TIDMAATG
Albion Technology & General VCT PLC
LEI number: 213800TKJUY376H3KN16
As required by the UK Listing Authority's Disclosure Guidance
and Transparency Rules 4.1 and 6.3, Albion Technology & General
VCT PLC today makes public its information relating to the Annual
Report and Financial Statements for the year ended 31 December
2022.
This announcement was approved for release by the Board of
Directors on 6 April 2023.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31
December 2022 (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/AATG/31Dec2022.pdf.
Investment objective and policy
The Company's investment objective is to provide investors with
a regular and predictable source of dividend income, combined with
the prospect of long-term capital growth, through a balanced
portfolio of predominantly unquoted growth and technology
businesses in a qualifying Venture Capital Trust ("VCT").
Investment policy
The Company will invest in a broad portfolio of unquoted growth
and technology businesses. Allocation of assets will be determined
by the investment opportunities which become available, but efforts
will be made to ensure that the portfolio is diversified in terms
of sectors and stages of maturity of portfolio companies.
VCT qualifying and non-qualifying investments
Application of the investment policy is designed to ensure that
the Company continues to qualify, and remains approved as, a VCT by
HM Revenue and Customs ("VCT regulations"). The maximum amount
invested in any one company is limited to any HMRC annual
investment limits. It is intended that normally at least 80%. of
the Company's funds will be invested in VCT qualifying investments.
The VCT regulations also have an impact on the type of investments
and qualifying sectors in which the Company can make an
investment.
Funds held to invest in VCT qualifying assets or for liquidity
purposes will be held as cash on deposit or invested in floating
rate notes or similar instruments with banks or other financial
institutions with high credit ratings. They may also be invested in
liquid open-ended equity funds providing income and capital equity
exposure (where it is considered economic to do so). Investment in
such open-ended equity funds will not exceed 7.5% of the Company's
assets at the time of investment.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses
within VCT qualifying industry sectors using a mix of securities.
The maximum the Company will invest in a single company is 15% of
the Company's assets at cost at the time of investment. The value
of an individual investment is expected to increase over time as a
result of trading progress and a continuous assessment is made of
investments' suitability for sale. It is possible that individual
holdings may grow in value to a point where they represent a
significantly higher proportion of total assets prior to a
realisation opportunity being available.
Borrowing powers
The Company's maximum exposure in relation to gearing is
restricted to 10% of the adjusted share capital and reserves. The
Directors do not have any intention of utilising long-term
gearing.
Financial calendar
Record date for first dividend 2 June 2023
Annual General Meeting Noon on 6 June 2023
Payment date of first dividend 30 June 2023
Announcement of Half-yearly results for the six months September 2023
ending 30 June 2023
Financial summary
(3.74)p Decrease in total shareholder value for the year ended
31 December 2022 (2021: increase of 14.98p)
------------------------------------------------------
(4.64)% Total loss on opening net asset value per share (2021:
gain of 21.6%)
------------------------------------------------------
3.99p Total tax-free dividends per Ordinary share paid in
the year ended 31 December 2022 (a dividend yield
of 4.9% on opening net asset value) (2021: 3.68p with
a dividend yield of 5.3%)
------------------------------------------------------
72.92p Net asset value per Ordinary share as at 31 December
2022 (2021: 80.65p)
------------------------------------------------------
196.54p Total shareholder value as at 31 December 2022 (2021:
200.28p)
------------------------------------------------------
Total shareholder value at 31 December 2022 is calculated using
net asset value per share at 31 December 2022 plus dividends paid
per Ordinary share since launch to 31 December 2022.
These are considered Alternative Performance Measures, see note
2 in the Strategic report below for further explanation.
Movements in net asset 31 December 2022 (pence 31 December 2021 (pence
value per share) per share)
Opening net asset value 80.65 69.35
Capital (loss)/return (4.51) 14.93
Revenue return 0.46 0.37
----------------------- -----------------------
Total (loss)/return (4.05) 15.30
Ordinary dividends paid (3.99) (3.68)
Impact from share
capital movements 0.31 (0.32)
----------------------- -----------------------
Net asset value 72.92 80.65
------------------------ ----------------------- -----------------------
Ordinary share
Total shareholder value (pence per share)
------------------------ --------------------------------------------------
Total dividends paid
since launch to 31
December 2022 123.62
Net asset value as at 31
December 2022 72.92
--------------------------------------------------
Total shareholder value
to 31 December 2022 196.54
--------------------------------------------------
In addition to the dividends noted above, the Board has declared
a first dividend for the year ending 31 December 2023 of 1.82 pence
per share to be paid on 30 June 2023 to shareholders on the
register on 2 June 2023.
For historic shareholders, further details regarding the total
shareholder value for C Shares and Albion Income and Growth VCT PLC
can be found at www.albion.capital/funds/AATG under the 'Financial
Summary for Previous Funds' section.
A more detailed breakdown of the dividends paid per year can be
found at www.albion.capital/funds/AATG under the 'Dividend History'
section.
Chairman's statement
Introduction
The Company's portfolio has faced an uncertain macroeconomic and
geopolitical environment during the financial year under review.
With the war in Ukraine, high inflation, increasing interest rates,
combined with political instability, there has been considerable
market volatility impacting the Company and its portfolio.
The Company returned a loss in the year ended 31 December 2022
of 3.74 pence per share, which represents a 4.6% loss on opening
net asset value. Notwithstanding these disappointing results, which
are not surprising given the economic environment in the financial
year, the Board remains encouraged by the potential of the
portfolio to deliver positive longer term returns.
Results and dividends
As at 31 December 2022, the net asset value was 72.92 pence per
share compared to 80.65 pence per share at 31 December 2021. The
total loss after tax was GBP6.3 million compared to GBP19.9 million
total return in the year to 31 December 2021.
In line with our variable dividend policy targeting around 5% of
NAV per annum, the Company paid semi-annual dividends totalling
3.99 pence per share for the year to 31 December 2022 (2021: 3.68
pence per share). The Board has declared a first dividend for the
year ending 31 December 2023 of 1.82 pence per share to be paid on
30 June 2023 to shareholders on the register on 2 June 2023.
Investment portfolio
The results for the year showed net losses on investments of
GBP4.5 million, against gains of GBP21.5 million for the previous
year; the results are largely driven by unrealised losses across
the portfolio. Oxsensis decreased in value by GBP4.1 million, Black
Swan Data by GBP2.1 million, and Oviva by GBP1.1 million, all as a
result of difficult trading conditions. Against these losses, there
have been unrealised gains, including a GBP1.1 million uplift in
Convertr Media, and realised gains including the disposal of Credit
Kudos and MyMeds&Me, both of which are detailed below.
Quantexa, the largest company in our portfolio (14% of net asset
value), continues to show strong revenue growth which has
counter-balanced the well-publicised pressure on technology sector
valuations and has not seen a valuation movement during the
reported year. After the year end Quantexa completed an externally
led Series E fundraising, and further details are in the Updated
NAV announcement section below.
The Company had a number of investment realisations in the year
with proceeds totalling GBP11.5 million, leading to realised gains
during the year of GBP1.6 million. The notable exits included
Credit Kudos delivering 5.2 times return on cost, Phrasee
delivering 3.5 times cost and MyMeds&Me delivering 3.4 times
cost. Further details on the above disposals, and other
realisations, can be found in the realisations table on page 30 of
the full Annual Report and Financial Statements.
During a busy year for the Manager, a total of GBP16.7 million
was invested into portfolio companies, of which GBP9.2 million was
invested across fifteen new portfolio companies, all of which are
likely to require further investment as they develop and grow. The
average age of the fifteen new portfolio companies was four years,
demonstrating the Company's focus on investing in earlier-stage
businesses and building value over the longer term. The five
largest new investments during the year were:
-- GBP1.5 million into Peppy Health, a platform providing expert support for
underserved areas of health and wellness (e.g. menopause) via content,
video, chat support as an employment benefit for employees;
-- GBP1.4 million into Toqio FinTech which bridges the gap between financial
services and financial outcomes by providing an orchestration platform to
any business large or small which wishes to launch a financial product;
-- GBP0.9 million into PeakData, a software platform that uses big data
analytics and AI to collate data from across the web to provide insights
and analytics for the world's top pharmaceutical companies, key opinion
leaders and healthcare professionals before and after the launch of new
therapies;
-- GBP0.8 million into GX Molecular (trading as CS Genetics), a developer of
a wet-phase approach to single cell indexing in a single tube that
enables increased scalability and high quality single-cell analysis; and
-- GBP0.7 million into OutThink, a software platform to measure and manage
human risk for enterprises.
A further GBP7.5 million was invested into existing portfolio
companies, the largest being: GBP1.4 million into Cantab Research
(trading as Speechmatics), GBP1.1 million into Runa Network
(previously WeGift) and GBP1.0 million into Black Swan Data.
The three largest investments in the Company's portfolio, being
Quantexa, Radnor House School and Proveca, are valued at GBP26.9
million and represent 22.2% of the Company's net asset value.
Overall, 33% of the portfolio by value is trading profitably,
measured by earnings before interest, tax and depreciation, with a
number of our investments showing strong growth in fast-developing
markets.
More information on each of the investments made by the Company
can be found on the Manager's website at www.albion.capital.
Board composition
I have had the privilege of serving as a Director of the Company
for nine years, including two as Chairman, and I will retire at the
Annual General Meeting in June 2023. I am delighted that Clive
Richardson, an existing Board member, will succeed me as Chairman.
Mary Anne Cordeiro, who has also served nine years, will retire
from the Board and Margaret Payn will become SID when Mary Anne
stands down.
The Board, as part of its ongoing succession planning, is well
advanced in the process of recruiting for new Directors, which will
be announced in due course. The aim continues to be a small and
focussed Board. We will aim to continue to be a diverse Board, as
has been the case during the Company's life, and with collective
competence to the fore.
Risks and uncertainties
The Company faces a number of significant risks, including
higher interest rates, inflation, the ongoing impact of Russia's
invasion of Ukraine, and potentially a period of economic
stagnation, or even recession, in the UK. This complex backdrop is
factored into how the Company is managed, including in its
management of cash.
The concentration risk to the technology sector, which is part
of the Company's stated investment objective, is noted as
technology company valuations have become more volatile in the
current economic climate.
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 a primary objective to maintain sufficient cash
resources for investment in new and existing portfolio companies,
for the continued payment of dividends to shareholders and to
provide liquidity in the secondary market through share buy-backs.
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
best 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. The Board continues to review the
use of buy-backs and is satisfied that it is an important means of
providing market liquidity for shareholders. Details of shares
bought back during the year can be found in note 16.
The Company also manages a relatively high level of
distributable reserves which can be used for share buy-backs and
the payment of dividends. Following shareholder approval last year,
additional distributable reserves were created through the
reclassification of the share premium account balance.
Albion VCTs' Prospectus Top Up Offers
Your Board, in conjunction with the Boards of five other VCTs
managed by Albion Capital Group LLP, launched a Prospectus Top Up
Offer of new Ordinary shares on 6 January 2022 and applications
reached its GBP24 million limit under the Offer on 29 March
2022.
A new Prospectus Top Up Offer was launched on 10 October 2022.
The Board announced on 18 January 2023 that, following strong
demand for the Company's shares, it had elected to exercise the
over-allotment facility, taking the total amount under offer to
GBP15.5 million. An allotment was scheduled to take place on 24
February 2023. However due to positive developments in the Albion
managed portfolio impacting on post balance sheet valuations and,
following advice, the date of the second allotment was deferred to
31 March 2023 for the 2022/2023 tax year. On 22 March 2023, the
Company was pleased to announce that it had reached its limit under
its latest Offer which was fully subscribed and closed to further
applications.
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. The proceeds of the
Offer will be applied in accordance with the Company's investment
policy.
Updated NAV Announcement post year end
On 2 March 2023, a NAV update was announced with a pleasing 4.63
pence per share uplift, representing a 6.35% increase on the
previously announced 31 December 2022 NAV. This update resulted
from Quantexa, a company within the portfolio, undergoing an
external fundraising process, which was not known at 31 December
2022. This transaction has since completed and was announced by
Quantexa on 4 April 2023.
Annual General Meeting
The Annual General Meeting ("AGM") will be held at noon on 6
June 2023 via the Lumi platform. Information on how to participate
in the live webcast can be found on the Manager's website at
www.albion.capital/vct-hub/agms-events. The notice of the AGM is at
the end of this document.
The Board welcomes questions from shareholders at the AGM and
shareholders will be able to ask questions using the Lumi platform,
or in person. Alternatively, shareholders can email their questions
to AATGchair@albion.capital
https://www.globenewswire.com/Tracker?data=28YgBXWpGpHAYs_ajZqPoB4RwPjdYA3xunFIKFlKlqQSPSmc6D_uNYbGndEtZwwkfpBQ3znYYLXfvkOXIV_oU1m9s9G-rJ5GWIW1jivlhDA=
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 51 and 52 of
the full Annual Report and Financial Statements and in the Notice
of the Meeting on pages 93 to 96 of the full Annual Report and
Financial Statements.
The Board encourages shareholders to vote on the Company
business at the AGM, irrespective of attendance, and strongly
recommends that shareholders should vote in favour of all the
resolutions being proposed at the meeting.
Outlook and prospects
Continuing risks and uncertainties, largely outside the
Company's control, make it difficult to be entirely confident about
what lies ahead. The portfolio is well diversified with companies
at different stages of maturity and targeted at sectors such as
software, FinTech and healthcare. These are sectors where we
believe growth can be resilient and sustainable. The recently
announced 6.35% NAV uplift since the year end gives the Board
further confidence that the Company is well positioned in the
current economic climate to generate long term value for
shareholders.
Robin Archibald
Chairman
6 April 2023
Strategic report
Investment objective and policy
The Company's investment objective is to provide investors with
a regular and predictable source of dividend income, combined with
the prospect of long-term capital growth, through a balanced
portfolio of unquoted growth and technology businesses in a
qualifying VCT.
The Company will invest in a broad portfolio of unquoted growth
and technology businesses. Allocation of assets will be determined
by the investment opportunities which become available, but efforts
will be made to ensure that the portfolio is diversified in terms
of sectors and stages of maturity of portfolio companies.
The full investment policy can be found above.
Current portfolio sector allocation
The pie charts at the end of this announcement show the split of
the portfolio valuation as at 31 December 2022 by sector, stage of
investment and number of employees. This is a useful way of
assessing how the Company and its portfolio are diversified across
sector, portfolio companies' maturity measured by revenues and
their size measured by the number of employees. Details of the
principal investments made by the Company are shown in the
Portfolio of investments on pages 28 to 30 of the full Annual
Report and Financial Statements.
Direction of portfolio
The current portfolio remains well-balanced both in terms of
stage of investment and sectors, with FinTech accounting for 23%,
software and other technology accounting for 19%, healthcare
(including digital healthcare) accounting for 17%, renewable energy
accounting for 9% and other (including education) accounting for
8%.
Due to the share allotments under the 2021/22 and 2022/23
Prospectus Top Up Offers, and the exits during the year, cash is a
significant proportion of the portfolio at 22%. The Company will
use these funds to support those portfolio companies that require
it, as well as to capitalise on any new investment opportunities
that arise. We therefore expect that proportion of investments in
the FinTech, software and other technology and healthcare sectors
(including digital healthcare) will increase, and that the
proportion of asset-based investments will decrease over the coming
years.
Results and dividends
GBP'000
Net capital loss for the year ended 31 December 2022 (7,021)
Net revenue return for the year ended 31 December
2022 720
Total loss for the year ended 31 December 2022 (6,301)
Dividend of 2.02 pence per share paid on 30 June 2022 (3,240)
Dividend of 1.97 pence per share paid on 31 December
2022 (3,267)
Transferred from reserves (12,808)
--------
Net assets as at 31 December 2022 121,247
========
Net asset value per share as at 31 December 2022 72.92p
====================================================== ========
The Company paid ordinary dividends of 3.99 pence per share
during the year ended 31 December 2022 (2021: 3.68 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. The Board has declared a first dividend for the year ending
31 December 2023 of 1.82 pence per share to be paid on 30 June 2023
to shareholders on the register on 2 June 2023.
As shown in the Income statement below, investment income has
increased to GBP1,631,000 (2021: GBP1,077,000). This is largely due
to the receipt of dividends which include a dividend declared by
memsstar immediately prior to the disposal in the year. As a
result, there was an overall revenue gain to shareholders of
GBP720,000 (2021: GBP476,000).
The net capital loss for the year was GBP7,021,000 (2021: gain
of GBP19,412,000). The net loss was generated largely due to a fall
in the unrealised movement in valuation of investments, partially
offset by gains on disposals. The gain in 2021 was primarily due to
the largest portfolio company, Quantexa. Further information on
this together with key valuation movements during the year are
outlined in the Investment portfolio section of the Chairman's
statement. The total loss for the period was 4.05 pence per share
(2021: gain of 15.30 pence per share).
The Balance sheet below shows that the net asset value per share
decreased over the year ended 31 December 2022 to 72.92 pence per
share (2021: 80.65 pence per share).
The cash inflow for the year was GBP12.2 million (2021: GBP2.9
million). This resulted mainly from the issue of new Ordinary
shares under the Top Up Offers, disposal proceeds and loan stock
income, offset by new investments, dividends paid, share buy-backs
and ongoing expenses.
Review of business and outlook
A review of the Company's business during the year and its
future prospects is contained in the Chairman's statement above and
in this Strategic report.
There is a continuing focus on growing investments in the
FinTech, healthcare and other software and technology sectors, and,
therefore, we expect the portfolio to increase its weighting in
these sectors.
Investment income largely comprises loan stock interest on our
renewable energy investments, which the Company intends to hold for
the longer term. As a result, loan stock income is expected to
remain relatively flat over the near term and most of the Company's
investment returns are expected to be delivered via capital gains.
Dividend income is likely to reduce next year, as memsstar declared
a large dividend prior to its disposal in the year.
On 2 March 2023, a NAV update was announced with a 4.63 pence
per share uplift (6.35%), as detailed in the Chairman's statement
above.
Future prospects
The Company's financial results for the ended 31 December 2022
demonstrate that the portfolio remains well balanced across sectors
and risk classes, and is largely weathering the ongoing global
issues caused as a result of higher levels of interest rates and
inflation and other economic headwinds. Although there remains much
uncertainty, the Board considers that the Company has the potential
to deliver long term growth, whilst maintaining predictable
dividend payments to shareholders.
Key Performance Indicators ("KPIs") and Alternative Performance
Measures ("APMs")
The Directors believe that the following KPIs and APMs, which
are typical for VCTs, used in the Board's 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.
These are:
1. Net asset value per share and total shareholder value
Please see the "Total shareholder value to 31 December 2022"
table above in the Financial summary section which shows the NAV
per share as at 31 December 2022 and total shareholder value. Total
shareholder value is net asset value plus cumulative dividends paid
since launch.
Total shareholder value decreased by 3.74 pence to 196.54 pence
per Ordinary share for the year ended 31 December 2022 (4.6% on the
opening net asset value).
The graph on page 8 of the full Annual Report and Financial
Statements reflects the total shareholder value performance of the
Company relative to the FTSE All-share Index over the last ten
years.
2. Movement in shareholder value in the year
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
---- ---- ------ ---- ---- ----- ----- ------ ----- ------
8.0% 2.5% (4.7%) 3.6% 6.0% 13.2% 11.9% (0.3%) 21.6% (4.6%)
---- ---- ------ ---- ---- ----- ----- ------ ----- ------
Calculated as the movement in total shareholder value for the
year compared with the opening net asset value.
The figures in the table above show that total shareholder
value, despite some annual volatility, mean that the Company has
delivered an average increase of 5.7% per annum over the past ten
years.
The returns to shareholders who have acquired shares through the
C share issue in 2006 and the merger with Albion Income &
Growth VCT in 2013 are shown on the Company's Webpage on the
Manager's website at www.albion.capital/funds/AATG under "Financial
Summary for Previous Funds". Shareholders who have acquired shares
through Top Up Offers, the dividend reinvestment scheme or in the
market outside the corporate events will be able to calculate their
own returns based on the price at which they acquired their shares,
the dividends they have received since the purchase and the current
net asset value of their holding.
3. Dividend distributions
Dividends paid in respect of the year ended 31 December 2022
were 3.99 pence per share (2021: 3.68 pence per share). Cumulative
dividends paid since inception were 123.62 pence per Ordinary
share.
4. Ongoing charges
As agreed with the Manager in 2015, the ongoing charges ratio
for the year ended 31 December 2022 was capped at 2.75% (2021:
2.75%) with any excess over the cap being a reduction in the
management fee. Following the reduction to the management fee in
the year, the ongoing charges ratio has decreased to 2.55% (2021:
2.75%). The ongoing charges ratio has been calculated using The
Association of Investment Companies' (AIC) recommended methodology.
This figure shows shareholders the total recurring annual running
expenses (including investment management fees charged to capital
reserves) as a percentage of the average net assets attributable to
shareholders.
5. VCT regulation*
The investment policy is designed to ensure that the Company
continues to qualify, and is approved, as a VCT by HMRC. In order
to maintain its status under VCT 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 47 and 48 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 2022 and
are reviewed during the year. These reviews confirmed that the
Company has complied with all tests.
*VCT compliance is not a numerical measure of performance and
thus cannot be defined as an APM.
Gearing
As defined by the Articles of Association, the Company's maximum
exposure in relation to gearing is restricted to 10% of the share
capital and reserves adjusted for any dividends declared. Although
the investment policy permits the Company to borrow, the Directors
do not currently have any intention of utilising long-term gearing
and have not done so in the past.
Operational arrangements
The Company has delegated the investment management of the
portfolio to 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 under the Management
Agreement, as well as acting as the Company's Alternative
Investment Fund Manager ("AIFM").
Management Agreement
A resolution was passed (with 95.6% of votes cast in favour of
the resolution) at the General Meeting on 26 May 2022 which
specifically covered changes to the Management Agreement.
The changes to the Management Agreement included: lowering the
Management fee from 2.5% of net asset value to 2.0% of net asset
value, backdated to 1 January 2022; introduction of a capped
administration fee; and revisions to the performance incentive
arrangements. Full details are available in the Circular dated 13
April 2022 which can be found on the Manager's website at
www.albion.capital/funds/AATG/circular2022.pdf.
Under these new management arrangements, the ongoing operating
costs for the year ended 31 December 2022 have been reduced by
GBP246,000.
Under the Management Agreement, the Manager provides investment
management, secretarial and administrative services to the Company.
The Management Agreement can be terminated by either party on 12
months' notice and is subject to earlier termination in the event
of certain breaches or on the insolvency of either party. The
Manager is paid an annual fee equal to 2.0% of the net asset value
of the Company, payable quarterly in arrears. The total annual
running costs of the Company, including management fees payable to
Albion Capital Group LLP, Directors' fees, professional fees and
the costs incurred by the Company in the ordinary course of
business (but excluding any exceptional items and performance fees
payable to Albion Capital Group LLP) are capped at an amount equal
to 2.75% of the Company's net assets, with any excess being met by
Albion Capital Group LLP by way of a reduction in management
fees.
In some instances, the Manager is entitled to an arrangement
fee, payable by a portfolio company in which the Company invests,
in the region of 2.0% of the investment made, and also monitoring
fees where the Manager has a representative on the portfolio
company's board; these fees are payable by the investee company.
Further details of the Manager's fee can be found in note 5 to the
financial statements.
Management performance incentive
Under the performance incentive arrangement, the Manager will
receive an incentive fee calculated annually on a five year average
rolling basis, equal to 15% of the performance over a 5% hurdle
(applied to the opening net asset value each year in line with the
current dividend target). This fee will only become payable when
average returns to shareholders are in excess of 5% per annum over
a five year period. The first payment of a performance fee, if
earned, will be in 2024 based on the audited results of the five
years ending 31 December 2023.
Details of the calculation of the performance incentive
provision can be found in note 15. For the year ended 31 December
2022, the total provision for the performance incentive earned is
GBP272,000 (2021: GBPnil).
Investment and co-investment
The Company co-invests with other Albion Capital Group LLP
managed VCTs. Allocation of investments is on the basis of an
allocation agreement which is based, inter alia, on the ratio of
cash available for investment in each of the entities and the HMRC
VCT qualifying tests.
Liquidity Management
The Board examines regularly both the liquidity of the Company's
shares in the secondary market, which is substantially influenced
by the use of share buybacks and share issuance, and the liquidity
of the Company's portfolio. The nature of investments in a venture
capital portfolio is longer term and these are relatively illiquid
in the short term. Consequently, the Company maintains sufficient
liquidity in cash and near cash assets to cover the operating costs
of the Company and to meet dividend payments and share buy-backs,
as well as to have the capacity to make fresh investments when the
opportunities arise. Although the Company is authorised to borrow,
in practice it does not borrow. The Board has no intention that the
Company should borrow given the nature of the Company's
investments, a number of which have their own gearing. Management
of liquidity is one of the key operational areas that the Board
discusses regularly with the Manager.
Evaluation of the Manager
The Board, through the Management Engagement Committee, has
evaluated the performance of the Manager based on:
-- returns generated by the Company;
-- continued compliance with the VCT regulation;
-- long-term prospects of the current portfolio of investments;
-- management of treasury, including use of share buy-backs and
participation in fund raising;
-- a review of the Management Agreement and the services provided therein;
-- benchmarking the performance of the Manager to other service providers,
including the performance of other VCTs that the Manager is responsible
for managing: and
-- the contribution made by the administration and secretarial team to the
operation of the Company.
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 Albion Capital Group LLP as the Company's
AIFM in 2014 as required by the AIFMD. The Manager became a
full-scope AIFM under the AIFMD in 2018. As a result, from that
date, Ocorian Depositary (UK) Limited was appointed as Depositary
to oversee the custody and cash arrangements and provide other
AIFMD duties with respect to the Company. Having the Depositary
provides another level of oversight over the safe-keeping of the
Company's assets.
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 on how the Board
operates as a cohesive and competent unit. The Company also has no
customers in the traditional sense and, therefore, there is also
nothing to report in relation to relationships with customers.
The table below sets out the key stakeholders 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.
Stakeholder Engagement with Stakeholder Outcome and decisions based on engagement
------------ ----------------------------------------------------------- -----------------------------------------------------------
Shareholders The key methods of engaging with Shareholders are -- Shareholders' views are important. The Board
as follows: encourages Shareholders to exercise their right to
-- Annual General Meeting ("AGM") vote on the resolutions at the AGM or any other
General Meetings of the Company. The Company's AGM is
-- Shareholder seminar used as an opportunity to communicate with investors,
including through a presentation made by the
-- Annual report and Financial Statements, Half-yearly investment management team. The Board has decided
financial report, and Interim management statements that this year's AGM will be held virtually, via Lumi
platform, which enabled engagement with a wider
-- RNS announcements for all key decisions including audience of shareholders from across the country, and
changes to the Board, and the publication of a gave shareholders the opportunity to ask questions
Prospectus in relation to the Top up Offers and vote during the AGM last year. The virtual medium
helps facilitate greater shareholder participation
-- Albion Capital website, social media pages, as well and to help those who are unable to attend the AGM in
as publishing Albion News shareholder magazine person.
-- Shareholders are also encouraged to attend in person
-- A briefing from the Company's broker and sponsor the annual Shareholders' Seminar. This year's event
took place on 23 November 2022 at the Royal College
of Surgeons. The seminar included Speechmatics and
Ophelos 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 attended the
seminar. The Board considers this an important
interactive event and expects to continue to run this
in 2023.
-- The Board recognises the importance to shareholders
of maintaining and applying a share buy-back policy,
in order to provide market liquidity. The Board
closely monitors the discount to the net asset value,
with a target to maintain this in the region of 5%.
-- The Board seeks to create value for shareholders by
generating strong and sustainable returns to provide
shareholders with regular dividends and the prospect
of capital growth. The Board takes this into
consideration when making the decision to pay
dividends to shareholders. The variable dividend
policy has resulted in a dividend yield of 4.9% on
opening net asset value, with dividends paid
semi-annually.
-- During the year, the Board made the decision to
participate in the Albion Prospectus Top Up Offers,
launched on 6 January 2022 and 10 October 2022, to
raise more funds for deployment into new and existing
portfolio companies. 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 participate in the Top up Offers. On allotting
shares, 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 with the Board, focusing on
deployment of cash for future investments, dividends
and share buy-backs and the prospect of future
realisations in the portfolio.
-- The Board decided to propose a special resolution at
the 2022 AGM to increase the Company's distributable
reserves by way of a reduction of share premium
account and capital redemption reserve. This
resolution was approved with 99.4% of Shareholders
voting in favour of the resolution. Further details
on this can be found on page 51 of the full Annual
Report and Financial Statements.
------------ ----------------------------------------------------------- -----------------------------------------------------------
Manager The performance of Albion Capital Group LLP is essential -- The Manager meets with the Board at least quarterly
to the long term success of the Company, including to discuss the performance of the Company, and is in
achieving the investment policy and generating returns regular contact in between these meetings, for
to shareholders, as well as the impact the Company example to share investment papers for new and
has on Environment, Social and Governance practice. 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 by the Management Engagement
Committee, which includes reviewing comparator
engagement terms and portfolio performance.
-- There was a change in the year to the management fees
and to the performance incentive fee which is now
calculated by reference to the Company's five year
rolling historic returns commencing from 2019 and
with any fee first payable in 2024. A provision of
GBP272,000 has been recognised based on the
Directors' best estimate of incentive fees
potentially earned to date based on historic
performance.
-- Details of the Manager's responsibilities can be
found in the Statement of corporate governance on
pages 54 and 55 of the full Annual Report and
Financial Statements.
------------ ----------------------------------------------------------- -----------------------------------------------------------
Suppliers The key suppliers with regular engagement with the -- The Manager is in regular contact with the suppliers.
Company often through the Manager are: The contractual arrangements with all the principal
-- Corporate broker suppliers to the Company are reviewed regularly and
formally once a year, alongside the performance of
-- VCT taxation adviser the suppliers in acquitting their responsibilities.
-- The Board reviews the performance of the providers
-- Depositary annually in conjunction with the Manager's input, and
was satisfied with the suppliers' performances.
-- Registrar
-- External auditor
-- Lawyer
------------ ----------------------------------------------------------- -----------------------------------------------------------
Portfolio The portfolio companies are considered key stakeholders, -- The Board aims to have a diversified portfolio in
companies because they are principal drivers of value for the terms of sector and stage of investment. Further
Company. As discussed in the Environmental, Social details of this can be found in the pie charts at the
and Governance ("ESG") report on pages 36 to 39 of end of this announcement.
the full Annual Report and Financial Statements, the -- In most cases, an Albion executive is on the board of
portfolio companies' impact on their own stakeholders a portfolio company, to help with both business
and the wider community is also important to the Company. operational decisions, as well as good ESG practices.
-- The AlbionVC platform team provide 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 holds events to help portfolio
companies benefit from the Albion network.
------------ ----------------------------------------------------------- -----------------------------------------------------------
Community The Company as an investment company, with no employees -- The Board receives reports on ESG factors within its
and and no customers, has no direct effect itself on the portfolio from the Manager. The Manager is a
environment community and environment. However, as discussed above, signatory of the United Nations Principles for
the portfolio companies' ESG impact is extremely important Responsible Investment ("UN PRI"). Further details of
to the Board and considered as part of the review this are set out in the ESG report on pages 36 to 39
of Company operations. of the full Annual Report and Financial Statements.
ESG, without its specific definition, has always been
at the heart of the responsible and sustainable
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 the effectiveness
of these policies. As an externally managed investment company with
no employees, the Company has no requirement for formal policies in
these matters, however, it is at the core of its responsible
investment approach.
General Data Protection Regulation ("GDPR")
The General Data Protection Regulation 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
These are set out in the Directors' report on page 49 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 affect the Company. In the year ended 31
December 2022 the most noticeable continuing risk to operational
and investment risk has been the heightened geopolitical risk and
its effect on the economy, with inflation remaining high, interest
rates increasing and pricing volatility in world markets,
particularly affecting growth stocks. The full impact on the
Company's portfolio is likely to be uncertain for some time.
The Board has carried out a robust assessment of the Company's
principal 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 and
uncertainties are explained below:
Possible consequence Risk assessment during the year Risk management
----------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------
RISK: Investment, performance and valuation risk
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The risk of investment in poor quality businesses, Increased in the year due to the heightened economic To reduce this risk, the Board places reliance upon
which could reduce the returns to shareholders and and geopolitical issues as referred to above. the skills and expertise of the Manager and its track
could negatively impact on the Company's current and Earlier stage technology companies have suffered from record over many years of making successful investments
future valuations. a particularly significant de-rating in the past 9 in this segment of the market. In addition, the Manager
By nature, smaller unquoted businesses, such as those months, and volatility continues to be seen in valuations operates a formal and structured investment appraisal
that qualify for Venture Capital Trust investment for these types of assets. and review process, which includes an Investment Committee,
purposes, are more volatile than larger, long-established comprising investment professionals from the Manager
businesses. for all investments, and at least one external investment
The Company's investment policy creates concentration professional for investments greater than GBP1 million
risk to the technology sector (including FinTech and in aggregate across all the Albion managed VCTs. The
HealthTech), as well as to the health sector generally. Manager also invites and takes account of comments
The Company's investment valuation methodology is from non-executive Directors of the Company on matters
reliant on the accuracy and completeness of information discussed at the Investment Committee meetings.
that is issued by portfolio companies. In particular, Investments are actively and regularly monitored by
the Directors may not be aware of or take into account the Manager (investment managers normally sit on portfolio
certain events or circumstances which occur after company boards), including the level of diversification
the information issued by such companies is reported. 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 2021/22 and 2022/23
Top-Ups followed 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 material facts up to the date
of approval of the Financial Statements by the Board.
----------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------
RISK: VCT approval risk
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The Company must comply with section 274 of the Income No change in the year. To reduce this risk, the Board has appointed the Manager,
Tax Act 2007 which enables its investors to take advantage which has a team with significant experience in Venture
of tax relief on their investment and on future returns. Capital Trust management, used to operating within
Breach of any of the rules enabling the Company to the requirements of the Venture Capital Trust legislation.
hold VCT status could result in the loss of that status. In addition, to provide formal assurance, 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, and 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: Cyber and data security
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The Company relies on a number of third parties, in No change in the year. The Manager has a dedicated in-house IT support to
particular the Manager, for the provision of investment assist in the management of the IT infrastructure
management and administrative functions. Failures and improve the IT control environment.
in key IT systems and controls within the Manager's The Company and its operations are subject to a series
business could place assets of the Company at risk, of rigorous internal controls and review procedures
result in loss of sensitive data (including shareholder exercised throughout the year. The Board receives
data), or loss of access to systems resulting in a reports from the Manager on its internal controls
lack of timely communication to market. and risk management, including on matters relating
to cyber security.
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 sufficient
systems and controls in place including those in relation
to business continuity and cyber security.
The Manager also has a formal risk group in place
which meets every six months, with cyber risk being
discussed at Board meetings.
----------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------
RISK: Reliance on key agents and personnel
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The Company relies on a number of third parties, in No change in the year. Ocorian Depositary (UK) Limited is the Company's Depositary,
particular the Manager, for the provision of investment appointed to oversee the custody and cash arrangements
management and administrative functions. Failures and provide other AIFMD duties. The Board reviews
in key systems and controls or loss of key personnel, the quarterly reports prepared by Ocorian Depositary
within the Manager's business could put assets of (UK) Limited to ensure that the Manager is adhering
the Company at risk or result in reduced or inaccurate to its policies and procedures as required by the
information being passed to the Board or to shareholders. 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: Economic, political and social risk
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in economic conditions, including; higher Increased in the year, due to the high levels of inflation, The Company invests in a diversified portfolio of
interest rates, rates of inflation, industry conditions, rising interest rates and the geopolitical risks from companies across a number of industry sectors and
competition, political and diplomatic events, and the invasion of Ukraine. in addition often invests in a mixture of instruments
other factors could substantially and adversely affect in portfolio companies and has a policy of minimising
the Company's prospects in a number of ways. This any external bank borrowings within portfolio companies.
also includes risks of social upheaval, including At any given time, the Company has sufficient cash
from infection and population re-distribution, as resources to meet its operating requirements, including
well as economic risk challenges as a result of healthcare share buy-backs and follow-on investments.
pandemics/infection. 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 continuously assess 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 uncertain times. The portfolio
is diversified and exposure is relatively small to
at-risk sectors that include leisure, hospitality,
retail and travel.
----------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------
RISK: Discount risk
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The market value of Ordinary shares can fluctuate. No change in the year. The Company operates a share buy-back policy,
The market value of an Ordinary share, as well as which aims to limit the discount at which the
being affected by its net asset value ("NAV") and shares trade to around 5% to NAV,
prospective NAV, also takes into account its dividend by providing a purchaser through the Company in
yield and prevailing interest rates. As such, the absence of market purchasers. From time to time
market value of an Ordinary share may vary considerably buy-backs cannot be applied, for example when the
from its underlying NAV. The market prices of shares Company is subject to a close period, or if it were
in quoted investment companies can, therefore, be to
at a discount or premium to the NAV at different times, exhaust and could not renew any buyback
depending on supply and demand, market conditions, authorities.
general investor sentiment and other factors, including New Ordinary shares are issued at sufficient
the ability to exercise share buybacks. Accordingly, premium to NAV to cover the costs of issue and to
the market price of the Ordinary shares may not fully avoid asset value dilution to existing investors.
reflect their underlying NAV.
----------------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------
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 for the three years to 31 December 2025. The Directors
believe that three years is a reasonable period in which they can
assess the ability of the Company to continue to operate as a going
concern 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.
As noted above, 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 also considered the procedures in place to identify emerging
risks and the risk management processes in place to avoid or reduce
the impact of the underlying risks. The Board carefully assessed,
and was satisfied with, the risk management processes in place to
avoid or reduce the impact of these risks. Inflation remaining
high, interest costs increasing and the impact on growth stocks
against a geopolitically uncertain environment remain risks that
need to be considered against the practical management of the
Company's net assets and its operational requirements. 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; assessing the resilience
of portfolio companies given the current decline in the global
economy, including the requirement for any future financial
support; and the ability to fulfil interest requirements on debt
instruments.
The Board assessed the ability of the Company to raise finance
and deploy capital, as well as the existing cash resources of the
Company by looking at cashflow forecasts and the future pipeline of
investments. 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. In assessing the prospects of the Company, the
Directors have considered the cash flow by looking at the Company's
income and expenditure projections and funding pipeline over the
assessment period of three years and they appear realistic. It is
also satisfied that the Company can maintain its VCT qualifying
status.
Taking into account the processes for mitigating risks,
monitoring costs, implementing share buy-backs and issuance of new
shares, the Manager's compliance with the investment objective,
achievement of the VCT qualifying status, policies and business
model and the balance of the portfolio, 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 2025. The Board is
mindful of the ongoing and emerging 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 to meet its operational and investment
needs.
Companies Act 2006
This Strategic report of the Company for the year ended 31
December 2022 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
Robin Archibald
Chairman
6 April 2023
Responsibility Statement
In preparing these financial statements for the year to 31
December 2022, the Directors of the Company, being Robin Archibald,
Margaret Payn, Mary Anne Cordeiro, Patrick Reeve and Clive
Richardson, confirm that to the best of their knowledge:
- summary financial information contained in this announcement
and the full Annual Report and Financial Statements for the year
ended 31 December 2022 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 53 within the full audited Annual Report and
Financial Statements.
On behalf of the Board,
Robin Archibald
Chairman
6 April 2023
Income statement
Year ended 31 December Year ended 31 December
2022 2021
---------------------------------------------------------- ---- -------------------------- --------------------------
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------------- ---- ------- ------- -------- ------- ------- --------
(Losses)/gains on investments 3 - (4,480) (4,480) - 21,527 21,527
Investment income 4 1,631 - 1,631 1,077 - 1,077
Investment Manager's fees 5 (253) (2,541) (2,794) (235) (2,115) (2,350)
Other expenses 6 (658) - (658) (366) - (366)
------- ------- -------- ------- ------- --------
(Loss)/profit on ordinary activities before tax 720 (7,021) (6,301) 476 19,412 19,888
Tax charge on ordinary activities 8 - - - - - -
------- ------- -------- ------- ------- --------
(Loss)/profit and total comprehensive income attributable
to shareholders 720 (7,021) (6,301) 476 19,412 19,888
------- ------- -------- ------- ------- --------
Basic and diluted (loss)/profit per share (pence)* 10 0.46 (4.51) (4.05) 0.37 14.93 15.30
---------------------------------------------------------- ---- ------- ------- -------- ------- ------- --------
*Adjusted for treasury shares
The accompanying notes form an integral part of these Financial
Statements.
The total column of this Income statement represents the profit
and loss account of the Company. The supplementary revenue and
capital columns have been prepared in accordance with The
Association of Investment Companies' Statement of Recommended
Practice.
Balance sheet
31 December 2022 31 December 2021
Note GBP'000 GBP'000
------------------------------------ ---- ---------------- ----------------
Fixed asset investments 11 92,301 90,535
Current assets
Trade and other receivables 13 3,456 2,878
Cash in bank and in hand 26,594 14,361
---------------- ----------------
30,050 17,239
Payables: amounts falling due within
one year
Trade and other payables 14 (832) (780)
---------------- ----------------
Net current assets 29,218 16,459
Total assets less current
liabilities 121,519 106,994
---------------- ----------------
Provisions falling due after one
year 15 (272) -
---------------- ----------------
Net assets 121,247 106,994
---------------- ----------------
Equity attributable to equity
holders
Called-up share capital 16 1,905 1,536
Share premium 5,534 52,687
Capital redemption reserve - 48
Unrealised capital reserve 24,828 33,469
Realised capital reserve 19,879 18,259
Other distributable reserve 69,101 995
---------------- ----------------
Total equity shareholders' funds 121,247 106,994
---------------- ----------------
Basic and diluted net asset value
per share (pence)* 17 72.92 80.65
*Excluding treasury shares
The accompanying notes form an integral part of these Financial
Statements.
These Financial Statements were approved by the Board of
Directors, and were authorised for issue on 6 April 2023 and were
signed on its behalf by
Robin Archibald
Chairman
Company number: 04114310
Statement of changes in equity
Capital Unrealised Realised Other
Called-up share Share redemption capital capital distributable
capital premium reserve reserve reserve* reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------- --------------- -------- ---------- ---------- -------- ------------- -------
As at 1 January 2022 1,536 52,687 48 33,469 18,259 995 106,994
(Loss)/profit and total comprehensive income for the
year - - - (6,498) (523) 720 (6,301)
Transfer of previously unrealised gains on disposal
of investments - - - (2,143) 2,143 - -
Purchase of shares for treasury - - - - - (2,512) (2,512)
Issue of equity 369 29,943 - - - - 30,312
Cost of issue of equity - (739) - - - - (739)
Cancellation of share premium and capital redemption
reserve - (76,357) (48) - - 76,405 -
Dividends paid - - - - - (6,507) (6,507)
As at 31 December 2022 1,905 5,534 - 24,828 19,879 69,101 121,247
----------------------------------------------------- --------------- -------- ---------- ---------- -------- ------------- -------
As at 1 January 2021 1,307 37,036 48 13,595 23,617 2,425 78,028
Profit/(loss) and total comprehensive income for the
year - - - 20,761 (1,349) 476 19,888
Transfer of previously unrealised gains on disposal
of investments - - - (887) 887 - -
Purchase of shares for treasury - - - - - (1,906) (1,906)
Issue of equity 229 16,056 - - - - 16,285
Cost of issue of equity - (405) - - - - (405)
Dividends paid - - - - (4,896) - (4,896)
As at 31 December 2021 1,536 52,687 48 33,469 18,259 995 106,994
----------------------------------------------------- --------------- -------- ---------- ---------- -------- ------------- -------
*Included within these reserves are amounts of GBP31,907,000
(2021: GBP17,035,000) which are considered distributable. Over the
next three years an additional GBP50,403,000 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 2023, GBP8,437,000
became distributable in line with this.
Statement of cash flows
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
---------------------------------------- ----------------- -----------------
Cash flow from operating activities
Loan stock income received 1,199 674
Dividend income received 132 15
Deposit interest received 109 1
Investment management fee paid (2,586) (2,166)
Other cash payments (591) (373)
Corporation tax paid - -
Net cash flow from operating activities (1,737) (1,849)
Cash flow from investing activities
Purchase of fixed asset investments (16,108) (8,229)
Proceeds from disposals of fixed asset
investments 9,530 3,910
Net cash flow from investing activities (6,578) (4,319)
Cash flow from financing activities
Issue of share capital 28,484 15,120
Cost of issue of equity (36) (37)
Dividends paid* (5,387) (4,099)
Purchase of own shares (2,513) (1,906)
Net cash flow from financing activities 20,548 9,078
Increase in cash in bank and in hand 12,233 2,910
Cash in bank and in hand at start of
period 14,361 11,451
----------------- -----------------
Cash in bank and in hand at end of
period 26,594 14,361
*The dividends paid shown in the cash flow are different to the
dividends disclosed in note 9 as a result of the non-cash effect of
the Dividend Reinvestment Scheme.
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with
applicable United Kingdom law and accounting standards, including
Financial Reporting Standard 102 ("FRS 102"), and with the
Statement of Recommended Practice "Financial Statements of
Investment Trust Companies and Venture Capital Trusts" ("SORP")
issued by The Association of Investment Companies ("AIC"). The
Financial Statements have been prepared on a going concern basis
and further details can be found in the Directors' report on page
47 of the full Annual Report and Financial Statements.
The preparation of the Financial Statements requires management
to make judgements and estimates that affect the application of
policies and reported amounts of assets, liabilities, income and
expenses. The most critical estimates and judgements relate to the
determination of carrying value of investments at fair value
through profit and loss ("FVTPL") in accordance with FRS 102
sections 11 and 12. The Company values investments by following the
International Private Equity and Venture Capital Valuation ("IPEV")
Guidelines as updated in 2022 and further detail on the valuation
techniques used are outlined in note 2 below.
Company information can be found on page 4 of the full Annual
Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The Company's business is investing in financial assets with a
view to profiting from their total return in the form of income and
capital growth. This portfolio of financial assets is managed, and
its performance evaluated on a fair value basis, in accordance with
a documented investment policy, and information about the portfolio
is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those
undertakings in which the Company holds more than 20% of the equity
as part of an investment portfolio are not accounted for using the
equity method. In these circumstances the investment is measured at
Fair Value Through Profit and Loss ("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 no 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 prices of recent investment
rounds, net assets and industry valuation benchmarks. Where the 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 the 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
of the measurement date. Examples of events or changes that could
indicate a diminution include:
-- the performance and/or prospects of the underlying business are
significantly below the expectations on which the investment was
based; or
-- a significant adverse change either in the portfolio company's
business or in the technological, market, economic, legal or
regulatory environment in which the business operates; or
-- market conditions have deteriorated, which may be indicated by a
fall in the share prices of quoted businesses operating in the
same or related sectors.
Investments are recognised as financial assets on legal
completion of the investment contract and are de-recognised on
legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value
movement of an investment but is recognised separately as
investment income through the other distributable reserve when a
share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year),
payables and cash are carried at amortised cost, in accordance with
FRS 102. Debtors due after more than one year meet the definition
of a financing transaction and are 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.
Provisions falling due after one year
Provisions falling due after one year relate to the performance
incentive fee payable to the Manager. The provision requires
management to make judgements and estimates under the Basis of
Preparation. The performance incentive fee provision is the best
estimate of the probable amounts payable in respect of the
five-year performance measurement period for the performance
incentive fee. The most significant assumption when calculating
this amount, is that of future performance. This has been
calculated by reference to the Company's five year rolling historic
returns and has been corroborated by a portfolio return analysis
using appropriate benchmarks.
Investment income
Equity income
Dividend income is included in revenue when the investment is
quoted ex-dividend.
Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are
recognised when the Company's right to receive payment and expected
settlement is established. Where interest is rolled up and/or
payable at redemption then it is recognised as income unless there
is reasonable doubt as to its receipt.
Bank interest 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
expenses
All expenses have been accounted for on an accruals basis.
Expenses are charged through the other distributable reserve except
the following which are charged through the realised capital
reserve:
-- 90% of management fees and 100% of performance incentive fees, if any,
are allocated to the realised capital reserve.
-- expenses which are incidental to the purchase or disposal of an
investment are charged through the realised capital reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS
102. Current tax is tax payable (refundable) in respect of the
taxable profit (tax loss) for the current period or past reporting
periods using the tax rates and laws that have been enacted or
substantively enacted at the financial reporting date. Taxation
associated with capital expenses is applied in accordance with the
SORP.
Deferred tax is provided in full on all timing differences at
the reporting date. Timing differences are differences between
taxable profits and total comprehensive income as stated in the
Financial Statements that arise from the inclusion of income and
expenses in tax assessments in periods different from those in
which they are recognised in the Financial Statements. As a VCT,
the Company has an exemption from tax on capital gains. The Company
intends to continue meeting the conditions required to obtain
approval as a VCT 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 accounts for the nominal value of the shares.
Share premium
This 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 diminutions in value (including gains recognised on the
realisation of investments where consideration is deferred that are not
distributable as a matter of law);
-- finance income in respect of the unwinding of the discount on deferred
consideration that is not distributable as a matter of law;
-- expenses, together with the related taxation effect, charged in
accordance with the above policies; and
-- dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue
reserve were combined in 2012 to form a single reserve named "other
distributable reserve".
This reserve accounts for movements from the revenue column of
the Income statement, the payment of dividends, the buy-back of
shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in
which the liability to make the payment has been established or
approved at the Annual General Meeting.
Segmental reporting
The Directors are of the opinion that the Company is engaged in
a single operating segment of business, being investment in smaller
early stage companies principally based in the UK.
3. (Losses)/gains on investments
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
Unrealised (losses)/gains on fixed asset
investments (6,498) 20,761
Realised gains on fixed asset
investments 1,647 448
Unwinding of discount on deferred
consideration 371 318
(4,480) 21,527
----------------- -----------------
4. Investment income
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
----------------------
Loan stock interest 978 1,060
Dividend income 544 15
Bank deposit interest 109 2
1,631 1,077
----------------- -----------------
5. Investment management fees
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
Investment management fee charged to revenue 253 235
Investment management fee charged to capital 2,269 2,115
----------------- -----------------
Total investment management fee 2,522 2,350
Movement in provision for performance incentive fee
charged to capital 272 -
----------------- -----------------
2,794 2,350
----------------- -----------------
Further details of the Management Agreement under which the
investment management fee and performance incentive fee are paid
are given in the Strategic report above.
During the year, services of a total value of GBP2,522,000
(2021: GBP2,350,000) were purchased by the Company from Albion
Capital Group LLP in respect of management fees. At the financial
year end, the amount due to Albion Capital Group LLP in respect of
these services disclosed as accruals was GBP597,000 (2021:
GBP660,000). The total annual running costs of the Company are
capped at an amount equal to 2.75% of the Company's net assets,
with any excess being met by Albion Capital Group LLP by way of a
reduction in management fees. During the year, the management fee
was reduced by nil as the running costs remained below the cap
(2021: reduced by GBP231,000).
A provision of GBP272,000 has been recognised based on the
Directors' best estimate and included in relation to potential
performance incentive fees which arise from performance to 31
December 2022, which would become payable over the periods to 31
December 2026. The first payment will only become payable after the
adoption of the accounts at the 2024 AGM based on actual year end
performance, in relation to the five-year period ending 31 December
2023. Further details can be found in note 15.
During the year, the Company was not charged by Albion Capital
Group LLP in respect of Patrick Reeve's services as a Director
(2021: nil).
Albion Capital Group LLP, its partners and staff (including
Patrick Reeve) held 1,596,085 Ordinary shares in the Company as at
31 December 2022.
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 2022, fees of
GBP345,000 attributable to the investments of the Company were
received by Albion Capital Group LLP pursuant to these arrangements
(2021: GBP207,000).
The Company has entered into an offer agreement relating to the
Offers with the Company's Manager, Albion Capital Group LLP
("Albion"), pursuant to which Albion will receive a fee of 2.5% of
the gross proceeds of the Offers and out of which Albion will pay
the costs of the Offers, as detailed in the Prospectus.
6. Other expenses
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
Directors' fees (including NIC) 104 111
Auditor's remuneration for statutory audit services
(excluding VAT) 48 38
Tax services 18 18
Other administrative expenses 488 199
658 366
----------------- -----------------
7. Directors' fees
The amounts paid to and on behalf of the Directors during the
year are as follows:
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
Directors' fees 95 103
National insurance 9 8
----------------- -----------------
104 111
----------------- -----------------
The Company's key management personnel are the non-executive
Directors. Further information regarding Directors' remuneration
can be found in the Directors' remuneration report on pages 61 to
64 of the full Annual Report and Financial Statements.
8. Tax on ordinary activities
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
- -
UK corporation tax charge
----------------- -----------------
Factors affecting the tax charge:
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
(Loss)/profit on ordinary activities before taxation (6,301) 19,888
----------------- -----------------
Tax (credit)/charge on (loss)/profit at the average
companies rate of 19% (2021: 19%) (1,197) 3,779
Factors affecting the charge:
Non-taxable losses/(gains) 851 (4,090)
Income not taxable (103) (3)
Excess management expenses carried forward 449 314
- -
----------------- -----------------
The tax charge for the year shown in the Income statement is
lower than the average companies rate of corporation tax in the UK
of 19% (2021: 19%). The differences are explained above. From April
2023 the Company's rate of corporation tax will increase in the UK
from 19% to 25%.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii) The Company has excess management expenses of GBP9,378,000 (2021: GBP7,063,000) that are available for offset against future profits. A deferred tax asset of GBP2,345,000 (2021: GBP1,766,000) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
(iv) There is no expiry date on timing differences, unused tax losses or tax credits.
9. Dividends
Year ended Year ended
31 December 2022 31 December 2021
GBP'000 GBP'000
-------------------------------------------------------
First dividend of 2.02p per share paid on 30 June
2022 (30 June 2021: 1.73p per share) 3,240 2,306
Second dividend of 1.97p per share paid on 30 December
2022 (31 December 2021: 1.95p per share) 3,267 2,590
6,507 4,896
----------------- -----------------
In addition to the dividends summarised above, the Board has
declared a first dividend for the year ending 31 December 2023 of
1.82 pence per share. The dividend will be paid on 30 June 2023 to
shareholders on the register on 2 June 2023. The total dividend
will be approximately GBP3,252,000.
10. Basic and diluted return/(loss) per share
Year ended 31 December
Year ended 31 December 2022 2021
Revenue Capital Total Revenue Capital Total
-------------------------------------------------------- ------- ------------ ------- ------- ------- --------
Profit/(loss) attributable to equity shares (GBP'000) 721 (7,022) (6,301) 476 19,412 19,888
Weighted average shares in issue (adjusted for treasury
shares) 155,471,219 130,014,383
Return/(loss) attributable per equity share (pence) 0.46 (4.51) (4.05) 0.37 14.93 15.30
The weighted average number of shares is calculated after
adjusting for treasury shares of 24,236,401 (2021: 20,904,204).
There are no convertible instruments, derivatives or contingent
share agreements in issue, and therefore no dilution affecting the
return/(loss) per share. The basic return/(loss) per share is
therefore the same as the diluted return/(loss) per share.
11. Fixed asset investments
Investments held at fair value through 31 December 2022 31 December 2021
profit or loss GBP'000 GBP'000
------------------------------------------
Unquoted equity and preference shares 74,217 70,209
Quoted equity 437 936
Unquoted loan stock 17,647 19,390
92,301 90,535
---------------- ----------------
31 December 2022 31 December 2021
GBP'000 GBP'000
----------------------------------------------------
Opening valuation 90,535 65,152
Purchases at cost 18,289 7,681
Disposal proceeds (11,451) (3,893)
Realised gains 1,647 448
Movement in loan stock accrued income (221) 386
Unrealised (losses)/gains (6,498) 20,761
---------------- ----------------
Closing valuation 92,301 90,535
---------------- ----------------
Movement in loan stock accrued income
Opening accumulated loan stock accrued income 473 87
Movement in loan stock accrued income (221) 386
---------------- ----------------
Closing accumulated loan stock accrued income 252 473
---------------- ----------------
Movement in unrealised gains
Opening accumulated unrealised gains 33,421 13,547
Transfer of previously unrealised gains to realised
reserve on disposal of investments (2,143) (887)
Movement in unrealised gains (6,498) 20,761
---------------- ----------------
Closing accumulated unrealised gains 24,780 33,421
---------------- ----------------
Historic cost basis
Opening book cost 56,641 51,518
Purchases at cost 18,289 7,681
Sales at cost (7,661) (2,558)
Closing book cost 67,269 56,641
---------------- ----------------
Purchases and disposals detailed above do not agree to the
Statement of cash flows due to restructuring of investments,
conversion of convertible loan stock and settlement of receivables
and payables.
Fixed asset investments are valued at fair value in accordance
with the IPEV guidelines as follows:
31 December 2022 31 December 2021
Valuation methodology GBP'000 GBP'000
----------------------------------------------------
Cost and price of recent investment (calibrated and
reviewed for impairment) 51,900 41,065
Revenue multiple 19,194 20,019
Third party valuation -- discounted cash flow 10,428 9,987
Third party valuation -- earnings multiple 8,019 7,017
Net assets 2,228 1,797
Bid Price 437 936
Discounted offer price 95 9,137
Earnings multiple - 577
92,301 90,535
---------------- ----------------
When using the cost or price of a 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.
Fair value investments had the following re-classifications
between valuation methodologies:
Change in valuation methodology (2021 to 2022) Explanatory
Valuation at note
31 December 2022
GBP'000
-------------------------------------------------------
Cost and price of recent investment (calibrated and 1,912 More
reviewed for impairment) to revenue multiple appropriate
valuation
methodology
Cost and price of recent investment (calibrated and 1,116 More
reviewed for impairment) to third party valuation appropriate
-- earnings multiple valuation
methodology
Cost and price of recent investment (calibrated and 95 Based on
reviewed for impairment) to discounted offer price recent offer
price
Discounted offer price to revenue multiple 3,137 Sale not
expected in
the short
term
Revenue multiple to cost and price of recent investment 4,322 Valuation
(calibrated and reviewed for impairment) based on
recent
funding
round
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, there are no other more
relevant methods of valuation which would be reasonable as at 31
December 2022.
FRS 102 and the SORP requires the Company to disclose the inputs
to the valuation methods applied to its investments measured at
FVTPL in a fair value hierarchy. The table below sets out fair
value hierarchy definitions using FRS 102 s.11.27.
Fair value hierarchy Definition
-------------------- ----------------------------------------------------
Level 1 Unadjusted quoted prices in an active market
-------------------- ----------------------------------------------------
Level 2 Inputs to valuations are from observable sources and
are directly or indirectly derived from prices
-------------------- ----------------------------------------------------
Level 3 Inputs to valuations not based on observable market
data
-------------------- ----------------------------------------------------
Quoted investments are valued according to Level 1 valuation
methods. 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 2022 31 December 2021
GBP'000 GBP'000
-------------------------------------- ---------------- ----------------
Opening balance 89,599 65,152
Purchases at cost 18,289 7,681
Disposals proceeds (11,288) (3,893)
Movement in loan stock accrued income (221) 386
Realised gains 1,708 448
Unrealised (losses)/gains (6,222) 20,129
Transfer to level 1 - (304)
---------------- ----------------
Closing balance 91,865 89,599
---------------- ----------------
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. 77% 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 as such the Board believes that changes to reasonable
possible alternative input assumptions (by adjusting the earnings
and revenue multiples) for the valuation of the remainder of the
portfolio could lead to a significant change in the fair value of
the portfolio. Therefore, for the remainder of the portfolio, the
Board has adjusted the inputs for a number of the largest portfolio
companies (by value) resulting in a total coverage of 86% of all
the portfolio of investments. The main inputs considered for each
type of valuation are as follows:
Change in
fair value
Change of Change in NAV
Base in investments (pence per
Valuation technique Portfolio company sector Input Case* input (GBP'000) share)
---------------------------------------------- ------------------------------------ ------------------ ----- ------ ----------- -----------------
Revenue multiple Healthcare (including digital care) Revenue multiple 5.4x +0.5x 407 0.24
---------------------------------------------- ------------------------------------ ------------------ ----- ------ ----------- -----------------
-0.5x (407) (0.24)
------------------------------------------------------------------------------------------------------ ----- ------ ----------- -----------------
Third party valuation -- discounted cash flow Renewable energy Discount rate 5.5% +0.5% 58 0.04
---------------------------------------------- ------------------------------------ ------------------ ----- ------ ----------- -----------------
-0.5% (53) (0.03)
------------------------------------------------------------------------------------------------------ ----- ------ ----------- -----------------
Third party valuation -- earnings multiple Other (including education) Earnings multiple 22.5x +2.25x 400 0.24
---------------------------------------------- ------------------------------------ ------------------ ----- ------ ----------- -----------------
-2.25x (400) (0.24)
------------------------------------------------------------------------------------------------------ ----- ------ ----------- -----------------
*As detailed in the accounting policies above, 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 GBP865,000 (1.2%) or
a decrease in the valuation of equity investments by GBP860,000
(1.2%).
12. Significant interests
The principal activity of the Company is to select and hold a
portfolio of investments. Although the Company, through the
Manager, will, in some cases, be represented on the Board of the
portfolio company, it will not take a controlling interest or
become involved in the management. The size and structure of the
companies with unquoted securities may result in certain holdings
in the portfolio representing a participating interest without
there being any partnership, joint venture or management consortium
agreement. The investments listed below are held as part of an
investment portfolio and therefore, as permitted by FRS 102 section
14.4B, they are measured at FVTPL and not accounted for using the
equity method.
The Company has interests of greater than 20% of the nominal
value of any class of the allotted shares in the following
portfolio companies as at 31 December 2022 as described below:
Net % total
Registered Loss before tax liabilities % class and voting
Company postcode GBP'000 GBP'000 Result for year ended share type rights
-----------
MHS 1
Limited EC1M 5QL, UK (1,017) (9,982) 31 August 2021 22.5% Ordinary 22.5%
Premier
Leisure
(Suffolk)
Limited EC1M 5QL, UK n/a* (1,504) 31 August 2021 25.8% Ordinary 25.8%
The Q
Garden
Company 33.4% A
Limited EC1M 5QL, UK n/a* (4,600) 31 August 2021 Ordinary 33.4%
*Filleted accounts which do not disclose this information.
13. Current assets
Trade and other receivables 31 December 2022 31 December 2021
GBP'000 GBP'000
-------------------------------------- ---------------- ----------------
Prepayments and accrued income 30 25
Other receivables 420 546
Deferred consideration under one year 416 88
Deferred consideration over one year 2,590 2,219
3,456 2,878
---------------- ----------------
The deferred consideration over one year relates to the sale of
G.Network Communications Limited in December 2020. These proceeds
are receivable in January 2024, and have been discounted to present
value at the prevailing market rate, including a provision for
counterparty risk. This constitutes a financing transaction and has
been accounted for using the policy disclosed in note 2.
The Directors consider that the carrying amount of receivables
is not materially different to their fair value.
14. Payables: amounts falling due within one year
31 December 2022 31 December 2021
GBP'000 GBP'000
----------------------------- ---------------- ----------------
Trade payables 13 7
Accruals and deferred income 819 773
832 780
---------------- ----------------
The Directors consider that the carrying amount of payables is
not materially different to their fair value.
15. Provisions and significant estimates
31 December 2022 31 December 2021
GBP'000 GBP'000
Opening provision - -
Charged to profit and loss 272 -
--------------------------- ---------------- ----------------
Closing provision 272 -
--------------------------- ---------------- ----------------
In accordance with the AIC SORP and FRS 102, a provision for a
performance incentive fee ("PIF") is required to be estimated and
accounted for in the financial statements. The PIF is calculated on
a five-year rolling average performance basis, with a 5% hurdle
applied to the opening net asset value each year, which is in line
with our current dividend target. The first five year performance
period will take into account the audited results of the five years
ending 31 December 2023.
Any PIF will only be paid on actual year end audited results,
and this provision is the Board's best estimate of the potential
obligation relating to the inclusion of realised performance from 1
January 2019 to 31 December 2022 in any future five-year rolling
period.
The most significant assumption when calculating this amount, is
that of future performance. Audited financial results for the
period from 1 January 2019 to 31 December 2022 are included in the
calculation; a forecast has been used for future years assuming
performance is achieved in line with the five year historic rolling
average. The provision included in the financial statements has
been calculated on this basis and has been corroborated by a
portfolio return analysis using appropriate benchmarks.
The average return per annum over each rolling five year period
since the Company's inception in 2000 to the date of approval of
the new performance fee arrangements was 5.85% This smooths the
performance through the various economic events and cycles seen
since inception. This has resulted in a provision of GBP272,000 at
31 December 2022. The amount due at 31 December 2022 is nil (2021:
nil).
16. Called-up share capital
Allotted, called-up and fully paid GBP'000
---------------------------------------------------- -------
153,563,297 Ordinary shares of 1 penny each at 31
December 2021 1,536
36,947,257 Ordinary shares of 1 penny each issued
during the year 369
190,510,554 Ordinary shares of 1 penny each at 31
December 2022 1,905
---------------------------------------------------- -------
20,904,204 Ordinary shares of 1 penny each held in
treasury at 31 December 2021 (209)
3,332,197 Ordinary shares of 1 penny each purchased
for treasury during the year (33)
24,236,401 Ordinary shares of 1 penny each held in
treasury at 31 December 2022 (242)
---------------------------------------------------- -------
Voting rights of 166,274,153 Ordinary shares of 1
penny each at 31 December 2022 1,663
---------------------------------------------------- -------
The Company purchased 3,332,197 Ordinary shares to be held in
treasury (2021: 2,707,734) at a cost of GBP2,512,000 including
stamp duty (2021: GBP1,906,000) during the year ended 31 December
2022. Total share buy backs in 2022 represents 1.7% (2021: 1.8%) of
called-up share capital.
The Company holds a total of 24,236,401 shares (2021:
20,904,204) in treasury representing 12.7% (2021: 13.6%) of the
issued Ordinary share capital at 31 December 2022.
Under the terms of the Dividend Reinvestment Scheme, the
following new Ordinary shares of nominal value 1 penny each were
allotted during the year:
Aggregate nominal
value Issue price Net
Number of shares of shares (pence per invested Opening market price on allotment date (pence per
Date of allotment allotted (GBP'000) share) (GBP'000) share)
-------------------
30 June 2022 715,031 7 80.03 554 76.50
30 December 2022 729,882 7 75.97 535 72.50
1,444,913 1,089
------------------------ ---------
Under the terms of the Albion VCTs Prospectus Top Up Offers
2021/22, the following new Ordinary shares, of nominal value 1
penny each, were allotted during the year:
Aggregate
nominal Net
Number of value of Issue price consideration
Date of shares shares (pence per received Opening market price on allotment date (pence per
allotment allotted (GBP'000) share) (GBP'000) share)
----------
25
February
2022 1,308,032 13 81.90 1,055 77.00
25
February
2022 443,854 4 82.30 358 77.00
25
February
2022 12,172,712 122 82.80 9,828 77.00
31 March
2022 14,154,989 142 82.80 11,428 77.00
11 April
2022 170,608 2 81.90 138 77.00
11 April
2022 13,972 - 82.30 11 77.00
11 April
2022 737,806 7 82.80 596 77.00
29,001,973 23,414
---------- -------------
Under the terms of the Albion VCTs Prospectus Top Up Offers
2022/23, the following new Ordinary shares, of nominal value 1
penny each, were allotted during the year:
Aggregate
nominal Net
Number of value of Issue price consideration
Date of shares shares (pence per received Opening market price on allotment date (pence per
allotment allotted (GBP'000) share) (GBP'000) share)
----------
2 December
2022 1,473,524 15 79.20 1,150 74.50
2 December
2022 273,558 3 79.60 213 74.50
2 December
2022 4,753,289 48 80.00 3,707 74.50
6,500,371 5,070
--------- -------------
17. Basic and diluted net asset value per share
31 December 2022 31 December 2021
(pence per share) (pence per share)
---------------------------------------- ----------------- -----------------
Basic and diluted net asset value per
share 72.92 80.65
----------------- -----------------
The basic and diluted net asset value per share at the year end
is calculated in accordance with the Articles of Association and is
based upon total shares in issue (less treasury shares) of
166,274,153 at 31 December 2022 (2021: 132,659,093).
18. Capital and financial instruments risk management
The Company's capital comprises Ordinary shares as described in
note 16. The Company is permitted to buy back its own shares for
cancellation or treasury purposes.
The Company's financial instruments comprise equity and loan
stock investments in quoted and unquoted companies, cash balances,
receivables and payables which arise from its operations. The main
purpose of these financial instruments is to generate cash flow and
revenue and capital appreciation for the Company's operations. The
Company has no gearing or other financial liabilities apart from
short term payables. The Company does not use any derivatives for
the management of its Balance sheet.
The principal financial risks arising from the Company's
operations are:
-- investment or market 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
apart from where noted below, there have been no changes in the
objectives, policies or processes for managing risks during the
past year. The key risks are summarised below.
Investment risk
As a Venture Capital Trust, it is the Company's specific nature
to evaluate and control the investment risk of its portfolio in
quoted and unquoted investments, details of which are shown on
pages 28 to 30 of the full Annual Report and Financial Statements.
Investment risk is the exposure of the Company to the revaluation
and devaluation of investments. The main driver of investment risk
is the operational and financial performance of the portfolio
company and the dynamics of market quoted comparators. 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 Manager and the Board formally review investment risk (which
includes market price 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 quoted and unquoted
investments.
The maximum investment risk as at the Balance sheet date is the
value of the fixed asset investment portfolio which is
GBP92,301,000 (2021: GBP90,535,000). Fixed asset investments form
76% of the net asset value as at 31 December 2022 (2021: 85%).
More details regarding the classification of fixed asset
investments are shown in note 11.
Investment price risk
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. As a
Venture Capital Trust, the Company invests in accordance with the
investment policy set out above. 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
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 Portfolio of investments section on pages 28 to 30 of the
full Annual Report and Financial Statements and in the Strategic
report.
As required 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 GBP9,230,000. 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 GBP18,460,000.
Further sensitivity analysis on fixed asset investments is
included in note 11.
Interest rate risk
The Company is exposed to fixed and floating rate interest rate
risk on its financial assets. On the basis of the Company's
analysis, it was estimated that a rise of 1% in all interest rates
would have increased the investment income for the year by
approximately GBP205,000 (2021: GBP129,000). Furthermore, it was
considered that a fall of interest rates below current levels
during the year would have been very unlikely.
The weighted average effective interest rate applied to the
Company's unquoted loan stock during the year was approximately
6.7% (2021: 7.1%). The weighted average period to maturity for the
unquoted loan stock is approximately 3.7 years (2021: 3.4
years).
The Company's financial assets and liabilities, all denominated
in pounds sterling, consist of the following:
31 December 2022 31 December 2021
Floating rate Non-interest bearing Total Floating rate Non-interest bearing Total
Fixed rate GBP'000 GBP'000 GBP'000 GBP'000 Fixed rate GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------------------- ------------- -------------------- -------- ------------------- ------------- -------------------- --------
Unquoted equity - - 74,217 74,217 - - 70,209 70,209
Quoted equity - - 437 437 - - 936 936
Unquoted loan
stock 15,884 - 1,764 17,648 18,700 - 690 19,390
Receivables* - - 3,426 3,426 - - 2,853 2,853
Current
liabilities - - (832) (832) - - (780) (780)
Cash - 26,594 - 26,594 - 14,361 - 14,361
------------------- ------------- -------------------- -------- ------------------- ------------- -------------------- --------
Total 15,884 26,594 79,012 121,490 18,700 14,361 73,908 106,969
------------------- ------------- -------------------- -------- ------------------- ------------- -------------------- --------
*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 prior to
investment, and as part of its ongoing monitoring of investments.
In doing this, it takes into account the extent and quality of any
security held. For loan stock investments made prior to 6 April
2018, which account for 70.3% 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 sit on the
boards of unquoted portfolio companies; this enables the close
identification, monitoring and management of investment specific
credit risk.
The Manager and the Board formally review credit risk (including
receivables) and other risks, both at the time of initial
investment and at quarterly Board meetings.
The Company's total gross credit risk as at 31 December 2022 was
limited to GBP17,647,000 (2021: GBP19,390,000) of unquoted loan
stock instruments, GBP26,594,000 (2021: GBP14,361,000) cash
deposits with banks and GBP3,456,000 (2021: GBP2,878,000) of other
receivables.
At the Balance sheet date, cash in bank and in hand held by the
Company were held with Lloyds Bank plc, Scottish Widows Bank plc
(part of Lloyds Banking Group), Barclays Bank plc, Bank of
Montreal, Société Générale S.A. and National Westminster Bank plc.
Credit risk on cash transactions was mitigated by transacting with
counterparties that are regulated entities subject to prudential
supervision, with high credit ratings assigned by international
credit-rating agencies.
The Company has an informal policy of limiting counterparty
banking and floating rate note exposure to a maximum of 20% of net
asset value for any one counterparty.
The credit profile of unquoted loan stock is described under
liquidity risk below.
Liquidity risk
Liquid assets are held as cash on current account, on deposit,
in bonds or short term money market account. Under the terms of its
Articles, the Company has the ability to borrow up to 10% of its
adjusted capital and reserves of the latest published audited
Balance sheet, which amounts to GBP11,800,000 as at 31 December
2022 (2021: GBP10,373,000).
The Company has no committed borrowing facilities as at 31
December 2022 (2021: GBPnil). The Company had cash balances of
GBP26,594,000 (2021: GBP14,361,000). The main cash outflows are for
new investments, share buy-backs and dividend payments, which are
within the control of the Company. The Manager formally reviews the
cash requirements of the Company on a monthly basis, and the Board
on a quarterly basis as part of its review of management accounts
and forecasts. The Company's financial liabilities which are short
term in nature total GBP832,000 as at 31 December 2022 (2021:
GBP780,000).
The carrying value of loan stock investments analysed by
expected maturity dates is as follows:
31 December 2022 31 December 2021
Redemption Fully performing Valued below cost Past due Total Fully performing Valued below cost Past due Total
date GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------------- ----------------- -------- -------- ---------------- ----------------- -------- --------
Less than
one year 5,390 - 4,054 9,444 4,436 2,746 620 7,802
1-2 years 3,369 - 63 3,432 195 1 - 196
2-3 years 117 - - 117 3,571 6 64 3,641
3-5 years 478 - - 478 4,525 - - 4,525
5+ years 3,724 - 452 4,176 2,871 - 355 3,226
---------------- ----------------- -------- -------- ---------------- ----------------- -------- --------
Total 13,078 - 4,569 17,647 15,598 2,753 1,039 19,390
---------------- ----------------- -------- -------- ---------------- ----------------- -------- --------
Loan stock can be past due as a result of interest or capital
not being paid in accordance with contractual terms.
The cost of loan stock investments valued below cost is
GBP26,000 (2021: GBP3,743,000).
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 factors identified above, 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 2022 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.
19. Commitments and contingencies
The Company had no financial commitments in respect of
investments as at 31 December 2022 (2021: nil).
There were no contingent liabilities or guarantees given by the
Company as at 31 December 2022 (2021: nil).
20. Post balance sheet events
Since the year end, the Company has not made any material
investment transactions.
On 2 March 2023, a NAV update was announced with a 4.63 pence
per share uplift, representing a 6.35% increase on the 31 December
2022 NAV. This uplift is a result of a portfolio company, Quantexa,
undergoing an external fundraising process after the year end. This
was not known at 31 December 2022 and therefore this is a
non-adjusting post balance sheet event. This transaction has since
completed and was announced by Quantexa on 4 April 2023.
The Company issued the following new Ordinary shares of nominal
value 1 penny each under the Albion VCTs' Prospectus Top Up Offers
2022/23:
Aggregate nominal
Number of value
shares of shares Issue price Net consideration received Opening market price on allotment date
Date of allotment allotted (GBP'000) (pence per share) (GBP'000) (pence per share)
-------------------
31 March 2023 12,395,704 124 79.60 9,621 74.00
---------- ----------------- --------------------------
21. Related party transactions
Other than transactions with the Manager as disclosed in note 5,
the Directors' remuneration disclosed in the Directors'
remuneration report on pages 61 to 64 of the full Annual Report and
Financial Statements, and that disclosed above, there are no other
related party transactions requiring disclosure.
21. Other Information
The information set out in this announcement does not constitute
the Company's statutory accounts within the terms of Section 434 of
the Companies Act 2006 for the years ended 31 December 2022 and 31
December 2021, 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 2022, 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
Section 498 (2) or (3) of the Companies Act 2006.
22. Publication
The full audited Annual Report and Financial Statements are
being sent to shareholders and copies will be made available to the
public at the registered office of the Company, Companies House,
the National Storage Mechanism and also electronically at
www.albion.capital/funds/AATG/31Dec2022.pdf.
Attachment
-- Split of Portfolio by sector, stage of investment and number of employees
https://ml-eu.globenewswire.com/Resource/Download/85642642-468a-4191-9745-1079e69a3626
(END) Dow Jones Newswires
April 06, 2023 11:50 ET (15:50 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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