Kings Arms Yard VCT PLC: Annual Financial Report
Kings Arms Yard VCT PLC
Annual Financial Report
LEI Code 213800DK8H27QY3J5R45
As required by the UK Listing Authority’s Disclosure Guidance
and Transparency Rules 4.1 and 6.3, Kings Arms Yard VCT PLC today
makes public its information relating to the Annual Report and
Financial Statements for the year ended 31 December 2023.
The announcement was approved for release by the Board of
Directors on 19 April 2024.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31
December 2023 (which have been audited), will shortly be sent to
shareholders. Copies of the full Annual Report and Financial
Statements will be shown via the Albion Capital Group LLP website
by clicking www.albion.capital/funds/KAY/31Dec2023.pdf.
Investment policy
The Company is a Venture Capital Trust and the investment policy is
intended to produce a regular and predictable dividend stream with
an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth
businesses across a variety of sectors of the UK economy including
higher risk technology companies. Allocation of assets will be
determined by the investment opportunities which become available
but efforts will be made to ensure that the portfolio is
diversified both in terms of sector and stage of maturity of
company.
Funds held pending investment or for liquidity purposes are held
as cash on deposit or similar instruments with banks or other
financial institutions with high credit ratings assigned by
international credit rating agencies.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses
within venture capital trust qualifying industry sectors using a
mixture of securities. The maximum amount which the Company will
invest in a single portfolio company is 15% of the Company’s assets
at cost, thus ensuring a spread of investment risk. The value of an
individual investment may increase over time as a result of trading
progress and it is possible that it may grow in value to a point
where it represents a significantly higher proportion of total
assets prior to a realisation opportunity being available.
The Company’s maximum exposure in relation to gearing is
restricted to the amount equal to its adjusted capital and
reserves.
Financial calendar
| 12 April 2024 |
Record date for first
dividend |
| 30 April 2024 |
Payment date for first
dividend |
| Noon on 4 June 2024 |
Annual General Meeting |
| September 2024 |
Announcement of Half-yearly
results for the six months ending 30 June 2024 |
| 31 October 2024 |
Payment date for second dividend
(subject to Board approval) |
Financial highlights
|
0.42p |
Basic and diluted return per share for the year ended 31 December
2023 (2022: 0.16p) |
|
|
|
|
2.2% |
Shareholder return for the year ended 31 December 2023† (2022:
0.9%) |
|
|
|
|
1.05p |
Total tax free dividends per share paid in the year to 31 December
2023 (2022: 2.30p) |
|
|
|
|
20.37p |
Net asset value per share as at 31 December 2023 (2022:
20.95p) |
†This is considered an Alternative Performance
Measure, see note 3 in the Strategic report for further
explanation.
Movements in net asset value
|
|
|
31 December 2023
pence per share |
|
31 December 2022
pence per share |
|
Opening net asset value |
|
20.95 |
|
23.05 |
| Capital return |
0.26 |
|
0.07 |
|
| Revenue return |
0.16 |
|
0.09 |
|
| Total return |
|
0.42 |
|
0.16 |
| Dividends paid |
|
(1.05) |
|
(2.30) |
| Impact
from share capital movements |
|
0.05 |
|
0.04 |
|
Net asset value |
|
20.37 |
|
20.95 |
Total shareholder value per share
|
|
Ordinary shares
(pence per share) |
|
Total dividends paid to 31 December 2023 |
74.53 |
|
Net asset value as at 31 December 2023* |
20.37 |
|
Total shareholder value per share as at 31 December 2023 |
94.90 |
*In the period from launch to 1 January 2011,
there was a decrease in the net asset value of 83.40 pence per
share. In the period from 1 January 2011 to 31 December 2023, the
period that Albion Capital have been investment manager, there has
been an increase in the net asset value of 3.77 pence per
share.
The above financial summary is for the Company,
Kings Arms Yard VCT PLC only. Details of the financial performance
of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC
companies, which have been merged into the Company, can be found at
www.albion.capital/funds/KAY under the ‘Financial summary for
previous funds’ section.
The Directors have declared a first
dividend of 0.51 pence per share for the year ending 31 December
2024, which will be paid on 30 April 2024 to shareholders on the
register on 12 April 2024.
Chairman’s statement
Introduction
In the year to 31 December 2023, the Company delivered a positive
total return of 0.42 pence per share, which equates to a 2.2%
shareholder return. Despite facing a backdrop of macroeconomic and
geopolitical uncertainty, which will likely persist in the
short-term, the Board continues to be encouraged by the progress
being made by many of the portfolio companies, supported by an
increase in young companies looking for funding. We expect the
continuing digitalisation strategies of corporate and healthcare
customers to create attractive long-term investment opportunities,
despite the current economic headwinds.
Results and dividends
As at 31 December 2023, the net asset value (“NAV”) was £105.5
million or 20.37 pence per share, compared to £104.0 million or
20.95 pence per share at 31 December 2022. The total return before
taxation was £2.1 million compared to a return of £0.7 million for
the previous year. Further details of the progress of a number of
our portfolio companies are discussed later in this statement.
In line with the dividend policy targeting
payment of around 5% of NAV per annum, the Company paid dividends
of 1.05 pence per share during the year to 31 December 2023 (2022:
2.30 pence per share). The 2022 dividend included a special
dividend of 1.14 pence per share.
The Board is pleased to have declared a first
dividend for the financial year ending 31 December 2024 of 0.51
pence per share, being 2.5% of the prevailing NAV, to be paid on 30
April 2024 to shareholders on the register on 12 April 2024.
Investment realisations
The Company had a number of realisations in the year, with proceeds
totalling £2.8 million, leading to realised gains of £0.6 million.
The most notable exit in the year was the sale of Ophelos,
generating £1.5 million in proceeds, and achieving a 2.1x return on
cost.
Further details on the investment realisations
during the year can be found in the table on page 29 of the full
Annual Report and Financial Statements.
Investment performance and progress
In spite of the global uncertainties faced, many
of our portfolio companies have performed well and this has
contributed to the total uplift in value of £3.3 million to the
Company’s investments for the year.
The top 3 investments by value in the portfolio,
Quantexa, Proveca and Egress, which together account for 32.7% of
net asset value, have performed well in the year, and their
valuations have increased in the year to 31 December 2023. In the
year, Quantexa raised an externally led $129 million Series E
fundraising, which completed in April 2023, and continues to
perform well (£6.1m uplift), whilst Egress and Proveca have shown
strong growth contributing £1.1m and £0.8m uplifts
respectively.
In contrast, certain portfolio companies have
been adversely impacted by the difficult macroeconomic environment,
including Black Swan Data (£1.1m write down), Threadneedle Software
Holdings (T/A Solidatus) (£0.6m write down) and Brytlyt (£0.6m
write down).
The Company has continued to be an active
investor during the year with £6.5 million invested into portfolio
companies, of which £2.1 million was invested across five new
portfolio companies, all of which are expected to require further
investment as the companies prove themselves and grow. The average
age of the five new portfolio companies was 2.63 years,
illustrating the Company’s focus on investing in earlier-stage
businesses and building value over the longer term. The new
investments during the year were:
- £0.8 million (Albion VCTs: £5.0
million) in OpenDialog AI, a provider of AI powered chatbots and
virtual assistants;
- £0.5 million (Albion VCTs: £3.0
million) in Gridcog International, a SaaS platform which provides
project modelling software to plan, track and optimise Distributed
Energy Resources (DERs) across multiple sites and asset types
integrated together;
- £0.4 million (Albion VCTs: £2.4
million) in Phasecraft, which develops new algorithms to make use
of early quantum computers for materials science problems;
- £0.2 million (Albion VCTs: £1.0
million) in Kennek Solutions, a vertical end to end software for
non-bank lenders that allows them to manage the full value chain of
lending in a single platform; and
- £0.2 million (Albion VCTs: £1.0
million) in Mondra Global, a software platform to automate
environmental product Lifecycle Assessments (LCA), allowing global
retailers to measure, manage and importantly reduce carbon
emissions of their products in their supply chains.
The Company also provided ongoing support to its
portfolio in the year, in the form of follow-on funding, with £4.4
million invested across thirteen existing portfolio companies. This
included a total of £1.3 million in Proveca, £0.7 million in
Gravitee TopCo (T/A Gravitee.io) and £0.6 million in Panaseer.
A full list of the Company's investments and
disposals, including their movements in value for the year, can be
found in the Portfolio of investments on pages 27 to 29 of the full
Annual Report and Financial Statements.
Updated NAV announcement after the year
end
On 12 March 2024, a NAV update was announced with a 0.71 pence per
share uplift, representing a 1.0% increase on the 31 December 2023
NAV. This uplift is a result of terms being agreed for the sale of
a company within the portfolio, however there is no certainty that
this deal will complete.
Risks and uncertainties
The Company faces significant risks, including higher interest
rates, high levels of inflation and the ongoing impact of
geopolitical tensions. This complex backdrop is factored into how
the Company is managed, including how it manages its cash.
Our investment portfolio, while concentrated
mainly in the technology and healthcare sectors, remains
diversified in terms of both sub-sector and stage of maturity. The
Manager is continually assessing the exposure to these risks for
each portfolio company and appropriate actions, where possible, are
being implemented. This includes the potential provision of further
financial support to portfolio companies where necessary.
A detailed analysis of the principal risks and
uncertainties facing the business is shown in the Strategic report
below.
Share buy-backs
It remains the Board’s primary objective to maintain sufficient
resources for investment in existing and new portfolio companies
and for the continued payment of dividends to shareholders. The
Board’s policy is to buy back shares in the market, subject to the
overall constraint that such purchases are in the Company’s
interest.
It is the Board’s intention for such buy-backs
to be in the region of a 5% discount to net asset value, so far as
market conditions and liquidity permit. Details of shares bought
back during the year can be found in note 14.
Board continuity
Simon Thorpe was appointed to the Board on 1 September 2023, and
brings a wealth of knowledge and experience to the Board. Simon is
a qualified Chartered Accountant and former chairman and director
of Cambridge Angels with extensive experience of analysing and
investing in early-stage public and private companies in the
technology and technology enabled healthcare sectors.
After being appointed to the Board and serving
as chairman of the Audit and Risk Committee since 2011, Thomas
Chambers will be retiring from the Board at the forthcoming Annual
General Meeting on 4 June 2024. I would like to take this
opportunity to wish him well for the future, and express my thanks
on behalf of the Board and shareholders for his significant
contribution during his tenure. Simon Thorpe will succeed him as
chairman of the Audit and Risk Committee.
More information on the re-election and election
of the Directors can be found on page 49 of the full Annual Report
and Financial Statements.
Albion VCTs Prospectus Top Up
Offer
On 16 March 2023, the Board announced the closure of the 2022/23
Top Up Offer having reached its £12.5 million limit.
Your Board, in conjunction with the Boards of
four other VCTs managed by Albion Capital Group LLP, published a
Prospectus Top Up Offer of new Ordinary shares on 15 December 2023.
The Offer launched on 2 January 2024 and the Company announced it
had reached its £10.5 million limit on 19 March 2024.
The funds raised by the Company pursuant to the
Offer will be added to the cash resources available for investment,
putting the Company into a position to take advantage of investment
opportunities over the next two to three years.
Annual General Meeting
(“AGM”)
The AGM will be held virtually at noon on 4 June 2024 via the Lumi
platform. Information on how to participate in the live webcast can
be found on the Manager’s website
www.albion.capital/vct-hub/agms-events.
The Board welcome questions from shareholders at
the AGM and shareholders will be able to ask questions using the
Lumi platform during the AGM. Alternatively, shareholders can email
their questions to KAYchair@albion.capital prior to the
Meeting.
Further details on the format and business to be
conducted at the AGM can be found in the Directors’ report on pages
50 and 51 and in the Notice of the Meeting on pages 92 to 95 of the
full Annual Report and Financial Statements.
Due to the success and ongoing participation of
shareholders at the Albion Shareholders Seminar, there will be
another opportunity to meet again at this years event, details of
which will be available in due course at
www.albion.capital/vct-hub/agms-events.
Audit tender process
Following a formal and rigorous audit tender process, and with the
outgoing auditors approaching the maximum period a firm can act as
auditor, Johnston Carmichael LLP (“Johnston Carmichael”) was
appointed as the new Auditor of the Company in October 2023.
Johnston Carmichael has conducted the audit of the Annual Report
and Financial Statements for the year ended 31 December 2023.
Shareholders will be asked to confirm the appointment of Johnston
Carmichael at the forthcoming Annual General Meeting.
The Board would like to thank BDO for their
diligent service over the last 9 years.
Further details on the tender process can be
found in the Statement of corporate governance on page 56 of the
full Annual Report and Financial Statements.
Change of name
In order to closer align with the identity of the other VCTs
managed by Albion Capital Group LLP, the Board is pleased to
announce a change in the Company’s name to Albion KAY VCT PLC,
which is expected to take place later this year.
Outlook and prospects
The Board is pleased with the positive return for the year, which
highlights the resilience of the Company’s portfolio in a
challenging climate and supports our emphasis on structural growth
trends within the technology and healthcare sectors. We continue to
minimise exposure to discretionary consumer expenditure, which
should strengthen the Company's resilience during uncertain
economic times. The Manager’s ability to deploy cash into promising
new companies has also been encouraging, with five new investments
completed during the year.
There are numerous economic and geopolitical
challenges that still lie ahead for our portfolio companies;
however, we have confidence in the prospects for the Company’s
portfolio and its ability to deliver growth in shareholder value in
the medium to long term.
Fiona Wollocombe
Chairman
19 April 2024
Strategic report
The Company is a Venture Capital Trust and its investment policy
can be found above.
Business model
The Company operates as a Venture Capital Trust. This means that
the Company has no employees and has outsourced the management of
all its operations to Albion Capital Group LLP, including
secretarial and administrative services. Further details of the
Management agreement can be found below.
Current portfolio sector allocation
The pie charts at the end of this announcement
show the split of the portfolio valuation as at 31 December 2023
by: sector; stage of investment; and number of employees. This is a
useful way of assessing how the Company and its portfolio is
diversified across sector, portfolio companies’ maturity measured
by revenues and their size measured by the number of people
employed. Details of the principal investments made by the Company
are shown in the Portfolio of investments on pages 27 and 28 of the
full Annual Report and Financial Statements.
Direction of portfolio
The analysis of the Company’s investment
portfolio shows that it is well diversified and evenly spread
across the FinTech, healthcare (including digital healthcare),
software and technology and renewable energy sectors.
The cash currently sits at 19% of NAV which the
Company will use to support those portfolio companies that require
it, as well as to capitalise on any new investment opportunities
that arise. The Manager has a deep sector knowledge in healthcare
(including digital healthcare), FinTech and enterprise software,
and these funds will be invested predominantly into higher growth
technology companies within these sectors. In addition, as an
extension to the breadth of the Company’s technology investing, it
intends to make a number of DeepTech investments over the
forthcoming years.
Results and dividends
|
|
£'000 |
|
Net capital return for the year ended 31 December 2023 |
1,321 |
| Net
revenue return for the year ended 31 December 2023 |
815 |
|
Total return for the year ended 31 December
2023 |
2,136 |
| First dividend of 0.52 pence
per share paid on 28 April 2023 |
(2,743) |
| Second dividend of 0.53 pence
per share paid on 31 October 2023 |
(2,767) |
|
Unclaimed dividends |
8 |
|
Transferred from reserves |
(3,366) |
|
|
|
|
Net assets as at 31 December 2023 |
105,490 |
| Net asset value per
share as at 31 December 2023 |
20.37p |
The Company paid dividends of 1.05 pence per
share during the year ended 31 December 2023 (2022: 2.30 pence per
share, which included a special dividend of 1.14 pence per share).
The Board has a variable dividend policy which targets an annual
dividend yield of around 5% on the prevailing net asset value. As a
result, the Board has declared a first dividend of 0.51 pence per
share (2023: 0.52 pence per share) for the year ending 31 December
2024, which will be paid on 30 April 2024 to shareholders on the
register on 12 April 2024.
As shown in the Income statement, investment
income has increased to £1,498,000 (2022: £1,079,000) due mainly to
bank interest increasing to £376,000 (2022: £68,000) and income
from fixed term funds increasing to £254,000 (2022: £59,000), both
as a result of rising interest rates. This increase was partially
offset by dividend income falling to £115,000 (2022: £125,000) and
loan stock interest decreasing to £753,000 (2022: £827,000). The
gain on investments for the year was £3,306,000 (2022: £2,237,000).
The key drivers of this gain are detailed in the Portfolio of
investments section on pages 27 to 29 of the full Annual Report and
Financial Statements.
The total return for the year was £2,136,000
(2022: £726,000), equating to a return of 0.42 pence per share
(2022: 0.16 pence per share).
The Balance sheet shows that the net asset value
has decreased over the last year to 20.37 pence per share (2022:
20.95 pence per share).
There has been a net cash outflow of £5,983,000
for the year (2022: outflow of £7,666,000), mainly resulting from a
high number of investments into new and existing portfolio
companies, though lower than in the prior year, and dividends paid
during the year. These outflows were offset by the issue of
Ordinary shares under the Albion VCTs Top Up Offers 2022/23 and
proceeds received from exits in the year.
Cash in bank and at hand at the year end
decreased to £20.2 million (2022: £26.2 million), representing 19%
(2022: 25%) of net asset value.
Review of business and future
changes
A review of the Company’s business during the year is set out in
the Chairman’s statement.
There is a continuing focus on growing the
healthcare (including digital healthcare), FinTech and software and
other technology sectors. The majority of these investment returns
are delivered through equity and capital gains and will be the key
driver of success for the Company. Investment income, which is
received primarily from our renewable energy investments, is
expected to remain steady over the coming years.
Details of significant events which have
occurred since the end of the financial year are listed in note 18.
Details of transactions with the Manager are shown in note 4.
Future prospects
The Company’s financial results for the year
demonstrate that the portfolio remains well balanced across sectors
and risk classes, and is largely weathering the impacts of the
ongoing global issues caused as a result of high levels of interest
rates and inflation, due in part to the geopolitical tensions,
however the full effects of these issues will continue to be felt
in years to come. Although there remains much uncertainty, the
Board considers that the current portfolio has the potential to
deliver long term growth, whilst maintaining a predictable stream
of dividend payments to shareholders. Further details on the
Company’s outlook and prospects can be found in the Chairman’s
statement.
Key Performance Indicators (“KPIs”) and
Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs and APMs, which are
typical for Venture Capital Trusts, used in their own assessment of
the Company, will provide shareholders with sufficient information
to assess how effectively the Company is applying its investment
policy to meet its objectives. The Directors are satisfied that the
results shown in the following KPIs and APMs give a good indication
that the Company is achieving its investment objective and
policy.
1. Total shareholder return relative to FTSE
All-Share Index total return
The graph on page 8 of the full Annual Report
and Financial Statements shows the Company’s total shareholder
return relative to the FTSE All-Share Index total return, with
dividends reinvested, since 1 January 2014. The FTSE All-Share
index is considered a reasonable benchmark as the Company is
classed as a generalist UK VCT investor, and this index includes
over 600 companies listed in the UK, including small-cap, covering
a range of sectors. Details on the performance of the net asset
value and return per share for the year are shown in the Chairman’s
statement.
2. Net asset value per share (APM) and
cumulative dividends
The graph on page 16 of the full Annual Report
and Financial Statements illustrates the movement in net asset
value per share and cumulative dividends paid for the period 1
January 2014 to 31 December 2023.
3. Shareholder value (APM) and Shareholder
return† (APM)
Total shareholder value since inception (being
the NAV plus dividends paid) increased by 0.47 pence per share
(2.2% on opening NAV) to 94.90 pence per share for the year ended
31 December 2023.
|
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
|
(0.7%) |
9.3% |
11.4% |
5.6% |
11.0% |
1.9% |
4.2% |
16.3% |
0.9% |
2.2% |
†Methodology: Calculated as the movement in
total shareholder value for the year divided by the opening net
asset value.
The table above shows that total shareholder
value has increased in 9 out of the last 10 years, with an average
return of 6.2% per annum.
4. Dividend distributions
Dividends paid in respect of the year ended 31
December 2023 were 1.05 pence per share (2022: 2.30 pence per
share). The cumulative dividend paid since inception is 74.53 pence
per share.
5. Ongoing charges (APM)
The ongoing charges ratio for the year to 31
December 2023 was 2.43% (2022: 2.43%). The ongoing charges ratio
has been calculated using The Association of Investment Companies
(“AIC”) recommended methodology. This figure shows shareholders the
total recurring annual operational expenses (including investment
management fees charged to capital reserve) as a percentage of the
average net assets attributable to shareholders. The ongoing
charges are subject to an annual cap of 3.00%. The Directors expect
the ongoing charges ratio for the year ahead to be approximately
2.45%.
6. VCT compliance*
The investment policy is designed to ensure that
the Company continues to qualify and is approved as a VCT by HMRC.
In order to maintain its status under Venture Capital Trust
legislation, a VCT must comply on a continuing basis with the
provisions of Section 274 of the Income Tax Act 2007, details of
which are provided in the Directors’ report on pages 46 and 47 of
the full Annual Report and Financial Statements.
The relevant tests to measure compliance have
been carried out and independently reviewed for the year ended 31
December 2023. These showed that the Company has complied with all
tests and continues to do so.
*VCT compliance is not a numerical measure
of performance and thus cannot be defined as an APM.
Gearing
As defined by the Articles of Association, the Company’s maximum
exposure in relation to gearing is restricted to its adjusted share
capital and reserves. The Directors do not currently have any
intention to utilise gearing for the Company.
Operational arrangements
The Company has delegated the investment management of the
portfolio to Albion Capital Group LLP, which is authorised and
regulated by the Financial Conduct Authority. Albion Capital Group
LLP also provides company secretarial and other accounting and
administrative support to the Company.
Management agreement
Under the Investment Management Agreement, Albion Capital Group LLP
provides investment management, company secretarial and
administrative services to the Company. Albion Capital Group LLP is
entitled to an annual management fee of 2% of net asset value of
the Company, payable quarterly in arrears, along with an annual
administration fee of £50,000.
The aggregate payable for management and
administration (normal running costs) are subject to an aggregate
annual cap of 3% of the year end closing net asset value, for
accounting periods commencing after 31 December 2011.
The Investment Management Agreement can be
terminated by either party on 12 months’ notice and is subject to
earlier termination in the event of certain breaches or on the
insolvency of either party.
The Manager is also entitled to an arrangement
fee on investment, payable by each portfolio company, of
approximately 2% of each investment made and monitoring fees where
the Manager has a representative on the portfolio company’s board.
Further details of the Manager’s fee can be found in note 4.
Performance incentive fee
As an incentive to maximise the return to investors, the Manager
would receive an incentive fee in the event that the returns exceed
minimum target levels.
The performance hurdle is equal to the greater
of the starting NAV of 20 pence per share, increased by the
increase in RPI plus 2% per annum from the start date of 1 January
2014 (calculated on a simple and not compound basis) and the
highest total return for any earlier period after the start date
(the ‘high watermark’). An annual fee (in respect of each share in
issue carrying voting rights on the last day of the financial
period) of an amount equal to 15% of any excess of the total return
(this being NAV per share plus dividends paid after the start date)
as at the end of the relevant accounting period over the
performance hurdle will be due to the Manager.
For the year ended 31 December 2023, the total
return of the Company since 1 January 2014 (the performance
incentive fee start date) was 33.57 pence per share, compared to a
performance hurdle rate of 37.42 pence per share, resulting in a
shortfall of 3.85 pence per share. As a result, no performance
incentive fee is payable to the Manager (2022: £nil).
Evaluation of the Manager
The Board has evaluated the performance of the Manager based
on:
• the returns generated by the Company;
• the continuing achievement of the HMRC tests for VCT status;
• the long term prospects of the current portfolio of
investments;
• the management of treasury, including use of buy-backs and
participation in fund raising; and
• benchmarking the performance of the Manager to other service
providers including the performance of other VCTs that
the Manager is responsible for managing.
The Board believes that it is in the interests
of shareholders as a whole, and of the Company, to continue the
appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers
Directive (“AIFMD”)
The Board appointed the Manager as the Company’s AIFM in 2014 as
required by the AIFMD. The Manager is a full-scope Alternative
Investment Fund Manager under the AIFMD. Ocorian Depositary (UK)
Limited is the appointed Depositary and oversees the custody and
cash arrangements and provides other AIFMD duties with respect to
the Company.
Consumer Duty
Consumer Duty came into effect from 31 July 2023. These rules set a
higher standard of consumer protection in financial services. The
Manager as AIFM is within scope of the FCA’s Consumer Duty, but the
Company itself is not.
The Manager is a manufacturer of the Company’s
shares as it is a firm that has some influence over design and
distribution of the Company’s share product. The Manager’s latest
assessment of value for the Company’s shares was completed in
December 2023. The value assessment concluded that the Company
provides fair value for shareholders. Where the Manager’s product
review concludes that changes may help deliver better outcomes for
consumers, it will recommend these changes to the Board.
Companies Act 2006 Section 172
Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty
to promote the success of the Company for the benefit of its
members as a whole in both the long and short term, having regard
to the interests of other stakeholders in the Company, such as
suppliers, and to do so with an understanding of the impact on the
community and environment and with high standards of business
conduct, which includes acting fairly between members of the
Company.
The Board is very conscious of these wider
responsibilities in the ways it promotes the Company’s culture and
ensures, as part of its regular oversight, that the integrity of
the Company’s affairs is foremost in the way the activities are
managed and promoted. This includes regular engagement with the
wider stakeholders of the Company and being alert to issues that
might damage the Company’s standing in the way that it operates.
The Board works very closely with the Manager in reviewing how
stakeholder issues are handled, ensuring good governance and
responsibility in managing the Company’s affairs, as well as
visibility and openness in how the affairs are conducted.
The Company is an externally managed investment
company with no employees, and as such has nothing to report in
relation to employee engagement but does keep close attention to
how the Board operates as a cohesive and competent unit. The
Company also has no customers in the traditional sense and,
therefore, there is also nothing to report in relation to
relationships with customers.
The table that follows sets out the stakeholders
the Board considers most relevant, details how the Board has
engaged with these key stakeholders and the effect of these
considerations on the Company’s decisions and strategies during the
year.
|
Engagement with Stakeholder |
Outcomes and decisions based on engagement |
|
Shareholders |
The key methods of engaging with Shareholders are as follows:
- Annual General Meeting
(“AGM”).
- Shareholders’ seminar.
- Annual report and Financial
Statements, Half-yearly financial report, and Interim management
statements.
- RNS announcements for all key
decisions including appointment of a new Director, and the
publication of a 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 investment management team. The
use of the Lumi platform enabled engagement with a wider audience
of shareholders from across the country, and gave shareholders the
opportunity to ask questions and vote during the virtual AGM last
year.
- Shareholders are also encouraged to
attend the in person annual Shareholders’ Seminar. This year’s
event took place on 15 November 2023 at the Royal College of
Surgeons. The seminar included Proveca and OutThink sharing
insights into their businesses and 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 total of 1.05 pence of dividends
paid during the year, which was 5.0% of the opening net asset
value.
- During the year, the Board made the
decision to participate in the Albion Prospectus Top Up Offer, to
raise more funds for deployment into new and existing portfolio
companies. The Prospectus was published on 15 December 2023 and the
Offer launched to applications on 2 January 2024. The Board
carefully considered whether further funds were required, whether
the VCT tests would continue to be met, and whether it would be in
the interest of Shareholders, before agreeing to publish the
Prospectus. On allotment, an issue price formula based on the
prevailing net asset value is used to ensure there is no dilution
to existing Shareholders.
- Cash management and liquidity of
the Company are key quarterly discussions amongst the Board, with
focus on deployment of cash for future investments, dividends and
share buy-backs.
- Shareholders can contact the
Chairman using the email KAYchair@albion.capital.
|
|
Manager |
|
The performance of Albion Capital Group LLP is essential to the
long term success of the Company, including achieving the
investment policy and generating returns to shareholders, as well
as the impact the Company has on Environment, Social and Governance
practice. |
- The Manager meets with the Board at
least quarterly to discuss the performance of the Company, and is
in regular contact in between these meetings, e.g. to share
investment papers for new and follow-on investments. All strategic
decisions are discussed in detail and minuted, with an open
dialogue between the Board and the Manager.
- The performance of the Manager in
managing the portfolio and in providing company secretarial,
administration and accounting services is reviewed in detail each
year, which includes reviewing comparator engagement terms and
portfolio performance. Further details on the evaluation of the
Manager, and the decision to continue the appointment of the
Manager for the forthcoming year, can be found in this report.
- Details of the Manager’s
responsibilities can be found in the Statement of corporate
governance on page 54 of the full Annual Report and Financial
Statements.
|
|
Suppliers |
The key suppliers with regular engagement from the Manager are:
- Auditor
- Corporate broker
- Depositary
- Lawyer
- Registrar
- VCT taxation adviser
|
- The Manager is in regular contact
with the suppliers and the contractual arrangements with all the
principal suppliers to the Company are reviewed regularly and
formally once a year, alongside the performance of the suppliers in
acquitting their responsibilities.
- The Board reviews the performance
of the providers annually in line with the Manager, and was
satisfied with their performance.
- 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.
|
|
Portfolio companies |
|
The portfolio companies are considered key stakeholders, not least
because they are principal drivers of value for the Company.
However, as discussed in the Environmental, Social and Governance
(“ESG”) report on pages 41 to 44 of the full Annual Report and
Financial Statements, the portfolio companies’ impact on their
stakeholders is also important to the Company. |
- The Board aims to have a
diversified portfolio in terms of sector and stage of investment.
Further details of this can be found in the pie charts at the end
of this announcement.
- In most cases, an Albion executive
has a place on the board of a portfolio company, in order to help
with both business operation decisions, as well as good ESG
practices.
- The Manager provides access to deep
expertise on growth strategy alignment, leadership team hiring,
organisational scaling and founder leader development.
- The Manager ensures good dialogue
with portfolio companies, and often puts on events in order to help
portfolio companies benefit from the Albion network.
|
|
Community and environment |
|
The Company, with no employees, has no effect itself on the
community and environment. However, as discussed above, the
portfolio companies’ ESG impact is extremely important to the
Board. |
- The Board receives reports on ESG
factors within its portfolio from the Manager as it is a signatory
of the United Nations Principles for Responsible Investment (“UN
PRI”). Further details of this are set out in the ESG report on
pages 41 to 44 of the full Annual Report and Financial Statements.
ESG, without its specific definition, has always been at the heart
of the responsible investing that the Company engages in and in how
the Company conducts itself with all of its stakeholders.
|
Social and community issues, employees and human
rights
The Board recognises the requirement under
section 414C of the Companies Act 2006 (the “Act”) to detail
information about social and community issues, employees and human
rights; including any policies it has in relation to these matters
and effectiveness of these policies. As an externally managed
investment company with no employees, the Company has no formal
policies in these matters, however, it is at the core of its
responsible investment strategy as detailed above.
General Data Protection Regulation
The General Data Protection Regulation (“GDPR”)
has the objective of unifying data privacy requirements across the
European Union. GDPR forms part of the UK law after Brexit, now
known as UK GDPR. The Manager continues to take action to ensure
that the Manager and the Company are compliant with the
regulation.
Further policies
The Company has adopted a number of further policies relating
to:
● Environment
● Global greenhouse gas
emissions
● Anti-bribery
● Anti-facilitation of tax
evasion
● Diversity
and these are set out in the Directors’ report on pages 47 and
48 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in
which the Company operates, together with changes to the
environment and individual risks. The Board also identifies
emerging risks which might impact on the Company. In the year ended
31 December 2023, the most noticeable risks have been the emergence
of rising interest rates and inflation, caused in part as a result
of the geopolitical tensions, and rising volatility in world
markets. The full impacts of these risks are likely to continue to
be uncertain for some time.
The Board has carried out a robust assessment of
the Company’s principal risks, emerging risks and
uncertainties, and seeks to mitigate these risks
through regular reviews of performance and monitoring progress
and compliance. The Board applies the principles detailed in the
Financial Reporting Council’s Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting, in the
mitigation and management of these risks. More information on
specific mitigation measures for the principal risks, emerging
risks and uncertainties are explained in the following table.
|
Possible consequence |
Risk assessment during the year |
Risk management |
|
Principal Risks |
|
Risk: Investment, performance, technology, and valuation risk |
The risk of investment in poor quality businesses, which could
reduce the returns to shareholders and could negatively impact on
the Company’s current and future valuations.
By nature, smaller unquoted businesses, such as those that qualify
for Venture Capital Trust purposes, are more volatile than larger,
long-established businesses.
Technology related risks are also likely to be greater in early,
rather than later, stage technology investments, including the
risks of the technology not becoming generally accepted by the
market or the obsolescence of the technology concerned, often due
to greater financial resources being available to competing
companies.
The Company’s investment valuation methodology is reliant on the
accuracy and completeness of information that is issued by
portfolio companies. In particular, the Directors may not be aware
of or take into account certain events or circumstances which occur
after the information issued by such companies is reported. |
No change during the year, but remains high due to the economic and
geopolitical issues as referred to in the Chairman’s
statement. |
To reduce this risk, the Board places reliance upon the skills and
expertise of the Manager and its track record over many years of
making successful investments in this segment of the market. In
addition, the Manager operates a formal and structured investment
appraisal and review process, which includes an Investment
Committee, comprising investment professionals from the Manager for
all investments, and at least one external investment professional
for investments greater than £1 million in aggregate across all the
Albion managed VCTs. The Manager also invites and takes account of
comments from non-executive Directors of the Company on matters
discussed at the Investment Committee meetings.
Investments are actively and regularly monitored by the Manager
(investment managers normally sit on portfolio company boards),
including the level of diversification in the portfolio, and the
Board receives detailed reports on each investment as part of the
Manager’s report at quarterly board meetings. The Board and Manager
regularly review the deployment of investments and cash resources
available to the Company in assessing liquidity required for
servicing the Company’s buy-backs, dividend payments and
operational expenses. The decision to issue a Prospectus for the
2023/24 Top Up was due to careful analysis of these factors.
The unquoted investments held by the Company are designated at fair
value through profit or loss and valued in accordance with the
International Private Equity and Venture Capital Valuation
Guidelines updated in 2022. These guidelines set out
recommendations, intended to represent current best practice on the
valuation of venture capital investments. The valuation takes into
account all known or knowable material facts at the date of
valuation. |
|
Risk: VCT approval risk |
|
The Company must comply with section 274 of the Income Tax Act 2007
which enables its investors to take advantage of tax relief on
their investment and on future returns. Breach of any of the rules
enabling the Company to hold VCT status could result in the loss of
that status. |
No change in the year. |
To reduce this risk, the Board has appointed the Manager, which has
a team with significant experience in Venture Capital Trust
management, used to operating within the requirements of the
Venture Capital Trust legislation. In addition, to provide further
formal reassurance, the Board has appointed Philip Hare &
Associates LLP as its taxation adviser, who report quarterly to the
Board to independently confirm compliance with the Venture Capital
Trust legislation, to highlight areas of risk and to inform on
changes in legislation. Each investment in a new portfolio company
is also pre-cleared with our professional advisers or H.M. Revenue
& Customs. The Company monitors closely the extent of
qualifying holdings and addresses this as required. |
|
Risk: Regulatory and compliance risk |
The Company is listed on The London Stock Exchange and is required
to comply with the rules of the Financial Conduct Authority, as
well as with the Companies Act, Accounting Standards and other
legislation. Failure to comply with these regulations could result
in a delisting of the Company’s shares, or other penalties under
the Companies Act or from financial reporting oversight bodies.
|
No change in the year. |
Board members and the Manager have experience of operating at
senior levels within or advising quoted companies. In addition, the
Board and the Manager receive regular updates on new regulation
from its auditor, lawyers and other professional bodies. The
Company is subject to compliance checks through the Manager’s
compliance officer, and any issues arising from compliance or
regulation are reported to its own board every two months. These
controls are also reviewed as part of the quarterly Board meetings,
and also as part of the review work undertaken by the Manager’s
compliance officer. The report on controls is also evaluated by the
internal auditors.
The Government has announced its intention to extend the VCT sunset
clause to 2035. This will help to enable the Company to continue
supporting its portfolio of high growth companies. |
|
Risk: Operational and internal control risk |
|
The Company relies on a number of third parties, in particular the
Manager, for the provision of investment management and
administrative functions. Failures in key systems and controls
within the Manager’s business could put assets of the Company at
risk or result in reduced or inaccurate information being passed to
the Board or to shareholders. |
No change in the year. |
The Company and its operations are subject to a series of rigorous
internal controls and review procedures exercised throughout the
year. The Board receives reports from the Manager on its internal
controls and risk management.
The Audit and Risk Committee reviews the Internal Audit Reports
prepared by the Manager’s internal auditors, Azets and has access
to their internal audit partner to whom it can ask specific
detailed questions in order to satisfy itself that the Manager has
strong systems and controls in place including those in relation to
business continuity and cyber security, as mentioned below.
Ocorian Depositary (UK) Limited is the Company’s Depositary,
appointed to oversee the custody and cash arrangements and provide
other AIFMD duties. The Board reviews the quarterly reports
prepared by Ocorian Depositary (UK) Limited to ensure that the
Manager is adhering to its policies and procedures as required by
the AIFMD.
In addition, the Board annually reviews the performance of its key
service providers, particularly the Manager, to ensure they
continue to have the necessary expertise and resources to deliver
the Company’s investment objective and policy. The Manager and
other service providers have also demonstrated to the Board that
there is no undue reliance placed upon any one individual. |
|
Risk: Cyber and data security risk |
|
A cyber-attack on one of the Company's third party suppliers could
result in the security of, potentially sensitive, data being
compromised, leading to financial loss, disruption or damage to the
reputation of the Company. |
No change in the year. |
The Manager outsources some of its IT services, including hardware
and software procurement, server management, backup provision and
day-to-day support through an outsourcing arrangement with an IT
consultant. In house IT support is also provided.
In addition, the Manager also has a business continuity plan which
includes off-site storage of records and remote access provisions.
This is revised and tested annually and is also subject to
Compliance, Group Risk and Internal Audit reporting. Penetration
tests are also carried out to ensure that IT systems are not
susceptible to any cyber-attacks.
The Manager’s Internal Auditor performs reviews on IT general
controls and data confidentiality and makes recommendations where
necessary. The 2023 internal audit focused specifically on IT
systems. |
|
Risk: Economic, political and social risk |
|
Changes in economic conditions, including, for example, interest
rates, rates of inflation, industry conditions, competition,
political and diplomatic events, and other factors could
substantially and adversely affect the Company’s prospects in a
number of ways. This also includes risks of social upheaval,
including from infection and population re-distribution, as well as
economic risk challenges as a result of healthcare
pandemics/infection. |
Increased in the year, due to the continued high levels of
inflation and interest rates and new areas of geopolitical
tensions. |
The Company invests in a diversified portfolio of companies across
a number of industry sectors and in addition often invests in a
mixture of instruments in portfolio companies and has a policy of
minimising any external bank borrowings within portfolio
companies.
At any given time, the Company has sufficient cash resources to
meet its operating requirements, including share buy-backs and
follow-on investments.
In common with most commercial operations, exogenous risks over
which the Company has no control are always a risk and the Company
does what it can to address these risks where possible, not least
as the nature of the investments the Company makes are long
term.
The Board and Manager are continuously assessing the resilience of
the portfolio, the Company and its operations and the robustness of
the Company’s external agents, as well as considering longer term
impacts on how the Company might be positioned in how it invests
and operates. Ensuring liquidity in the portfolio to cope with
exigent and unexpected pressures on the finances of the portfolio
and the Company is an important part of the risk mitigation in
these uncertain times. The portfolio is structured as an
all-weather portfolio with c.65 companies which are diversified as
discussed above. Exposure is relatively small to at-risk sectors
that include leisure, hospitality, retail and travel. |
|
Risk: Liquidity risk |
|
The Company may not have sufficient cash available to meet its
financial obligations. The Company’s portfolio is primarily in
smaller unquoted companies, which are inherently illiquid as there
is no readily available market, and thus it may be difficult to
realise their fair value at short notice. |
No change in the year. |
To reduce this risk, the Board reviews the Company’s three year
cash flow forecasts on a quarterly basis. These include potential
investment realisations (which are closely monitored by the
Manager), Top Up Offers, dividend payments and operational
expenditure. This ensures that there are sufficient cash resources
available for the Company’s liabilities as they fall due. |
|
Emerging Risks |
|
Risk: Environmental, social and governance (“ESG”) risk |
|
An insufficient ESG policy could lead to an increased negative
impact on the environment, including the Company’s carbon
footprint. Non-compliance with reporting requirements could lead to
a fall in demand from investors, reputational damage and penalties.
Climate risks could also negatively impact on the value of
portfolio investments. |
No change in the year. |
The Manager is a signatory of the UN PRI and the Board is kept
appraised of the evolving ESG policies at quarterly Board meetings.
Full details of the specific procedures and risk mitigation can be
found in the ESG report on pages 41 to 44 of the full Annual Report
and Financial Statements. These procedures ensure that this
increased risk continues to be mitigated where possible.
Whilst the Company itself has limited impact on climate change, due
to no employees nor greenhouse gas emissions, the Board works
closely with the Manager to ensure the Manager themselves are
working towards reducing their impact on the environment, and that
the Manager takes account of ESG factors, including climate change,
when making new investment decisions. With specific respect to the
Company, a key operation is increasing the use of electronic
communications with Shareholders, where that preference has been
specified. |
Viability statement
In accordance with the FRC UK Corporate
Governance Code published in 2018 and provision 36 of the AIC Code
of Corporate Governance, the Directors have assessed the prospects
of the Company over three years to 31 December 2026. The Directors
believe that three years is a reasonable period in which they can
assess the ability of the Company to continue to operate and meet
its liabilities as they fall due. This is the period used by the
Board as part of its strategic planning process, which includes:
the estimated timelines for finding, assessing and completing
investments; the potential impact of any new regulations; and the
availability of cash.
The Board has carried out a robust assessment of
the principal and emerging risks facing the Company, including
those that could threaten its business model, future performance,
solvency or liquidity, and focused on the major factors which
affect the economic, regulatory and political environment. The
Board carefully assessed, and were satisfied with, the risk
management processes in place to avoid or reduce the impact of
these risks. The Board has carried out robust stress testing of
cashflows which included; factoring in higher levels of inflation
when budgeting for future expenses, only including proceeds from
investment disposals where there is a high probability of
completion, whilst also assessing the resilience of investee
companies given the current decline in the global economy,
including the requirement for any future financial support.
The Board has additionally considered the
ability of the Company to comply with the ongoing conditions to
ensure it maintains its VCT qualifying status under its current
investment policy. As a result of the Board’s quarterly valuation
reviews, it has concluded that the portfolio is well balanced and
geared towards delivering long term growth and strong returns to
shareholders.
The Board has concluded that there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the three
year period to 31 December 2026. The Board is mindful of the
ongoing risks and will continue to ensure that appropriate
safeguards are in place, in addition to monitoring the quarterly
cashflow forecasts to ensure the Company has sufficient
liquidity.
Companies Act 2006
This Strategic report of the Company for the
year ended 31 December 2023 has been prepared in accordance with
the requirements of section 414A of the Companies Act 2006 (the
“Act”). The purpose of this report is to provide Shareholders with
sufficient information to enable them to assess the extent to which
the Directors have performed their duty to promote the success of
the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
Fiona Wollocombe
Chairman
19 April 2024
Responsibility statement
In preparing these Financial Statements for the year to 31
December 2023, the Directors of the Company, being Fiona
Wollocombe, Thomas Chambers, Swarupa Pathakji and Simon Thorpe,
confirm to the best of their knowledge:
- summary financial information contained in this announcement
and the full Annual Report and Financial Statements for the year
ended 31 December 2023 for the Company has been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (UK Accounting Standards and applicable law) and give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company; and
- the Chairman’s statement and Strategic report include a fair
review of the development and performance of the business and the
position of the Company, together with a description of the
principal risks and uncertainties it faces.
We consider that the Annual Report and Financial Statements,
taken as a whole, are fair, balanced, and understandable and
provide the information necessary for shareholders to assess the
Company’s position, performance, business model and strategy.
A detailed “Statement of Directors’ responsibilities” is
contained on page 52 of the full Annual Report and Financial
Statements.
For and on behalf of the Board
Fiona Wollocombe
Chairman
19 April 2024
Income statement
|
|
|
Year ended 31 December 2023 |
Year ended 31 December 2022 |
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Note |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
Gains on investments |
2 |
- |
3,306 |
3,306 |
- |
2,237 |
2,237 |
|
Investment income |
3 |
1,498 |
- |
1,498 |
1,079 |
- |
1,079 |
|
Investment Manager’s fees |
4 |
(219) |
(1,985) |
(2,204) |
(214) |
(1,923) |
(2,137) |
|
Other expenses |
5 |
(464) |
- |
(464) |
(453) |
- |
(453) |
|
Profit on ordinary activities before tax |
|
815 |
1,321 |
2,136 |
412 |
314 |
726 |
|
Tax on ordinary activities |
7 |
- |
- |
- |
- |
- |
- |
|
Profit and total comprehensive income attributable to
shareholders |
|
815 |
1,321 |
2,136 |
412 |
314 |
726 |
|
Basic and diluted return per share (pence)* |
9 |
0.16 |
0.26 |
0.42 |
0.09 |
0.07 |
0.16 |
*adjusted for treasury shares
The accompanying notes form an integral part of
these Financial Statements.
The total column of this Income statement
represents the profit and loss account of the Company. The
supplementary revenue and capital columns have been prepared under
guidance published by The Association of Investment Companies.
All gains and losses are recognised in the
Income statement and all items in the above statement are derived
from continuing operations.
Balance sheet
|
|
|
31 December 2023 |
31 December 2022 |
|
|
Note |
£’000 |
£’000 |
|
|
|
|
|
|
|
|
|
|
|
Fixed assets investments |
10 |
84,105 |
76,706 |
|
|
|
|
|
|
Current assets |
|
|
|
| Trade and
other receivables |
12 |
1,884 |
1,773 |
| Cash in
bank and at hand |
|
20,196 |
26,179 |
|
|
|
22,080 |
27,952 |
|
|
|
|
|
|
Payables: amounts falling due within one year |
|
|
|
| Trade and
other payables |
13 |
(695) |
(659) |
|
|
|
|
|
|
Net current assets |
|
21,385 |
27,293 |
|
|
|
|
|
|
Total assets less current liabilities |
|
105,490 |
103,999 |
|
|
|
|
|
|
Equity attributable to equity holders |
|
|
|
| Called-up
share capital |
14 |
6,057 |
5,757 |
| Share
premium |
|
21,388 |
13,888 |
| Capital
redemption reserve |
|
64 |
- |
|
Unrealised capital reserve |
|
31,363 |
27,634 |
| Realised
capital reserve |
|
4,267 |
6,675 |
| Other
distributable reserve |
|
42,351 |
50,045 |
|
|
|
|
|
|
Total equity shareholders’ funds |
|
105,490 |
103,999 |
|
|
|
|
|
|
Basic and diluted net asset value per share
(pence)* |
15 |
20.37 |
20.95 |
*excluding treasury shares
The accompanying notes form an integral part of
these Financial Statements.
The Financial Statements were approved by the
Board of Directors and authorised for issue on 19 April 2024 and
were signed on its behalf by:
Fiona Wollocombe
Chairman
Company number: 03139019
Statement of changes in
equity
|
|
Called-up share capital |
Share premium |
Capital redemption reserve |
Unrealised capital reserve |
Realised capital reserve* |
Other distributable reserve* |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
At 1 January 2023 |
5,757 |
13,888 |
- |
27,634 |
6,675 |
50,045 |
103,999 |
|
Profit/(loss) and total comprehensive income for the period |
- |
- |
- |
2,441 |
(1,120) |
815 |
2,136 |
| Transfer
of previously unrealised losses on disposal of investments |
- |
- |
- |
1,288 |
(1,288) |
- |
- |
| Purchase
of own shares for treasury |
- |
- |
- |
- |
- |
(1,751) |
(1,751) |
| Purchase
of own shares for cancellation |
(64) |
- |
64 |
- |
- |
(1,256) |
(1,256) |
| Issue of
equity |
364 |
7,720 |
- |
- |
- |
- |
8,084 |
|
Cost of issue of equity |
- |
(220) |
- |
- |
- |
- |
(220) |
|
Dividends paid |
- |
- |
- |
- |
- |
(5,502) |
(5,502) |
|
At 31 December 2023 |
6,057 |
21,388 |
64 |
31,363 |
4,267 |
42,351 |
105,490 |
|
At 1 January 2022 |
5,103 |
60,854 |
11 |
29,199 |
4,796 |
1,868 |
101,831 |
|
(Loss)/profit and total comprehensive income for the period |
- |
- |
- |
(1,269) |
1,583 |
412 |
726 |
|
Transfer of previously unrealised gains on disposal of
investments |
- |
- |
- |
(296) |
296 |
- |
- |
|
Purchase of own shares for treasury |
- |
- |
- |
- |
- |
(2,254) |
(2,254) |
|
Issue of equity |
654 |
14,247 |
- |
- |
- |
- |
14,901 |
|
Cost of issue of equity |
- |
(359) |
- |
- |
- |
- |
(359) |
|
Dividends paid |
- |
- |
- |
- |
- |
(10,846) |
(10,846) |
|
Cancellation of share premium and capital redemption reserve |
- |
(60,854) |
(11) |
- |
- |
60,865 |
- |
|
At 31 December 2022 |
5,757 |
13,888 |
- |
27,634 |
6,675 |
50,045 |
103,999 |
*These reserves include an amount of £17,164,000
(2022: £22,036,000) which is considered distributable. Over the
next two years an additional £25,029,000 will become distributable.
This is due to the HMRC requirement that the Company cannot use
capital raised in the past three years to make a payment or
distribution to shareholders. On 1 January 2024, £9,656,000 became
distributable in line with this.
The accompanying notes form an integral part of
these Financial Statements.
The nature of each reserve is described in note
1 below.
Statement of cash flows
|
|
|
Year ended
31 December 2023 |
Year ended
31 December 2022 |
|
|
|
£’000 |
£’000 |
|
|
|
|
|
|
Cash flow from operating activities |
|
|
|
|
Investment income received |
|
798 |
725 |
|
Deposit interest received |
|
376 |
68 |
|
Income from fixed term funds received |
|
254 |
59 |
|
Dividend income received |
|
115 |
125 |
|
Investment Manager’s fees paid |
|
(2,177) |
(3,166) |
|
Other cash payments |
|
(458) |
(448) |
| UK
corporation tax paid |
|
- |
- |
|
|
|
|
|
|
Net cash flow generated from operating
activities |
|
(1,092) |
(2,637) |
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
Purchase of fixed asset investments* |
|
(6,526) |
(15,249) |
|
Proceeds from disposals of fixed asset investments* |
|
2,246 |
8,818 |
|
|
|
|
|
|
Net cash flow generated from investing
activities |
|
(4,280) |
(6,431) |
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
|
|
|
|
Proceeds from issue of share capital |
|
7,080 |
12,926 |
|
Cost of issue of equity** |
|
(40) |
(52) |
|
Purchase of own shares |
|
(3,007) |
(2,254) |
|
Equity dividends paid (net of Dividend Reinvestment Scheme) |
|
(4,644) |
(9,218) |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow generated from financing
activities |
|
(611) |
1,402 |
|
|
|
|
|
|
Decrease in cash in bank and at hand |
|
(5,983) |
(7,666) |
|
|
|
|
|
|
Cash in bank and at hand at start of the year |
|
26,179 |
33,845 |
|
|
|
|
|
|
|
|
|
|
|
Cash in bank and at hand at end of the year |
|
20,196 |
26,179 |
* Purchases and disposals detailed above do not
agree to note 10 due to restructuring of investments, conversion of
convertible loan stock and settlement receivables and payables.
** The cost of issue of equity does not agree to
the Statement of changes in equity due to prospectus fundraising
amounts being received net of fees.
The accompanying notes form an integral part of
these Financial Statements.
Notes to the Financial
Statements
1. Accounting policies
Basis of
accounting
The Financial Statements have been prepared in accordance with
applicable United Kingdom law and accounting standards, including
Financial Reporting Standard 102 (“FRS 102”), and with the
Statement of Recommended Practice “Financial Statements of
Investment Trust Companies and Venture Capital Trusts” (“SORP”)
issued by The Association of Investment Companies (“AIC”). The
Financial Statements have been prepared on a going concern basis
and further details can be found in the Directors’ report on page
46 of the full Annual Report and Financial Statements.
The preparation of the Financial Statements
requires management to make judgements and estimates that affect
the application of policies and reported amounts of assets,
liabilities, income and expenses. The most critical estimates and
judgements relate to the determination of carrying value of
investments at Fair Value Through Profit and Loss (“FVTPL”) in
accordance with FRS 102 sections 11 and 12. The Company values
investments by following the International Private Equity and
Venture Capital Valuation (“IPEV”) Guidelines as updated in 2022
and further detail on the valuation techniques used are outlined
below.
Company information can be found on page 4 of
the full Annual Report and Financial Statements.
Fixed asset
investments
The Company’s business is investing in financial assets with a view
to profiting from their total return in the form of income and
capital growth. This portfolio of financial assets is managed and
its performance evaluated on a fair value basis, in accordance with
a documented investment policy, and information about the portfolio
is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102,
those undertakings in which the Company holds more than 20% of the
equity as part of an investment portfolio are not accounted for
using the equity method. In these circumstances the investment is
measured at FVTPL.
Upon initial recognition (using trade date
accounting) investments, including loan stock, are classified by
the Company as FVTPL and are included at their initial fair value,
which is cost (excluding expenses incidental to the acquisition
which are written off to the Income statement).
Subsequently, the investments are valued at
‘fair value’, which is measured as follows:
- Investments listed on recognised
exchanges are valued at their bid prices at the end of the
accounting period or otherwise at fair value based on published
price quotations.
- Unquoted investments, where there
is not an active market, are valued using an appropriate valuation
technique in accordance with the IPEV Guidelines. Indicators of
fair value are derived using established methodologies including
earnings multiples, revenue multiples, the level of third party
offers received, cost or price of recent investment rounds, net
assets and industry valuation benchmarks. Where price of recent
investment is used as a starting point for estimating fair value at
subsequent measurement dates, this has been benchmarked using an
appropriate valuation technique permitted by the IPEV
guidelines.
- In situations where cost or price
of recent investment is used, consideration is given to the
circumstances of the portfolio company since that date in
determining fair value. This includes consideration of whether
there is any evidence of deterioration or strong definable evidence
of an increase in value. In the absence of these indicators, other
valuation techniques are employed to conclude on the fair value as
at the measurement date. Examples of events or changes that could
indicate a diminution include:
- the performance and/or prospects of
the underlying business are significantly below the expectations on
which the investment was based;
- a significant adverse change either
in the portfolio company’s business or in the technological,
market, economic, legal or regulatory environment in which the
business operates; or
- market conditions have
deteriorated, which may be indicated by a fall in the share prices
of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal
completion of the investment contract and are de-recognised on
legal completion of the sale of an investment.
Dividend income is not recognised as part of the
fair value movement of an investment, but is recognised separately
as investment income through the Income statement when a share
becomes ex-dividend.
Current assets and
payables
Receivables (including debtors due after more than one year),
payables and cash are carried at amortised cost, in accordance with
FRS 102. Debtors due after more than one year meet the definition
of a financing transaction held at amortised cost, and interest
will be recognised through capital over the credit period using the
effective interest method. There are no financial liabilities other
than payables.
Investment income
Dividend income
Dividend income is included in revenue when the investment is
quoted ex-dividend.
Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are
recognised when the Company’s right to receive payment and expect
settlement is established. Where interest is rolled up and/or
payable at redemption then it is recognised as income unless there
is reasonable doubt as to its receipt.
Fixed term funds income
Income from fixed term funds is recognised on an accruals basis
using the rate of interest agreed with the bank.
Bank deposit income
Interest income is recognised on an accruals basis using the rate
of interest agreed with the bank.
Investment management fee,
performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses
are charged through the other distributable reserve except the
following which are charged through the realised capital
reserve:
- 90% of management fees and 100% of
performance incentive fees, if any, are allocated to the realised
capital reserve; and
- expenses which are incidental to
the purchase or disposal of an investment are charged through the
realised capital reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS 102.
Current tax is tax payable (refundable) in respect of the taxable
profit (tax loss) for the current period or past reporting periods
using the tax rates and laws that have been enacted or
substantively enacted at the financial reporting date. Taxation
associated with capital expenses is applied in accordance with the
SORP.
Deferred tax is provided in full on all timing
differences at the reporting date. Timing differences are
differences between taxable profits and total comprehensive income
as stated in the Financial Statements that arise from the inclusion
of income and expenses in tax assessments in periods different from
those in which they are recognised in the Financial Statements. As
a VCT the Company has an exemption from tax on capital gains. The
Company intends to continue meeting the conditions required to
obtain approval as a VCT for the foreseeable future. The Company
therefore, should have no material deferred tax timing differences
arising in respect of the revaluation or disposal of investments
and the Company has not provided for any deferred tax.
Share capital and
reserves
Called-up share capital
This reserve accounts for the nominal value of the shares.
Share premium
This reserve accounts for the difference between the price paid for
the Company’s shares and the nominal value of those shares, less
issue costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital
is diminished through the repurchase and cancellation of the
Company’s own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the
year end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
• gains and
losses compared to cost on the realisation of investments or
permanent diminution in value (including gains recognised on the
realisation of investment where consideration is deferred and not
distributable as a matter of law);
• finance income in respect of
the unwinding of the discount on deferred consideration that is not
distributable as a matter of law;
• expenses, together
with the related taxation effect, charged in accordance with the
above policies; and
• dividends paid to
equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve
were combined in 2012 to form a single reserve named other
distributable reserve.
This reserve accounts for movements from the
revenue column of the Income statement, the payment of dividends,
the buy-back of shares and other non-capital realised
movements.
Dividends
Dividends by the Company are accounted for in the period in which
the dividend is paid or approved at the AGM.
Unclaimed dividends older than a period of
twelve years from the dividend declaration date are forfeited and
returned to the Company in accordance with the terms of the
Articles of Association.
Segmental
reporting
The Directors are of the opinion that the Company is engaged in a
single operating segment of business, being investment in smaller
companies principally based in the UK.
|
2. Gains on investments |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Unrealised gains/(losses) on fixed asset investments |
2,441 |
(1,269) |
| Realised gains on fixed asset
investments |
603 |
3,282 |
| Unwinding of discount on
deferred consideration |
262 |
224 |
| |
3,306 |
2,237 |
|
3. Investment income |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Loan stock interest |
753 |
827 |
|
Bank interest |
376 |
68 |
|
Income from fixed term funds |
254 |
59 |
|
Dividend income |
115 |
125 |
|
|
1,498 |
1,079 |
|
4. Investment Manager’s fees |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Investment management fee charged to revenue |
219 |
214 |
|
Investment management fee charged to capital |
1,985 |
1,923 |
|
|
2,204 |
2,137 |
Further details of the Management agreement
under which the investment management fee and performance incentive
fee are paid are given in the Strategic report.
During the year, £2,204,000 (2022: £2,137,000)
of management fees and £50,000 (2022: £50,000) of administration
fees were purchased by the Company from Albion Capital Group LLP.
There is no performance incentive fee payable this year (2022:
£nil). At the financial year end, the amount due to Albion Capital
Group LLP in respect of these services disclosed within payables
was £561,000 (2022: £534,000).
Albion Capital Group LLP is, from time-to-time,
eligible to receive arrangement fees and monitoring fees from
portfolio companies. During the year ended 31 December 2023, fees
of £152,000 (2022: £274,000) attributable to the investments of the
Company were paid pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff
hold 3,498,456 Ordinary shares in the Company as at 31 December
2023.
The Company has entered into an offer agreement
relating to the Offers with the Company’s investment manager Albion
Capital Group LLP, pursuant to which Albion Capital will receive a
fee of 2.5% of the gross proceeds of the 2022/23 Offer, and 3.0% of
the gross proceeds of the 2023/24 Offer, and out of which Albion
Capital will pay the costs of the Offers, as detailed in the
Prospectus.
|
5. Other expenses |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Directors’ fees (including NIC) |
104 |
120 |
|
Auditor’s remuneration for statutory audit services (excluding
VAT) |
53 |
48 |
|
Secretarial and administration fee |
50 |
50 |
|
Other administrative expenses |
257 |
235 |
|
|
464 |
453 |
|
6. Directors’ fees |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
| Directors’
fees |
95 |
110 |
| National
insurance |
9 |
10 |
| |
104 |
120 |
The Company’s key management personnel are the
Directors. Further information regarding Directors’ remuneration
can be found in the Directors’ remuneration report on page 61 of
the full Annual Report and Financial Statements.
7. Tax on ordinary activities
|
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
| UK
Corporation tax payable |
- |
- |
Reconciliation of profit on ordinary activities to taxation
charge |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
Profit on ordinary activities before taxation |
2,136 |
726 |
| |
|
|
| Tax charge on profit at the
effective UK corporation tax rate of 23.45% (2022: 19.00%) |
501 |
138 |
| Effects of: |
|
|
| Non-taxable gains |
(775) |
(425) |
| Non-taxable income |
(27) |
(24) |
| Unutilised management
expenses |
301 |
311 |
| |
- |
- |
The tax charge for the year shown in the Income
statement is lower than the effective rate of corporation tax in
the UK of 23.45% (2022: 19.00%). The differences are explained
above. From April 2023 the Company’s rate of corporation tax
increased from 19% to 25%, therefore the average rate is 23.45% for
the year ended 31 December 2023.
The Company has excess management expenses of
£16,854,000 (2022: £15,569,000) that are available for offset
against future profits. A deferred tax asset of £4,213,000 (2022:
£3,892,000) has not been recognised in respect of those losses as
they will be recoverable only to the extent that the Company has
sufficient future taxable profits.
There is no expiry date on timing differences,
unused tax losses or tax credits.
|
8. Dividends |
Year ended
31 December 2023
£’000 |
Year ended
31 December 2022
£’000 |
|
First dividend of 0.52 pence per share paid on 28 April 2023 (29
April 2022: 0.58 pence per share) |
2,743 |
2,742 |
| Second dividend of 0.53 pence
per share paid on 31 October 2023 (31 October 2022: 0.58 pence per
share) |
2,767 |
2,761 |
| Special dividend of 1.14 pence
per share paid on 29 July 2022 |
- |
5,385 |
| Unclaimed dividends returned
to the Company |
(8) |
(42) |
| |
5,502 |
10,846 |
The Directors have declared a first dividend of
0.51 pence per share for the year ending 31 December 2024, which
will amount to approximately £2,883,000. This dividend will be paid
on 30 April 2024 to shareholders on the register on 12 April
2024.
|
9. Basic and diluted return per share |
|
|
|
|
|
Year ended 31 December 2023 |
Year ended 31 December 2022 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
| Return attributable to
shareholders (£’000) |
815 |
1,321 |
2,136 |
412 |
314 |
726 |
| Weighted average shares in
issue (adjusted for treasury shares) |
516,008,195 |
471,274,000 |
| Return attributable per equity
share (pence) |
0.16 |
0.26 |
0.42 |
0.09 |
0.07 |
0.16 |
The weighted average number of Ordinary shares
is calculated after adjusting for treasury shares of 87,982,092
(2022: 79,380,503).
There are no convertible instruments,
derivatives or contingent share agreements in issue so basic and
diluted return per share are the same.
10. Fixed asset investments
|
31 December 2023
£’000 |
31 December 2022
£’000 |
Investments held at fair value through profit or
loss
Unquoted equity and preference shares |
73,307 |
63,666 |
| Quoted equity |
141 |
437 |
| Unquoted loan stock |
10,657 |
12,603 |
|
|
84,105 |
76,706 |
|
|
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Opening valuation |
76,706 |
66,996 |
| Purchases at cost |
7,171 |
16,286 |
| Disposal proceeds |
(2,772) |
(8,691) |
| Realised gains |
603 |
3,282 |
| Movement in loan stock accrued
income |
(44) |
102 |
| Movement in unrealised
gains/(losses) |
2,441 |
(1,269) |
| Closing
valuation |
84,105 |
76,706 |
| |
|
|
| Movement in loan stock
accrued income |
|
|
| Opening accumulated loan stock
accrued income |
270 |
168 |
| Movement in loan stock accrued
income |
(44) |
102 |
| Closing accumulated
loan stock accrued income |
226 |
270 |
| Movement in unrealised
gains |
|
|
| Opening accumulated unrealised
gains |
27,622 |
29,187 |
| Transfer of previously
unrealised (losses)/gains to realised reserve on disposal of
investments |
1,288 |
(296) |
| Movement in unrealised
gains/(losses) |
2,441 |
(1,269) |
| Closing accumulated unrealised
gains |
31,351 |
27,622 |
| Historical cost
basis |
|
|
| Opening book cost |
48,813 |
37,641 |
| Purchases at cost |
7,171 |
16,286 |
| Sales at cost |
(3,457) |
(5,114) |
| Closing book cost |
52,527 |
48,813 |
Purchases and disposals detailed above may not
agree to purchases and disposals in the Statement of cash flows due
to restructuring of investments, conversion of convertible loan
stock and settlement of receivables and payables.
Loan stock accrued income above, represents only
the loan stock interest which has been recognised as revenue on the
basis that it is expected to be received in accordance with the
accounting policy in note 1. Where loan stock interest does not
meet the note 1 recognition criteria for investment income, it
forms part of the investment valuation where this is supported by
the overall valuation of the portfolio company, and is included
within the unrealised gains and losses on investments.
Amounts shown as cost represent the acquisition
cost in the case of investments made by the Company and/or the
valuation attributed to the investments acquired from other VCTs at
the dates of merger, plus any subsequent acquisition cost.
The Company does not hold any assets as the
result of the enforcement of security during the period, and
believes that the carrying values for both impaired and past due
assets are covered by the value of security held for these loan
stock investments.
Fixed asset investments are valued at fair value
in accordance with the IPEV guidelines as follows:
Valuation methodology |
31 December 2023
£’000 |
31 December 2022
£’000 |
| Cost and price of recent
investment (calibrated and reviewed for impairment) |
39,767 |
39,203 |
| Revenue multiple |
31,179 |
23,255 |
| Discounted cash flow
(supported by third party valuation) |
10,072 |
10,873 |
| Earnings multiple |
1,945 |
1,998 |
| Earnings multiple (supported
by third party valuation) |
569 |
557 |
| Net assets |
344 |
383 |
| Bid price |
141 |
437 |
| Discounted offer price |
88 |
- |
|
|
84,105 |
76,706 |
When using the cost or price of recent
investment in the valuations, the Company looks to re-calibrate
this price at each valuation point by reviewing progress within the
investment, comparing against the initial investment thesis,
assessing if there are any significant events or milestones that
would indicate the value of the investment has changed and
considering whether a market-based methodology (i.e. using
multiples from comparable public companies) or a discounted
cashflow forecast would be more appropriate. The background to the
transaction is also considered when the price of investment may not
be an appropriate measure of fair value, for example,
disproportionate dilution of existing investors from a new investor
coming on board or the market conditions at the time of investment
no longer being a true reflection of fair value.
The main inputs into the calibration exercise,
and for the valuation models using multiples, are revenue, EBITDA
and P/E multiples (based on the most recent revenue, EBITDA or
earnings achieved and equivalent corresponding revenue, EBITDA or
earnings multiples of comparable companies), quality of earnings
assessments and comparability difference adjustments. Revenue
multiples are often used, rather than EBITDA or earnings, due to
the nature of the Company’s investments, being in growth and
technology companies which are not normally expected to achieve
profitability or scale for a number of years. Where an investment
has achieved scale and profitability the Company would normally
then expect to switch to using an EBITDA or earnings multiple
methodology.
In the calibration exercise and in determining
the valuation for the Company’s equity instruments, comparable
trading multiples are used. In accordance with the Company’s
policy, appropriate comparable companies based on industry, size,
developmental stage, revenue generation and strategy are determined
and a trading multiple for each comparable company identified is
then calculated. The multiple is calculated by dividing the
enterprise value of the comparable group by its revenue, EBITDA or
earnings. The trading multiple is then adjusted for considerations
such as illiquidity, marketability and other differences,
advantages and disadvantages between the portfolio company and the
comparable public companies based on company specific facts and
circumstances.
As part of the valuation process, the majority
of the asset backed businesses also have an annual external third
party valuation done to support the investment managers valuations.
The third party valuers are experts in their fields, and have
access to many similar business transactions in those specialty
areas, and form part of the Manager’s fair value assessment.
Fair value investments had the following movements between
valuation methodologies between 31 December 2022 and 31 December
2023:
Change in valuation methodology
(2022 to 2023) |
Value as at
31 December 2023
£’000 |
Explanatory Note |
| Cost and price of recent
investment (calibrated and reviewed for impairment) to revenue
multiple |
7,593 |
Revenue multiple more
relevant
based on current trading |
| Revenue multiple to cost and
price of recent investment (calibrated and reviewed for
impairment) |
611 |
Recent funding rounds |
| |
|
|
The valuation will be the most appropriate
valuation methodology for an investment within its market, with
regard to the financial health of the investment and the IPEV
Guidelines. The Directors believe that, within these parameters,
these are the most appropriate methods of valuation as at 31
December 2023.
FRS 102 and the SORP requires the Company to
disclose the inputs to the valuation methods applied to its
investments measured at FVTPL in a fair value hierarchy. The table
below sets out fair value hierarchy definitions using FRS 102
s.11.27.
|
Fair value hierarchy |
Definition |
|
Level 1 |
The unadjusted quoted price in an active market |
Level 2
|
Inputs to valuations are from observable sources and are directly
or indirectly derived from prices |
|
Level 3 |
Inputs to valuations not based on observable market data |
The quoted investment is valued in accordance
with Level 1 valuation methods (Arecor Therapeutics PLC shown on
page 28 of the full Annual Report and Financial Statements).
Unquoted equity, preference shares and loan stock are all valued
according to Level 3 valuation methods.
Investments held at fair value through profit or
loss (Level 3) had the following movements:
|
|
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Opening valuation |
76,269 |
66,060 |
| Purchases at cost |
7,171 |
16,286 |
| Unrealised gains/(losses) |
2,484 |
(843) |
| Movement in loan stock accrued
income |
(44) |
102 |
| Realised gains on
disposal |
616 |
3,192 |
| Disposal proceeds |
(2,532) |
(8,528) |
| Closing
valuation |
83,964 |
76,269 |
The Directors are required to consider the
impact of changing one or more of the inputs used as part of the
valuation process to reasonable possible alternative assumptions.
60% of the portfolio of investments, consisting of equity and loan
stock, is based on recent investment price, discounted offer price,
net assets and cost and therefore is not sensitised. For the
remainder of the portfolio, the Board has considered the reasonable
possible alternative input assumptions on the valuation of the
portfolio and believes that changes to inputs (by adjusting the
earnings and revenue multiples) could lead to a change in the fair
value of the portfolio. The Board has reviewed the Manager’s
adjusted inputs for a number of the largest portfolio companies (by
value) which covers 26% of the portfolio, as shown in the table
below. This has resulted in a total coverage of 86% of the
portfolio of investments. The main inputs considered for each type
of valuation are as follows:
|
Valuation technique |
Portfolio company sector |
Input |
Base Case* |
Change in input |
Change in fair value of investments (£’000) |
Change in NAV (pence per share) |
Revenue multiple
|
Healthcare (including digital healthcare)
|
Revenue multiple
|
5.2x
|
+0.5x |
908 |
0.18 |
|
-0.5x |
(908) |
(0.18) |
Revenue multiple
|
Software and other technology
|
Revenue multiple
|
4.5x
|
+0.5x |
829 |
0.16 |
|
-0.5x |
(829) |
(0.16) |
Discounted cash flow (supported by third party valuation)
|
Renewable energy
|
Discount rate
|
6.5%
|
-0.5% |
83 |
0.02 |
|
+0.5% |
(77) |
(0.01) |
*As detailed in the accounting policies, the
base case is based on market comparables, discounted where
appropriate for marketability, in accordance with the IPEV
guidelines.
The impact of these changes could result in an
overall increase in the valuation of the equity investments by
£1,820,000 (1.7%) or a decrease in the valuation of equity
investments by £1,814,000 (1.7%).
11. Significant holdings
The principal activity of the Company is to select and hold a
portfolio of investments in unquoted securities. Although the
Company, through the Manager, will, in some cases, be represented
on the board of the portfolio company, it will not ordinarily take
a controlling interest or become involved in the management. The
size and structure of companies with unquoted securities may result
in certain holdings in the portfolio representing a participating
interest without there being any partnership, joint venture or
management consortium agreement.
The Company has interests of greater than 20% of
the nominal value of any class (some of which are non-voting) of
the allotted shares in the portfolio companies as at 31 December
2023 as described below. The investments listed below are held as
part of an investment portfolio and therefore, as permitted by FRS
102, they are measured at fair value and are not accounted for
using the equity method.
|
Company |
Registered address and country of
incorporation |
Profit/(loss) before tax £’000 |
Aggregate capital and reserves
£’000 |
% class and share type |
% total voting rights |
| Academia |
CA 94108, USA |
n/a |
n/a |
23.2% Preferred shares |
2.3% |
| Sift |
BS1 4EX, UK |
(868) |
(230) |
42.1% Ordinary shares |
42.1% |
12. Current assets
|
Trade and other receivables |
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Deferred consideration under one year |
1,828 |
139 |
| Other receivables |
28 |
42 |
| Prepayments and accrued
income |
28 |
26 |
| Deferred consideration over
one year |
- |
1,566 |
| |
1,884 |
1,773 |
The majority of the deferred consideration under
one year relates to the sale of G. Network Communications Limited
in December 2020. These proceeds were received in January 2024.
The Directors consider that the carrying amount
of receivables is not materially different to their fair value.
13. Payables: amounts falling due within one
year
|
31 December 2023
£’000 |
31 December 2022
£’000 |
|
Trade payables |
48 |
19 |
| Accruals and deferred
income |
647 |
640 |
| |
695 |
659 |
The Directors consider that the carrying amount of payables is
not materially different to their fair value.
14. Called-up share capital
|
Allotted, called-up and fully paid |
£’000 |
|
575,728,901 Ordinary shares of 1 penny each at 31 December
2022 |
5,757 |
|
36,369,220 Ordinary shares of 1 penny each issued during the
year |
364 |
|
6,366,677 Ordinary shares of 1 penny each cancelled during the
year |
(64) |
|
605,731,444 Ordinary shares of 1 penny each at 31 December
2023 |
6,057 |
|
|
|
|
79,380,503 Ordinary shares of 1 penny each held in treasury at 31
December 2022 |
(794) |
|
8,601,589 Ordinary shares of 1 penny each purchased during the year
to be held in treasury |
(86) |
|
87,982,092 Ordinary shares of 1 penny each held in treasury
at 31 December 2023 |
(880) |
|
|
|
|
517,749,352 Ordinary shares of 1 penny each in circulation*
at 31 December 2023 |
5,177 |
*Carrying one vote each
During the year the Company purchased 8,601,589
Ordinary shares (2022: 10,771,178) representing 1.4% of the issued
Ordinary share capital as at 31 December 2023, at a cost of
£1,751,000 (2022: £2,254,000), including stamp duty, to be held in
treasury. The Company also purchased 6,366,677 Ordinary shares
(2022: nil) representing 1.1% of the issued Ordinary share capital
as at 31 December 2023, at a cost of £1,256,000 (2022: £nil),
including stamp duty, for cancellation.
The Company holds a total of 87,982,092 Ordinary
shares in treasury, representing 14.5% of the issued Ordinary share
capital as at 31 December 2023.
Under the terms of the Dividend Reinvestment
Scheme Circular dated 19 April 2011, the following new Ordinary
shares of nominal value 1 penny per share were allotted during the
year:
|
Date of allotment |
Number of shares allotted |
Aggregate nominal value of
shares
(£’000) |
Issue price
(pence per share) |
Net invested
(£’000) |
Opening market price on allotment date
(pence per share) |
|
28 April 2023 |
1,933,358 |
19 |
21.27 |
391 |
20.30 |
| 31 October 2023 |
1,987,220 |
20 |
20.75 |
393 |
19.70 |
| |
3,920,578 |
|
|
784 |
|
During the period from 1 January 2023 to 31
December 2023, the Company issued the following new Ordinary shares
of nominal value 1 penny each under the Albion VCT Prospectus Top
Up Offers 2022/23:
|
Date of allotment |
Number of shares
allotted |
Aggregate nominal value of
shares
(£’000) |
Issue price
(pence per share) |
Net consideration received
(£’000) |
Opening market price on allotment date
(pence per share) |
|
31 March 2023 |
31,071,626 |
311 |
22.40 |
6,786 |
20.70 |
| 14 April 2023 |
195,210 |
2 |
21.60 |
42 |
20.30 |
| 14 April 2023 |
114,678 |
1 |
21.80 |
24 |
20.30 |
| 14 April 2023 |
1,067,128 |
11 |
21.90 |
228 |
20.30 |
| |
32,448,642 |
|
|
7,080 |
|
In addition to the allotments in the table above, there was also
an allotment in December 2022 which forms the total of the 2022/23
Top Up Offer of £12.5 million.
15. Basic
and diluted net asset value per share
|
|
31 December 2023 (pence per share) |
31 December 2022 (pence per share) |
| Basic and diluted net asset
value per Ordinary share |
20.37 |
20.95 |
The basic and diluted net asset values per share
at the year end are calculated in accordance with the Articles of
Association and are based upon total shares in issue (adjusting for
treasury shares) of 517,749,352 Ordinary shares as at 31 December
2023 (2022: 496,348,398).
16. Capital and financial instruments
risk management
The Company’s capital comprises Ordinary shares as described in
note 14. The Company is permitted to buy back its own shares for
cancellation or treasury purposes and this policy is described in
more detail in the Chairman’s statement.
The Company’s financial instruments comprise
equity and loan stock investments in quoted and unquoted companies,
cash balances and liquid cash instruments and short term
receivables and payables which arise from its operations. The main
purpose of these financial instruments is to generate cash flow,
revenue and capital appreciation for the Company’s operations. The
Company has no gearing or other financial liabilities apart from
short term payables. The Company does not use any derivatives for
the management of its Balance sheet.
The principal financial instrument risks arising
from the Company’s operations are:
- Market and investment risk (which
comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies
for managing each of these risks. There have been no changes in the
nature of the risks that the Company has faced during the past year
and there have been no changes in the objectives, policies or
processes for managing risks during the past year. The key risks
are summarised below.
Market risk
As a Venture Capital Trust, it is the Company’s specific nature to
evaluate the market risk of its portfolio in unquoted companies.
Market risk is the exposure of the Company to the revaluation and
devaluation of investments as a result of macroeconomic changes.
The main driver of market risk is the dynamics of market quoted
comparators, as well as the financial and operational performance
of portfolio companies. The Board seeks to reduce this risk by
having a spread of investments across a variety of sectors. More
details on the sectors the Company invests in can be found in the
pie chart at the end of this announcement.
The Manager and the Board formally review market
risk, both at the time of initial investment and at quarterly Board
meetings.
The Board monitors the prices at which sales of
investments are made to ensure that profits to the Company are
maximised, and that valuations of investments retained within the
portfolio appear sufficiently prudent and realistic compared to
prices being achieved in the market for sales of unquoted
investments.
Under FRS 102 the Board is required to
illustrate by way of a sensitivity analysis the extent to which the
assets are exposed to market risk. In order to show the impact of
sensitivity in market movements on the Company, a 10% increase or
decrease in the valuation of the fixed asset investment portfolio
(keeping all other variables constant) would increase or decrease
the net asset value and return for the year by £8,411,000.
Accordingly, a 20% increase or decrease in the valuation of the
fixed asset investment portfolio (keeping all other variables
constant) would increase or decrease the net asset value and return
for the year by £16,821,000. Further sensitivity analysis on fixed
asset investments is included in note 10.
Investment risk (including investment
price risk)
Investment risk (including investment price
risk) is the risk that the fair value of future investment cash
flows will fluctuate due to factors specific to an investment
instrument or to a market in similar instruments. The management of
risk within the venture capital portfolio is addressed through
careful investment selection, by diversification across different
industry segments, by maintaining a wide spread of holdings in
terms of financing stage and by limitation of the size of
individual holdings. The Manager receives management accounts from
portfolio companies and members of the investment management team
often sit on the boards of unquoted portfolio companies; this
enables the close identification, monitoring and management of
investment risk. The Directors monitor the Manager’s compliance
with the investment policy, review and agree policies for managing
this risk and monitor the overall level of risk on the investment
portfolio on a regular basis.
Valuations are based on the most appropriate
valuation methodology for an investment within its market, with
regard to the financial health of the investment and the IPEV
Guidelines. Details of the industries in which investments have
been made are contained in the pie chart at the end of this
announcement.
The maximum investment risk on the balance sheet
date is the value of the fixed asset investment portfolio which is
£84,105,000 (2022: £76,706,000). Fixed asset investments form 80%
of the net asset value on 31 December 2023 (2022: 74%).
More details regarding the classification of
fixed asset investments are shown in note 10.
Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk
on its financial assets through the effect of interest rate
changes. On the basis of the Company’s analysis, it is estimated
that a rise of 1% in all interest rates would have increased the
profit before tax for the year by approximately £232,000 (2022:
£300,000). Furthermore, it is considered that a material fall of
interest rates below current levels during the year would have been
unlikely.
The weighted average effective interest rate
applied to the Company’s fixed rate assets during the year was
approximately 9.7% (2022: 8.6%). The weighted average period to
maturity for the fixed rate assets is approximately 6.2 years
(2022: 6.5 years).
The Company’s financial assets and liabilities,
denominated in Sterling, consist of the following:
|
|
31 December 2023 |
31 December 2022 |
|
|
Fixed rate £’000 |
Floating rate
£’000 |
Non-interest bearing
£’000 |
Total
£’000 |
Fixed rate £’000 |
Floating rate
£’000 |
Non-interest bearing
£’000 |
Total
£’000 |
|
Unquoted equity |
- |
- |
73,307 |
73,307 |
- |
- |
63,666 |
63,666 |
| Quoted equity |
- |
- |
141 |
141 |
- |
- |
437 |
437 |
| Unquoted loan stock |
9,055 |
485 |
1,117 |
10,657 |
10,232 |
519 |
1,852 |
12,603 |
| Receivables* |
- |
- |
1,857 |
1,857 |
- |
- |
1,747 |
1,747 |
| Payables |
- |
- |
(695) |
(695) |
- |
- |
(659) |
(659) |
| Cash |
9,313 |
10,883 |
- |
20,196 |
- |
26,179 |
- |
26,179 |
| |
18,368 |
11,368 |
75,727 |
105,463 |
10,232 |
26,698 |
67,043 |
103,973 |
*The receivables do not reconcile to the Balance
sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Company is exposed to
credit risk through its receivables, investment in unquoted loan
stock and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock
instruments prior to investment and as part of its ongoing
monitoring of investments. For investments made prior to 6 April
2018, which account for 94% of loan stock value, typically loan
stock instruments will have a fixed or floating charge, which may
or may not be subordinated, over the assets of the portfolio
company in order to mitigate the gross credit risk.
The Manager receives management accounts from
portfolio companies and members of the investment management team
often sit on the boards of unquoted portfolio companies; this
enables the close identification, monitoring and management of
investment specific credit risk.
Bank deposits are held with banks with high
credit ratings assigned by international credit rating agencies.
The Company has an informal policy of limiting counterparty banking
exposure to a maximum of 20% of net asset value for any one
counterparty.
The Manager and the Board formally review credit
risk (including receivables) and other risks, both at the time of
initial investment and at quarterly Board meetings.
The Company’s total gross credit risk at 31
December 2023 was limited to £10,657,000 (2022: £12,603,000) of
unquoted loan stock instruments, £20,196,000 (2022: £26,179,000)
cash on deposit with banks and £1,884,000 (2022: £1,773,000) of
other receivables.
As at the Balance sheet date, cash and liquid
investments held by the Company are held with the National
Westminster Bank plc, Scottish Widows Bank PLC (part of Lloyds
Banking Group PLC), Barclays Bank PLC, and Bank of Montreal. Credit
risk on cash transactions is mitigated by transacting with
counterparties that are regulated entities subject to regulatory
supervision, with high credit ratings assigned by international
credit-rating agencies.
The credit profile of unquoted loan stock is described under
liquidity risk below.
Liquidity risk
Liquid assets are held as cash on current account, deposit or short
term money market accounts or similar instruments. Under the terms
of its Articles, the Company has the ability to borrow an amount
equal to its adjusted capital and reserves of the latest published
audited Balance sheet, being £102,607,000 (2022: £101,256,000).
The Company has no committed borrowing
facilities as at 31 December 2023 (2022: nil) and had cash balances
of £20,196,000 (2022: £26,179,000). The main cash outflows are for
new investments, dividends and share buy-backs, which are within
the control of the Company. The Manager formally reviews the cash
requirements of the Company on a monthly basis, and the Board on a
quarterly basis, as part of its review of management accounts and
forecasts.
All of the Company’s financial liabilities are
short term in nature and total £695,000 as at 31 December 2023
(2022: £659,000).
The carrying value of loan stock investments
analysed by expected maturity dates is as follows:
| |
31 December 2023 |
31 December 2022 |
|
Redemption date |
Fully performing
£’000 |
Past due
£’000 |
Valued below cost
£’000 |
Total
£’000 |
Fully performing
£’000 |
Past due
£’000 |
Valued below cost
£’000 |
Total
£’000 |
|
Less than one year |
3,535 |
371 |
125 |
4,031 |
3,521 |
345 |
- |
3,866 |
| 1-2 years |
52 |
- |
- |
52 |
153 |
- |
- |
153 |
| 2-3 years |
43 |
- |
- |
43 |
66 |
27 |
- |
93 |
| 3-5 years |
1,517 |
- |
- |
1,517 |
2,783 |
- |
- |
2,783 |
| 5 + years |
4,857 |
157 |
- |
5,014 |
5,544 |
164 |
- |
5,708 |
| Total |
10,004 |
528 |
125 |
10,657 |
12,067 |
536 |
- |
12,603 |
Loan stock can be past due as a result of
interest or capital not being paid in accordance with contractual
terms. The cost of loan stock valued below cost is £284,000 (2022:
£24,000).
The Company does not hold any assets as the
result of the enforcement of security during the period, and
believes that the carrying values for both those valued below cost
and past due assets are covered by the value of security held for
these loan stock investments.
In view of the availability of adequate cash
balances and the repayment profile of loan stock investments, the
Board considers that the Company is subject to low liquidity
risk.
Fair values of financial assets and
financial liabilities
All the Company’s financial assets and liabilities as at 31
December 2023 are stated at fair value as determined by the
Directors, with the exception of receivables (including debtors due
after more than one year), payables and cash which are carried at
amortised cost, in accordance with FRS 102. There are no financial
liabilities other than payables. The Company’s financial
liabilities are all non-interest bearing. It is the Directors’
opinion that the book value of the financial liabilities is not
materially different to the fair value and all are payable within
one year.
17. Commitments, contingencies and
guarantees
As at 31 December 2023, the Company had no financial commitments
(2022: £nil).
There were no contingent liabilities or
guarantees given by the Company as at 31 December 2023 (2022:
£nil).
18. Post balance sheet
events
Since the year end, the Company has had the following material post
balance sheet events:
- Received £1.8 million of deferred
consideration from the historic disposal of G. Network
Communications that was included in trade and other receivables at
31 December 2023;
- On 12 March 2024, a NAV update was
announced with a 0.71 pence per share uplift, representing a 1.0%
increase on the 31 December 2023 NAV. This uplift is a result of
terms being agreed for the sale of a company within the portfolio,
however there is no certainty that this deal will complete. This
was not known at 31 December 2023 and therefore this is a non
adjusting post balance sheet event;
- Investments totalling £2.7 million
in one new and five existing portfolio companies; and
- The following new Ordinary shares
of nominal value 1 penny each were allotted under the Albion VCTs
Prospectus Top Up Offers 2023/24 after 31 December 2023:
|
Date of allotment |
Number of shares
allotted |
Aggregate nominal value of
shares
(£’000) |
Issue price
(pence per share) |
Net consideration received
(£’000) |
Opening market price on allotment date
(pence per share) |
| 22 March 2024 |
6,584,258 |
66 |
21.32 |
1,376 |
19.90 |
| 22 March 2024 |
1,716,211 |
17 |
21.43 |
359 |
19.90 |
| 22 March 2024 |
39,204,862 |
392 |
21.54 |
8,191 |
19.90 |
| 16 April 2024 |
376,192 |
4 |
20.80 |
77 |
19.40 |
| 16 April 2024 |
23,911 |
- |
20.91 |
5 |
19.40 |
| 16 April 2024 |
953,045 |
10 |
21.02 |
194 |
19.40 |
| |
48,858,479 |
|
|
10,202 |
|
19. Related party
transactions
Other than transactions with the Manager as disclosed in note 4,
and the Directors’ remuneration disclosed in the Directors’
remuneration report on page 61 of the full Annual Report and
Financial Statements there are no related party transactions or
balances requiring disclosure.
20. Other information
The information set out in this announcement
does not constitute the Company’s statutory accounts within the
terms of section 434 of the Companies Act 2006 for the years ended
31 December 2023 and 31 December 2022, and is derived from the
statutory accounts for those financial years, which have been, or
in the case of the accounts for the year ended 31 December 2023,
which will be, delivered to the Registrar of Companies. The Auditor
reported on those accounts; the reports were unqualified and did
not contain a statement under s498 (2) or (3) of the Companies Act
2006.
21. Publication
The full audited Annual Report and Financial
Statements are being sent to shareholders and copies will be made
available to the public at the registered office of the Company,
Companies House, the National Storage Mechanism and also
electronically at www.albion.capital/funds/KAY/31Dec2023.pdf.
- Split of portfolio by sector, stage of investment and number of
employees
Quester Vct (LSE:QUR)
Gráfica de Acción Histórica
De Nov 2024 a Dic 2024
Quester Vct (LSE:QUR)
Gráfica de Acción Histórica
De Dic 2023 a Dic 2024
