KINGS ARMS YARD VCT PLC
LEI Code 213800DK8H27QY3J5R45
As required by the
The announcement was approved for release by the Board of Directors on
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended
The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rule’s, including Rule 4.1.
Investment policy
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the
Funds held pending investment or for liquidity purposes are held as cash on deposit or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within venture capital trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company’s assets at cost, thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company’s maximum exposure in relation to gearing is restricted to the amount equal to its adjusted capital and reserves.
Financial calendar
| Record date for first dividend | |
| Payment date for first dividend | |
| Annual General Meeting | Noon on |
| Announcement of half-yearly results for the six months ending |
Financial highlights
| 22.02p | Net asset value per share as at |
| 0.42p | Basic and diluted return per share |
| 1.2p | Total tax free dividends per share paid in the year to |
| 0.6p | First tax free dividend per share declared for the year to |
| 1.8% | Return on opening Net Asset Value per share |
| Opening net asset value | 22.78 | 21.60 |
| Revenue return | 0.44 | 0.34 |
| Capital (loss)/return | (0.02) | 2.04 |
| Total return | 0.42 | 2.38 |
| Impact from issue of share capital | 0.02 | - |
| Dividends paid | (1.20) | (1.20) |
| Net asset value | 22.02 | 22.78 |
| Total shareholder return | From launch to (pence per share) | (pence per share) | From launch to (pence per share) |
| Subscription price per share at launch | 100.00 | - | 100.00 |
| Dividends paid | 58.66 | 9.07 | 67.73 |
| (Decrease)/increase in net asset value | (83.40) | 5.42 | (77.98) |
| Total shareholder return | 75.26 | 14.49 | 89.75 |
The Directors have declared a first dividend of
The above financial summary is for the Company,
Chairman’s statement
Introduction
2019 was a less active year for realisations by our Company than those that preceded it, and portfolio capital gains have been more muted, but our total return on net assets has again progressed and a number of potentially exciting new technology investments have been made.
Covid-19
Since the Company’s year end the world has been plunged into a healthcare emergency the possible extent of which cannot yet be assessed. It is too early to gauge the full economic consequences but the possibility of global recession has been widely predicted.
In these circumstances it is unlikely that any investment company will remain unaffected.
Our Manager is now assessing what might be the impact of the crisis on the value of each of our portfolio companies and we hope that by the end of
Investment policy
Shareholders will recall the changes in the rules applying to permissible investments by venture capital trusts which were heralded by the Autumn Budget of
Accordingly, we proposed changing the Company’s investment policy to that shown on above, which was adopted at the Annual General Meeting in
At the end of 2016, 51% of the value of our investment portfolio comprised asset-backed or publicly quoted businesses. By
While we have seen no material adverse change in any of the investments made since 2017, it is undeniable that investing in new technology carries a higher risk than that associated with some of the heavily asset-backed businesses that formed the majority of our portfolio in 2016, and this will inevitably increase volatility over time.
This risk is, however, mitigated by two factors. Firstly, our Manager has expanded its resources to increase the number of investment professionals with experience of new technologies, and secondly, it is tending to select businesses that have already received and successfully deployed at least one round of external finance from other proven investment professionals.
Results and performance
The total return for the year was
Net asset value per share decreased by
We sold our holding in Bravo Inns II generating proceeds of £1.3m and a realised gain of £0.5m. Over the life of our investment, including interest received, we generated a return on cost of 2.0 times. The divestment of the legacy portfolio continues with the complete disposal of our holding in ErgoMed and
Portfolio
The Company holds a widely diversified selection of businesses, with key investments in the healthcare, renewable energy and technology sectors. The majority of our investment portfolio comprises companies whose annual sales are growing.
In line with the Company’s investment policy of investing in a broad range of higher growth businesses and technology companies, software and other technology represents 33% of our portfolio and is expected to continue to increase going forward. During the year a total of £2.0m was invested in 6 new portfolio companies, the majority of which are software and other technology businesses. Follow on investments were made into 19 existing portfolio companies and accounted for £3.6m of cash.
The portfolio now comprises a total of 63 companies of which 14 are legacy investments made before the present Manager was appointed in
The Board has reassessed the carrying value of all portfolio investments and has reduced those wherever trading performance or market conditions made this necessary. The overall outcome shows a net positive gain on investments of £1m.
For a detailed review of these additions, disposals and other developments in the business please see the Strategic report below.
Dividend
The Board are pleased to declare a first dividend of
Manager
The Board continues closely to monitor the Manager’s performance and reporting and remains encouraged by progress.
VCT qualifying status
As at
Albion VCTs Prospectus Top Up Offers
In
On 22nd
The first allotment of shares under the Offer was on
Share buy-backs
Given uncertainty on valuations caused by the Coronavirus and its impact on financial markets in recent times, the Board agreed to suspend the Company’s buy back operation on
Annual General Meeting
As a Board, we have been deliberating the potential impact of the COVID-19 outbreak on the arrangements for our upcoming Annual General Meeting (“AGM”). These arrangements will evolve and we will keep shareholders updated of any changes on our Manager's website at www.albion.capital/funds/KAY.
We are required by law to hold an AGM within six months of our financial year end. Our AGM is therefore provisionally scheduled to be held at noon on
Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 69 and 70 of the full Annual Report and Financial Statements.
This year, we would strongly encourage shareholders to consider whether attendance in person is necessary, especially given the public health advice. Shareholders’ views are important and the Board encourages shareholders’ to vote on the resolutions within the Notice of Annual General Meeting on pages 69 and 70 of the full Annual Report and Financial Statements using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the Annual General Meeting and recommends shareholders to vote in favour of all the resolutions being proposed. We encourage shareholders to submit their votes by proxy, rather than attending in person. If circumstances improve and you have submitted a proxy, you can still attend the meeting.
We always welcome questions from our shareholders at the AGM but this year, we request that shareholders submit their questions to the Board before the AGM.
You can submit questions up until noon on
- By email: send your questions to KAYchair@albion.capital
- By telephone: contact Shareholder relations on 020 7601 1850
Continuation as a venture capital trust
At the 2020 Annual General Meeting members will have the opportunity to confirm that they wish the Company to continue as a venture capital trust. If this resolution is not passed the Board is required to make proposals for the reorganisation, reconstruction or the orderly liquidation and winding up of the Company and present these to the members at a general meeting. Those shareholders who have deferred a capital gain by investing in the VCT should note that, on a return of capital, that gain would become chargeable at the prevailing rate of capital gains tax.
Your Board believes that
Risks and uncertainties
The outlook for the
The Manager has a clear focus to allocate resources to those sectors and opportunities where it believes growth can be both resilient and sustainable, with provision of cash to assist some portfolio companies in these extreme market conditions being a priority.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Fraud warning
We note over recent months an increase in the number of shareholders being contacted in connection with increasingly sophisticated but fraudulent financial scams. This is often by a phone call or an email which normally originates from outside of the
The Manager maintains a page on their website in relation to fraud advice at www.albion.capital/investor-centre/fraud-advice.
If you are in any doubt, we recommend that you seek financial advice before taking any action. You can also call Shareholder relations on 020 7601 1850, or email info@albion.capital, if you wish to check whether any claims made are genuine.
Outlook and prospects
We live in an uncertain world in which there are no guarantees of future prosperity. The only thing of which we can be reasonably sure is continued and very possibly accelerating technological change. Against this background we are fortunate if we can afford to invest, as our Company is doing, in new ideas and new technologies.
Your Board continues to believe that adding to and diversifying our portfolio of small unquoted businesses in varying stages of maturity offers superior value, and we remain confident of the long term prospects for our Company.
Chairman
Strategic report
Investment policy
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the
The full investment policy can be found above.
Review of business and future changes
As outlined below, the Company has recorded a capital uplift during the year as a result of realised and unrealised gains of £1.0m. Key individual investment movements included a £1.5m uplift in
Details of significant events which have occurred since the end of the financial year are listed in note 18. Details of transactions with the Manager are shown in note 4.
Results and dividends
| £'000 | |
| Net revenue return for the year ended | 1,449 |
| Net capital loss for the year ended | (90) |
| Total return for the year ended | 1,359 |
| Dividend of | (2,010) |
| Dividend of | (2,005) |
| Unclaimed dividends returned to the Company | 36 |
| Transferred from reserves | (2,620) |
| Net assets as at | 73,456 |
| Net asset value per share as at | 22.02p |
The Company paid dividends of
As shown in the Income statement, investment income has increased to £2,144,000 (2018: £1,834,000) due to higher dividends received and loan stock income increasing to £1,855,000 (2018: £1,625,000). The capital loss of £90,000 for the year (2018: gain of £6,159,000) was primarily due to the valuation write downs of
The return for the year has decreased to £1,359,000 (2018: £7,190,000), equating to a return of
The Balance sheet shows that the net asset value has decreased over the last year to
There has been a net cash inflow of £2,382,000 for the year (2018: £785,000), mainly due to the disposal of fixed asset investments and fundraising, offset by the purchase of new investments, the payment of dividends and buyback of shares. Cash and liquid assets at the year-end increased to £9.9 million (2018: £7.5 million), representing 13% of net asset value.
Current portfolio sector allocation
The pie charts at the end of this announcement show the split of the portfolio valuation as at
Direction of portfolio
As at
Future prospects
The Company’s performance record reflects the success of the strategy outlined above and has enabled the Company to maintain a predictable stream of dividend payments to shareholders. As detailed in the Chairman’s statement, since the Company’s year end the world has been plunged into a healthcare emergency and it is unlikely that any investment company will remain unaffected. Although it is too early to gauge the full economic consequences, the Company’s portfolio is well balanced across sectors and risk classes and the Board believes that the Company has the potential to continue to deliver returns to shareholders. Further details on the Company’s outlook and prospects can be found in the Chairman’s statement.
Key Performance Indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs and APMs, which are typical for venture capital trusts, used in their own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs give a good indication that the Company is achieving its investment objective and policy. These are:
1. Total shareholder return relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the strong performance of the Company’s total shareholder return against the FTSE All-Share Index total return, with dividends reinvested, from the appointment of
The Directors consider the FTSE All-Share Index to be the most appropriate indicative benchmark for the Company as it contains a large range of sectors within the
2. Net asset value per share and total shareholder return
Total shareholder return since inception increased by
3. Shareholder return in the year†
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| (4.8%) | 4.8% | 18.6% | 12.4% | (0.8%) | 9.2% | 11.5% | 5.8% | 11.0% | 1.8% |
† Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.
Source:
4. Dividend distributions
Dividends paid in respect of the year ended
5. Ongoing charges
The ongoing charges ratio for the year to
6. 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
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended
*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.
Investment progress
During the year, £5.6 million of cash was invested in new and existing portfolio companies, predominantly in the healthcare and technology sectors. New investments were made in 6 companies and totalled £2.0 million during the year and included:
- Avora (£510,000), a developer of software to improve decision making through augmented analytics and machine learning;
Elliptic Enterprises (£488,000), a provider of Anti Money Laundering services to digital asset institutions;Cantab Research (T/A Speechmatics) (£460,000), provider of a low footprint automated speech recognition software which can be deployed in the cloud, on premise or on device across 29 languages;- Limitless Technology (£260,000), a provider of a customer service platform powered by the crowd and machine learning technology;
- Clear Review (£203,000), a provider of Human Resources software to mid-market enterprises; and
- Imandra (£91,000), a provider of automated software testing and an enhanced learning experience for artificial neural networks.
Follow-on investments were made in 19 portfolio companies and totalled £3.6 million during the year. The three largest being: £955,000 into Proveca, a company which reformulates medicines for paediatric use; £762,000 into Perpetuum, a provider of vibration harvester powered wireless sensing systems for the rail and industrial sectors; and £400,000 into
During the year the Company sold its entire holding in Bravo Inns II realising proceeds of £1.3 million with a realised gain on cost of £0.5 million. The Company also sold its remaining holding in ErgoMed generating proceeds of £1.2 million and a realised gain on cost of £0.4m. Other realisations can be found in the realisations table on page 24 of the full Annual Report and Financial Statements.
The pie chart at the end of this announcement outlines the different sectors in which the Company’s assets, at carrying value, are currently invested.
Operational arrangements
The Company has delegated the investment management of the portfolio to
Management agreement
Under the Investment Management Agreement,
The aggregate payable for management and administration (normal running costs) are subject to an aggregate annual cap of 3% of the year end closing net asset value, for accounting periods commencing after
The Investment Management Agreement can be terminated by either party on 12 months’ notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party.
The Manager is also entitled to an arrangement fee on investment, payable by each portfolio company, of approximately 2% of each investment made and monitoring fees where the Manager has a representative on the portfolio company’s board. Further details of the Manager’s fee can be found in note 4.
Performance incentive fee
As an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels.
The performance hurdle is equal to the greater of the Starting NAV of
There was no management performance incentive payable during the year (2018: £637,000). As at
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company from the management and sale of existing investments, the continuing achievement of the 70% (80% from
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
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, 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. The Company also has no customers in the traditional sense and therefore there is nothing to report in relation to relationships with customers.
The Board considers its significant stakeholder groups to be its Shareholders; suppliers, including direct agents of the Company such as the Manager to whom most executive functions are delegated; the community and the environment in the way that investments are made and managed.
The Company’s Shareholders are key to the success of the Company. The Board seeks to create value for Shareholders by generating strong and sustainable returns to provide Shareholders with a strong, predictable dividend flow and the prospect of capital growth. The Company has in place a buy-back policy as an important means of providing market liquidity for Shareholders. Details regarding the current buy-back policy can be found in the Chairman’s statement. These important components, performance, predictable income return and liquidity when required are fundamental tenets of the way in which the Company operates for its Shareholders.
Shareholders’ views are important. The Board encourages shareholders to vote on the resolutions at the Annual General Meeting. The Company’s Annual General Meeting is used typically as an opportunity to communicate with investors, including through a presentation made by the investment management team. However, as detailed in the Chairman’s statement, there will be no presentation from the Manager or from a portfolio company, and we will not be providing lunch after this year’s AGM due to the impact of the COVID-19 outbreak. (Details of the location and time of the Annual General Meeting can be found in the Directors report on page 33 of the full Annual Report and Financial Statements).
Shareholders are also encouraged to attend the annual Shareholders’ Seminar. The seminars include some of the portfolio companies sharing insights into their businesses and also have presentations 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. Details of the seminars are placed on the Manager’s website. Representatives of the Board attend the seminars.
The Company’s suppliers are fundamental to the operations of the Company, particularly
The contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities. The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found in this report above.
The Board receives reports on Environmental, Social and Governance (“ESG”) factors within its portfolio from
The Board, although non-executive, is fully engaged in both oversight and the general strategic direction of the Company. During the year the Board’s main strategic discussions focussed around cash management and deployment of cash for future investments, dividends and share buybacks, resulting in the decision to participate in the Albion VCTs Top Up Offers 2019/20. Time was also spent in ensuring the Board met Corporate Governance requirements which continue to evolve, including the introduction of the new AIC Code last year.
Environmental, Social, and Governance (“ESG”)
Albion will make its first trial submission in 2020 against this framework and the first full submission in 2021. The trial process in 2020 will identify initial gaps in information being collected and areas that require action. This annual process will inform fuller ESG disclosure by 2021 and create a regular audit function to ensure continual improvement.
To ensure that the principles are starting to be translated into both the investment and portfolio management processes, since
The Board and Manager have exercised conscious principles in making responsible investments throughout the life of the Company, not least in providing finance for nascent companies in a variety of important sectors such as technology, healthcare and renewable energy. In making the investments, the Manager is directly involved in the oversight and governance of these investments, including ensuring standards of reporting and visibility on business practices, all of which is reported to the Board of the Company. By its nature, not least in making qualifying investments which fulfil the criteria set by HMRC, the Company has focused on sustainable and longer-term investment propositions, some of which will fail in the nature of small companies, but some of which will grow and serve important societal demands. One of the most important key performance indicators is the quality of the investment portfolio, which goes beyond the individual valuations and examines the prospects of each of the portfolio companies, as well as the sectors in which they operate – all requiring a longer-term view.
The Company adheres to the principles of the AIC Code of Corporate Governance and is also aware of other governance and other corporate conduct guidance which it meets as far as practical, including in the constitution of a diversified and independent Board capable of providing constructive challenge but also, through its experience of the Company, continuity over the longer term investments the Company makes.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 (the “Act”) to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters and as such these requirements do not apply.
General Data Protection Regulation
The General Data Protection Regulation came into effect from
Further policies
The Company has adopted a number of further policies relating to:
● Environment
● Global greenhouse gas emissions
● Anti-bribery
● Anti-facilitation of tax evasion
● Diversity
and these are set out in the Directors’ report on pages 31 and 32 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, changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable emerging risk has been the threat of the global pandemic which has impacted on not only public health and mobility but also has had an adverse impact on global traded markets, the impact of which, by its nature, is likely to be uncertain for some time, and at time of publishing the accounts is severe.
The Directors have carried out a robust assessment of the Company’s disclosures below that describe the principal risks and explain how they are being managed or mitigated. The principal risks and uncertainties of the Company as identified by the Board and how they are managed are as follows:
| Risk | Possible consequence | Risk management |
| Investment, performance and valuation risk | The risk of investment in poor quality businesses, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more volatile than larger, long established businesses. Investments in open-ended equity funds result in exposure to market risk through movements in price per unit. The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The 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. 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. |
| VCT approval risk | The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, and are used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed |
| Regulatory and compliance risk | The Company is listed on | Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation, including legislation on the management of the Company, from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors. |
| Operational and internal control risk | The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could place assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year, and receives reports from the Manager on internal controls and risk management, including on matters relating to cyber security. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, From In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual |
| Economic, political and social risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection. | The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy backs and follow on investments. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term. |
| Market value of Ordinary shares | The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors, including the ability to exercise share buybacks. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent. to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust and could not renew any buyback authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors. |
Viability statement
In accordance with the FRC
The Directors have carried out a robust assessment of the emerging and principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the procedures in place to identify the emerging risks and the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment. The Board deliberates over the importance of the Manager and the processes that it has in place for dealing with the principal risks.
The Board assessed the ability of the Company to raise finance. As explained in this Strategic report the Company’s income more than covers on-going expenses (net of any performance incentive fees). The portfolio is well balanced and geared towards long term growth delivering dividends and capital growth 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.
In considering the viability of the Company, the Board took into account factors including the processes for mitigating risks, monitoring costs, managing share price discount, the Manager’s compliance with the investment objective, policies and business model and the balance of the portfolio. The Directors have 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
This Strategic report of the Company for the year ended
For and on behalf of the Board
Chairman
Responsibility statement
In preparing these Financial Statements for the year to
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended
31 December 2019 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 asses the Company’s position, performance, business model and strategy.
A detailed “Statement of Directors’ responsibilities” is contained on page 35 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Chairman
Income statement
| Year ended | Year ended | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Gains on investments | 2 | - | 1,002 | 1,002 | - | 7,644 | 7,644 | |
| Investment income | 3 | 2,144 | - | 2,144 | 1,834 | - | 1,834 | |
| Investment management fee | 4 | (364) | (1,092) | (1,456) | (336) | (1,007) | (1,343) | |
| Performance incentive fee | 4 | - | - | - | (159) | (478) | (637) | |
| Other expenses | 5 | (331) | - | (331) | (308) | - | (308) | |
| Profit/(loss) on ordinary activities before tax | 1,449 | (90) | 1,359 | 1,031 | 6,159 | 7,190 | ||
| Tax on ordinary activities | 7 | - | - | - | - | - | - | |
| Profit/(loss) and total comprehensive income attributable to shareholders | 1,449 | (90) | 1,359 | 1,031 | 6,159 | 7,190 | ||
| Basic and diluted return/(loss) per share (pence) * | 9 | 0.44 | (0.02) | 0.42 | 0.34 | 2.04 | 2.38 | |
*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
| Note | £’000 | £’000 | |
| Fixed assets investments | 10 | 63,960 | 61,639 |
| Current assets | |||
| Current asset investments | 12 | - | 373 |
| Trade and other receivables less than one year | 12 | 115 | 731 |
| Cash and cash equivalents | 9,867 | 7,485 | |
| 9,982 | 8,589 | ||
| Total assets | 73,942 | 70,228 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables | 13 | (486) | (1,078) |
| Total assets less current liabilities | 73,456 | 69,150 | |
| Equity attributable to equityholders | |||
| Called up share capital | 14 | 3,883 | 3,519 |
| Share premium | 35,825 | 27,896 | |
| Capital redemption reserve | 11 | 11 | |
| Unrealised capital reserve | 14,707 | 15,358 | |
| Realised capital reserve | 9,200 | 8,639 | |
| Other distributable reserve | 9,830 | 13,727 | |
| Total equity shareholders’ funds | 73,456 | 69,150 | |
| Basic and diluted net asset value per share (pence)* | 15 | 22.02 | 22.78 |
*excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The Financial Statements were approved by the Board of Directors and authorised for issue on
Chairman
Company number: 03139019
Statement of changes in equity
| Called up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| At | 3,519 | 27,896 | 11 | 15,358 | 8,639 | 13,727 | 69,150 |
| Profit/(loss) and total comprehensive income for the period | - | - | - | 274 | (364) | 1,449 | 1,359 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (925) | 925 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,367) | (1,367) |
| Issue of equity | 364 | 8,120 | - | - | - | - | 8,484 |
| Cost of issue of equity | - | (191) | - | - | - | - | (191) |
| Dividends paid | - | - | - | - | - | (3,979) | (3,979) |
| At | 3,883 | 35,825 | 11 | 14,707 | 9,200 | 9,830 | 73,456 |
| At | 3,321 | 23,841 | 11 | 12,118 | 5,720 | 17,481 | 62,492 |
| Profit and total comprehensive income for the period | - | - | - | 6,102 | 57 | 1,031 | 7,190 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (2,862) | 2,862 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,145) | (1,145) |
| Issue of equity | 198 | 4,157 | - | - | - | - | 4,355 |
| Cost of issue of equity | - | (102) | - | - | - | - | (102) |
| Dividends paid | - | - | - | - | - | (3,640) | (3,640) |
| At | 3,519 | 27,896 | 11 | 15,358 | 8,639 | 13,727 | 69,150 |
*These reserves amount to £19,030,000 (2018: £22,366,000) which is considered distributable.
The accompanying notes form an integral part of these Financial Statements.
Statement of cash flows
| Year ended | Year ended | ||
| £’000 | £’000 | ||
| Cash flow from operating activities | |||
| Investment income received | 2,000 | 1,437 | |
| Deposit interest received | 35 | 23 | |
| Dividend income received | 254 | 185 | |
| Investment management fee paid | (1,425) | (1,292) | |
| Performance incentive fee paid | (637) | - | |
| Other cash payments | (309) | (311) | |
| - | - | ||
| Net cash flow from operating activities | (82) | 42 | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments | (5,637) | (4,618) | |
| Disposal of fixed asset investments | 5,172 | 5,904 | |
| Net cash flow from investing activities | (465) | 1,286 | |
| Cash flow from financing activities | |||
| Issue of share capital | 7,804 | 3,826 | |
| Cost of issue of equity | (4) | (4) | |
| Purchase of own shares (including costs) | (1,367) | (1,146) | |
| Equity dividends paid* | (3,504) | (3,219) | |
| Net cash flow from financing activities | 2,929 | (543) | |
| Increase in cash and cash equivalents | 2,382 | 785 | |
| Cash and cash equivalents at start of the year | 7,485 | 6,700 | |
| Cash and cash equivalents at end of the year | 9,867 | 7,485 |
* The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 8 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
The accompanying notes form an integral part of these Financial Statements.
Notes to the Financial Statements
1. Accounting policies
Basis of accounting
The Financial Statements have been prepared in accordance with applicable
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”). The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines and further detail on the valuation techniques used are outlined below.
Company information can be found on page 2 of the full Annual Report and Financial Statements.
Fixed asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are designated by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at ‘fair value’, which is measured as follows:
- Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations.
- Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
- In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the Income statement when a share becomes ex-dividend.
Current assets and payables
Receivables and payables and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables.
Gains and losses on investments
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the year as a capital item and are allocated to the unrealised capital reserve.
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 expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank 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 other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
- 75% of management fees and performance incentive fees are allocated to the realised capital reserve. This is in line with the Board’s expectation that over the long term 75% of the Company’s investment returns will be in the form of capital gains; and
- expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.
Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.
Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the financial statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT in the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.
Foreign exchange
The currency of the primary economic environment in which the Company operates (the functional currency) is pounds Sterling (“Sterling”), which is also the presentational currency of the Company. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each Balance sheet date, monetary items and non-monetary assets and liabilities that are measured at fair value, which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Exchange differences arising on settlement of monetary items and from retranslating at the Balance sheet date of investments and other financial instruments measured at FVPTL, and other monetary items, are included in the Income statement. Exchange differences relating to investments and other financial instruments measured at fair value are subsequently included in the unrealised capital reserve.
Reserves
Share premium
This reserve accounts for the difference between the price paid for shares and the nominal value of the 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;
• expenses, together with the related taxation effect, charged in accordance with the above policies; and
• dividends paid to equity holders.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the 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 companies principally based in the
| 2. Gains on investments | Year ended £’000 | Year ended £’000 |
| Unrealised gains on fixed asset investments | 647 | 5,729 |
| Unrealised (losses)/gains on current asset investments | (373) | 373 |
| Realised gains on fixed asset investments | 728 | 1,542 |
| 1,002 | 7,644 |
| 3. Investment income | Year ended £’000 | Year ended £’000 |
| Interest from loans to portfolio companies | 1,855 | 1,625 |
| Dividends | 254 | 185 |
| Bank deposit interest | 35 | 24 |
| 2,144 | 1,834 |
| 4. Investment management and performance incentive fee | Year ended £’000 | Year ended £’000 |
| Investment management fee charged to revenue | 364 | 336 |
| Investment management fee charged to capital | 1,092 | 1,007 |
| Performance incentive fee charged to revenue | - | 159 |
| Performance incentive fee charged to capital | - | 478 |
| 1,456 | 1,980 |
Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report.
During the year, services with a value of £1,456,000 (2018: £1,343,000) and £50,000 (2018: £50,000) were purchased by the Company from
The Company has entered into an offer agreement relating to the Offers with the Company’s investment manager
| 5. Other expenses | Year ended £’000 | Year ended £’000 |
| Administrative and secretarial services to the Manager | 50 | 50 |
| Directors’ fees (note 6) | 91 | 72 |
| Auditor’s remuneration for statutory audit services (excluding VAT) | 31 | 26 |
| Other expenses | 159 | 154 |
| 331 | 302 | |
| Foreign exchange cost | - | 6 |
| 331 | 308 |
| 6. Directors’ fees | Year ended £’000 | Year ended £’000 | |
| Amount payable to Directors | 84 | 66 | |
| National insurance | 7 | 6 | |
| 91 | 72 | ||
The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on page 42 of the full Annual Report and Financial Statements.
| 7. Tax on ordinary activities | Year ended £’000 | Year ended £’000 |
| - | - | |
| Reconciliation of profit on ordinary activities to taxation charge | Year ended £’000 | Year ended £’000 |
| Return on ordinary activities before taxation | 1,359 | 7,190 |
| Tax charge on profit at the effective | 258 | 1,366 |
| Effects of: | ||
| Non-taxable gains | (190) | (1,452) |
| Non-taxable income | (48) | (35) |
| (Prior year excess management expenses utilised)/Unutilised management expenses | (20) | 121 |
| - | - |
The tax charge for the year shown in the Income statement is lower than the effective rate of corporation tax in the
The Company has excess management expenses of £11,431,000 (2018: £11,535,000) that are available for offset against future profits. A deferred tax asset of £1,943,000 (2018: £1,961,000) has not been recognised in respect of those losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
| 8. Dividends | Year ended £’000 | Year ended £’000 |
| First dividend of | - | 1,842 |
| Second dividend of | - | 1,831 |
| First dividend of | 2,010 | - |
| Second dividend of | 2,005 | - |
| Unclaimed dividends returned to the Company | (36) | (33) |
| 3,979 | 3,640 |
The Directors have declared a first dividend of
| 9. Basic and diluted return per share | |||||||||
| Year ended | Year ended | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||||
| Profit/(loss) attributable to shareholders (£’000) | 1,449 | (90) | 1,359 | 1,031 | 6,159 | 7,190 | |||
| Weighted average shares in issue (adjusted for treasury shares) | 327,246,191 | 302,182,990 | |||||||
| Return/(loss) attributable per equity share (pence) | 0.44 | (0.02) | 0.42 | 0.34 | 2.04 | 2.38 | |||
The weighted average number of Ordinary shares is calculated after adjusting for treasury shares of 54,723,000 (2018: 48,273,000).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
| 10. Fixed asset investments Summary of fixed asset investments | £’000 | £’000 |
| Investments held at fair value through profit or loss Unquoted equity | 44,833 | 39,367 |
| Unquoted loan stock | 19,127 | 21,347 |
| Quoted equity | - | 925 |
| 63,960 | 61,639 |
£’000 | £’000 | |
| Opening valuation | 61,639 | 55,815 |
| Purchases at cost | 6,136 | 5,535 |
| Disposal proceeds | (5,043) | (7,097) |
| Realised gains | 728 | 1,542 |
| Movement in loan stock accrued income | (147) | 115 |
| Movement in unrealised gains | 647 | 5,729 |
| Closing valuation | 63,960 | 61,639 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 726 | 611 |
| Movement in loan stock accrued income | (147) | 115 |
| Closing accumulated loan stock accrued income | 579 | 726 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 14,973 | 12,106 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (925) | (2,862) |
| Movement in unrealised gains | 647 | 5,729 |
| Closing accumulated unrealised gains | 14,695 | 14,973 |
| Historical cost basis | ||
| Opening book cost | 45,940 | 43,098 |
| Purchases at cost | 6,136 | 5,535 |
| Sales at cost | (3,390) | (2,693) |
| Closing book cost | 48,686 | 45,940 |
Amounts shown as cost represent the acquisition cost in the case of investments made by the Company and/or the valuation attributed to the investments acquired from other VCTs at the dates of merger, plus any subsequent acquisition cost.
Purchases and disposals detailed above may not agree to purchases and disposals in the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement of receivables and payables.
| Unquoted investment valuation methodologies Unquoted investments are valued in accordance with the IPEV guidelines as follows: | ||
| Valuation Methodologies | £’000 | £’000 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 30,035 | 20,604 |
| Third party valuation – Earnings multiple | 14,089 | 15,139 |
| Third party valuation – Discounted cash flow | 11,523 | 11,481 |
| Revenue multiple | 4,156 | 7,320 |
| Earnings multiple | 3,926 | 5,002 |
| Net assets | 231 | 234 |
| Offer price | - | 934 |
| 63,960 | 60,714 | |
When using the cost or price of recent investment in the valuations the Company looks to ‘re-calibrate’ this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (i.e. Using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.
The 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 movements between valuation methodologies between
| Change in valuation methodology (2018 to 2019) | Value as at £’000 | Explanatory Note | |
| Revenue multiple to cost and price of recent investment (reviewed for impairment) | 5,094 | External investment round has recently taken place | |
| Cost and price of recent investment (reviewed for impairment) to revenue multiple | 1,012 | More appropriate valuation methodology | |
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, the methods used are the most appropriate methods of valuation as at
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at FVTPL in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS 102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | The unadjusted quoted price in an active market |
| Level 2 | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
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:
| Level 3 reconciliation | £’000 | £’000 |
| Opening valuation | 60,714 | 53,770 |
| Purchases at cost | 6,136 | 5,535 |
| Unrealised gains | 647 | 5,886 |
| Movement in loan stock accrued income | (147) | 115 |
| Realised net gains on disposal | 443 | 1,434 |
| Disposal proceeds | (3,832) | (6,026) |
| Closing valuation | 63,960 | 60,714 |
FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 72% of the portfolio of investments is based on cost, recent investment price or is loan stock, and as such the Board considers that the assumptions used for their valuations are the most reasonable. The Directors believe that changes to reasonable possible alternative assumptions (by adjusting the revenue and earnings multiples) for the valuations of the remainder of the portfolio companies could result in an increase in the valuation of investments by £557,000 or a decrease in the valuation of investments by £441,000.
For valuations based on earnings and revenue multiples, the Board considers that the most significant input is the price/earnings ratio; for valuations based on third party valuations, the Board considers that the most significant inputs are price/earnings ratio, discount factors and market value per room for care homes; which have been adjusted to drive the above sensitivities.
11. Significant holdings
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not ordinarily take a controlling interest or become involved in the management. The size and structure of companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The Company has interests of greater than 20% of the nominal value of any class (some of which are non-voting) of the allotted shares in the portfolio companies as at
| Company | Registered address and country of incorporation | (Loss) before tax | Net assets/ (liabilities) | Number of shares held | % class and share type | % total voting rights | ||
| CA 94108, | n/a | n/a | 774,400 | 23.2% Preferred shares | 3.0% | |||
| EC1M 5QL, | n/a* | (2,288,000) | 1,095,430 | 20.3% Ordinary shares | 20.3% | |||
| EC4A 3TW, | n/a* | 2,312,000 | 9,226,988 Preferred; 23,419,703 Ordinary | 22.0% Preferred shares; 33.0% Ordinary shares | 28.7% | |||
| GU9 7XX, | (2,377,000) | (8,223,000) | 975,214 Ordinary; 133,333 Preferred | 48.1% Ordinary shares; 46.5% Preferred shares | 47.9% | |||
| BS1 4EX, | (467,000) | (59,000) | 33,671,618 | 42.1% Ordinary shares | 42.1% | |||
*The company files filleted accounts which does not disclose this information.
12. Current assets
| Current asset investments | £’000 | £’000 |
| ErgoMed PLC* | - | 373 |
| - | 373 | |
*Amounts shown represent future contingent receipts. These are valued using the level 3 fair value hierarchy as defined in note 10.
| | ||
| Trade and other receivables less than one year | £’000 | £’000 |
| Trade and other receivables less than one year | 100 | 714 |
| Prepayments and accrued income | 15 | 17 |
| 115 | 731 | |
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
| 13. Payables: amounts falling due within one year | £’000 | £’000 |
| Trade payables | 22 | 13 |
| Accruals | 464 | 1,059 |
| Other payables | - | 6 |
| 486 | 1,078 |
The Directors consider that the carrying amount of payables is not materially different to their fair value.
14. Called up share capital
| Allotted, called up and fully paid | £’000 |
| 351,855,773 Ordinary shares of 1 penny each at | 3,519 |
| 36,479,487 Ordinary shares of 1 penny each issued during the year | 364 |
| 388,335,260 Ordinary shares of 1 penny each at | 3,883 |
| 48,273,000 Ordinary shares of 1 penny each held in treasury at | (483) |
| 6,450,000 Ordinary shares purchased during the year to be held in treasury | (64) |
| 54,723,000 Ordinary shares of 1 penny each held in treasury at | (547) |
| 333,612,260 Ordinary shares of 1 penny each in circulation* at | 3,336 |
*Carrying one vote each
During the year the Company purchased 6,450,000 Ordinary shares (2018: 5,502,000) representing 1.7% of the issued Ordinary share capital as at
Under the terms of the Dividend Reinvestment Scheme, Circular dated
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net invested (£’000) | Opening market price on allotment date (pence per share) |
| 1,127,911 | 11 | 22.18 | 248 | 21.00 | |
| 1,107,354 | 11 | 21.93 | 241 | 21.10 | |
| 2,235,265 | 22 | 489 |
During the period from
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net consideration received (£’000) | Opening market price on allotment date (pence per share) |
| 4,206,012 | 42 | 23.20 | 961 | 21.60 | |
| 943,355 | 9 | 23.30 | 216 | 21.60 | |
| 21,793,720 | 218 | 23.40 | 4,972 | 21.60 | |
| 5,377,583 | 54 | 23.40 | 1,227 | 21.00 | |
| 511,635 | 5 | 22.60 | 114 | 21.00 | |
| 124,228 | 1 | 22.70 | 28 | 21.00 | |
| 1,287,689 | 13 | 22.80 | 286 | 21.00 | |
| 34,244,222 | 342 | 7,804 |
15. Basic and diluted net asset value per share
The basic and diluted net asset value per share as at
16. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 14. The Company is permitted to buy back its own shares for cancellation or treasury purposes and this policy is described in more detail in the Chairman’s statement.
The Company’s financial instruments comprise equity and loan stock investments in unquoted and quoted companies, cash balances and liquid cash instruments and short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.
The principal financial instrument risks arising from the Company’s operations are:
- investment (or market) risk (which comprises investment price, foreign currency on investments and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year and there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a venture capital trust, it is the Company’s specific nature to evaluate and control the investment risk in its portfolio in unquoted and quoted investments, details of which are shown on pages 22 and 23 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 fair and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the Balance sheet date is the value of the fixed asset investment portfolio which is £63,960,000 (2018: £61,639,000). Fixed asset investments form 87% of the net asset value as at
More details regarding the classification of fixed asset investments are shown in note 10.
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 unquoted companies in accordance with the investment policy. 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 sectors in which the Company is currently invested are shown in the pie chart at the end of this announcement.
As required under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the degree of exposure to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a change of between 15% to 30% based on the current economic climate. The impact of a 15% to 30% change has been selected as a range which is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
At the lower end of the range, the sensitivity of a 15% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £9,594,000. At the higher end of the range, the sensitivity of a 30% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £19,188,000.
Foreign currency risk
Foreign currency risk is the risk of exposure to movements in foreign exchange rates relative to Sterling.
The majority of the Company’s assets are denominated in Sterling; however, the Company is exposed to foreign currency risk through its investments with operations outside the
Payments and receipts in currencies other than Sterling are converted into Sterling on or shortly after the date of investment or receipt of revenue as are any proceeds from the disposal of a foreign currency investment.
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 is estimated that a rise of 1% in all interest rates would have increased total return before tax for the year by approximately £86,000 (2018: £105,000). Furthermore, it is considered that a fall of interest rates below current levels during the year would have been unlikely.
The weighted average effective interest rate applied to the Company’s fixed rate fixed asset investments during the year was approximately 10.2% (2018: 8.6%). The weighted average period to maturity for the fixed rate fixed asset investments is approximately 8.4 years (2018: 5.2 years).
The Company’s financial assets and liabilities, denominated in Sterling, consist of the following:
| Fixed rate £’000 | Floating rate £’000 | Non-interest bearing £’000 | Total £’000 | Fixed rate £’000 | Floating rate £’000 | Non-interest bearing £’000 | Total £’000 | |
| Unquoted equity | - | - | 44,833 | 44,833 | - | - | 39,367 | 39,367 |
| Quoted equity | - | - | - | - | - | - | 925 | 925 |
| Unquoted loan stock | 17,877 | 609 | 641 | 19,127 | 20,161 | 636 | 550 | 21,347 |
| Current asset investments | - | - | - | - | - | - | 373 | 373 |
| Receivables * | - | - | 101 | 101 | - | - | 716 | 716 |
| Current liabilities | - | - | (486) | (486) | - | - | (1,078) | (1,078) |
| Cash | - | 9,867 | - | 9,867 | - | 7,485 | - | 7,485 |
| Total net assets | 17,877 | 10,476 | 45,089 | 73,442 | 20,161 | 8,121 | 40,853 | 69,135 |
* The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in unquoted loan stock and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock instruments prior to investment and as part of its ongoing monitoring of investments. For investments made prior to
The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.
The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company’s total gross credit risk at
As at the Balance sheet date, cash and liquid investments held by the Company are held with the National Westminster Bank plc,
The credit profile of unquoted loan stock is described under liquidity risk below.
Liquidity risk
Liquid assets are held as cash on current account, deposit or short term money market accounts or similar instruments. Under the terms of its Articles, the Company has the ability to borrow an amount equal to its adjusted capital and reserves of the latest published audited Balance sheet, being £71,200,000 (2018: £67,329,000). As at
The Company has no committed borrowing facilities as at
There are no externally imposed capital requirements other than the minimum statutory share capital requirements for public limited companies.
The main cash outflows are for new investments, the buy-back of shares and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. The Company’s financial liabilities at
The carrying value of loan stock investments analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £’000 | Past due £’000 | Valued below cost £’000 | Total £’000 | Fully performing£’000 | Past due £’000 | Valued below cost £’000 | Total £’000 |
| Less than one year | 6,100 | 265 | 102 | 6,467 | 3,655 | 2,492 | 120 | 6,267 |
| 1-2 years | 2,233 | - | - | 2,233 | 835 | - | 279 | 1,114 |
| 2-3 years | 1,528 | - | 61 | 1,589 | 1,103 | 1,262 | - | 2,365 |
| 3-5 years | 347 | 1,362 | 123 | 1,832 | 1,972 | 1,622 | 175 | 3,769 |
| 5 + years | 6,824 | 154 | 28 | 7,006 | 6,807 | 1,025 | - | 7,832 |
| Total | 17,032 | 1,781 | 314 | 19,127 | 14,372 | 6,401 | 574 | 21,347 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. The cost of loan stock valued below cost is £517,000 (2018: £676,000).
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 of the Company’s financial assets and liabilities as at
17. Commitments, contingencies and guarantees
As at
There were no contingent liabilities or guarantees given by the Company as at
18. Post balance sheet events
Since the year end, the Company made the following investments:
·Investment of £308,000 in a new portfolio company,
Since the Company’s year end the world has been plunged into a healthcare emergency the possible extent of which cannot yet be assessed. This will likely have an adverse impact on the market multiples used when valuing portfolio companies and will impact on our own forecasting models. More details on this can be found in the Chairman’s statement.
The following new Ordinary shares of nominal value 1 penny each were allotted under the Albion VCTs Prospectus Top Up Offers 2019/20 after
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares | Issue price (pence per | Net consideration received | Opening market price on allotment date | |
| £’000 | share) | £’000 | (pence per share) | |||
| 5,082,101 | 51 | 22.4 | 1,121 | 21.10 | ||
| 1,019,398 | 10 | 22.5 | 225 | 21.10 | ||
| 36,336,304 | 363 | 22.7 | 8,042 | 21.10 | ||
| 42,437,803 | 424 | 9,388 | ||||
19. Related party transactions
Other than transactions with the Manager as disclosed in note 4, there are no related party transactions or balances requiring disclosure.
20. Other information
The information set out in this announcement does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended
21. Publication
The full audited Annual Report an Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company,
Attachment
- Split of Portfolio by sector, stage of investment and number of employees
© OMX, source
