REG-Albion Enterprise VCT PLC : Annual Financial Report <Origin Href="QuoteRef">AAEV.L</Origin>
13/07/2017 13:05
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As required by the UK Listing Authority's Disclosure and Transparency Rules
4.1 and 6.3, Albion Enterprise VCT PLC today makes public its information
relating to the Annual Report and Financial Statements for the year ended 31
March 2017.
This announcement was approved for release by the Board of Directors on 13
July 2017.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements
for the year ended 31 March 2017 (which have been audited) at:
www.albion.capital/funds/AAEV.The Annual Report and Financial Statements for
the year ended 31 March 2017 will be available as a PDF document via a link in
the 'Financial Reports and Circulars' section. The information contained in
the Annual Report and Financial Statements will include information as
required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objective and policy
The investment objective of Albion Enterprise VCT PLC (the "Company") is to
provide investors with a regular and predictable source of income, combined
with the prospect of longer term capital growth.
The Company achieves this by investing up to 50 per cent. of the net funds
raised in an asset-based portfolio of more stable businesses (the "Asset-based
Portfolio"). The balance of the net funds raised, other than funds retained
for liquidity purposes, are invested in a portfolio of higher growth
businesses across a variety of sectors of the UK economy. These range from
more stable, income producing businesses to higher risk technology companies
(the "Growth Portfolio"). In neither category do portfolio companies normally
have any external borrowing with a charge ranking ahead of the Company. Up to
two-thirds of qualifying investments by cost comprise loan stock secured with
a first charge on the portfolio company's assets.
The Company's investment portfolio is structured to provide a balance between
income and capital growth for the longer term. The Asset-based Portfolio is
designed to provide stability and income whilst still maintaining the
potential for capital growth. The Growth Portfolio is intended to provide
diversified exposure through its portfolio of investments in unquoted UK
companies. Stock specific risk will be reduced by the Company's policy of
holding a diversified portfolio of Qualifying Investments.
Under its Articles of Association, the Company's maximum exposure in relation
to gearing is restricted to 10 per cent. of its adjusted share capital and
reserves.
Subject to shareholder approval at the forthcoming Annual General Meeting, the
Company can, prior to investing in VCT qualifying assets, invest cash in
deposits, in floating rate notes or similar instruments with banks or other
financial institutions with credit ratings, assigned by international credit
agencies, of A or better (on acquisition) or up to 10 per cent. 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).
Financial calendar
Record date for first dividend 4 August 2017
Annual General Meeting 12 noon on 22 August 2017
Payment date for first dividend 31 August 2017
Announcement of half-yearly result for the six months ended 30 September 2017 November 2017
Payment of second dividend (subject to Board approval) February 2018
Financial highlights
10.9p Total return per share for the year ended 31 March 2017
5.0p Total tax-free dividend per share paid during the year ended 31 March 2017
101.8p Net asset value per share as at 31 March 2017
135.6p Total shareholder return since launch to 31 March 2017
5.3% Tax free yield on share price (dividend per annum/share price as at 31 March 2017)
31 March 2017 31 March 2016 (pence per share)
(pence per share)
Dividends paid 5.00 5.00
Revenue return 0.64 1.85
Capital return 10.23 3.48
Net asset value 101.79 96.41
Total shareholder return to 31 March 2017:
Total dividends paid during the year ended: (pence per share)
31 March 2008 0.70
31 March 2009 1.65
31 March 2010 2.00
31 March 2011 3.00
31 March 2012 3.00
31 March 2013 3.50
31 March 2014 5.00
31 March 2015 5.00
31 March 2016 5.00
31 March 2017 5.00
Total dividends paid to 31 March 2017 33.85
Net asset value as at 31 March 2017 101.79
Total shareholder return to 31 March 2017 135.64
In addition to the dividends summarised above, the Board has declared a first
dividend for the year ending 31 March 2018, of 2.50 pence per share to be paid
on 31 August 2017 to shareholders on the register on 4 August 2017.
Notes
* The dividend of 0.70 pence per share paid during the period ended 31 March
2008 and the first dividend of 0.40 pence per share paid during the year ended
31 March 2009 were paid to shareholders who subscribed in the 2006/2007 offer
only.
* All dividends paid by the Company are paid free of income tax. It is an H.M.
Revenue & Customs requirement that dividend vouchers indicate the tax element
should dividends have been subject to income tax. Investors should ignore this
figure on the dividend voucher and need not disclose any income they receive
from a VCT on their tax return.
* The net asset value of the Company is not its share price as quoted on the
official list of the London Stock Exchange. The share price of the Company can
be found in the Investment Companies - VCTs section of the Financial Times on
a daily basis.
* Investors are reminded that it is common for shares in VCTs to trade at a
discount to their net asset value as tax reliefs are only obtainable on
initial subscription.
Chairman's statement
Introduction
The Company achieved a total return of 10.87 pence per share, following the
5.33 pence per share total return for the previous year. This excellent return
results from the continued development of the investment portfolio, with a
number of the companies that we invest in achieving strong growth.
Portfolio progress
During the year over £3.4 million was invested in new and existing companies.
New investments included £583,000 into Convertr Media, £327,000 into Black
Swan Data, £303,000 into Quantexa, £280,000 into Secured by Design, and
£159,000 into Oviva AG.
Follow-on investments included £785,000 into DySIS Medical, £357,000 into
OmPrompt Holdings, £345,000 into Proveca, £157,000 into Abcodia, £169,000
into Mirada Medical, £141,000 into Cisiv, and £115,000 into Grapeshot.
The key exits in the period were the sales of Exco Intouch and Masters
Pharmaceuticals where we realised three and two times our investment
respectively. Further information can be found in the realisations table on
page 18 of the full Annual Report and Financial Statements.
Companies that performed particularly well during the period included Egress
Software, whose encrypted email services grew significantly; Radnor House
School, where the existing Twickenham school is now close to capacity; and
Grapeshot, where company's online advertising search facilities are seeing
increasing customer demand. Write-downs were made on certain investments, in
particular three of our medical technology businesses, DySIS Medical, Abcodia
and Cisiv which required further finance during the year. Further details can
be found in the Portfolio of investments section on page 17 of the full Annual
Report and Financial Statements.
The investment income in the year was 31 per cent. below the previous year.
This was principally due to the interest receivable from a number of our
investments being reinvested within the companies to fund further
acquisitions.
Results and dividends
On 31 March 2017, the net asset value was 101.79 pence per share compared to
96.41 pence per share on 31 March 2016. The revenue return before taxation was
£356,000 compared to £911,000 for the previous year. The Company will pay a
first dividend for the financial year to 31 March 2018 of 2.50 pence per
share, in line with its policy of a 5 pence per share annual dividend. The
dividend will be paid on 31 August 2017 to shareholders on the register on 4
August 2017.
Modification to investment policy
As described more fully in the Strategic report, the Manager and Board are
updating the Company's capacity, under its investment policy, to invest cash
with a level of exposure to quoted equities, pending deployment in suitable
private equity opportunities.
The recent acquisition by Albion of OLIM Investment Managers provides an
opportunity to invest in an open-ended equity fund, delivering income and
capital growth, with good liquidity and with a good performance record,
without any double charging of management fees. This will be subject to
shareholder approval but both Board and Manager believe that it is a positive
development for the Company, particularly in a low interest rate
environment. The revision to policy will contain restrictions as to the
amount that can be invested in non-qualifying investments and how the
investments will be made, as more fully described in the Strategic report
below.
Continuation as a venture capital trust
As prescribed in the Company's Articles of Association, at the 2017 Annual
General Meeting members have the opportunity to confirm that they wish the
Company to continue as a venture capital trust. Otherwise the Board is
required to make proposals for the reorganisation, reconstruction or the
orderly liquidation and winding up of the Company and present these to the
members at a general meeting. Those shareholders who have been using their
investment in the VCT to defer a capital gain should note that, on a return of
capital, that gain would become chargeable at the prevailing rate of capital
gains tax.
Your Board believes that the Company has the potential to be a highly
effective long-term investment vehicle, with a reliable tax-free dividend
stream over the long term. Therefore, the Board recommends that shareholders
should vote in favour of the Company continuing as a venture capital trust, as
they intend to vote in respect of their own shares. Further details regarding
the resolution can be found in the Directors' report on page 24 of the full
Annual Report and Financial Statements.
Performance incentive fee
The Board is pleased to announce that investment performance has exceeded the
targets set. Accordingly a management performance fee of £255,000 is due for
the year ended 31 March 2017, no such fee was earned in previous years.
Further details can be found in the Strategic report below.
Share buy-backs
It remains the Board's policy to buy back shares in the market, subject to the
overall constraint that such purchases are in the Company's interest,
including the maintenance of sufficient resources for investment in new and
existing portfolio companies and the continued payment of dividends to
shareholders. It is the Board's intention for such buy-backs to be in the
region of a 5 per cent. discount to net asset value, so far as market
conditions and liquidity permit.
Transactions with the Manager
Details of the transactions that took place with the Manager for the year can
be found in note 5.
Risks and uncertainties
The outlook for the UK and global economies continues to be the key risk
affecting your Company. The process for the withdrawal of Britain from the
European Union is likely to have an effect on the Company and its investments.
Although the extent of this is not quantifiable at this time, we would expect
it to be felt most in those sectors which are more exposed to the consumer and
business cycle.
Investment risk is mitigated through a variety of processes, including our
policy of ensuring that the Company has a first charge over portfolio
companies' assets wherever possible and of ensuring that the portfolio is
balanced through the inclusion of sectors that are less exposed to the
business and consumer cycles. A detailed analysis of the other risks and
uncertainties facing the business is shown in the Strategic report below.
Albion VCTs Top Up Offers
In November 2016, the Company announced the launch of the Albion VCTs
Prospectus Top Up Offers 2016/2017. In aggregate, the Albion VCTs raised £34
million across six of the VCTs managed by Albion Capital Group LLP, with the
Company raising £6 million.
The Company was pleased to announce on 20 February 2017 that it had reached
its £6m limit under its Offer which was fully subscribed and closed. During
the year the Company raised £5.6m under the Company's Offer as part of the
Albion VCTs Top Up Offers 2015/2016 and 2016/2017, as shown in note 15. The
proceeds of the Offers will be used to provide further resources at a time
when a number of attractive new investment opportunities are being identified.
The Company announced on 14 June 2017 that, subject to regulatory approval, it
intends to launch a prospectus top up offer of new ordinary shares for
subscription in the 2017/2018 and 2018/2019 tax years. Full details of the
Offer will be contained in a prospectus that is expected to be published in
early September 2017 and will be available on the Albion Capital website
(www.albion.capital).
Outlook and prospect
After an excellent result for the year, we remain confident that the
fundamentals within the companies that we are backing place the VCT well for
delivering positive shareholder returns.
Maxwell Packe
Chairman
13 July 2017
Strategic report
Investment objective and policy
The investment objective of the Company is to provide investors with a regular
and predictable source of income combined with the prospect of longer term
capital growth.
The Company intends to achieve this by investing up to 50 per cent. of the net
funds raised in an asset-based portfolio of more stable, ungeared businesses
(the ''Asset-based Portfolio"). The balance of the net funds raised, other
than funds retained for liquidity purposes, are invested in a portfolio of
higher growth businesses across a variety of sectors of the UK economy. These
range from more stable, income producing businesses to higher risk technology
companies (the "Growth Portfolio"). In neither category do portfolio companies
normally have any external borrowing with a charge ranking ahead of the
Company. Up to two-thirds of qualifying investments by cost comprise loan
stock secured with a first charge on the portfolio company's assets.
The Company's investment portfolio is structured to provide a balance between
income and capital growth for the longer term. The Asset-based Portfolio is
designed to provide stability and income whilst still maintaining the
potential for capital growth. The Growth Portfolio is intended to provide
diversified exposure through its portfolio of investments in unquoted UK
companies. Stock specific risk will be reduced by the Company's policy of
holding a diversified portfolio of Qualifying Investments.
Subject to shareholder approval at the forthcoming Annual General Meeting, the
Company can, prior to investing in VCT qualifying assets, invest cash in
deposits, in floating rate notes or similar instruments with banks or other
financial institutions with credit ratings, assigned by international credit
agencies, of A or better (on acquisition) or up to 10 per cent. 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). This
is explained further below.
Management of liquid resources
Since the Company's launch, non-qualifying investments have been held in
floating rate notes and bank deposits, with the latter category now accounting
for all of the Company's funds awaiting investment.
In November 2016, Albion Capital acquired OLIM Investment Managers ("OLIM"), a
specialist fund manager of UK quoted equities. It is now proposed that, in
view of the very low interest rates earned on the Company's bank deposits,
that the current policy should be updated to allow cash awaiting investment to
be invested in liquid open-ended equity funds including the SVS Albion OLIM UK
Equity Income Fund ("OUEIF"). This is an authorised UK unit trust which has
the objective of achieving a return based on a combination of income and
capital over the long term, and invests in a diversified portfolio of FTSE-100
and FTSE-250 UK companies. It has shown a total return, comprising income and
capital, since launch in 2002 of 212 per cent., and ranks 18 out of 55 of UK
equity income funds in its performance over 10 years. Its historic dividend
yield is 4 per cent..
Any investment in OUEIF will be made as part of the Company's management of
surplus liquid funds, and will be limited to an amount of not more than 10 per
cent. of the company's net assets, from time to time, though depending on
market conditions, it may be much lower than this. The holding will be capable
of realisation within 7 days and, in order to avoid double charging, Albion
agrees to reduce that proportion of its management fee relating to the
investment in the OUEIF by 0.75 per cent., which represents the OUEIF
management fee charged by OLIM.
This change in investment policy, which is recommended by the Board, together
with other clarifications of the investment policy, is subject to the approval
of shareholders. Accordingly resolution 12 at the forthcoming Annual General
Meeting, which is set out on pages 56 and 57 of the full Annual Report and
Financial Statements, will allow shareholders to vote on the issue.
Current portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio
valuation by industrial or commercial sector as at 31 March 2017. Details of
the principal investments made by the Company are shown in the Portfolio of
investments on pages 17 and 18 of the full Annual Report and Financial
Statements.
Direction of portfolio
The analysis of the Company's investment portfolio shows that the healthcare,
renewable energy, and IT and other technology sectors continue to be the
largest elements of the portfolio.
The IT and other technology sector has continued to grow as a proportion of
the portfolio as we have continued to invest in key areas such as cyber
security and the management of big data. We are, however, looking to invest in
new asset-based sectors during the course of the year.
Results and dividend policy
£'000
Net revenue return for the year ended 31 March 2017 299
Net capital gain for the year ended 31 March 2017 4,781
Total return for the year ended 31 March 2017 5,080
Dividend of 2.50 pence per share paid on 31 August 2016 (1,156)
Dividend of 2.50 pence per share paid on 28 February 2017 (1,249)
Transferred to reserves 2,675
Net assets as at 31 March 2017 52,458
Net asset value per share as at 31 March 2017 (pence) 101.79
The Company paid dividends totaling 5.00 pence per share during the year ended
31 March 2017 (2016: 5.00 pence per share). As described in the Chairman's
statement, the Board has declared a first dividend of 2.50 pence per share for
the year ending 31 March 2018. This dividend will be paid on 31 August
2017 to shareholders on the register on 4 August 2017.
As shown in the Company's Income statement below, investment income decreased
to £939,000 (2016: £1,367,000) due to capitalising interest on a number of
companies in order to fund further acquisitions.
The capital gain for the year of £4,781,000 (2016: £1,410,000), was mainly
attributable to the upward unrealised revaluations in the Company's investment
portfolio.
The total return was 10.87 pence per share (2016: 5.33 pence per share). The
Balance sheet below shows that the net asset value has increased over the last
year to 101.79 pence per share (2016: 96.41 pence per share), attributable to
the increased valuations.
The cash flow for the Company has been a net inflow of £6,000 for the year
(2016: net inflow of £3,359,000), reflecting cash inflows from operations,
disposal of investments and the issue of Ordinary shares under the Albion VCTs
Top Up Offers which raised £5.6 million (£0.3 million received after the
year end), offset by dividends paid, new investments in the year and the
buy-back of shares.
Review of business and future changes
A review of the Company's portfolio performance and progress during the year
is contained in the Chairman's statement. Total gains on investments for the
year were £5.8 million (2016: £2.0 million). The key contributors to this
were the increase in valuations of Egress Software Technologies of
£2,567,000, Grapeshot of £1,017,000, Proveca of £980,000 and Radnor House
School (Holdings) of £852,000. These gains more than offset the reduction in
value of a small number of our investments, the largest being DySIS Medical of
£710,000, Abcodia of £478,000 and Cisiv of £453,000. Two of our
investments, Exco Intouch and Masters Pharmaceuticals were sold during the
year for a gain on cost of £1,856,000 and £363,000 respectively.
The Directors do not foresee any major changes in the activity undertaken by
the Company in the current year. The Company continues with its objective to
invest in unquoted companies throughout the United Kingdom with a view to
providing both capital growth and a reliable dividend income to shareholders
over the long term.
Details of significant events which have occurred since the end of the
financial year are listed in note 19. Details of transactions with the Manager
are shown in note 5.
VCT regulation
The investment policy is designed to ensure that the Company continues to
qualify and is approved as a VCT by HMRC. In order to maintain its status
under Venture Capital Trust legislation, a VCT must comply on a continuing
basis with the provisions of Section 274 of the Income Tax Act 2007, details
of which are provided in the Directors' report on page 22 of the full Annual
Report and Financial Statements.
As part of EU state obligations, new rules have been introduced under the
Finance Act (No.2) 2015 and Finance Act 2016, which include:
* Restrictions over the age of investments;
* A prohibition on management buyouts or the purchase of existing businesses;
* An overall lifetime investment cap of £12 million from tax-advantaged funds
into any portfolio company; and
* A VCT can only make qualifying investments or certain specified
non-qualifying investments such as money market securities and short term
deposits.
While these changes are significant, the Company has been advised that, had
they been in place previously, they would have affected only a relatively
small minority of the investments that we have made into new portfolio
companies over recent years. The Board's current view is that there will be no
material change in our investment policy and the application of it as a
result.
Future prospects
The key drivers for returns within the portfolio are those sectors that are
involved in the longer-term global trends. These include the importance of
healthcare in an ageing population; sustainable energy against a background of
climate change; education amid the need to improve the national skills base;
and the developing use of information technology in an environment of
universal information. The portfolio is well positioned to take advantage of
these changes.
Key performance indicators
The Directors believe that the following key performance indicators, which are
typical for venture capital trusts, used in their own assessment of the
Company, will provide shareholders with sufficient information to assess how
effectively the Company is applying its investment policy to meet its
objectives. The Directors are satisfied that the results shown in the
following key performance indicators give a good indication that the Company
is achieving its investment objective and policy. These are:
1. Total shareholder return relative to FTSE All Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows
the Company's total shareholder return against the FTSE All-Share Index total
return, with dividends reinvested.
1. Net asset value per share and total shareholder return
Net asset value per share increased by 5.6 per cent. to 101.79 pence per share
for the year ended 31 March 2017.
Total shareholder return increased by 8.3 per cent. to 135.64 pence per share
for the year ended 31 March 2017.
1. Dividend distributions
Dividends paid in respect of the year ended 31 March 2017 were 5.00 pence per
share (2016: 5.00 pence per share), in line with the Board's dividend
objective. The cumulative dividend paid since inception is 33.85 pence per
share.
1. Ongoing charges
The ongoing charges ratio for the year ended 31 March 2017 was 3.0 per cent.
(2016: 3.0 per cent.) against a cap of 3.0 per cent. The ongoing charges ratio
has been calculated using the Association of Investment Companies' (AIC)
recommended methodology. This figure shows shareholders the total recurring
annual running expenses (including investment management fees charged to
capital reserve) as a percentage of the average net assets attributable to
shareholders. The Directors expect the ongoing charges ratio for the year
ahead to be approximately 3.0 per cent.
Gearing
As defined by the Articles of Association, the Company's maximum exposure in
relation to gearing is restricted to 10 per cent. of the adjusted share
capital and reserves. The Directors do not currently have any intention to
utilise gearing for the Company. On an exceptional basis, certain portfolio
companies may take on external borrowings, where the Board considers this will
offer a significant benefit to the Company.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion
Capital Group LLP, which is authorised and regulated by the Financial Conduct
Authority. Albion Capital Group LLP also provides company secretarial and
other accounting and administrative support to the Company.
Management agreement
Under the Management agreement, the Manager provides investment management,
secretarial and administrative services to the Company. The Management
agreement can be terminated by either party on 12 months' notice. The
Management agreement is subject to earlier termination in the event of certain
breaches or on the insolvency of either party. The Manager is paid an annual
fee equal to 2.5 per cent. of the net asset value of the Company, payable
quarterly in arrears. Total annual expenses, including the management fee, are
limited to 3.0 per cent. of the net asset value.
In line with common practice, the Manager is also entitled to an arrangement
fee, payable by each portfolio company, of approximately 2 per cent. on each
investment made and Directors' fees where the Manager has a representative on
the portfolio company's board.
Management performance incentive
In order to provide the Manager with an incentive to maximise the return to
investors, the Company has entered into 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 per cent. of
such excess return that is calculated for each financial year.
The minimum target level, comprising dividends and net asset value, will be
equivalent to an annualised rate of return of the average base rate of the
Royal Bank of Scotland plc plus 2 per cent. per annum on the original
subscription price of £1. Any shortfall of the target return will be carried
forward into subsequent periods and the incentive fee will only be paid once
all previous and current target returns have been met.
For the year ended 31 March 2017, the total return of the Company since launch
(the performance incentive fee start date) amounted to 135.64 pence per share,
compared to the hurdle of 132.92 pence per share. As a result, a performance
incentive fee is payable to the Manager of £255,000 (2016: £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 Venture Capital Trust
status, the long term prospects of current investments, a review of the
Management agreement and the services provided therein, and benchmarking the
performance and remuneration of the Manager to other service providers. The
Board believes that it is in the interest of shareholders as a whole, and of
the Company, to continue the appointment of the Manager for the forthcoming
year.
Alternative Investment Fund Managers Directive ("AIFMD")
The Board appointed Albion Capital Group LLP as the Company's AIFM in June
2014 as required by the AIFMD.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act
2006 to detail information about social and community issues, employees and
human rights; including any policies it has in relation to these matters and
effectiveness of these policies. As an externally managed investment company
with no employees, the Company has no policies in these matters and as such
these requirements do not apply.
Further policies
The Company has adopted a number of further policies relating to:
* Environment
* Global greenhouse gas emissions
* Anti-bribery
* Diversity
and these are set out in the Directors' report on pages 22 and 23 of the full
Annual Report and Financial Statements.
Risk management
The Board carries out a robust review of the risk environment in which the
Company operates. The principal risks and uncertainties of the Company as
identified by the Board and how they are managed are as follows:
Risk Possible consequence Risk management
Investment and performance risk The risk of investment in poor quality assets, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company's current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses. To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this
segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee,
comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non
-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager
(investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each
investment as part of the Manager's report at quarterly board meetings.
VCT approval risk The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the
requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its
taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to
inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs.
Regulatory and compliance risk The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular
updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager's Compliance Officer.
The Manager reports monthly to its Board on any issues arising from compliance or regulation. These controls are also reviewed as part of the quarterly Board meetings,
and also as part of the review work undertaken by the Manager's Compliance Officer. The report on controls is also evaluated by the internal auditors.
Operational and internal control risk The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager's business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Audit Committee reviews
the Internal Audit Reports prepared by the Manager's internal auditors, PKF Littlejohn LLP. On an annual basis, the Audit Committee chairman meets with the internal audit
Partner to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those
in relation to business continuity and cyber security. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager,
to ensure they continue to have the necessary expertise and resources to deliver the Company's investment objective and policies. The Manager and other service providers
have also demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Capital Group LLP.
Economic and political risk Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways. The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of equity and secured loan stock
in portfolio companies and has a policy of not normally permitting any external bank borrowings within portfolio companies. At any given time, the Company has sufficient
cash resources to meet its operating requirements, including share buybacks and follow on investments.
Market value of Ordinary shares The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly the market price of the Ordinary shares may not fully reflect their underlying net asset value. The Company operates a share buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent to net asset value, by
providing a purchaser through the Company in absence of market purchasers. From time to time buybacks cannot be applied, for example when the Company is subject to a
close period, or if it were to exhaust its buyback authorities, which are renewed each year. New Ordinary shares are issued at sufficient premium to net asset value to
cover the costs of issue and to avoid asset value dilution to existing investors.
Viability statement
In accordance with the FRC UK Corporate Governance Code published in September
2014 and principle 21 of the AIC Code of Corporate Governance, the Directors
have assessed the prospects of the Company over three years to 31 March 2020.
The Directors believe that three years is a reasonable period in which they
can assess the future of the Company to continue to operate and meet its
liabilities as they fall due and is also the period used by the Board in the
strategic planning process and is considered reasonable for a business of our
nature and size. The three year period is considered the most appropriate
given the forecasts that the Board require from the Manager and the estimated
timelines for finding, assessing and completing investments.
The Directors have carried out a robust assessment of the principal risks
facing the Company as explained above, including those that could threaten its
business model, future performance, solvency or liquidity. The Board also
considered the risk management processes in place to avoid or reduce the
impact of the underlying risks. The Board focused on the major factors which
affect the economic, regulatory and political environment. The Board
deliberated over the importance of the Manager and the processes that they
have in place for dealing with the principal risks.
The Board assessed the ability of the Company to raise finance. The portfolio
is well balanced and geared towards long term growth delivering dividends and
capital growth to shareholders. In assessing the prospects of the Company, the
Directors have considered the cash flow by looking at the Company's income and
expenditure projections and funding pipeline over the assessment period of
three years and they appear realistic.
Taking into account the processes for mitigating risks, monitoring costs,
share price discount, the Manager's compliance with the investment objective,
policies and business model and the balance of the portfolio the Directors
have concluded that there is a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall due over
the three year period to 31 March 2020.
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