Kings Arms Yard VCT PLC: Half-yearly Financial Report
*Kings Arms Yard VCT PLC *
LEI Code 213800DK8H27QY3J5R45
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.2, Kings Arms Yard VCT PLC today makes public its information relating to the Half-yearly Financial Report (which is unaudited) for the six months to 30 June 2020. This announcement was approved by the Board of Directors on 3 September 2020.
The full Half-yearly Financial Report (which is unaudited) for the period to 30 June 2020, will shortly be sent to shareholders and will be available on the Albion Capital Group LLP website by clicking www.albion.capital/funds/KAY/30Jun2020.pdf.
*Investment policy*
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment policy is intended to produce a regular 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 second dividend 2 October 2020
Payment date of second dividend 30 October 2020
Financial year end 31 December
*Financial summary*
*Unaudited *
*six months ended *
*30 June 2020* Unaudited
six months ended
30 June 2019 Audited
year ended
31 December 2019 *(pence per share)* (pence per share) (pence per share)
Opening net asset value *22.02* 22.78 22.78
Revenue return *0.15* * * 0.24 0.44
Capital (loss)/return *(1.31)* * * 0.11 (0.02)
Total (loss)/return *(1.16)* 0.35 0.42
Impact from share capital movements *0.04* - 0.02
Dividends paid *(0.60)* (0.60) (1.20)
Net asset value *20.30* 22.53 22.02
*Shareholder return and shareholder value* *(pence per share*)
* * * *
*Shareholder return from launch to 1 January 2011:*
Total dividends paid to 1 January 2011 58.66
Decrease in net asset value (83.40)
Total shareholder return to 1 January 2011 (24.74)
*Shareholder return from 1 January 2011 to 30 June 2020 (period that Albion Capital has been investment manager):* * *
Total dividends paid 9.67
Increase in net asset value 3.70
Total shareholder return from 1 January 2011 to 30 June 2020 13.37
* * * *
*Shareholder value since launch:* * *
Total dividends paid to 30 June 2020 68.33
Net asset value as at 30 June 2020 20.30
Total shareholder value as at 30 June 2020 88.63
*The Directors have declared a second dividend of 0.51 pence per share for the year ending 31 December 2020, which will be paid on 30 October 2020 to shareholders on the register on 2 October 2020.*
The details of the new dividend policy can be found in the Interim management report below.
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.
*Interim management report*
*Introduction*
The duration and the final scale of the global Covid-19 pandemic are still unknown. What we do know is that many industries have been very severely disrupted, many businesses are struggling for survival and a rash of quoted companies have suspended or drastically reduced their dividends for the first time in decades. Against this background Kings Arms Yard has proved resilient. Despite a decline of 5% in NAV since 31 December 2019, none of our investee companies have ceased trading, few have been adversely affected and the majority continue to grow strongly given the focus on the software and healthcare sectors which have benefitted from the shift to remote working, the increasing adoption of software and the increased interest in healthcare.
*Valuations and results*
Since the year ended 31 December 2019, the Board has been closely monitoring the ongoing disruption caused by the Covid-19 pandemic and its current and potential impact on portfolio companies.
The net effect of the Board’s regular portfolio revaluation has been an overall loss on investments of £4.3m. The key movements in the period include: a £1.6m uplift in the valuation of Quantexa following a £50 million externally led fundraising, a £1.2m uplift in the valuation of Proveca, offset by a £0.9m reduction in the valuation of Sandcroft Avenue (T/A Hussle), a £0.9m reduction in the valuation of Elateral Group and based on the disruption caused by Covid-19 to the rail sector, the valuation of Perpetuum was written down significantly. After the period end, contracts were exchanged, subject to regulatory approval, for the sale of Perpetuum at a small uplift to its carrying value at 30 June 2020.
Further details of the portfolio of investments can be found below.
This has resulted in a total loss for the six month period to 30 June 2020 of 1.16 pence per share, compared to a total return of 0.35 pence per share for the six month period to 30 June 2019.
Net asset value decreased from 22.02 pence per share at 31 December 2019 to 20.30 pence per share at 30 June 2020, following the loss during the period and the payment of a 0.60 pence per share dividend on 30 April 2020.
*New dividend policy*
The Board is aware of the importance of dividends to shareholders and it remains its intention to continue to pay regular dividends, as far as liquidity permits. Given the uncertainty that the current pandemic has created and the volatile nature of investing in small unquoted growth businesses, the Board considers it appropriate to move to a variable dividend policy targeting an annual dividend yield of around 5%. Semi-annual dividends will be paid calculated as 2.5% of the most recently announced net asset value when the dividend is declared (in most cases this will be the net asset value announced in the Half-yearly Financial Report or in the Annual Report and Financial Statements). This has the advantage of avoiding unsustainably high dividends if the net asset value falls, whilst rewarding shareholders more immediately if the net asset value rises.
This new policy will take effect immediately and apply to the second dividend for the financial year ending 31 December 2020 and dividends declared thereafter. The Board is therefore pleased to declare a second dividend for the financial year ending 31 December 2020 of 0.51 pence per share (31 October 2019: 0.60 pence per share) payable on 30 October 2020 to shareholders on the register on 2 October 2020.
The Company continues to offer a Dividend Reinvestment Scheme whereby shareholders can elect to receive dividends in the form of new shares.
*Investment activity*
Largely as a result of the Government lockdown, investment activity in the six months ended 30 June 2020 has been slower than in previous periods. The Company has invested £649,000 into 3 new portfolio companies with the expectation of further funding rounds over time to support success. In addition, the Company invested £714,000 to support growth in 5 existing portfolio companies. Since the period end investment activity has increased and the Company has made £1.7 million of investments, the largest being £891,000 into Quantexa. Further details of post balance sheet events can be found in note 9.
New investments in the period were:
· An initial investment of £308,000 (Albion VCTs: £5.0m) in Concirrus, a software provider bringing real time behavioural data analytics to the marine and transport insurance industries;
· An initial investment of £185,000 (Albion VCTs: £3.0m) in Credit Kudos, a challenger credit bureau helping lenders optimise and automate their affordability and risk assessments; and
· An initial investment of £156,000 (Albion VCTs: £1.5m) in TransFICC, a provider of connectivity solutions, connecting financial institutions with trading venues via a single API.
There were no disposals during the six month period to 30 June 2020. For further information on loan stock repayments and escrow adjustments, please see the realisations table below.
*Portfolio sector allocation*
The pie chart at the end of this announcement outlines the different sectors in which the Company’s assets, at carrying value, were invested at 30 June 2020.
*Transactions with the Manager*
Details of transactions with the Manager for the reporting period can be found in note 4. Details of related party transactions can be found in note 10.
*Albion VCTs Top Up Offers *
The Company is pleased to announce that its participation in the Albion VCTs Prospectus Top Up Offers 2019/20 was fully subscribed and closed early raising net proceeds of £9.6m. Further details can be found in note 7. The proceeds of the Offer are being deployed into new investments as mentioned above and supporting further funding of existing portfolio companies to promote growth.
*Corporate broker and share buy-backs*
The Board was pleased to announce on 17 June 2020 the appointment of Panmure Gordon (UK) Limited as corporate broker.
It remains the Board’s policy to buy-back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest. This includes the maintenance of sufficient cash resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. The Board has decided to limit the amount of share buybacks in the six month period to 31 December 2020 to £1 million.
It is the Board’s intention over time 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.
*Risks and uncertainties*
The implication of the financial turmoil arising from the Covid-19 crisis is the key risk facing the Company. There are also potential implications of increasing tensions in international trade and of the UK leaving the European Union which may adversely affect our underlying portfolio companies. The Manager is continually assessing the exposure to these risks for each portfolio company, and appropriate actions, where possible, are being implemented.
Other risks and uncertainties remain unchanged and are detailed in note 12 below.
*Outlook*
The outlook for the UK and the world economy has perhaps not been so uncertain for a generation. Covid-19, together with growing interference in free trade may change the global economic picture in ways that will dwarf Brexit.
The one thing of which we can be certain is continuing change and a greater reliance on technology. Our policy of investing in young businesses with emerging technologies has proved robust so far and the Board has every confidence that it continues to offer the best course going forward.
*Robin Field*
Chairman
3 September 2020
*Responsibility statement*
The Directors, Robin Field, Thomas Chambers, Martin Fiennes and Fiona Wollocombe, are responsible for preparing the Half-yearly Financial Report. In preparing these condensed Financial Statements for the period to 30 June 2020 we, the Directors of the Company, confirm that to the best of our knowledge:
(a) the condensed set of Financial Statements, which has been prepared in accordance with Financial Reporting Standard 104 “Interim Financial Reporting”, gives a true and fair view of the assets, liabilities, financial position and profit and loss of the Company as required by DTR 4.2.4R;
(b) the Interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
(c) the Interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).
This Half-yearly Financial Report has not been audited or reviewed by the Auditor.
For and on behalf of the Board
*Robin Field*
Chairman
3 September 2020
*Portfolio of investments*
*As at 30 June 2020* * *
*Fixed asset investments* *% voting rights* *Cost^(1)*
*£’000* *Cumulative movement*
*in value*
*£’000* *Value*
*£’000* *Change in *
*value for the period^(2)*
*£’000*
Active Lives Care Limited 20.3 4,395 2,690 7,085 (468)
Proveca Limited 15.1 2,259 4,668 6,927 1,166
Ryefield Court Care Limited 18.7 3,070 1,786 4,856 (618)
Egress Software Technologies Limited 4.8 1,644 2,901 4,545 -
Quantexa Limited 1.7 438 2,971 3,409 1,593
Chonais River Hydro Limited 6.5 2,428 939 3,367 10
Antenova Limited 28.7 1,733 617 2,350 (590)
The Street by Street Solar Programme Limited 10.0 1,040 809 1,849 (57)
Regenerco Renewable Energy Limited 9.8 988 622 1,610 (58)
Alto Prodotto Wind Limited 11.1 882 607 1,489 3
MyMeds&Me Limited 15.4 1,459 (71) 1,388 7
OmPrompt Holdings Limited 14.8 1,377 (45) 1,332 -
Dragon Hydro Limited 17.2 684 435 1,119 33
G.Network Communications Limited 2.0 204 901 1,105 -
Shinfield Lodge Care Limited 2.9 535 528 1,063 2
Sift Limited 42.1 2,306 (1,331) 975 228
Black Swan Data Limited 2.3 941 - 941 -
Perpetuum Limited 11.9 3,136 (2,280) 856 (2,188)
Gharagain River Hyrdo Limited 5.0 620 199 819 16
Academia Inc. 3.0 351 380 731 (316)
Symetrica Limited 3.7 685 19 704 (163)
Elateral Group Limited 47.9 5,488 (4,798) 690 (897)
AVESI Limited 14.8 484 197 681 (42)
Oviva AG 2.0 585 90 675 (121)
The Evewell (Harley Street) Limited 4.7 642 (59) 583 (58)
MPP Global Solutions Limited 1.7 550 - 550 -
SBD Automotive Limited 1.7 260 267 527 21
Avora Limited 2.8 510 - 510 -
Convertr Media Limited 3.0 482 13 495 2
Elliptic Enterprises Limited 0.6 488 - 488 -
Panaseer Limited 1.5 342 128 470 -
Cantab Research Limited (T/A Speechmatics) 1.1 460 - 460 -
Beddlestead Limited 5.1 606 (160) 446 (157)
Greenenerco Limited 8.6 259 185 444 (2)
Koru Kids Limited 1.6 345 36 381 (156)
Phrasee Limited 1.8 374 - 374 -
Locum’s Nest Limited 3.6 375 (12) 363 7
Anthropics Technology Limited 13.8 19 312 331 (151)
Concirrus Limited 0.6 308 - 308 -
ePatient Network Limited (T/A Raremark) 2.4 230 53 283 (27)
uMotif Limited 1.0 240 32 272 98
InCrowd Sports Limited 2.1 272 (6) 266 (85)
Limitless Technology Limited 1.7 260 - 260 -
Abcodia Limited 4.3 735 (475) 260 -
Celoxica Holdings plc 4.4 513 (255) 258 -
Aridhia Informatics Limited 2.1 409 (152) 257 203
Clear Review Limited 1.6 203 51 254 51
Arecor Limited 1.2 220 - 220 -
Healios Limited 0.7 216 - 216 -
Mirada Medical Limited 1.8 390 (198) 192 (288)
Credit Kudos Limited 0.9 185 - 185 -
TransFICC Limited 1.0 156 - 156 -
Erin Solar Limited 5.7 160 (22) 138 (16)
Cisiv Limited 3.1 278 (144) 134 (27)
Innovation Broking Group Limited 4.5 45 72 117 16
Sandcroft Avenue Limited (T/A Hussle) 5.1 1,026 (929) 97 (915)
Imandra Inc. 1.0 91 - 91 -
Harvest AD Limited(i) - 70 1 71 (4)
Zift Channel Solutions Inc. 0.6 321 (260) 61 (122)
Forward Clinical Limited (T/A Pando) 1.5 184 (123) 61 (47)
Xention Limited 10.6 38 (28) 10 -
Other holdings (5 companies) 26 (21) 5 -
*Total fixed asset investments* *50,020* *11,140* *61,160* * * *(4,117)*
1. Amounts shown as cost represent the acquisition cost in the case of investments originally made by the Company and/or the valuation attributed to the investments acquired from Quester VCT 2 plc and Quester VCT 3 plc at the date of the merger in 2005, and those acquired from Kings Arms Yard VCT 2 PLC at the merger on 30 September 2011, plus any subsequent acquisition costs, as reduced in certain cases by amounts written off as representing an impairment value.
2. The column shows the movement in the period from the opening balance as at 1 January 2020 to the closing balance as at 30 June 2020 after adjustments for additions and disposals.
(i) Early stage investment of convertible loan stock.
*Realisations in the period to 30 June 2020* *Cost*
*£’000* *Opening*
* carrying value*
*£’000* *Disposal proceeds*
*£’000* * *
*Realised gain on cost*
*£’000* *Gain on opening or acquired value*
*£’000*
Loan stock repayments and other:
Alto Prodotto Wind Limited 24 36 36 12 -
Greenenerco Limited 7 10 10 3 -
Escrow adjustments - - 19 19 19
*Total* *31* *46* *65* *34* *19*
*Total change in value of investments for the period* * * * * * * * * *(4,117)*
Movement in loan stock accrued interest * * (188)
*Unrealised losses on fixed asset investments sub-total* * * *(4,305)*
Realised gains in current period * * 19
*Total losses on investments as per Income statement* * * * * * * * * *(4,286)*
*Condensed income statement*
*Unaudited *
*six months ended *
*30 June 2020* Unaudited
six months ended
30 June 2019 Audited
year ended
31 December 2019
* * *Note* *Revenue*
*£’000* *Capital*
*£’000* *Total*
*£’000* Revenue
£’000 Capital
£’000 Total
£’000 Revenue
£’000 Capital
£’000 Total
£’000
(Losses)/gains on investments 2 *-* *(4,286)* *(4,286)* - 865 865 - 1,002 1,002
Investment income 3 *917* *-* *917* 1,112 - 1,112 2,144 - 2,144
Investment management fee 4 *(185)* *(554)* *(739)* (175) (524) (699) (364) (1,092) (1,456) * * * * * * * * * * * *
Other expenses *(182)* *-* *(182)* (163) - (163) (331) - (331)
*(Loss)/profit on ordinary activities before tax* *550* *(4,840)* *(4,290)* 774 341 1,115 1,449 (90) 1,359
Tax on ordinary activities *-* *-* *-* - - - - - -
*(Loss)/profit and total comprehensive income attributable to shareholders * *550* *(4,840)* *(4,290)* 774 341 1,115 1,449 (90) 1,359
Basic and diluted (loss)/return per share (pence)* 6 *0.15* *(1.31)* *(1.16)* 0.24 0.11 0.35 0.44 (0.02) 0.42
*adjusted for treasury shares
The accompanying notes below form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2019 and the audited statutory accounts for the year ended 31 December 2019.
The total column of this Condensed 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.
*Condensed balance sheet *
*Note* *Unaudited*
*30 June 2020*
*£’000* Unaudited
30 June 2019
£’000 Audited
31 December 2019
£’000
* *
*Fixed asset investments* *61,160* 63,259 63,960
*Current assets*
Trade and other receivables less than one year *105* 887 115
Cash and cash equivalents *15,554* 11,872 9,867 *15,659* 12,759 9,982
* *
*Total assets* *76,819* 76,018 73,942
* *
*Payables: amounts falling due within one year*
Trade and other payables less than one year *(461)* (449) (486) * *
*Total assets less current liabilities* *76,358* 75,569 73,456
*Equity attributable to equity holders*
Called up share capital 7 *4,333* 3,872 3,883
Share premium *45,253* 35,595 35,825
Capital redemption reserve *11* 11 11
Unrealised capital reserve *10,387* 15,343 14,707
Realised capital reserve *8,680* 8,995 9,200
Other distributable reserve *7,694* 11,753 9,830 * *
*Total equity shareholders’ funds* *76,358* 75,569 73,456 * *
Basic and diluted net asset value per share (pence)* *20.30* 22.53 22.02
*excluding treasury shares
The accompanying notes below form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2019 and the audited statutory accounts for the year ended 31 December 2019.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 3 September 2020 and were signed on its behalf by
*Robin Field*
Chairman
Company number: 03139019
*Condensed 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 2020 * *3,883* *35,825* *11* *14,707* *9,200* *9,830* *73,456*
(Loss)/profit and total comprehensive income for the period *-* *-* *-* *(4,305)* *(535)* *550* *(4,290)*
Transfer of previously unrealised gains on disposal of investments *-* *-* *-* *(15)* *15* *-* *-*
Purchase of own shares for treasury *-* *-* *-* *-* *-* *(447)* *(447)*
Issue of equity *450* *9,662* *-* *-* *-* *-* *10,112*
Cost of issue of equity *-* *(234)* *-* *-* *-* *-* *(234)*
Dividends paid *-* *-* *-* *-* *-* *(2,239)* *(2,239)*
*At 30 June 2020* *4,333* *45,253* *11* *10,387* *8,680* *7,694* *76,358*
*At 1 January 2019* 3,519 27,896 11 15,358 8,639 13,727 69,150
Profit/(loss) and total comprehensive income for the period - - - 443 (102) 774 1,115
Transfer of previously unrealised gains on disposal of investments - - - (458) 458 - -
Purchase of own shares for treasury - - - - - (745) (745)
Issue of equity 353 7,888 - - - - 8,241
Cost of issue of equity - (189) - - - - (189)
Dividends paid - - - - - (2,003) (2,003)
*At 30 June 2019* 3,872 35,595 11 15,343 8,995 11,753 75,569
*At 1 January 2019* 3,519 27,896 11 15,358 8,639 13,727 69,150
Profit/(loss) and total comprehensive income for the period - - - 274 (364) 1,449 1,359
Transfer of previously unrealised gains on disposal of investments - - - (925) 925 - -
Purchase of own shares for treasury - - - - - (1,367) (1,367)
Issue of equity 364 8,120 - - - - 8,484
Cost of issue of equity - (191) - - - - (191)
Dividends paid - - - - - (3,979) (3,979)
*At 31 December 2019 * 3,883 35,825 11 14,707 9,200 9,830 73,456
*The total distributable reserves are £16,374,000 (30 June 2019: £20,748,000; 31 December 2019: £19,030,000).
The accompanying notes below form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2019 and the audited statutory accounts for the year ended 31 December 2019.
*Condensed statement of cash flows*
*Unaudited*
*six months ended*
*30 June 2020*
*£’000* Unaudited
six months ended
30 June 2019
£’000 Audited
year ended
31 December 2019
£’000
*Cash flow from operating activities*
Investment income received *656* 1,020 2,000
Deposit interest received *25* 18 35
Dividend income received *49* 228 254
Investment management fee paid *(745)* (694) (1,425)
Performance incentive fee paid *-* (637) (637)
Other cash payments *(198)* (154) (309)
UK corporation tax paid *-* - -
*Net cash flow from operating activities* *(213)* (219) (82)
*Cash flow from investing activities*
Purchase of fixed asset investments *(1,363)* (3,053) (5,637)
Disposal of fixed asset investments *60* 2,344 5,172
*Net cash flow from investing activities* *(1,303)* (709) (465)
*Cash flow from financing activities*
Issue of share capital *9,588* 7,804 7,804
Cost of issue of equity *(2)* (2) (4)
Purchase of own shares (including costs) *(447)* (745) (1,367)
Equity dividends paid* *(1,936)* (1,742) (3,504)
*Net cash flow from financing activities* *7,203* 5,315 2,929 * *
* *
*Increase in cash and cash equivalents* *5,687* 4,387 2,382
Cash and cash equivalents at start of period *9,867* 7,485 7,485
*Cash and cash equivalents at end of period* *15,554* 11,872 9,867
* The equity dividend paid in the cash flow is different to the dividend disclosed in note 5 due to the non-cash effect of the Dividend Reinvestment Scheme.
The accompanying notes below form an integral part of this Half-yearly Financial Report.
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2019 and the audited statutory accounts for the year ended 31 December 2019.
*Notes to the condensed Financial Statements *
*1. Accounting policies*
*Basis of accounting*
The condensed Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), Financial Reporting Standard 104 – Interim Financial Reporting (“FRS 104”), 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.
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss (“FVTPL”). The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines and further detail on the valuation techniques used are outlined below.
This Half-yearly Financial Report has not been audited, nor has it been reviewed by the auditor pursuant to the FRC’s guidance on Review of interim financial information.
Company information can be found on page 2 of the Half-yearly Financial Report.
*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, are designated by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at ‘fair value’, which is measured as follows:
· Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;
· Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
· In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
· the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
· a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
· market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the Income statement when a share becomes ex-dividend.
*Current assets and payables*
Receivables and payables and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables.
*Gains and losses on investments*
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the period as a capital item and are allocated to the unrealised capital reserve.
*Investment income*
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expected settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
*Investment management fee, performance incentive fee and other expenses*
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
• 75 per cent. of management fees and performance incentive fees are allocated to the realised capital reserve. This is in line with the Board’s expectation that over the long term 75 per cent. of the Company’s investment returns will be in the form of capital gains; and
• expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.
*Taxation*
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.
Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the Financial Statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the Financial Statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT in the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.
*Reserves*
Share premium
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company’s own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the period end against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
· gains and losses compared to cost on the realisation of investments;
· expenses, together with the related taxation effect, charged in accordance with the above policies; and
· dividends paid to equity holders.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income Statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
*Dividends*
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
*Segmental reporting*
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.
*2. (Losses)/gains on investments*
*Unaudited*
*six months ended*
*30 June 2020*
*£’000* Unaudited
six months ended
30 June 2019
£’000 Audited
year ended
31 December 2019
£’000
Unrealised (losses)/gains on fixed asset investments *(4,305)* 816 647
Unrealised losses on current asset investments *-* (373) (373)
Realised gains on fixed asset investments *19* 422 728 *(4,286)* 865 1,002
*3**. Investment income*
*Unaudited*
*six months ended*
*30 June 2020*
*£’000* Unaudited
six months ended
30 June 2019
£’000 Audited
year ended
31 December 2019
£’000
Interest from loans to portfolio companies *844* 863 1,855
Dividends *49* 231 254
Bank deposit interest *24* 18 35 *917* 1,112 2,144
*4. Investment management fee *
*Unaudited*
*six months ended*
*30 June 2020*
*£’000* Unaudited
six months ended
30 June 2019
£’000 Audited
year ended
31 December 2019
£’000
Investment management fee charged to revenue *185* 175 364
Investment management fee charged to capital *554* 524 1,092 *739* 699 1,456
Further details of the Management agreement under which the investment management fee and any performance incentive fee are paid are given in the Strategic report on page 13 of the Annual Report and Financial Statements for the year ended 31 December 2019.
During the period, services with a value of £739,000 (30 June 2019: £699,000; 31 December 2019: £1,456,000) and £25,000 (30 June 2019: £25,000; 31 December 2019: £50,000) were purchased by the Company from Albion Capital Group LLP in respect of management and administration fees respectively. At the period end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £385,000 (30 June 2019: £366,000; 31 December 2019: £391,000).
Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the period, fees of £155,000 (30 June 2019: £168,000; 31 December 2019: £200,000) attributable to the investments of the Company were paid pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff hold 1,399,153 Ordinary shares in the Company as at 30 June 2020.
The Company entered into an offer agreement relating to the Offers with the Company’s investment manager Albion Capital Group LLP (“Albion”), pursuant to which Albion received a fee of 2.5% of the gross proceeds of the Offers and out of which Albion paid the costs of the Offers, as detailed in the Prospectus. The Offers closed on 16 January 2020.
*5. Dividends*
*Unaudited*
*six months ended*
*30 June 2020*
*£’000* Unaudited
six months ended
30 June 2019
£’000 Audited
year ended
31 December 2019
£’000
First dividend of 0.60 pence per share paid on 30 April 2019 *-* 2,010 2,010
Second dividend of 0.60 pence per share paid on 31 October 2019 *-* - 2,005
First dividend of 0.60 pence per share paid on 30 April 2020 *2,256* - -
Unclaimed dividends returned to the Company *(17)* (7) (36) *2,239* 2,003 3,979
The Directors have declared a second dividend of 0.51 pence per share for the year ending 31 December 2020, which will be paid on 30 October 2020 to shareholders on the register on 2 October 2020. Details of the new dividend policy can be found in the Interim management report above.
*6. Basic and diluted (loss)/return per share*
*Unaudited*
*six months ended *
*30 June 2020* Unaudited
six months ended
30 June 2019 Audited
year ended
31 December 2019 *Revenue* *Capital* Revenue Capital Revenue Capital
(Loss)/profit attributable to shareholders (£’000) *550* *(4,840)* 774 341 1,449 (90) * * * *
Weighted average shares in issue (excluding treasury shares) *369,249,306*
319,703,183 327,246,191 * * * *
(Loss)/return attributable per equity share (pence) *0.15* *(1.31)* 0.24 0.11 0.44 (0.02)
The weighted average number of Ordinary shares is calculated after adjusting for treasury shares of 57,096,607 (30 June 2019: 51,789,000; 31 December 2019: 54,723,000).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted (loss)/return per share are the same.
*7. Called up share capital*
*Allotted, called up and fully paid Ordinary shares of 1 penny each* *Unaudited*
*30 June 2020* Unaudited
30 June 2019 Audited
31 December 2019
Number of shares *433,336,785* 387,227,906 388,335,260
Nominal value of allotted shares (£’000) *4,333* 3,872 3,883
Voting rights (number of shares net of treasury shares) *376,240,178* 335,438,906 333,612,260
The Company operates a share buy-back programme, as detailed in the Interim management report above. During the period the Company purchased 2,373,607 Ordinary shares with a nominal value of £23,736 (30 June 2019: 3,516,000; 31 December 2019: 6,450,000) representing 0.5% of the issued called up share capital as at 30 June 2020, at a cost of £447,000 (30 June 2019: £745,000; 31 December 2019: £1,367,000), including stamp duty, to be held in treasury. The Company holds a total of 57,096,607 Ordinary shares in treasury, representing 13.2% of the issued Ordinary share capital as at 30 June 2020.
During the period from 1 January 2020 to 30 June 2020, the Company issued the following new Ordinary shares of 1 penny each under the terms of the Dividend Reinvestment Scheme Circular dated 19 April 2011:
*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 2020 1,521,895 15 19.19 290 18.50
Under the terms of the Albion VCTs Prospectus Top Up Offers 2019/20, the following new Ordinary shares of nominal value 1 penny each were allotted during the period to 30 June 2020:*Date of allotment* *Number of shares allotted* * *
* *
*Aggregate nominal value of shares*
*(£’000)* *Issue price *
*(pence per share)* *Net consideration received*
*(£’000)* *Opening market price on allotment date*
*(pence per share)*
31 January 2020 5,082,101 51 22.40 1,121 21.10
31 January 2020 1,019,398 10 22.50 225 21.10
31 January 2020 36,336,304 363 22.70 8,042 21.10
30 April 2020 418,451 4 19.50 80 18.50
30 April 2020 623,376 6 19.70 120 18.50 *43,479,630* *435* * * *9,588*
*8. Commitments, contingencies and guarantees*
As at 30 June 2020, the Company had no financial commitments (30 June 2019: £nil; 31 December 2019: £nil).
There were no contingent liabilities or guarantees given by the Company as at 30 June 2020 (30 June 2019: £nil; 31 December 2019: £nil).
*9. Post balance sheet events*
* *Since 30 June 2020, the Company has had the following post balance sheet events: ·Investment of £891,000 in Quantexa Limited; ·Investment of £361,000 in a new portfolio company, which provides a cloud platform that enables corporates to purchase digital gift cards and to distribute them to employees and customers; ·Investment of £274,000 in Phrasee Limited; ·Investment of £175,000 in uMotif Limited; ·Investment of £29,000 in The Evewell (Harley Street) Limited; and ·Contracts were exchanged for the sale of Perpetuum Limited.
*10. Related party disclosures*
Other than transactions with the Manager as disclosed in note 4, there are no related party transactions or balances requiring disclosure.
*11. Going concern*
The Board has conducted a detailed assessment of the Company’s ability to meet its liabilities as they fall due. Cash flow forecasts are updated and discussed quarterly at Board level and have been stress tested to allow for the forecasted impact of Coronavirus (Covid-19). The Board have revisited and updated their assessment of liquidity risk and concluded that it remains unchanged since the last Annual Report and Financial Statements. Further details can be found on pages 66 and 67 of the Annual Report and Financial Statements for the year ended 31 December 2019.
The portfolio of investments is diversified in terms of sector, and the major cash outflows of the Company (namely investments, dividends and share buy-backs) are within the Company’s control. Accordingly, after making diligent enquiries, the Directors have a reasonable expectation that the Company has adequate cash and liquid resources to continue in operational existence for the foreseeable future. For this reason, the Directors have adopted the going concern basis in preparing this Half-yearly Financial Report and this is in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued by the Financial Reporting Council.
*12. Risks and uncertainties*
In addition to the risks and uncertainties outlined in the Interim management report, the Board confirms that the following major risks and uncertainties facing the Company have not materially changed from those identified in the Annual Report and Financial Statements for the year ended 31 December 2019. The impact of the Coronavirus (Covid-19) pandemic has created heightened uncertainty but has not changed the nature of these risks. The Board considers that the processes for mitigating these risks remain appropriate.
1. Investment, performance and valuation risk
The risk of investment in poor quality businesses, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more volatile than larger, long established businesses. Investments in open-ended equity funds result in exposure to market risk through movements in price per unit. The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported.
To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board.
2. VCT approval risk
The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status.
To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, and are used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs.
3. 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.
Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation, including legislation on the management of the Company, from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors. 4. Operational and internal control risk
The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could place assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.
The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year, and receives reports from the Manager on internal controls and risk management, including on matters relating to cyber security. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. From 1 October 2018, Ocorian (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian (UK) Limited to ensure that Albion Capital is adhering to its duties as a full-scope Alternative Investment Fund Manager under the AIFMD. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
5. Economic, political and social risk
Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection.
The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy backs and follow on investments. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term.
6. Market value of Ordinary shares
The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors, including the ability to exercise share buybacks. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value.
The Company operates a share buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent. to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust and could not renew any buyback authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors.
*13. Other information*
The information set out in this Half-yearly Financial Report does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the periods ended 30 June 2020 and 30 June 2019, and is unaudited. The information for the year ended 31 December 2019 does not constitute statutory accounts within the terms of section 434 of the Companies Act 2006 and is derived from the statutory accounts for that financial year, which have been delivered to the Registrar of Companies. The Auditor reported on those accounts; their report was unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
*14. Publication*
This Half-yearly Financial Report is 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, where the Report can be accessed from the 'Financial Reports and Circulars' section.
*Attachment*
· Portfolio sector split