Albion Development VCT PLC: Annual Financial Report
Albion Development VCT PLC
Annual Financial Report
LEI Code
213800FDDMBD9QLHLB38
As required by the UK Listing Authority's
Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion
Development VCT PLC today makes public its information relating to
the Annual Report and Financial Statements for the year ended 31
December 2023.
This announcement was approved for release by
the Board of Directors on 19 April 2024.
This announcement has not been audited.
The Annual Report and Financial Statements for
the year ended 31 December 2023 (which have been audited), will
shortly be sent to shareholders. Copies of the full Annual Report
and Financial Statements will be shown via the Albion Capital Group
LLP website by clicking
www.albion.capital/funds/AADV/31Dec2023.pdf.
Investment policy
The Company will invest in a broad portfolio of higher growth
businesses with a stronger focus on technology companies across a
variety of sectors of the UK economy. Allocation of assets will be
determined by the investment opportunities which become available
but efforts will be made to ensure that the portfolio is
diversified in terms of sector and stage of maturity of
company.
Funds held pending investment or for liquidity
purposes will be held as cash on deposit or up to 8% of its assets,
at the time of investment, in liquid open-ended equity funds
providing income and capital equity exposure (where it is
considered economic to do so).
Risk diversification and maximum
exposures
Risk is spread by investing in a number of different businesses
within venture capital trust qualifying industry sectors using a
mixture of securities. The maximum amount which the Company will
invest in a single portfolio company is 15% of the Company's assets
at cost thus ensuring a spread of investment risk. The value of an
individual investment may increase over time as a result of trading
progress and it is possible that it may grow in value to a point
where it represents a significantly higher proportion of total
assets prior to a realisation opportunity being available.
The Company's maximum exposure in relation to
gearing is restricted to 10% of the adjusted share capital and
reserves.
Financial calendar
| Record date for first
dividend |
3 May 2024 |
| |
|
| Payment of first
dividend |
31 May 2024 |
| |
|
| Annual General
Meeting |
Noon on 20 June 2024 |
| |
|
| Announcement of Half-yearly
results for the six months ending 30 June 2024 |
September 2024 |
Financial highlights
|
206.78p |
Total shareholder value per share as at 31 December
2023† (2022: 202.22p) †† |
| |
|
|
5.14% |
Shareholder return for the year ended 31 December
2023†† (2022: loss of 1.71%) |
| |
|
|
4.51p
|
Tax-free dividend per share for the year ended 31 December 2023
(2022: 4.71p) |
| |
|
|
88.70p |
Net asset value per share as at 31 December 2023 (2022:
88.65p) |
†Total shareholder value per share at 31 December 2023 is
calculated using net asset value per share at 31 December 2023 plus
dividends paid per Ordinary share since launch to 31 December
2023.
††These are considered Alternative
Performance Measures, see note 3 in the KPI’s and APM’s
section of the Strategic report for further
explanation.
Movements in net asset value
| |
31 December 2023
pence per share |
31 December 2022
pence per share |
| |
|
|
| Opening net asset value |
88.65 |
94.98 |
| Capital
return/(loss) |
3.66 |
(2.36) |
| Revenue return |
0.63 |
0.49 |
| Total return/(loss) |
4.29 |
(1.87) |
| Dividends paid |
(4.51) |
(4.71) |
| Impact of share capital
movements |
0.27 |
0.25 |
| Net
asset value |
88.70 |
88.65 |
Total shareholder value per share
|
|
Ordinary shares |
|
|
(pence per share) |
|
Total dividends paid to 31 December 2023 |
118.08 |
| Net asset
value as at 31 December 2023 |
88.70 |
|
Total shareholder value per share to 31 December
2023 |
206.78 |
The financial summary above is for the Company,
Albion Development VCT PLC Ordinary shares only. Details of the
financial performance of the C shares and D shares, which have been
merged into the Ordinary shares, can be found at
www.albion.capital/funds/AADV under the ‘Financial summary for
previous funds’ section.
A more detailed breakdown of the dividends paid
per year can be found at www.albion.capital/funds/AADV under the
‘Dividend History’ section.
In addition to the dividends paid above,
the Board has declared a first dividend for the year ending 31
December 2024 of 2.22 pence per share payable on 31 May 2024 to
shareholders on the register on 3 May 2024.
Chairman’s statement
Introduction
Despite the continuing broader uncertain macro-economic and
geopolitical backdrop, and the resulting significant market
volatility, the Company recorded an encouraging set of results.
Thus, I am pleased to report a positive return of 4.56 pence per
share for the year ended 31 December 2023 which represents a 5.1%
uplift on the opening net asset value.
Notwithstanding the ongoing uncertainties facing
the Company, the Board remains encouraged by the progress that is
being made by many of the portfolio companies. However, the Board
also recognises that the Company has a venture capital portfolio,
which may have periods of short term volatility, so its returns
should be evaluated over the longer-term.
Results and dividends
As at 31 December 2023 the net asset value was 88.70 pence per
share compared to 88.65 pence per share as at 31 December 2022. The
total gain before taxation was £5.8 million compared to a loss of
£2.3 million for the previous year.
In line with our variable dividend policy
targeting 5% of NAV per annum, the Company paid dividends totalling
4.51 pence per share during the year to 31 December 2023 (2022:
4.71 pence per share). The Company will pay a first dividend for
the financial year to 31 December 2024 of 2.22 pence per share on
31 May 2024 to shareholders on the register on 3 May 2024, being
2.5% of this 31 December 2023 NAV.
Investment performance and
progress
The results for the year showed net gains on investments of £7.3
million, compared with net losses of £0.6 million for the previous
year. The results are largely driven by unrealised gains across the
portfolio together with realised gains from successful exits during
the year. Quantexa, the largest company within our portfolio (18.6%
of net asset value), increased its value in the year by £10.0m
following an externally led $129 million Series E fundraising which
completed in April 2023 and a part disposal in October 2023, which
is detailed below. The other largest contributors to the net gain
were unrealised gains in Egress Software Technologies by £1.5
million and Proveca by £0.7 million, and a realised gain in Ophelos
by £0.6 million following its sale. These gains have been partially
offset by unrealised losses, including a £1.7 million loss in Black
Swan Data and £0.8 million in Threadneedle Software Holdings (T/A
Solidatus).
The Company had a number of investment
realisations in the year with proceeds totalling £5.3 million,
leading to realised gains during the year of £1.5 million. The
largest realised gains were generated from a part disposal in
Quantexa delivering an 11.9 times return on its weighted average
cost as well as the disposal of Ophelos delivering 2.1 times cost.
Further details on these disposals, and other realisations, can be
found in the realisations table on page 29 of the full Annual
Report and Financial Statements.
The three largest Investments in the Company’s
portfolio, being Quantexa, Egress Software Technologies and
Proveca, are valued at £42.2 million and represent 35.3% of the
Company’s net asset value.
The Company has been an active investor during
the year investing a total of £6.9 million. Of this, £2.2 million
was invested into five new portfolio companies, all of which are
expected to require further investment as the companies prove
themselves and grow. The new investments during the year were:
- £0.9 million into OpenDialog AI,
which allows organisations to create and deploy AI powered chatbots
and virtual assistants in a no-code environment, to allow for
conversational experiences with customers and employees across a
variety of communication channels;
- £0.5 million into GridCog
International, a SaaS platform which provides project modelling
software to plan, track and optimise Distributed Energy Resources
(DERs) across multiple sites and asset types integrated
together;
- £0.4 million into Phasecraft, which
develops new algorithms to make use of early quantum computers for
materials science problems;
- £0.2 million into Kennek Solutions,
a vertical end to end software for non-bank lenders which allows
them to manage the full value chain of lending in a single
platform; and
- £0.2 million into Mondra Global,
software platform to automate environmental product Lifecycle
Assessments (LCA), allowing global retailers to measure, manage and
importantly reduce the carbon emissions of their products in their
supply chains.
A further £4.7 million was invested into
existing portfolio companies, the largest being: £1.4 million into
Panaseer; £1.1 million into Proveca; and £0.6 million into Seldon
Technologies. A full list of the Company’s investments and
disposals, including their movements in value for the year, can be
found in the Portfolio of investments section on pages 27 to 29 of
the full Annual Report and Financial Statements.
Risks and uncertainties
The Company faces a number of significant risks, including higher
interest rates, high levels of inflation and the ongoing impact of
geopolitical tensions. This complex backdrop is factored into how
the Company is managed, including its management of cash.
Our investment portfolio, while concentrated
mainly in the technology and healthcare sectors, remains
diversified in terms of both sub-sector and stage of maturity and,
importantly, we believe it to be appropriately valued. The Manager
is continually assessing the exposure to these risks for each
portfolio company and appropriate actions, where possible, are
being implemented. This includes the potential provision of further
financial support to portfolio companies where necessary.
A detailed analysis of the other risks and
uncertainties facing the business is shown in the Strategic report
below.
Share buy-backs
It remains the Board’s primary objective to
maintain sufficient resources for investment in existing and new
portfolio companies and for the continued payment of dividends to
shareholders. The Board’s policy is to buy back shares in the
market, subject to the overall constraint that such purchases are
in the Company’s interest.
It is the Board’s intention for such buy-backs
to be in the region of a 5% discount to net asset value, so far as
market conditions and liquidity permit. Details of shares bought
back during the year can be found in note 15.
Albion VCTs Prospectus Top Up
Offers
On 9 March 2023, the Board announced the closure of the 2022/23 Top
Up Offer having reached its £13.0 million limit.
Your Board, in conjunction with the Boards of
four other VCTs managed by Albion Capital Group LLP, published a
Prospectus Top Up Offer of new Ordinary shares on 15 December 2023.
The Offer launched to applications on 2 January 2024 and closed on
20 March 2024. The amount raised by the Company was £14.5
million.
The proceeds will be used to provide support to
our existing portfolio companies and to enable us to take advantage
of new investment opportunities. Details of share allotments made
during and after the financial year can be found in notes 15 and 19
respectively.
Annual General Meeting
(“AGM”)
The AGM will be held virtually at noon on 20 June 2024 via the Lumi
platform. Information on how to participate in the live webcast can
be found on the Manager’s website
www.albion.capital/vct-hub/agms-events.
The Board welcomes questions from shareholders
at the AGM and shareholders will be able to ask questions using the
Lumi platform during the AGM. Alternatively, shareholders can email
their questions to AADVchair@albion.capital prior to the
Meeting.
Shareholders' views are important, and the Board
encourages shareholders to vote on the resolutions.
Further details on the format and business to be
conducted at the AGM can be found in the Directors’ report on pages
49 and 50 and in the Notice of the Meeting on pages 89 to 92 of the
full Annual Report and Financial Statements.
Audit tender process
Following a formal and rigorous audit tender process, the Board
appointed Johnston Carmichael LLP (“Johnston Carmichael”) as the
new Auditor of the Company in October 2023. Johnston Carmichael has
conducted the audit of the Annual Report and Financial Statements
for the year ended 31 December 2023. Shareholders will be asked to
confirm the appointment of Johnston Carmichael at the forthcoming
AGM. During the audit tender process, prospective auditors were
evaluated using guidance issued by the Financial Reporting Council
in February 2017 and the Board completed a two-stage process which
considered and evaluated relevant expertise, audit firm quality,
audit firm resilience and value for money.
The Board would like to thank BDO for their
diligent service for over 15 years.
Further details on the tender process can be
found in the Statement of corporate governance on page 55 of the
full Annual Report and Financial Statements.
Outlook and prospects
The Board is pleased with the positive return
for the year and the portfolio remains well diversified with
companies at different stages of maturity and targeted at sectors
such as healthcare, software and FinTech, with minimal exposure to
consumer expenditure. Therefore, the Board is confident that the
Company is well placed to grow value for shareholders over the long
term.
Ben Larkin
Chairman
19 April 2024
Strategic report
Investment policy
The Company will invest in a broad portfolio of higher growth
businesses with a stronger focus on technology companies across a
variety of sectors of the UK economy. Allocation of assets will be
determined by the investment opportunities which become available
but efforts will be made to ensure that the portfolio is
diversified in terms of sector and stage of maturity of
company.
The full investment policy can be found
above.
Current portfolio sector allocation
The pie charts at the end of this announcement
are a useful way of showing the split of the portfolio valuation as
at 31 December 2023 by: sector; stage of maturity measured by
revenues; and their size measured by number of employees. Details
of the principal investments made by the Company are shown in the
Portfolio of investments on pages 27 and 28 of the full Annual
Report and Financial Statements.
Direction of portfolio
The cash currently sits at 19% which the Company
will use to support those portfolio companies that require it, as
well as to capitalise on any new investment opportunities that
arise. The Manager has a deep sector knowledge in healthcare,
FinTech and software investing, and these funds will be invested
predominantly into higher growth technology companies within these
sectors.
Results and dividends
| |
£’000 |
| |
|
| Net capital gain for the
year |
4,900 |
| Net revenue return for the
year |
853 |
| Total gain for the year
ended 31 December 2023 |
5,753 |
| Dividend of 2.22 pence per share
paid on 31 May 2023 |
(3,012) |
| Dividend of 2.29 pence per share
paid on 29 September 2023 |
(3,105) |
| Unclaimed dividends |
11 |
| |
|
| Transferred from
reserves |
(353) |
Net assets as at 31 December 2023 |
119,633 |
Net asset value per share as at 31 December
2023 |
88.70 pence per share |
The Company paid dividends totalling 4.51 pence
per share (2022: 4.71 pence per share). The Board has a variable
dividend policy which targets an annual dividend yield of around 5%
on the prevailing net asset value. As a result, the Board has
declared a first dividend for the year ending 31 December 2024 of
2.22 pence per share payable on 31 May 2024 to shareholders on the
register on 3 May 2024.
As shown in the Income statement, the total
investment income increased to £1,508,000 (2022: £1,194,000). This
is due to increased bank interest and income from fixed terms funds
from higher interest rates in the year. The revenue return to
equity holders has subsequently increased to £853,000 (2022:
£591,000).
The net capital gain for the year was £4,900,000
(2022: net loss of £2,843,000). The net gain was due to net
unrealised gains from the valuations of investments. Key valuation
movements during the year are outlined in the investment portfolio
section of the Chairman’s statement. The total gain for the year
was 4.29 pence per share (2022: loss of 1.87 pence per share).
The cash outflow for the Company was £4,093,000
for the year (2022: inflow of £9,459,000). This resulted mainly
from new investments, dividends paid, share buy-backs and ongoing
expenses, offset by the issue of new Ordinary shares under the
2022/23 Top Up Offer, disposal proceeds, loan stock income and
interest from bank deposits and fixed term funds.
Review of business and future
changes
A detailed review of the Company’s business during the year is
contained in the Chairman’s statement. The results for the year to
31 December 2023 show total shareholder value per share of 206.78
pence per share since launch (2022: 202.22 pence per share).
There is a continuing focus on growing the
FinTech, healthcare (including digital healthcare) and other
software and technology sectors. The majority of these investment
returns are delivered through equity and capital gains, and will be
the key driver of success for the Company. Investment income, which
is received primarily from our renewable energy investments, is
expected to remain steady over the coming years.
Details of significant events which have
occurred since the end of the financial year are listed in note 19.
Details of transactions with the Manager are shown in note 5.
Future prospects
The Company’s financial results for the year
demonstrate that the portfolio remains well balanced across sectors
and risk classes, and is largely weathering the impacts of the
ongoing global issues caused as a result of high levels of interest
rates and inflation, due in part to the geopolitical tensions,
however the full effects of these issues will continue to be felt
in years to come. Although there remains much uncertainty, the
Board considers that the current portfolio has the potential to
deliver long term growth, whilst maintaining a predictable stream
of dividend payments to shareholders. Further details of the
Company’s outlook and prospects can be found in the Chairman’s
statement.
Key Performance Indicators (“KPIs”) and
Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs and APMs, which are
typical for Venture Capital Trusts, used in its own assessment of
the Company, will provide shareholders with sufficient information
to assess how effectively the Company is applying its investment
policy to meet its objectives. The Directors are satisfied that the
results shown in the following KPIs and APMs give a good indication
that the Company is achieving its investment objective and
policy.
1. Total
shareholder return relative to FTSE All-Share Index total
return
The graph on page 8 of the full Annual Report and Financial
Statements shows the Company’s total shareholder return relative to
the FTSE All-Share Index total return, with dividends reinvested.
The FTSE All-Share index is considered a reasonable benchmark as
the Company is classed as a generalist UK VCT investor, and this
index includes over 600 companies listed in the UK, including
small-cap, covering a range of sectors. Details on the performance
of the net asset value and return per share for the year are shown
in the Chairman’s statement.
2. Net
asset value per share (APM) and cumulative dividends
The chart on page 16 of the full Annual Report and Financial
Statements illustrates the movement in net asset value per share
and cumulative dividends paid since launch.
3. Shareholder
value (APM) and Shareholder return†
(APM)
Total shareholder value increased by 5.1% on
opening net asset value to 206.78 pence per share for the year
ended 31 December 2023 as a result of the positive total return of
4.29 pence per share.
|
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
|
5.4% |
4.1% |
6.5% |
10.0% |
20.3% |
3.8% |
3.8% |
20.5% |
(1.7%) |
5.1% |
†Methodology:
Calculated by the movement in total shareholder
value per share for the year divided by the
opening net asset value.
4. Dividend
distributions
Dividends paid in respect of the year ended 31
December 2023 were 4.51 pence per share (2022: 4.71 pence per
share). Cumulative dividends paid since inception are 118.08 pence
per share.
5. Ongoing
charges (APM)
The ongoing charges ratio for the year to 31 December 2023 was
2.50% (2022: 2.50%). The ongoing charges ratio has been calculated
using The Association of Investment Companies’ (“AIC”) recommended
methodology. This figure shows shareholders the total recurring
annual operational expenses (including investment management fees
charged to capital reserve) as a percentage of the average net
assets attributable to shareholders. The ongoing charges cap is
2.50%, which has resulted in a saving of £57,000 to shareholders
during the year (2022: £41,000).
6. VCT
compliance*
The investment policy is designed to ensure that the Company
continues to qualify and is approved as a VCT by HMRC. In order to
maintain its status under Venture Capital Trust legislation, a VCT
must comply on a continuing basis with the provisions of Section
274 of the Income Tax Act 2007, details of which are provided in
the Directors’ report on pages 46 and 47 of the full Annual Report
and Financial Statements.
The relevant tests to measure compliance have
been carried out and independently reviewed for the year ended 31
December 2023. These showed that the Company has complied with all
tests and continues to do so.
*VCT compliance is not a numerical measure
of performance and thus cannot be defined as an APM.
Gearing
As defined by the Articles of Association, the Company’s maximum
exposure in relation to gearing is restricted to 10% of the share
capital and reserves adjusted for any dividends declared. Although
the investment policy permits the Company to borrow, the Directors
do not currently have any intention of utilising long-term gearing
and have not done so in the past.
Operational arrangements
The Company has delegated the investment management of the
portfolio to the Manager, Albion Capital Group LLP, which is
authorised and regulated by the Financial Conduct Authority. The
Manager also provides company secretarial and other accounting and
administrative support to the Company.
Management agreement
Under the Investment Management agreement (“IMA”), the Manager
provides investment management, company secretarial and
administrative services to the Company. The IMA can be terminated
by either party on 12 months’ notice and is subject to earlier
termination in the event of certain breaches or on the insolvency
of either party. The Manager is paid an annual fee equal to 2.25%
of the net asset value of the Company paid quarterly in
arrears.
Total annual ongoing expenses, including the
management fee but excluding any performance incentive fee, are
limited to 2.5% of the net asset value, as per the resolution
passed at the General Meeting in 2019.
In some instances, the Manager is entitled to an
arrangement fee, payable by a portfolio company in which the
Company invests, in the region of 2% of the investment made, and
also monitoring fees where the Manager has a representative on the
portfolio company’s board; these fees are payable by the portfolio
company. Further details of the Manager’s fee can be found in note
5 to the Financial Statements.
Management performance
incentive
In order to align the interests of the Manager and shareholders
with regards to generating positive returns, the Company has a
Management performance incentive arrangement with the Manager.
Under the incentive arrangement, the Company will pay an incentive
fee to the Manager of an amount equal to 20% of any excess return
that is calculated for each financial year.
The performance fee hurdle requires that the
growth of the aggregate of the net asset value per share and
dividends paid by the Company compared with the previous accounting
date exceeds RPI plus 2%. The hurdle will be calculated every year,
based on the previous year’s closing net asset value per share. The
starting net asset value is 84.70 pence per share, being the
audited net asset value at 31 December 2018. If the target return
is not achieved in a period, the cumulative shortfall is carried
forward to the next accounting period and has to be made up before
an incentive fee becomes payable.
As at 31 December 2023, the total return since 1
January 2019 was 111.03 pence, and the hurdle was 129.10 pence,
resulting in a shortfall of 18.07 pence per share. As a result, no
performance incentive fee is payable to the Manager for the year
(2022: £nil).
Evaluation of the Manager
The Board has evaluated the performance of the Manager based
on:
- the returns generated by the
Company;
- the continuing achievement of the
HMRC tests for VCT status;
- the long term prospects of the
current portfolio of investments;
- the management of treasury,
including use of buy-backs and participation in fund raising;
and
- benchmarking the performance of the
Manager to other VCT managers, and the other VCTs managed by
Albion.
The Board believes that it is in the interests
of shareholders as a whole, and of the Company, to continue the
appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers
Directive (“AIFMD”)
The Board appointed the Manager as the Company’s AIFM in 2014 as
required by the AIFMD. The Manager is a full-scope Alternative
Investment Fund Manager under the AIFMD. Ocorian Depositary (UK)
Limited is the appointed Depositary and oversees the custody and
cash arrangements and provides other AIFMD duties with respect to
the Company.
Consumer duty
The FCA’s Consumer Duty came into effect from 31 July 2023. These
rules set a higher standard of consumer protection in financial
services. The Manager as AIFM is within scope of the FCA’s Consumer
Duty, but the Company itself is not.
The Manager is, for the purposes of Consumer
Duty, a “manufacturer” of the Company’s shares as it is a firm that
has some influence over design and distribution of the Company’s
share product. The Manager’s latest assessment of value for the
Company’s shares was completed in December 2023. The value
assessment concluded that the Company provides fair value for
shareholders. Where the Manager’s product review concludes that
changes may help deliver better outcomes for consumers, it will
recommend these changes to the Board.
Companies Act 2006 Section 172
Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty
to promote the success of the Company for the benefit of its
members as a whole in both the long and short term, having regard
to the interests of other stakeholders in the Company, such as
suppliers, and to do so with an understanding of the impact on the
community and environment and with high standards of business
conduct, which includes acting fairly between members of the
Company.
The Board is very conscious of these wider
responsibilities in the ways it promotes the Company’s culture and
ensures, as part of its regular oversight, that the integrity of
the Company’s affairs is foremost in the way the activities are
managed and promoted. This includes regular engagement with the
wider stakeholders of the Company and being alert to issues that
might damage the Company’s standing in the way that it operates.
The Board works very closely with the Manager in reviewing how
stakeholder issues are handled, ensuring good governance and
responsibility in managing the Company’s affairs, as well as
visibility and openness in how the affairs are conducted.
The Company is an externally managed investment
company with no employees, and as such has nothing to report in
relation to employee engagement but does keep close attention to
how the Board operates as a cohesive and competent unit. The
Company also has no customers in the traditional sense and,
therefore, there is also nothing to report in relation to
relationships with customers.
The table below sets out the key stakeholders.
Details how the Board has engaged with these key stakeholders and
the effect of these considerations on the Company’s decisions and
strategies during the year.
|
Stakeholder |
Engagement with Stakeholder |
Outcome and decisions based on engagement |
|
Shareholders |
The key methods of engaging with Shareholders are as follows:
- Annual General Meeting (“AGM”)
- Shareholder seminar
- Annual report and Financial
Statements, Half-yearly financial report, and Interim management
statements
- RNS announcements in accordance
with Listing Rules and Disclosure Guidance and Transparency Rules
(“DTRs”) covering such things as the publication of the
Prospectus
- Albion Capital website, social
media pages, as well as publishing Albion news shareholder
magazine
|
- 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 made
by the Manager. Undertaking this virtually 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. The virtual medium helps facilitate greater
shareholder participation and to help those who are unable to
attend the AGM in person, as well as provide a recording of the
event for Shareholders to watch on demand.
- Shareholders are also encouraged to
attend the in person annual Shareholder Seminar. This year’s event
took place on 15 November 2023 at the Royal College of Surgeons.
The seminar included OutThink and Proveca sharing insights into
their businesses and also a Q&A from Albion executives on some
of the key factors affecting the investment outlook, as well as a
review of the past year and the plans for the year ahead.
Representatives of the Board attend the seminar. The Board
considers this an important interactive event, and expects to
continue to run this in 2024.
- The Board recognises the importance
to Shareholders of maintaining a share buy-back policy, in order to
provide market liquidity, and considered this when establishing the
current policy. The Board closely monitors the discount to the net
asset value to ensure this is in the region of 5%.
- The Board seeks to create value for
Shareholders by generating strong and sustainable returns to
provide shareholders with regular dividends and the prospect of
capital growth. The Board takes this into consideration when making
the decision to pay dividends to Shareholders. The variable
dividend policy has resulted in a dividend yield of 5.1% on opening
net asset value.
- During the year, the Board made the
decision to participate in the Albion Prospectus Top Up Offer, to
raise more funds for deployment into new and existing portfolio
companies. The Prospectus was published on 15 December 2023 and the
Offer launched to applications on 2 January 2024. The Board
carefully considered whether further funds were required, whether
the VCT tests would continue to be met, and whether it would be in
the interest of Shareholders, before agreeing to publish the
Prospectus. On allotment, an issue price formula based on the
prevailing net asset value is used to ensure there is no dilution
to existing Shareholders.
- Cash management and liquidity of
the Company are key quarterly discussions amongst the Board, with
focus on deployment of cash for future investments, dividends and
share buy-backs.
- Shareholders can contact the
Chairman using the email AADVchair@albion.capital
|
|
Manager |
The performance of Albion Capital Group LLP is essential to the
long term success of the Company, including achieving the
investment policy and generating returns to shareholders, as well
as the impact the Company has on Environment, Social and Governance
(“ESG”) practice. |
- The Manager meets with the Board at
least quarterly to discuss the performance of the Company, and is
in regular contact in between these meetings, e.g. to share
investment papers for new and follow-on investments. All strategic
decisions are discussed in detail and minuted, with an open
dialogue between the Board and the Manager.
- The performance of the Manager in
managing the portfolio and in providing company secretarial,
administration and accounting services is reviewed in detail each
year, which includes reviewing comparator engagement terms and
portfolio performance. Further details on the evaluation of the
Manager, and the decision to continue the appointment of the
Manager for the forthcoming year, can be found in this report.
- Details of the Manager’s
responsibilities can be found in the Statement of corporate
governance on pages 52 and 53 of the full Annual Report and
Financial Statements.
|
|
Suppliers |
The key suppliers are:
- Auditor;
- Corporate broker;
- Depositary;
- Legal adviser;
- Registrar; and
- VCT taxation adviser
|
- The Manager, on behalf of the
Company, is in regular contact with the suppliers and the
contractual arrangements with all the principal suppliers to the
Company are reviewed regularly and formally once a year, alongside
the performance of the suppliers in acquitting their
responsibilities.
- 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.
- The Manager reviews the performance
of the providers annually and was satisfied with their
performance.
|
|
Portfolio companies |
The portfolio companies are considered key stakeholders, not least
because they are principal drivers of value for the Company. Also,
as discussed in the ESG report on pages 40 to 43 of the full Annual
Report and Financial Statements, the portfolio companies’ impact on
their stakeholders is also important to the Company. |
- The Board aims to have a
diversified portfolio in terms of sector and stage of investment.
Further details of this can be found in the pie charts at the end
of this announcement.
- In most cases, an Albion executive
has either a place on the board of a portfolio company or is an
observer, in order to help with both business operation decisions,
as well as good ESG practices.
- The Manager provides access to deep
expertise on growth strategy alignment, leadership team hiring,
organisational scaling and founder leader development.
- The Manager facilitates good
dialogue with portfolio companies, and often puts on events in
order to help portfolio companies benefit from the Albion
network.
|
|
Community and environment |
The Company, with no employees, has no effect itself on the
community and environment. However, as discussed above, the
portfolio companies’ ESG impact is extremely important to the
Board. |
- The Board receives reports on ESG
factors within its portfolio from the Manager as it is a signatory
of the United Nations Principles for Responsible Investment (“UN
PRI”). Further details of this are set out in the ESG report on
pages 40 to 43 of the full Annual Report and Financial Statements.
ESG, without its specific definition, has always been at the heart
of the responsible investing that the Company engages in and in how
the Company conducts itself with all of its stakeholders.
|
Social and community issues, employees
and human rights
The Board recognises the requirement under
section 414C of the Companies Act 2006 (the “Act”) to detail
information about social and community issues, employees and human
rights; including any policies it has in relation to these matters
and effectiveness of these policies. As an externally managed
investment company with no employees, the Company has no formal
policies in these matters, however, it is at the core of its
responsible investment strategy as detailed above.
Further policies
The Company has adopted a number of further policies relating
to:
- Environment
- Global greenhouse gas
emissions
- Anti-bribery
- Anti-facilitation of tax
evasion
- Diversity
These are set out in the Directors’ report on pages 47 and 48 of
the full Annual Report and Financial Statements.
General Data Protection
Regulation
The General Data Protection Regulation (“GDPR”)
has the objective of unifying data privacy requirements across the
European Union. GDPR forms part of the UK law after Brexit, now
known as UK GDPR. The Manager continues to take action to ensure
that the Manager and the Company are compliant with the
regulation.
Risk management
The Board carries out a regular review of the risk environment in
which the Company operates, together with changes to the
environment and individual risks. The Board also identifies
emerging risks which might impact on the Company. In the period the
most noticeable risks have been the emergence of rising interest
rates and inflation, caused in part as a result of the geopolitical
tensions, and pricing volatility in world markets. The full impacts
of these risks are likely to continue to be uncertain for some
time.
The Board has carried out a robust assessment of
the Company’s principal and emerging risks and
uncertainties and seeks to mitigate these risks
through regular reviews of performance and monitoring progress
and compliance. The Board applies the principles detailed in the
Financial Reporting Council’s Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting, in the
mitigation and management of these risks. More information on
specific mitigation measures for the principal risks, emerging
risks and uncertainties are explained below:
|
Risk |
Possible consequence |
Risk assessment during the year |
Risk management |
|
Principal Risks |
|
Investment, performance, technology and valuation risk |
The risk of investment in poor quality businesses, which could
reduce the returns to shareholders and could negatively impact on
the Company’s current and future valuations.
By nature, smaller unquoted businesses, such as those that qualify
for Venture Capital Trust purposes, are more volatile than larger,
long-established businesses.
The Company’s Investment valuation methodology is reliant on the
accuracy and completeness of information that is issued by
portfolio companies. In particular, the Directors may not be aware
of or take into account certain events or circumstances which occur
after the information issued by such companies is reported.
|
No change during the year, but remains high due to the economic and
geopolitical issues as referred to in the Chairman’s
statement. |
To reduce this risk, the Board places reliance upon the skills and
expertise of the Manager and its track record over many years of
making successful investments in this segment of the market. In
addition, the Manager operates a formal and structured investment
appraisal and review process, which includes an Investment
Committee, comprising investment professionals from the Manager for
all investments, and at least one external investment professional
for investments greater than £1 million in aggregate across all the
Albion managed VCTs. The Manager also invites and takes account of
comments from non-executive Directors of the Company on matters
discussed at the Investment Committee meetings.
Investments are actively and regularly monitored by the Manager
(investment managers normally sit on portfolio company boards),
including the level of diversification in the portfolio, and the
Board receives detailed reports on each investment as part of the
Manager’s report at quarterly board meetings. The Board and Manager
regularly review the deployment of investments and cash resources
available to the Company in assessing liquidity required for
servicing the Company’s buy-backs, dividend payments and
operational expenses. The decision to issue a Prospectus for the
2023/24 Top Up was due to careful analysis of these factors.
The unquoted investments held by the Company are designated at fair
value through profit or loss and valued in accordance with the
International Private Equity and Venture Capital Valuation
Guidelines updated in 2022. These guidelines set out
recommendations, intended to represent current best practice on the
valuation of venture capital investments. The valuation takes into
account all known or knowable material facts at the date of
valuation. |
|
VCT approval risk |
The Company must comply with section 274 of the Income Tax Act 2007
which enables its investors to take advantage of tax relief on
their investment and on future returns. Breach of any of the rules
enabling the Company to hold VCT status could result in the loss of
that status. |
No change in the year. |
To reduce this risk, the Board has appointed the Manager, which has
a team with significant experience in Venture Capital Trust
management, used to operating within the requirements of the
Venture Capital Trust legislation. In addition, to provide further
formal reassurance, the Board has appointed Philip Hare &
Associates LLP as its taxation adviser, who report quarterly to the
Board to independently confirm compliance with the Venture Capital
Trust legislation, to highlight areas of risk and to inform on
changes in legislation. Each investment in a new portfolio company
is also pre-cleared with our professional advisers or H.M. Revenue
& Customs. The Company monitors closely the extent of
qualifying holdings and addresses this as required. |
|
Regulatory and compliance risk |
The Company is listed on The London Stock Exchange and is required
to comply with the rules of the Financial Conduct Authority, as
well as with the Companies Act, Accounting Standards and other
legislation. Failure to comply with these regulations could result
in a delisting of the Company’s shares, or other penalties under
the Companies Act or from financial reporting oversight bodies.
|
No change in the year. |
Board members and the Manager have experience of operating at
senior levels within or advising quoted companies. In addition, the
Board and the Manager receive regular updates on new regulation
from its auditor, legal advisers and other professional bodies. The
Company is subject to compliance checks through the Manager’s
compliance function, and any issues arising from compliance or
regulation are reported to its own board every two months. These
controls are also reviewed as part of the quarterly Board meetings,
and also as part of the review work undertaken by the Manager’s
compliance officer. The report on controls is also evaluated by the
internal auditors.
The Government has announced its intention to extend the VCT sunset
clause to 2035. This will help to enable the Company to continue
supporting its portfolio of high growth companies. |
|
Operational and internal control risk |
The Company relies on a number of third parties, in particular the
Manager, for the provision of investment management and
administrative functions. Failures in key systems and controls
within the Manager’s business could put assets of the Company at
risk or result in reduced or inaccurate information being passed to
the Board or to shareholders.
|
No change in the year. |
The Company and its operations are subject to a series of rigorous
internal controls and review procedures exercised throughout the
year. The Board receives reports from the Manager on its internal
controls and risk management.
The Audit and Risk Committee reviews the Internal Audit Reports
prepared by the Manager’s internal auditors, Azets and has access
to their internal audit partner to whom it can ask specific
detailed questions in order to satisfy itself that the Manager has
strong systems and controls in place including those in relation to
business continuity and cyber security, as mentioned
below.
Ocorian Depositary (UK) Limited is the Company’s Depositary,
appointed to oversee the custody and cash arrangements and provide
other AIFMD duties. The Board reviews the quarterly reports
prepared by Ocorian Depositary (UK) Limited to ensure that the
Manager is adhering to its policies and procedures as required by
the AIFMD.
In addition, the Board annually reviews the performance of its key
service providers, particularly the Manager, to ensure they
continue to have the necessary expertise and resources to deliver
the Company’s investment objective and policy. The Manager and
other service providers have also demonstrated to the Board that
there is no undue reliance placed upon any one individual. |
|
Cyber and data security risk |
A cyber-attack on one of the Company's third party suppliers could
result in the security of, potentially sensitive, data being
compromised, leading to financial loss, disruption or damage to the
reputation of the Company. |
No change in the year. |
The Manager outsources some of its IT services, including hardware
and software procurement, server management, backup provision and
day-to-day support through an outsourcing arrangement with an IT
consultant. In house IT support is also provided.
The Manager takes cyber risk seriously and the need to guard
against these are in the Service level agreement with their key
outsourced service provider. During the year, further investment
was made in the Manager’s IT infrastructure and awareness
training.
In addition, the Manager also has a business continuity plan which
includes off-site storage of records and remote access provisions.
This is revised and tested annually and is also subject to
Compliance, Group Risk and Internal Audit reporting. Penetration
tests are also carried out to ensure that IT systems are not
susceptible to any cyber-attacks.
The Manager’s Internal Auditor performs reviews on IT general
controls and data confidentiality and makes recommendations where
necessary. The 2023 internal audit focused specifically on IT
systems. |
|
Economic, political and social risk |
Changes in economic conditions, including, for example, interest
rates, rates of inflation, industry conditions, competition,
political and diplomatic events, and other factors could
substantially and adversely affect the Company’s prospects in a
number of ways. This also includes risks of social upheaval,
including from infection and population re-distribution, as well as
economic risk challenges as a result of healthcare
pandemics/infection.
|
Increased in the year, due to the continued high levels of
inflation and interest rates and new areas of geopolitical
tensions. |
The Company invests in a diversified portfolio of companies across
a number of industry sectors and in addition often invests in a
mixture of instruments in portfolio companies and has a policy of
minimising any external bank borrowings within portfolio
companies.
At any given time, the Company has sufficient cash resources to
meet its operating requirements, including share buy-backs and
follow-on investments.
In common with most commercial operations, exogenous risks over
which the Company has no control are always a risk and the Company
does what it can to address these risks where possible, not least
as the nature of the investments the Company makes are long
term.
The Board and Manager are continuously assessing the resilience of
the portfolio, the Company and its operations and the robustness of
the Company’s external agents, as well as considering longer term
impacts on how the Company might be positioned in how it invests
and operates. Ensuring liquidity in the portfolio to cope with
exigent and unexpected pressures on the finances of the portfolio
and the Company is an important part of the risk mitigation in
these uncertain times. The portfolio is structured as an
all-weather portfolio with c.63 companies which are diversified as
discussed above. Exposure is relatively small to at-risk sectors
that include leisure, hospitality, retail and travel. |
|
Liquidity risk |
The Company may not have sufficient cash available to meet its
financial obligations. The Company’s portfolio is primarily in
smaller unquoted companies, which are inherently illiquid as there
is no readily available market, and thus it may be difficult to
realise their fair value at short notice. |
No change in the year. |
To reduce this risk, the Board reviews the Company’s three year
cash flow forecasts on a quarterly basis. These include potential
investment realisations (which are closely monitored by the
Manager), Top Up Offers, dividend payments and operational
expenditure. This ensures that there are sufficient cash resources
available for the Company’s liabilities as they fall due. |
|
Emerging Risks |
|
Environmental, social and governance (“ESG”) risk |
An insufficient ESG policy could lead to an increased negative
impact on the environment, including the Company’s carbon
footprint. Non-compliance with reporting requirements could lead to
a fall in demand from investors, reputational damage and penalties.
Climate risks could also negatively impact on the value of
portfolio investments. |
No change in the year. |
The Manager is a signatory of the UN PRI and the Board is kept
appraised of the evolving ESG policies at quarterly Board meetings.
Full details of the specific procedures and risk mitigation can be
found in the ESG report on pages 40 to 43 of the full Annual Report
and Financial Statements. These procedures ensure that this risk
continues to be mitigated where possible.
Whilst the Company itself has limited impact on climate change, due
to no employees nor greenhouse gas emissions, the Board works
closely with the Manager to ensure the Manager itself is working
towards reducing its impact on the environment, and that the
Manager takes account of ESG factors, including climate change,
when making new investment decisions. With specific reference to
the Company, a key operation is increasing the use of electronic
communications with Shareholders. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published
in 2018 and provision 36 of the AIC Code of Corporate Governance,
the Directors have assessed the prospects of the Company over three
years to 31 December 2026. The Directors believe that three years
is a reasonable period in which they can assess the ability of the
Company to continue to operate and meet its liabilities as they
fall due. This is the period used by the Board as part of its
strategic planning process, which includes: the estimated timelines
for finding, assessing and completing investments; the potential
impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of
the principal and emerging risks facing the Company, including
those that could threaten its business model, future performance,
solvency or liquidity, and focused on the major factors which
affect the economic, regulatory and political environment. The
Board carefully assessed, and were satisfied with, the risk
management processes in place to avoid or reduce the impact of
these risks. The Board has carried out robust stress testing of
cashflows which included; factoring in higher levels of inflation
when budgeting for future expenses, only including proceeds from
investment disposals where there is a high probability of
completion, whilst also assessing the requirement for any future
financial support of portfolio companies.
The Board has additionally considered the
ability of the Company to comply with the ongoing conditions to
ensure it maintains its VCT qualifying status under its current
investment policy. As a result of the Board’s quarterly valuation
reviews, it has concluded that the portfolio is well balanced and
geared towards delivering long term growth and strong returns to
shareholders.
The Board has concluded that there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the three
year period to 31 December 2026. The Board is mindful of the
ongoing risks and will continue to ensure that appropriate
safeguards are in place, in addition to monitoring the quarterly
cashflow forecasts to ensure the Company has sufficient
liquidity.
Companies Act 2006
This Strategic report of the Company for the year ended 31 December
2023 has been prepared in accordance with the requirements of
section 414A of the Companies Act 2006 (the “Act”). The purpose of
this report is to provide Shareholders with sufficient information
to enable them to assess the extent to which the Directors have
performed their duty to promote the success of the Company in
accordance with Section 172 of the Act.
For and on behalf of the Board
Ben Larkin
Chairman
19 April 2024
Responsibility statement
In preparing these Financial Statements for the
year ended 31 December 2023, the Directors of the Company, being
Ben Larkin, Lyn Goleby, Lord O’Shaughnessy and Patrick Reeve,
confirm that to the best of their knowledge:
- summary financial information
contained in this announcement and the full Annual Report and
Financial Statements for the year ended 31 December 2023 for the
Company has been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law) and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
- the Chairman's statement and
Strategic report include a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties it faces.
We consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced, and
understandable and provide the information necessary for
shareholders to assess the Company’s position, performance,
business model and strategy.
A detailed "Statement of Directors'
responsibilities” is contained on page 51 within the full audited
Annual Report and Financial Statements.
On behalf of the Board
Ben Larkin
Chairman
19 April 2024
Income statement
|
|
|
Year ended 31 December 2023 |
Year ended 31 December 2022 |
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Note |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
Net gains/(losses) on investments |
3 |
- |
7,294 |
7,294 |
- |
(636) |
(636) |
|
Investment income |
4 |
1,508 |
- |
1,508 |
1,194 |
- |
1,194 |
|
Investment Manager’s fees |
5 |
(266) |
(2,394) |
(2,660) |
(245) |
(2,207) |
(2,452) |
| Other
expenses |
6 |
(389) |
- |
(389) |
(358) |
- |
(358) |
|
Profit/(loss) on ordinary activities before
tax |
|
853 |
4,900 |
5,753 |
591 |
(2,843) |
(2,252) |
| Tax on
ordinary activities |
8 |
- |
- |
- |
- |
- |
- |
|
Profit/(loss) and total comprehensive income attributable
to shareholders |
|
853 |
4,900 |
5,753 |
591 |
(2,843) |
(2,252) |
|
Basic and diluted return/(loss) per share
(pence)* |
10 |
0.63 |
3.66 |
4.29 |
0.49 |
(2.36) |
(1.87) |
*adjusted for treasury shares
The accompanying notes form an integral part of
these Financial Statements.
The total column of this Income statement
represents the profit and loss account of the Company. The
supplementary revenue and capital columns have been prepared in
accordance with The Association of Investment Companies’ Statement
of Recommended Practice.
All gains and losses are recognised in the
Income statement and all items in the above statement are derived
from continuing operations.
Balance
sheet
|
|
|
31 December 2023 |
31 December 2022 |
|
|
Note |
£’000 |
£’000 |
|
|
|
|
|
|
Fixed asset investments |
11 |
95,266 |
86,286 |
|
|
|
|
|
|
Current assets |
|
|
|
| Trade and
other receivables |
13 |
2,745 |
2,403 |
| Cash in
bank and in hand |
|
22,398 |
26,491 |
|
|
|
25,143 |
28,894 |
|
|
|
|
|
|
Payables: amounts falling due within one year |
|
|
|
| Trade and
other payables |
14 |
(776) |
(722) |
|
|
|
|
|
|
Net current assets |
|
24,367 |
28,172 |
|
|
|
|
|
|
Total assets less current liabilities |
|
119,633 |
114,458 |
|
|
|
|
|
|
Equity attributable to equity holders |
|
|
|
| Called-up
share capital |
15 |
1,542 |
1,456 |
| Share
premium |
|
34,759 |
26,837 |
|
Unrealised capital reserve |
|
38,631 |
32,516 |
| Realised
capital reserve |
|
6,817 |
8,032 |
| Other
distributable reserve |
|
37,884 |
45,617 |
|
Total equity shareholders’ funds |
|
119,633 |
114,458 |
|
|
|
|
|
|
Basic and diluted net asset value per share
(pence)* |
16 |
88.70 |
88.65 |
* excluding treasury shares
The accompanying notes form an integral part of
these Financial Statements.
These Financial Statements were approved by the Board of
Directors, and authorised for issue on 19 April 2024 and were
signed on its behalf by
Ben Larkin
Chairman
Company number: 03654040
Statement of changes in equity
|
|
Called-up share
capital |
Share premium |
Unrealised capital reserve |
Realised capital reserve* |
Other distributable reserve* |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
As at 1 January 2023 |
1,456 |
26,837 |
32,516 |
8,032 |
45,617 |
114,458 |
|
Profit and total comprehensive income for the year |
- |
- |
5,473 |
(573) |
853 |
5,753 |
|
Transfer of unrealised losses on disposal of investments |
- |
- |
642 |
(642) |
- |
- |
|
Purchase of shares for treasury |
- |
- |
- |
- |
(2,480) |
(2,480) |
|
Issue of equity |
86 |
8,140 |
- |
- |
- |
8,226 |
|
Cost of issue of equity |
- |
(218) |
- |
- |
- |
(218) |
|
Dividends paid |
- |
- |
- |
- |
(6,106) |
(6,106) |
|
As at 31 December 2023 |
1,542 |
34,759 |
38,631 |
6,817 |
37,884 |
119,633 |
|
As at 1 January 2022 |
1,167 |
- |
36,048 |
7,344 |
53,080 |
97,639 |
|
(Loss)/profit and total comprehensive income for the year |
- |
- |
(3,258) |
415 |
591 |
(2,252) |
|
Transfer of unrealised gains on disposal of investments |
- |
- |
(273) |
273 |
- |
- |
|
Purchase of shares for treasury |
- |
- |
- |
- |
(2,244) |
(2,244) |
|
Issue of equity |
288 |
27,509 |
- |
- |
- |
27,797 |
|
Cost of issue of equity |
- |
(672) |
- |
- |
- |
(672) |
|
Dividends paid |
- |
- |
- |
- |
(5,810) |
(5,810) |
|
As at 31 December 2022 |
1,456 |
26,837 |
32,516 |
8,032 |
45,617 |
114,458 |
* Included within these reserves is an amount of
£18,969,000 (2022: £24,619,000) which is considered distributable.
Over the next two years an additional £18,627,000 will become
distributable. This is due to the HMRC requirement that the Company
cannot use capital raised in the past two years to make a payment
or distribution to shareholders. On 1 January 2024, £8,266,000
became distributable in line with this.
Statement of cash flows
|
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Cash flow from operating activities |
|
|
| Loan
stock income received |
915 |
996 |
| Deposit
interest received |
326 |
47 |
| Income
from fixed term funds received |
254 |
59 |
| Dividend
income received |
128 |
133 |
|
Investment Manager’s fees paid |
(2,596) |
(4,216) |
| Other
cash payments |
(404) |
(338) |
|
Corporation tax paid |
- |
- |
|
Net cash flow generated from operating
activities |
(1,377) |
(3,319) |
|
|
|
|
|
Cash flow from investing activities |
|
|
| Purchase
of fixed asset investments* |
(6,869) |
(14,235) |
| Proceeds
from disposals of fixed asset investments* |
4,734 |
7,946 |
|
Net cash flow generated from investing
activities |
(2,135) |
(6,289) |
|
|
|
|
|
Cash flow from financing activities |
|
|
| Issue of
share capital |
7,043 |
26,132 |
| Cost of
issue of equity** |
(39) |
(36) |
| Equity
dividends paid (net of Dividend Reinvestment Scheme) |
(5,105) |
(4,785) |
| Purchase
of own shares |
(2,480) |
(2,244) |
|
Net cash flow generated from financing
activities |
(581) |
19,067 |
|
|
|
|
|
(Decrease)/increase in cash in bank and in
hand |
(4,093) |
9,459 |
| Cash in
bank and in hand at start of period |
26,491 |
17,032 |
|
Cash in bank and in hand at end of period |
22,398 |
26,491 |
* Purchases and disposals detailed above do not
agree to note 11 due to restructuring of investments, conversion of
convertible loan stock and settlement of receivables and
payables.
** The cost of issue of equity does not agree to
the Statement of changes in equity due to prospectus fundraising
amounts being received net of fees.
The accompanying notes form an integral part of
these Financial Statements.
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with
applicable United Kingdom law and accounting standards, including
Financial Reporting Standard 102 (“FRS 102”), and with the
Statement of Recommended Practice “Financial Statements of
Investment Trust Companies and Venture Capital Trusts” (“SORP”)
issued by The Association of Investment Companies (“AIC”). The
Financial Statements have been prepared on a going concern basis
and further details can be found in the Directors’ report on page
45 of the full Annual Report and Financial Statements.
The preparation of the Financial Statements
requires management to make judgements and estimates that affect
the application of policies and reported amounts of assets,
liabilities, income and expenses. The most critical estimates and
judgements relate to the determination of carrying value of
investments at Fair Value Through Profit and Loss (“FVTPL”) in
accordance with FRS 102 sections 11 and 12. The Company values
investments by following the International Private Equity and
Venture Capital Valuation (“IPEV”) Guidelines as updated in 2022
and further detail on the valuation techniques used are outlined in
note 2 below.
Company information can be found on page 4 of
the full Annual Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The Company’s business is investing in financial assets with a view
to profiting from their total return in the form of income and
capital growth. This portfolio of financial assets is managed and
its performance evaluated on a fair value basis, in accordance with
a documented investment policy, and information about the portfolio
is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102,
those undertakings in which the Company holds more than 20% of the
equity as part of an investment portfolio are not accounted for
using the equity method. In these circumstances the investment is
measured at FVTPL.
Upon initial recognition (using trade date
accounting) investments, including loan stock, are classified by
the Company as FVTPL and are included at their initial fair value,
which is cost (excluding expenses incidental to the acquisition
which are written off to the Income statement).
Subsequently, the investments are valued at
‘fair value’, which is measured as follows:
- Investments listed on recognised
exchanges are valued at their bid prices at the end of the
accounting period or otherwise at fair value based on published
price quotations.
- Unquoted investments, where there is
not an active market, are valued using an appropriate valuation
technique in accordance with the IPEV Guidelines. Indicators of
fair value are derived using established methodologies including
earnings multiples, revenue multiples, the level of third party
offers received, cost or price of recent investment rounds, net
assets, discounted cash flows and industry valuation benchmarks.
Where price of recent investment is used as a starting point for
estimating fair value at subsequent measurement dates, this has
been benchmarked using an appropriate valuation technique permitted
by the IPEV guidelines.
- In situations where cost or price of
recent investment is used, consideration is given to the
circumstances of the portfolio company since that date in
determining fair value. This includes consideration of whether
there is any evidence of deterioration or strong definable evidence
of an increase in value. In the absence of these indicators, other
valuation techniques are employed to conclude on the fair value as
at the measurement date. Examples of events or changes that could
indicate a diminution include:
- the performance and/or prospects of
the underlying business are significantly below the expectations on
which the investment was based; or
- a significant adverse change either
in the portfolio company’s business or in the technological,
market, economic, legal or regulatory environment in which the
business operates; or
- market conditions have
deteriorated, which may be indicated by a fall in the share prices
of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets
on legal completion of the investment contract and are
de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the
fair value movement of an investment, but is recognised separately
as investment income through the other distributable reserve when a
share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year),
payables and cash are carried at amortised cost, in accordance with
FRS 102. Debtors due after more than one year meet the definition
of a financing transaction held at amortised cost, and interest
will be recognised through capital over the credit period using the
effective interest method. There are no financial liabilities other
than payables.
Investment income
Dividend income
Dividend income is included in revenue when the investment is
quoted ex-dividend.
Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are
recognised when the Company’s right to receive payment and expect
settlement is established. Where interest is rolled up and/or
payable at redemption then it is recognised as income unless there
is reasonable doubt as to its receipt.
Bank deposit income
Interest income is recognised on an accruals basis using the rate
of interest agreed with the bank.
Fixed term funds income
Funds income is recognised on an accruals basis using the agreed
rate of interest.
Investment management fee, performance
incentive fee and expenses
All expenses have been accounted for on an accruals basis. Expenses
are charged through the other distributable reserve except the
following which are charged through the realised capital
reserve:
- 90% of management fees and 100% of
performance incentive fees, if any, are allocated to the realised
capital reserve.
- expenses which are incidental to
the purchase or disposal of an investment are charged through the
realised capital reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS 102.
Current tax is tax payable/(refundable) in respect of the taxable
profit/(tax loss) for the current period or past reporting periods
using the tax rates and laws that have been enacted or
substantively enacted at the financial reporting date. Taxation
associated with capital expenses is applied in accordance with the
SORP.
Deferred tax is provided in full on all timing
differences at the reporting date. Timing differences are
differences between taxable profits and total comprehensive income
as stated in the Financial Statements that arise from the inclusion
of income and expenses in tax assessments in periods different from
those in which they are recognised in the Financial Statements. As
a VCT the Company has an exemption from tax on capital gains. The
Company intends to continue meeting the conditions required to
obtain approval as a VCT in the foreseeable future. The Company
therefore, should have no material deferred tax timing differences
arising in respect of the revaluation or disposal of investments
and the Company has not provided for any deferred tax.
Reserves
Called-up share capital
This accounts for the nominal value of the Company’s shares.
Share premium
This accounts for the difference between the price paid for shares
and the nominal value of those shares, less issue costs and
transfers to the other distributable reserve.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the
year end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
- gains and losses compared to cost
on the realisation of investments, or permanent diminutions in
value (including gains recognised on the realisation of investment
where consideration is deferred that are not distributable as a
matter of law);
- finance income in respect of the unwinding of the discount on
deferred consideration that is not distributable as a matter of
law;
- expenses, together with the related
taxation effect, charged in accordance with the above policies;
and
- dividends paid to equity holders
where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve
were combined in 2012 to form a single reserve named other
distributable reserve.
This reserve accounts for movements from the
revenue column of the Income statement, the payment of dividends,
the buy-back of shares, transfers from the share premium and
capital redemption reserve, and other non-capital realised
movements.
Dividends
Dividends by the Company are accounted for when the liability to
make the payment (record date) has been established.
Unclaimed dividends older than a period of
twelve years from the dividend declaration date are forfeited and
returned to the Company in accordance with the terms of the
Articles of Association.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single operating segment of business, being investment in smaller
companies principally based in the UK.
3. Net gains/(losses) on
investments
|
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Unrealised gains/(losses) on fixed asset investments |
5,473 |
(3,258) |
| Realised gains on fixed asset
investments |
1,471 |
2,322 |
| Unwinding of discount on
deferred consideration |
350 |
300 |
| |
7,294 |
(636) |
4. Investment income
|
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Loan stock interest |
839 |
916 |
| Bank deposit interest |
326 |
47 |
| Income from fixed term
funds |
254 |
59 |
| Dividend income |
89 |
172 |
| |
1,508 |
1,194 |
5. Investment Manager’s
fees
|
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Investment management fee charged to revenue |
266 |
245 |
| Investment management fee
charged to capital |
2,394 |
2,207 |
| |
2,660 |
2,452 |
Further details of the Management agreement
under which the investment management fee and performance incentive
fee are paid are given in the Strategic report.
During the year, services of a total value of
£2,660,000 (2022: £2,452,000) were purchased by the Company from
Albion Capital Group LLP (“Albion”) in respect of management fees.
There is no performance incentive fee payable in the year (2022:
£nil). At the financial year end, the amount due to Albion in
respect of these services disclosed as accruals was £667,000 (2022:
£618,000). The total annual running costs of the Company are capped
at an amount equal to 2.5% of the Company’s net assets, with any
excess being met by Albion by way of a reduction in management
fees. During the year, the management fee was reduced by £57,000 as
a result of this cap (2022: £41,000).
During the year, the Company was not charged by
Albion in respect of Patrick Reeve’s services as a Director (2022:
£nil).
Albion, its partners and staff (including
Patrick Reeve) held 1,169,832 Ordinary shares in the Company as at
31 December 2023.
Albion is, from time-to-time, eligible to
receive arrangement fees and monitoring fees from portfolio
companies. During the year ended 31 December 2023, fees of £153,000
attributable to the investments of the Company were received by
Albion pursuant to these arrangements (2022: £257,000).
The Company has entered into an offer agreement
relating to the Offers with the Company’s investment manager
Albion, pursuant to which Albion received a fee of 2.5% of the
gross proceeds of the 2022/23 Offer, and will receive a fee of 3.0%
of the 2023/24 Offer and out of which Albion will pay the costs of
the Offers, as ailed in the Prospectus.
6. Other expenses
|
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Directors’ fees (including NIC) |
84 |
84 |
| Auditor’s remuneration for
statutory audit services (excluding VAT) |
53 |
48 |
| Other administrative
expenses |
252 |
226 |
|
|
389 |
358 |
7. Directors’ fees
The amounts paid to and on behalf of the Directors during the year
are as follows:
|
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Directors’ fees |
77 |
77 |
| National insurance |
7 |
7 |
| |
84 |
84 |
The Company’s key management personnel are the
non-executive Directors. Further information regarding Directors’
remuneration can be found in the Directors’ remuneration report on
pages 59 to 62 of the full Annual Report and Financial
Statements.
8. Tax on ordinary
activities
|
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
UK corporation tax charge in respect of current year |
- |
- |
|
Factors affecting the tax charge: |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Profit/(loss) on ordinary activities before taxation |
5,753 |
(2,252) |
| |
|
|
| Tax charge on profit at the
average companies rate of 23.5% (2022: 19%) |
1,352 |
(428) |
| |
|
|
| Factors affecting the
charge: |
|
|
| Non-taxable
gains/(losses) |
(1,714) |
121 |
| Income not taxable |
(21) |
(33) |
| Excess management expenses
carried forward |
383 |
340 |
| |
- |
- |
The tax charge for the year shown in the Income
statement is lower than the average companies rate of corporation
tax in the UK of 23.5% (2022: 19%). The differences are explained
above. From April 2023, the Company’s rate of corporation tax
increased in the UK from 19% to 25%, therefore the average rate is
23.5% for the year ended 31 December 2023.
Notes
(i)
Venture Capital
Trusts are not subject to corporation tax on capital
gains.
(ii)
Tax relief on
expenses charged to capital has been determined by allocating tax
relief to expenses by reference to the applicable corporation tax
rate and allocating the relief between revenue and capital in
accordance with the SORP.
(iii)
The Company has
excess management expenses of £10,444,000 (2022: £8,814,000) that
are available for offset against future profits. A deferred tax
asset of £2,611,000 (2022: £2,204,000) has not been recognised in
respect of these losses as they will be recoverable only to the
extent that the Company has sufficient future taxable
profits.
9. Dividends
| |
Year ended
31 December 2023 |
Year ended
31 December 2022 |
|
|
£’000 |
£’000 |
| First dividend of 2.22p per
share paid on 31 May 2023 (31 May 2022: 2.37p per share) |
3,012 |
2,925 |
| Second dividend of 2.29p per
share paid on 29 September 2023 (30 September 2022: 2.34p per
share) |
3,105 |
2,892 |
| Unclaimed dividends |
(11) |
(7) |
| |
6,106 |
5,810 |
Details of the consideration issued under the
Dividend Reinvestment Scheme included in the dividends above can be
found in note 15.
In addition to the dividends summarised above,
the Board has declared a first dividend of 2.22 pence per share for
the year ending 31 December 2024, payable on 31 May 2024 to
shareholders on the register on 3 May 2024. The total dividend will
be approximately £3,336,000.
10. Basic and diluted return per
share
|
|
Year ended 31 December 2023 |
Year ended 31 December 2022 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
|
|
|
|
|
| Profit/(loss) attributable to
equity shares (£’000) |
853 |
4,900 |
5,753 |
591 |
(2,843) |
(2,252) |
| Weighted average shares in
issue (adjusted for treasury shares) |
134,013,069 |
120,150,815 |
| Return/(loss) attributable per
equity share (pence) |
0.63 |
3.66 |
4.29 |
0.49 |
(2.36) |
(1.87) |
The weighted average number of Ordinary shares
is calculated after adjusting for treasury shares of 19,309,045
(2022: 16,468,548).
There are no convertible instruments,
derivatives or contingent share agreements in issue so basic and
diluted return per share are the same.
11. Fixed asset investments
|
Investments held at fair value through profit or
loss |
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Unquoted equity and preference shares |
82,022 |
70,536 |
| Unquoted loan stock |
13,064 |
15,194 |
| Quoted equity |
180 |
556 |
| |
95,266 |
86,286 |
|
|
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Opening valuation |
86,286 |
80,500 |
| Purchases at cost |
7,377 |
14,917 |
| Disposal proceeds |
(5,615) |
(8,114) |
| Realised gains |
1,821 |
2,322 |
| Movement in loan stock accrued
income |
(76) |
(80) |
| Unrealised gains/(losses) |
5,473 |
(3,258) |
| Closing
valuation |
95,266 |
86,286 |
| |
|
|
| Movement in loan stock
accrued income |
|
|
| Opening accumulated loan stock
accrued income |
260 |
340 |
| Movement in loan stock accrued
income |
(76) |
(80) |
| Closing accumulated
loan stock accrued income |
184 |
260 |
| |
|
|
| Movement in unrealised
gains |
|
|
| Opening accumulated unrealised
gains |
32,341 |
35,871 |
| Transfer of previously
unrealised gains/(losses) to realised reserve on disposal of
investments |
642 |
(273) |
| Movement in unrealised
gains/(losses) |
5,473 |
(3,258) |
| Closing accumulated
unrealised gains |
38,456 |
32,341 |
| |
|
|
| Historic cost
basis |
|
|
| Opening book cost |
53,684 |
44,288 |
| Purchases at cost |
7,377 |
14,917 |
| Sales at cost |
(4,436) |
(5,520) |
| Closing book
cost |
56,625 |
53,684 |
Purchases and disposals detailed above do not
agree to the Statement of cash flows due to restructuring of
investments, conversion of convertible loan stock and settlement of
receivables and payables.
Loan stock accrued income above, represents only
the loan stock interest which has been recognised as revenue on the
basis that it is expected to be received in accordance with the
accounting policy in note 1. Where loan stock interest does
not meet the note 1 recognition criteria for investment income, it
forms part of the investment valuation where this is
supported by the overall valuation of the portfolio company, and is
included within the unrealised gains and losses on investments.
Fixed asset investments are valued at fair value in accordance
with the IPEV guidelines as follows:
|
Valuation methodology |
31 December 2023
£’000 |
31 December 2022
£’000 |
| Cost and price of recent
investment (calibrated and reviewed for impairment) |
48,957 |
46,204 |
| Revenue multiple |
29,993 |
23,084 |
| Discounted cash flow –
Supported by third party valuation |
8,000 |
8,632 |
| Earnings multiple |
6,162 |
2,840 |
| Earnings multiple – Supported
by third party valuation |
964 |
3,962 |
| Net assets |
959 |
998 |
| Bid price |
180 |
556 |
| Discounted offer price |
51 |
10 |
| |
95,266 |
86,286 |
When using the cost or price of recent
investment in the valuations, the Company looks to re-calibrate
this price at each valuation point by reviewing progress within the
investment, comparing against the initial investment thesis,
assessing if there are any significant events or milestones that
would indicate the value of the investment has changed and
considering whether a market-based methodology (i.e. using
multiples from comparable public companies) or a discounted
cashflow forecast would be more appropriate. The background to the
transaction is also considered when the price of investment may not
be an appropriate measure of fair value, for example,
disproportionate dilution of existing investors from a new investor
coming on board or the market conditions at the time of investment
no longer being a true reflection of fair value.
The main inputs into the calibration exercise,
and for the valuation models using multiples, are revenue, EBITDA
and P/E multiples (based on the most recent revenue, EBITDA or
earnings achieved and equivalent corresponding revenue, EBITDA or
earnings multiples of comparable companies), quality of earnings
assessments and comparability difference adjustments. Revenue
multiples are often used, rather than EBITDA or earnings, due to
the nature of the Company’s investments, being in growth and
technology companies which are not normally expected to achieve
profitability or scale for a number of years. Where an investment
has achieved scale and profitability the Company would normally
then expect to switch to using an EBITDA or earnings multiple
methodology.
In the calibration exercise and in determining
the valuation for the Company’s equity instruments, comparable
trading multiples are used. In accordance with the Company’s
policy, appropriate comparable companies based on industry, size,
developmental stage, revenue generation and strategy are determined
and a trading multiple for each comparable company identified is
then calculated. The multiple is calculated by dividing the
enterprise value of the comparable group by its revenue, EBITDA or
earnings. The trading multiple is then adjusted for considerations
such as illiquidity, marketability and other differences,
advantages and disadvantages between the portfolio company and the
comparable public companies based on company specific facts and
circumstances.
As part of the valuation process, the majority
of the asset backed businesses also have an annual external third
party valuation done to support the investment managers valuations.
The third party valuers are experts in their fields, and have
access to many similar business transactions in those speciality
areas, and form part of the Manager’s fair value assessment
Fair value investments had the following
movements between valuation methodologies between 31 December 2022
and 31 December 2023:
|
Change in valuation methodology (2022 to
2023) |
Value as at
31 December 2023
£’000 |
Explanatory note |
| Cost and price of recent
investment (reviewed for impairment or calibration) to revenue
multiple |
6,392 |
Revenue multiple more relevant
based on current trading |
| Revenue multiple to cost and
price of recent investment (reviewed for impairment or
calibration) |
1,030 |
Recent funding round |
| Cost and price of recent
investment (reviewed for impairment or calibration) to discounted
offer price |
51 |
Third party offer
received |
| |
|
|
| |
|
|
The valuation will be the most appropriate
valuation methodology for an investment within its market, with
regard to the financial health of the investment and the IPEV
Guidelines. The Directors believe that, within these parameters,
these are the most appropriate methods of valuation as at 31
December 2023.
FRS 102 and the SORP requires the Company to
disclose the inputs to the valuation methods applied to its
investments measured at FVTPL in a fair value hierarchy. The table
below sets out fair value hierarchy definitions using FRS 102
s.11.27.
|
Fair value hierarchy |
Definition |
|
Level 1 |
Unadjusted quoted prices in an active market |
Level 2
|
Inputs to valuations are from observable sources and are directly
or indirectly derived from prices |
|
Level 3 |
Inputs to valuations not based on observable market data |
Quoted investments are valued according to Level
1 valuation methods (Arecor Therapeutics PLC shown on page 28 of
the full Annual Report and Financial Statements). Unquoted equity,
preference shares and loan stock are all valued according to Level
3 valuation methods.
Investments held at fair value through profit or loss (Level 3)
had the following movements:
|
|
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Opening balance |
85,730 |
79,309 |
| Additions |
7,377 |
14,917 |
| Disposals |
(5,310) |
(7,906) |
| Accrued loan stock
interest |
(76) |
(80) |
| Realised gains |
1,837 |
2,399 |
| Unrealised gains/(losses) |
5,528 |
(2,908) |
| Closing balance |
95,086 |
85,730 |
The Directors are required to consider the
impact of changing one or more of the inputs used as part of the
valuation process to reasonable possible alternative assumptions.
65% of the portfolio of investments, consisting of equity and loan
stock, is based on recent investment price, discounted offer price,
net assets and cost and therefore is not sensitised. For the
remainder of the portfolio, the Board has considered the reasonable
possible alternative input assumptions on the valuation of the
portfolio and believes that changes to inputs (by adjusting the
earnings and revenue multiples) could lead to a change in the fair
value of the portfolio. The Board has reviewed the Manager’s
adjusted inputs for a number of the largest portfolio companies (by
value) which covers 24% of the portfolio, as shown in the table
below. This has resulted in a total coverage of 89% of the
portfolio of investments. The main inputs considered for each type
of valuation is as follows:
|
Valuation technique |
Portfolio company sector |
Input |
Base Case* |
Change in input |
Change in fair value of investments (£’000) |
Change in NAV (pence per share) |
Revenue multiple
|
Software & other technology
|
Revenue multiple
|
4.5x
|
+0.5x |
1,175 |
0.87 |
|
-0.5x |
(1,175) |
(0.87) |
Revenue multiple
|
Healthcare (including digital healthcare)
|
Revenue multiple
|
5.2x
|
+0.5x |
716 |
0.53 |
|
-0.5x |
(716) |
(0.53) |
Net Assets supported by Third Party Value – Earnings multiple
|
Other (including education)
|
Earnings multiple
|
15.9x
|
+1.6x |
264 |
0.20 |
|
-1.6x |
(264) |
(0.20) |
*As detailed in the accounting policies, the
base case is based on market comparables, discounted where
appropriate for marketability, in accordance with the IPEV
guidelines.
The impact of these changes could result in an
overall increase in the valuation of the equity investments by
£2,155,000 (1.8%) or a decrease in the valuation of equity
investments by £2,155,000 (1.8%).
12. Significant interests
The principal activity of the Company is to select and hold a
portfolio of investments in unquoted securities. Although the
Company, through the Manager, will, in some cases, be represented
on the board of the portfolio company, it will not take a
controlling interest or become involved in the management of a
portfolio company. The size and structure of the companies with
unquoted securities may result in certain holdings in the portfolio
representing a participating interest without there being any
partnership, joint venture or management consortium agreement.
The Company has no interests of greater than 20%
of the nominal value of any class of the allotted shares in the
portfolio companies as at 31 December 2023.
13. Current assets
|
Trade and other receivables |
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Prepayments and accrued income |
33 |
30 |
| Other receivables |
265 |
142 |
| Deferred consideration under one
year |
2,447 |
134 |
| Deferred consideration over one
year |
- |
2,097 |
| |
2,745 |
2,403 |
The deferred consideration under one year
relates to the sale of G.Network Communications Limited in December
2020. These proceeds were received in January 2024.
The Directors consider that the carrying amount
of receivables is not materially different to their fair value.
14. Payables: amounts falling due within
one year
|
|
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Accruals and deferred income |
747 |
722 |
| Trade payables |
29 |
- |
| |
776 |
722 |
The Directors consider that the carrying amount
of payables is not materially different to their fair value.
15. Called-up share capital
|
Allotted, called-up and fully paid shares: |
£’000 |
|
145,582,300 Ordinary shares of 1 penny each at 31 December
2022 |
1,456 |
| 8,596,442 Ordinary shares of 1
penny each issued during the year |
86 |
|
154,178,742 Ordinary shares of 1 penny each at 31 December
2023 |
1,542 |
|
|
|
| 16,468,548 Ordinary shares of
1 penny each held in treasury at 31 December 2022 |
(165) |
| 2,840,497 Ordinary shares of 1
penny each purchased during the year to be held in treasury |
(28) |
|
19,309,045 Ordinary shares of 1 penny each held in treasury
at 31 December 2023 |
(193) |
|
|
|
|
Voting rights of 134,869,697 Ordinary shares of 1 penny
each at 31 December 2023 |
1,349 |
The Company purchased 2,840,497 shares (2022:
2,522,073) to be held in treasury at a nominal value of £28,405 and
a cost of £2,480,000 (2022: £2,244,000) representing 1.8% of the
shares in issue on 31 December 2023, leading to a balance of
19,309,045 shares (2022: 16,468,548) in treasury representing 12.5%
of the shares in issue on 31 December 2023.
Under the terms of the Dividend Reinvestment
Scheme, the following new Ordinary shares of nominal value 1 penny
each were allotted during the year:
Date of allotment |
Number of shares allotted |
Aggregate nominal value of shares (£’000) |
Issue price (pence per share) |
Net invested (£’000) |
Opening market price on allotment date (pence per
share) |
|
31 May 2023 |
536,739 |
5 |
92.70 |
478 |
88.50 |
|
29 September 2023 |
567,025 |
6 |
89.46 |
488 |
85.00 |
|
|
1,103,764 |
|
|
966 |
|
Under the terms of the Albion VCTs Prospectus
Top Up Offers 2022/23, the following new Ordinary shares of nominal
value 1 penny each, were allotted during the year:
|
Date of allotment |
Number of shares allotted |
Aggregate nominal value of shares (£’000) |
Issue price (pence per share) |
Net consideration received (£’000) |
Opening market price on allotment date (pence per
share) |
|
31 March 2023 |
7,134,319 |
71 |
96.40 |
6,706 |
89.50 |
|
14 April 2023 |
98,702 |
1 |
95.40 |
93 |
89.50 |
|
14 April 2023 |
26,068 |
- |
95.90 |
24 |
89.50 |
|
14 April 2023 |
233,589 |
2 |
96.40 |
220 |
89.50 |
|
|
7,492,678 |
|
|
7,043 |
|
In addition to the allotments in the table
above, there was also an allotment in December 2022 which forms the
total of the 2022/23 Top Up Offer of £13.0 million.
16. Basic and diluted net asset value
per share
|
|
|
31 December 2023 (pence per share) |
31 December 2022 (pence per share) |
| Basic and diluted net asset
value per share |
|
88.70 |
88.65 |
The basic and diluted net asset values per share
at the year end are calculated in accordance with the Articles of
Association and are based upon total shares in issue (adjusting for
treasury shares) of 134,869,697 Ordinary shares as at 31 December
2023 (2022: 129,113,752).
17. Capital and financial instruments
risk management
The Company’s capital comprises Ordinary shares as described in
note 15. The Company is permitted to buy back its own shares for
cancellation or treasury purposes.
The Company’s financial instruments comprise
equity and loan stock investments in quoted and unquoted companies,
cash balances and liquid cash instruments and short term
receivables and payables which arise from its operations. The main
purpose of these financial instruments is to generate cashflow and
revenue and capital appreciation for the Company’s operations. The
Company has no gearing or other financial liabilities apart from
short term payables. The Company does not use any derivatives for
the management of its Balance sheet.
The principal financial instrument risks arising
from the Company’s operations are:
- Market and investment risk (which
comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies
for managing each of these risks. There have been no changes in the
nature of the risks that the Company has faced during the past year
and there have been no changes in the objectives, policies or
processes for managing risks during the past year. The key risks
are summarised below.
Market risk
As a Venture Capital Trust, it is the Company’s specific nature to
evaluate the market risk of its portfolio in unquoted companies.
Market risk is the exposure of the Company to the revaluation and
devaluation of investments as a result of macroeconomic changes.
The main driver of market risk is the dynamics of market quoted
comparators, as well as the financial and operational performance
of portfolio companies. The Board seeks to reduce this risk by
having a spread of investments across a variety of sectors. More
details on the sectors the Company invests in can be found in the
pie chart at the end of this announcement.
The Manager and the Board formally review market
risk, both at the time of initial investment and at quarterly Board
meetings.
The Board monitors the prices at which sales of
investments are made to ensure that profits to the Company are
maximised, and that valuations of investments retained within the
portfolio appear realistic compared to prices being achieved in the
market for sales of unquoted investments.
Under FRS 102 the Board is required to
illustrate by way of a sensitivity analysis the extent to which the
assets are exposed to market risk. In order to show the impact of
sensitivity in market movements on the Company, a 10% increase or
decrease in the valuation of the fixed asset investment portfolio
(keeping all other variables constant) would increase or decrease
the net asset value and return for the year by £9,527,000.
Accordingly, a 20% increase or decrease in the valuation of the
fixed asset investment portfolio (keeping all other variables
constant) would increase or decrease the net asset value and return
for the year by £19,053,000. Further sensitivity analysis on fixed
asset investments is included in note 11.
Investment risk (including investment
price risk)
Investment risk (including investment price risk) is the risk that
the fair value of future investment cash flows will fluctuate due
to factors specific to an investment instrument or to a market in
similar instruments. The management of risk within the venture
capital portfolio is addressed through careful investment
selection, by diversification across different industry segments,
by maintaining a wide spread of holdings in terms of financing
stage and by limitation of the size of individual holdings. The
Manager receives management accounts from portfolio companies and
members of the investment management team often sit on the boards
of unquoted portfolio companies; this enables the close
identification, monitoring and management of investment risk. The
Directors monitor the Manager’s compliance with the investment
policy, review and agree policies for managing this risk and
monitor the overall level of risk on the investment portfolio on a
regular basis.
Valuations are based on the most appropriate
valuation methodology for an investment within its market, with
regard to the financial health of the investment and the IPEV
Guidelines. Details of the industries in which investments have
been made are contained in the pie chart at the end of this
announcement.
The maximum investment risk as at the Balance
sheet date is the value of the fixed asset investment portfolio
which is £95,266,000 (2022: £86,286,000). Fixed asset investments
form 80% of net asset value as at 31 December 2023 (2022: 75%).
More details regarding the classification of
fixed asset investments are shown in note 11.
Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk
on its financial assets through the effect of interest rate
changes. On the basis of the Company’s analysis, it is estimated
that a rise of 1% in all interest rates would have increased total
return before tax for the year by approximately £244,000 (2022:
£218,000). Furthermore, it was considered that a material fall in
interest rates below current levels during the year would have been
unlikely.
The weighted average effective interest rate
applied to the Company’s fixed rate assets during the year was
approximately 8.8% (2022: 6.4%). The weighted average period to
maturity for the fixed rate assets is approximately 4.1 years
(2022: 4.4 years).
The Company’s financial assets and liabilities,
all denominated in pounds sterling, consist of the following:
|
|
31 December 2023 |
31 December 2022 |
|
|
Fixed rate £’000 |
Floating rate
£’000 |
Non-interest bearing
£’000 |
Total
£’000 |
Fixed rate £’000 |
Floating rate
£’000 |
Non-interest bearing
£’000 |
Total
£’000 |
|
Unquoted equity |
- |
- |
82,022 |
82,022 |
- |
- |
70,536 |
70,536 |
| Quoted equity |
- |
- |
180 |
180 |
- |
- |
556 |
556 |
| Unquoted loan stock |
11,091 |
153 |
1,820 |
13,064 |
14,261 |
175 |
758 |
15,194 |
| Receivables* |
- |
- |
2,713 |
2,713 |
- |
- |
2,373 |
2,373 |
| Current liabilities |
- |
- |
(776) |
(776) |
- |
- |
(722) |
(722) |
| Cash |
9,313 |
13,085 |
- |
22,398 |
- |
26,491 |
- |
26,491 |
| Total |
20,404 |
13,238 |
85,959 |
119,601 |
14,261 |
26,666 |
73,501 |
114,428 |
*The receivables do not reconcile to the Balance
sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Company is exposed to
credit risk through its receivables, investment in unquoted loan
stock and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock
and other similar instruments prior to investment, and as part of
its ongoing monitoring of investments. In doing this, it takes into
account the extent and quality of any security held. For loan stock
investments made prior to 6 April 2018, which account for 81% of
loan stock value, typically loan stock instruments have a fixed or
floating charge, which may or may not be subordinated, over the
assets of the portfolio company in order to mitigate the gross
credit risk.
The Manager receives management accounts from
portfolio companies, and members of the investment management team
often sit on the boards of unquoted portfolio companies; this
enables the close identification, monitoring and management of
investment specific credit risk.
The Manager and the Board formally review credit
risk (including receivables) and other risks, both at the time of
initial investment and at quarterly Board meetings.
The Company’s total gross credit risk at 31
December 2023 was limited to £13,064,000 (2022: £15,194,000) of
unquoted loan stock instruments, £22,398,000 (2022: £26,491,000) of
cash deposits with banks and £2,745,000 (2022: £2,373,000) of other
receivables.
At the Balance sheet date, cash in bank and in
hand held by the Company were held with Lloyds Bank plc, Scottish
Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc,
Bank of Montreal and National Westminster Bank plc. Credit risk on
cash transactions is mitigated by transacting with counterparties
that are regulated entities subject to regulatory supervision, with
high credit ratings assigned by international credit-rating
agencies.
The Company has an informal policy of limiting
counterparty banking exposure to a maximum of 20% of net asset
value for any one counterparty.
The credit profile of unquoted loan stock is described under
liquidity risk.
Liquidity risk
Liquid assets are held as cash on current account, deposit or short
term money market accounts or similar instruments. Under the terms
of its Articles, the Company has the ability to borrow up to 10% of
its adjusted capital and reserves of the latest published audited
Balance sheet, which amounts to £11,630,000 as at 31 December 2023
(2022: £11,143,000).
The Company had no committed borrowing
facilities as at 31 December 2023 (2022: nil) and the Company had
cash balances of £22,398,000 (2022: £26,491,000). The main cash
outflows are for new investments, buy-back of shares and dividend
payments, which are within the control of the Company. The Manager
formally reviews the cash requirements of the Company on a monthly
basis, and the Board on a quarterly basis, as part of its review of
management accounts and forecasts. All of the Company’s financial
liabilities are short term in nature and total £776,000 (2022:
£722,000).
The carrying value of loan stock investments,
analysed by expected maturity dates is as follows:
| |
31 December 2023 |
31 December 2022 |
|
Redemption date |
Fully performing
£’000 |
Valued below cost
£’000 |
Past due
£’000 |
Total
£’000 |
Fully performing
£’000 |
Valued below cost
£’000 |
Past due
£’000 |
Total
£’000 |
|
Less than one year |
6,811 |
- |
814 |
7,625 |
5,643 |
- |
1,612 |
7,255 |
| 1-2 years |
84 |
- |
- |
84 |
297 |
- |
76 |
373 |
| 2-3 years |
185 |
- |
- |
185 |
105 |
- |
- |
105 |
| 3-5 years |
992 |
- |
- |
992 |
2,629 |
- |
123 |
2,752 |
| 5 + years |
4,060 |
- |
118 |
4,178 |
4,709 |
- |
- |
4,709 |
| Total |
12,132 |
- |
932 |
13,064 |
13,383 |
- |
1,811 |
15,194 |
Loan stock can be past due as a result of
interest or capital not being paid in accordance with contractual
terms.
The cost of loan stock investments valued below
cost is £nil (2022: £29,000).
The Company does not hold any assets as the
result of the enforcement of security during the period and
believes that the carrying values for both those valued below cost
and past due assets are covered by the value of security held for
these loan stock investments.
In view of the availability of adequate cash
balances and the repayment profile of loan stock investments, the
Board considers that the Company is subject to low liquidity
risk.
Fair values of financial assets and
financial liabilities
All the Company’s financial assets and liabilities as at 31
December 2023 are stated at fair value as determined by the
Directors, with the exception of receivables, payables and cash
which are carried at amortised cost. There are no financial
liabilities other than payables. The Company’s financial
liabilities are all non-interest bearing. It is the Directors’
opinion that the book value of the financial liabilities is not
materially different to the fair value and all are payable within
one year.
18. Contingencies and
commitments
The Company had no financial commitments in
respect of investments at 31 December 2023 (2022: £nil).
There are no contingencies or guarantees of the Company as at 31
December 2023 (2022: £nil).
19. Post balance sheet
events
Since the year end, the Company has had the following material post
balance sheet events:
- Deferred consideration proceeds of £2.4 million was received by
G.Network Communications;
- On 12 March 2024, a NAV update was
announced with a 2.84 pence per share uplift, representing a 3.2%
increase on the 31 December 2023 NAV. This uplift is a result of
terms being agreed for the sale of a company within the portfolio,
however there is no certainty that this deal will complete. This
was not known at 31 December 2023 and therefore this is a non
adjusting post balance sheet event;
- Investments totalling £3.1 million
in one new and five existing portfolio companies; and
- The Company issued the following
new Ordinary shares of nominal value 1 penny each under the Albion
VCTs’ Prospectus Top Up Offers 2023/24:
|
Date of allotment |
Number of shares allotted |
Aggregate nominal value of shares (£’000) |
Issue price (pence per share) |
Net consideration received (£’000) |
Opening market price on allotment date (pence per
share) |
|
22 March 2024 |
1,922,293 |
19 |
93.41 |
1,760 |
87.00 |
|
22 March 2024 |
371,463 |
4 |
93.89 |
340 |
87.00 |
|
22 March 2024 |
12,701,513 |
127 |
94.38 |
11,628 |
87.00 |
|
16 April 2024 |
101,424 |
1 |
93.41 |
93 |
87.00 |
|
16 April 2024 |
15,975 |
- |
93.89 |
15 |
87.00 |
|
16 April 2024 |
272,637 |
3 |
94.38 |
250 |
87.00 |
|
|
15,385,305 |
|
|
14,086 |
|
20. Related party
transactions
Other than transactions with the Manager as disclosed in note 5,
and the Directors’ remuneration disclosed in the Directors’
remuneration report on pages 59 to 62 of the full Annual Report and
Financial Statements, there are no other related party transactions
or balances requiring disclosure.
21. Other Information
The information set out in this announcement does not constitute
the Company's statutory accounts within the terms of section 434 of
the Companies Act 2006 for the years ended 31 December 2023 and 31
December 2022, and is derived from the statutory accounts
for those financial years, which have been, or in the case of the
accounts for the year ended 31 December 2023, which will be,
delivered to the Registrar of Companies. The Auditor reported on
those accounts; the reports were unqualified and did not contain a
statement under s498 (2) or (3) of the Companies Act 2006.
22. Publication
The full audited Annual Report and Financial Statements are
being sent to shareholders and copies will be made available to the
public at the registered office of the Company, Companies House,
the National Storage Mechanism and also electronically at
www.albion.capital/funds/AADV/31Dec2023.pdf.
- AADV - Split of portfolio by sector, stage of investment and
number of employees
Albion Development Vct (LSE:AADV)
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Albion Development Vct (LSE:AADV)
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