Albion Development VCT PLC: Annual Financial Report
*Albion Development VCT PLC*
*LEI Code 213800FDDMBD9QLHLB38*
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Development VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2021.
This 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/AADV/31Dec2021.pdf.
*Inves**tment policy*
The Company will invest in a broad portfolio of higher growth businesses with a stronger focus on technology companies across a variety of sectors of the UK economy. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified in terms of sector and stage of maturity of company.
Funds held pending investment or for liquidity purposes will be held as cash on deposit or up to 8% of its assets, at the time of investment, in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so)*. *
*Risk diversification and maximum exposures*
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single portfolio company is 15% of the Company's assets at cost thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company's maximum exposure in relation to gearing is restricted to 10% of the adjusted share capital and reserves.
*Background to the Company*
The Company is a Venture Capital Trust which raised a total of £33.3 million through the issue of shares between 1999 and 2004. The C shares merged with the Ordinary shares in 2007. A further £6.3 million was raised through an issue of new D shares in 2010. The D shares converted to Ordinary shares in 2015.
An additional £67.3 million has been raised for the Ordinary shares through the Albion VCTs Top Up Offers since January 2011.
*Financial calendar*
Record date for first dividend 6 May 2022
Annual General Meeting Noon on 10 May 2022
Payment of first dividend 31 May 2022
Announcement of Half-yearly results for the six months ending 30 June 2022 September 2022
*Financial **highlights*
*20**3**.**84**p* Total shareholder value per share from launch to 31 December 2021^†
*20**.**54**%* Shareholder return for the year ended 31 December 2021^†
*4**.**37**p* Tax-free dividend per share for the year ended 31 December 2021
*9**4**.**98**p* Net asset value per share as at 31 December 2021
†These are considered Alternative Performance Measures, see notes 2 and 3 in the Strategic report below for further explanation.
*31 December 2021*
*pence per share* 31 December 2020
pence per share
Opening net asset value *82.42* 83.47
Capital return *1**6.**74* 3.15
Revenue return *0.**46* 0.02
Total return *17.**20* 3.17
Dividends paid *(4.**37**)* (4.24)
Impact from share capital movements *(0.2**7**)* 0.02
Net asset value *9**4.98* 82.42
*Ordinary shares* *(pence per share)*
*Total dividends paid to 31 December 2021* *108.86*
Net asset value as at 31 December 2021 94.98
*Total shareholder value to 31 December 2021* *20**3.**8**4*
The financial summary above is for the Company, Albion Development VCT PLC Ordinary shares only. Details of the financial performance of the C shares and D shares, which have been merged into the Ordinary shares, can be found at www.albion.capital/funds/AADV under the ‘Financial summary for previous funds’ section.
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/AADV under the ‘Dividend History’ section.
*In **addition to the dividends paid above,** the Board has declared a first dividend for the year ending 31 December 20**2**2** of 2**.**3**7** pence per share payable on **31* *May 20**2**2** to shareholders on the register **on* *6* *May 20**2**2**.*
*Chairman’s statement*
*Introduction*
I am pleased to report that the Company has achieved a positive total return of 17.2 pence per share and a shareholder return of 20.5% for the year, after an encouragingly strong year for several of our portfolio companies. The Company continues to benefit from the resilience of its portfolio, particularly of its healthcare and software businesses, many of which have seen strong growth. We continue to see investment opportunities in the health technology and enterprise software sectors where the Manager has developed deep expertise.
*Results and dividends *
As at 31 December 2021 the net asset value was 94.98 pence per share compared to 82.42 pence per share as at 31 December 2020. The total return before taxation was £17.5 million compared to £2.9 million for the previous year. The positive progress of a number of our portfolio companies is discussed later in this statement and in the Strategic report below. These excellent results for the year have resulted in a performance incentive fee payable to the Manager of £1.8 million (2020: £42,000). More detail on the calculation of this fee can be found in the Strategic report below.
In line with our variable dividend policy targeting 5% of NAV per annum the Company paid dividends totalling 4.37 pence per share during the year to 31 December 2021 (2020: 4.24 pence per share). The Company will pay a first dividend for the financial year to 31 December 2022 of 2.37 pence per share on 31 May 2022 to shareholders on the register on 6 May 2022, being 2.5% of the latest reported NAV.
*Investment **performance **and **progress*
There have been several realisations during the year totalling £6.3 million (2020: £3.2 million). The sale of OmPrompt Holdings delivered a 2.3 times return on cost and proceeds of £2.3 million. The sale of Innovation Broking Group delivered a 10.3 times return on cost and proceeds of £0.9 million. Further details on realisations can be found in the realisations table on page 26 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 £2.1 million and a return of 3.0 times cost. In addition to this, the Company completed the sale of Credit Kudos generating proceeds of £1.6 million.
The results for the year showed net valuation gains on investments of £20.6 million, an increase from £4.1 million in the previous year. The key contributors were the uplifts on Quantexa and Oviva, both of which have been revalued after further externally led funding rounds and Egress Software Technologies and Proveca, both of which continue to grow. Phrasee and Credit Kudos also contributed to the valuation gain, due to their sales which completed post year end. However, our investments in Mirada Medical, Concirrus and Avora have seen write-downs following difficult trading conditions, in part because of the Covid-19 pandemic. We have also written-off our investment in Xperiome which went into administration following the year end.
The three largest investments in the Company’s portfolio, being Quantexa, Egress Software Technologies and Proveca, are valued at £31.9 million and represent 32.7 per cent of the Company’s net asset value.
The Company has been an active investor during the year investing a total of £7.0 million. Of this, £2.6 million was invested into five new portfolio companies, all of which are expected to require further investment as the companies prove themselves and grow:
· £1.2 million into Threadneedle Software Holdings (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 organisations;
· £0.5 million into Gravitee TopCo (trading as Gravitee.io) an application programming interface (API) management platform;
· £0.4 million into NuvoAir Holdings a provider of digital therapeutics and decentralised clinical trials for respiratory conditions;
· £0.3 million into Brytlyt which uses patented software and artificial intelligence (AI), combined with the superior computation power of graphics processing units (GPUs), to derive insights 1,000s of times faster than legacy systems; and
· £0.2 million into Accelex Technology, a data extraction and analytics technology for private capital markets.
A further £4.4 million was invested into existing portfolio companies, the largest being: £1.5 million into Oviva, as part of its Series C fundraise; £0.6 million into Black Swan Data, to support the restructure of its business to focus primarily on predictive analytics for consumer brands; and £0.6 million into Healios to support its growth.
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 24 to 26 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.
*S**hare 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 15.
*Albi**on VCTs Prospectus Top Up Offers *
Your Board, in conjunction with the boards of the other five 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 3 March 2022 that, following strong demand, it would utilise the over-allotment facility, bringing the total to be raised to £21 million. The Offer was fully subscribed and closed to further applications on 23 March 2022.
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 15 and 19 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 10 May 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 AADVchair@albion.capital prior to the Meeting.
Shareholders' views are important, and the Board encourages shareholders to vote on the resolutions.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 36 and 37 and in the Notice of the Meeting on pages 71 to 74 of the full Annual Report and Financial Statements.
*Outlook and prospects*
These positive results demonstrate the resilience of our portfolio of companies at different stages of maturity and targeted at sectors such as software and healthcare. These are companies which provide products and services that are considered innovative and essential to their customers. I am confident that our portfolio companies are well positioned to grow, despite the uncertainty around the longer-term impact of the pandemic and an increasingly volatile geopolitical backdrop. The Board believes the Company is well placed to continue to deliver long term value to our shareholders, though remains mindful of the considerable uncertainty over the Global economy arising out of any future events caused by the invasion of Ukraine.
*Ben Larkin*
Chairman
24 March 2022
*Strategic report*
*Investment policy*
The Company will invest in a broad portfolio of higher growth businesses with a stronger focus on technology companies across a variety of sectors of the UK economy. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified in terms of 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 24 and 25 of the full Annual Report and Financial Statements.
*Direction of portfolio *
After the year end, the cash balance has increased due to the 2021/22 Prospectus Top Up Offer share issuance on 25 February 2022. These funds will be invested predominantly into higher growth technology companies, and therefore the shift away from asset based companies will continue. The Company has a significant speciality in FinTech investing, which can be seen as a growing part of the portfolio, represented by a 7% increase this year. Healthcare technology is another area of particular strength, which has increased by 5% over the last year.
*Results and dividend**s*
*£’000*
Net capital gain for the year 16,988
Net revenue return for the year 466
*Total return for the year ended 31 December 2021* *17,**454*
Dividend of 2.06 pence per share paid on 28 May 2021 (2,126)
Dividend of 2.31 pence per share paid on 30 September 2021 (2,383)
Unclaimed dividends 7
*Transferred **to** reserves* *12,95**2*Net assets as at 31 December 2021 97,639*Net asset value per share as at 31 December 202**1** (pence)* *9**4**.**9**8*
The Company paid dividends totalling 4.37 pence per share (2020: 4.24 pence per share). The Board has a variable dividend policy which targets an annual dividend yield of around 5% on the prevailing net asset value. As a result the Board has declared a first interim dividend for the year ending 31 December 2022 of 2.37 pence per share payable on 31 May 2022 to shareholders on the register on 6 May 2022.
As shown in the Income statement, the total investment income increased to £988,000 (2020: £692,000). This is a result of Radnor House repaying a portion of the previously capitalised interest. The revenue return to equity holders has subsequently increased to £466,000 (2020: £17,000). This is substantially due to the increased percentage of investment management fees and performance incentive fees allocated to the realised capital reserve, 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. Further information can be found in the Notes to the Financial Statements.
The capital return for the year has increased to £16,988,000 (2020: £2,896,000). As discussed in the Chairman’s statement, this is mainly attributable to the uplifts in the valuations of Quantexa, Oviva, Proveca and Egress. This was partly offset by the reductions in Mirada Medical and Xperiome. This resulted in a total return of 17.20 pence per share (2020: 3.17 pence per share), and an increase in net asset value to 94.98 pence per share (2020: 82.42 pence per share). We remain confident that the portfolio will deliver value over the longer term.
There was a net cash inflow for the Company of £1,387,000 for the year (2020: £1,116,000), mainly resulting from the issue of Ordinary shares under the Albion VCTs Top Up Offers 2020/21. Cash inflow from fundraising has been utilised by investments into new and existing portfolio companies.
Trade and other payables at the year end amounted to £2,459,000 (2020: £541,000). This increase was primarily due to the management performance incentive fee accrued 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 detailed review of the Company’s business during the year is contained in the Chairman’s statement. The results for the year to 31 December 2021 show total shareholder value of 203.84 pence per share since launch (2020: 186.91 pence per share).
There is a continuing focus on growing the FinTech, healthcare and other software and technology sectors. The majority of these investment returns are delivered through equity and capital gains, and we therefore expect our investment income to continue to be similar to the current level, as most of this is derived from the existing renewable energy sector of our portfolio.
Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.
*Future prospects*
The Company’s financial results for the year demonstrates that the portfolio remains well balanced across sectors and risk classes, despite the effects of the pandemic so far. Many of the companies in the portfolio have continued to grow throughout the pandemic and have been providing products and services that are considered essential to their customers. 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 pipeline will continue to enable the Company to maintain a predictable stream of dividend payments to shareholders, and ultimately continue to deliver long term growth.
*Key **P**erformance **I**ndicators** (**“KPIs”) and Alternative Performance Measures (“APMs”)*
The Directors believe that the following KPIs and APMs, which are typical for Venture Capital Trusts, used in its 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 returnThe graph on page 4 of the full Annual Report and Financial Statements shows the total shareholder value against the FTSE All-Share Index total return, in both instances 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 valueTotal return to shareholders increased by 20.5% on opening net asset value to 203.84 pence per share for the year ended 31 December 2021 as a result of the positive total return of 16.93 pence per share.
3. Movement in shareholder value in the year^†
*2012* *2013* *2014* *2015* *2016* *2017* *2018* *2019* *2020* *2021*
4.6% 6.9% 5.4% 4.1% 6.5% 10.0% 20.3% 3.8% 3.8% 20.5%
^†Methodology: Calculated by 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 8.7% per annum.
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2021 were 4.37 pence per share (2020: 4.24 pence per share). Cumulative dividends paid since inception are 108.86 pence per share.
5. Ongoing chargesThe ongoing charges ratio for the year to 31 December 2021 was 2.5% (2020: 2.5%). 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 ongoing charges cap is 2.5%, which has resulted in a saving of £86,000 to shareholders during the year (2020: £97,000).
6. VCT regulation*The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under 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 34 and 35 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.
*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, the Manager provides investment management, secretarial and administrative services to the Company. The Management agreement may be terminated by either party on 12 months’ notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 2.25% of the net asset value of the Company paid quarterly in arrears.
Total annual ongoing expenses, including the management fee but excluding any performance incentive fee, are limited to 2.5% of the net asset value, as per the resolution passed at the General Meeting in 2019.
The Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2% on each investment made and also 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 5.
*M**anagement performance incentive*
In order to align the interests of the Manager and the shareholders with regards to generating positive returns, the Company has a Management performance incentive arrangement with the Manager. Under the incentive arrangement, the Company will pay an incentive fee to the Manager of an amount equal to 20% of such excess return that is calculated for each financial year.
The performance fee hurdle requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company compared with the previous accounting date exceeds RPI plus 2%. The hurdle will be calculated every year, based on the previous year’s closing net asset value per share. The starting net asset value is 84.70 pence per share, being the audited net asset value at 31 December 2018. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.
As at 31 December 2021, the total return since 1 January 2019 was 108.09 pence, and the hurdle was 99.03 pence, resulting in an excess of 9.06 pence per share. As a result, a performance incentive fee is payable to the Manager of £1,838,000 (2020: £42,000).
*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 back 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 key stakeholders and details how the Board has engaged with these key stakeholders and the effect of these considerations on the Company’s decisions and strategies during the year.
*Stakeholder* *Engagement with Stakeholder* *Outcome and decisions** based on engagement*
Shareholders The key methods of engaging with Shareholders are as follows:
· Annual General Meeting (“AGM”)
· Shareholder seminar
· Annual report and Financial Statements, Half-yearly financial report, and Interim management statements
· RNS announcements for all key decisions including the publication of a Prospectus
· Website redesigned in the year to make it more user accessible
· Shareholders’ views are important and the Board encourages Shareholders to exercise their right to vote on the resolutions at the AGM. The Company’s AGM is typically used as an opportunity to communicate with investors, including through a presentation made by the investment management team. In light of the Covid-19 pandemic, the Board took the decision to update the Company’s Articles of Association to allow for virtual/hybrid events in order for the 2021 AGM to be live streamed for Shareholders. The Board was able to take questions from Shareholders at the AGM enabling maximum shareholder engagement in the absence of a face-to-face event. Following last year’s success and the overwhelming positive feedback from shareholders, the Board has decided that this year’s AGM will again be held as a virtual event to facilitate shareholder participation.
· Shareholders are also encouraged to attend the annual Shareholders’ Seminar. This year’s event took place on 12 November 2021. The seminar included Quantexa and Healios sharing insights into their businesses and also presentations from Albion executives on some of the key factors affecting the investment outlook, as well as a review of the past year and the plans for the year ahead. Representatives of the Board attend the seminar. The Board considers this an important interactive event, and expects to continue to run this in 2022.
· The Board recognises the importance to Shareholders of maintaining a share buy-back policy, in order to provide market liquidity, and considered this when establishing the current policy. The Board closely monitors the discount to the net asset value to ensure this is in the region of 5%.
· The Board seeks to create value for Shareholders by generating strong and sustainable returns to provide shareholders with regular dividends and the prospect of capital growth. The Board takes this into consideration when making the decision to pay dividends to Shareholders. The variable dividend policy has been enacted, and has resulted in a dividend yield of 5.3% on opening net asset value.
· During the year, the decision to publish a Prospectus was taken, in order to raise more funds for deployment into new and existing portfolio companies. The Board carefully considered whether further funds were required, whether the VCT tests would continue to be met, and whether it would be in the interest of Shareholders, before agreeing to publish the Prospectus. On allotment, an issue price formula based on the prevailing net asset value was used to ensure there was no dilution to existing Shareholders.
· Cash management and liquidity of the Company are key quarterly discussions amongst the Board, with focus on deployment of cash for future investments, dividends and share buy-backs.
· The Board decided to propose a special resolution at the 2021 AGM to increase the Company’s distributable reserves by way of a reduction of share premium account and capital redemption reserve. This resolution was approved with 96.5% of Shareholders voting in favour of the resolution. Further details on this can be found in the Directors report on page 36 of the full Annual Report and Financial Statements.
Suppliers The key suppliers with regular engagement from the Manager are:
· Corporate broker
· VCT taxation adviser
· Depositary
· Registrar
· Auditor
· Lawyer
· The Manager is in regular contact with the suppliers and the contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities.
· The Board reviews the performance of the providers annually in line with the Manager, and was satisfied with their performance.
Manager The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance practice. · The Manager meets with the Board at least quarterly to discuss the performance of the Company, and is in regular contact in between these meetings, e.g. to share investment papers for new and follow-on investments. All strategic decisions are discussed in detail and minuted, with an open dialogue between the Board and the Manager.
· The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found in this report.
· During the year, the Board has reviewed the current Management Agreement, and a new agreement was signed which updated the agreement for new regulatory requirements, such as GDPR and AIFMD, but did not change any commercial terms with the Manager.
· Details of the Manager’s responsibilities can be found in the Statement of corporate governance on pages 39 and 40 of the full Annual Report and Financial Statements.
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 18 to 20 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their stakeholders is also important to the Company. · The Board aims to have a diversified portfolio in terms of sector and stage of investment. Further details of this can be found in the pie charts at the end of this announcement.
· In most cases, an Albion executive has a place on the board of a portfolio company, in order to help with both business operation decisions, as well as good ESG practices.
· The Manager ensures good dialogue with portfolio companies, and often puts on events in order to help portfolio companies benefit from the Albion network.
Community and environment The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board. · The Board receives reports on ESG factors within its portfolio from the Manager as it is a signatory of the United Nations Principles for Responsible Investment (“UN PRI”). Further details of this are set out in the ESG report below. ESG, without its specific definition, has always been at the heart of the responsible investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.
*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 page 18 to 20 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 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.
*Further policies*
The Company has adopted a number of further policies relating to:
· Environment
· Global greenhouse gas emissions
· Anti-bribery
· Anti-facilitation of tax evasion
· Diversity
These are set out in the Directors’ report on page 35 of the full Annual Report and Financial Statements.
*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.
*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 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 18 to 20 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
Ben Larkin
Chairman
24 March 2022
*Responsibility statement*
In preparing these Financial Statements for the year ended 31 December 2021, the Directors of the Company, being Ben Larkin, Lyn Goleby, Lord O’Shaughnessy and Patrick Reeve, confirm that to the best of their knowledge:
· summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 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 assess the Company’s position, performance, business model and strategy.
A detailed "Statement of Directors' responsibilities” is contained on page 38 within the full audited Annual Report and Financial Statements.
On behalf of the Board,
*Ben Larkin*
Chairman
24 March 2022
*Inc**ome statement *
*Y**ear ended 31 December **20**2**1* Year ended 31 December 2020 *Revenue* *Capital* *Total* Revenue Capital Total *Note* *£’000* *£’000* *£’000* £’000 £’000 £’000
Gains on investments 3 *-* *20,**592* *20,**592* - 4,073 4,073
Investment income 4 *98**8* *-* *98**8* 692 - 692
Investment Manager’s fees* 5 *(196)* *(3,6**04**)* *(3,8**00**)* (393) (1,177) (1,570)
Other expenses 6 *(326)* *-* *(326)* (282) - (282)
*Profit on ordinary activities before tax* *466* *1**6,988* *17,**454* 17 2,896 2,913
Tax on ordinary activities 8 *-* *-* *-* - - -
*Profit and total comprehensive income attributable to shareholders * *466* *1**6,988* *17,**454* 17 2,896 2,913
*Basic and diluted return per share (pence)***** 10 *0.**46* *16.**74* *17.**20* 0.02 3.15 3.17
*For more information on the allocation of the split between revenue and capital please see the accounting policies below.
** adjusted for treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies’ Statement of Recommended Practice.
*Balance sheet*
*31 December 202**1* 31 December 2020 *Note* *£’000* £’000
*Fixed asset investments* 11 *80,**500* 58,998
*Current assets*
Trade and other receivables 13 *2,56**6* 1,757
Cash and cash equivalents *1**7,032* 15,645 *19,59**8* 17,402
*Total assets* *100,**098* 76,400
*Payables: amounts falling due within one year*
Trade and other payables 14 *(**2,**4**59**)* (541)
*Total assets less current liabilities * *97,**639* 75,859
*Equity attributable to equity holders*
Called-up share capital 15 *1,167* 1,040
Share premium *-* 44,978
Capital redemption reserve *-* 12
Unrealised capital reserve *36,**048* 18,020
Realised capital reserve *7,3**4**4* 12,886
Other distributable reserve *53,08*** (1,077)
*Total equity shareholders’ funds* *97,**639* 75,859
*Basic and diluted net asset value per share (pence)** 16 *9**4.98* 82.42
* excluding treasury sharesThe accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 24 March 2022 and were signed on its behalf by
*Ben Larkin*
Chairman
Company number: 03654040
*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*
*As at 1 January 2021* *1,040* *44,978* *12* *18,020* *12,886* *(1,077)* *75,859*
Profit and total comprehensive income for the year *-* *-* *-* *19,**786* *(**2,**798**)* *466* *17,454*
Transfer of unrealised gains on disposal of investments *-* *-* *-* *(**1,75**8**)* *1,75**8* *-* *-*
Purchase of shares for treasury *-* *-* *-* *-* *-* *(**1,**66**1**)* *(**1,**66**1**)*
Issue of equity *12**7* *10,62**6* *-* *-* *-* *-* *10,75**3*
Cost of issue of equity *-* *(**2**6**4**)* *-* *-* *-* *-* *(26**4**)*
Reduction of share premium and capital redemption reserve *-* *(55,3**4****)* *(12)* *-* *-* *55,35**2* *-*
Dividends paid *-* *-* *-* *-* *(4,50**2**)* *-* *(**4,50**2**)*
*As at 31 December **20**2**1* *1,167* *-* *-* *36,**048* *7,**3**4**4* *5**3,080* *97,**639*
As at 1 January 2020 938 36,712 12 14,702 15,151 2,168 69,683
Profit and total comprehensive income for the year - - - 4,595 (1,699) 17 2,913
Transfer of unrealised gains on disposal of investments - - - (1,277) 1,277 - -
Purchase of shares for treasury - - - - - (1,189) (1,189)
Issue of equity 102 8,478 - - - - 8,580
Cost of issue of equity - (212) - - - - (212)
Dividends paid - - - - (1,843) (2,073) (3,916)
As at 31 December 2020 1,040 44,978 12 18,020 12,886 (1,077) 75,859
* Included within these reserves is an amount of £28,992,000 (2020: £11,809,000) which is considered distributable. Over the next four years an additional £29,635,000 will become distributable. This is due to the HMRC requirement that the Company cannot use capital raised in the past three years to make a payment or distribution to shareholders. On 1 January 2022, £2,701,000 became distributable in line with this.
*Statement of cash flows*
*Year ended *
*31 December 202**1*
*£’000 *
Year ended
31 December 2020
£’000
*Cash flow from operating activities*
Loan stock income received *736* 583
Deposit interest received *1* 35
Dividend income received *24* 191
Investment Manager’s fees paid *(**1,877**)* (1,475)
Other cash payments *(**32**6**)* (283)
Corporation tax paid *-* -
*Net cash flow from operating activities* *(**1,442**)* (949)
*Cash flow from investing activities*
Purchase of current asset investments *-* (1,190)
Purchase of fixed asset investments *(**7,500**)* (5,156)
Disposal of current asset investments *-* 3,945
Disposal of fixed asset investments *6,003* 1,201
*Net cash flow from investing activities* *(**1,497**)* (1,200)
*Cash flow from financing activities*
Issue of share capital *9,767* 7,737
Cost of issue of shares *(**35**)* (33)
Equity dividends paid* *(3**,744**)* (3,251)
Purchase of own shares (including costs) *(1,**662**)* (1,188)
*Net cash flow from financing activities* *4,326* 3,265
*Increase in cash and cash equivalents* *1,387* 1,116
Cash and cash equivalents at start of period *15,645* 14,529
*Cash and cash equivalents at end of period* *17,032* 15,645
*The dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
*Notes to the Financial Statements*
**1. Basis of preparation**
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on pages 33 and 34 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 in note 2 below.
Company information can be found on page 2 of the full Annual Report and Financial Statements.
*2. Accounting policies*
*Fixed* *asset investments*
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at 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, including a discount for any restricted sales of shares, 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.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.
*Current assets and payables*
Receivables (including debtors due after more than one year), payables and cash are carried at amortised cost, in accordance with FRS 102. Debtors due after more than one year meet the definition of a financing transaction 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 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 has 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.
· 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