Annual Financial Report
19/04/2024 16:51
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Albion Development VCT PLC
Annual Financial Report
LEI Code 213800FDDMBD9QLHLB38
As required by the UK Listing Authority's Disclosure Guidance and Transparency
Rules 4.1 and 6.3, Albion Development VCT PLC today makes public its
information relating to the Annual Report and Financial Statements for the
year ended 31 December 2023.
This announcement was approved for release by the Board of Directors on 19
April 2024.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 December 2023
(which have been audited), will shortly be sent to shareholders. Copies of the
full Annual Report and Financial Statements will be shown via the Albion
Capital Group LLP website by clicking
www.albion.capital/funds/AADV/31Dec2023.pdf.
Investment policy
The Company will invest in a broad portfolio of higher growth businesses with
a stronger focus on technology companies across a variety of sectors of the UK
economy. Allocation of assets will be determined by the investment
opportunities which become available but efforts will be made to ensure that
the portfolio is diversified in terms of sector and stage of maturity of
company.
Funds held pending investment or for liquidity purposes will be held as cash
on deposit or up to 8% of its assets, at the time of investment, in liquid
open-ended equity funds providing income and capital equity exposure (where it
is considered economic to do so).
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% 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 10% of
the adjusted share capital and reserves.
Financial calendar
Record date for first dividend 3 May 2024
Payment of first dividend 31 May 2024
Annual General Meeting Noon on 20 June 2024
Announcement of Half-yearly results for the six months ending 30 June 2024 September 2024
Financial highlights
206.78p Total shareholder value per share as at 31 December 2023 (†)(2022: 202.22p) ( ††)
5.14% Shareholder return for the year ended 31 December 2023 (†)(†)(2022: loss of 1.71%)
4.51p Tax-free dividend per share for the year ended 31 December 2023 (2022: 4.71p)
88.70p Net asset value per share as at 31 December 2023 (2022: 88.65p)
†Total shareholder value per share at 31 December 2023 is calculated using
net asset value per share at 31 December 2023 plus dividends paid per Ordinary
share since launch to 31 December 2023.
(††)These are considered Alternative Performance Measures, see note 3 in
the KPI’s and APM’s section of the Strategic report for further
explanation.
Movements in net asset value
31 December 2023 pence per share 31 December 2022 pence per share
Opening net asset value 88.65 94.98
Capital return/(loss) 3.66 (2.36)
Revenue return 0.63 0.49
Total return/(loss) 4.29 (1.87)
Dividends paid (4.51) (4.71)
Impact of share capital movements 0.27 0.25
Net asset value 88.70 88.65
Total shareholder value per share
Ordinary shares
(pence per share)
Total dividends paid to 31 December 2023 118.08
Net asset value as at 31 December 2023 88.70
Total shareholder value per share to 31 December 2023 206.78
The financial summary above is for the Company, Albion Development VCT PLC
Ordinary shares only. Details of the financial performance of the C shares and
D shares, which have been merged into the Ordinary shares, can be found at
www.albion.capital/funds/AADV under the ‘Financial summary for previous
funds’ section.
A more detailed breakdown of the dividends paid per year can be found at
www.albion.capital/funds/AADV under the ‘Dividend History’ section.
In addition to the dividends paid above, the Board has declared a first
dividend for the year ending 31 December 2024 of 2.22 pence per share payable
on 31 May 2024 to shareholders on the register on 3 May 2024.
Chairman’s statement
Introduction
Despite the continuing broader uncertain macro-economic and geopolitical
backdrop, and the resulting significant market volatility, the Company
recorded an encouraging set of results. Thus, I am pleased to report a
positive return of 4.56 pence per share for the year ended 31 December 2023
which represents a 5.1% uplift on the opening net asset value.
Notwithstanding the ongoing uncertainties facing the Company, the Board
remains encouraged by the progress that is being made by many of the portfolio
companies. However, the Board also recognises that the Company has a venture
capital portfolio, which may have periods of short term volatility, so its
returns should be evaluated over the longer-term.
Results and dividends
As at 31 December 2023 the net asset value was 88.70 pence per share compared
to 88.65 pence per share as at 31 December 2022. The total gain before
taxation was £5.8 million compared to a loss of £2.3 million for the
previous year.
In line with our variable dividend policy targeting 5% of NAV per annum, the
Company paid dividends totalling 4.51 pence per share during the year to 31
December 2023 (2022: 4.71 pence per share). The Company will pay a first
dividend for the financial year to 31 December 2024 of 2.22 pence per share on
31 May 2024 to shareholders on the register on 3 May 2024, being 2.5% of this
31 December 2023 NAV.
Investment performance and progress
The results for the year showed net gains on investments of £7.3 million,
compared with net losses of £0.6 million for the previous year. The results
are largely driven by unrealised gains across the portfolio together with
realised gains from successful exits during the year. Quantexa, the largest
company within our portfolio (18.6% of net asset value), increased its value
in the year by £10.0m following an externally led $129 million Series E
fundraising which completed in April 2023 and a part disposal in October 2023,
which is detailed below. The other largest contributors to the net gain were
unrealised gains in Egress Software Technologies by £1.5 million and Proveca
by £0.7 million, and a realised gain in Ophelos by £0.6 million following
its sale. These gains have been partially offset by unrealised losses,
including a £1.7 million loss in Black Swan Data and £0.8 million in
Threadneedle Software Holdings (T/A Solidatus).
The Company had a number of investment realisations in the year with proceeds
totalling £5.3 million, leading to realised gains during the year of £1.5
million. The largest realised gains were generated from a part disposal in
Quantexa delivering an 11.9 times return on its weighted average cost as well
as the disposal of Ophelos delivering 2.1 times cost. Further details on these
disposals, and other realisations, can be found in the realisations table on
page 29 of the full Annual Report and Financial Statements.
The three largest Investments in the Company’s portfolio, being Quantexa,
Egress Software Technologies and Proveca, are valued at £42.2 million and
represent 35.3% of the Company’s net asset value.
The Company has been an active investor during the year investing a total of
£6.9 million. Of this, £2.2 million was invested into five new portfolio
companies, all of which are expected to require further investment as the
companies prove themselves and grow. The new investments during the year were:
* £0.9 million into OpenDialog AI, which allows organisations to create and
deploy AI powered chatbots and virtual assistants in a no-code environment, to
allow for conversational experiences with customers and employees across a
variety of communication channels;
* £0.5 million into GridCog International, a SaaS platform which provides
project modelling software to plan, track and optimise Distributed Energy
Resources (DERs) across multiple sites and asset types integrated together;
* £0.4 million into Phasecraft, which develops new algorithms to make use of
early quantum computers for materials science problems;
* £0.2 million into Kennek Solutions, a vertical end to end software for
non-bank lenders which allows them to manage the full value chain of lending
in a single platform; and
* £0.2 million into Mondra Global, software platform to automate
environmental product Lifecycle Assessments (LCA), allowing global retailers
to measure, manage and importantly reduce the carbon emissions of their
products in their supply chains.
A further £4.7 million was invested into existing portfolio companies, the
largest being: £1.4 million into Panaseer; £1.1 million into Proveca; and
£0.6 million into Seldon Technologies. A full list of the Company’s
investments and disposals, including their movements in value for the year,
can be found in the Portfolio of investments section on pages 27 to 29 of the
full Annual Report and Financial Statements.
Risks and uncertainties
The Company faces a number of significant risks, including higher interest
rates, high levels of inflation and the ongoing impact of geopolitical
tensions. This complex backdrop is factored into how the Company is managed,
including its management of cash.
Our investment portfolio, while concentrated mainly in the technology and
healthcare sectors, remains diversified in terms of both sub-sector and stage
of maturity and, importantly, we believe it to be appropriately valued. The
Manager is continually assessing the exposure to these risks for each
portfolio company and appropriate actions, where possible, are being
implemented. This includes the potential provision of further financial
support to portfolio companies where necessary.
A detailed analysis of the other risks and uncertainties facing the business
is shown in the Strategic report below.
Share buy-backs
It remains the Board’s primary objective to maintain sufficient resources
for investment in existing and new portfolio companies and for the continued
payment of dividends to shareholders. The Board’s policy is to buy back
shares in the market, subject to the overall constraint that such purchases
are in the Company’s interest.
It is the Board’s intention for such buy-backs to be in the region of a 5%
discount to net asset value, so far as market conditions and liquidity permit.
Details of shares bought back during the year can be found in note 15.
Albion VCTs Prospectus Top Up Offers
On 9 March 2023, the Board announced the closure of the 2022/23 Top Up Offer
having reached its £13.0 million limit.
Your Board, in conjunction with the Boards of four other VCTs managed by
Albion Capital Group LLP, published a Prospectus Top Up Offer of new Ordinary
shares on 15 December 2023. The Offer launched to applications on 2 January
2024 and closed on 20 March 2024. The amount raised by the Company was £14.5
million.
The proceeds will be used to provide support to our existing portfolio
companies and to enable us to take advantage of new investment opportunities.
Details of share allotments made during and after the financial year can be
found in notes 15 and 19 respectively.
Annual General Meeting (“AGM”)
The AGM will be held virtually at noon on 20 June 2024 via the Lumi platform.
Information on how to participate in the live webcast can be found on the
Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcomes questions from shareholders at the AGM and shareholders
will be able to ask questions using the Lumi platform during the AGM.
Alternatively, shareholders can email their questions to
AADVchair@albion.capital prior to the Meeting.
Shareholders' views are important, and the Board encourages shareholders to
vote on the resolutions.
Further details on the format and business to be conducted at the AGM can be
found in the Directors’ report on pages 49 and 50 and in the Notice of the
Meeting on pages 89 to 92 of the full Annual Report and Financial Statements.
Audit tender process
Following a formal and rigorous audit tender process, the Board appointed
Johnston Carmichael LLP (“Johnston Carmichael”) as the new Auditor of the
Company in October 2023. Johnston Carmichael has conducted the audit of the
Annual Report and Financial Statements for the year ended 31 December 2023.
Shareholders will be asked to confirm the appointment of Johnston Carmichael
at the forthcoming AGM. During the audit tender process, prospective auditors
were evaluated using guidance issued by the Financial Reporting Council in
February 2017 and the Board completed a two-stage process which considered and
evaluated relevant expertise, audit firm quality, audit firm resilience and
value for money.
The Board would like to thank BDO for their diligent service for over 15
years.
Further details on the tender process can be found in the Statement of
corporate governance on page 55 of the full Annual Report and Financial
Statements.
Outlook and prospects
The Board is pleased with the positive return for the year and the portfolio
remains well diversified with companies at different stages of maturity and
targeted at sectors such as healthcare, software and FinTech, with minimal
exposure to consumer expenditure. Therefore, the Board is confident that the
Company is well placed to grow value for shareholders over the long term.
Ben Larkin
Chairman
19 April 2024
Strategic report
Investment policy
The Company will invest in a broad portfolio of higher growth businesses with
a stronger focus on technology companies across a variety of sectors of the UK
economy. Allocation of assets will be determined by the investment
opportunities which become available but efforts will be made to ensure that
the portfolio is diversified in terms of sector and stage of maturity of
company.
The full investment policy can be found above.
Current portfolio sector allocation
The pie charts at the end of this announcement are a useful way of showing the
split of the portfolio valuation as at 31 December 2023 by: sector; stage of
maturity measured by revenues; and their size measured by number of employees.
Details of the principal investments made by the Company are shown in the
Portfolio of investments on pages 27 and 28 of the full Annual Report and
Financial Statements.
Direction of portfolio
The cash currently sits at 19% which the Company will use to support those
portfolio companies that require it, as well as to capitalise on any new
investment opportunities that arise. The Manager has a deep sector knowledge
in healthcare, FinTech and software investing, and these funds will be
invested predominantly into higher growth technology companies within these
sectors.
Results and dividends
£’000
Net capital gain for the year 4,900
Net revenue return for the year 853
Total gain for the year ended 31 December 2023 5,753
Dividend of 2.22 pence per share paid on 31 May 2023 (3,012)
Dividend of 2.29 pence per share paid on 29 September 2023 (3,105)
Unclaimed dividends 11
Transferred from reserves (353)
Net assets as at 31 December 2023 119,633
Net asset value per share as at 31 December 2023 88.70 pence per share
The Company paid dividends totalling 4.51 pence per share (2022: 4.71 pence
per share). The Board has a variable dividend policy which targets an annual
dividend yield of around 5% on the prevailing net asset value. As a result,
the Board has declared a first dividend for the year ending 31 December 2024
of 2.22 pence per share payable on 31 May 2024 to shareholders on the register
on 3 May 2024.
As shown in the Income statement, the total investment income increased to
£1,508,000 (2022: £1,194,000). This is due to increased bank interest and
income from fixed terms funds from higher interest rates in the year. The
revenue return to equity holders has subsequently increased to £853,000
(2022: £591,000).
The net capital gain for the year was £4,900,000 (2022: net loss of
£2,843,000). The net gain was due to net unrealised gains from the valuations
of investments. Key valuation movements during the year are outlined in the
investment portfolio section of the Chairman’s statement. The total gain for
the year was 4.29 pence per share (2022: loss of 1.87 pence per share).
The cash outflow for the Company was £4,093,000 for the year (2022: inflow of
£9,459,000). This resulted mainly from new investments, dividends paid, share
buy-backs and ongoing expenses, offset by the issue of new Ordinary shares
under the 2022/23 Top Up Offer, disposal proceeds, loan stock income and
interest from bank deposits and fixed term funds.
Review of business and future changes
A detailed review of the Company’s business during the year is contained in
the Chairman’s statement. The results for the year to 31 December 2023 show
total shareholder value per share of 206.78 pence per share since launch
(2022: 202.22 pence per share).
There is a continuing focus on growing the FinTech, healthcare (including
digital healthcare) and other software and technology sectors. The majority of
these investment returns are delivered through equity and capital gains, and
will be the key driver of success for the Company. Investment income, which is
received primarily from our renewable energy investments, is expected to
remain steady over the coming years.
Details of significant events which have occurred since the end of the
financial year are listed in note 19. Details of transactions with the Manager
are shown in note 5.
Future prospects
The Company’s financial results for the year demonstrate that the portfolio
remains well balanced across sectors and risk classes, and is largely
weathering the impacts of the ongoing global issues caused as a result of high
levels of interest rates and inflation, due in part to the geopolitical
tensions, however the full effects of these issues will continue to be felt in
years to come. Although there remains much uncertainty, the Board considers
that the current portfolio has the potential to deliver long term growth,
whilst maintaining a predictable stream of dividend payments to shareholders.
Further details of 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 its own assessment of the Company, will
provide shareholders with sufficient information to assess how effectively the
Company is applying its investment policy to meet its objectives. The
Directors are satisfied that the results shown in the following KPIs and APMs
give a good indication that the Company is achieving its investment objective
and policy.
1. Total shareholder return relative to FTSE All-Share Index
total return
The graph on page 8 of the full Annual Report and Financial Statements shows
the Company’s total shareholder return relative to the FTSE All-Share Index
total return, with dividends reinvested. The FTSE All-Share index is
considered a reasonable benchmark as the Company is classed as a generalist UK
VCT investor, and this index includes over 600 companies listed in the UK,
including small-cap, covering a range of sectors. Details on the performance
of the net asset value and return per share for the year are shown in the
Chairman’s statement.
2. Net asset value per share (APM) and cumulative dividends
The chart on page 16 of the full Annual Report and Financial Statements
illustrates the movement in net asset value per share and cumulative dividends
paid since launch.
3. Shareholder value (APM) and Shareholder return(†) (APM)
Total shareholder value increased by 5.1% on opening net asset value to 206.78
pence per share for the year ended 31 December 2023 as a result of the
positive total return of 4.29 pence per share.
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
5.4% 4.1% 6.5% 10.0% 20.3% 3.8% 3.8% 20.5% (1.7%) 5.1%
(†)Methodology: Calculated by the movement in total shareholder value per
share for the year divided by the opening net asset value.
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2023 were 4.51 pence
per share (2022: 4.71 pence per share). Cumulative dividends paid since
inception are 118.08 pence per share.
5. Ongoing charges (APM)
The ongoing charges ratio for the year to 31 December 2023 was 2.50% (2022:
2.50%). The ongoing charges ratio has been calculated using The Association of
Investment Companies’ (“AIC”) recommended methodology. This figure shows
shareholders the total recurring annual operational expenses (including
investment management fees charged to capital reserve) as a percentage of the
average net assets attributable to shareholders. The ongoing charges cap is
2.50%, which has resulted in a saving of £57,000 to shareholders during the
year (2022: £41,000).
6. VCT compliance*
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 46 and 47 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 2023. 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.
Gearing
As defined by the Articles of Association, the Company’s maximum exposure in
relation to gearing is restricted to 10% of the share capital and reserves
adjusted for any dividends declared. Although the investment policy permits
the Company to borrow, the Directors do not currently have any intention of
utilising long-term gearing and have not done so in the past.
Operational arrangements
The Company has delegated the investment management of the portfolio to the
Manager, Albion Capital Group LLP, which is authorised and regulated by the
Financial Conduct Authority. The Manager also provides company secretarial and
other accounting and administrative support to the Company.
Management agreement
Under the Investment Management agreement (“IMA”), the Manager provides
investment management, company secretarial and administrative services to the
Company. The IMA can be terminated by either party on 12 months’ notice and
is subject to earlier termination in the event of certain breaches or on the
insolvency of either party. The Manager is paid an annual fee equal to 2.25%
of the net asset value of the Company paid quarterly in arrears.
Total annual ongoing expenses, including the management fee but excluding any
performance incentive fee, are limited to 2.5% of the net asset value, as per
the resolution passed at the General Meeting in 2019.
In some instances, the Manager is entitled to an arrangement fee, payable by a
portfolio company in which the Company invests, in the region of 2% of the
investment made, and also monitoring fees where the Manager has a
representative on the portfolio company’s board; these fees are payable by
the portfolio company. Further details of the Manager’s fee can be found in
note 5 to the Financial Statements.
Management performance incentive
In order to align the interests of the Manager and shareholders with regards
to generating positive returns, the Company has a Management performance
incentive arrangement with the Manager. Under the incentive arrangement, the
Company will pay an incentive fee to the Manager of an amount equal to 20% of
any excess return that is calculated for each financial year.
The performance fee hurdle requires that the growth of the aggregate of the
net asset value per share and dividends paid by the Company compared with the
previous accounting date exceeds RPI plus 2%. The hurdle will be calculated
every year, based on the previous year’s closing net asset value per share.
The starting net asset value is 84.70 pence per share, being the audited net
asset value at 31 December 2018. If the target return is not achieved in a
period, the cumulative shortfall is carried forward to the next accounting
period and has to be made up before an incentive fee becomes payable.
As at 31 December 2023, the total return since 1 January 2019 was 111.03
pence, and the hurdle was 129.10 pence, resulting in a shortfall of 18.07
pence per share. As a result, no performance incentive fee is payable to the
Manager for the year (2022: £nil).
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on:
* the returns generated by the Company;
* the continuing achievement of the HMRC tests for VCT status;
* the long term prospects of the current portfolio of investments;
* the management of treasury, including use of buy-backs and participation in
fund raising; and
* benchmarking the performance of the Manager to other VCT managers, and the
other VCTs managed by Albion.
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 the Manager 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.
Consumer duty
The FCA’s Consumer Duty came into effect from 31 July 2023. These rules set
a higher standard of consumer protection in financial services. The Manager as
AIFM is within scope of the FCA’s Consumer Duty, but the Company itself is
not.
The Manager is, for the purposes of Consumer Duty, a “manufacturer” of the
Company’s shares as it is a firm that has some influence over design and
distribution of the Company’s share product. The Manager’s latest
assessment of value for the Company’s shares was completed in December 2023.
The value assessment concluded that the Company provides fair value for
shareholders. Where the Manager’s product review concludes that changes may
help deliver better outcomes for consumers, it will recommend these changes to
the Board.
Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote
the success of the Company for the benefit of its members as a whole in both
the long and short term, having regard to the interests of other stakeholders
in the Company, such as suppliers, and to do so with an understanding of the
impact on the community and environment and with high standards of business
conduct, which includes acting fairly between members of the Company.
The Board is very conscious of these wider responsibilities in the ways it
promotes the Company’s culture and ensures, as part of its regular
oversight, that the integrity of the Company’s affairs is foremost in the
way the activities are managed and promoted. This includes regular engagement
with the wider stakeholders of the Company and being alert to issues that
might damage the Company’s standing in the way that it operates. The Board
works very closely with the Manager in reviewing how stakeholder issues are
handled, ensuring good governance and responsibility in managing the
Company’s affairs, as well as visibility and openness in how the affairs are
conducted.
The Company is an externally managed investment company with no employees, and
as such has nothing to report in relation to employee engagement but does keep
close attention 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 also nothing to report in relation to relationships with customers.
The table below sets out the key stakeholders. Details how the Board has
engaged with these key stakeholders and the effect of these considerations on
the Company’s decisions and strategies during the year.
Stakeholder Engagement with Stakeholder Outcome and decisions based on engagement
Shareholders The key methods of engaging with Shareholders are as follows: * Annual General Meeting (“AGM”) * Shareholders’ views are important and the Board encourages Shareholders to exercise their right to vote on the resolutions at the AGM. The Company’s AGM is typically
* Shareholder seminar used as an opportunity to communicate with investors, including through a presentation made by the Manager. Undertaking this virtually enabled engagement with a wider
* Annual report and Financial Statements, Half-yearly financial report, and Interim management statements audience of shareholders from across the country, and gave shareholders the opportunity to ask questions and vote during the virtual AGM last year. The virtual medium
* RNS announcements in accordance with Listing Rules and Disclosure Guidance and Transparency Rules (“DTRs”) covering such things as the publication of the Prospectus helps facilitate greater shareholder participation and to help those who are unable to attend the AGM in person, as well as provide a recording of the event for
* Albion Capital website, social media pages, as well as publishing Albion news shareholder magazine Shareholders to watch on demand.
* Shareholders are also encouraged to attend the in person annual Shareholder Seminar. This year’s event took place on 15 November 2023 at the Royal College of Surgeons.
The seminar included OutThink and Proveca sharing insights into their businesses and also a Q&A from Albion executives on some of the key factors affecting the investment
outlook, as well as a review of the past year and the plans for the year ahead. Representatives of the Board attend the seminar. The Board considers this an important
interactive event, and expects to continue to run this in 2024.
* The Board recognises the importance to Shareholders of maintaining a share buy-back policy, in order to provide market liquidity, and considered this when establishing
the current policy. The Board closely monitors the discount to the net asset value to ensure this is in the region of 5%.
* The Board seeks to create value for Shareholders by generating strong and sustainable returns to provide shareholders with regular dividends and the prospect of capital
growth. The Board takes this into consideration when making the decision to pay dividends to Shareholders. The variable dividend policy has resulted in a dividend yield
of 5.1% on opening net asset value.
* During the year, the Board made the decision to participate in the Albion Prospectus Top Up Offer, to raise more funds for deployment into new and existing portfolio
companies. The Prospectus was published on 15 December 2023 and the Offer launched to applications on 2 January 2024. The Board carefully considered whether further funds
were required, whether the VCT tests would continue to be met, and whether it would be in the interest of Shareholders, before agreeing to publish the Prospectus. On
allotment, an issue price formula based on the prevailing net asset value is used to ensure there is no dilution to existing Shareholders.
* Cash management and liquidity of the Company are key quarterly discussions amongst the Board, with focus on deployment of cash for future investments, dividends and
share buy-backs.
* Shareholders can contact the Chairman using the email AADVchair@albion.capital
Manager The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance (“ESG”) practice. * The Manager meets with the Board at least quarterly to discuss the performance of the Company, and is in regular contact in between these meetings, e.g. to share
investment papers for new and follow-on investments. All strategic decisions are discussed in detail and minuted, with an open dialogue between the Board and the Manager.
* 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.
* Details of the Manager’s responsibilities can be found in the Statement of corporate governance on pages 52 and 53 of the full Annual Report and Financial Statements.
Suppliers The key suppliers are: * Auditor; * The Manager, on behalf of the Company, is in regular contact with the suppliers and the contractual arrangements with all the principal suppliers to the Company are
* Corporate broker; reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities.
* Depositary; * As outlined in the Chairman’s statement, following a formal and rigorous audit tender process, the Company was pleased to announce the appointment of Johnston
* Legal adviser; Carmichael LLP as the Company’s Auditor.
* Registrar; and * The Manager reviews the performance of the providers annually and was satisfied with their performance.
* VCT taxation adviser
Portfolio companies The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. Also, as discussed in the ESG report on pages 40 to 43 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their stakeholders is also important to the Company. * The Board aims to have a diversified portfolio in terms of sector and stage of investment. Further details of this can be found in the pie charts at the end of this
announcement.
* In most cases, an Albion executive has either a place on the board of a portfolio company or is an observer, in order to help with both business operation decisions, as
well as good ESG practices.
* The Manager provides access to deep expertise on growth strategy alignment, leadership team hiring, organisational scaling and founder leader development.
* The Manager facilitates good dialogue with portfolio companies, and often puts on events in order to help portfolio companies benefit from the Albion network.
Community and environment The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board. * The Board receives reports on ESG factors within its portfolio from the Manager as it is a signatory of the United Nations Principles for Responsible Investment (“UN
PRI”). Further details of this are set out in the ESG report on pages 40 to 43 of the full Annual Report and Financial Statements. 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.
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.
Further policies
The Company has adopted a number of further policies relating to:
* Environment
* Global greenhouse gas emissions
* Anti-bribery
* Anti-facilitation of tax evasion
* Diversity
These are set out in the Directors’ report on pages 47 and 48 of the full
Annual Report and Financial Statements.
General Data Protection Regulation
The General Data Protection Regulation (“GDPR”) has the objective of
unifying data privacy requirements across the European Union. GDPR forms part
of the UK law after Brexit, now known as UK GDPR. The Manager continues to
take action to ensure that the Manager and the Company are compliant with the
regulation.
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 risks have been the emergence of
rising interest rates and inflation, caused in part as a result of the
geopolitical tensions, and pricing volatility in world markets. The full
impacts of these risks are likely to continue to be uncertain for some time.
The Board has carried out a robust assessment of the Company’s principal and
emerging risks and uncertainties and seeks to mitigate these risks
through regular reviews of performance and monitoring progress and
compliance. The Board applies the principles detailed in the Financial
Reporting Council’s Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting, in the mitigation and management of
these risks. More information on specific mitigation measures for the
principal risks, emerging risks and uncertainties are explained below:
Risk Possible consequence Risk assessment during the year Risk management
Principal Risks
Investment, performance, technology and valuation risk The risk of investment in poor quality businesses, which could reduce the returns to shareholders and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust purposes, are more volatile than larger, long-established businesses. The Company’s Investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. No change during the year, but remains high due to the economic and geopolitical issues as referred to in the Chairman’s statement. To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years
of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured
investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the
Manager for all investments, and at least one external investment professional for investments greater than £1 million in
aggregate across all the Albion managed VCTs. The Manager also invites and takes account of comments from non-executive
Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly
monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification
in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board
meetings. The Board and Manager regularly review the deployment of investments and cash resources available to the Company in
assessing liquidity required for servicing the Company’s buy-backs, dividend payments and operational expenses. The decision to
issue a Prospectus for the 2023/24 Top Up was due to careful analysis of these factors. The unquoted investments held by the
Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and
Venture Capital Valuation Guidelines updated in 2022. These guidelines set out recommendations, intended to represent current
best practice on the valuation of venture capital investments. The valuation takes into account all known or knowable material
facts at the date of valuation.
VCT approval risk The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. No change in the year. To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust
management, used to operating within the requirements of the Venture Capital Trust legislation. In addition, to provide further
formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the
Board to independently confirm compliance with the Venture Capital Trust legislation, to highlight areas of risk and to inform
on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M.
Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required.
Regulatory and compliance risk The Company is listed on The London Stock Exchange and is required to comply with the rules of the Financial Conduct Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies. No change in the year. Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition,
the Board and the Manager receive regular updates on new regulation from its auditor, legal advisers and other professional
bodies. The Company is subject to compliance checks through the Manager’s compliance function, and any issues arising from
compliance or regulation are reported to its own board every two months. 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. The Government has announced its intention to extend the VCT sunset
clause to 2035. This will help to enable the Company to continue supporting its portfolio of high growth companies.
Operational and internal control risk The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. No change in the year. The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout
the year. The Board receives reports from the Manager on its internal controls and risk management. The Audit and Risk
Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets and has access to their internal
audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has strong systems and
controls in place including those in relation to business continuity and cyber security, as mentioned below. Ocorian Depositary
(UK) Limited is the Company’s Depositary, appointed to oversee the custody and cash arrangements and provide other AIFMD duties.
The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited to ensure that the Manager is adhering to
its policies and procedures as required by the AIFMD. In addition, the Board annually reviews the performance of its key
service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver
the Company’s investment objective and policy. The Manager and other service providers have also demonstrated to the Board that
there is no undue reliance placed upon any one individual.
Cyber and data security risk A cyber-attack on one of the Company's third party suppliers could result in the security of, potentially sensitive, data being compromised, leading to financial loss, disruption or damage to the reputation of the Company. No change in the year. The Manager outsources some of its IT services, including hardware and software procurement, server management, backup provision
and day-to-day support through an outsourcing arrangement with an IT consultant. In house IT support is also provided. The
Manager takes cyber risk seriously and the need to guard against these are in the Service level agreement with their key
outsourced service provider. During the year, further investment was made in the Manager’s IT infrastructure and awareness
training. In addition, the Manager also has a business continuity plan which includes off-site storage of records and remote
access provisions. This is revised and tested annually and is also subject to Compliance, Group Risk and Internal Audit
reporting. Penetration tests are also carried out to ensure that IT systems are not susceptible to any cyber-attacks. The
Manager’s Internal Auditor performs reviews on IT general controls and data confidentiality and makes recommendations where
necessary. The 2023 internal audit focused specifically on IT systems.
Economic, political and social risk Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection. Increased in the year, due to the continued high levels of inflation and interest rates and new areas of geopolitical tensions. The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in
a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio
companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy
-backs and follow-on investments. In common with most commercial operations, exogenous risks over which the Company has no
control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the
investments the Company makes are long term. The Board and Manager are continuously assessing the resilience of the portfolio,
the Company and its operations and the robustness of the Company’s external agents, as well as considering longer term impacts
on how the Company might be positioned in how it invests and operates. Ensuring liquidity in the portfolio to cope with exigent
and unexpected pressures on the finances of the portfolio and the Company is an important part of the risk mitigation in these
uncertain times. The portfolio is structured as an all-weather portfolio with c.63 companies which are diversified as discussed
above. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel.
Liquidity risk The Company may not have sufficient cash available to meet its financial obligations. The Company’s portfolio is primarily in smaller unquoted companies, which are inherently illiquid as there is no readily available market, and thus it may be difficult to realise their fair value at short notice. No change in the year. To reduce this risk, the Board reviews the Company’s three year cash flow forecasts on a quarterly basis. These include
potential investment realisations (which are closely monitored by the Manager), Top Up Offers, dividend payments and operational
expenditure. This ensures that there are sufficient cash resources available for the Company’s liabilities as they fall due.
Emerging Risks
Environmental, social and governance (“ESG”) risk An insufficient ESG policy could lead to an increased negative impact on the environment, including the Company’s carbon footprint. Non-compliance with reporting requirements could lead to a fall in demand from investors, reputational damage and penalties. Climate risks could also negatively impact on the value of portfolio investments. No change in the year. The Manager is a signatory of the UN PRI and the Board is kept appraised of the evolving ESG policies at quarterly Board
meetings. Full details of the specific procedures and risk mitigation can be found in the ESG report on pages 40 to 43 of the
full Annual Report and Financial Statements. These procedures ensure that this risk continues to be mitigated where possible.
Whilst the Company itself has limited impact on climate change, due to no employees nor greenhouse gas emissions, the Board
works closely with the Manager to ensure the Manager itself is working towards reducing its impact on the environment, and that
the Manager takes account of ESG factors, including climate change, when making new investment decisions. With specific
reference to the Company, a key operation is increasing the use of electronic communications with Shareholders.
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 2026.
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. This is the period used by the Board as part of
its strategic planning process, which includes: the estimated timelines for
finding, assessing and completing investments; the potential impact of any new
regulations; and the availability of cash.
The Board has carried out a robust assessment of the principal and emerging
risks facing the Company, including those that could threaten its business
model, future performance, solvency or liquidity, and focused on the major
factors which affect the economic, regulatory and political environment. The
Board carefully assessed, and were satisfied with, the risk management
processes in place to avoid or reduce the impact of these risks. The Board has
carried out robust stress testing of cashflows which included; factoring in
higher levels of inflation when budgeting for future expenses, only including
proceeds from investment disposals where there is a high probability of
completion, whilst also assessing the requirement for any future financial
support of portfolio companies.
The Board has additionally considered the ability of the Company to comply
with the ongoing conditions to ensure it maintains its VCT qualifying status
under its current investment policy. As a result of the Board’s quarterly
valuation reviews, it has concluded that the portfolio is well balanced and
geared towards delivering long term growth and strong returns to shareholders.
The Board has concluded that there is a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the three year period to 31 December 2026. The Board is mindful
of the ongoing risks and will continue to ensure that appropriate safeguards
are in place, in addition to monitoring the quarterly cashflow forecasts to
ensure the Company has sufficient liquidity.
Companies Act 2006
This Strategic report of the Company for the year ended 31 December 2023 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
Ben Larkin
Chairman
19 April 2024
Responsibility statement
In preparing these Financial Statements for the year ended 31 December 2023,
the Directors of the Company, being Ben Larkin, Lyn Goleby, Lord
O’Shaughnessy and Patrick Reeve, confirm that to the best of their
knowledge:
* summary financial information contained in this announcement and the full
Annual Report and Financial Statements for the year ended 31 December 2023 for
the Company has been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (UK Accounting Standards and applicable law) and
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company; and
* the Chairman's statement and Strategic report include a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties it faces.
We consider that the Annual Report and Financial Statements, taken as a whole,
are fair, balanced, and understandable and provide the information necessary
for shareholders to assess the Company’s position, performance, business
model and strategy.
A detailed "Statement of Directors' responsibilities” is contained on page
51 within the full audited Annual Report and Financial Statements.
On behalf of the Board
Ben Larkin
Chairman
19 April 2024
Income statement
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Net gains/(losses) on investments 3 - 7,294 7,294 - (636) (636)
Investment income 4 1,508 - 1,508 1,194 - 1,194
Investment Manager’s fees 5 (266) (2,394) (2,660) (245) (2,207) (2,452)
Other expenses 6 (389) - (389) (358) - (358)
Profit/(loss) on ordinary activities before tax 853 4,900 5,753 591 (2,843) (2,252)
Tax on ordinary activities 8 - - - - - -
Profit/(loss) and total comprehensive income attributable to shareholders 853 4,900 5,753 591 (2,843) (2,252)
Basic and diluted return/(loss) per share (pence)* 10 0.63 3.66 4.29 0.49 (2.36) (1.87)
*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.
All gains and losses are recognised in the Income statement and all items in
the above statement are derived from continuing operations.
Balance sheet
31 December 2023 31 December 2022
Note £’000 £’000
Fixed asset investments 11 95,266 86,286
Current assets
Trade and other receivables 13 2,745 2,403
Cash in bank and in hand 22,398 26,491
25,143 28,894
Payables: amounts falling due within one year
Trade and other payables 14 (776) (722)
Net current assets 24,367 28,172
Total assets less current liabilities 119,633 114,458
Equity attributable to equity holders
Called-up share capital 15 1,542 1,456
Share premium 34,759 26,837
Unrealised capital reserve 38,631 32,516
Realised capital reserve 6,817 8,032
Other distributable reserve 37,884 45,617
Total equity shareholders’ funds 119,633 114,458
Basic and diluted net asset value per share (pence)* 16 88.70 88.65
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and
authorised for issue on 19 April 2024 and were signed on its behalf by
Ben Larkin
Chairman
Company number: 03654040
Statement of changes in equity
Called-up share capital Share premium Unrealised capital reserve Realised capital reserve* Other distributable reserve* Total
£’000 £’000 £’000 £’000 £’000 £’000
As at 1 January 2023 1,456 26,837 32,516 8,032 45,617 114,458
Profit and total comprehensive income for the year - - 5,473 (573) 853 5,753
Transfer of unrealised losses on disposal of investments - - 642 (642) - -
Purchase of shares for treasury - - - - (2,480) (2,480)
Issue of equity 86 8,140 - - - 8,226
Cost of issue of equity - (218) - - - (218)
Dividends paid - - - - (6,106) (6,106)
As at 31 December 2023 1,542 34,759 38,631 6,817 37,884 119,633
As at 1 January 2022 1,167 - 36,048 7,344 53,080 97,639
(Loss)/profit and total comprehensive income for the year - - (3,258) 415 591 (2,252)
Transfer of unrealised gains on disposal of investments - - (273) 273 - -
Purchase of shares for treasury - - - - (2,244) (2,244)
Issue of equity 288 27,509 - - - 27,797
Cost of issue of equity - (672) - - - (672)
Dividends paid - - - - (5,810) (5,810)
As at 31 December 2022 1,456 26,837 32,516 8,032 45,617 114,458
* Included within these reserves is an amount of £18,969,000 (2022:
£24,619,000) which is considered distributable. Over the next two years an
additional £18,627,000 will become distributable. This is due to the HMRC
requirement that the Company cannot use capital raised in the past two years
to make a payment or distribution to shareholders. On 1 January 2024,
£8,266,000 became distributable in line with this.
Statement of cash flows
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Cash flow from operating activities
Loan stock income received 915 996
Deposit interest received 326 47
Income from fixed term funds received 254 59
Dividend income received 128 133
Investment Manager’s fees paid (2,596) (4,216)
Other cash payments (404) (338)
Corporation tax paid - -
Net cash flow generated from operating activities (1,377) (3,319)
Cash flow from investing activities
Purchase of fixed asset investments* (6,869) (14,235)
Proceeds from disposals of fixed asset investments* 4,734 7,946
Net cash flow generated from investing activities (2,135) (6,289)
Cash flow from financing activities
Issue of share capital 7,043 26,132
Cost of issue of equity** (39) (36)
Equity dividends paid (net of Dividend Reinvestment Scheme) (5,105) (4,785)
Purchase of own shares (2,480) (2,244)
Net cash flow generated from financing activities (581) 19,067
(Decrease)/increase in cash in bank and in hand (4,093) 9,459
Cash in bank and in hand at start of period 26,491 17,032
Cash in bank and in hand at end of period 22,398 26,491
* Purchases and disposals detailed above do not agree to note 11 due to
restructuring of investments, conversion of convertible loan stock and
settlement of receivables and payables.
** The cost of issue of equity does not agree to the Statement of changes in
equity due to prospectus fundraising amounts being received net of fees.
The accompanying notes form an integral part of these Financial Statements.
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with applicable
United Kingdom law and accounting standards, including Financial Reporting
Standard 102 (“FRS 102”), and with the Statement of Recommended Practice
“Financial Statements of Investment Trust Companies and Venture Capital
Trusts” (“SORP”) issued by The Association of Investment Companies
(“AIC”). The Financial Statements have been prepared on a going concern
basis and further details can be found in the Directors’ report on page 45
of the full Annual Report and Financial Statements.
The preparation of the Financial Statements requires management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. The most critical
estimates and judgements relate to the determination of carrying value of
investments at Fair Value Through Profit and Loss (“FVTPL”) in accordance
with FRS 102 sections 11 and 12. The Company values investments by following
the International Private Equity and Venture Capital Valuation (“IPEV”)
Guidelines as updated in 2022 and further detail on the valuation techniques
used are outlined in note 2 below.
Company information can be found on page 4 of the full Annual Report and
Financial Statements.
2. Accounting policies
Fixed asset investments
The Company’s business is investing in financial assets with a view to
profiting from their total return in the form of income and capital growth.
This portfolio of financial assets is managed and its performance evaluated on
a fair value basis, in accordance with a documented investment policy, and
information about the portfolio is provided internally on that basis to the
Board.
In accordance with the requirements of FRS 102, those undertakings in which
the Company holds more than 20% of the equity as part of an investment
portfolio are not accounted for using the equity method. In these
circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including
loan stock, are classified by the Company as FVTPL and are included at their
initial fair value, which is cost (excluding expenses incidental to the
acquisition which are written off to the Income statement).
Subsequently, the investments are valued at ‘fair value’, which is
measured as follows:
* Investments listed on recognised exchanges are valued at their bid prices at
the end of the accounting period or otherwise at fair value based on published
price quotations.
* Unquoted investments, where there is not an active market, are valued using
an appropriate valuation technique in accordance with the 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, discounted
cash flows 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, other valuation
techniques are employed to conclude on the fair value as at the measurement
date. Examples of events or changes that could indicate a diminution include:
* the performance and/or prospects of the underlying business are
significantly below the expectations on which the investment was based; or
* a significant adverse change either in the portfolio company’s business or
in the technological, market, economic, legal or regulatory environment in
which the business operates; or
* market conditions have deteriorated, which may be indicated by a fall in the
share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the
investment contract and are de-recognised on legal completion of the sale of
an investment.
Dividend income is not recognised as part of the fair value movement of an
investment, but is recognised separately as investment income through the
other distributable reserve when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables and
cash are carried at amortised cost, in accordance with FRS 102. Debtors due
after more than one year meet the definition of a financing transaction 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
Dividend 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 deposit income
Interest income is recognised on an accruals basis using the rate of interest
agreed with the bank.
Fixed term funds income
Funds income is recognised on an accruals basis using the agreed rate of
interest.
Investment management fee, performance incentive fee and expenses
All expenses have been accounted for on an accruals basis. Expenses are
charged through the other distributable reserve except the following which are
charged through the realised capital reserve:
* 90% of management fees and 100% of performance incentive fees, if any, are
allocated to the realised capital reserve.
* expenses which are incidental to the purchase or disposal of an investment
are charged through the realised capital reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax
is tax payable/(refundable) in respect of the taxable profit/(tax loss) for
the current period or past reporting periods using the tax rates and laws that
have been enacted or substantively enacted at the financial reporting date.
Taxation associated with capital expenses is applied in accordance with the
SORP.
Deferred tax is provided in full on all timing differences at the reporting
date. Timing differences are differences between taxable profits and total
comprehensive income as stated in the Financial Statements that arise from the
inclusion of income and expenses in tax assessments in periods different from
those in which they are recognised in the Financial Statements. As a VCT the
Company has an exemption from tax on capital gains. The Company intends to
continue meeting the conditions required to obtain approval as a VCT 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 accounts for the nominal value of the Company’s shares.
Share premium
This accounts for the difference between the price paid for shares and the
nominal value of those shares, less issue costs and transfers to the other
distributable reserve.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end
against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
* gains and losses compared to cost on the realisation of investments, or
permanent diminutions in value (including gains recognised on the realisation
of investment where consideration is deferred that are not distributable as a
matter of law);
* finance income in respect of the unwinding of the discount on deferred
consideration that is not distributable as a matter of law;
* expenses, together with the related taxation effect, charged in accordance
with the above policies; and
* dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were
combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income
statement, the payment of dividends, the buy-back of shares, transfers from
the share premium and capital redemption reserve, and other non-capital
realised movements.
Dividends
Dividends by the Company are accounted for when the liability to make the
payment (record date) has been established.
Unclaimed dividends older than a period of twelve years from the dividend
declaration date are forfeited and returned to the Company in accordance with
the terms of the Articles of Association.
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.
3. Net gains/(losses) on investments
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Unrealised gains/(losses) on fixed asset investments 5,473 (3,258)
Realised gains on fixed asset investments 1,471 2,322
Unwinding of discount on deferred consideration 350 300
7,294 (636)
4. Investment income
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Loan stock interest 839 916
Bank deposit interest 326 47
Income from fixed term funds 254 59
Dividend income 89 172
1,508 1,194
5. Investment Manager’s fees
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Investment management fee charged to revenue 266 245
Investment management fee charged to capital 2,394 2,207
2,660 2,452
Further details of the Management agreement under which the investment
management fee and performance incentive fee are paid are given in the
Strategic report.
During the year, services of a total value of £2,660,000 (2022: £2,452,000)
were purchased by the Company from Albion Capital Group LLP (“Albion”) in
respect of management fees. There is no performance incentive fee payable in
the year (2022: £nil). At the financial year end, the amount due to Albion in
respect of these services disclosed as accruals was £667,000 (2022:
£618,000). The total annual running costs of the Company are capped at an
amount equal to 2.5% of the Company’s net assets, with any excess being met
by Albion by way of a reduction in management fees. During the year, the
management fee was reduced by £57,000 as a result of this cap (2022:
£41,000).
During the year, the Company was not charged by Albion in respect of Patrick
Reeve’s services as a Director (2022: £nil).
Albion, its partners and staff (including Patrick Reeve) held 1,169,832
Ordinary shares in the Company as at 31 December 2023.
Albion is, from time-to-time, eligible to receive arrangement fees and
monitoring fees from portfolio companies. During the year ended 31 December
2023, fees of £153,000 attributable to the investments of the Company were
received by Albion pursuant to these arrangements (2022: £257,000).
The Company has entered into an offer agreement relating to the Offers with
the Company’s investment manager Albion, pursuant to which Albion received a
fee of 2.5% of the gross proceeds of the 2022/23 Offer, and will receive a fee
of 3.0% of the 2023/24 Offer and out of which Albion will pay the costs of the
Offers, as ailed in the Prospectus.
6. Other expenses
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Directors’ fees (including NIC) 84 84
Auditor’s remuneration for statutory audit services (excluding VAT) 53 48
Other administrative expenses 252 226
389 358
7. Directors’ fees
The amounts paid to and on behalf of the Directors during the year are as
follows:
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Directors’ fees 77 77
National insurance 7 7
84 84
The Company’s key management personnel are the non-executive Directors.
Further information regarding Directors’ remuneration can be found in the
Directors’ remuneration report on pages 59 to 62 of the full Annual Report
and Financial Statements.
8. Tax on ordinary activities
Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
UK corporation tax charge in respect of current year - -
Factors affecting the tax charge: Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Profit/(loss) on ordinary activities before taxation 5,753 (2,252)
Tax charge on profit at the average companies rate of 23.5% (2022: 19%) 1,352 (428)
Factors affecting the charge:
Non-taxable gains/(losses) (1,714) 121
Income not taxable (21) (33)
Excess management expenses carried forward 383 340
- -
The tax charge for the year shown in the Income statement is lower than the
average companies rate of corporation tax in the UK of 23.5% (2022: 19%). The
differences are explained above. From April 2023, the Company’s rate of
corporation tax increased in the UK from 19% to 25%, therefore the average
rate is 23.5% for the year ended 31 December 2023.
Notes
(i) Venture Capital Trusts are not subject to corporation tax
on capital gains.
(ii) Tax relief on expenses charged to capital has been
determined by allocating tax relief to expenses by reference to the applicable
corporation tax rate and allocating the relief between revenue and capital in
accordance with the SORP.
(iii) The Company has excess management expenses of
£10,444,000 (2022: £8,814,000) that are available for offset against future
profits. A deferred tax asset of £2,611,000 (2022: £2,204,000) has not been
recognised in respect of these losses as they will be recoverable only to the
extent that the Company has sufficient future taxable profits.
9. Dividends
Year ended 31 December 2023 Year ended 31 December 2022
£’000 £’000
First dividend of 2.22p per share paid on 31 May 2023 (31 May 2022: 2.37p per share) 3,012 2,925
Second dividend of 2.29p per share paid on 29 September 2023 (30 September 2022: 2.34p per share) 3,105 2,892
Unclaimed dividends (11) (7)
6,106 5,810
Details of the consideration issued under the Dividend Reinvestment Scheme
included in the dividends above can be found in note 15.
In addition to the dividends summarised above, the Board has declared a first
dividend of 2.22 pence per share for the year ending 31 December 2024, payable
on 31 May 2024 to shareholders on the register on 3 May 2024. The total
dividend will be approximately £3,336,000.
10. Basic and diluted return per share
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Profit/(loss) attributable to equity shares (£’000) 853 4,900 5,753 591 (2,843) (2,252)
Weighted average shares in issue (adjusted for treasury shares) 134,013,069 120,150,815
Return/(loss) attributable per equity share (pence) 0.63 3.66 4.29 0.49 (2.36) (1.87)
The weighted average number of Ordinary shares is calculated after adjusting
for treasury shares of 19,309,045 (2022: 16,468,548).
There are no convertible instruments, derivatives or contingent share
agreements in issue so basic and diluted return per share are the same.
11. Fixed asset investments
Investments held at fair value through profit or loss 31 December 2023 £’000 31 December 2022 £’000
Unquoted equity and preference shares 82,022 70,536
Unquoted loan stock 13,064 15,194
Quoted equity 180 556
95,266 86,286
31 December 2023 £’000 31 December 2022 £’000
Opening valuation 86,286 80,500
Purchases at cost 7,377 14,917
Disposal proceeds (5,615) (8,114)
Realised gains 1,821 2,322
Movement in loan stock accrued income (76) (80)
Unrealised gains/(losses) 5,473 (3,258)
Closing valuation 95,266 86,286
Movement in loan stock accrued income
Opening accumulated loan stock accrued income 260 340
Movement in loan stock accrued income (76) (80)
Closing accumulated loan stock accrued income 184 260
Movement in unrealised gains
Opening accumulated unrealised gains 32,341 35,871
Transfer of previously unrealised gains/(losses) to realised reserve on disposal of investments 642 (273)
Movement in unrealised gains/(losses) 5,473 (3,258)
Closing accumulated unrealised gains 38,456 32,341
Historic cost basis
Opening book cost 53,684 44,288
Purchases at cost 7,377 14,917
Sales at cost (4,436) (5,520)
Closing book cost 56,625 53,684
Purchases and disposals detailed above do not agree to the Statement of cash
flows due to restructuring of investments, conversion of convertible loan
stock and settlement of receivables and payables.
Loan stock accrued income above, represents only the loan stock interest which
has been recognised as revenue on the basis that it is expected to be received
in accordance with the accounting policy in note 1. Where loan stock
interest does not meet the note 1 recognition criteria for investment income,
it forms part of the investment valuation where this is supported by the
overall valuation of the portfolio company, and is included within the
unrealised gains and losses on investments.
Fixed asset investments are valued at fair value in accordance with the IPEV
guidelines as follows:
Valuation methodology 31 December 2023 £’000 31 December 2022 £’000
Cost and price of recent investment (calibrated and reviewed for impairment) 48,957 46,204
Revenue multiple 29,993 23,084
Discounted cash flow – Supported by third party valuation 8,000 8,632
Earnings multiple 6,162 2,840
Earnings multiple – Supported by third party valuation 964 3,962
Net assets 959 998
Bid price 180 556
Discounted offer price 51 10
95,266 86,286
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
background to the transaction is also considered when the price of investment
may not be an appropriate measure of fair value, for example, disproportionate
dilution of existing investors from a new investor coming on board or the
market conditions at the time of investment no longer being a true reflection
of fair value.
The main inputs into the calibration exercise, and for the valuation models
using multiples, are revenue, EBITDA and P/E multiples (based on the most
recent revenue, EBITDA or earnings achieved and equivalent corresponding
revenue, EBITDA or earnings multiples of comparable companies), quality of
earnings assessments and comparability difference adjustments. Revenue
multiples are often used, rather than EBITDA or earnings, due to the nature of
the Company’s investments, being in growth and technology companies which
are not normally expected to achieve profitability or scale for a number of
years. Where an investment has achieved scale and profitability the Company
would normally then expect to switch to using an EBITDA or earnings multiple
methodology.
In the calibration exercise and in determining the valuation for the
Company’s equity instruments, comparable trading multiples are used. In
accordance with the Company’s policy, appropriate comparable companies based
on industry, size, developmental stage, revenue generation and strategy are
determined and a trading multiple for each comparable company identified is
then calculated. The multiple is calculated by dividing the enterprise value
of the comparable group by its revenue, EBITDA or earnings. The trading
multiple is then adjusted for considerations such as illiquidity,
marketability and other differences, advantages and disadvantages between the
portfolio company and the comparable public companies based on company
specific facts and circumstances.
As part of the valuation process, the majority of the asset backed businesses
also have an annual external third party valuation done to support the
investment managers valuations. The third party valuers are experts in their
fields, and have access to many similar business transactions in those
speciality areas, and form part of the Manager’s fair value assessment
Fair value investments had the following movements between valuation
methodologies between 31 December 2022 and 31 December 2023:
Change in valuation methodology (2022 to 2023) Value as at 31 December 2023 £’000 Explanatory note
Cost and price of recent investment (reviewed for impairment or calibration) to revenue multiple 6,392 Revenue multiple more relevant based on current trading
Revenue multiple to cost and price of recent investment (reviewed for impairment or calibration) 1,030 Recent funding round
Cost and price of recent investment (reviewed for impairment or calibration) to discounted offer price 51 Third party offer received
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 2023.
FRS 102 and the SORP requires the Company to disclose the inputs to the
valuation methods applied to its investments measured at FVTPL in a fair value
hierarchy. The table below sets out fair value hierarchy definitions using FRS
102 s.11.27.
Fair value hierarchy Definition
Level 1 Unadjusted quoted prices in an active market
Level 2 Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3 Inputs to valuations not based on observable market data
Quoted investments are valued according to Level 1 valuation methods (Arecor
Therapeutics PLC shown on page 28 of the full Annual Report and Financial
Statements). 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 2023 £’000 31 December 2022 £’000
Opening balance 85,730 79,309
Additions 7,377 14,917
Disposals (5,310) (7,906)
Accrued loan stock interest (76) (80)
Realised gains 1,837 2,399
Unrealised gains/(losses) 5,528 (2,908)
Closing balance 95,086 85,730
The Directors are required to consider the impact of changing one or more of
the inputs used as part of the valuation process to reasonable possible
alternative assumptions. 65% of the portfolio of investments, consisting of
equity and loan stock, is based on recent investment price, discounted offer
price, net assets and cost and therefore is not sensitised. For the remainder
of the portfolio, the Board has considered the reasonable possible alternative
input assumptions on the valuation of the portfolio and believes that changes
to inputs (by adjusting the earnings and revenue multiples) could lead to a
change in the fair value of the portfolio. The Board has reviewed the
Manager’s adjusted inputs for a number of the largest portfolio companies
(by value) which covers 24% of the portfolio, as shown in the table below.
This has resulted in a total coverage of 89% of the portfolio of investments.
The main inputs considered for each type of valuation is as follows:
Valuation technique Portfolio company sector Input Base Case* Change in input Change in fair value of investments (£’000) Change in NAV (pence per share)
Revenue multiple Software & other technology Revenue multiple 4.5x +0.5x 1,175 0.87
-0.5x (1,175) (0.87)
Revenue multiple Healthcare (including digital healthcare) Revenue multiple 5.2x +0.5x 716 0.53
-0.5x (716) (0.53)
Net Assets supported by Third Party Value – Earnings multiple Other (including education) Earnings multiple 15.9x +1.6x 264 0.20
-1.6x (264) (0.20)
*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 £2,155,000 (1.8%) or a decrease in the
valuation of equity investments by £2,155,000 (1.8%).
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of
investments in unquoted securities. Although the Company, through the Manager,
will, in some cases, be represented on the board of the portfolio company, it
will not take a controlling interest or become involved in the management of a
portfolio company. The size and structure of the companies with unquoted
securities may result in certain holdings in the portfolio representing a
participating interest without there being any partnership, joint venture or
management consortium agreement.
The Company has no interests of greater than 20% of the nominal value of any
class of the allotted shares in the portfolio companies as at 31 December
2023.
13. Current assets
Trade and other receivables 31 December 2023 £’000 31 December 2022 £’000
Prepayments and accrued income 33 30
Other receivables 265 142
Deferred consideration under one year 2,447 134
Deferred consideration over one year - 2,097
2,745 2,403
The deferred consideration under one year relates to the sale of G.Network
Communications Limited in December 2020. These proceeds were received in
January 2024.
The Directors consider that the carrying amount of receivables is not
materially different to their fair value.
14. Payables: amounts falling due within one year
31 December 2023 £’000 31 December 2022 £’000
Accruals and deferred income 747 722
Trade payables 29 -
776 722
The Directors consider that the carrying amount of payables is not materially
different to their fair value.
15. Called-up share capital
Allotted, called-up and fully paid shares: £’000
145,582,300 Ordinary shares of 1 penny each at 31 December 2022 1,456
8,596,442 Ordinary shares of 1 penny each issued during the year 86
154,178,742 Ordinary shares of 1 penny each at 31 December 2023 1,542
16,468,548 Ordinary shares of 1 penny each held in treasury at 31 December 2022 (165)
2,840,497 Ordinary shares of 1 penny each purchased during the year to be held in treasury (28)
19,309,045 Ordinary shares of 1 penny each held in treasury at 31 December 2023 (193)
Voting rights of 134,869,697 Ordinary shares of 1 penny each at 31 December 2023 1,349
The Company purchased 2,840,497 shares (2022: 2,522,073) to be held in
treasury at a nominal value of £28,405 and a cost of £2,480,000 (2022:
£2,244,000) representing 1.8% of the shares in issue on 31 December 2023,
leading to a balance of 19,309,045 shares (2022: 16,468,548) in treasury
representing 12.5% of the shares in issue on 31 December 2023.
Under the terms of the Dividend Reinvestment Scheme, the following new
Ordinary shares of nominal value 1 penny each were allotted during the year:
Date of allotment Number of shares allotted Aggregate nominal value of shares (£’000) Issue price (pence per share) Net invested (£’000) Opening market price on allotment date (pence per share)
31 May 2023 536,739 5 92.70 478 88.50
29 September 2023 567,025 6 89.46 488 85.00
1,103,764 966
Under the terms of the Albion VCTs Prospectus Top Up Offers 2022/23, the
following new Ordinary shares of nominal value 1 penny each, were allotted
during the year:
Date of allotment Number of shares allotted Aggregate nominal value of shares (£’000) Issue price (pence per share) Net consideration received (£’000) Opening market price on allotment date (pence per share)
31 March 2023 7,134,319 71 96.40 6,706 89.50
14 April 2023 98,702 1 95.40 93 89.50
14 April 2023 26,068 - 95.90 24 89.50
14 April 2023 233,589 2 96.40 220 89.50
7,492,678 7,043
In addition to the allotments in the table above, there was also an allotment
in December 2022 which forms the total of the 2022/23 Top Up Offer of £13.0
million.
16. Basic and diluted net asset value per share
31 December 2023 (pence per share) 31 December 2022 (pence per share)
Basic and diluted net asset value per share 88.70 88.65
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 134,869,697 Ordinary
shares as at 31 December 2023 (2022: 129,113,752).
17. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 15. The
Company is permitted to buy back its own shares for cancellation or treasury
purposes.
The Company’s financial instruments comprise equity and loan stock
investments in quoted and 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
cashflow and revenue and capital appreciation for the Company’s operations.
The Company has no gearing or other financial liabilities apart from short
term payables. The Company does not use any derivatives for the management of
its Balance sheet.
The principal financial instrument risks arising from the Company’s
operations are:
* Market and investment 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.
Market risk
As a Venture Capital Trust, it is the Company’s specific nature to evaluate
the market risk of its portfolio in unquoted companies. Market risk is the
exposure of the Company to the revaluation and devaluation of investments as a
result of macroeconomic changes. The main driver of market risk is the
dynamics of market quoted comparators, as well as the financial and
operational performance of portfolio companies. The Board seeks to reduce this
risk by having a spread of investments across a variety of sectors. More
details on the sectors the Company invests in can be found in the pie chart at
the end of this announcement.
The Manager and the Board formally review market 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 realistic compared to prices being
achieved in the market for sales of unquoted investments.
Under FRS 102 the Board is required to illustrate by way of a sensitivity
analysis the extent to which the assets are exposed to market risk. In order
to show the impact of sensitivity in market movements on the Company, a 10%
increase or decrease in the valuation of the fixed asset investment portfolio
(keeping all other variables constant) would increase or decrease the net
asset value and return for the year by £9,527,000. Accordingly, a 20%
increase or decrease in the valuation of the fixed asset investment portfolio
(keeping all other variables constant) would increase or decrease the net
asset value and return for the year by £19,053,000. Further sensitivity
analysis on fixed asset investments is included in note 11.
Investment risk (including investment price risk)
Investment risk (including 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. 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 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 Directors monitor the Manager’s compliance with the investment
policy, review and agree policies for managing this risk and monitor the
overall level of risk on the investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an
investment within its market, with regard to the financial health of the
investment and the IPEV Guidelines. Details of the industries in which
investments have been made are contained in the pie chart at the end of this
announcement.
The maximum investment risk as at the Balance sheet date is the value of the
fixed asset investment portfolio which is £95,266,000 (2022: £86,286,000).
Fixed asset investments form 80% of net asset value as at 31 December 2023
(2022: 75%).
More details regarding the classification of fixed asset investments are shown
in note 11.
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 £244,000 (2022: £218,000). Furthermore, it was considered that
a material fall in 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 8.8% (2022: 6.4%). The weighted
average period to maturity for the fixed rate assets is approximately 4.1
years (2022: 4.4 years).
The Company’s financial assets and liabilities, all denominated in pounds
sterling, consist of the following:
31 December 2023 31 December 2022
Fixed rate £’000 Floating rate £’000 Non-interest bearing £’000 Total £’000 Fixed rate £’000 Floating rate £’000 Non-interest bearing £’000 Total £’000
Unquoted equity - - 82,022 82,022 - - 70,536 70,536
Quoted equity - - 180 180 - - 556 556
Unquoted loan stock 11,091 153 1,820 13,064 14,261 175 758 15,194
Receivables* - - 2,713 2,713 - - 2,373 2,373
Current liabilities - - (776) (776) - - (722) (722)
Cash 9,313 13,085 - 22,398 - 26,491 - 26,491
Total 20,404 13,238 85,959 119,601 14,261 26,666 73,501 114,428
*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 and other similar instruments
prior to investment, and as part of its ongoing monitoring of investments. In
doing this, it takes into account the extent and quality of any security held.
For loan stock investments made prior to 6 April 2018, which account for 81%
of loan stock value, typically loan stock instruments 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 2023 was limited to
£13,064,000 (2022: £15,194,000) of unquoted loan stock instruments,
£22,398,000 (2022: £26,491,000) of cash deposits with banks and £2,745,000
(2022: £2,373,000) of other receivables.
At the Balance sheet date, cash in bank and in hand held by the Company were
held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking
Group), Barclays Bank plc, Bank of Montreal and National Westminster 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 Company has an informal policy of limiting counterparty banking exposure
to a maximum of 20% of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk.
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 up to 10% of its adjusted capital and
reserves of the latest published audited Balance sheet, which amounts to
£11,630,000 as at 31 December 2023 (2022: £11,143,000).
The Company had no committed borrowing facilities as at 31 December 2023
(2022: nil) and the Company had cash balances of £22,398,000 (2022:
£26,491,000). The main cash outflows are for new investments, 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. All of the Company’s financial liabilities are short
term in nature and total £776,000 (2022: £722,000).
The carrying value of loan stock investments, analysed by expected maturity
dates is as follows:
31 December 2023 31 December 2022
Redemption date Fully performing £’000 Valued below cost £’000 Past due £’000 Total £’000 Fully performing £’000 Valued below cost £’000 Past due £’000 Total £’000
Less than one year 6,811 - 814 7,625 5,643 - 1,612 7,255
1-2 years 84 - - 84 297 - 76 373
2-3 years 185 - - 185 105 - - 105
3-5 years 992 - - 992 2,629 - 123 2,752
5 + years 4,060 - 118 4,178 4,709 - - 4,709
Total 12,132 - 932 13,064 13,383 - 1,811 15,194
Loan stock can be past due as a result of interest or capital not being paid
in accordance with contractual terms.
The cost of loan stock investments valued below cost is £nil (2022:
£29,000).
The Company does not hold any assets as the result of the enforcement of
security during the period and believes that the carrying values for both
those valued below cost and past due assets are covered by the value of
security held for these loan stock investments.
In view of the availability of adequate cash balances and the repayment
profile of loan stock investments, 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 2023
are stated at fair value as determined by the Directors, with the exception of
receivables, payables and cash which are carried at amortised cost. 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.
18. Contingencies and commitments
The Company had no financial commitments in respect of investments at 31
December 2023 (2022: £nil).
There are no contingencies or guarantees of the Company as at 31 December 2023
(2022: £nil).
19. Post balance sheet events
Since the year end, the Company has had the following material post balance
sheet events:
* Deferred consideration proceeds of £2.4 million was received by G.Network
Communications;
* On 12 March 2024, a NAV update was announced with a 2.84 pence per share
uplift, representing a 3.2% increase on the 31 December 2023 NAV. This uplift
is a result of terms being agreed for the sale of a company within the
portfolio, however there is no certainty that this deal will complete. This
was not known at 31 December 2023 and therefore this is a non adjusting post
balance sheet event;
* Investments totalling £3.1 million in one new and five existing portfolio
companies; and
* The Company issued the following new Ordinary shares of nominal value 1
penny each under the Albion VCTs’ Prospectus Top Up Offers 2023/24:
Date of allotment Number of shares allotted Aggregate nominal value of shares (£’000) Issue price (pence per share) Net consideration received (£’000) Opening market price on allotment date (pence per share)
22 March 2024 1,922,293 19 93.41 1,760 87.00
22 March 2024 371,463 4 93.89 340 87.00
22 March 2024 12,701,513 127 94.38 11,628 87.00
16 April 2024 101,424 1 93.41 93 87.00
16 April 2024 15,975 - 93.89 15 87.00
16 April 2024 272,637 3 94.38 250 87.00
15,385,305 14,086
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, and the
Directors’ remuneration disclosed in the Directors’ remuneration report on
pages 59 to 62 of the full Annual Report and Financial Statements, there are
no other related party transactions or balances requiring disclosure.
21. Other Information
The information set out in this announcement does not constitute the Company's
statutory accounts within the terms of section 434 of the Companies Act 2006
for the years ended 31 December 2023 and 31 December 2022, 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 2023,
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.
22. Publication
The full audited Annual Report and Financial Statements are being sent to
shareholders and copies will be made available to the public at the registered
office of the Company, Companies House, the National Storage Mechanism and
also electronically at www.albion.capital/funds/AADV/31Dec2023.pdf.
Attachment
* AADV - Split of portfolio by sector, stage of investment and number of
employees
(https://ml-eu.globenewswire.com/Resource/Download/c9c954c5-5e97-4ddd-b790-3b784965606b)