ALBION TECHNOLOGY & GENERAL VCT PLC: ANNUAL FINANCIAL REPORT
*Albion Technology & General VCT PLC *
*LEI number: 213800TKJUY376H3KN16*
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Technology & General VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2022.
This announcement was approved for release by the Board of Directors on 6 April 2023.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 31 December 2022 (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/AATG/31Dec2022.pdf.
*Investment o**bjective** and policy*
The Company’s investment objective is to provide investors with a regular and predictable source of dividend income, combined with the prospect of long-term capital growth, through a balanced portfolio of predominantly unquoted growth and technology businesses in a qualifying Venture Capital Trust (“VCT”).
*Investment policy*
The Company will invest in a broad portfolio of unquoted growth and technology businesses. 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 sectors and stages of maturity of portfolio companies.
VCT qualifying and non-qualifying investments
Application of the investment policy is designed to ensure that the Company continues to qualify, and remains approved as, a VCT by HM Revenue and Customs (“VCT regulations”). The maximum amount invested in any one company is limited to any HMRC annual investment limits. It is intended that normally at least 80%. of the Company’s funds will be invested in VCT qualifying investments. The VCT regulations also have an impact on the type of investments and qualifying sectors in which the Company can make an investment.
Funds held to invest in VCT qualifying assets or for liquidity purposes will be held as cash on deposit or invested in floating rate notes or similar instruments with banks or other financial institutions with high credit ratings. They may also be invested in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so). Investment in such open-ended equity funds will not exceed 7.5% of the Company’s assets at the time of investment.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within VCT qualifying industry sectors using a mix of securities. The maximum the Company will invest in a single company is 15% of the Company’s assets at cost at the time of investment. The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of investments’ suitability for sale. It is possible that individual holdings may grow in value to a point where they represent a significantly higher proportion of total assets prior to a realisation opportunity being available.
Borrowing powers
The Company’s maximum exposure in relation to gearing is restricted to 10% of the adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.
*Financial c**alendar*
Record date for first dividend 2 June 2023
Annual General Meeting Noon on 6 June 2023
Payment date of first dividend
30 June 2023Announcement of Half-yearly results for the six months ending 30 June 2023 September 2023
*Financial **summary*
*(**3.74)**p* Decrease in total shareholder value for the year ended 31 December 2022 (2021: increase of 14.98p)^†^†
*(**4.64)**%* Total loss on opening net asset value per share (2021: gain of 21.6%)^†^†
*3.**99**p* Total tax-free dividends per Ordinary share paid in the year ended 31 December 2022 (a dividend yield of 4.9% on opening net asset value) (2021: 3.68p with a dividend yield of 5.3%)
*72.92p*
Net asset value per Ordinary share as at 31 December 2022 (2021: 80.65p)
*196.54p* Total shareholder value as at 31 December 2022^† (2021: 200.28p)^†^†
†Total shareholder value at 31 December 2022 is calculated using net asset value per share at 31 December 2022 plus dividends paid per Ordinary share since launch to 31 December 2022.
††These are considered Alternative Performance Measures, see note 2 in the Strategic report below for further explanation.
*Movements in net asset value* *31 December 20**2**2** (pence per share)* 31 December 2021 (pence per share)
Opening net asset value *80.65* 69.35
Capital (loss)/return *(4.5**1**)* 14.93
Revenue return *0.**46* 0.37
Total (loss)/return *(4.05)* 15.30
Ordinary dividends paid *(3.**99**)* (3.68)
Impact from share capital movements *0.3**1* (0.32)
Net asset value *72.92* 80.65
*Total shareholder value* *Ordinary share*
* (**pence** per share) *
*Total dividends paid** since launch** to 31 December 202**2* *123.62*
Net asset value as at 31 December 2022 72.92
*Total shareholder value to 31 December 202**2* *196.54*
In addition to the dividends noted above, the Board has declared a first dividend for the year ending 31 December 2023 of 1.82 pence per share to be paid on 30 June 2023 to shareholders on the register on 2 June 2023.
For historic shareholders, further details regarding the total shareholder value for C Shares and Albion Income and Growth VCT PLC can be found at www.albion.capital/funds/AATG 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/AATG under the ‘Dividend History’ section.
*Chairman’s statement *
*Introduction*
The Company’s portfolio has faced an uncertain macroeconomic and geopolitical environment during the financial year under review. With the war in Ukraine, high inflation, increasing interest rates, combined with political instability, there has been considerable market volatility impacting the Company and its portfolio.
The Company returned a loss in the year ended 31 December 2022 of 3.74 pence per share, which represents a 4.6% loss on opening net asset value. Notwithstanding these disappointing results, which are not surprising given the economic environment in the financial year, the Board remains encouraged by the potential of the portfolio to deliver positive longer term returns.
*Results and dividends *
As at 31 December 2022, the net asset value was 72.92 pence per share compared to 80.65 pence per share at 31 December 2021. The total loss after tax was £6.3 million compared to £19.9 million total return in the year to 31 December 2021.
In line with our variable dividend policy targeting around 5% of NAV per annum, the Company paid semi-annual dividends totalling 3.99 pence per share for the year to 31 December 2022 (2021: 3.68 pence per share). The Board has declared a first dividend for the year ending 31 December 2023 of 1.82 pence per share to be paid on 30 June 2023 to shareholders on the register on 2 June 2023.
*Investment **p**ortfolio*
The results for the year showed net losses on investments of £4.5 million, against gains of £21.5 million for the previous year; the results are largely driven by unrealised losses across the portfolio. Oxsensis decreased in value by £4.1 million, Black Swan Data by £2.1 million, and Oviva by £1.1 million, all as a result of difficult trading conditions. Against these losses, there have been unrealised gains, including a £1.1 million uplift in Convertr Media, and realised gains including the disposal of Credit Kudos and MyMeds&Me, both of which are detailed below. Quantexa, the largest company in our portfolio (14% of net asset value), continues to show strong revenue growth which has counter-balanced the well-publicised pressure on technology sector valuations and has not seen a valuation movement during the reported year. After the year end Quantexa completed an externally led Series E fundraising, and further details are in the Updated NAV announcement section below.
The Company had a number of investment realisations in the year with proceeds totalling £11.5 million, leading to realised gains during the year of £1.6 million. The notable exits included Credit Kudos delivering 5.2 times return on cost, Phrasee delivering 3.5 times cost and MyMeds&Me delivering 3.4 times cost. Further details on the above disposals, and other realisations, can be found in the realisations table on page 30 of the full Annual Report and Financial Statements.
During a busy year for the Manager, a total of £16.7 million was invested into portfolio companies, of which £9.2 million was invested across fifteen new portfolio companies, all of which are likely to require further investment as they develop and grow. The average age of the fifteen new portfolio companies was four years, demonstrating the Company’s focus on investing in earlier-stage businesses and building value over the longer term. The five largest new investments during the year were:
· £1.5 million into Peppy Health, a platform providing expert support for underserved areas of health and wellness (e.g. menopause) via content, video, chat support as an employment benefit for employees;
· £1.4 million into Toqio FinTech which bridges the gap between financial services and financial outcomes by providing an orchestration platform to any business large or small which wishes to launch a financial product;
· £0.9 million into PeakData, a software platform that uses big data analytics and AI to collate data from across the web to provide insights and analytics for the world’s top pharmaceutical companies, key opinion leaders and healthcare professionals before and after the launch of new therapies;
· £0.8 million into GX Molecular (trading as CS Genetics), a developer of a wet-phase approach to single cell indexing in a single tube that enables increased scalability and high quality single-cell analysis; and
· £0.7 million into OutThink, a software platform to measure and manage human risk for enterprises.
A further £7.5 million was invested into existing portfolio companies, the largest being: £1.4 million into Cantab Research (trading as Speechmatics), £1.1 million into Runa Network (previously WeGift) and £1.0 million into Black Swan Data.
The three largest investments in the Company’s portfolio, being Quantexa, Radnor House School and Proveca, are valued at £26.9 million and represent 22.2% of the Company’s net asset value.
Overall, 33% of the portfolio by value is trading profitably, measured by earnings before interest, tax and depreciation, with a number of our investments showing strong growth in fast-developing markets.
More information on each of the investments made by the Company can be found on the Manager’s website at www.albion.capital.
*Board **composition*
I have had the privilege of serving as a Director of the Company for nine years, including two as Chairman, and I will retire at the Annual General Meeting in June 2023. I am delighted that Clive Richardson, an existing Board member, will succeed me as Chairman. Mary Anne Cordeiro, who has also served nine years, will retire from the Board and Margaret Payn will become SID when Mary Anne stands down.
The Board, as part of its ongoing succession planning, is well advanced in the process of recruiting for new Directors, which will be announced in due course. The aim continues to be a small and focussed Board. We will aim to continue to be a diverse Board, as has been the case during the Company’s life, and with collective competence to the fore.
*Risks and uncertainties*
The Company faces a number of significant risks, including higher interest rates, inflation, the ongoing impact of Russia’s invasion of Ukraine, and potentially a period of economic stagnation, or even recession, in the UK. This complex backdrop is factored into how the Company is managed, including in its management of cash.
The concentration risk to the technology sector, which is part of the Company’s stated investment objective, is noted as technology company valuations have become more volatile in the current economic climate.
The Manager is continually assessing the exposure to these risks for each portfolio company and appropriate actions, where possible, are being implemented. This includes the potential provision of further financial support to portfolio companies where necessary.
A detailed analysis of the principal risks and uncertainties facing the business is shown in the Strategic report below.
*Share buy-**backs*
It remains a primary objective to maintain sufficient cash resources for investment in new and existing portfolio companies, for the continued payment of dividends to shareholders and to provide liquidity in the secondary market through share buy-backs. 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 best 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. The Board continues to review the use of buy-backs and is satisfied that it is an important means of providing market liquidity for shareholders. Details of shares bought back during the year can be found in note 16.
The Company also manages a relatively high level of distributable reserves which can be used for share buy-backs and the payment of dividends. Following shareholder approval last year, additional distributable reserves were created through the reclassification of the share premium account balance.
*Albion VCTs’ Prospectus Top Up Offers *
Your Board, in conjunction with the Boards of five other VCTs managed by Albion Capital Group LLP, launched a Prospectus Top Up Offer of new Ordinary shares on 6 January 2022 and applications reached its £24 million limit under the Offer on 29 March 2022.
A new Prospectus Top Up Offer was launched on 10 October 2022. The Board announced on 18 January 2023 that, following strong demand for the Company’s shares, it had elected to exercise the over-allotment facility, taking the total amount under offer to £15.5 million. An allotment was scheduled to take place on 24 February 2023. However due to positive developments in the Albion managed portfolio impacting on post balance sheet valuations and, following advice, the date of the second allotment was deferred to 31 March 2023 for the 2022/2023 tax year. On 22 March 2023, the Company was pleased to announce that it had reached its limit under its latest Offer which was fully subscribed and closed to further applications.
The funds raised by the Company pursuant to the Offer will be added to the cash resources available for investment, putting the Company into a position to take advantage of investment opportunities over the next two to three years. The proceeds of the Offer will be applied in accordance with the Company’s investment policy.
*Updated NAV Announcement** post year **end*
On 2 March 2023, a NAV update was announced with a pleasing 4.63 pence per share uplift, representing a 6.35% increase on the previously announced 31 December 2022 NAV. This update resulted from Quantexa, a company within the portfolio, undergoing an external fundraising process, which was not known at 31 December 2022. This transaction has since completed and was announced by Quantexa on 4 April 2023.
*Annual General Meeting *
The Annual General Meeting (“AGM”) will be held at noon on 6 June 2023 via the Lumi platform. Information on how to participate in the live webcast can be found on the Manager’s website at www.albion.capital/vct-hub/agms-events. The notice of the AGM is at the end of this document.
The Board welcomes questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform, or in person. Alternatively, shareholders can email their questions to AATGchair@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 51 and 52 of the full Annual Report and Financial Statements and in the Notice of the Meeting on pages 93 to 96 of the full Annual Report and Financial Statements.
The Board encourages shareholders to vote on the Company business at the AGM, irrespective of attendance, and strongly recommends that shareholders should vote in favour of all the resolutions being proposed at the meeting.
*Outlook and prospects*
Continuing risks and uncertainties, largely outside the Company’s control, make it difficult to be entirely confident about what lies ahead. The portfolio is well diversified with companies at different stages of maturity and targeted at sectors such as software, FinTech and healthcare. These are sectors where we believe growth can be resilient and sustainable. The recently announced 6.35% NAV uplift since the year end gives the Board further confidence that the Company is well positioned in the current economic climate to generate long term value for shareholders.
*Robin Archibald*
Chairman
6 April 2023
*Strategic report*
*Investment objective** and policy*
The Company’s investment objective is to provide investors with a regular and predictable source of dividend income, combined with the prospect of long-term capital growth, through a balanced portfolio of unquoted growth and technology businesses in a qualifying VCT.
The Company will invest in a broad portfolio of unquoted growth and technology businesses. 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 sectors and stages of maturity of portfolio companies.
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 2022 by sector, stage of investment and number of employees. This is a useful way of assessing how the Company and its portfolio are diversified across sector, portfolio companies’ maturity measured by revenues and their size measured by the number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 28 to 30 of the full Annual Report and Financial Statements.
*Direction of portfolio*
The current portfolio remains well-balanced both in terms of stage of investment and sectors, with FinTech accounting for 23%, software and other technology accounting for 19%, healthcare (including digital healthcare) accounting for 17%, renewable energy accounting for 9% and other (including education) accounting for 8%.
Due to the share allotments under the 2021/22 and 2022/23 Prospectus Top Up Offers, and the exits during the year, cash is a significant proportion of the portfolio at 22%. The Company will use these funds to support those portfolio companies that require it, as well as to capitalise on any new investment opportunities that arise. We therefore expect that proportion of investments in the FinTech, software and other technology and healthcare sectors (including digital healthcare) will increase, and that the proportion of asset-based investments will decrease over the coming years.
*Results and dividends* *£**’**000*
Net capital loss for the year ended 31 December 2022 (7,021)
Net revenue return for the year ended 31 December 2022 720
*Total **loss* *for** the year ended 31 December 20**2**2* *(6,30**1**)*
Dividend of 2.02 pence per share paid on 30 June 2022 (3,240)
Dividend of 1.97 pence per share paid on 31 December 2022 (3,267)
*Transferred **from* *reserve**s* *(12,808)*
Net assets as at 31 December 2022 121,247
*Net asset value per share as **at** 31 December 20**2**2* *72.92p*
The Company paid ordinary dividends of 3.99 pence per share during the year ended 31 December 2022 (2021: 3.68 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. The Board has declared a first dividend for the year ending 31 December 2023 of 1.82 pence per share to be paid on 30 June 2023 to shareholders on the register on 2 June 2023.
As shown in the Income statement below, investment income has increased to £1,631,000 (2021: £1,077,000). This is largely due to the receipt of dividends which include a dividend declared by memsstar immediately prior to the disposal in the year. As a result, there was an overall revenue gain to shareholders of £720,000 (2021: £476,000).
The net capital loss for the year was £7,021,000 (2021: gain of £19,412,000). The net loss was generated largely due to a fall in the unrealised movement in valuation of investments, partially offset by gains on disposals. The gain in 2021 was primarily due to the largest portfolio company, Quantexa. Further information on this together with key valuation movements during the year are outlined in the Investment portfolio section of the Chairman’s statement. The total loss for the period was 4.05 pence per share (2021: gain of 15.30 pence per share).
The Balance sheet below shows that the net asset value per share decreased over the year ended 31 December 2022 to 72.92 pence per share (2021: 80.65 pence per share).
The cash inflow for the year was £12.2 million (2021: £2.9 million). This resulted mainly from the issue of new Ordinary shares under the Top Up Offers, disposal proceeds and loan stock income, offset by new investments, dividends paid, share buy-backs and ongoing expenses.
*Review of business and **outlook*
A review of the Company’s business during the year and its future prospects is contained in the Chairman’s statement above and in this Strategic report.
There is a continuing focus on growing investments in the FinTech, healthcare and other software and technology sectors, and, therefore, we expect the portfolio to increase its weighting in these sectors.
Investment income largely comprises loan stock interest on our renewable energy investments, which the Company intends to hold for the longer term. As a result, loan stock income is expected to remain relatively flat over the near term and most of the Company’s investment returns are expected to be delivered via capital gains. Dividend income is likely to reduce next year, as memsstar declared a large dividend prior to its disposal in the year.
On 2 March 2023, a NAV update was announced with a 4.63 pence per share uplift (6.35%), as detailed in the Chairman’s statement above.
*Future prospects*
The Company’s financial results for the ended 31 December 2022 demonstrate that the portfolio remains well balanced across sectors and risk classes, and is largely weathering the ongoing global issues caused as a result of higher levels of interest rates and inflation and other economic headwinds. Although there remains much uncertainty, the Board considers that the Company has the potential to deliver long term growth, whilst maintaining predictable dividend payments to shareholders.
*Key **P**erformance **I**ndicators** (“KPI**s**”) and **A**lternative** P**erformance **M**easures (“APM**s**”)*
The Directors believe that the following KPIs and APMs, which are typical for VCTs, used in the Board’s 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. Net asset value per share and total shareholder valuePlease see the “Total shareholder value to 31 December 2022” table above in the Financial summary section which shows the NAV per share as at 31 December 2022 and total shareholder value. Total shareholder value is net asset value plus cumulative dividends paid since launch.
Total shareholder value decreased by 3.74 pence to 196.54 pence per Ordinary share for the year ended 31 December 2022 (4.6% on the opening net asset value).
The graph on page 8 of the full Annual Report and Financial Statements reflects the total shareholder value performance of the Company relative to the FTSE All-share Index over the last ten years.
2. Movement in shareholder value in the year †
*2013* *2014* *2015* *2016* *2017* *2018* *2019* *2020* *2021* *2022*
8.0% 2.5% (4.7%) 3.6% 6.0% 13.2% 11.9% (0.3%) 21.6% (4.6%)
† Calculated as the movement in total shareholder value for the year compared with the opening net asset value.
The figures in the table above show that total shareholder value, despite some annual volatility, mean that the Company has delivered an average increase of 5.7% per annum over the past ten years.
The returns to shareholders who have acquired shares through the C share issue in 2006 and the merger with Albion Income & Growth VCT in 2013 are shown on the Company’s Webpage on the Manager’s website at www.albion.capital/funds/AATG under “Financial Summary for Previous Funds”. Shareholders who have acquired shares through Top Up Offers, the dividend reinvestment scheme or in the market outside the corporate events will be able to calculate their own returns based on the price at which they acquired their shares, the dividends they have received since the purchase and the current net asset value of their holding.
3. Dividend distributions
Dividends paid in respect of the year ended 31 December 2022 were 3.99 pence per share (2021: 3.68 pence per share). Cumulative dividends paid since inception were 123.62 pence per Ordinary share.
4. Ongoing charges
As agreed with the Manager in 2015, the ongoing charges ratio for the year ended 31 December 2022 was capped at 2.75% (2021: 2.75%) with any excess over the cap being a reduction in the management fee. Following the reduction to the management fee in the year, the ongoing charges ratio has decreased to 2.55% (2021: 2.75%). 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 reserves) as a percentage of the average net assets attributable to shareholders.
5. 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 VCT 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 47 and 48 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 2022 and are reviewed during the year. These reviews confirmed that the Company has complied with all tests.
*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 10% of the share capital and reserves adjusted for any dividends declared. Although the investment policy permits the Company to borrow, the Directors do not currently have any intention of utilising long-term gearing and have not done so in the past.
*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 under the Management Agreement, as well as acting as the Company’s Alternative Investment Fund Manager (“AIFM”).
*Management **A**gr**eement*
A resolution was passed (with 95.6% of votes cast in favour of the resolution) at the General Meeting on 26 May 2022 which specifically covered changes to the Management Agreement.
The changes to the Management Agreement included: lowering the Management fee from 2.5% of net asset value to 2.0% of net asset value, backdated to 1 January 2022; introduction of a capped administration fee; and revisions to the performance incentive arrangements. Full details are available in the Circular dated 13 April 2022 which can be found on the Manager’s website at www.albion.capital/funds/AATG/circular2022.pdf.
Under these new management arrangements, the ongoing operating costs for the year ended 31 December 2022 have been reduced by £246,000.
Under the Management Agreement, the Manager provides investment management, secretarial and administrative services to the Company. The 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 paid an annual fee equal to 2.0% of the net asset value of the Company, payable quarterly in arrears. The total annual running costs of the Company, including management fees payable to Albion Capital Group LLP, Directors’ fees, professional fees and the costs incurred by the Company in the ordinary course of business (but excluding any exceptional items and performance fees payable to Albion Capital Group LLP) are capped at an amount equal to 2.75% of the Company’s net assets, with any excess being met by Albion Capital Group LLP by way of a reduction in management fees.
In some instances, the Manager is entitled to an arrangement fee, payable by a portfolio company in which the Company invests, in the region of 2.0% of the investment made, and also monitoring fees where the Manager has a representative on the portfolio company’s board; these fees are payable by the investee company. Further details of the Manager’s fee can be found in note 5 to the financial statements.
*Management performance incentive*
Under the performance incentive arrangement, the Manager will receive an incentive fee calculated annually on a five year average rolling basis, equal to 15% of the performance over a 5% hurdle (applied to the opening net asset value each year in line with the current dividend target). This fee will only become payable when average returns to shareholders are in excess of 5% per annum over a five year period. The first payment of a performance fee, if earned, will be in 2024 based on the audited results of the five years ending 31 December 2023.
Details of the calculation of the performance incentive provision can be found in note 15. For the year ended 31 December 2022, the total provision for the performance incentive earned is £272,000 (2021: £nil).
*Investment and co-investment*
The Company co-invests with other Albion Capital Group LLP managed VCTs. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of cash available for investment in each of the entities and the HMRC VCT qualifying tests.
*Liquidity Management *
The Board examines regularly both the liquidity of the Company’s shares in the secondary market, which is substantially influenced by the use of share buybacks and share issuance, and the liquidity of the Company’s portfolio. The nature of investments in a venture capital portfolio is longer term and these are relatively illiquid in the short term. Consequently, the Company maintains sufficient liquidity in cash and near cash assets to cover the operating costs of the Company and to meet dividend payments and share buy-backs, as well as to have the capacity to make fresh investments when the opportunities arise. Although the Company is authorised to borrow, in practice it does not borrow. The Board has no intention that the Company should borrow given the nature of the Company’s investments, a number of which have their own gearing. Management of liquidity is one of the key operational areas that the Board discusses regularly with the Manager.
*Evaluation of the Manager*
The Board, through the Management Engagement Committee, has evaluated the performance of the Manager based on:
· returns generated by the Company;
· continued compliance with the VCT regulation;
· long-term prospects of the current portfolio of investments;
· management of treasury, including use of share buy-backs and participation in fund raising;
· a review of the Management Agreement and the services provided therein;
· benchmarking the performance of the Manager to other service providers, including the performance of other VCTs that the Manager is responsible for managing: and
· the contribution made by the administration and secretarial team to the operation of the Company.
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 became a full-scope AIFM under the AIFMD in 2018. As a result, from that date, Ocorian Depositary (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties with respect to the Company. Having the Depositary provides another level of oversight over the safe-keeping of the Company’s assets.
*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 on 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 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* *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 changes to the Board, and the publication of a Prospectus in relation to the Top up Offers
· Albion Capital website, social media pages, as well as publishing Albion News shareholder magazine
· A briefing from the Company’s broker and sponsor
· Shareholders’ views are important. The Board encourages Shareholders to exercise their right to vote on the resolutions at the AGM or any other General Meetings of the Company. The Company’s AGM is used as an opportunity to communicate with investors, including through a presentation made by the investment management team. The Board has decided that this year’s AGM will be held virtually, via Lumi platform, which enabled engagement with a wider audience of shareholders from across the country, and gave shareholders the opportunity to ask questions and vote during the AGM last year. The virtual medium helps facilitate greater shareholder participation and to help those who are unable to attend the AGM in person.
· Shareholders are also encouraged to attend in person the annual Shareholders’ Seminar. This year’s event took place on 23 November 2022 at the Royal College of Surgeons. The seminar included Speechmatics and Ophelos sharing insights into their businesses and also a Q&A 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 attended the seminar. The Board considers this an important interactive event and expects to continue to run this in 2023.
· The Board recognises the importance to shareholders of maintaining and applying a share buy-back policy, in order to provide market liquidity. The Board closely monitors the discount to the net asset value, with a target to maintain this 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 resulted in a dividend yield of 4.9% on opening net asset value, with dividends paid semi-annually.
· During the year, the Board made the decision to participate in the Albion Prospectus Top Up Offers, launched on 6 January 2022 and 10 October 2022, 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 participate in the Top up Offers. On allotting shares, an issue price formula based on the prevailing net asset value is used to ensure there is no dilution to existing Shareholders.
· Cash management and liquidity of the Company are key quarterly discussions with the Board, focusing on deployment of cash for future investments, dividends and share buy-backs and the prospect of future realisations in the portfolio.
· The Board decided to propose a special resolution at the 2022 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 99.4% of Shareholders voting in favour of the resolution. Further details on this can be found on page 51 of the full Annual Report and Financial Statements.
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, for example 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 by the Management Engagement Committee, which includes reviewing comparator engagement terms and portfolio performance.
· There was a change in the year to the management fees and to the performance incentive fee which is now calculated by reference to the Company’s five year rolling historic returns commencing from 2019 and with any fee first payable in 2024. A provision of £272,000 has been recognised based on the Directors’ best estimate of incentive fees potentially earned to date based on historic performance.
· Details of the Manager’s responsibilities can be found in the Statement of corporate governance on pages 54 and 55 of the full Annual Report and Financial Statements.
Suppliers The key suppliers with regular engagement with the Company often through the Manager are:
· Corporate broker
· VCT taxation adviser
· Depositary
· Registrar
· External auditor
· Lawyer
· The Manager is in regular contact with the suppliers. 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 conjunction with the Manager’s input, and was satisfied with the suppliers’ performances.
Portfolio companies The portfolio companies are considered key stakeholders, because they are principal drivers of value for the Company. As discussed in the Environmental, Social and Governance (“ESG”) report on pages 36 to 39 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their own stakeholders and the wider community 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 is on the board of a portfolio company, to help with both business operational decisions, as well as good ESG practices.
· The AlbionVC platform team provide access to deep expertise on growth strategy alignment, leadership team hiring, organisational scaling and founder leader development.
· The Manager ensures good dialogue with portfolio companies, and often holds events to help portfolio companies benefit from the Albion network.
Community and environment The Company as an investment company, with no employees and no customers, has no direct effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board and considered as part of the review of Company operations. · The Board receives reports on ESG factors within its portfolio from the Manager. The Manager is a signatory of the United Nations Principles for Responsible Investment (“UN PRI”). Further details of this are set out in the ESG report on pages 36 to 39 of the full Annual Report and Financial Statements. ESG, without its specific definition, has always been at the heart of the responsible and sustainable investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.
*Social and **c**ommunity **i**ssues, **e**mployees** and **h**uman **r**ights*
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 the effectiveness of these policies. As an externally managed investment company with no employees, the Company has no requirement for formal policies in these matters, however, it is at the core of its responsible investment approach.
*General Data Protection Regulation **(“GDPR”)*
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union. GDPR forms part of the UK law after Brexit, now known as UK GDPR. 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
These are set out in the Directors’ report on page 49 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 affect the Company. In the year ended 31 December 2022 the most noticeable continuing risk to operational and investment risk has been the heightened geopolitical risk and its effect on the economy, with inflation remaining high, interest rates increasing and pricing volatility in world markets, particularly affecting growth stocks. The full impact on the Company’s portfolio 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:
*Possible consequence * *Risk assessment during the year* *Risk management*
**RISK: Investment, ****performance**** and valuation risk**
The risk of investment in poor quality businesses, which could reduce the returns to shareholders and could negatively impact on the Company’s current and future valuations.
By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust investment purposes, are more volatile than larger, long-established businesses.
The Company’s investment policy creates concentration risk to the technology sector (including FinTech and HealthTech), as well as to the health sector generally.
The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. Increased in the year due to the heightened economic and geopolitical issues as referred to above.
Earlier stage technology companies have suffered from a particularly significant de-rating in the past 9 months, and volatility continues to be seen in valuations for these types of assets. To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager for all investments, and at least one external investment professional for investments greater than £1 million in aggregate across all the Albion managed VCTs. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings.
Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The Board and Manager regularly review the deployment of investments and cash resources available to the Company in assessing liquidity required for servicing the Company’s buy-backs, dividend payments and operational expenses. The decision to issue a Prospectus for the 2021/22 and 2022/23 Top-Ups followed careful analysis of these factors.
The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines updated in 2022. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board.
*RISK: VCT approval risk*
The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. No change in the year. To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust management, used to operating within the requirements of the Venture Capital Trust legislation. In addition, to provide formal assurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the Venture Capital Trust legislation, and highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required.
*RISK: 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, result in loss of sensitive data (including shareholder data), or loss of access to systems resulting in a lack of timely communication to market. No change in the year. The Manager has a dedicated in-house IT support to assist in the management of the IT infrastructure and improve the IT control environment.
The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Board receives reports from the Manager on its internal controls and risk management, including on matters relating to cyber security.
The Audit and Risk 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 sufficient systems and controls in place including those in relation to business continuity and cyber security.
The Manager also has a formal risk group in place which meets every six months, with cyber risk being discussed at Board meetings.
*RISK: **Reliance **on **key **agents and **personnel*
The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls or loss of key personnel, within the Manager’s business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.
No change in the year. Ocorian Depositary (UK) Limited is the Company’s Depositary, appointed to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited to ensure that the Manager is adhering to its policies and procedures as required by the AIFMD.
In addition, the Board annually reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
*RISK: Economic, **political** and social risk*
Changes in economic conditions, including; higher interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection.
Increased in the year, due to the high levels of inflation, rising interest rates and the geopolitical risks from the invasion of Ukraine. The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies.
At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow-on investments.
In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term.
The Board and Manager continuously assess the resilience of the portfolio, the Company and its operations and the robustness of the Company’s external agents, as well as considering longer term impacts on how the Company might be positioned in how it invests and operates. Ensuring liquidity in the portfolio to cope with exigent and unexpected pressures on the finances of the portfolio and the Company is an important part of the risk mitigation in uncertain times. The portfolio is diversified and exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel.
*RISK: Discount risk*
The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value (“NAV”) and prospective NAV, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying NAV. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the NAV at different times, depending on supply and demand, market conditions, general investor sentiment and other factors, including the ability to exercise share buybacks. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying NAV. No change in the year. The Company operates a share buy-back policy,
which aims to limit the discount at which the
shares trade to around 5% to NAV,
by providing a purchaser through the Company in
absence of market purchasers. From time to time
buy-backs cannot be applied, for example when the
Company is subject to a close period, or if it were to
exhaust and could not renew any buyback
authorities.
New Ordinary shares are issued at sufficient
premium to NAV to cover the costs of issue and to
avoid asset value dilution to existing investors.
*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 for the three years to 31 December 2025. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate as a going concern 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.
*As noted above, t**he 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 also considered the procedures in place to identify emerging risks and the risk management processes in* *place to avoid or reduce the impact of the underlying risks. The Board carefully assessed, and* *was satisfied with, the risk management processes* *in place to avoid or reduce the impact of these risks. **Inflation remaining high, interest costs increasing and the impact on growth stocks against a geopolitically uncertain environment remain risks that need to be considered against the practical management of the Company’s net assets and its operational requirements. The Board has carried out robust stress testing of cashflows which **included;** factoring in higher levels of inflation when budgeting for future expenses**;** only including proceeds from investment disposals where there is a high probability of completion**;** assessing the resilience of portfolio companies given the current decline in the global economy, including the requirement for any future financial support**;** and the ability to fulfil interest requirements on debt instruments.*
*The Board assessed the ability of the Company to raise finance and deploy capital, as well as the existing cash resources of the Company** by looking at cashflow forecasts and the future pipeline of investments**.* *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. In assessing the prospects of the Company,* *the Directors have considered the cash flow by looking at the Company**’**s income and expenditure projections and funding pipeline over the* *assessment period of three years and they appear realistic. It is also satisfied that the Company can maintain its VCT qualifying status.*
*Taking into account the processes for mitigating risks, monitoring costs, implementing share buy-backs and issuance of new shares, the* *Manager**’**s compliance with the investment objective, achievement of the VCT qualifying status, policies and business model and the balance* *of the portfolio, 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 202**5**. The Board is mindful of the ongoing and emerging 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** to meet its operational and investment needs**. *
**Companies Act 2006**
*This Strategic report of the Company for the year ended **31 December **2022 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
*Robin Archibald*
Chairman
6 April 2023
*Responsibility Statement *
In preparing these financial statements for the year to 31 December 2022, the Directors of the Company, being Robin Archibald, Margaret Payn, Mary Anne Cordeiro, Patrick Reeve and Clive Richardson, 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 2022 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 53 within the full audited Annual Report and Financial Statements.
On behalf of the Board,
*Robin Archibald*
Chairman
6 April 2023
*Income statement*
*Year ended 31 December 20**2**2* Year ended 31 December 2021 *Revenue* *Capital* *Total* Revenue Capital Total *Note* *£’000* *£’000* *£’000* £’000 £’000 £’000
(Losses)/gains on investments 3 *-* *(4,480)* *(4,480)* - 21,527 21,527
Investment income 4 *1,**631* *-* *1,**631* 1,077 - 1,077
Investment Manager’s fees 5 *(**2**5**3**)* *(**2,**541**)* *(2,**794**)* (235) (2,115) (2,350)
Other expenses 6 *(**658**)* *-* *(**658**)* (366) - (366)
*(Loss)/profit** on ordinary activities before tax* *72*** *(7,02**1**)* *(6,30**1**)* 476 19,412 19,888
Tax charge on ordinary activities 8 *-* *-* *-* - - -
*(Loss)/profit** and total comprehensive income attributable to shareholders* *72*** *(7,02**1**)* *(6,30**1**)* 476 19,412 19,888
*Basic and diluted **(loss)/profit* *per share (pence)**