rate changes. On the
basis of the Company's analysis, it is estimated that a rise of 1% in
all interest rates would have increased total return before tax for the
year by approximately GBP70,000 (2019: GBP86,000). Furthermore, it is
considered that a material 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 assets during the year was approximately 9.8% (2019: 10.2%).
The weighted average period to maturity for the fixed rate assets is
approximately 7.7 years (2019: 8.4 years).
The Company's financial assets and liabilities, denominated in Sterling,
consist of the following:
31 December 2020 31 December 2019
Floating rate Non-interest bearing Total Floating rate Non-interest bearing Total
Fixed rate GBP'000 GBP'000 GBP'000 GBP'000 Fixed rate GBP'000 GBP'000 GBP'000 GBP'000
------------- -------------------- ------------- -------------------- -------- -------------------- ------------- -------------------- --------
Unquoted
equity - - 51,072 51,072 - - 44,833 44,833
Unquoted loan
stock 17,301 584 695 18,580 17,877 609 641 19,127
Receivables* - - 1,274 1,274 - - 101 101
Payables - - (502) (502) - - (486) (486)
Cash - 11,266 - 11,266 - 9,867 - 9,867
-------------------- ------------- -------------------- -------- -------------------- ------------- -------------------- --------
Total net
assets 17,301 11,850 52,539 81,690 17,877 10,476 45,089 73,442
-------------------- ------------- -------------------- -------- -------------------- ------------- -------------------- --------
*The receivables do not reconcile to the Balance sheet as prepayments
are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered
into with the Company. The Company is exposed to credit risk through its
receivables, investment in unquoted loan stock and through the holding
of cash on deposit with banks.
The Manager evaluates credit risk on loan stock instruments prior to
investment and as part of its ongoing monitoring of investments. For
investments made prior to 6 April 2018, which account for 96 per cent.
of loan stock value, typically loan stock instruments will have a fixed
or floating charge, which may or may not be subordinated, over the
assets of the portfolio company in order to mitigate the gross credit
risk.
The Manager receives management accounts from portfolio companies and
members of the investment management team often sit on the boards of
unquoted portfolio companies; this enables the close identification,
monitoring and management of investment specific credit risk.
The Manager and the Board formally review credit risk (including
receivables) and other risks, both at the time of initial investment and
at quarterly Board meetings.
The Company's total gross credit risk at 31 December 2020 was limited to
GBP18,580,000 (2019: GBP19,127,000) of unquoted loan stock instruments,
GBP11,266,000 (2019: GBP9,867,000) cash on deposit with banks and
GBP1,293,000 (2019: GBP115,000) of other receivables.
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), and Barclays Bank plc.
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, being GBP79,064,000 (2019: GBP71,200,000). As at 31 December
2020, the Company had no actual short term or long term gearing (2019:
GBPnil). The Directors do not currently have any intention to utilise
gearing.
The Company has no committed borrowing facilities as at 31 December 2020
(2019: GBPnil) and had cash of GBP11,266,000 (2019: GBP9,867,000). The
Company had no investment commitments as at 31 December 2020 (2019:
GBPnil).
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 2020 are short term in nature and total
GBP502,000 (2019: GBP486,000).
The carrying value of loan stock investments analysed by expected
maturity dates is as follows:
31 December 2020 31 December 2019
Redemption Fully performing Past due Valued below cost Total Fully Past due Valued below cost Total
date GBP'000 GBP'000 GBP'000 GBP'000 performingGBP'000 GBP'000 GBP'000 GBP'000
----------- ---------------- -------- ----------------- -------- ----------------- -------- ----------------- --------
Less than
one year 8,783 307 102 9,192 6,100 265 102 6,467
1-2 years 1,602 34 35 1,671 2,233 - - 2,233
2-3 years 86 - 440 526 1,528 - 61 1,589
3-5 years 395 28 90 513 347 1,362 123 1,832
5 + years 6,540 138 - 6,678 6,824 154 28 7,006
---------------- -------- ----------------- -------- ----------------- -------- ----------------- --------
Total 17,406 507 667 18,580 17,032 1,781 314 19,127
---------------- -------- ----------------- -------- ----------------- -------- ----------------- --------
Loan stock can be past due as a result of interest or capital not being
paid in accordance with contractual terms. The cost of loan stock valued
below cost is GBP3,132,000 (2019: GBP517,000).
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
2020 are stated at fair value as determined by the Directors, with the
exception of receivables (including debtors due after more than one
year), payables and cash which are carried at amortised cost, in
accordance with FRS 102. There are no financial liabilities other than
payables. The Company's financial liabilities are all non-interest
bearing. It is the Directors' opinion that the book value of the
financial liabilities is not materially different to the fair value and
all are payable within one year.
17. Commitments, contingencies and guarantees
As at 31 December 2020, the Company had no financial commitments (2019:
GBPnil).
There were no contingent liabilities or guarantees given by the Company
as at 31 December 2020 (2019: GBPnil).
18. Post balance sheet events
Since the year end, the Company made the following investment
transactions:
-- Proceeds of GBP15.4 million were received for the sale of the Company's
three care homes; Active Lives Care Limited, Ryefield Court Care Limited
and Shinfield Lodge Care Limited;
-- Proceeds of GBP3.0 million were received for the sale of OmPrompt
Holdings Limited;
-- Investment of GBP917,000 in a new portfolio company, Threadneedle
Software Holding Limited (T/A Solidatus);
-- Investment of GBP468,000 in an existing portfolio company, Healios
Limited;
-- Proceeds of GBP360,000 were received for the sale of SBD Automotive
Limited; and
-- Investment of GBP46,000 in an existing portfolio company, ePatient
Network Limited (T/A Raremark).
The following new Ordinary shares of nominal value 1 penny each were
allotted under the Albion VCTs Prospectus Top Up Offers 2020/21 after 31
December 2020:
Aggregate
Number of nominal Net
Date of shares value of consideration
allotment allotted shares Issue price (pence per received Opening market price on allotment date
GBP'000 share) GBP'000 (pence per share)
---------- ---------- --------- ------------------------ ------------- ----------------------------------------
26
February
2021 5,412,326 54 21.6 1,151 20.10
26
February
2021 1,536,392 15 21.7 327 20.10
26
February
2021 59,778,526 598 21.8 12,706 20.10
66,727,244 667 14,184
---------- --------- -------------
19. Related party transactions
Other than transactions with the Manager as disclosed in note 4, and the
Directors' remuneration disclosed in the Directors' remuneration report
on page 44 of the full Annual Report and Financial Statements 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 2020 and 31 December
2019, 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 2020, 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.
21. Publication
The full audited Annual Report an 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
https://www.globenewswire.com/Tracker?data=IeaQ627d2CsGwLaH7G-fn1rTKtV44hImf4qCvoti41Tf0JNbnyzaXB03QO6DUX43T5ccHoGaCCYzU-9QQOeIdQlj4qjCGsMXuEgVW7U5OVkTo4eTJVdG5kbReMvwH_73Vya6PozpSZl4e5vFbp14CO-HLc408xRXYw4XcCSCnRM=
www.albion.capital/funds/KAY/31Dec2020.pdf.
Attachment
-- Split of Portfolio by sector, stage of investment and number of employees
https://ml-eu.globenewswire.com/Resource/Download/4146b370-d027-424f-89e5-3b17f6790de2
(END) Dow Jones Newswires
March 26, 2021 14:47 ET (18:47 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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