REG-Albion Venture Capital Trust PLC: Annual Financial Report <Origin Href="QuoteRef">AAVC.L</Origin>
27/06/2017 13:10
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Albion Venture Capital Trust PLC
LEI number: 213800JKELS32V2OK421
As required by the UK Listing Authority's Disclosure and Transparency Rules
4.1 and 6.3, Albion Venture Capital Trust PLC today makes public its
information relating to the Annual Report and Financial Statements for the
year ended 31 March 2017.
This announcement was approved for release by the Board of Directors on 27
June 2017.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements
for the year to 31 March 2017 (which have been audited) at
www.albion.capital/funds/AAVC. The Annual Report and Financial Statements for
the year to 31 March 2017 will be available as a PDF document via a link in
the 'Financial Reports and Circulars' section. The information contained in
the Annual Report and Financial Statements will include information as
required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objective and policy
The investment strategy of Albion Venture Capital Trust PLC (the "Company") is
to manage the risk normally associated with investments in smaller unquoted
companies whilst maintaining an attractive yield, through allowing investors
the opportunity to participate in a balanced portfolio of asset-backed
businesses. The Company's investment portfolio will thus be structured to
provide a balance between income and capital growth for the longer term.
This is achieved as follows:
* qualifying unquoted investments are predominantly in specially-formed
companies which provide a high level of asset backing for the capital value of
the investment;
* the Company invests alongside selected partners with proven experience in
the sectors concerned;
* investments are normally structured as a mixture of equity and loan stock.
The loan stock represents the majority of the finance provided and is secured
on the assets of the portfolio company. Funds managed or advised by Albion
Capital Group LLP typically own 50 per cent. of the equity of the portfolio
company;
* other than the loan stock issued to funds managed or advised by Albion
Capital Group LLP, portfolio companies do not normally have external
borrowings.
The Company offers tax-paying investors substantial tax benefits at the time
of investment, on payment of dividends and on the ultimate disposal of the
investment.
As defined by the Articles of Association, the Company's maximum exposure in
relation to gearing is restricted to 10 per cent. of the adjusted share
capital and reserves. The Directors do not currently have any intention to
utilise gearing for the Company.
Background to the Company
The Company is a venture capital trust which raised a total of £39.7 million
through an issue of Ordinary shares in the spring of 1996 and through an issue
of C shares in the following year. The C shares merged with the Ordinary
shares in 2001. The Company has raised a further £26.9 million under the
Albion VCTs Top Up Offers since 2011.
On 25 September 2012, the Company acquired the assets and liabilities of
Albion Prime VCT PLC ("Prime") in exchange for new shares in the Company. Each
Prime shareholder received 0.8801 shares in the Company for each Prime share
that they held at the date of the Merger.
Financial calendar
Record date for first dividend 7 July 2017
Payment of first dividend 31 July 2017
Annual General Meeting 11:00am on 14 August 2017
Announcement of half-yearly results for the six months ended 30 September 2017 December 2017
Payment of second dividend (subject to Board approval) 31 January 2018
Financial highlights
8.7p Basic and diluted total return per share for the year ended 31 March 2017
5.0p Total tax-free dividend per share paid during the year ended 31 March 2017
75.4p Net asset value per share as at 31 March 2017
220.2p Total shareholder return since launch to 31 March 2017
7.4% Tax free yield on share price (dividend per annum/share price as at 31 March 2017)
6.4% Annualised return since launch (without tax relief)
31 March 2017 31 March 2016
(pence per share) (pence per share)
Dividends paid 5.0 5.0
Revenue return 1.9 2.0
Capital return 6.8 3.6
Net asset value 75.4 72.0
Total shareholder return to 31 March 2017 Ordinary shares
Total dividends paid during the year ended : 31 March 1997 2.00
31 March 1998 5.20
31 March 1999 11.05
31 March 2000 3.00
31 March 2001 8.55
31 March 2002 7.60
31 March 2003 7.70
31 March 2004 8.20
31 March 2005 9.75
31 March 2006 11.75
31 March 2007 10.00
31 March 2008 10.00
31 March 2009 10.00
31 March 2010 5.00
31 March 2011 5.00
31 March 2012 5.00
31 March 2013 5.00
31 March 2014 5.00
31 March 2015 5.00
31 March 2016 5.00
31 March 2017 5.00
Total dividends paid to 31 March 2017 144.80
Net asset value as at 31 March 2017 75.40
Total shareholder return to 31 March 2017 220.20
The financial summary above is for the Company, Albion Venture Capital Trust
PLC Ordinary shares only. Details of the financial performance of the C
shares and Albion Prime VCT PLC, which have been merged into the Company, can
be found at the end of this report.
In addition to the dividends summarised above, the Board has declared a first
dividend for the year ending 31 March 2018 of 2.5 pence per share to be paid
on 31 July 2017 to shareholders on the register on 7 July 2017.
Notes
* Dividends paid before 5 April 1999 were paid to qualifying shareholders
inclusive of the associated tax credit. The dividends for the year to 31 March
1999 were maximised in order to take advantage of this tax credit.
* All dividends paid by the Company are paid free of income tax to qualifying
shareholders. It is an H.M. Revenue & Customs requirement that dividend
vouchers indicate the tax element should dividends have been subject to income
tax. Investors should ignore this figure on their dividend voucher and need
not disclose any income they receive from a VCT on their tax return.
* The net asset value of the Company is not its share price as quoted on the
official list of the London Stock Exchange. The share price of the Company can
be found in the Investment Companies - VCTs section of the Financial Times on
a daily basis. Investors are reminded that it is common for shares in VCTs to
trade at a discount to their net asset value.
Chairman's statement
Introduction
The results for the year to 31 March 2017 show a total return of 8.7 pence per
share, against 5.6 pence per share for the previous year, and net assets of
75.4 pence per share compared to 72.0 pence per share at 31 March 2016,
following the payment of total tax-free dividends of 5 pence per share.
It is encouraging that the Company's total return continues for the third year
to more than cover its dividend of 5 pence per share. This has been partly
through an increase in the income generated by the investment portfolio, which
has risen 12 per cent. from the previous year. The principal element,
however, has come from capital uplifts; in particular the uplift in the third
party valuations of our care homes.
Investment performance and progress
In general, we have been continuing the task of repositioning the portfolio,
aimed at a reduced reliance on sectors that are exposed to the consumer and
business cycle. Healthcare now accounts for 35 per cent. of the portfolio,
renewable energy accounts for 17 per cent., while education continues to
account for 7 per cent.. Hotels, meanwhile, have reduced from 23 per cent.
to 18 per cent..
Taking these sectors in turn, Shinfield View, Reading, which is one of our
three care homes, opened in April 2016. Active Lives Care (trading as Cumnor
Hill House), which is based in Oxford, opened in June 2016; and Ryefield
Court, based in Hillingdon in West London, opened in July 2016. All three care
homes are building towards good levels of occupancy, at rates significantly
higher than originally forecast, leading to pleasing uplifts in the
independent third party valuations.
Our renewable energy investments are now mature, other than our biogas plant,
Earnside Energy, which is currently expanding its capacity. In general, it is
intended to hold these cash-generative investments for the longer term with
the aim of providing low risk diversification for the investment portfolio as
a whole, combined with a strong source of income.
In education, Radnor House Twickenham now has over 400 pupils while pupil
numbers at Radnor House Sevenoaks, formerly Combe Bank School, have already
reached 300.
We continue to review our hotel portfolio with a view to reducing our exposure
further. Trading at the Holiday Inn Express at Stansted Airport has been
strong, but the valuation has been reduced in light of a new, competing, hotel
opening in the summer. Trading at the Crown hotel in Harrogate has been
similar to prior year while the Stanwell Hotel has continued to face
challenges.
With regard to our pubs, our portfolio of units in the North West, within
Bravo Inns and Bravo Inns II, continues to expand its operations. Meanwhile
The Charnwood Pub Company (renamed MHS 1 Limited) completed the disposal of
its pub portfolio. After the year end The Weybridge Club Limited (renamed TWCL
Limited) sold the assets of its business.
Results and dividends
As at 31 March 2017, the net asset value was £65.5 million or 75.4 pence per
share, compared to £57.0 million or 72.0 pence per share as at 31 March 2016,
after the payment of total tax-free dividends of 5 pence per share. The
results comprised a total return of 8.7 pence per share for the year (2016:
5.6 pence per share), which is made up of a 1.9 pence per share revenue return
(2016: 2.0 pence per share) and a 6.8 pence per share capital return (2016:
3.6 pence per share). The revenue return before taxation was £1.8 million
compared to £1.7 million for the year to 31 March 2016. The Company will pay
a first dividend of 2.5 pence per share for the year ending 31 March 2018 on
31 July 2017 to shareholders on the register on 7 July 2017, which is in line
with the Company's current objective of paying a dividend of 5 pence per share
annually. Thereafter, it is intended that payment of the next dividend will be
made at the end of January 2018, which was previously paid to shareholders in
December.
Risks and uncertainties
The outlook for the UK economy, continues to be the key risk affecting your
Company. The forthcoming withdrawal from the European Union may have an effect
on the Company and its investments, although the extent of the effect is not
quantifiable at this time. However, we would expect the effect to be felt most
in those sectors which are most exposed to the consumer and business cycle.
The regulatory environment in which the Company operates has had significant
input from rules developed within the European Union and it is uncertain what
changes may occur in a separate UK regulatory environment.
The Company's policy remains that its portfolio companies should not normally
have external borrowings and for the Company normally to have a first charge
over portfolio companies' assets. The Board and the Manager see this as an
important factor in the control of investment risk. However, certain portfolio
companies may take on external borrowings, where the Board considers this will
offer a significant benefit to the Company.
A detailed analysis of the other risks and uncertainties facing the business
is set out in the Strategic report below.
Board composition
As you may know, I have been chairman of your Company since its launch in 1996
and I have indicated to the Board that I intend to retire at the Annual
General Meeting in August 2018. Ebbe Dinesen has indicated that he would also
like to retire, at the Annual General Meeting in 2019. The nomination
committee is therefore in the process of reviewing candidates and
announcements of replacements will be made in due course. We believe that it
will be helpful to have some overlap of new directors joining the Board before
we retire. To facilitate this, a resolution will be proposed at the Annual
General Meeting to raise the aggregate annual limit for total Directors' fees
to £150,000, which will facilitate increasing the Board's size but will not
be used to increase the individual Director's fees.
Albion VCTs Top Up Offers
The Company raised approximately £0.3 million during the year under the
Albion VCTs Prospectus Top Up Offers 2015/2016 and approximately £5.6 million
under the Albion VCTs Prospectus Top Up Offers 2016/2017, with a subsequent
£0.3 million after the year end.
The Company announced on 14 June 2017 that, subject to regulatory approval, it
intends to launch a prospectus top up offer of new ordinary shares for
subscription in the 2017/2018 and 2018/2019 tax years. Full details of the
Offer will be contained in a prospectus that is expected to be published in
early September 2017 and will be available on the Albion Capital website
(www.albion.capital).
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. Thereafter, it is still the Board's
policy to buy back shares in the market, subject to the overall criterion that
such purchases are in the Company's interest. The total value bought in for
the year ended 31 March 2017 was £873,000. Subject to the constraints
referred to above and subject to first purchasing shares held by the market
makers, the Board will target such buy-backs to be in the region of a 5 per
cent. discount to net asset value, so far as market conditions and liquidity
permit.
Continuation as a venture capital trust
At the 2017 Annual General Meeting shareholders have the opportunity to
confirm that they wish the Company to continue as a venture capital trust.
Otherwise the Board is required to make proposals for the reorganisation,
reconstruction or the orderly liquidation and winding up of the Company and
present these to the members at a general meeting. Those shareholders who have
been using their investment in the VCT to defer a capital gain should note
that, on a return of capital, that gain would become chargeable at the
prevailing rate of capital gains tax.
Your Board believes that the Albion VCTs have the potential to be highly
effective long-term investment vehicles, with strong tax-free dividend
streams. Therefore, the Board recommends that shareholders should vote in
favour of the Company continuing as a venture capital trust, as they intend to
vote in respect of their own shares. Further details regarding the resolution
can be found in the Directors' report on page 23 of the full Annual Report and
Financial Statements.
Outlook and prospects
We are pleased with the progress made during the course of the year, in
particular the building up of our healthcare portfolio. Looking forward, there
are a number of interesting areas for investment in the pipeline and we would
anticipate further progress in the current year.
David Watkins
Chairman
27 June 2017
Strategic report
Investment objective and policy
The Company's investment policy is to provide investors with the opportunity
to participate in a balanced portfolio of asset-backed businesses. The
Company's investment portfolio will thus be structured to provide a balance
between income and capital growth for the longer term.
This is achieved as follows:
* qualifying unquoted investments are predominantly in specially-formed
companies which provide a high level of asset backing for the capital value of
the investment;
* the Company invests alongside selected partners with proven experience in
the sectors concerned;
* investments are normally structured as a mixture of equity and loan stock.
The loan stock normally represents the majority of the finance provided and is
secured on the assets of the portfolio company. Funds managed or advised by
Albion Capital Group LLP typically own 50 per cent. of the equity of the
portfolio company; and
* other than the loan stock issued to funds managed or advised by Albion
Capital Group LLP, portfolio companies do not normally have external
borrowings.
As defined by the Articles of Association, the Company's maximum exposure in
relation to gearing is restricted to 10 per cent. of the adjusted share
capital and reserves. The Directors do not currently have any intention to
utilise gearing for the Company.
Current portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio
valuation by industrial or commercial sector as at 31 March 2017. Details of
the principal investments made by the Company are shown in the Portfolio of
investments on pages 16 and 17 of the full Annual Report and Financial
Statements.
Direction of portfolio
The sector analysis of the Company's investment portfolio shows that
healthcare now accounts for 35 per cent. of the portfolio, compared to 22 per
cent. at the end of the previous financial year, following further investments
in the Company's three care homes and £6.8 million uplift in valuations. This
may increase further as the care homes approach maturity and are revalued in
the future. Renewable energy accounts for 17 per cent. of the portfolio, but
no new investments are being made in this sector as they are no longer allowed
under VCT rules. Hotels accounted for 18 per cent. compared to 23 per cent. at
the previous year end and the Company is looking to reduce this further.
Results and dividends
Ordinary shares £'000
Net revenue return for the year ended 31 March 2017 1,510
Net capital gain for the year ended 31 March 2017 5,501
Total return for the year ended 31 March 2017 7,011
Dividend of 2.5 pence per share paid on 29 July 2016 (1,987)
Dividend of 2.5 pence per share paid on 30 December 2016 (1,986)
Unclaimed dividends returned to the Company 9
Transferred to reserves 3,047
Net assets as at 31 March 2017 65,475
Net asset value per share as at 31 March 2017 (pence) 75.4
The Company paid dividends totalling 5.0 pence per share during the year ended
31 March 2017 (2016: 5.0 pence per share). The dividend objective of the Board
is to provide Shareholders with a strong, predictable dividend flow, with a
dividend target of 5.0 pence per share per year.
As noted in the Chairman's statement, the Board has declared a first dividend
of 2.5 pence per share for the year ending 31 March 2018. This dividend will
be paid on 31 July 2017 to shareholders on the register on 7 July 2017.
As shown in the Income statement, the Company's investment income has
increased to £2,381,000 (2016: £2,236,000) and the total revenue return to
equity holders also increased to £1,510,000 (2016: £1,403,000), principally
driven by the Company's successful renewable energy development programme.
Income continues to more than cover on-going expenses. Although total income
has increased, revenue return per share has decreased slightly, to 1.9 pence
per share (2016: 2.0 pence per share), due to the number of new shares issued
during the year. The capital gain on investments for the year was £6,179,000
(2016: £3,203,000), offset by management fees charged to capital and the
related taxation impact, resulting in a capital return of 6.8 pence per share
(2016: 3.6 pence per share). The total return was 8.7 pence per share (2016:
5.6 pence per share).
The Balance sheet shows that the net asset value has increased over the last
year to 75.4 pence per share (2016: 72.0 pence per share), reflecting the
total return exceeding the level of dividends paid during the year.
The cash flow for the Company has been a net inflow of £166,000 for the year
(2016: inflow £1,328,000), reflecting cash inflows from operations, disposal
proceeds and the issue of Ordinary shares under the Albion VCTs Top Up Offers,
offset by dividends paid, new investments in the year and the buy-back of
shares.
During the year, unclaimed dividends older than twelve years of £9,000 (2016:
£22,000) were returned to the Company in accordance with the terms of the
Articles of Association.
Review of business and future changes
A review of the Company's business during the year and investment performance
and progress is contained in the Chairman's statement above. The healthcare
sector performed particularly well again this year with an increase in
valuations of £6,791,000 (2016: £1,517,000). After strong increases in
previous years, the renewable energy sector saw modest increases overall. The
hotel sector saw a decrease of £944,000 (2016: £524,000 uplift) principally
as a result of caution in the light of new competition for our hotel at
Stansted Airport. The education sector saw an increase in valuation of
£618,000 (2016: £337,000) as Radnor House Sevenoaks boosted pupil numbers.
TWCL Limited (previously The Weybridge Club Limited) decreased in valuation by
£145,000 which subsequently sold its business and assets after the year end.
The Company continues with its objective to invest in asset-based unquoted
companies throughout the United Kingdom, with a view to providing both capital
growth and a reliable dividend income to shareholders over the longer term.
The Directors do not foresee any major changes in the activity undertaken by
the Company in the current year.
Details of significant events which have occurred since the end of the
financial year are listed in note 19. Details of transactions with the Manager
are shown in note 5.
VCT regulation
The investment policy is designed to ensure that the Company continues to
qualify and is approved as a VCT by HMRC. In order to maintain its status
under Venture Capital Trust legislation, a VCT must comply on a continuing
basis with the provisions of Section 274 of the Income Tax Act 2007, details
of which are provided in the Directors' report on page 21 of the full Annual
Report and Financial Statements.
To comply with EU State aid obligations, rules were introduced under the
Finance Act (No.2) 2015 and Finance Act 2016, which include:
* Restrictions over the age of investments;
* A prohibition on management buyouts or the purchase of existing businesses;
* An overall lifetime investment cap of £12 million from tax-advantaged funds
into any portfolio company; and
* A VCT can only make qualifying investments or certain specified
non-qualifying investments such as money market securities and short term
deposits.
While these changes were significant, the Manager's assessment is that had
they been in place previously they would have affected only a relatively small
minority of the investments that we have made into new portfolio companies
over recent years. The Board's current view is that there will be no material
change in our investment policy as a result.
The relevant tests to measure compliance have been carried out and
independently reviewed for the year ended 31 March 2017. These showed that the
Company has complied with all tests and continues to do so.
Future prospects
The Company's performance record reflects the resilience of the strategy
outlined above and has enabled the Company to maintain a predictable stream of
dividend payments to shareholders. The Board believes that this model will
continue to meet the investment objective and has the potential to deliver
attractive returns to shareholders in the future.
Key performance indicators
The Directors believe that the following key performance indicators, which are
typical for venture capital trusts and used by the Board in its assessment of
the Company, will provide shareholders with sufficient information to assess
how effectively the Company is applying its investment policy to meet its
objective. The Directors are satisfied that the results shown in the following
key performance indicators give a good indication that the Company is
achieving its investment objective and policy. These are:
1. Total shareholder return relative to FTSE All Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows
the Company's total shareholder return against the FTSE All-Share Index total
return, in both instances with dividends reinvested.
2. Net asset value per share and total shareholder return
Net asset value increased by 11.7 per cent. (after adding back the 5.0 pence
per share in dividends paid) to 75.4 pence per share for the year ended 31
March 2017.
Total shareholder return increased by 4.0 per cent. to 220.2 pence per share
for the year ended 31 March 2017.
3. Dividend distributions
Dividends paid in respect of the year ended 31 March 2017 were 5.0 pence per
share (2016: 5.0 pence per share), in line with the Board's dividend
objective. Cumulative dividends paid since inception amount to 144.8 pence per
Ordinary share and 133.25 pence per historic C share.
4. Ongoing charges
The ongoing charges ratio for the year to 31 March 2017 was 2.4 per cent.
(2016: 2.5 per cent.). The ongoing charges ratio has been calculated using The
Association of Investment Companies' (AIC) recommended methodology. This
figure shows shareholders the total recurring annual running expenses
(including investment management fees charged to capital reserve) as a
percentage of the average net assets attributable to shareholders. The
Directors expect the ongoing charges ratio for the year ahead to be
approximately 2.4 per cent. The cap on total annual normal expenses, including
the management fee, is 3.0 per cent. of the net asset value.
Gearing
As defined by the Articles of Association, the Company's maximum exposure in
relation to gearing is restricted to 10 per cent. of the adjusted share
capital and reserves. The Directors do not currently have any intention to
utilise gearing for the Company. On an exceptional basis, certain portfolio
companies may take on external borrowings, where the Board considers this will
offer a significant benefit to the Company.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion
Capital Group LLP, which is authorised and regulated by the Financial Conduct
Authority. Albion Capital Group LLP also provides company secretarial and
other accounting and administrative support to the Company.
Management agreement
Under the Management agreement, the Manager provides investment management,
secretarial and administrative services to the Company. The Management
agreement can be terminated by either party on 12 months' notice. The
Management agreement is subject to earlier termination in the event of certain
breaches or on the insolvency of either party. The Manager is paid an annual
fee equal to 1.9 per cent. of the net asset value of the Company, and an
annual secretarial and administrative fee of £48,711 (2016: £48,087)
increased annually by RPI. These fees are payable quarterly in arrears.
In line with common practice, the Manager is also entitled to an arrangement
fee, payable by each portfolio company, of approximately 2 per cent. on each
investment made and any applicable monitoring fees.
Management performance incentive
In order to provide the Manager with an incentive to maximise the return to
investors, the Company has entered into a management performance incentive
arrangement with the Manager. Under the incentive arrangement, the Company
will pay an incentive fee to the Manager of an amount equal to 8 per cent. of
the excess total return above 5 per cent. per annum, paid out annually in cash
as an addition to the management fee. Any shortfall of the target return will
be carried forward into subsequent periods and the incentive fee will only be
paid once all previous and current target returns have been met.
For the year to 31 March 2017, no incentive fee became due to the Manager
(2016: £nil).
No further performance fee will become due until the hurdle rate comprising
net asset value, plus dividends from 31 March 2004, has been reached. As of 31
March 2017 the total return from 31 March 2004 amounted to 166.9 pence per
share which compared to the hurdle of 213.3 pence per share at that date.
Investment and co-investment
The Company co-invests with other venture capital trusts and funds managed by
Albion Capital Group LLP. Allocation of investments is on the basis of an
allocation agreement which is based, inter alia, on the ratio of funds
available for investment.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns
generated by the Company, the continued compliance under venture capital trust
legislation, the long term prospects of current investments, a review of the
Management agreement and the services provided therein, and benchmarking the
performance of the Manager to other service providers. The Board believes that
it is in the interests of shareholders as a whole, and of the Company, to
continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive ("AIFMD")
The Board has appointed Albion Capital Group LLP as the Company's AIFM as
required by the AIFMD.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act
2006 (the "Act") to detail information about social and community issues,
employees and human rights; including any policies it has in relation to these
matters and effectiveness of these policies. As an externally managed
investment company with no employees, the Company has no policies in these
matters and as such these requirements do not apply.
Further policies
The Company has adopted a number of further policies relating to:
* Environment
* Global greenhouse gas emissions
* Anti-bribery
* Diversity
and these are set out in the Directors' report on pages 21 and 22 of the full
Annual Report and Financial Statements.
Risk management
The Board carries out a robust assessment of principal risks in which the
Company operates. The principal risks and uncertainties of the Company as
identified by the Board and how they are managed are as follows:
Risk Possible consequence Risk management
Investment and performance risk The risk of investment in poor quality assets, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company's current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses. To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this
segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee,
comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non
-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager
(investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each
investment as part of the Manager's report at quarterly board meetings.
Valuation risk 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. As described in note 2 of the Financial Statements, the investments held by the Company are classified at fair value through profit or loss and valued in accordance with
the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the
valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgements about the business itself, its market and
the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these
judgements the valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. The values of all investments
are at cost (reviewed for impairment) or supported by independent third party professional valuations.
VCT approval risk The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the
requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its
taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to
inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs.
Regulatory and compliance risk The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular
updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager's Compliance Officer.
The Manager reports monthly to its Board on any issues arising from compliance or regulation. These controls are also reviewed as part of the quarterly Board meetings,
and also as part of the review work undertaken by the Manager's Compliance Officer. The report on controls is also evaluated by the internal auditors.
Operational and internal control risk The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager's business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Audit Committee reviews the
Internal Audit Reports prepared by the Manager's internal auditors, PKF Littlejohn LLP. On an annual basis, the Audit Committee chairman meets with the internal audit
Partner to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those
in relation to business continuity. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they
continue to have the necessary expertise and resources to deliver the Company's investment objective and policies. The Manager and other service providers have also
demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Capital Group LLP.
Economic and political risk Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways. The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of equity and secured loan stockRecent news on Albion Venture Capital Trust
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AnnouncementREG - Stock Exch Notice - Admission to Trading - 15/08/2024
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