KINGS ARMS YARD VCT PLC Kings Arms Yard VCT PLC
LEI Code 213800DK8H27QY3J5R45
As required by the UK Listing Authority’s Disclosure Guidance and Transparency Rules 4.1 and 6.3, Kings Arms Yard VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2021.
The announcement was approved for release by the Board of Directors on 24 March 2022.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 December 2021 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/KAY/31Dec2021.pdf.
Investment policy
Kings Arms Yard VCT PLC (the “Company”) is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.
Funds held pending investment or for liquidity purposes are held as cash on deposit or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within venture capital trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single portfolio company is 15 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 interim dividend | 8 April 2022 |
| Payment date for first interim dividend | 29 April 2022 |
| Annual General Meeting | Noon on 9 June 2022 |
| Announcement of Half-yearly results for the six months ending 30 June 2022 | September 2022 |
Financial highlights
| 23.05p | Net asset value per share as at 31 December 2021 |
| 3.72p | Basic and diluted return per share |
| 2.34p | Total tax free dividends per share paid in the year to 31 December 2021 |
| 16.3% | Shareholder return for the year ended 31 December 2021† |
| 0.58p | First tax free dividend per share declared for the year ending 31 December 2022 payable on 29 April 2022 |
†This is considered an Alternative Performance Measure, see note 3 in the Strategic report below.
| 31 December 2021 (pence per share) | 31 December 2020 (pence per share) | |
| Opening net asset value | 21.84 | 22.02 |
| Capital return | 3.61 | 0.59 |
| Revenue return | 0.11 | 0.32 |
| Total return | 3.72 | 0.91 |
| Dividends paid | (2.34) | (1.11) |
| Impact from share capital movements | (0.17) | 0.02 |
| Net asset value | 23.05 | 21.84 |
Shareholder return and shareholder value | (pence per share) | |||
| Shareholder return from launch to 1 January 2011 | ||||
| Subscription price per share at launch | 100.00 | |||
| Total dividends paid to 1 January 2011 | 58.66 | |||
| Decrease in net asset value | (83.40) | |||
| Total shareholder value to 1 January 2011 | 75.26 | |||
| Shareholder return from 1 January 2011 to 31 December 2021 (period that Albion Capital has been investment manager): | ||||
| Total dividends paid | 12.52 | |||
| Increase in net asset value | 6.45 | |||
| Total shareholder return from 1 January 2011 to 31 December 2021 | 18.97 | |||
| Shareholder value since launch: | ||||
| Total dividends paid to 31 December 2021 | 71.18 | |||
| Net asset value as at 31 December 2021 | 23.05 | |||
| Total shareholder value as at 31 December 2021 | 94.23 | |||
The above financial summary is for the Company, Kings Arms Yard VCT PLC only. Details of the financial performance of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be found at www.albion.capital/funds/KAY under the ‘Financial summary for previous funds’ section.
The Directors have declared a first dividend of 0.58 pence per share for the year ending 31 December 2022, which will be paid on 29 April 2022 to shareholders on the register on 8 April 2022.
Chairman’s statement
Introduction
I am pleased to be able to report a total return of 3.72 pence per share and a 16.3% shareholder return for the year ended 31 December 2021. Over the last financial year our portfolio companies have continued to show resilience and, in many cases growth, throughout the uncertainty of the ongoing Covid-19 pandemic. This has been reflected in the strong return for the year and the special dividend of 1.14 pence per share that was paid out to shareholders on 29 October 2021. Despite the ongoing challenges of the pandemic, there was reason for optimism after such disruption to the wider economy. Now however with the unfolding crisis in Ukraine, brought on by Russia, there is no certainty as to when the, as yet unknown, challenges to the global economy will be resolved. I am however optimistic that our portfolio companies will continue to add value over the longer term, and we can still find new investment opportunities which will increase shareholder value but inevitably there will be disruption.
Results and dividends
As at 31 December 2021, the net asset value (“NAV”) was £101.8 million or 23.05 pence per share, compared to £81.7 million or 21.84 pence per share at 31 December 2020. The total return before taxation was £16.0 million compared to a return of £3.4 million for the previous year. The positive progress of our investment portfolio is discussed later in this statement and in the Strategic report below.
In line with the variable dividend policy targeting around 5% of NAV per annum, announced last year, the Company paid dividends of 1.20 pence per share during the year to 31 December 2021. In addition to this, the Company paid a special dividend of 1.14 pence per share due to the significant disposals during the year, in particular the care homes. This resulted in the Company paying dividends totalling 2.34 pence per share for the year ended 31 December 2021 (2020: 1.11 pence per share).
The Board is pleased to declare a first dividend for the financial year ending 31 December 2022 of 0.58 pence per share, being 5% of the prevailing NAV, to be paid on 29 April 2022 to shareholders on the register on 8 April 2022.
Investment realisations
The strong return for the year was primarily driven by a number of successful exits which generated proceeds of £27.0 million for the Company. The bulk of the proceeds came from the sale of the Company’s three care homes for the elderly; Active Lives Care, Ryefield Court Care, and Shinfield Lodge Care. The sale generated proceeds of £14.7 million which represents a 2.4x return on cost (including interest received), an excellent result for the Company.
Another strong exit, returning 2.4 times cost (including interest received), was our investment in OmPrompt Holdings which generated proceeds of £3.2 million. The Company also completed the sale of Antenova and Perpetuum generating proceeds of £5.3 million and £1.4 million respectively. In addition to this, the Company sold its holding in MPP Global Solutions, Innovation Broking, Elateral Group and SBD Automotive, generating further proceeds of £2.0 million for the year. Elateral Group was an investment inherited from the previous manager which Albion continued to support for a number of years. Sadly Elateral did not manage to scale significantly and thus we sold our investment for £0.5m realising a loss on cost of £5.0 million. Further details on these realisations can be found in the realisations table on page 27 of the full Annual Report and Financial Statements.
I am also pleased to announce that, following the year end, the Company completed the sale of Phrasee generating proceeds of £2.0 million and a return of 3.0 times cost. In addition to this, the Company completed the sale of Credit Kudos generating proceeds of £0.9 million.
Investment performance and progress
It is encouraging to see the resilience and growth of our portfolio despite the Covid-19 pandemic and this is shown by the gain on investments of £18.5 million for the year. The portfolio now comprises a total of 59 companies of which 9 are legacy investments made before the present Manager was appointed in January 2011.
Quantexa and Oviva have both been revalued after externally led funding rounds, resulting in uplifts of £4.8 million and £1.3 million respectively. Proveca continues to trade well both within the UK and the EU resulting in an uplift of £1.7 million. We have also seen many of our other portfolio companies performing well. For example, Arecor Therapeutics listed onto the AIM stock exchange during the period and its share price has since increased by 72% leading to an increase in value of £0.6 million. Phrasee and Credit Kudos also contributed to the valuation gain, due to their sales which completed post year end. Inevitably some of our portfolio companies were impacted by the pandemic, with Mirada Medical being written down by a further £0.2 million due to sales to hospitals being delayed by the pandemic, and Avora being written down by £0.5 million following a period of difficult trading. We have also written-off our investment in Xperiome, which unfortunately went into administration following the year end.
The Company has been an active investor during the year with £6.6 million invested into portfolio companies, of which £3.4 million was invested across five new portfolio companies, all of which are expected to require further investment as the companies prove themselves and grow. These are:
- £0.9 million (Albion VCTs: £7.0 million) in Threadneedle Software Holdings Limited (trading as Solidatus), a provider of data lineage software to enterprise customers in regulated sectors, which allows them to rapidly discover, visualise, catalogue and understand how data flows through their systems;
- £0.8 million (Albion VCTs: £4.0 million) in Gravitee Topco Limited (trading as Gravitee.io), an API management platform;
- £0.8 million (Albion VCTs: £3.6 million) in NuvoAir Holdings Inc, a provider of digital therapeutics and decentralised clinical trials for respiratory conditions;
- £0.6 million (Albion VCTs: £2.5 million) in Brytlyt Limited, a GPU database software provider; and
- £0.3 million (Albion VCTs: £1.5 million) in Accelex Technology Limited, a provider of data extraction and analytics technology for private capital markets.
A full list of the Company's investments and disposals, including their movements in value for the year, can be found in the Portfolio of investments section on pages 25 to 27 of the full Annual Report and Financial Statements.
Risks and uncertainties
In addition to the risks around Covid-19, which have been a major factor for the past 2 years, there is now considerable uncertainty over the future course, and global impact, of Russia’s invasion of Ukraine. Our investment portfolio, while concentrated mainly in the technology and healthcare sectors, remains diversified in terms of both sub-sector and stage of maturity and, importantly, we believe to be appropriately valued. While we would expect these valuations to be robust within the tolerance of normal market fluctuations, the potential, though unknown, scale of any further adverse events arising out of the Ukraine invasion remain a major risk factor.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
Share buy-backs
It remains the Board’s primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board’s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest.
It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit. Details of shares bought back during the year can be found in note 14.
Board continuity
In light of the Board’s ongoing succession planning, Martin Fiennes who has been a Director of the Company for over 10 years, will be stepping down at the Annual General Meeting on 9 June 2022. I would like to take this opportunity to thank him for his excellent and dedicated contribution and many years of wise counsel and service.
I am pleased to welcome John Chiplin and Swarupa Pathakji who were appointed as Directors of the Company on 1 November 2021. John has extensive experience and expertise in the life sciences and technology sectors from both an operational and investment perspective. He joins the Board at a time when increasing numbers of technology and healthcare investment opportunities are being considered and so his experience in these areas will be invaluable. Swarupa has extensive experience across the financial sector, with an in-depth understanding of investment in growth companies, experience in exits and valuations. She is a qualified chartered accountant, and her extensive knowledge and skill set will be a real asset to the Board.
Albion VCTs Prospectus Top Up Offers
Your Board, in conjunction with the boards of five of the other VCTs managed by Albion Capital Group LLP, launched a prospectus Top Up Offer of new Ordinary shares on 6 January 2022. The Board announced on 9 February 2022 that, following strong demand, it had reached its £8 million limit under its Offer for subscription and it was closed to further applications. Following the Board’s assessment of future liquidity within the portfolio it did not elect to use its over-allotment facility under the Offer.
The proceeds are being used to provide support to our existing portfolio companies and to enable us to take advantage of new investment opportunities. The first allotment of the shares under the Offer was on 25 February 2022. Details of share allotments made during and after the financial year end can be found in notes 14 and 18 respectively.
Annual General Meeting (“AGM”)
Based on the success of last year’s live webcast AGM, the Board has decided to adopt a virtual format for the AGM again this year. The AGM will be held at noon on 9 June 2022 via the Lumi platform. Information on how to participate in the live webcast can be found on the Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcome questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform during the AGM. Alternatively, shareholders can email their questions to KAYchair@albion.capital prior to the Meeting.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 37 and 38 and in the Notice of the Meeting on pages 74 to 77 of the full Annual Report and Financial Statements.
Outlook and prospects
Whilst there are uncertainties as to the full extent of the ongoing economic and societal impact of the Covid-19 pandemic as well as the Russian invasion of Ukraine, the positive results for the year just ended demonstrate the resilience of our portfolio during what were challenging times. The pipeline of new and follow on investments continues to remain strong and the investment focus on growth and technology businesses provides the opportunity to continue to generate shareholder value over the medium to long term. The Board is however mindful of the fact that the global political landscape has now materially shifted and the potential long term economic consequences are, as yet, hard to gauge.
Fiona Wollocombe
Chairman
24 March 2022
Strategic report
Investment policy
The Company is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.
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 2021 by: sector; stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, portfolio companies’ maturity measured by revenues and their size measured by the number of people employed. As the Company continues to invest in software and other technology companies, FinTech (which is technology specifically applicable to financial services companies) becomes a more prominent investment, and therefore is included as a subsector below. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 25 and 26 of the full Annual Report and Financial Statements.
Direction of portfolio
The analysis of the Company’s investment portfolio shows that it is well diversified and evenly spread across the FinTech, healthcare (including digital healthcare), software and technology and renewable energy sectors. Due to the share allotments under the 2020/21 Prospectus Top Up Offer, and the number of exits during the year, in particular the sale of the Company’s care homes, cash is a significant proportion of the portfolio at 34%. These funds will be invested predominantly into higher growth technology companies, and therefore the shift away from asset based companies will continue.
Results and dividends
| £'000 | |
| Net capital return for the year ended 31 December 2021 | 15,545 |
| Net revenue return for the year ended 31 December 2021 | 470 |
| Total return for the year ended 31 December 2021 | 16,015 |
| First interim dividend of 0.60 pence per share paid on 30 April 2021 | (2,656) |
| Second interim dividend of 0.60 pence per share paid on 29 October 2021 | (2,641) |
| Special dividend of 1.14 pence per share paid on 29 October 2021 | (5,017) |
| Transferred to reserves | 5,701 |
| Net assets as at 31 December 2021 | 101,831 |
| Net asset value per share as at 31 December 2021 (pence) | 23.05p |
The Company paid dividends of 2.34 pence per share during the year ended 31 December 2021 (2020: 1.11 pence per share). This included a special dividend of 1.14 pence per share paid to shareholders on 29 October 2021.The Board has a variable dividend policy which targets an annual dividend yield of around 5% on the prevailing net asset value. As a result the Board has declared a first interim dividend of 0.58 pence per share (2021: 0.60 pence per share) for the year ending 31 December 2022, which will be paid on 29 April 2022 to shareholders on the register on 8 April 2022.
As shown in the Income statement, investment income has decreased to £1,106,000 (2020: £1,922,000) due to loan stock income decreasing to £1,061,000 (2020: £1,678,000). The capital gain of £15,545,000 for the year (2020: £2,201,000) was primarily due to the uplifts in the valuations of Quantexa, Proveca, and Oviva, offset by the portion of investment management fee charged to capital and the decrease in valuation of Avora and Xperiome.
The total return for the year was £16,015,000 (2020: £3,384,000), equating to a return of 3.72 pence per share (2020: 0.91 pence per share).
The Balance sheet shows that the net asset value has increased over the last year to 23.05 pence per share (2020: 21.84 pence per share).
There has been a net cash inflow of £22,579,000 for the year (2020: £1,399,000), mainly resulting from the number of exits during the year and the issue of Ordinary shares under the Albion VCTs Top Up Offers 2020/21. Cash inflow has been utilised by investments into new and existing portfolio companies, dividends paid, operating activities and the buy-back of shares.
Cash and cash equivalents at the year-end increased to £33.8 million (2020: £11.3 million), representing 33% of net asset value.
Trade and other payables at the year end amounted to £1,679,000 (2020: £502,000). This increase was primarily due to the management performance incentive fee which became payable as a result of the Company’s strong return for the year. Further details on this can be found below.
Review of business and future changes
A review of the Company’s business during the year is set out in the Chairman’s statement.
There is a continuing focus on growing the healthcare (including digital healthcare), FinTech and software and other technology sectors. The majority of these investment returns are delivered through equity and capital gains and therefore, coupled with the sale of our three care homes, we expect our investment income to significantly reduce in future years.
Details of significant events which have occurred since the end of the financial year are listed in note 18. Details of transactions with the Manager are shown in note 4.
Future prospects
The Company’s financial results for the year demonstrates that the portfolio remains well balanced across sectors and risk classes, and has largely weathered the pandemic so far. Although there remains much uncertainty, the Manager has a strong pipeline of investment opportunities in which the Company’s cash can be deployed. The Board considers that the current portfolio and the pipeline of opportunities should enable the Company to maintain a predictable stream of dividend payments to shareholders, and ultimately continue to deliver long term growth. 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 value relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the Company’s total shareholder value relative to the FTSE All-Share Index total return, with dividends reinvested. The FTSE All-Share index is considered a reasonable benchmark as the Company is classed as a generalist UK VCT investor, and this index includes over 600 companies listed in the UK, including small-cap, covering a range of sectors. Details on the performance of the net asset value and return per share for the year are shown in the Chairman’s statement.
2. Net asset value per share and total shareholder value
Total shareholder value since inception increased by 3.55 pence per share (16.3% on opening NAV) to 94.23 pence per share for the year ended 31 December 2021.
3. Movement in shareholder value in the year†
The graph on page 5 of the full Annual Report and Financial Statements shows the Company’s total shareholder return over the previous ten years, five years, three years and the past year, and the annual returns for the same period are detailed out below.
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| 19.2% | 13.5% | (0.7%) | 9.3% | 11.4% | 5.6% | 11.0% | 1.9% | 4.2% | 16.3% |
†Methodology: Calculated as the movement in total shareholder value for the year divided by the opening net asset value.
The table above shows that total shareholder value has continued to increase over the last 10 years, with an average return of 10.9% per annum.
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2021 were 2.34 pence per share (2020: 1.11 pence per share).
The cumulative dividend paid since inception is 71.18 pence per share.
5. Ongoing charges
The ongoing charges ratio for the year to 31 December 2021 was 2.4% (2020: 2.4%). The ongoing charges ratio has been calculated using The Association of Investment Companies (“AIC”) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be approximately 2.4%.
6. VCT compliance*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on pages 35 and 36 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 2021. These showed that the Company has complied with all tests and continues to do so.
*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.
Gearing
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to its adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.
Management agreement
Under the Investment Management Agreement, Albion Capital Group LLP provides investment management, company secretarial and administrative services to the Company. Albion Capital Group LLP is entitled to an annual management fee of 2% of net asset value of the Company, payable quarterly in arrears, along with an annual administration fee of £50,000.
The aggregate payable for management and administration (normal running costs) are subject to an aggregate annual cap of 3% of the year end closing net asset value, for accounting periods commencing after 31 December 2011.
The Investment Management Agreement can be terminated by either party on 12 months’ notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party.
The Manager is also entitled to an arrangement fee on investment, payable by each portfolio company, of approximately 2% of each investment made and monitoring fees where the Manager has a representative on the portfolio company’s board. Further details of the Manager’s fee can be found in note 4.
Performance incentive fee
As an incentive to maximise the return to investors, the Manager 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 20 pence per share, increased by the increase in RPI plus 2% per annum from the Start Date of 1 January 2014 (calculated on a simple and not compound basis) and the highest Total Return for any earlier period after the Start Date (the ‘high watermark’). An annual fee (in respect of each Share in issue carrying voting rights on the last day of the Financial Period) of an amount equal to 15% of any excess of the Total Return (this being NAV per share plus dividends paid after the Start Date) as at the end of the relevant accounting period over the performance hurdle will be due to the Manager.
For the year ended 31 December 2021, the total return of the Company since 1 January 2014 (the performance incentive fee start date) was 32.90 pence per share, compared to a performance hurdle rate of 31.37 pence per share, resulting in an excess of 1.54 pence per share. As a result, a performance incentive fee is payable to the Manager of £1,017,000 (2020: £nil).
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on:
• the returns generated by the Company;
• the continuing achievement of the 80% qualifying holdings investment requirement for VCT status;
• the long term prospects of the current portfolio of investments;
• the management of treasury, including use of buy-backs and participation in fund raising;
• a review of the Management agreement and the services provided therein; and
• benchmarking the performance of the Manager to other service providers including the performance of other VCTs that
the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive (“AIFMD”)
The Board appointed Albion Capital Group LLP as the Company’s AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides other AIFMD duties with respect to the Company.
Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole in both the long and short term, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.
The Board is very conscious of these wider responsibilities in the ways it promotes the Company’s culture and ensures, as part of its regular oversight, that the integrity of the Company’s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company’s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs, as well as visibility and openness in how the affairs are conducted.
The Company is an externally managed investment company with no employees, and as such has nothing to report in relation to employee engagement but does keep close attention to how the Board operates as a cohesive and competent unit. The Company also has no customers in the traditional sense and, therefore, there is also nothing to report in relation to relationships with customers.
The table below sets out the 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 | Outcomes and decisions based on engagement |
| Shareholders | The key methods of engaging with Shareholders are as follows:
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| Suppliers | The key suppliers with regular engagement from the Manager are:
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| Manager | The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance practice. |
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| Portfolio companies | The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. However, as discussed in the Environmental, Social and Governance (“ESG”) report on pages 19 to 21 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their stakeholders is also important to the Company. |
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| Community and environment | The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board. |
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Environmental, Social, and Governance (“ESG”) report
The Board and the Company’s Manager, Albion Capital Group LLP, take ESG very seriously and more detail can be found on this in the ESG report on pages 19 to 21 of the full Annual Report and Financial Statements.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 (the “Act”) to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters, however, it is at the core of its responsible investment strategy as detailed above.
General Data Protection Regulation
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union, and continues to apply in the United Kingdom after Brexit. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
Further policies
The Company has adopted a number of further policies relating to:
● Environment
● Global greenhouse gas emissions
● Anti-bribery
● Anti-facilitation of tax evasion
● Diversity
and these are set out in the Directors’ report on page 36 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates, together with changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable risk has been the global pandemic which has impacted not only public health and mobility but also has had an adverse impact on the economy, the full impact of which 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:
| Risk | Possible consequence | Risk assessment during the year | Risk management |
| Investment, performance and valuation risk | Investment in smaller unquoted growth businesses carries a higher degree of risk and is more volatile than investing in larger, long-established businesses. This could negatively impact shareholder returns. The Company relies on the judgement and reputation of the Manager to provide strong investment returns and valuations for shareholders. The Company’s investment valuation methodology is based on fair value, which for smaller unquoted growth businesses can be difficult to determine due to the lack of observable market data and the limitation of external reference points. | No change. | The Board places reliance upon the skills and expertise of the Manager and its track record of making successful investments in higher growth technology businesses. The Manager operates a structured investment appraisal and due diligence process. This includes a review from one external investment professional and comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are monitored by the Manager, through monthly portfolio updates and typically an investment manager sitting on portfolio company boards. The Board receives detailed reports on each investment and their valuation as part of their quarterly board meetings. Review and oversight of the non-executive Directors ensures that the risk to the Company’s and Manager’s reputation is kept to a minimum. Investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines, which represent current best practice for investment valuation and are reviewed by the Manager’s Valuation Committee. |
| VCT approval and regulatory change risk | Any breach of section 274 of the Income Tax Act 2007, including any legislative changes, could result in the loss of the Company’s HMRC qualifying status and tax reliefs for investors. | No change. | The Company’s VCT qualifying status is monitored monthly by the Manager and quarterly by the Board. The Board has appointed Philip Hare & Associates LLP as its taxation adviser, who independently confirms compliance, highlights areas of risk and informs on any legislative changes, including those which may arise from the withdrawal from the European Union. |
| Regulatory and compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | No change. | 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. The Board ensures the Company is compliant as part of its quarterly Board meetings. The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited (the Company’s Depositary) to ensure the Manager is adhering to the AIFMD requirements. |
| Operational and internal control risk (including cyber and data security) | 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 IT systems and controls within the Manager’s business could place assets of the Company at risk, resulting in inaccurate information being passed to the Board or shareholders. This could additionally result in losses for the Company and its shareholders. | No change. | The Company’s operations and IT systems are subject to rigorous internal controls which are reviewed on a regular basis and reported to the Board. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets and has access to their internal audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to risk management, business continuity and cyber security. The Board reviews the systems and processes (including cyber and data security) in place for the Company’s key suppliers to ensure that there is an appropriate risk mitigation in place. |
| Economic and political risk | Events such as the Covid-19 pandemic, the impact of Brexit, an economic recession, fluctuation in inflation and interest rates, or significant political events could adversely affect the companies within the portfolio and consequently the Company’s net asset value. | Increased (due to ongoing Covid-19 uncertainty and the geopolitical risks from the invasion of Ukraine). | The Company invests in a diversified all -weather portfolio of c.60 companies, predominantly in the United Kingdom, and has a policy of minimising any external bank borrowings within portfolio companies. Exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks. The inherent long-term nature of the portfolio helps to mitigate these exogeneous risks. The Board and Manager are continuously assessing the resilience of the portfolio as a result of the ongoing economic and political risks, to ascertain where support is required. The Company has sufficient cash resources to cope with any such exigent and unexpected pressures. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel (1% of NAV). The Company’s investment policy and the Board’s scrutiny of the investment portfolio ensures that this increased risk continues to be mitigated where possible. |
| Liquidity risk | The Company may not have sufficient cash available to meet its financial obligations. The Company’s portfolio is primarily in smaller unquoted companies, which are inherently illiquid as there is no readily available market, and thus it may be difficult to realise their fair value at short notice. | No change. | The Board reviews the Company’s three year cash flow forecasts on a quarterly basis. These include potential investment realisations (which are closely monitored by the Manager), Top Up Offers, dividend payments and operational expenditure. This ensures that there are sufficient cash resources available for the Company’s liabilities as they fall due. |
| Environmental, social and governance (“ESG”) risk | An insufficient ESG policy could lead to an increased negative impact on the environment, including the Company’s carbon footprint. Non-compliance with reporting requirements could lead to a fall in demand from investors, reputational damage and penalties. | Increased (due to the new guidance issued on climate change reporting and increased importance to stakeholders). | The Manager is a signatory of the UN PRI and the Board is kept appraised of the evolving ESG policies at quarterly Board meetings. Full details of the specific procedures and risk mitigation can be found in the ESG report on pages 19 to 21 of the full Annual Report and Financial Statements. These procedures ensure that this increased risk continues to be mitigated where possible. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2024. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities as they fall due. This is the period used by the Board as part of its strategic planning process, which includes: the estimated timelines for finding, assessing and completing investments; the potential impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that could threaten its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. The Board carefully assessed, and were satisfied with, the risk management processes in place to avoid or reduce the impact of these risks. The Board has carried out robust stress testing of cashflows which included; assessing the resilience of portfolio companies, including the requirement for any future financial support.
The Board has additionally considered the ability of the Company to comply with the ongoing conditions to ensure it maintains its VCT qualifying status under its current investment policy. As a result of the Board’s quarterly valuation reviews, it has concluded that the portfolio is well balanced and geared towards delivering long term growth and strong returns to shareholders.
The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2024. The Board is mindful of the ongoing risks and will continue to ensure that appropriate safeguards are in place, in addition to monitoring the quarterly cashflow forecasts to ensure the Company has sufficient liquidity.
This Strategic report of the Company for the year ended 31 December 2021 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
Fiona Wollocombe
Chairman
24 March 2022
Responsibility statement
In preparing these Financial Statements for the year to 31 December 2021, the Directors of the Company, being Fiona Wollocombe, Thomas Chambers, John Chiplin, Martin Fiennes and Swarupa Pathakji, confirm to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2021 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 39 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Fiona Wollocombe
Chairman
Income statement
| Year ended 31 December 2021 | Year ended 31 December 2020 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Gains on investments | 2 | - | 18,327 | 18,327 | - | 3,333 | 3,333 | |
| Investment income | 3 | 1,106 | - | 1,106 | 1,922 | - | 1,922 | |
| Investment Manager’s fees** | 4 | (196) | (2,782) | (2,978) | (377) | (1,132) | (1,509) | |
| Other expenses | 5 | (440) | - | (440) | (362) | - | (362) | |
| Profit on ordinary activities before tax | 470 | 15,545 | 16,015 | 1,183 | 2,201 | 3,384 | ||
| Tax on ordinary activities | 7 | - | - | - | - | - | - | |
| Profit and total comprehensive income attributable to shareholders | 470 | 15,545 | 16,015 | 1,183 | 2,201 | 3,384 | ||
| Basic and diluted return per share (pence)* | 9 | 0.11 | 3.61 | 3.72 | 0.32 | 0.59 | 0.91 | |
*adjusted for treasury shares
**For more information on the allocation of the split between revenue and capital please see the accounting policies below.
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 2021 | 31 December 2020 | ||
| Note | £’000 | £’000 | |
| Fixed assets investments | 10 | 66,996 | 69,652 |
| Current assets | |||
| Trade and other receivables | 12 | 2,669 | 1,293 |
| Cash and cash equivalents | 33,845 | 11,266 | |
| 36,514 | 12,559 | ||
| Total assets | 103,510 | 82,211 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables | 13 | (1,679) | (502) |
| Total assets less current liabilities | 101,831 | 81,709 | |
| Equity attributable to equity holders | |||
| Called-up share capital | 14 | 5,103 | 4,346 |
| Share premium | 60,854 | 45,481 | |
| Capital redemption reserve | 11 | 11 | |
| Unrealised capital reserve | 29,199 | 16,786 | |
| Realised capital reserve | 4,796 | 9,322 | |
| Other distributable reserve | 1,868 | 5,763 | |
| Total equity shareholders’ funds | 101,831 | 81,709 | |
| Basic and diluted net asset value per share (pence)* | 15 | 23.05 | 21.84 |
*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 24 March 2022 and were signed on its behalf by:
Fiona Wollocombe
Chairman
Company number: 03139019
Statement of changes in equity
| Called-up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| At 1 January 2021 | 4,346 | 45,481 | 11 | 16,786 | 9,322 | 5,763 | 81,709 |
| Profit and total comprehensive income for the period | - | - | - | 15,134 | 411 | 470 | 16,015 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (2,721) | 2,721 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,709) | (1,709) |
| Issue of equity | 757 | 15,769 | - | - | - | - | 16,526 |
| Cost of issue of equity | - | (396) | - | - | - | - | (396) |
| Dividends paid | - | - | - | - | (7,658) | (2,656) | (10,314) |
| At 31 December 2021 | 5,103 | 60,854 | 11 | 29,199 3 | 4,796 | 1,868 | 101,831 |
| At 1 January 2020 | 3,883 | 35,825 | 11 | 14,707 | 9,200 | 9,830 | 73,456 |
| Profit/(loss) and total comprehensive income for the period | - | - | - | 3,013 | (812) | 1,183 | 3,384 |
| Transfer of previously unrealised gains on disposal of investments | - | - | - | (934) | 934 | - | - |
| Purchase of own shares for treasury | - | - | - | - | - | (1,100) | (1,100) |
| Issue of equity | 462 | 9,892 | - | - | - | - | 10,354 |
| Cost of issue of equity | - | (236) | - | - | - | - | (236) |
| Dividends paid | - | - | - | - | - | (4,150) | (4,150) |
| At 31 December 2020 | 4,346 | 45,481 | 11 | 16,786 | 9,322 | 5,763 | 81,709 |
*These reserves includes an amount of £5,322,000 (2020: £15,085,000) which is considered distributable. The Company obtained authority to cancel the amount standing to the credit of its share premium and capital redemption reserves at the General Meeting on 25 November 2021. The proposal received the consent of the Court on 11 January 2022, and the changes have been registered at Companies House. As at the date of this Report, an additional £27,907,000 is considered distributable and over the next three years an additional £32,958,000 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.
The accompanying notes form an integral part of these Financial Statements.
Statement of cash flows
| Year ended 31 December 2021 | Year ended 31 December 2020 | ||
| £’000 | £’000 | ||
| Cash flow from operating activities | |||
| Investment income received | 1,681 | 1,467 | |
| Deposit interest received | 3 | 25 | |
| Dividend income received | 42 | 220 | |
| Investment Manager’s fees paid | (1,816) | (1,499) | |
| Other cash payments | (427) | (359) | |
| UK corporation tax paid | - | - | |
| Net cash flow from operating activities | (517) | (146) | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments | (7,628) | (3,990) | |
| Disposal of fixed asset investments | 26,619 | 639 | |
| Net cash flow from investing activities | 18,991 | (3,351) | |
| Cash flow from financing activities | |||
| Issue of share capital | 14,628 | 9,588 | |
| Cost of issue of equity | (37) | (4) | |
| Purchase of own shares (including costs) | (1,709) | (1,100) | |
| Equity dividends paid* | (8,777) | (3,588) | |
| Net cash flow from financing activities | 4,105 | 4,896 | |
| Increase in cash and cash equivalents | 22,579 | 1,399 | |
| Cash and cash equivalents at start of the year | 11,266 | 9,867 | |
| Cash and cash equivalents at end of the year | 33,845 | 11,266 |
* 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 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 pages 34 and 35 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 2018 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, revenue multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
- In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, 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.
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the Income statement when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables and cash are carried at amortised cost, in accordance with FRS 102. Debtors due after more than one year meet the definition of a financing transaction held at amortised cost, and interest will be recognised through capital over the credit period using the effective interest method. There are no financial liabilities other than payables.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank 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:
- 90% of management fees and 100% of performance incentive fees if any, are allocated to the realised capital reserve. This changed from 75% for both management fees and performance incentive fees in the year ended 31 December 2020, to better align with the Board’s expectation that over the long term the majority 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 for the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.
Share capital and reserves
Called-up share capital
This reserve accounts for the nominal value of the shares.
Share premium
This reserve accounts for the difference between the price paid for the Company’s shares and the nominal value of those shares, less issue costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company’s own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
• gains and losses compared to cost on the realisation of investments or permanent diminution in value (including gains recognised on the realisation of investment where consideration is deferred and not distributable as a matter of law);
• finance income in respect of the unwinding of the discount on deferred consideration that is not distributable as a matter of law;
• expenses, together with the related taxation effect, charged in accordance with the above policies; and
• dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for when the liability to make the payment (record date) has been established.
Going concern
The Board has assessed the Company’s operation as a going concern. The Company has sufficient cash and liquid resources, its portfolio of investments is well diversified in terms of sector, and the major cash outflows of the Company (namely investments, buy-backs and dividends) are within the Company’s control. Cash flow forecasts are discussed quarterly at Board level with regards to going concern. The cash flow forecasts have been updated and stress tested. Accordingly, after making diligent enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence over a period of at least twelve months from the date of approval of the Financial Statements. For this reason, the Directors have adopted the going concern basis in preparing the accounts. The Directors do not consider there to be any material uncertainty over going concern.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.
| 2. Gains on investments | Year ended 31 December 2021 £’000 | Year ended 31 December 2020 £’000 |
| Unrealised gains on fixed asset investments | 15,134 | 3,013 |
| Realised gains on fixed asset investments | 3,001 | 320 |
| Unwinding of discount on deferred consideration | 192 | - |
| 18,327 | 3,333 |
| 3. Investment income | Year ended 31 December 2021 £’000 | Year ended 31 December 2020 £’000 |
| Loan stock interest | 1,061 | 1,678 |
| Dividend income | 42 | 220 |
| Bank interest | 3 | 24 |
| 1,106 | 1,922 |
| 4. Investment Manager’s fees | Year ended 31 December 2021 £’000 | Year ended 31 December 2020 £’000 |
| Investment management fee charged to revenue | 196 | 377 |
| Investment management fee charged to capital | 1,765 | 1,132 |
| Performance incentive fee charged to capital | 1,017 | - |
| 2,978 | 1,509 |
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, £1,961,000 (2020: £1,509,000) of management fees and £50,000 (2020: £50,000) of administration fees were purchased by the Company from Albion Capital Group LLP. Following the outperformance of the performance incentive fee hurdle, the Manager was entitled to a performance incentive fee of £1,017,000 (2020: £nil) which has been accrued at the year end. At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed within payables was £1,563,000 (2020: £400,000).
Albion Capital Group LLP is, from time-to-time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 December 2021, fees of £202,000 (2020: £183,000) attributable to the investments of the Company were paid pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff hold 1,943,803 Ordinary shares in the Company as at 31 December 2021. After the year end, Albion Capital Group LLP, its partners and staff subscribed for new shares under the Albion VCTs Prospectus Top Up Offers 2021/22 and were issued with 754,425 shares as part of the 25 February 2022 allotment.
The Company has entered into an offer agreement relating to the Offers with the Company’s investment manager Albion Capital Group LLP, pursuant to which Albion Capital will receive a fee of 2.5% of the gross proceeds of the Offers and out of which Albion Capital will pay the costs of the Offers, as detailed in the Prospectus.
| 5. Other expenses | Year ended 31 December 2021 £’000 | Year ended 31 December 2020 £’000 |
| Directors’ fees (inc. NIC) | 93 | 99 |
| Auditor’s remuneration for statutory audit services (excluding VAT) | 37 | 31 |
| Secretarial and administration fee | 50 | 50 |
| Other administrative expenses | 260 | 182 |
| 440 | 362 |
| 6. Directors’ fees | Year ended 31 December 2021 £’000 | Year ended 31 December 2020 £’000 | |
| Directors’ fees | 86 | 91 | |
| National insurance | 7 | 8 | |
| 93 | 99 | ||
The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on page 47 of the full Annual Report and Financial Statements.
| 7. Tax on ordinary activities | Year ended 31 December 2021 £’000 | Year ended 31 December 2020 £’000 |
| UK Corporation tax payable | - | - |
Reconciliation of profit on ordinary activities to taxation charge | Year ended 31 December 2021 £’000 | Year ended 31 December 2020 £’000 |
| Return on ordinary activities before taxation | 16,015 | 3,384 |
| Tax charge on profit at the effective UK corporation tax rate of 19.00% (2020: 19.00%) | 3,043 | 643 |
| Effects of: | ||
| Non-taxable gains | (3,482) | (633) |
| Non-taxable income | (8) | (42) |
| Unutilised management expenses | 447 | 32 |
| - | - |
The tax charge for the year shown in the Income statement is lower than the effective rate of corporation tax in the UK of 19.00% (2020: 19.00%). The differences are explained above.
The Company has excess management expenses of £13,933,000 (2020: £11,601,000) that are available for offset against future profits. A deferred tax asset of £3,483,000 (2020: £2,204,000) 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 31 December 2021 £’000 | Year ended 31 December 2020 £’000 |
| First interim dividend of 0.60 pence per share paid on 30 April 2021 (30 April 2020: 0.60 pence per share) | 2,656 | 2,256 |
| Second interim dividend of 0.60 pence per share paid on 29 October 2021 (30 October 2020: 0.51 pence per share) | 2,641 | 1,910 |
| Special dividend of 1.14 pence per share paid on 29 October 2021 | 5,017 | - |
| Unclaimed dividends returned to the Company | - | (16) |
| 10,314 | 4,150 |
The Directors have declared a first interim dividend of 0.58 pence per share for the year ending 31 December 2022, which will amount to approximately £2,742,000. This dividend will be paid on 29 April 2022 to shareholders on the register on 8 April 2022.
During the year, no unclaimed dividends older than twelve years (2020: £16,000) were returned to the Company in accordance with the terms of the Articles of Association.
| 9. Basic and diluted return per share | |||||||||
| Year ended 31 December 2021 | Year ended 31 December 2020 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||||
| Return attributable to shareholders (£’000) | 470 | 15,545 | 16,015 | 1,183 | 2,201 | 3,384 | |||
| Weighted average shares in issue (adjusted for treasury shares) | 430,659,192 | 372,282,416 | |||||||
| Return attributable per equity share (pence) | 0.11 | 3.61 | 3.72 | 0.32 | 0.59 | 0.91 | |||
The weighted average number of Ordinary shares is calculated after adjusting for treasury shares of 68,609,325 (2020: 60,491,609).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
| 10. Fixed asset investments | 31 December 2021 £’000 | 31 December 2020 £’000 |
| Investments held at fair value through profit or loss Unquoted equity and preference shares | 55,694 | 51,072 |
| Quoted equity | 936 | - |
| Unquoted loan stock | 10,366 | 18,580 |
| 66,996 | 69,652 |
| 31 December 2021 £’000 | 31 December 2020 £’000 | |
| Opening valuation | 69,652 | 63,960 |
| Purchases at cost | 6,590 | 3,991 |
| Disposal proceeds | (26,760) | (1,842) |
| Realised gains | 3,001 | 320 |
| Movement in loan stock accrued income | (621) | 210 |
| Movement in unrealised gains | 15,134 | 3,013 |
| Closing valuation | 66,996 | 69,652 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 789 | 579 |
| Movement in loan stock accrued income | (621) | 210 |
| Closing accumulated loan stock accrued income | 168 | 789 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 16,774 | 14,695 |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (2,721) | (934) |
| Movement in unrealised gains | 15,134 | 3,013 |
| Closing accumulated unrealised gains | 29,187 | 16,774 |
| Historical cost basis | ||
| Opening book cost | 52,089 | 48,686 |
| Purchases at cost | 6,590 | 3,991 |
| Sales at cost | (21,038) | (588) |
| Closing book cost | 37,641 | 52,089 |
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.
Amounts shown as cost represent the acquisition cost in the case of investments made by the Company and/or the valuation attributed to the investments acquired from other VCTs at the dates of merger, plus any subsequent acquisition cost.
The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.
Fixed asset investments are valued at fair value in accordance with the IPEV guidelines as follows:
Valuation methodology | 31 December 2021 £’000 | 31 December 2020 £’000 |
| Revenue multiple | 26,235 | 20,597 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 24,033 | 14,585 |
| Third party valuation – Discounted cash flow | 10,710 | 11,413 |
| Discounted offer price | 4,654 | 19,252 |
| Bid price | 936 | - |
| Net assets | 428 | 653 |
| Earnings multiple | - | 3,152 |
| 66,996 | 69,652 |
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 31 December 2020 and 31 December 2021:
| Change in valuation methodology (2020 to 2021) | Value as at 31 December 2021 £’000 | Explanatory Note | |
| Cost and price of recent investment (reviewed for impairment or uplift) to discounted offer price | 2,729 | Third party offers received | |
| Cost and price of recent investment (reviewed for impairment or uplift) to revenue multiple | 2,366 | Revenue multiple more relevant based on current trading | |
| Revenue multiple to discounted offer price | 1,924 | Third party offer received | |
| Revenue multiple to cost and price of recent investment (reviewed for impairment or uplift) | 1,423 | Recent funding round | |
| Net assets to bid price | 936 | IPO listing | |
| Earnings multiple to net assets | 204 | More relevant valuation methodology | |
| Cost and price of recent investment (reviewed for impairment or uplift) to net assets | 12 | Covid-19 impact on portfolio company has lead to revaluation | |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, these are the most appropriate methods of valuation as at 31 December 2021.
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:
| 31 December 2021 £’000 | 31 December 2020 £’000 | |
| Opening valuation | 69,652 | 63,960 |
| Purchases at cost | 6,590 | 3,991 |
| Movement from Level 3 to Level 1* | (304) | - |
| Unrealised gains | 14,502 | 3,013 |
| Movement in loan stock accrued income | (621) | 210 |
| Realised net gains on disposal | 3,001 | 320 |
| Disposal proceeds | (26,760) | (1,842) |
| Closing valuation | 66,060 | 69,652 |
* This relates to Arecor Therapeutics PLC, which listed on the AIM stock exchange during the period.
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. 58% 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 believe 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 82% of the portfolio of investments. The main inputs considered for each type of valuation is as follows:
| Valuation technique | Portfolio company sector | Input | Base Case* | Change in input | Change in fair value of investments (£’000) | Change in NAV (pence per share) |
| Revenue multiple | Healthcare (including digital healthcare) | Revenue multiple | 5.2x | +0.5x | 853 | 0.19 |
| -0.5x | (853) | (0.19) | ||||
| Revenue multiple | Software and other technology | Revenue multiple | 6.0x | +0.5x | 542 | 0.12 |
| -0.5x | (542) | (0.12) | ||||
| Third party valuation – Discounted cash flow | Renewable energy | Discount rate | 5.5% | -0.5% | 110 | 0.02 |
| +0.5% | (99) | (0.02) |
*As detailed in the accounting policies, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the valuation of the equity investments by £1,505,000 (2.7%) or a decrease in the valuation of equity investments by £1,494,000 (2.7%).
11. Significant holdings
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not ordinarily take a controlling interest or become involved in the management. The size and structure of companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The Company has interests of greater than 20% of the nominal value of any class (some of which are non-voting) of the allotted shares in the portfolio companies as at 31 December 2021 as described below. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102, they are measured at fair value and are not accounted for using the equity method.
| Company | Registered address and country of incorporation | Profit/(loss) before tax £’000 | Aggregate capital and reserves £’000 | % class and share type | % total voting rights | |||||
| Academia Inc. | CA 94108, USA | n/a | n/a | 23.2% Preferred shares | 3.0% | |||||
| Sift Limited | BS1 4EX, UK | 38 | 112 | 42.1% Ordinary shares | 42.1% | |||||
12. Current assets
| Trade and other receivables | 31 December 2021 £’000 | 31 December 2020 £’000 |
| Other receivables | 1,038 | - |
| Prepayments and accrued income | 24 | 19 |
| Deferred consideration under one year | 263 | 124 |
| Deferred consideration over one year | 1,342 | 1,150 |
| 2,669 | 1,293 | |
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 1.
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
| 13. Payables: amounts falling due within one year | 31 December 2021 £’000 | 31 December 2020 £’000 |
| Trade payables | 8 | 15 |
| Accruals and deferred income | 1,671 | 487 |
| 1,679 | 502 |
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 |
| 434,557,477 Ordinary shares of 1 penny each at 31 December 2020 | 4,346 |
| 75,754,056 Ordinary shares of 1 penny each issued during the year | 757 |
| 510,311,533 Ordinary shares of 1 penny each at 31 December 2021 | 5,103 |
| 60,491,609 Ordinary shares of 1 penny each held in treasury at 31 December 2020 | (605) |
| 8,117,716 Ordinary shares purchased during the year to be held in treasury | (81) |
| 68,609,325 Ordinary shares of 1 penny each held in treasury at 31 December 2021 | (686) |
| 441,702,208 Ordinary shares of 1 penny each in circulation* at 31 December 2021 | 4,417 |
*Carrying one vote each
During the year the Company purchased 8,117,716 Ordinary shares (2020: 5,768,609) representing 1.6% of the issued Ordinary share capital as at 31 December 2021, at a cost of £1,709,000 (2020: £1,100,000), including stamp duty, to be held in treasury. The Company holds a total of 68,609,325 Ordinary shares in treasury, representing 13.4% of the issued Ordinary share capital as at 31 December 2021.
Under the terms of the Dividend Reinvestment Scheme Circular dated 19 April 2011, the following new Ordinary shares of nominal value 1 penny per share were allotted during the year:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net invested (£’000) | Opening market price on allotment date (pence per share) |
| 30 April 2021 | 1,831,899 | 18 | 21.24 | 371 | 20.30 |
| 29 October 2021 | 5,165,578 | 52 | 22.25 | 1,132 | 21.10 |
| 6,997,477 | 1,503 |
During the period from 1 January 2021 to 31 December 2021, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCT Prospectus Top Up Offers 2020/21:
| 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) |
| 26 February 2021 | 5,412,326 | 54 | 21.60 | 1,151 | 20.10 |
| 26 February 2021 | 1,536,392 | 15 | 21.70 | 327 | 20.10 |
| 26 February 2021 | 59,778,526 | 598 | 21.80 | 12,706 | 20.10 |
| 9 April 2021 | 528,417 | 5 | 22.20 | 116 | 20.70 |
| 9 April 2021 | 29,596 | - | 22.30 | 6 | 20.70 |
| 9 April 2021 | 1,471,322 | 15 | 22.40 | 321 | 20.70 |
| 68,756,579 | 14,627 |
15. Basic and diluted net asset value per share
| 31 December 2021 (pence per share) | 31 December 2020 (pence per share) | ||
| Basic and diluted net asset value per Ordinary share | 23.05 | 21.84 |
The basic and diluted net asset values per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (adjusting for treasury shares) of 441,702,208 Ordinary shares as at 31 December 2021 (2020: 374,065,868).
16. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 14. The Company is permitted to buy back its own shares for cancellation or treasury purposes and this policy is described in more detail in the Chairman’s statement.
The Company’s financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances and liquid cash instruments and short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.
The principal financial instrument risks arising from the Company’s operations are:
- Market and investment risk (which comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year and there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Market risk
As a Venture Capital Trust, it is the Company’s specific nature to evaluate the market risk of its portfolio in unquoted companies. Market risk is the exposure of the Company to the revaluation and devaluation of investments as a result of macroeconomic changes. The main driver of market risk is the dynamics of market quoted comparators, as well as the financial and operational performance of portfolio companies. The Board seeks to reduce this risk by having a spread of investments across a variety of sectors. More details on the sectors the Company invests in can be found in the pie chart at the end of this announcement.
The Manager and the Board formally review market risk, both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
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. The Board considers that the value of the fixed asset investment portfolio is sensitive to a change of 10% based on the current economic climate. The impact of a 10% change has been selected as this is considered reasonable given the current level of volatility observed. When considering the appropriate level of sensitivity to be applied, the Board has considered both historic performance and future expectations.
The sensitivity of 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 £6,700,000. Further sensitivity analysis on fixed asset investments is included in note 10.
Investment risk (including investment price risk)
Investment risk (including investment price risk) is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk. The Directors monitor the Manager’s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the pie chart at the end of this announcement.
The maximum investment risk on the balance sheet date is the value of the fixed asset investment portfolio which is £66,996,000 (2020: £69,652,000). Fixed asset investments form 66 per cent. of the net asset value on 31 December 2021 (2020: 85 per cent.).
More details regarding the classification of fixed asset investments are shown in note 10.
Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company’s analysis, it is estimated that a rise of 1% in all interest rates would have increased total return before tax for the year by approximately £323,000 (2020: £70,000). Furthermore, it is considered that a material fall of interest rates below current levels during the year would have been unlikely.
The weighted average effective interest rate applied to the Company’s fixed rate assets during the year was approximately 10.5% (2020: 9.8%). The weighted average period to maturity for the fixed rate assets is approximately 7.5 years (2020: 7.7 years).
The Company’s financial assets and liabilities, denominated in Sterling, consist of the following:
| 31 December 2021 | 31 December 2020 | |||||||
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 | - | - | 55,694 | 55,694 | - | - | 51,072 | 51,072 |
| Quoted equity | - | - | 936 | 936 | - | - | - | - |
| Unquoted loan stock | 9,307 | 552 | 507 | 10,366 | 17,301 | 584 | 695 | 18,580 |
| Receivables* | - | - | 2,645 | 2,645 | - | - | 1,274 | 1,274 |
| Payables | - | - | (1,679) | (1,679) | - | - | (502) | (502) |
| Cash | - | 33,845 | - | 33,845 | - | 11,266 | - | 11,266 |
| 9,307 | 34,397 | 58,103 | 101,807 | 17,301 | 11,850 | 52,539 | 81,690 | |
*The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in unquoted loan stock and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock instruments prior to investment and as part of its ongoing monitoring of investments. For investments made prior to 6 April 2018, which account for 98 per cent. of loan stock value, typically loan stock instruments will have a fixed or floating charge, which may or may not be subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.
The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.
Bank deposits are held with banks with high credit ratings assigned by international credit rating agencies. The Company has an informal policy of limiting counterparty banking exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company’s total gross credit risk at 31 December 2021 was limited to £10,366,000 (2020: £18,580,000) of unquoted loan stock instruments, £33,845,000 (2020: £11,266,000) cash on deposit with banks and £2,669,000 (2020: £1,293,000) of other receivables.
As at the Balance sheet date, cash and liquid investments held by the Company are held with the National Westminster Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group plc), Barclays Bank plc and Société Générale S.A. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to regulatory supervision, with high credit ratings assigned by international credit-rating agencies.
The credit profile of unquoted loan stock is described under liquidity risk below.
Liquidity risk
Liquid assets are held as cash on current account, deposit or short term money market accounts or similar instruments. Under the terms of its Articles, the Company has the ability to borrow an amount equal to its adjusted capital and reserves of the latest published audited Balance sheet, being £99,089,000 (2020: £79,064,000).
The Company has no committed borrowing facilities as at 31 December 2021 (2020: nil) and had cash balances of £33,845,000 (2020: £11,266,000). The main cash outflows are for new investments, dividends and share buy-backs, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts.
All of the Company’s financial liabilities are short term in nature and total £1,679,000 (2020: £502,000) as at 31 December 2021.
The carrying value of loan stock investments analysed by expected maturity dates is as follows:
| 31 December 2021 | 31 December 2020 | |||||||
| Redemption date | Fully performing £’000 | Past due £’000 | Valued below cost £’000 | Total £’000 | Fully performing£’000 | Past due £’000 | Valued below cost £’000 | Total £’000 |
| Less than one year | 3,222 | 337 | 1 | 3,560 | 8,783 | 307 | 102 | 9,192 |
| 1-2 years | 85 | - | 1 | 86 | 1,602 | 34 | 35 | 1,671 |
| 2-3 years | 100 | - | - | 100 | 86 | - | 440 | 526 |
| 3-5 years | 111 | 27 | - | 138 | 395 | 28 | 90 | 513 |
| 5 + years | 6,347 | 129 | 6 | 6,482 | 6,540 | 138 | - | 6,678 |
| Total | 9,865 | 493 | 8 | 10,366 | 17,406 | 507 | 667 | 18,580 |
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 £357,000 (2020: £3,132,000).
The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both those valued below cost and past due assets are covered by the value of security held for these loan stock investments.
In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 31 December 2021 are stated at fair value as determined by the Directors, with the exception of receivables (including debtors due after more than one year), payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
17. Commitments, contingencies and guarantees
As at 31 December 2021, the Company had no financial commitments (2020: £nil).
There were no contingent liabilities or guarantees given by the Company as at 31 December 2021 (2020: £nil).
18. Post balance sheet events
Since the year end, the Company made the following material investment transactions:
- Proceeds of £1,951,000 received for the sale of Phrasee Limited;
- Proceeds of £884,000 received for the sale of Credit Kudos Limited:
- Investment of £1,149,000 in an existing portfolio company, TransFICC Limited;
- Investment of £1,038,000 in a new portfolio company, PerchPeek Limited;
- Investment of £467,000 in an existing portfolio company, Black Swan Data Limited; and
- Investment of £208,000 in an existing portfolio company, NuvoAir Holdings Inc.
The following new Ordinary shares of nominal value 1 penny each were allotted under the Albion VCTs Prospectus Top Up Offers 2021/22 after 31 December 2021:
| 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) | |||
| 25 February 2022 | 3,942,660 | 39 | 23.50 | 912 | 22.00 | |
| 25 February 2022 | 1,666,528 | 17 | 23.60 | 385 | 22.00 | |
| 25 February 2022 | 25,492,024 | 255 | 23.70 | 5,891 | 22.00 | |
| 31,101,212 | 311 | 7,189 | ||||
19. Related party transactions
Other than transactions with the Manager as disclosed in note 4, and the Directors’ remuneration disclosed in the Directors’ remuneration report on page 47 of the full Annual Report and Financial Statements there are no related party transactions or balances requiring disclosure.
20. Other information
The information set out in this announcement does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 December 2021 and 31 December 2020, 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 2021, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
21. Publication
The full audited Annual Report an Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/KAY/31Dec2021.pdf.
Attachment
- Split of Portfolio by sector, stage of investment and number of employees
