Kings Arms Yard VCT PLC: Annual Financial Report
*Kings Arms Yard VCT PLC*
*LEI Code 213800DK8H27QY3J5R45*
As required by the UK Listing Authority’s Disclosure Guidance and Transparency Rules 4.1 and 6.3, Kings Arms Yard VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2021.
The announcement was approved for release by the Board of Directors on 24 March 2022.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 December 2021 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/KAY/31Dec2021.pdf.
*Investment policy *
Kings Arms Yard VCT PLC (the “Company”) is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.
Funds held pending investment or for liquidity purposes are held as cash on deposit or similar instruments with banks or other financial institutions with high credit ratings assigned by international credit rating agencies.
*Risk diversification and maximum exposures*
Risk is spread by investing in a number of different businesses within venture capital trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company’s assets at cost, thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company’s maximum exposure in relation to gearing is restricted to the amount equal to its adjusted capital and reserves.
*Financial calendar*
Record date for first interim dividend
8 April 2022
Payment date for first interim dividend
29 April 2022
Annual General Meeting
Noon on 9 June 2022
Announcement of Half-yearly results for the six months ending 30 June 2022
September 2022
*Financial highlights*
*23.0**5**p* Net asset value per share as at 31 December 2021
*3.7**2**p* Basic and diluted return per share *2.34**p* Total tax free dividends per share paid in the year to 31 December 2021
*16.3%* Shareholder return for the year ended 31 December 2021^†
*0.**58**p* First tax free dividend per share declared for the year ending 31 December 2022 payable on 29 April 2022
†This is considered an Alternative Performance Measure, see note 3 in the Strategic report below.
*31 December **20**2**1* *(pence per share)* 31 December 2020 (pence per share)
Opening net asset value *21.84* 22.02
Capital return *3.61* 0.59
Revenue return *0.11* 0.32
Total return *3.7**2* 0.91
Dividends paid *(**2.34**)* (1.11)
Impact from share capital movements *(0.17)* 0.02
Net asset value *23.0**5* 21.84
*Shareholder return and shareholder value*
*(pence per share)*
*Shareholder return from launch to 1 January 2011*
Subscription price per share at launch 100.00
Total dividends paid to 1 January 2011 58.66
Decrease in net asset value (83.40)
*Total shareholder **value **to 1 January 2011* *75.26*
*Shareholder return from 1 January 2011 to 31 December 202**1* *(period that Albion Capital has been investment manager)**:*
Total dividends paid 12.52
Increase in net asset value 6.45
*Total shareholder return from 1 January 2011 to 31 December 202**1* *18.97*
*Shareholder value since launch:*
Total dividends paid to 31 December 2021 71.18
Net asset value as at 31 December 2021 23.05
*Total shareholder value as at 31 December 202**1* *94.2**3*
The above financial summary is for the Company, Kings Arms Yard VCT PLC only. Details of the financial performance of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be found at www.albion.capital/funds/KAY under the ‘Financial summary for previous funds’ section.
*The Directors have declared a first dividend of **0.58 pence** per share for the year ending 31 December 2022, which will be **paid on 29 April** 2022 to shareholders on the register on 8 April 2022.*
*Chairman’s statement*
*Introduction*
I am pleased to be able to report a total return of 3.72 pence per share and a 16.3% shareholder return for the year ended 31 December 2021. Over the last financial year our portfolio companies have continued to show resilience and, in many cases growth, throughout the uncertainty of the ongoing Covid-19 pandemic. This has been reflected in the strong return for the year and the special dividend of 1.14 pence per share that was paid out to shareholders on 29 October 2021. Despite the ongoing challenges of the pandemic, there was reason for optimism after such disruption to the wider economy. Now however with the unfolding crisis in Ukraine, brought on by Russia, there is no certainty as to when the, as yet unknown, challenges to the global economy will be resolved. I am however optimistic that our portfolio companies will continue to add value over the longer term, and we can still find new investment opportunities which will increase shareholder value but inevitably there will be disruption.
*Results** and **dividends*
As at 31 December 2021, the net asset value (“NAV”) was £101.8 million or 23.05 pence per share, compared to £81.7 million or 21.84 pence per share at 31 December 2020. The total return before taxation was £16.0 million compared to a return of £3.4 million for the previous year. The positive progress of our investment portfolio is discussed later in this statement and in the Strategic report below.
In line with the variable dividend policy targeting around 5% of NAV per annum, announced last year, the Company paid dividends of 1.20 pence per share during the year to 31 December 2021. In addition to this, the Company paid a special dividend of 1.14 pence per share due to the significant disposals during the year, in particular the care homes. This resulted in the Company paying dividends totalling 2.34 pence per share for the year ended 31 December 2021 (2020: 1.11 pence per share).
The Board is pleased to declare a first dividend for the financial year ending 31 December 2022 of 0.58 pence per share, being 5% of the prevailing NAV, to be paid on 29 April 2022 to shareholders on the register on 8 April 2022.
*Investment realisations*
The strong return for the year was primarily driven by a number of successful exits which generated proceeds of £27.0 million for the Company. The bulk of the proceeds came from the sale of the Company’s three care homes for the elderly; Active Lives Care, Ryefield Court Care, and Shinfield Lodge Care. The sale generated proceeds of £14.7 million which represents a 2.4x return on cost (including interest received), an excellent result for the Company.
Another strong exit, returning 2.4 times cost (including interest received), was our investment in OmPrompt Holdings which generated proceeds of £3.2 million. The Company also completed the sale of Antenova and Perpetuum generating proceeds of £5.3 million and £1.4 million respectively. In addition to this, the Company sold its holding in MPP Global Solutions, Innovation Broking, Elateral Group and SBD Automotive, generating further proceeds of £2.0 million for the year. Elateral Group was an investment inherited from the previous manager which Albion continued to support for a number of years. Sadly Elateral did not manage to scale significantly and thus we sold our investment for £0.5m realising a loss on cost of £5.0 million. Further details on these realisations can be found in the realisations table on page 27 of the full Annual Report and Financial Statements.
I am also pleased to announce that, following the year end, the Company completed the sale of Phrasee generating proceeds of £2.0 million and a return of 3.0 times cost. In addition to this, the Company completed the sale of Credit Kudos generating proceeds of £0.9 million.
*Investment performance and progress*
It is encouraging to see the resilience and growth of our portfolio despite the Covid-19 pandemic and this is shown by the gain on investments of £18.5 million for the year. The portfolio now comprises a total of 59 companies of which 9 are legacy investments made before the present Manager was appointed in January 2011.
Quantexa and Oviva have both been revalued after externally led funding rounds, resulting in uplifts of £4.8 million and £1.3 million respectively. Proveca continues to trade well both within the UK and the EU resulting in an uplift of £1.7 million. We have also seen many of our other portfolio companies performing well. For example, Arecor Therapeutics listed onto the AIM stock exchange during the period and its share price has since increased by 72% leading to an increase in value of £0.6 million. Phrasee and Credit Kudos also contributed to the valuation gain, due to their sales which completed post year end. Inevitably some of our portfolio companies were impacted by the pandemic, with Mirada Medical being written down by a further £0.2 million due to sales to hospitals being delayed by the pandemic, and Avora being written down by £0.5 million following a period of difficult trading. We have also written-off our investment in Xperiome, which unfortunately went into administration following the year end.
The Company has been an active investor during the year with £6.6 million invested into portfolio companies, of which £3.4 million was invested across five new portfolio companies, all of which are expected to require further investment as the companies prove themselves and grow. These are:
· £0.9 million (Albion VCTs: £7.0 million) in Threadneedle Software Holdings Limited (trading as Solidatus), a provider of data lineage software to enterprise customers in regulated sectors, which allows them to rapidly discover, visualise, catalogue and understand how data flows through their systems;
· £0.8 million (Albion VCTs: £4.0 million) in Gravitee Topco Limited (trading as Gravitee.io), an API management platform;
· £0.8 million (Albion VCTs: £3.6 million) in NuvoAir Holdings Inc, a provider of digital therapeutics and decentralised clinical trials for respiratory conditions;
· £0.6 million (Albion VCTs: £2.5 million) in Brytlyt Limited, a GPU database software provider; and
· £0.3 million (Albion VCTs: £1.5 million) in Accelex Technology Limited, a provider of data extraction and analytics technology for private capital markets.
A full list of the Company's investments and disposals, including their movements in value for the year, can be found in the Portfolio of investments section on pages 25 to 27 of the full Annual Report and Financial Statements.
*Risks and uncertainties*
In addition to the risks around Covid-19, which have been a major factor for the past 2 years, there is now considerable uncertainty over the future course, and global impact, of Russia’s invasion of Ukraine. Our investment portfolio, while concentrated mainly in the technology and healthcare sectors, remains diversified in terms of both sub-sector and stage of maturity and, importantly, we believe to be appropriately valued. While we would expect these valuations to be robust within the tolerance of normal market fluctuations, the potential, though unknown, scale of any further adverse events arising out of the Ukraine invasion remain a major risk factor.
A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.
*Share buy-backs*
It remains the Board’s primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board’s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest.
It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit. Details of shares bought back during the year can be found in note 14.
*Board continuity*
In light of the Board’s ongoing succession planning, Martin Fiennes who has been a Director of the Company for over 10 years, will be stepping down at the Annual General Meeting on 9 June 2022. I would like to take this opportunity to thank him for his excellent and dedicated contribution and many years of wise counsel and service.
I am pleased to welcome John Chiplin and Swarupa Pathakji who were appointed as Directors of the Company on 1 November 2021. John has extensive experience and expertise in the life sciences and technology sectors from both an operational and investment perspective. He joins the Board at a time when increasing numbers of technology and healthcare investment opportunities are being considered and so his experience in these areas will be invaluable. Swarupa has extensive experience across the financial sector, with an in-depth understanding of investment in growth companies, experience in exits and valuations. She is a qualified chartered accountant, and her extensive knowledge and skill set will be a real asset to the Board.
*Albion VCTs Prospectus Top Up Offers*
Your Board, in conjunction with the boards of five of the other VCTs managed by Albion Capital Group LLP, launched a prospectus Top Up Offer of new Ordinary shares on 6 January 2022. The Board announced on 9 February 2022 that, following strong demand, it had reached its £8 million limit under its Offer for subscription and it was closed to further applications. Following the Board’s assessment of future liquidity within the portfolio it did not elect to use its over-allotment facility under the Offer.
The proceeds are being used to provide support to our existing portfolio companies and to enable us to take advantage of new investment opportunities. The first allotment of the shares under the Offer was on 25 February 2022. Details of share allotments made during and after the financial year end can be found in notes 14 and 18 respectively.
*Annual General Meeting** (“AGM”)*
Based on the success of last year’s live webcast AGM, the Board has decided to adopt a virtual format for the AGM again this year. The AGM will be held at noon on 9 June 2022 via the Lumi platform. Information on how to participate in the live webcast can be found on the Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcome questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform during the AGM. Alternatively, shareholders can email their questions to KAYchair@albion.capital prior to the Meeting.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 37 and 38 and in the Notice of the Meeting on pages 74 to 77 of the full Annual Report and Financial Statements.
*Outlook and prospects*
Whilst there are uncertainties as to the full extent of the ongoing economic and societal impact of the Covid-19 pandemic as well as the Russian invasion of Ukraine, the positive results for the year just ended demonstrate the resilience of our portfolio during what were challenging times. The pipeline of new and follow on investments continues to remain strong and the investment focus on growth and technology businesses provides the opportunity to continue to generate shareholder value over the medium to long term. The Board is however mindful of the fact that the global political landscape has now materially shifted and the potential long term economic consequences are, as yet, hard to gauge.
*Fiona Wollocombe*
Chairman
24 March 2022
*Strategic report*
*Investment policy*
The Company is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.
The full investment policy can be found above.
*Current portfolio sector allocation*
The pie charts at the end of this announcement show the split of the portfolio valuation as at 31 December 2021 by: sector; stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, portfolio companies’ maturity measured by revenues and their size measured by the number of people employed. As the Company continues to invest in software and other technology companies, FinTech (which is technology specifically applicable to financial services companies) becomes a more prominent investment, and therefore is included as a subsector below. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 25 and 26 of the full Annual Report and Financial Statements.
*Direction of portfolio*
The analysis of the Company’s investment portfolio shows that it is well diversified and evenly spread across the FinTech, healthcare (including digital healthcare), software and technology and renewable energy sectors. Due to the share allotments under the 2020/21 Prospectus Top Up Offer, and the number of exits during the year, in particular the sale of the Company’s care homes, cash is a significant proportion of the portfolio at 34%. These funds will be invested predominantly into higher growth technology companies, and therefore the shift away from asset based companies will continue.
*Results and dividends*
*£'000*
Net capital return for the year ended 31 December 2021 15,545
Net revenue return for the year ended 31 December 2021 470
*Total** return for the year ended 31 December 20**2**1* *16,**015*
First interim dividend of 0.60 pence per share paid on 30 April 2021 (2,656)
Second interim dividend of 0.60 pence per share paid on 29 October 2021 (2,641)
Special dividend of 1.14 pence per share paid on 29 October 2021 (5,017)
*Transferre**d **to **reserves* *5,**701*
Net assets as at 31 December 2021 101,831
*Net asset value per share as at 31 December 20**2**1** (pence)* *23.0**5**p*
The Company paid dividends of 2.34 pence per share during the year ended 31 December 2021 (2020: 1.11 pence per share). This included a special dividend of 1.14 pence per share paid to shareholders on 29 October 2021.The Board has a variable dividend policy which targets an annual dividend yield of around 5% on the prevailing net asset value. As a result the Board has declared a first interim dividend of 0.58 pence per share (2021: 0.60 pence per share) for the year ending 31 December 2022, which will be paid on 29 April 2022 to shareholders on the register on 8 April 2022.
As shown in the Income statement, investment income has decreased to £1,106,000 (2020: £1,922,000) due to loan stock income decreasing to £1,061,000 (2020: £1,678,000). The capital gain of £15,545,000 for the year (2020: £2,201,000) was primarily due to the uplifts in the valuations of Quantexa, Proveca, and Oviva, offset by the portion of investment management fee charged to capital and the decrease in valuation of Avora and Xperiome.
The total return for the year was £16,015,000 (2020: £3,384,000), equating to a return of 3.72 pence per share (2020: 0.91 pence per share).
The Balance sheet shows that the net asset value has increased over the last year to 23.05 pence per share (2020: 21.84 pence per share).
There has been a net cash inflow of £22,579,000 for the year (2020: £1,399,000), mainly resulting from the number of exits during the year and the issue of Ordinary shares under the Albion VCTs Top Up Offers 2020/21. Cash inflow has been utilised by investments into new and existing portfolio companies, dividends paid, operating activities and the buy-back of shares.
Cash and cash equivalents at the year-end increased to £33.8 million (2020: £11.3 million), representing 33% of net asset value.
Trade and other payables at the year end amounted to £1,679,000 (2020: £502,000). This increase was primarily due to the management performance incentive fee which became payable as a result of the Company’s strong return for the year. Further details on this can be found below.
*Review of business and future changes*
A review of the Company’s business during the year is set out in the Chairman’s statement.
There is a continuing focus on growing the healthcare (including digital healthcare), FinTech and software and other technology sectors. The majority of these investment returns are delivered through equity and capital gains and therefore, coupled with the sale of our three care homes, we expect our investment income to significantly reduce in future years.
Details of significant events which have occurred since the end of the financial year are listed in note 18. Details of transactions with the Manager are shown in note 4.
*Future prospects *
The Company’s financial results for the year demonstrates that the portfolio remains well balanced across sectors and risk classes, and has largely weathered the pandemic so far. Although there remains much uncertainty, the Manager has a strong pipeline of investment opportunities in which the Company’s cash can be deployed. The Board considers that the current portfolio and the pipeline of opportunities should enable the Company to maintain a predictable stream of dividend payments to shareholders, and ultimately continue to deliver long term growth. Further details on the Company’s outlook and prospects can be found in the Chairman’s statement.
*Key **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 their own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs give a good indication that the Company is achieving its investment objective and policy. These are:
1. Total shareholder value relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the Company’s total shareholder value relative to the FTSE All-Share Index total return, with dividends reinvested. The FTSE All-Share index is considered a reasonable benchmark as the Company is classed as a generalist UK VCT investor, and this index includes over 600 companies listed in the UK, including small-cap, covering a range of sectors. Details on the performance of the net asset value and return per share for the year are shown in the Chairman’s statement.
2. Net asset value per share and total shareholder value
Total shareholder value since inception increased by 3.55 pence per share (16.3% on opening NAV) to 94.23 pence per share for the year ended 31 December 2021.
3. Movement in shareholder value in the year†
The graph on page 5 of the full Annual Report and Financial Statements shows the Company’s total shareholder return over the previous ten years, five years, three years and the past year, and the annual returns for the same period are detailed out below.
*2012* *2013* *2014* *2015* *2016* *2017* *2018* *2019* *2020* *2021*
19.2% 13.5% (0.7%) 9.3% 11.4% 5.6% 11.0% 1.9% 4.2% 16.3%
†Methodology: Calculated as the movement in total shareholder value for the year divided by the opening net asset value.
The table above shows that total shareholder value has continued to increase over the last 10 years, with an average return of 10.9% per annum.
4. Dividend distributions
Dividends paid in respect of the year ended 31 December 2021 were 2.34 pence per share (2020: 1.11 pence per share).
The cumulative dividend paid since inception is 71.18 pence per share.
5. Ongoing charges
The ongoing charges ratio for the year to 31 December 2021 was 2.4% (2020: 2.4%). The ongoing charges ratio has been calculated using The Association of Investment Companies (“AIC”) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be approximately 2.4%.
6. VCT compliance*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on pages 35 and 36 of the full Annual Report and Financial Statements.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2021. These showed that the Company has complied with all tests and continues to do so.
*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.
*Gearing *
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to its adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
*Operational arrangements*
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.
*Management agreement*
Under the Investment Management Agreement, Albion Capital Group LLP provides investment management, company secretarial and administrative services to the Company. Albion Capital Group LLP is entitled to an annual management fee of 2% of net asset value of the Company, payable quarterly in arrears, along with an annual administration fee of £50,000.
The aggregate payable for management and administration (normal running costs) are subject to an aggregate annual cap of 3% of the year end closing net asset value, for accounting periods commencing after 31 December 2011.
The Investment Management Agreement can be terminated by either party on 12 months’ notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party.
The Manager is also entitled to an arrangement fee on investment, payable by each portfolio company, of approximately 2% of each investment made and monitoring fees where the Manager has a representative on the portfolio company’s board. Further details of the Manager’s fee can be found in note 4.
*Performance incentive fee*
As an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels.
The performance hurdle is equal to the greater of the Starting NAV of 20 pence per share, increased by the increase in RPI plus 2% per annum from the Start Date of 1 January 2014 (calculated on a simple and not compound basis) and the highest Total Return for any earlier period after the Start Date (the ‘high watermark’). An annual fee (in respect of each Share in issue carrying voting rights on the last day of the Financial Period) of an amount equal to 15% of any excess of the Total Return (this being NAV per share plus dividends paid after the Start Date) as at the end of the relevant accounting period over the performance hurdle will be due to the Manager.
For the year ended 31 December 2021, the total return of the Company since 1 January 2014 (the performance incentive fee start date) was 32.90 pence per share, compared to a performance hurdle rate of 31.37 pence per share, resulting in an excess of 1.54 pence per share. As a result, a performance incentive fee is payable to the Manager of £1,017,000 (2020: £nil).
*Evaluation of the Manager*
The Board has evaluated the performance of the Manager based on:
• the returns generated by the Company;
• the continuing achievement of the 80% qualifying holdings investment requirement for VCT status;
• the long term prospects of the current portfolio of investments;
• the management of treasury, including use of buy-backs and participation in fund raising;
• a review of the Management agreement and the services provided therein; and
• benchmarking the performance of the Manager to other service providers including the performance of other VCTs that
the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
*Alternative Investment Fund Managers Directive (“AIFMD”)*
The Board appointed Albion Capital Group LLP as the Company’s AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides other AIFMD duties with respect to the Company.
**Companies Act 2006 Section 172 Reporting **
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole in both the long and short term, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.
The Board is very conscious of these wider responsibilities in the ways it promotes the Company’s culture and ensures, as part of its regular oversight, that the integrity of the Company’s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company’s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs, as well as visibility and openness in how the affairs are conducted.
The Company is an externally managed investment company with no employees, and as such has nothing to report in relation to employee engagement but does keep close attention to how the Board operates as a cohesive and competent unit. The Company also has no customers in the traditional sense and, therefore, there is also nothing to report in relation to relationships with customers.
The table below sets out the stakeholders the Board considers most relevant, details how the Board has engaged with these key stakeholders and the effect of these considerations on the Company’s decisions and strategies during the year.
*Stakeholder* *Engagement with Stakeholder* *Outcomes and decisions** based on engagement*
Shareholders The key methods of engaging with Shareholders are as follows:
· 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 appointment of a new Director, and 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 meetings. The 2021 AGM was live streamed for Shareholders and 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. 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 5.5% on opening net asset value. In addition to the regular dividend policy, a special dividend of 1.14 pence per share was paid on 29 October 2021. A total of 2.34 pence of dividends were paid during the year, which was 10.7% of the 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, the decision was made to use different issue prices 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 hold a General Meeting on 25 November 2021 to propose a special resolution to increase the Company’s distributable reserves by way of a reduction of share premium account and capital redemption reserve. This resolution was approved with 99.3% of Shareholders voting in favour of the resolution. Further details on this can be found in the Directors report on page 37 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.
· Details of the Manager’s responsibilities can be found in the Statement of corporate governance on page 41 of the full Annual Report and Financial Statements.
· 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.
Portfolio companies The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. However, as discussed in the Environmental, Social and Governance (“ESG”) report on pages 19 to 21 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their stakeholders is also important to the Company. · 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 pages 19 to 21 of the full Annual Report and Financial Statements.
*Social and community issues, employees and human rights*
The Board recognises the requirement under section 414C of the Companies Act 2006 (the “Act”) to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters, however, it is at the core of its responsible investment strategy as detailed above.
*General Data Protection Regulation *
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union, and continues to apply in the United Kingdom after Brexit. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
*Further policies*
The Company has adopted a number of further policies relating to:
● Environment
● Global greenhouse gas emissions
● Anti-bribery
● Anti-facilitation of tax evasion
● Diversity
and these are set out in the Directors’ report on page 36 of the full Annual Report and Financial Statements.
*Risk management*
The Board carries out a regular review of the risk environment in which the Company operates, together with changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable risk has been the global pandemic which has impacted not only public health and mobility but also has had an adverse impact on the economy, the full impact of which is likely to be uncertain for some time.
The Board has carried out a robust assessment of the Company’s principal risks and uncertainties and seeks to mitigate these risks through regular reviews of performance and monitoring progress and compliance. The Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, in the mitigation and management of these risks. More information on specific mitigation measures for the principal risks and uncertainties are explained below:
*Risk* *Possible consequence * *Risk assessment during the year* *Risk management*
Investment, performance and valuation risk Investment in smaller unquoted growth businesses carries a higher degree of risk and is more volatile than investing in larger, long-established businesses. This could negatively impact shareholder returns.
The Company relies on the judgement and reputation of the Manager to provide strong investment returns and valuations for shareholders.
The Company’s investment valuation methodology is based on fair value, which for smaller unquoted growth businesses can be difficult to determine due to the lack of observable market data and the limitation of external reference points. No change. The Board places reliance upon the skills and expertise of the Manager and its track record of making successful investments in higher growth technology businesses. The Manager operates a structured investment appraisal and due diligence process. This includes a review from one external investment professional and comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings.
Investments are monitored by the Manager, through monthly portfolio updates and typically an investment manager sitting on portfolio company boards. The Board receives detailed reports on each investment and their valuation as part of their quarterly board meetings.
Review and oversight of the non-executive Directors ensures that the risk to the Company’s and Manager’s reputation is kept to a minimum.
Investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines, which represent current best practice for investment valuation and are reviewed by the Manager’s Valuation Committee.
VCT approval and regulatory change risk Any breach of section 274 of the Income Tax Act 2007, including any legislative changes, could result in the loss of the Company’s HMRC qualifying status and tax reliefs for investors.
No change. The Company’s VCT qualifying status is monitored monthly by the Manager and quarterly by the Board. The Board has appointed Philip Hare & Associates LLP as its taxation adviser, who independently confirms compliance, highlights areas of risk and informs on any legislative changes, including those which may arise from the withdrawal from the European Union.
Regulatory and compliance risk The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies. No change. The Board and the Manager receive regular updates on new regulation, including legislation on the management of the Company, from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. The Board
ensures the Company is compliant as part of its quarterly Board meetings.
The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited (the Company’s Depositary) to ensure the Manager is adhering to the AIFMD requirements.Operational and internal control risk (including cyber and data security) The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key IT systems and controls within the Manager’s business could place assets of the Company at risk, resulting in inaccurate information being passed to the Board or shareholders. This could additionally result in losses for the Company and its shareholders. No change. The Company’s operations and IT systems are subject to rigorous internal controls which are reviewed on a regular basis and reported to the Board.
The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets and has access to their internal audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to risk management, business continuity and cyber security.
The Board reviews the systems and processes (including cyber and data security) in place for the Company’s key suppliers to ensure that there is an appropriate risk mitigation in place.
Economic and political risk Events such as the Covid-19 pandemic, the impact of Brexit, an economic recession, fluctuation in inflation and interest rates, or significant political events could adversely affect the companies within the portfolio and consequently the Company’s net asset value.
Increased (due to ongoing Covid-19 uncertainty and the geopolitical risks from the invasion of Ukraine). The Company invests in a diversified all -weather portfolio of c.60 companies, predominantly in the United Kingdom, and has a policy of minimising any external bank borrowings within portfolio companies.
Exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks. The inherent long-term nature of the portfolio helps to mitigate these exogeneous risks.
The Board and Manager are continuously assessing the resilience of the portfolio as a result of the ongoing economic and political risks, to ascertain where support is required. The Company has sufficient cash resources to cope with any such exigent and unexpected pressures. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel (1% of NAV).
The Company’s investment policy and the Board’s scrutiny of the investment portfolio ensures that this increased risk continues to be mitigated where possible.
Liquidity risk The Company may not have sufficient cash available to meet its financial obligations.
The Company’s portfolio is primarily in smaller unquoted companies, which are inherently illiquid as there is no readily available market, and thus it may be difficult to realise their fair value at short notice. No change. The Board reviews the Company’s three year cash flow forecasts on a quarterly basis. These include potential investment realisations (which are closely monitored by the Manager), Top Up Offers, dividend payments and operational expenditure. This ensures that there are sufficient cash resources available for the Company’s liabilities as they fall due.
Environmental, social and governance (“ESG”) risk An insufficient ESG policy could lead to an increased negative impact on the environment, including the Company’s carbon footprint.Non-compliance with reporting requirements could lead to a fall in demand from investors, reputational damage and penalties. Increased (due to the new guidance issued on climate change reporting and increased importance to stakeholders). The Manager is a signatory of the UN PRI and the Board is kept appraised of the evolving ESG policies at quarterly Board meetings.
Full details of the specific procedures and risk mitigation can be found in the ESG report on pages 19 to 21 of the full Annual Report and Financial Statements.
These procedures ensure that this increased risk continues to be mitigated where possible.
*Viability statement*
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2024. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities as they fall due. This is the period used by the Board as part of its strategic planning process, which includes: the estimated timelines for finding, assessing and completing investments; the potential impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that could threaten its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. The Board carefully assessed, and were satisfied with, the risk management processes in place to avoid or reduce the impact of these risks. The Board has carried out robust stress testing of cashflows which included; assessing the resilience of portfolio companies, including the requirement for any future financial support.
The Board has additionally considered the ability of the Company to comply with the ongoing conditions to ensure it maintains its VCT qualifying status under its current investment policy. As a result of the Board’s quarterly valuation reviews, it has concluded that the portfolio is well balanced and geared towards delivering long term growth and strong returns to shareholders.
The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2024. The Board is mindful of the ongoing risks and will continue to ensure that appropriate safeguards are in place, in addition to monitoring the quarterly cashflow forecasts to ensure the Company has sufficient liquidity.
This Strategic report of the Company for the year ended 31 December 2021 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
*Fiona Wollocombe*
Chairman
24 March 2022
*Responsibility statement*
In preparing these Financial Statements for the year to 31 December 2021, the Directors of the Company, being Fiona Wollocombe, Thomas Chambers, John Chiplin, Martin Fiennes and Swarupa Pathakji, confirm to the best of their knowledge:
· summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2021 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and· the Chairman’s statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.
We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to asses the Company’s position, performance, business model and strategy.
A detailed “Statement of Directors’ responsibilities” is contained on page 39 of the full Annual Report and Financial Statements.
For and on behalf of the Board
*Fiona Wollocombe*
Chairman
*I**ncome **s**tatement*
*Year 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 2 *-* *18,**327* *18,327* - 3,333 3,333
Investment income 3 *1,**106* *-* *1,**106* 1,922 - 1,922
Investment Manager’s fees** 4 *(**196**)* *(**2,**782**)* *(**2,978**)* (377) (1,132) (1,509)
Other expenses 5 *(**4**40**)* *-* *(**4**40**)* (362) - (362)
*Profit on ordinary activities before tax* *470* *15,**545* *16,**015* 1,183 2,201 3,384
Tax on ordinary activities 7 *-* *-* *-* - - -
*Profit and total comprehensive income attributable to shareholders* *470* *15,**545* *16,**015* 1,183 2,201 3,384
*Basic and diluted return per share (pence)** 9 *0.**11* *3.6**1* *3.7**2* 0.32 0.59 0.91
*adjusted for treasury shares
**For more information on the allocation of the split between revenue and capital please see the accounting policies below.
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies’ Statement of Recommended Practice.
*Balance sheet*
*31 December 2021* 31 December 2020 *Note* *£’000* £’000
*Fixed assets investments* 10 *66,996* 69,652
*Current assets*
Trade and other receivables 12 *2,669* 1,293
Cash and cash equivalents *33,845* 11,266 *36,514* 12,559
*Total assets* *103,**510* 82,211
*Payables: amounts falling due within one year*
Trade and other payables 13 *(**1,**679**)* (502)
*Total assets less current liabilities* *101,831* 81,709
*Equity attributable to equity holders*
Called-up share capital 14 *5,103* 4,346
Share premium *60,85**4* 45,481
Capital redemption reserve *11* 11
Unrealised capital reserve *29,**199* 16,786
Realised capital reserve *4,7**96* 9,322
Other distributable reserve *1,86**8* 5,763
*Total equity shareholders’ funds* *101,831* 81,709
*Basic and diluted net asset value per share (pence)** 15 *23.0**5* 21.84
*excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The Financial Statements were approved by the Board of Directors and authorised for issue on 24 March 2022 and were signed on its behalf by:
*Fiona Wollocombe*
Chairman
*Company number: ****3139019*
*Statement of changes in equity*
*Called**-**up ** share capital* *Share premium *
*Capital redemption reserve* *Unrealised capital reserve* *Realised capital reserve**** *Other distributable reserve**** *Total* *£’000* *£’000* *£’000* *£’000* *£’000* *£’000* *£’000*
*At 1 January 2021* *4,346* *45,481* *11* *16,786* *9,322* *5,763* *81,709*
Profit and total comprehensive income for the period *-* *-* *-* *15,**134* *411* *470* *16,**015*
Transfer of previously unrealised gains on disposal of investments *-* *-* *-* *(**2,72**1**)* *2,72**1* *-* *-*
Purchase of own shares for treasury *-* *-* *-* *-* *-* *(**1,**709**)* *(**1,**709**)*
Issue of equity *75**7* *15,7**69* *-* *-* *-* *-* *16,52**6*
Cost of issue of equity *-* *(**39**6**)* *-* *-* *-* *-* *(**39**6**)*
Dividends paid *-* *-* *-* *-* *(7,658)* *(**2,65**6**)* *(**10,31**4**)*
*At 31 December 20**2**1* *5,103* *60,85**4* *11* *29,**199*
*3* *4,7**96* *1,86**8* *101,831*
At 1 January 2020 3,883 35,825 11 14,707 9,200 9,830 73,456
Profit/(loss) and total comprehensive income for the period - - - 3,013 (812) 1,183 3,384
Transfer of previously unrealised gains on disposal of investments - - - (934) 934 - -
Purchase of own shares for treasury - - - - - (1,100) (1,100)
Issue of equity 462 9,892 - - - - 10,354
Cost of issue of equity - (236) - - - - (236)
Dividends paid - - - - - (4,150) (4,150)
At 31 December 2020 4,346 45,481 11 16,786 9,322 5,763 81,709
*These reserves includes an amount of £5,322,000 (2020: £15,085,000) which is considered distributable. The Company obtained authority to cancel the amount standing to the credit of its share premium and capital redemption reserves at the General Meeting on 25 November 2021. The proposal received the consent of the Court on 11 January 2022, and the changes have been registered at Companies House. As at the date of this Report, an additional £27,907,000 is considered distributable and over the next three years an additional £32,958,000 will become distributable. This is due to the HMRC requirement that the Company cannot use capital raised in the past three years to make a payment or distribution to shareholders.
The accompanying notes form an integral part of these Financial Statements.
*Statement of cash flows*
*Year ended*
*31 December 2021* Year ended
31 December 2020 *£’000* £’000
*Cash flow from operating activities*
Investment income received *1,**681* 1,467
Deposit interest received *3* 25
Dividend income received *42* 220
Investment Manager’s fees paid *(1,**816**)* (1,499)
Other cash payments *(**42**7**)* (359)
UK corporation tax paid *-* -
*Net cash flow from operating activities* *(**517**)* (146)
*Cash flow from investing activities*
Purchase of fixed asset investments *(**7,628**)* (3,990)
Disposal of fixed asset investments *26,619* 639
*Net cash flow from investing activities* *18,991* (3,351)
*Cash flow from financing activities*
Issue of share capital *14,628* 9,588
Cost of issue of equity *(**37**)* (4)
Purchase of own shares (including costs) *(1,**709**)* (1,100)
Equity dividends paid* *(**8,777**)* (3,588)
*Net cash flow from financing activities* *4,105* 4,896
*Increase in cash and cash equivalents* *22,579* 1,399
Cash and cash equivalents at start of the year *11,266* 9,867
*Cash and cash equivalents at end of **the year* *33,845* 11,266
* The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 8 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
The accompanying notes form an integral part of these Financial Statements.
*Notes to the Financial Statements*
*1**.** Accounting policies*
*Basis of accounting*
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on pages 34 and 35 of the full Annual Report and Financial Statements.
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss (“FVTPL”) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines as updated in 2018 and further detail on the valuation techniques used are outlined below.
Company information can be found on page 2 of the full Annual Report and Financial Statements.
*Fixed asset i**nvestments*
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are designated by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at ‘fair value’, which is measured as follows:
· Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations.· Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique i