Annual Financial Report
19/04/2024 16:29
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Kings Arms Yard VCT PLC
Annual Financial Report
LEI Code 213800DK8H27QY3J5R45
As required by the UK Listing Authority’s Disclosure Guidance and
Transparency Rules 4.1 and 6.3, Kings Arms Yard VCT PLC today makes public its
information relating to the Annual Report and Financial Statements for the
year ended 31 December 2023.
The 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/KAY/31Dec2023.pdf.
Investment policy
The Company is a Venture Capital Trust and the investment policy is intended
to produce a regular and predictable dividend stream with an appreciation in
capital value.
The Company will invest in a broad portfolio of higher growth businesses
across a variety of sectors of the UK economy including higher risk technology
companies. Allocation of assets will be determined by the investment
opportunities which become available but efforts will be made to ensure that
the portfolio is diversified both in terms of sector and stage of maturity of
company.
Funds held pending investment or for liquidity purposes are held as cash on
deposit or similar instruments with banks or other financial institutions with
high credit ratings assigned by international credit rating agencies.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within venture
capital trust qualifying industry sectors using a mixture of securities. The
maximum amount which the Company will invest in a single portfolio company is
15% of the Company’s assets at cost, thus ensuring a spread of investment
risk. The value of an individual investment may increase over time as a result
of trading progress and it is possible that it may grow in value to a point
where it represents a significantly higher proportion of total assets prior to
a realisation opportunity being available.
The Company’s maximum exposure in relation to gearing is restricted to the
amount equal to its adjusted capital and reserves.
Financial calendar
12 April 2024 Record date for first dividend
30 April 2024 Payment date for first dividend
Noon on 4 June 2024 Annual General Meeting
September 2024 Announcement of Half-yearly results for the six months ending 30 June 2024
31 October 2024 Payment date for second dividend (subject to Board approval)
Financial highlights
0.42p Basic and diluted return per share for the year ended 31 December 2023 (2022: 0.16p)
2.2% Shareholder return for the year ended 31 December 2023† (2022: 0.9%)
1.05p Total tax free dividends per share paid in the year to 31 December 2023 (2022: 2.30p)
20.37p Net asset value per share as at 31 December 2023 (2022: 20.95p)
(†)This is considered an Alternative Performance Measure, see note 3 in 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 20.95 23.05
Capital return 0.26 0.07
Revenue return 0.16 0.09
Total return 0.42 0.16
Dividends paid (1.05) (2.30)
Impact from share capital movements 0.05 0.04
Net asset value 20.37 20.95
Total shareholder value per share
Ordinary shares (pence per share)
Total dividends paid to 31 December 2023 74.53
Net asset value as at 31 December 2023* 20.37
Total shareholder value per share as at 31 December 2023 94.90
*In the period from launch to 1 January 2011, there was a decrease in the net
asset value of 83.40 pence per share. In the period from 1 January 2011 to 31
December 2023, the period that Albion Capital have been investment manager,
there has been an increase in the net asset value of 3.77 pence per share.
The above financial summary is for the Company, Kings Arms Yard VCT PLC only.
Details of the financial performance of the various Quester, SPARK and Kings
Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be
found at www.albion.capital/funds/KAY under the ‘Financial summary for
previous funds’ section.
The Directors have declared a first dividend of 0.51 pence per share for the
year ending 31 December 2024, which will be paid on 30 April 2024 to
shareholders on the register on 12 April 2024.
Chairman’s statement
Introduction
In the year to 31 December 2023, the Company delivered a positive total return
of 0.42 pence per share, which equates to a 2.2% shareholder return. Despite
facing a backdrop of macroeconomic and geopolitical uncertainty, which will
likely persist in the short-term, the Board continues to be encouraged by the
progress being made by many of the portfolio companies, supported by an
increase in young companies looking for funding. We expect the continuing
digitalisation strategies of corporate and healthcare customers to create
attractive long-term investment opportunities, despite the current economic
headwinds.
Results and dividends
As at 31 December 2023, the net asset value (“NAV”) was £105.5 million or
20.37 pence per share, compared to £104.0 million or 20.95 pence per share at
31 December 2022. The total return before taxation was £2.1 million compared
to a return of £0.7 million for the previous year. Further details of the
progress of a number of our portfolio companies are discussed later in this
statement.
In line with the dividend policy targeting payment of around 5% of NAV per
annum, the Company paid dividends of 1.05 pence per share during the year to
31 December 2023 (2022: 2.30 pence per share). The 2022 dividend included a
special dividend of 1.14 pence per share.
The Board is pleased to have declared a first dividend for the financial year
ending 31 December 2024 of 0.51 pence per share, being 2.5% of the prevailing
NAV, to be paid on 30 April 2024 to shareholders on the register on 12 April
2024.
Investment realisations
The Company had a number of realisations in the year, with proceeds totalling
£2.8 million, leading to realised gains of £0.6 million. The most notable
exit in the year was the sale of Ophelos, generating £1.5 million in
proceeds, and achieving a 2.1x return on cost.
Further details on the investment realisations during the year can be found in
the table on page 29 of the full Annual Report and Financial Statements.
Investment performance and progress
In spite of the global uncertainties faced, many of our portfolio companies
have performed well and this has contributed to the total uplift in value of
£3.3 million to the Company’s investments for the year.
The top 3 investments by value in the portfolio, Quantexa, Proveca and Egress,
which together account for 32.7% of net asset value, have performed well in
the year, and their valuations have increased in the year to 31 December 2023.
In the year, Quantexa raised an externally led $129 million Series E
fundraising, which completed in April 2023, and continues to perform well
(£6.1m uplift), whilst Egress and Proveca have shown strong growth
contributing £1.1m and £0.8m uplifts respectively.
In contrast, certain portfolio companies have been adversely impacted by the
difficult macroeconomic environment, including Black Swan Data (£1.1m write
down), Threadneedle Software Holdings (T/A Solidatus) (£0.6m write down) and
Brytlyt (£0.6m write down).
The Company has continued to be an active investor during the year with £6.5
million invested into portfolio companies, of which £2.1 million was invested
across five new portfolio companies, all of which are expected to require
further investment as the companies prove themselves and grow. The average age
of the five new portfolio companies was 2.63 years, illustrating the
Company’s focus on investing in earlier-stage businesses and building value
over the longer term. The new investments during the year were:
* £0.8 million (Albion VCTs: £5.0 million) in OpenDialog AI, a provider of
AI powered chatbots and virtual assistants;
* £0.5 million (Albion VCTs: £3.0 million) in 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 (Albion VCTs: £2.4 million) in Phasecraft, which develops new
algorithms to make use of early quantum computers for materials science
problems;
* £0.2 million (Albion VCTs: £1.0 million) in Kennek Solutions, a vertical
end to end software for non-bank lenders that allows them to manage the full
value chain of lending in a single platform; and
* £0.2 million (Albion VCTs: £1.0 million) in Mondra Global, a software
platform to automate environmental product Lifecycle Assessments (LCA),
allowing global retailers to measure, manage and importantly reduce carbon
emissions of their products in their supply chains.
The Company also provided ongoing support to its portfolio in the year, in the
form of follow-on funding, with £4.4 million invested across thirteen
existing portfolio companies. This included a total of £1.3 million in
Proveca, £0.7 million in Gravitee TopCo (T/A Gravitee.io) and £0.6 million
in Panaseer.
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
on pages 27 to 29 of the full Annual Report and Financial Statements.
Updated NAV announcement after the year end
On 12 March 2024, a NAV update was announced with a 0.71 pence per share
uplift, representing a 1.0% 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.
Risks and uncertainties
The Company faces 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 how it
manages its 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. 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 principal 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 14.
Board continuity
Simon Thorpe was appointed to the Board on 1 September 2023, and brings a
wealth of knowledge and experience to the Board. Simon is a qualified
Chartered Accountant and former chairman and director of Cambridge Angels with
extensive experience of analysing and investing in early-stage public and
private companies in the technology and technology enabled healthcare sectors.
After being appointed to the Board and serving as chairman of the Audit and
Risk Committee since 2011, Thomas Chambers will be retiring from the Board at
the forthcoming Annual General Meeting on 4 June 2024. I would like to take
this opportunity to wish him well for the future, and express my thanks on
behalf of the Board and shareholders for his significant contribution during
his tenure. Simon Thorpe will succeed him as chairman of the Audit and Risk
Committee.
More information on the re-election and election of the Directors can be found
on page 49 of the full Annual Report and Financial Statements.
Albion VCTs Prospectus Top Up Offer
On 16 March 2023, the Board announced the closure of the 2022/23 Top Up Offer
having reached its £12.5 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 on 2 January 2024 and the
Company announced it had reached its £10.5 million limit on 19 March 2024.
The funds raised by the Company pursuant to the Offer will be added to the
cash resources available for investment, putting the Company into a position
to take advantage of investment opportunities over the next two to three
years.
Annual General Meeting (“AGM”)
The AGM will be held virtually at noon on 4 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 welcome 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
KAYchair@albion.capital prior to the Meeting.
Further details on the format and business to be conducted at the AGM can be
found in the Directors’ report on pages 50 and 51 and in the Notice of the
Meeting on pages 92 to 95 of the full Annual Report and Financial Statements.
Due to the success and ongoing participation of shareholders at the Albion
Shareholders Seminar, there will be another opportunity to meet again at this
years event, details of which will be available in due course at
www.albion.capital/vct-hub/agms-events.
Audit tender process
Following a formal and rigorous audit tender process, and with the outgoing
auditors approaching the maximum period a firm can act as auditor, Johnston
Carmichael LLP (“Johnston Carmichael”) was appointed 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 Annual General Meeting.
The Board would like to thank BDO for their diligent service over the last 9
years.
Further details on the tender process can be found in the Statement of
corporate governance on page 56 of the full Annual Report and Financial
Statements.
Change of name
In order to closer align with the identity of the other VCTs managed by Albion
Capital Group LLP, the Board is pleased to announce a change in the
Company’s name to Albion KAY VCT PLC, which is expected to take place later
this year.
Outlook and prospects
The Board is pleased with the positive return for the year, which highlights
the resilience of the Company’s portfolio in a challenging climate and
supports our emphasis on structural growth trends within the technology and
healthcare sectors. We continue to minimise exposure to discretionary consumer
expenditure, which should strengthen the Company's resilience during uncertain
economic times. The Manager’s ability to deploy cash into promising new
companies has also been encouraging, with five new investments completed
during the year.
There are numerous economic and geopolitical challenges that still lie ahead
for our portfolio companies; however, we have confidence in the prospects for
the Company’s portfolio and its ability to deliver growth in shareholder
value in the medium to long term.
Fiona Wollocombe
Chairman
19 April 2024
Strategic report
The Company is a Venture Capital Trust and its investment policy can be found
above.
Business model
The Company operates as a Venture Capital Trust. This means that the Company
has no employees and has outsourced the management of all its operations to
Albion Capital Group LLP, including secretarial and administrative services.
Further details of the Management agreement can be found below.
Current portfolio sector allocation
The pie charts at the end of this announcement show the split of the portfolio
valuation as at 31 December 2023 by: sector; stage of investment; and number
of employees. This is a useful way of assessing how the Company and its
portfolio is diversified across sector, portfolio companies’ maturity
measured by revenues and their size measured by the number of people employed.
Details of the principal investments made by the Company are shown in the
Portfolio of investments on pages 27 and 28 of the full Annual Report and
Financial Statements.
Direction of portfolio
The analysis of the Company’s investment portfolio shows that it is well
diversified and evenly spread across the FinTech, healthcare (including
digital healthcare), software and technology and renewable energy sectors.
The cash currently sits at 19% of NAV 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 (including digital healthcare), FinTech and enterprise software,
and these funds will be invested predominantly into higher growth technology
companies within these sectors. In addition, as an extension to the breadth of
the Company’s technology investing, it intends to make a number of DeepTech
investments over the forthcoming years.
Results and dividends
£'000
Net capital return for the year ended 31 December 2023 1,321
Net revenue return for the year ended 31 December 2023 815
Total return for the year ended 31 December 2023 2,136
First dividend of 0.52 pence per share paid on 28 April 2023 (2,743)
Second dividend of 0.53 pence per share paid on 31 October 2023 (2,767)
Unclaimed dividends 8
Transferred from reserves (3,366)
Net assets as at 31 December 2023 105,490
Net asset value per share as at 31 December 2023 20.37p
The Company paid dividends of 1.05 pence per share during the year ended 31
December 2023 (2022: 2.30 pence per share, which included a special dividend
of 1.14 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 of 0.51 pence per
share (2023: 0.52 pence per share) for the year ending 31 December 2024, which
will be paid on 30 April 2024 to shareholders on the register on 12 April
2024.
As shown in the Income statement, investment income has increased to
£1,498,000 (2022: £1,079,000) due mainly to bank interest increasing to
£376,000 (2022: £68,000) and income from fixed term funds increasing to
£254,000 (2022: £59,000), both as a result of rising interest rates. This
increase was partially offset by dividend income falling to £115,000 (2022:
£125,000) and loan stock interest decreasing to £753,000 (2022: £827,000).
The gain on investments for the year was £3,306,000 (2022: £2,237,000). The
key drivers of this gain are detailed in the Portfolio of investments section
on pages 27 to 29 of the full Annual Report and Financial Statements.
The total return for the year was £2,136,000 (2022: £726,000), equating to a
return of 0.42 pence per share (2022: 0.16 pence per share).
The Balance sheet shows that the net asset value has decreased over the last
year to 20.37 pence per share (2022: 20.95 pence per share).
There has been a net cash outflow of £5,983,000 for the year (2022: outflow
of £7,666,000), mainly resulting from a high number of investments into new
and existing portfolio companies, though lower than in the prior year, and
dividends paid during the year. These outflows were offset by the issue of
Ordinary shares under the Albion VCTs Top Up Offers 2022/23 and proceeds
received from exits in the year.
Cash in bank and at hand at the year end decreased to £20.2 million (2022:
£26.2 million), representing 19% (2022: 25%) of net asset value.
Review of business and future changes
A review of the Company’s business during the year is set out in the
Chairman’s statement.
There is a continuing focus on growing the healthcare (including digital
healthcare), FinTech and software and other 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 18. Details of transactions with the Manager
are shown in note 4.
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 on the Company’s outlook and prospects can be found in the
Chairman’s statement.
Key Performance Indicators (“KPIs”) and Alternative Performance Measures
(“APMs”)
The Directors believe that the following KPIs and APMs, which are typical for
Venture Capital Trusts, used in their own assessment of the Company, will
provide shareholders with sufficient information to assess how effectively the
Company is applying its investment policy to meet its objectives. The
Directors are satisfied that the results shown in the following KPIs and APMs
give a good indication that the Company is achieving its investment objective
and policy.
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, since 1 January 2014. 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 graph on page 16 of the full Annual Report and Financial Statements
illustrates the movement in net asset value per share and cumulative dividends
paid for the period 1 January 2014 to 31 December 2023.
3. Shareholder value (APM) and Shareholder return† (APM)
Total shareholder value since inception (being the NAV plus dividends paid)
increased by 0.47 pence per share (2.2% on opening NAV) to 94.90 pence per
share for the year ended 31 December 2023.
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
(0.7%) 9.3% 11.4% 5.6% 11.0% 1.9% 4.2% 16.3% 0.9% 2.2%
†Methodology: Calculated as the movement in total shareholder value for the
year divided by the opening net asset value.
The table above shows that total shareholder value has increased in 9 out of
the last 10 years, with an average return of 6.2% per annum.
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2023 were 1.05 pence
per share (2022: 2.30 pence per share). The cumulative dividend paid since
inception is 74.53 pence per share.
5. Ongoing charges (APM)
The ongoing charges ratio for the year to 31 December 2023 was 2.43% (2022:
2.43%). 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 are
subject to an annual cap of 3.00%. The Directors expect the ongoing charges
ratio for the year ahead to be approximately 2.45%.
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 its adjusted share capital and reserves.
The Directors do not currently have any intention to utilise gearing for 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 Investment Management Agreement, Albion Capital Group LLP provides
investment management, company secretarial and administrative services to the
Company. Albion Capital Group LLP is entitled to an annual management fee of
2% of net asset value of the Company, payable quarterly in arrears, along with
an annual administration fee of £50,000.
The aggregate payable for management and administration (normal running costs)
are subject to an aggregate annual cap of 3% of the year end closing net asset
value, for accounting periods commencing after 31 December 2011.
The Investment Management Agreement can be terminated by either party on 12
months’ notice and is subject to earlier termination in the event of certain
breaches or on the insolvency of either party.
The Manager is also entitled to an arrangement fee on investment, payable by
each portfolio company, of approximately 2% of each investment made and
monitoring fees where the Manager has a representative on the portfolio
company’s board. Further details of the Manager’s fee can be found in note
4.
Performance incentive fee
As an incentive to maximise the return to investors, the Manager would receive
an incentive fee in the event that the returns exceed minimum target levels.
The performance hurdle is equal to the greater of the starting NAV of 20 pence
per share, increased by the increase in RPI plus 2% per annum from the start
date of 1 January 2014 (calculated on a simple and not compound basis) and the
highest total return for any earlier period after the start date (the ‘high
watermark’). An annual fee (in respect of each share in issue carrying
voting rights on the last day of the financial period) of an amount equal to
15% of any excess of the total return (this being NAV per share plus dividends
paid after the start date) as at the end of the relevant accounting period
over the performance hurdle will be due to the Manager.
For the year ended 31 December 2023, the total return of the Company since 1
January 2014 (the performance incentive fee start date) was 33.57 pence per
share, compared to a performance hurdle rate of 37.42 pence per share,
resulting in a shortfall of 3.85 pence per share. As a result, no performance
incentive fee is payable to the Manager (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 service providers
including the performance of other VCTs that
the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and
of the Company, to continue the appointment of the Manager for the forthcoming
year.
Alternative Investment Fund Managers Directive (“AIFMD”)
The Board appointed 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
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 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 that follows sets out the stakeholders the Board considers most
relevant, 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.
Engagement with Stakeholder Outcomes 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 used as an opportunity to communicate with investors, including through a presentation
* Shareholders’ seminar. made by the investment management team. The use of the Lumi platform enabled engagement with a wider audience of shareholders from across the country, and gave shareholders the opportunity to ask questions and vote during the virtual AGM last year.
* Annual report and Financial Statements, Half-yearly financial report, and Interim management statements. * Shareholders are also encouraged to attend the in person annual Shareholders’ Seminar. This year’s event took place on 15 November 2023 at the Royal College of Surgeons. The seminar included Proveca and OutThink sharing insights into their businesses and
* RNS announcements for all key decisions including appointment of a new Director, and the publication of a Prospectus. 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
* Albion Capital website, social media pages, as well as publishing Albion News shareholder magazine. 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 total of 1.05 pence of dividends paid during the year, which was 5.0% of the 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 KAYchair@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 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 page 54 of the full Annual Report and Financial Statements.
Suppliers
The key suppliers with regular engagement from the Manager are: * Auditor * The Manager is in regular contact with the suppliers and the contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their
* Corporate broker responsibilities.
* Depositary * The Board reviews the performance of the providers annually in line with the Manager, and was satisfied with their performance.
* Lawyer * 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 Carmichael LLP as the Company’s Auditor.
* Registrar
* VCT taxation adviser
Portfolio companies
The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. However, as discussed in the Environmental, Social and Governance (“ESG”) report on pages 41 to 44 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 a place on the board of a portfolio company, 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 ensures 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 41 to 44 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.
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.
Further policies
The Company has adopted a number of further policies relating to:
● Environment
● Global greenhouse gas emissions
● Anti-bribery
● Anti-facilitation of tax evasion
● Diversity
and these are set out in the Directors’ report on pages 47 and 48 of the
full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the
Company operates, together with changes to the environment and individual
risks. The Board also identifies emerging risks which might impact on the
Company. In the year ended 31 December 2023, 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 rising 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
risks, 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 in the
following table.
Possible consequence Risk assessment during the year Risk management
Principal Risks
Risk: 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. Technology related risks are also likely to be greater in early, rather than later, stage technology investments, including the risks of the technology not becoming generally accepted by the market or the obsolescence of the technology concerned, often due to greater financial resources being available to competing companies. 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.
Risk: 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.
Risk: 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, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer,
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.
Risk: 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.
Risk: 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. 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.
Risk: 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.65 companies which are diversified as discussed above. Exposure is relatively small to at-risk sectors that include leisure,
hospitality, retail and travel.
Risk: 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
Risk: 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 41 to 44 of the full Annual Report and Financial Statements. These procedures ensure that this increased 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 themselves are working towards reducing their impact on the environment, and that the Manager takes account of ESG
factors, including climate change, when making new investment decisions. With specific respect to the Company, a key operation is increasing the use of electronic
communications with Shareholders, where that preference has been specified.
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 resilience of investee companies given
the current decline in the global economy, including the requirement for any
future financial support.
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
Fiona Wollocombe
Chairman
19 April 2024
Responsibility statement
In preparing these Financial Statements for the year to 31 December 2023, the
Directors of the Company, being Fiona Wollocombe, Thomas Chambers, Swarupa
Pathakji and Simon Thorpe, confirm to the best of their knowledge:
* summary financial information contained in this announcement and the full
Annual Report and Financial Statements for the year ended 31 December 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 52 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Fiona Wollocombe
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
Gains on investments 2 - 3,306 3,306 - 2,237 2,237
Investment income 3 1,498 - 1,498 1,079 - 1,079
Investment Manager’s fees 4 (219) (1,985) (2,204) (214) (1,923) (2,137)
Other expenses 5 (464) - (464) (453) - (453)
Profit on ordinary activities before tax 815 1,321 2,136 412 314 726
Tax on ordinary activities 7 - - - - - -
Profit and total comprehensive income attributable to shareholders 815 1,321 2,136 412 314 726
Basic and diluted return per share (pence)* 9 0.16 0.26 0.42 0.09 0.07 0.16
*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 under guidance published by The Association of Investment
Companies.
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 assets investments 10 84,105 76,706
Current assets
Trade and other receivables 12 1,884 1,773
Cash in bank and at hand 20,196 26,179
22,080 27,952
Payables: amounts falling due within one year
Trade and other payables 13 (695) (659)
Net current assets 21,385 27,293
Total assets less current liabilities 105,490 103,999
Equity attributable to equity holders
Called-up share capital 14 6,057 5,757
Share premium 21,388 13,888
Capital redemption reserve 64 -
Unrealised capital reserve 31,363 27,634
Realised capital reserve 4,267 6,675
Other distributable reserve 42,351 50,045
Total equity shareholders’ funds 105,490 103,999
Basic and diluted net asset value per share (pence)* 15 20.37 20.95
*excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The Financial Statements were approved by the Board of Directors and
authorised for issue on 19 April 2024 and were signed on its behalf by:
Fiona Wollocombe
Chairman
Company number: 03139019
Statement of changes in equity
Called-up share capital Share premium Capital redemption reserve Unrealised capital reserve Realised capital reserve* Other distributable reserve* Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1 January 2023 5,757 13,888 - 27,634 6,675 50,045 103,999
Profit/(loss) and total comprehensive income for the period - - - 2,441 (1,120) 815 2,136
Transfer of previously unrealised losses on disposal of investments - - - 1,288 (1,288) - -
Purchase of own shares for treasury - - - - - (1,751) (1,751)
Purchase of own shares for cancellation (64) - 64 - - (1,256) (1,256)
Issue of equity 364 7,720 - - - - 8,084
Cost of issue of equity - (220) - - - - (220)
Dividends paid - - - - - (5,502) (5,502)
At 31 December 2023 6,057 21,388 64 31,363 4,267 42,351 105,490
At 1 January 2022 5,103 60,854 11 29,199 4,796 1,868 101,831
(Loss)/profit and total comprehensive income for the period - - - (1,269) 1,583 412 726
Transfer of previously unrealised gains on disposal of investments - - - (296) 296 - -
Purchase of own shares for treasury - - - - - (2,254) (2,254)
Issue of equity 654 14,247 - - - - 14,901
Cost of issue of equity - (359) - - - - (359)
Dividends paid - - - - - (10,846) (10,846)
Cancellation of share premium and capital redemption reserve - (60,854) (11) - - 60,865 -
At 31 December 2022 5,757 13,888 - 27,634 6,675 50,045 103,999
*These reserves include an amount of £17,164,000 (2022: £22,036,000) which
is considered distributable. Over the next two years an additional
£25,029,000 will become distributable. This is due to the HMRC requirement
that the Company cannot use capital raised in the past three years to make a
payment or distribution to shareholders. On 1 January 2024, £9,656,000 became
distributable in line with this.
The accompanying notes form an integral part of these Financial Statements.
The nature of each reserve is described in note 1 below.
Statement of cash flows
Year ended 31 December 2023 Year ended 31 December 2022
£’000 £’000
Cash flow from operating activities
Investment income received 798 725
Deposit interest received 376 68
Income from fixed term funds received 254 59
Dividend income received 115 125
Investment Manager’s fees paid (2,177) (3,166)
Other cash payments (458) (448)
UK corporation tax paid - -
Net cash flow generated from operating activities (1,092) (2,637)
Cash flow from investing activities
Purchase of fixed asset investments* (6,526) (15,249)
Proceeds from disposals of fixed asset investments* 2,246 8,818
Net cash flow generated from investing activities (4,280) (6,431)
Cash flow from financing activities
Proceeds from issue of share capital 7,080 12,926
Cost of issue of equity** (40) (52)
Purchase of own shares (3,007) (2,254)
Equity dividends paid (net of Dividend Reinvestment Scheme) (4,644) (9,218)
Net cash flow generated from financing activities (611) 1,402
Decrease in cash in bank and at hand (5,983) (7,666)
Cash in bank and at hand at start of the year 26,179 33,845
Cash in bank and at hand at end of the year 20,196 26,179
* Purchases and disposals detailed above do not agree to note 10 due to
restructuring of investments, conversion of convertible loan stock and
settlement 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. Accounting policies
Basis of accounting
The Financial Statements have been prepared in accordance with applicable
United Kingdom law and accounting standards, including Financial Reporting
Standard 102 (“FRS 102”), and with the Statement of Recommended Practice
“Financial Statements of Investment Trust Companies and Venture Capital
Trusts” (“SORP”) issued by The Association of Investment Companies
(“AIC”). The Financial Statements have been prepared on a going concern
basis and further details can be found in the Directors’ report on page 46
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 below.
Company information can be found on page 4 of the full Annual Report and
Financial Statements.
Fixed asset investments
The Company’s business is investing in financial assets with a view to
profiting from their total return in the form of income and capital growth.
This portfolio of financial assets is managed and its performance evaluated on
a fair value basis, in accordance with a documented investment policy, and
information about the portfolio is provided internally on that basis to the
Board.
In accordance with the requirements of FRS 102, those undertakings in which
the Company holds more than 20% of the equity as part of an investment
portfolio are not accounted for using the equity method. In these
circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including
loan stock, are 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 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;
* a significant adverse change either in the portfolio company’s business or
in the technological, market, economic, legal or regulatory environment in
which the business operates; or
* market conditions have deteriorated, which may be indicated by a fall in the
share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the
investment contract and are de-recognised on legal completion of the sale of
an investment.
Dividend income is not recognised as part of the fair value movement of an
investment, but is recognised separately as investment income through the
Income statement when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables and
cash are carried at amortised cost, in accordance with FRS 102. Debtors due
after more than one year meet the definition of a financing transaction held
at amortised cost, and interest will be recognised through capital over the
credit period using the effective interest method. There are no financial
liabilities other than payables.
Investment income
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.
Fixed term funds income
Income from fixed term funds is recognised on an accruals basis using the rate
of interest agreed with the bank.
Bank deposit income
Interest income is recognised on an accruals basis using the rate of interest
agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are
charged through the other distributable reserve except the following which are
charged through the realised capital reserve:
* 90% of management fees and 100% of performance incentive fees, if any, are
allocated to the realised capital reserve; and
* expenses which are incidental to the purchase or disposal of an investment
are charged through the realised capital reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax
is tax payable (refundable) in respect of the taxable profit (tax loss) for
the current period or past reporting periods using the tax rates and laws that
have been enacted or substantively enacted at the financial reporting date.
Taxation associated with capital expenses is applied in accordance with the
SORP.
Deferred tax is provided in full on all timing differences at the reporting
date. Timing differences are differences between taxable profits and total
comprehensive income as stated in the Financial Statements that arise from the
inclusion of income and expenses in tax assessments in periods different from
those in which they are recognised in the Financial Statements. As a VCT the
Company has an exemption from tax on capital gains. The Company intends to
continue meeting the conditions required to obtain approval as a VCT for 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.
Share capital and reserves
Called-up share capital
This reserve accounts for the nominal value of the shares.
Share premium
This reserve accounts for the difference between the price paid for the
Company’s shares and the nominal value of those shares, less issue costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is
diminished through the repurchase and cancellation of the Company’s own
shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end
against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
• gains and losses compared to cost on the realisation of
investments or permanent diminution in value (including gains recognised on
the realisation of investment where consideration is deferred and 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 and other
non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in which the dividend
is paid or approved at the AGM.
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.
2. Gains on investments Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Unrealised gains/(losses) on fixed asset investments 2,441 (1,269)
Realised gains on fixed asset investments 603 3,282
Unwinding of discount on deferred consideration 262 224
3,306 2,237
3. Investment income Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Loan stock interest 753 827
Bank interest 376 68
Income from fixed term funds 254 59
Dividend income 115 125
1,498 1,079
4. Investment Manager’s fees Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Investment management fee charged to revenue 219 214
Investment management fee charged to capital 1,985 1,923
2,204 2,137
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, £2,204,000 (2022: £2,137,000) of management fees and
£50,000 (2022: £50,000) of administration fees were purchased by the Company
from Albion Capital Group LLP. There is no performance incentive fee payable
this year (2022: £nil). At the financial year end, the amount due to Albion
Capital Group LLP in respect of these services disclosed within payables was
£561,000 (2022: £534,000).
Albion Capital Group LLP is, from time-to-time, eligible to receive
arrangement fees and monitoring fees from portfolio companies. During the year
ended 31 December 2023, fees of £152,000 (2022: £274,000) attributable to
the investments of the Company were paid pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff hold 3,498,456 Ordinary
shares in the Company as at 31 December 2023.
The Company has entered into an offer agreement relating to the Offers with
the Company’s investment manager Albion Capital Group LLP, pursuant to which
Albion Capital will receive a fee of 2.5% of the gross proceeds of the 2022/23
Offer, and 3.0% of the gross proceeds of the 2023/24 Offer, and out of which
Albion Capital will pay the costs of the Offers, as detailed in the
Prospectus.
5. Other expenses Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Directors’ fees (including NIC) 104 120
Auditor’s remuneration for statutory audit services (excluding VAT) 53 48
Secretarial and administration fee 50 50
Other administrative expenses 257 235
464 453
6. Directors’ fees Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Directors’ fees 95 110
National insurance 9 10
104 120
The Company’s key management personnel are the Directors. Further
information regarding Directors’ remuneration can be found in the
Directors’ remuneration report on page 61 of the full Annual Report and
Financial Statements.
7. Tax on ordinary activities Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
UK Corporation tax payable - -
Reconciliation of profit on ordinary activities to taxation charge Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
Profit on ordinary activities before taxation 2,136 726
Tax charge on profit at the effective UK corporation tax rate of 23.45% (2022: 19.00%) 501 138
Effects of:
Non-taxable gains (775) (425)
Non-taxable income (27) (24)
Unutilised management expenses 301 311
- -
The tax charge for the year shown in the Income statement is lower than the
effective rate of corporation tax in the UK of 23.45% (2022: 19.00%). The
differences are explained above. From April 2023 the Company’s rate of
corporation tax increased from 19% to 25%, therefore the average rate is
23.45% for the year ended 31 December 2023.
The Company has excess management expenses of £16,854,000 (2022:
£15,569,000) that are available for offset against future profits. A deferred
tax asset of £4,213,000 (2022: £3,892,000) has not been recognised in
respect of those losses as they will be recoverable only to the extent that
the Company has sufficient future taxable profits.
There is no expiry date on timing differences, unused tax losses or tax
credits.
8. Dividends Year ended 31 December 2023 £’000 Year ended 31 December 2022 £’000
First dividend of 0.52 pence per share paid on 28 April 2023 (29 April 2022: 0.58 pence per share) 2,743 2,742
Second dividend of 0.53 pence per share paid on 31 October 2023 (31 October 2022: 0.58 pence per share) 2,767 2,761
Special dividend of 1.14 pence per share paid on 29 July 2022 - 5,385
Unclaimed dividends returned to the Company (8) (42)
5,502 10,846
The Directors have declared a first dividend of 0.51 pence per share for the
year ending 31 December 2024, which will amount to approximately £2,883,000.
This dividend will be paid on 30 April 2024 to shareholders on the register on
12 April 2024.
9. Basic and diluted return per share
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Return attributable to shareholders (£’000) 815 1,321 2,136 412 314 726
Weighted average shares in issue (adjusted for treasury shares) 516,008,195 471,274,000
Return attributable per equity share (pence) 0.16 0.26 0.42 0.09 0.07 0.16
The weighted average number of Ordinary shares is calculated after adjusting
for treasury shares of 87,982,092 (2022: 79,380,503).
There are no convertible instruments, derivatives or contingent share
agreements in issue so basic and diluted return per share are the same.
10. Fixed asset investments 31 December 2023 £’000 31 December 2022 £’000
Investments held at fair value through profit or loss Unquoted equity and preference shares 73,307 63,666
Quoted equity 141 437
Unquoted loan stock 10,657 12,603
84,105 76,706
31 December 2023 £’000 31 December 2022 £’000
Opening valuation 76,706 66,996
Purchases at cost 7,171 16,286
Disposal proceeds (2,772) (8,691)
Realised gains 603 3,282
Movement in loan stock accrued income (44) 102
Movement in unrealised gains/(losses) 2,441 (1,269)
Closing valuation 84,105 76,706
Movement in loan stock accrued income
Opening accumulated loan stock accrued income 270 168
Movement in loan stock accrued income (44) 102
Closing accumulated loan stock accrued income 226 270
Movement in unrealised gains
Opening accumulated unrealised gains 27,622 29,187
Transfer of previously unrealised (losses)/gains to realised reserve on disposal of investments 1,288 (296)
Movement in unrealised gains/(losses) 2,441 (1,269)
Closing accumulated unrealised gains 31,351 27,622
Historical cost basis
Opening book cost 48,813 37,641
Purchases at cost 7,171 16,286
Sales at cost (3,457) (5,114)
Closing book cost 52,527 48,813
Purchases and disposals detailed above may not agree to purchases and
disposals in the Statement of cash flows due to restructuring of investments,
conversion of convertible loan stock and settlement of receivables and
payables.
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.
Amounts shown as cost represent the acquisition cost in the case of
investments made by the Company and/or the valuation attributed to the
investments acquired from other VCTs at the dates of merger, plus any
subsequent acquisition cost.
The Company does not hold any assets as the result of the enforcement of
security during the period, and believes that the carrying values for both
impaired and past due assets are covered by the value of security held for
these loan stock investments.
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) 39,767 39,203
Revenue multiple 31,179 23,255
Discounted cash flow (supported by third party valuation) 10,072 10,873
Earnings multiple 1,945 1,998
Earnings multiple (supported by third party valuation) 569 557
Net assets 344 383
Bid price 141 437
Discounted offer price 88 -
84,105 76,706
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
specialty 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 (calibrated and reviewed for impairment) to revenue multiple 7,593 Revenue multiple more relevant based on current trading
Revenue multiple to cost and price of recent investment (calibrated and reviewed for impairment) 611 Recent funding rounds
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 The unadjusted quoted price in an active market
Level 2 Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3 Inputs to valuations not based on observable market data
The quoted investment is valued in accordance with 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 valuation 76,269 66,060
Purchases at cost 7,171 16,286
Unrealised gains/(losses) 2,484 (843)
Movement in loan stock accrued income (44) 102
Realised gains on disposal 616 3,192
Disposal proceeds (2,532) (8,528)
Closing valuation 83,964 76,269
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. 60% 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 26% of the portfolio, as shown in the table below.
This has resulted in a total coverage of 86% of the portfolio of investments.
The main inputs considered for each type of valuation are 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 Healthcare (including digital healthcare) Revenue multiple 5.2x +0.5x 908 0.18
-0.5x (908) (0.18)
Revenue multiple Software and other technology Revenue multiple 4.5x +0.5x 829 0.16
-0.5x (829) (0.16)
Discounted cash flow (supported by third party valuation) Renewable energy Discount rate 6.5% -0.5% 83 0.02
+0.5% (77) (0.01)
*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 £1,820,000 (1.7%) or a decrease in the
valuation of equity investments by £1,814,000 (1.7%).
11. Significant holdings
The principal activity of the Company is to select and hold a portfolio of
investments in unquoted securities. Although the Company, through the Manager,
will, in some cases, be represented on the board of the portfolio company, it
will not ordinarily take a controlling interest or become involved in the
management. The size and structure of companies with unquoted securities may
result in certain holdings in the portfolio representing a participating
interest without there being any partnership, joint venture or management
consortium agreement.
The Company has interests of greater than 20% of the nominal value of any
class (some of which are non-voting) of the allotted shares in the portfolio
companies as at 31 December 2023 as described below. The investments listed
below are held as part of an investment portfolio and therefore, as permitted
by FRS 102, they are measured at fair value and are not accounted for using
the equity method.
Company Registered address and country of incorporation Profit/(loss) before tax £’000 Aggregate capital and reserves £’000 % class and share type % total voting rights
Academia CA 94108, USA n/a n/a 23.2% Preferred shares 2.3%
Sift BS1 4EX, UK (868) (230) 42.1% Ordinary shares 42.1%
12. Current assets
Trade and other receivables 31 December 2023 £’000 31 December 2022 £’000
Deferred consideration under one year 1,828 139
Other receivables 28 42
Prepayments and accrued income 28 26
Deferred consideration over one year - 1,566
1,884 1,773
The majority of 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.
13. Payables: amounts falling due within one year 31 December 2023 £’000 31 December 2022 £’000
Trade payables 48 19
Accruals and deferred income 647 640
695 659
The Directors consider that the carrying amount of payables is not materially
different to their fair value.
14. Called-up share capital
Allotted, called-up and fully paid £’000
575,728,901 Ordinary shares of 1 penny each at 31 December 2022 5,757
36,369,220 Ordinary shares of 1 penny each issued during the year 364
6,366,677 Ordinary shares of 1 penny each cancelled during the year (64)
605,731,444 Ordinary shares of 1 penny each at 31 December 2023 6,057
79,380,503 Ordinary shares of 1 penny each held in treasury at 31 December 2022 (794)
8,601,589 Ordinary shares of 1 penny each purchased during the year to be held in treasury (86)
87,982,092 Ordinary shares of 1 penny each held in treasury at 31 December 2023 (880)
517,749,352 Ordinary shares of 1 penny each in circulation* at 31 December 2023 5,177
*Carrying one vote each
During the year the Company purchased 8,601,589 Ordinary shares (2022:
10,771,178) representing 1.4% of the issued Ordinary share capital as at 31
December 2023, at a cost of £1,751,000 (2022: £2,254,000), including stamp
duty, to be held in treasury. The Company also purchased 6,366,677 Ordinary
shares (2022: nil) representing 1.1% of the issued Ordinary share capital as
at 31 December 2023, at a cost of £1,256,000 (2022: £nil), including stamp
duty, for cancellation.
The Company holds a total of 87,982,092 Ordinary shares in treasury,
representing 14.5% of the issued Ordinary share capital as at 31 December
2023.
Under the terms of the Dividend Reinvestment Scheme Circular dated 19 April
2011, the following new Ordinary shares of nominal value 1 penny per share
were allotted during the year:
Date of allotment Number of shares allotted Aggregate nominal value of shares (£’000) Issue price (pence per share) Net invested (£’000) Opening market price on allotment date (pence per share)
28 April 2023 1,933,358 19 21.27 391 20.30
31 October 2023 1,987,220 20 20.75 393 19.70
3,920,578 784
During the period from 1 January 2023 to 31 December 2023, the Company issued
the following new Ordinary shares of nominal value 1 penny each under the
Albion VCT Prospectus Top Up Offers 2022/23:
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 31,071,626 311 22.40 6,786 20.70
14 April 2023 195,210 2 21.60 42 20.30
14 April 2023 114,678 1 21.80 24 20.30
14 April 2023 1,067,128 11 21.90 228 20.30
32,448,642 7,080
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 £12.5
million.
15. 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 Ordinary share 20.37 20.95
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 517,749,352 Ordinary
shares as at 31 December 2023 (2022: 496,348,398).
16. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 14. The
Company is permitted to buy back its own shares for cancellation or treasury
purposes and this policy is described in more detail in the Chairman’s
statement.
The Company’s financial instruments comprise equity and loan stock
investments in 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
cash flow, revenue and capital appreciation for the Company’s operations.
The Company has no gearing or other financial liabilities apart from short
term payables. The Company does not use any derivatives for the management of
its Balance sheet.
The principal financial instrument risks arising from the Company’s
operations are:
* 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 sufficiently prudent and 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 £8,411,000. 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 £16,821,000. Further sensitivity
analysis on fixed asset investments is included in note 10.
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 on the balance sheet date is the value of the
fixed asset investment portfolio which is £84,105,000 (2022: £76,706,000).
Fixed asset investments form 80% of the net asset value on 31 December 2023
(2022: 74%).
More details regarding the classification of fixed asset investments are shown
in note 10.
Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk on its
financial assets through the effect of interest rate changes. On the basis of
the Company’s analysis, it is estimated that a rise of 1% in all interest
rates would have increased the profit before tax for the year by approximately
£232,000 (2022: £300,000). Furthermore, it is considered that a material
fall of interest rates below current levels during the year would have been
unlikely.
The weighted average effective interest rate applied to the Company’s fixed
rate assets during the year was approximately 9.7% (2022: 8.6%). The weighted
average period to maturity for the fixed rate assets is approximately 6.2
years (2022: 6.5 years).
The Company’s financial assets and liabilities, denominated in 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 - - 73,307 73,307 - - 63,666 63,666
Quoted equity - - 141 141 - - 437 437
Unquoted loan stock 9,055 485 1,117 10,657 10,232 519 1,852 12,603
Receivables* - - 1,857 1,857 - - 1,747 1,747
Payables - - (695) (695) - - (659) (659)
Cash 9,313 10,883 - 20,196 - 26,179 - 26,179
18,368 11,368 75,727 105,463 10,232 26,698 67,043 103,973
*The receivables do not reconcile to the Balance sheet as prepayments are not
included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company. The Company is exposed to credit risk through its receivables,
investment in unquoted loan stock and through the holding of cash on deposit
with banks.
The Manager evaluates credit risk on loan stock instruments prior to
investment and as part of its ongoing monitoring of investments. For
investments made prior to 6 April 2018, which account for 94% of loan stock
value, typically loan stock instruments will have a fixed or floating charge,
which may or may not be subordinated, over the assets of the portfolio company
in order to mitigate the gross credit risk.
The Manager receives management accounts from portfolio companies and members
of the investment management team often sit on the boards of unquoted
portfolio companies; this enables the close identification, monitoring and
management of investment specific credit risk.
Bank deposits are held with banks 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 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
£10,657,000 (2022: £12,603,000) of unquoted loan stock instruments,
£20,196,000 (2022: £26,179,000) cash on deposit with banks and £1,884,000
(2022: £1,773,000) of other receivables.
As at the Balance sheet date, cash and liquid investments held by the Company
are held with the National Westminster Bank plc, Scottish Widows Bank PLC
(part of Lloyds Banking Group PLC), Barclays Bank PLC, and Bank of Montreal.
Credit risk on cash transactions is mitigated by transacting with
counterparties that are regulated entities subject to regulatory supervision,
with high credit ratings assigned by international credit-rating agencies.
The credit profile of unquoted loan stock is described under liquidity risk
below.
Liquidity risk
Liquid assets are held as cash on current account, deposit or short term money
market accounts or similar instruments. Under the terms of its Articles, the
Company has the ability to borrow an amount equal to its adjusted capital and
reserves of the latest published audited Balance sheet, being £102,607,000
(2022: £101,256,000).
The Company has no committed borrowing facilities as at 31 December 2023
(2022: nil) and had cash balances of £20,196,000 (2022: £26,179,000). The
main cash outflows are for new investments, dividends and share buy-backs,
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 £695,000 as at 31 December 2023 (2022: £659,000).
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 Past due £’000 Valued below cost £’000 Total £’000 Fully performing £’000 Past due £’000 Valued below cost £’000 Total £’000
Less than one year 3,535 371 125 4,031 3,521 345 - 3,866
1-2 years 52 - - 52 153 - - 153
2-3 years 43 - - 43 66 27 - 93
3-5 years 1,517 - - 1,517 2,783 - - 2,783
5 + years 4,857 157 - 5,014 5,544 164 - 5,708
Total 10,004 528 125 10,657 12,067 536 - 12,603
Loan stock can be past due as a result of interest or capital not being paid
in accordance with contractual terms. The cost of loan stock valued below cost
is £284,000 (2022: £24,000).
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 (including debtors due after more than one year), payables and
cash which are carried at amortised cost, in accordance with FRS 102. There
are no financial liabilities other than payables. The Company’s financial
liabilities are all non-interest bearing. It is the Directors’ opinion that
the book value of the financial liabilities is not materially different to the
fair value and all are payable within one year.
17. Commitments, contingencies and guarantees
As at 31 December 2023, the Company had no financial commitments (2022:
£nil).
There were no contingent liabilities or guarantees given by the Company as at
31 December 2023 (2022: £nil).
18. Post balance sheet events
Since the year end, the Company has had the following material post balance
sheet events:
* Received £1.8 million of deferred consideration from the historic disposal
of G. Network Communications that was included in trade and other receivables
at 31 December 2023;
* On 12 March 2024, a NAV update was announced with a 0.71 pence per share
uplift, representing a 1.0% 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 £2.7 million in one new and five existing portfolio
companies; and
* The following new Ordinary shares of nominal value 1 penny each were
allotted under the Albion VCTs Prospectus Top Up Offers 2023/24 after 31
December 2023:
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 6,584,258 66 21.32 1,376 19.90
22 March 2024 1,716,211 17 21.43 359 19.90
22 March 2024 39,204,862 392 21.54 8,191 19.90
16 April 2024 376,192 4 20.80 77 19.40
16 April 2024 23,911 - 20.91 5 19.40
16 April 2024 953,045 10 21.02 194 19.40
48,858,479 10,202
19. Related party transactions
Other than transactions with the Manager as disclosed in note 4, and the
Directors’ remuneration disclosed in the Directors’ remuneration report on
page 61 of the full Annual Report and Financial Statements there are no
related party transactions or balances requiring disclosure.
20. Other information
The information set out in this announcement does not constitute the
Company’s statutory accounts within the terms of section 434 of the
Companies Act 2006 for the years ended 31 December 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.
21. Publication
The full audited Annual Report and Financial Statements are being sent to
shareholders and copies will be made available to the public at the registered
office of the Company, Companies House, the National Storage Mechanism and
also electronically at www.albion.capital/funds/KAY/31Dec2023.pdf.
Attachment
* Split of portfolio by sector, stage of investment and number of
employees
(https://ml-eu.globenewswire.com/Resource/Download/fa66e1f8-cfe0-4f65-9e76-f81ee5c8180f)