Albion Technology & General VCT PLC : Annual Financial Report

London, UNITED KINGDOM


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 2021.

This announcement was approved for release by the Board of Directors on 13 April 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/AATG/31Dec21.pdf.

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 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 per cent. 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, 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 per cent. 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 per cent. 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 per cent. of the adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.

Financial calendar

  
Annual General Meeting3pm on 26 May 2022

General Meeting4pm on 26 May 2022
  
Record date for first dividend6 June 2022
  
Payment date of first dividend

30 June 2022

Announcement of Half-yearly results for the six months ending 30 June 2022September 2022

Financial highlights

200.28pTotal shareholder value – being net asset value plus dividends paid per Ordinary share since launch
  
14.98pIncrease in total shareholder value for the year ended 31 December 2021
  
21.6%Total uplift on opening net asset value per share
  
3.68pTotal tax-free dividend per Ordinary share paid in the year ended 31 December 2021 (a dividend yield of 5.3% on opening net asset value)
  
80.65pNet asset value per Ordinary share as at 31 December 2021

†These are considered Alternative Performance Measures, see notes 2 and 3 in the Strategic report below for further explanation.

 31 December 2021 (pence per share)31 December 2020 (pence per share)
   
Opening net asset value69.3582.58
Capital return/(loss)14.93(0.06)
Revenue return/(loss)0.37(0.22)
Total return/(loss)15.30(0.28)
Ordinary dividends paid(3.68)(3.95)
Special dividend paid-(9.00)
Impact from share capital movements(0.32)-
Net asset value80.6569.35


  
 Ordinary share (pence per share)
Total dividends paid to 31 December 2021119.63
Net asset value as at 31 December 202180.65
Total shareholder value to 31 December 2021200.28

In addition to the dividends noted above, the Board has declared a first dividend for the year ending 31 December 2022 of 2.02 pence per share to be paid on 30 June 2022 to shareholders on the register on 6 June 2022.

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 has undergone a series of changes in recent years in the makeup of its portfolio; how returns are earned, with income from the portfolio being reduced relative to capital return given the nature of the portfolio companies; and has faced some dramatic economic challenges, with the Covid-19 pandemic (“the Pandemic”) and more recent geopolitical crisis having direct economic and market implications for the Company.

It is pleasing, therefore, with these headwinds to report a strong positive total return for the year ended 31 December 2021 of 15.30 pence per share, which represents a 22.1% return on opening net asset value. This is the highest annual return achieved by the Company since 2003 and is in no small part a reflection of the different type of portfolio in which the Company invests, with technology, FinTech and health companies providing most of the return.

We continue to see resilience and growth from our portfolio, with many of our portfolio companies demonstrating the value of the services they provide to their customers as the economy emerges from the Pandemic. However, with heightened risks through increased inflation and more recent events in Ukraine, it is difficult to be entirely positive about what lies ahead when there are such significant issues outside the Company’s control but with impact on economic outlook generally. Returns from venture capital can be volatile but are not necessarily correlated to listed markets.

As you will read later in the report and in the accompanying Circular, the Board has worked with the Manager to reduce the ongoing costs of the Company and to do so in a way that aligns the interests of shareholders with the Manager over the longer term. The proposed changes to the Manager’s remuneration, including to the performance incentive, will be subject to shareholder approval. If approved, management costs will be substantially reduced, an administration fee will be introduced and the performance incentive arrangements will be re-structured, potentially rewarding the Manager for outperformance over a hurdle of 5 per cent., calculated over a period of 5 years, and at the same rate as under the existing performance incentive of 15 per cent. of outperformance earned as a fee.

Investment in the Company remains a longer-term proposition. The Manager and Board are conscious of this in how the portfolio is structured, costs are incurred (with ongoing costs capped at 2.75%), dividends are calculated and paid and in how liquidity is provided in the secondary market through share buy-backs at a pre-determined level (circa 5 per cent. discount) to the prevailing net asset value. It is encouraging that the Company continues to raise fresh funds through the top up offers and through dividend re-investment, as the Manager continues to see new and exciting investment opportunities and uses ‘five-year, five per cent total return’ horizons as its targets, recognising that there will be ‘ups and downs’ along the way, as has been the case since the Company was launched in 2000 in very different market circumstances.

Results and dividends
As at 31 December 2021, the net asset value was 80.65 pence per share compared to 69.35 pence per share at 31 December 2020. The total return after tax was £19.9 million compared to £0.3 million total loss in the year to 31 December 2020.

In line with our variable dividend policy targeting 5% of NAV per annum, the Company paid semi-annual dividends totalling 3.68 pence per share during the year to 31 December 2021 (2020: 12.95 pence per share, which included a 9 pence per share special dividend). The Board has declared a first dividend for the year ending 31 December 2022 of 2.02 pence per share to be paid on 30 June 2022 to shareholders on the register on 6 June 2022.

Investment portfolio
The results for the year showed net gains on investments of £21.5 million, against gains of £1.5 million for the previous year, which are largely driven by unrealised gains across the portfolio. Quantexa increased in value by £9.0 million and Oviva by £2.4 million, both following externally led funding rounds, and Credit Kudos increased by £3.1 million as a result of a third party offer. Against these gains, unrealised write-downs were made against our investment in Concirrus (£1.2 million) and Memsstar (£0.8 million) following difficult trading conditions for both portfolio companies.

The Company had a number of investment realisations in the year with proceeds totalling £4.2 million, leading to realised gains of £0.4 million. The sale of Innovation Broking Group delivered 10.3 times return on equity. OmPrompt Holdings was sold which resulted in a return of 2.3 times cost and SBD Automotive was also sold generating 2.1 times cost. Against this, we have realised a loss of £0.4 million on our investment in Xperiome, which went into administration following the year end. 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 the year, a total of £7.7 million was invested into portfolio companies, of which £2.4 million was invested across five new portfolio companies, all of which are likely to require further investment as the companies develop and hopefully grow:

  • £1.0 million into Threadneedle Software Holdings (trading as Solidatus) a provider of data lineage software to enterprise customers in regulated sectors, which allows them to rapidly discover, visualise, catalogue and understand how data flows through their systems;
  • £0.5 million into Gravitee TopCo (trading as Gravitee.io) an application programming interface (API) management platform;
  • £0.4 million into NuvoAir Holdings a provider of digital therapeutics and decentralised clinical trials for respiratory conditions;
  • £0.3 million into Brytlyt which uses patented software and artificial intelligence (AI), combined with the superior computation power of graphics processing units (GPUs), to derive insights thousands of times faster than legacy systems; and
  • £0.2 million into Accelex Technology, a data extraction and analytics technology for private capital markets.

A further £5.3 million was invested into existing portfolio companies, the largest being: £1.5 million into Oviva, £0.9 million into Black Swan and £0.8 million into Elliptic.

The three largest investments in the Company’s portfolio, being Quantexa, Radnor House School and Oviva, are valued at £28.0 million and represent 26.2 per cent. of the Company’s net asset value.

Overall, 32% of the portfolio by value is profitable, measured by earnings before interest, tax and depreciation, with a number of our investments showing strong growth in fast-developing markets. Given the evolving nature of the portfolio, increasingly the return will be in the form of capital rather than income, which is why the basis of charging a proportion of the management fee to capital has increased from 75% to 90%, as explained in the notes to the accounts. As part of portfolio management, the Board always maintains liquidity to meet future potential investments, running costs and, importantly, cash for payment of dividends and to facilitate share buy-backs.

New management performance incentive and reduction in annual management fee
Accompanying this Annual Report is a Circular to shareholders proposing changes to the Management Agreement with Albion Capital Group LLP. These changes will be implemented by a deed of variation to the Company’s existing Management Agreement. Full details of the changes are set out in the Circular. The proposed changes will be voted on by shareholders under a single Ordinary resolution at a General Meeting (“GM”) which will follow the Annual General Meeting (“AGM”) on 26 May 2022. The proposed changes include: lowering the Management fee from 2.5 per cent. of NAV to 2.0 per cent. of NAV; introduction of an administration fee; and revisions to the performance incentive arrangements. The net result is to significantly reduce operating costs (whilst retaining the cap of 2.75 per cent.) and to have performance incentive arrangements which apply a hurdle and term in their calculation that are more in accordance with the Companies long term investment returns and timing of returns profile, but represent the same percentage of outperformance payable as is in place currently, namely 15 per cent.

In supporting this management remuneration package, the Board is conscious of being fair to all the stakeholders in the Company, with shareholders’ and the Manager’s interests being balanced and aligned around outperformance being achieved from the portfolio before any fee is earned. There is also a reduction in the running costs of managing the portfolio, including for circumstances where the portfolio continues to increase materially in value, as has been the case in the last five years, as well as having a cap on the level of expenses the Company might bear if its assets were to fall.

Board
The Board continues with its succession planning, which includes looking at fresh appointments and focusing the roles on the Board. During the last year I assumed the Chair, Margaret Payn became Audit Chair and Mary Anne Cordeiro became Senior Independent Director. This followed the retirement of Dr Neil Cross and Modwenna Rees-Mogg. Patrick Reeve continues to serve as a non-independent Director on the Board of four, with three independent Directors being remunerated by the Company. We have established a clear committee structure for nominations, remuneration and management engagement amongst the independent non-executive Directors (all reported on later in this report). The aim is to have a small and focussed Board, with remuneration in line with the responsibilities borne, skills and experience required and more in line with the investment company arena taken as a whole. This will result in a reduction in absolute board costs and a more precise period for serving on the Board of nine years, absent unforeseen circumstances. We are also mindful of diversity in how the Board is structured, as has been the case for a number of years.

Risks and uncertainties
The highly uncertain outlook for the UK and Global economies remains the key risk affecting the Company, with the continuing health risk clouding any evaluation of risk and returns for many companies in the developed world. The Russian invasion of Ukraine has led to increased global geopolitical tensions and headline figures for inflation are not encouraging reaching levels in the UK not seen for some decades. While many of our portfolio companies have shown remarkable growth and resilience during the Pandemic, there are some underlying portfolio companies that continue to be adversely affected. The Manager is continually assessing the exposure to these risks for each portfolio company and appropriate actions, where possible, are being implemented, which includes provision of financial support where necessary.

A detailed analysis of the principal risks and uncertainties facing the business is shown in the Strategic report below.

Share buy-backs and reserves
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 interest. It is the Board’s intention for such buy-backs to be in the region of a 5 per cent. 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 15. During the last year, the Company raised substantially more through the top up offer and dividend re-investment than was required to fund share buy-backs, but this might not always be the case, which is why managing relatively high cash resources is prudent for investment and structural purposes.

The Company also manages a relatively high level of distributable reserves which can be used for share buy-backs and the payment of dividends. As in the past, the Company has sought authority from shareholders for reclassification of the share premium account to create additional distributable reserves, which is being done again this year as explained on page 40 of the full Annual Report and Financial Statements.

Albion VCTs’ Prospectus Top Up Offers
A prospectus top up offer of new Ordinary shares was launched on 6 January 2022. The Board announced on 22 March 2022 that, following strong demand for the Company’s shares, it had elected to exercise its £4 million over-allotment facility, taking the total offer to £24 million. On 29 March 2022, the Company was pleased to announce that it had reached its limit under its 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.

Annual General Meeting and General Meeting
Due to the proposed changes to the Management Agreement, the Board has decided to adopt a hybrid format for the AGM and GM this year to ensure maximum participation and shareholder engagement. The AGM will be held at 3pm on 26 May 2022 at the offices of Bird & Bird LLP, 12 New Fetter Lane, London EC4A 1JP, with virtual participation via the Lumi platform, which will be followed immediately by the GM at 4pm. Information on how to attend or participate in the live webcast can be found on the Manager’s website www.albion.capital/vct-hub/agms-events. The Board intends to hold AGMs virtually in the future as this has seen record numbers of shareholders attending the AGM.

The Board welcomes questions from shareholders at the AGM and GM 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 page 39 of the full Annual Report and Financial Statements and in the Notice of the Meeting on pages 76 to 79 of the full Annual Report and Financial Statements.

The Board also encourages shareholders to vote on the Company business at the AGM and GM and is strongly recommending that shareholders should vote in favour of the resolutions being proposed at both meetings.

Outlook and prospects
The former chairman served the Company well since its inception in 2000 and he saw changes in how and where the Company invested, as well as what the prospects were during different market cycles. This year is no different, but with some positive corporate changes envisaged and some portfolio challenges ahead. Whilst there are uncertainties as to the full extent of the ongoing economic and societal impact of the 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 where challenging times. The portfolio is diversified with companies at different stages of maturity and targeted at sectors such as software, FinTech and healthcare. We believe that the sectors in which we invest can continue to provide opportunities where growth can be resilient and sustainable. The Board remains confident that the Company and its portfolio are well positioned to continue to generate long term value for shareholders and that the proposed changes to Management arrangements and the Board are designed to assist in that direction.

Robin Archibald
Chairman
13 April 2022

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 2021 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. As the Company continues to invest in software and other technology companies, FinTech (technology specifically applicable to financial services companies) becomes a more prominent investment, and therefore is included as a subsector. 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 26%, software and other technology accounting for 21%, healthcare (including digital healthcare) accounting for 19%, renewable energy accounting for 10% and other (including education) accounting for 9%. The performance of two of the Company’s largest investments (by value), Quantexa and Credit Kudos, in FinTech companies have driven the material increase in FinTech as a proportion of the overall portfolio. During the year, Quantexa increased in value by £9.0 million, and Credit Kudos by £3.1 million.

In line with the Company’s investment policy, investment continues to be made predominately into higher growth technology companies. The Company will support those portfolio companies who require it, as well as capitalise on any new investment opportunities that arise. We therefore expect that investments in the FinTech, software and other technology and healthcare sectors (including digital healthcare) will continue to increase, and that asset-based investments will decrease over the coming years.

   Results and dividendsOrdinary shares
 £'000
  
Net capital return for the year ended 31 December 202119,412
Net revenue return for the year ended 31 December 2021476
Total return for the year ended 31 December 202119,888
Dividend of 1.73 pence per share paid on 30 June 2021(2,306)
Dividend of 1.95 pence per share paid on 31 December 2021(2,590)
Transferred to reserves14,992
  
Net assets as at 31 December 2021106,994
  
Net asset value per share as at 31 December 202180.65p

The Company paid ordinary dividends of 3.68 pence per share during the year ended 31 December 2021 (2020: 3.95 pence per share); there were no special dividends paid in this year (2020: 9.0 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 2022 of 2.02 pence per share to be paid on 30 June 2022 to shareholders on the register on 6 June 2022.

As shown in the Income statement below, investment income has increased to £1,077,000 (2020: £604,000). This is due to the payment of previously rolled up interest. As a result, there is an overall revenue gain to shareholders of £476,000 (2020: loss of £248,000). This gain is also partially driven by an increased percentage of investment management fees being allocated to the realised capital reserve; this better aligns with the Board’s expectation that over the long term the majority of the Company’s investment returns will be in the form of capital gains. Further information can be found in the Notes to the Financial Statements below.

The net capital gain for the year was £19,412,000 (2020: loss of £63,000). The net gain was generated largely by unrealised gains on investments, together with gains on disposals, partially offset by the capital portion of investment management fees. Key valuation movements during the year are outlined in the Investment portfolio section of the Chairman's statement. The total gain for the period was 15.30 pence per share (2020: loss of 0.28 pence per share).

The Balance sheet below shows that the net asset value per share increased over the year to 31 December 2021 to 80.65 pence per share (2020: 69.35 pence per share). The increase in net asset value was driven principally by investment gains offset by dividend payments.

The cash inflow for the year was £2.9 million (2020: £21.0 million outflow). This resulted mainly from the issue of new Ordinary shares under the Top Up Offer, 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 continue to increase its weighting in these sectors.

Investment income largely comprises of loan stock interest on our renewable energy investments, which the Company intends to hold for the longer term. As a result, investment income is expected to remain relatively flat over the near term and most of the investment returns are expected to be delivered by capital gains.

Since the end of the financial year, the Company has made a number of follow-on investments in existing portfolio companies as well as making small new investments and disposals. In addition, a successful top-up offer has raised £24 million.

Future prospects
The Company’s financial results for the year to 31 December 2021 demonstrate the resilience of the portfolio which is a consequence of the portfolio remaining well balanced across sectors and risk classes, despite the effects of the Pandemic so far. Many of the companies in the portfolio have continued to grow throughout the Pandemic and have been providing products and services that are considered innovative and essential to their customers.

The Board remains confident that the Company and its portfolio are well positioned to continue to generate long term value for shareholders. The Manager has a strong pipeline of investment opportunities in which the Company’s cash can be deployed.

Key Performance Indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
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 value

Please see the “Total shareholder value to 31 December 2021” table above in the Financial highlights section which shows the NAV per share as at 31 December 2021 and total shareholder value. Total shareholder value is net asset value plus cumulative dividends paid since launch.

Total shareholder value increased by 14.98 pence to 200.28 pence per Ordinary share for the year ended 31 December 2021 (21.6 per cent. on the opening net asset value).

The graph on page 4 of the full Annual Report and Financial Statements reflects the total shareholder value performance of the Company relative to the FTSE All-share Index.

     2.  Movement in shareholder value in the year †

2012201320142015201620172018201920202021
4.6%8.0%2.5%(4.7%)3.6%6.0%13.2%11.9%(0.3%)21.6%

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, has delivered an average increase of 6.6% 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 2021 were 3.68 pence per share (2020: 12.95 pence per share; 3.95 pence per share in ordinary dividends and a 9.00 pence per share special dividend). Cumulative dividends paid since inception are 119.63 pence per Ordinary share.

     4.  Ongoing charges

As agreed with the Manager in 2015, the ongoing charges ratio for the year ended 31 December 2021 was capped at 2.75 per cent. (2020: 2.75 per cent.) with any excess over the cap being a reduction in the management fee. 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. Subject to shareholder approval at the General Meeting on 26 May 2022, the Directors expect the ongoing charges ratio for the year ahead to decrease to 2.5 per cent. following the changes to the Management Fee as detailed in the Circular to shareholders accompanying this Annual Report and Financial Statements. If the resolution does not pass at the General Meeting, the Directors expect the ongoing charges ratio for the year to remain at 2.75% for the 2022 financial year.

The reduction in management fees payable to Albion Capital Group LLP in the year, due to the expense cap, amounted to £231,000 (2020: £78,000).

     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 page 37 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 confirmed 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 10 per cent. 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 Agreement
Shareholders should note that accompanying this Annual Report and Financial Statements is a Circular proposing changes to the Management Agreement with Albion Capital Group LLP. Details of the proposed changes can be found in the Chairman’s Statement above and in the Circular. The following information covers the current Management Agreement.

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 2.5 per cent. 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 per cent. 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 per cent. of the investment made, and also monitoring fees where the Manager has a representative on the portfolio company’s board. Further details of the Manager’s fee can be found in note 5.

Management performance incentive
Shareholders should note that accompanying this Annual Report and Financial Statements is a Circular proposing changes to the Manager’s remuneration which includes changes to the performance incentive arrangement with Albion Capital Group LLP. Details of the proposed changes can be found in the Chairman’s Statement above and in the Circular. The following information covers the current incentive arrangement.

To provide the Manager with 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 per share.

Under the current incentive arrangement, if the net asset value per share at the end of a financial period, when added to the aggregate dividends per share (both revenue and capital) paid to that date, exceeds £1 (increased at the rate of RPI plus 2 per cent. per annum uncompounded from the date of first admission to the Official List of the relevant class of share), then the Manager will be entitled to an incentive fee equal to 15 per cent. of such excess. In the event that the performance of the Company falls short of the target in any period, such shortfall must be made up in future periods before the Manager is entitled to any incentive in respect of such future periods. This methodology creates a cumulative hurdle to be beaten before any fee is payable.

The fee if applicable, will be payable annually. No performance fee has arisen during the year (2020: £nil). There has been no performance fee paid since the year ended 31 December 2005. The performance threshold is set in proportion to historic share classes and at 31 December 2021 was 212.47 pence for the Ordinary shares, 185.67 pence for the former C shares and 191.47 pence for the former Income & Growth shares which compares to total returns of 200.28 pence, 119.85 pence and 123.80 pence respectively, based on the latest NAV.

New management performance incentive fee
Since 2005, the Company’s total return for all shares has fallen significantly short of the cumulative hurdle detailed above and the performance from the early years of the measurement period mean that the current arrangements are ineffective in sharing the portfolio returns with the Manager. In addition, the challenge to find and retain investment talent continues to be strong and performance fee arrangements are viewed as an important factor in attracting new investment professionals. Maintaining the calibre of investment professionals is strongly in the interests of shareholders. In light of this, and having a performance incentive more closely aligned with the target performance and investment period, the Board have agreed with the Manager that the existing management performance incentive arrangements be reviewed to align the interests of the Manager and the Company.

Please refer to the Circular to shareholders containing details of the proposed new management performance incentive which, subject to approval by shareholders at the forthcoming General Meeting will replace the existing incentive arrangements.

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, via the Management Engagement Committee, has evaluated the performance of the Manager based on:

  • the returns generated by the Company;
  • the continued compliance with the VCT regulation;
  • the long term prospects of the current portfolio of investments;
  • the 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. This provides another degree of oversight over the custody 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.

StakeholderEngagement with StakeholderOutcome and decisions based on engagement
ShareholdersThe 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 connection with the Top Up Offer
  • Maintenance of a user friendly Website
  • Conversations with the Company’s broker on shareholder trends in the VCT marketplace
  • Shareholders’ views are important and 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 typically used as an opportunity to communicate with investors, including through a presentation made by the investment management team. In light of the Covid-19 pandemic, the Board took the decision to update the Company’s Articles of Association to allow for virtual/hybrid events in order for the 2021 AGM to be live streamed for shareholders. The Board was able to take questions from shareholders at the AGM enabling maximum shareholder engagement in the absence of a face-to-face event and saw higher number of attendees compared to previous years. The Board has decided that this year’s AGM will be held as a hybrid event to facilitate maximum 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 attended the seminar. The Board considers this an important interactive event and expects to continue to run this in 2022.
  • The Board recognises the importance to shareholders of maintaining a share buy-back policy, in order to provide market liquidity, and considered this when establishing the current policy. The Board closely monitors the discount to the net asset value to ensure this is in the region of 5%.
  • The Board seeks to create value for shareholders by generating strong and sustainable returns to provide shareholders with regular dividends and the prospect of capital growth. The Board takes this into consideration when making the decision to pay dividends to shareholders. The variable dividend policy has been enacted, and has resulted in a dividend yield of 5.3% on opening net asset value.
  • During the year, the decision to publish a Prospectus was taken, in order to raise more funds for deployment into new and existing portfolio companies. The Board carefully considered whether further funds were required, whether the VCT tests would continue to be met and whether it would be in the interest of shareholders, before agreeing to publish the Prospectus. On allotment, the decision was made to use different issue prices based on the most recent published NAVs 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 has therefore proposed 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 will provide flexibility, if it is required, for the Company to make buy backs and dividend payments. Further details on this can be found on page 40 of the full Annual Report and Financial Statements.
SuppliersThe 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.
  • During the year a Management Engagement Committee was established to review the performance of the Company’s key providers, annually, in line with the Manager. The review took place during the year, and the Committee is satisfied with the performance of the key suppliers. Full Terms of Reference can be found on the Company’s webpage on the Manger’s website at www.albion.capital/funds/AATG.
ManagerThe performance of Albion Capital Group LLP is essential to the long-term success of the Company, including meeting the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance issues by its activities.





The quality of investment and administration staff and their continuity is an important part of the Management service level to the Company and an area that the Board engages regularly with Albion to ensure that the quality continues.
  • 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 by the Management Engagement Committee, 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.
  • Following a thorough review by the Management Engagement Committee, the Board have agreed with the Manager that the existing management fee, which includes administration services, and performance incentive arrangements be reviewed to align the interests of the Manager and the Company. Accompanying these accounts is a Circular to shareholders containing details of the proposed new management fees and changes to the performance incentive which, subject to approval by shareholders at the forthcoming General Meeting, will replace the existing management arrangements.
  • During the year, the Board has reviewed the current Management Agreement, and a new agreement was signed which updated the agreement for new regulatory requirements, such as GDPR and AIFMD, but did not change any commercial terms with the Manager.
  • Details of the Manager’s responsibilities can be found in the Statement of corporate governance on pages 43 and 44 of the full Annual Report and Financial Statements.
Portfolio companiesThe 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 22 to 24 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 is on the board of a portfolio company, to help with both business operation decisions, as well as good ESG practices.
  • The Manager ensures good dialogue with portfolio companies, and often holds events to help portfolio companies benefit from the Albion network.
Community and environmentThe 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. 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 22 to 24 of the full Annual Report and Financial Statements. 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”)
The Board and the Company’s Manager, Albion Capital Group LLP, take ESG very seriously and more detail can be found in the ESG report on pages 22 to 24 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 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 as detailed above.

General Data Protection Regulation (“GDPR”)
The GDPR 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

These are set out in the Directors’ report on page 38 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 2021 the most noticeable continuing risk to operational and investment 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. Inflation has increased which is also being factored into the risks facing the Company. Since the year end, geopolitical risk has become heightened, further affecting the economic outlook. Again, the effects will not be known in the short term.

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:

RiskPossible consequence Risk assessment during the yearRisk management
Investment, performance and valuation riskInvestment 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.
The Company publishes quarterly net asset values and uses the most contemporary net asset values for issuing and buying back shares.





No change.The Board places reliance on 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 by 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 riskAny 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, which independently confirms compliance, highlights areas of risk and informs on any legislative changes.
Regulatory and compliance riskThe 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 every two months. 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.

Market value of Ordinary sharesThe 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.The Company operates a share buy-back policy, which aims to limit the discount at which the Ordinary shares trade to around 5 per cent. 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.
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 and Risk Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors (from 2022 Azets) and has access to their internal audit partner of whom it can ask specific detailed questions 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.
Economic and political riskEvents such as the Covid-19 pandemic, the impact of Brexit, an economic recession, fluctuation in inflation and interest rates, or significant political events and economic sanctions could adversely affect the companies within the portfolio and consequently the Company’s net asset value.



Covid-19 impacts, while lessening, continue to pose a significant exogenous risk to the Company, the wider population and economy.
Inflation is now running at levels where it might affect economic prospects.
Emerging risk
Russia’s invasion of Ukraine is at an early stage and the effects on the Company, if any, over the medium term are unknown. Immediate impacts from supply-chain driven inflation have seen material falls in tech stock prices in listed markets. An abatement of investor appetite to fund the tech sector could be both a risk and a threat to the portfolio.



Increased (ongoing Covid-19 uncertainty and the invasion of Ukraine by Russia).The Company invests in a diversified portfolio of circa 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, and the closed-ended nature of the Company, help to mitigate exogeneous risks as the Company should not be a forced seller of investments.
The Board and Manager continuously assess the resilience of the portfolio as a result of economic and political risks, to ascertain where support is required. The Company has sufficient cash resources to cope with unexpected pressures. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel. Inflationary factors are taken into account in examining prospective costs and returns in portfolio companies.
The Company’s investment policy and the Boards scrutiny of the investment portfolio ensures that this increased risk continues to be mitigated where possible.
The Manager monitors the situation closely insofar as it affects any portfolio company. The Board receives papers for each new or follow-on investment and can raise queries covering this situation.
The portfolio is diversified and is invested in UK based companies with little European exposure.

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 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 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. The Board considers that the Covid-19 pandemic and the geopolitical risk arising from Russia’s invasion of Ukraine are the largest uncertainties facing the Company, and thus has carried out robust stress testing of cashflows which included; assessing the resilience of portfolio companies, 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. 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 2024. 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.

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.

On behalf of the Board,

Robin Archibald
Chairman
13 April 2022

Responsibility Statement
In preparing these financial statements for the year to 31 December 2021, the Directors of the Company, being Robin Archibald, Margaret Payn, Mary Anne Cordeiro and Patrick Reeve, confirm that to the best of their knowledge: 

- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2021 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

 -the Chairman's statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

A detailed "Statement of Directors' responsibilities” is contained on page 42 within the full audited Annual Report and Financial Statements.

On behalf of the Board,

Robin Archibald
Chairman
13 April 2022

Income statement

  Year ended 31 December 2021Year ended 31 December 2020
  RevenueCapitalTotalRevenueCapitalTotal
 Note£’000£’000£’000£’000£’000£’000
Gains on investments3-21,52721,527-1,4531,453
Investment income41,077-1,077604-604
Investment management fee*5(235)(2,115)(2,350)(505)(1,516)(2,021)
Other expenses6(366)-(366)(347)-(347)
Profit/(loss) on ordinary activities before tax 47619,41219,888(248)(63)(311)
Tax charge on ordinary activities8------
Profit/(loss) and total comprehensive income attributable to shareholders 47619,41219,888(248)(63)(311)
Basic and diluted profit/(loss) per share (pence)**100.3714.9315.30(0.22)(0.06)(0.28)

*For more information on the allocation of the split between revenue and capital please see the accounting policies below.

**Adjusted for treasury shares

The accompanying notes form an integral part of these Financial Statements.

The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies’ Statement of Recommended Practice.

Balance sheet        

  31 December 202131 December 2020
 Note£’000£’000
Fixed asset investments1190,53565,152
    
Current assets   
Trade and other receivables132,8782,038
Cash and cash equivalents 14,36111,451
  17,23913,489
    
Total assets 107,77478,641
    
Payables: amounts falling due within one year   
Trade and other payables14(780)(613)
    
Total assets less current liabilities 106,99478,028
    
Equity attributable to equity holders   
Called-up share capital151,5361,307
Share premium 52,68737,036
Capital redemption reserve 4848
Unrealised capital reserve 33,46913,595
Realised capital reserve 18,25923,617
Other distributable reserve 9952,425
Total equity shareholders’ funds 106,99478,028
Basic and diluted net asset value per share (pence)*1680.6569.35
    


*Excluding treasury shares

The accompanying notes form an integral part of these Financial Statements.

These Financial Statements were approved by the Board of Directors, and were authorised for issue on 13 April 2022 and were signed on its behalf by

Robin Archibald
Chairman
Company number: 04114310

Statement of changes in equity

 Called-up share capitalShare premiumCapital redemption reserveUnrealised capital reserveRealised capital reserve*Other distributable reserve*Total
 £’000£’000£’000£’000£’000£’000£’000
As at 1 January 20211,30737,0364813,59523,6172,42578,028
Return/(loss) and total comprehensive income for the year---20,761(1,349)47619,888
Transfer of previously unrealised gains on disposal of investments---(887)887--
Purchase of shares for treasury-----(1,906)(1,906)
Issue of equity22916,056----16,285
Cost of issue of equity-(405)----(405)
Dividends paid----(4,896)-(4,896)
As at 31 December 20211,53652,6874833,46918,259995106,994
As at 1 January 20201,29634,9492813,70823,56718,47492,022
Return/(loss) and total comprehensive income for the year---1,233(1,296)(248)(311)
Transfer of previously unrealised gains on disposal of investments---(1,346)1,346--
Purchase of shares for cancellation(20)-20--(1,473)(1,473)
Issue of equity312,138----2,169
Cost of issue of equity-(51)----(51)
Dividends paid-----(14,328)(14,328)
As at 31 December 20201,30737,0364813,59523,6172,42578,028

*Included within these reserves are amounts of £17,035,000 (2020: £26,042,000) which are considered distributable.

Statement of cash flows

 Year ended
31 December 2021
Year ended
31 December 2020
 £’000£’000
Cash flow from operating activities  
Loan stock income received674511
Dividend income received15108
Deposit interest received158
Investment management fee paid(2,166)(2,062)
Other cash payments(373)(344)
Corporation tax paid--
Net cash flow from operating activities(1,849)(1,729)
   
Cash flow from investing activities  
Purchase of current asset investments-(4)
Purchase of fixed asset investments(8,229)(9,158)
Disposal of current asset investments-1,616
Disposal of fixed asset investments3,9101,936
Net cash flow from investing activities(4,319)(5,610)
   
   
Cash flow from financing activities  
Issue of share capital15,120-
Cost of issue of equity(37)(47)
Dividends paid*(4,099)(12,158)
Purchase of own shares (including costs)(1,906)(1,473)
Net cash flow from financing activities9,078(13,678)
   
   
Increase/(decrease) in cash and cash equivalents2,910(21,017)
Cash and cash equivalents at start of period11,45132,468
Cash and cash equivalents at end of period14,36111,451
   

*The dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.

Notes to the Financial Statements

  1. Basis of preparation

The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on page 36 of the full Annual Report and Financial Statements.

The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss (“FVTPL”) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines as updated in 2018 and further detail on the valuation techniques used are outlined in note 2 below.

Company information can be found on page 2 of the full Annual Report and Financial Statements.

2. Accounting policies
Fixed and current asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.

In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 per cent. 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 Fair Value Through Profit and Loss (“FVTPL”).

Upon initial recognition (using trade date accounting) investments, including loan stock, are classified 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 no active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, revenue multiples, the level of third party offers received, cost or prices of recent investment rounds, net assets and industry valuation benchmarks. Where the price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
  • In situations where the cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:

    • the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based; or

    • a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
    • market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.

Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.

Dividend income is not recognised as part of the fair value movement of an investment but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.

Current assets and payables
Receivables (including debtors due after more than one year), payables and cash are carried at amortised cost, in accordance with FRS 102. Debtors due after more than one year meet the definition of a financing transaction and are held at amortised cost, and interest will be recognised through capital over the credit period using the effective interest method. There are no financial liabilities other than payables.

Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.

Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expected settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.

Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.

Investment management fee, performance incentive fee and expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:

  • 90% of management fees and 100% of performance incentive fees, if any, are allocated to the realised capital reserve. This changed from 75% for both management fees and performance incentive fees in the year ended 31 December 2020, to better align with the Board’s expectation that over the long term the majority of the Company’s investment returns will be in the form of capital gains. This is a change in accounting estimate and does not require prior year adjustment.
  • expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.

Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.

Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the Financial Statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the Financial Statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT for the foreseeable future. The Company, therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.

Share capital and reserves
Called-up share capital
This accounts for the nominal value of the shares.

Share premium
This accounts for the difference between the price paid for the Company’s shares and the nominal value of those shares, less issue costs.

Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company’s own shares.

Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.

Realised capital reserve
The following are disclosed in this reserve:

  • gains and losses compared to cost on the realisation of investments, or permanent diminutions in value (including gains recognised on the realisation of investments where consideration is deferred that are not distributable as a matter of law);
  • finance income in respect of the unwinding of the discount on deferred consideration that is not distributable as a matter of law;
  • expenses, together with the related taxation effect, charged in accordance with the above policies; and
  • dividends paid to equity holders where paid out by capital.

Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named “other distributable reserve”.

This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.

Going concern
The Board has assessed the Company’s operation as a going concern. The Company has sufficient cash and liquid resources, its portfolio of investments is well diversified in terms of sector, and the major cash outflows of the Company (namely investments, buy-backs and dividends) are within the Company’s control. Cash flow forecasts are discussed quarterly at Board level with regards to going concern. The cash flow forecasts have been updated and stress tested. Accordingly, after making diligent enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence over a period of at least twelve months from the date of approval of the Financial Statements. For this reason, the Directors have adopted the going concern basis in preparing the accounts. The Directors do not consider there to be any material uncertainty over going concern.

Dividends
Dividends by the Company are accounted for in the period in which the liability to make the payment has been established or approved at the Annual General Meeting.

Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller early stage companies principally based in the UK.

3. Gains/(losses) on investments

 Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Unrealised gains on fixed asset investments20,7611,233
Realised gains on fixed asset investments448801
Unwinding of discount on deferred consideration318- 
Realised losses on current asset investments-(581)
 21,5271,453

4. Investment income

 Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Loan stock interest1,060510
Dividend income1539
Bank deposit interest255
 1,077604

5. Investment management fees

 Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Investment management fee charged to revenue235505
Investment management fee charged to capital2,1151,516
 2,3502,021

Further details of the Management Agreement under which the investment management fee is paid are given in the Strategic report above.

During the year, services of a total value of £2,350,000 (2020: £2,021,000) were purchased by the Company from Albion Capital Group LLP in respect of management fees. At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £660,000 (2020: £477,000). The total annual running costs of the Company are capped at an amount equal to 2.75 per cent. of the Company’s net assets, with any excess being met by Albion Capital Group LLP by way of a reduction in management fees. During the year, the management fee was reduced by £231,000 as a result of this cap (2020: £78,000).

During the year, the Company was not charged by Albion Capital Group LLP in respect of Patrick Reeve’s services as a Director (2020: nil).

Albion Capital Group LLP, its partners and staff (including Patrick Reeve) held 1,215,644 Ordinary shares in the Company as at 31 December 2021. After the year end, Albion Capital Group LLP, its partners and staff subscribed for new shares under the Albion VCTs Prospectus Top Up Offers 2021/22 and were issued with 193,878 shares as part of the allotments.

Albion Capital Group LLP is, from time-to-time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 December 2021, fees of £207,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2020: £237,000).

The Company has entered into an offer agreement relating to the Top Up Offers 2021/22 with the Company’s Manager, Albion Capital Group LLP (“Albion”), pursuant to which Albion will receive a fee of 2.5 per cent. of the gross proceeds of the Offer and out of which Albion will pay the costs of the Offer, as detailed in the Prospectus.

6. Other expenses

 Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000


Directors’ fees (including NIC)
111119
Auditor’s remuneration for statutory audit services (excluding VAT)3834
Tax services1819
Other administrative expenses199175
 366347

7. Directors’ fees

The amounts paid to and on behalf of the Directors during the year are as follows:

 Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000


Directors’ fees
103110
National insurance89
 111119

The Company’s key management personnel are the non-executive Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 49 to 51 of the full Annual Report and Financial Statements.

8. Tax on ordinary activities

    Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000


UK corporation tax charge
--

Factors affecting the tax charge:

 Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Return/(loss) on ordinary activities before taxation19,888(311)
   
Tax charge on profit/(loss) at the average companies rate of 19% (2020: 19%)3,779(59)
   
Factors affecting the charge:  
Non-taxable gains(4,090)(276)
Income not taxable(3)(7)
Excess management expenses carried forward314342
 --

The tax charge for the year shown in the Income statement is lower than the average companies rate of corporation tax in the UK of 19 per cent. (2020: 19 per cent.). The differences are explained above.

Notes

(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.

(iii) The Company has excess management expenses of £7,063,000 (2020: £5,407,000) that are available for offset against future profits. A deferred tax asset of £1,766,000 (2020: £1,027,000) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.

9. Dividends

 Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
   
Special dividend of 9.00p per share paid on 30 October 2020-9,942
First interim dividend of 1.73p per share paid on 30 June 2021 (30 June 2020: 2.00p per share)2,3062,201
Second interim dividend of 1.95p per share paid on 31 December 2021 (31 December 2020: 1.95p per share)2,5902,185
 4,89614,328

In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 December 2022 of 2.02 pence per share. The dividend will be paid on 30 June 2022 to shareholders on the register on 6 June 2022. The total dividend will be approximately £3,266,000.

10. Basic and diluted return/(loss) per share

  Year ended 31 December 2021Year ended 31 December 2020
 RevenueCapitalTotalRevenueCapitalTotal
       
Profit/(loss) attributable to equity shares (£’000)47619,41219,888(248)(63)(311)
Weighted average shares in issue (adjusted for treasury shares) 130,014,383 110,981,864
Return/(loss) attributable per equity share (pence)0.3714.9315.30(0.22)(0.06)(0.28)

The weighted average number of shares is calculated after adjusting for treasury shares of 20,904,204 (2020: 18,196,470).

There are no convertible instruments, derivatives or contingent share agreements in issue, and therefore no dilution affecting the return/(loss) per share. The basic return/(loss) per share is therefore the same as the diluted return/(loss) per share.

11. Fixed asset investments

Investments held at fair value through profit or loss31 December 2021
£’000
31 December 2020
£’000
Unquoted equity and preference shares70,20945,891
Quoted equity936-
Unquoted loan stock19,39019,261
 90,53565,152


 31 December 2021
£’000
31 December 2020
£’000
Opening valuation 65,15257,468
Purchases at cost7,68110,375
Disposal proceeds(3,893)(4,724)
Realised gains448801
Movement in loan stock accrued income386(1)
Unrealised gains20,7611,233
Closing valuation 90,53565,152
   
Movement in loan stock accrued income  
Opening accumulated loan stock accrued income8788
Movement in loan stock accrued income386(1)
Closing accumulated loan stock accrued income47387
   
Movement in unrealised gains  
Opening accumulated unrealised gains13,54713,727
Transfer of previously unrealised gains to realised reserve on disposal of investments(887)(1,413)
Movement in unrealised gains20,7611,233
Closing accumulated unrealised gains33,42113,547
   
Historic cost basis  
Opening book cost51,51843,653
Purchases at cost7,68110,375
Sales at cost(2,558)(2,510)
Closing book cost56,64151,518

Purchases and disposals detailed above do not agree to the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement of receivables and payables.

Fixed asset investments are valued at fair value in accordance with the IPEV guidelines as follows:

Valuation methodology31 December 2021
£’000
31 December 2020
£’000
Cost and price of recent investment (reviewed for impairment or uplift)41,06530,244
Revenue multiple20,01912,507
Third party valuation – discounted cash flow9,98710,937
Discounted offer price9,137678
Third party valuation – earnings multiple7,0175,955
Net assets1,7972,869
Bid price936- 
Earnings multiple5771,962
 90,53565,152

When using the cost or price of a recent investment in the valuations, the Company looks to re-calibrate this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (i.e. using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.

The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and P/E multiples (based
on the most recent revenue, EBITDA or earnings achieved and equivalent corresponding revenue, EBITDA or earnings multiples of comparable companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the Company’s investments, being in growth and technology companies which are not normally expected to achieve profitability or scale for a number of years. Where an investment has achieved scale and profitability the Company would normally then expect to switch to using an EBITDA or earnings multiple methodology.

In the calibration exercise and in determining the valuation for the Company’s equity instruments, comparable trading multiples are used. In accordance with the Company’s policy, appropriate comparable companies based on industry, size, developmental stage, revenue generation and strategy are determined and a trading multiple for each comparable company identified is then calculated. The multiple is calculated by dividing the enterprise value of the comparable group by its revenue, EBITDA or earnings. The trading multiple is then adjusted for considerations such as illiquidity, marketability and other differences, advantages and disadvantages between the portfolio company and the comparable public companies based on company specific facts and circumstances.

Fair value investments had the following re-classifications between valuation methodologies:

Change in valuation methodology (2020 to 2021)Valuation at 31 December 2021
£’000
Explanatory note
Cost and price of recent investment (reviewed for impairment or uplift) to discounted offer price6,667Third party offers received
Cost and price of recent investment (reviewed for impairment or uplift) to revenue multiple4,403More appropriate valuation methodology
Revenue multiple to discounted offer price2,018Third party offer received
Net assets to bid price936Company listed on AIM in period

The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, there are no other more relevant methods of valuation which would be reasonable as at 31 December 2021.

FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at FVTPL in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27.

Fair value hierarchyDefinition
Level 1Unadjusted quoted prices in an active market
Level 2

Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3

Inputs to valuations not based on observable market data

Quoted investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.

Investments held at fair value through profit or loss (Level 3) had the following movements:

 31 December 202131 December 2020
 £’000£’000
Opening balance65,15257,333
Purchases at cost7,68110,510
Disposals proceeds(3,893)(4,724)
Movement in loan stock accrued income386(1)
Realised gains448801
Unrealised gains20,1291,233
Transfer to level 1(304)-
Closing balance89,59965,152
     

The Directors are required to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 71 per cent. of the portfolio of investments, consisting of equity and loan stock, is based on recent investment price, discounted offer price, net assets and cost, and as such the Board believes that changes to reasonable possible alternative input assumptions (by adjusting the earnings and revenue multiples) for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 81 per cent. of the portfolio of investments. The main inputs considered for each type of valuation are as follows:

Valuation technique Portfolio company sector InputBase Case*Change in inputChange in fair value of investments (£’000)Change in NAV (pence per share)
Revenue multiple

Software and other technology

Revenue multiple

7.0x

+0.7x2390.18
-0.7x(239)(0.18)
Revenue multiple

Software and other technology

Revenue multiple

6.0x

+0.6x3020.23
-0.6x(302)(0.23)
Third party valuation – discounted cash flow

Renewable energy

Discount rate

5.5%

+0.25%(240)(0.18)
-0.25%2640.20
Third party valuation – earnings multiple

Other (including education)

Earnings multiple

22.5x

+2.25x4000.30
-2.25x(400)(0.30)

* As detailed in the accounting policies above, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.

The impact of these changes could result in an overall increase in the valuation of the equity investments by £1,205,000 (1.7%) or a decrease in the valuation of equity investments by £1,181,000 (1.7%).

12. Significant interests

The principal activity of the Company is to select and hold a portfolio of investments. Although the Company, through the Manager, will, in some cases, be represented on the Board of the portfolio company, it will not take a controlling interest or become involved in the management. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102 section 14.4B, they are measured at FVTPL and not accounted for using the equity method.

The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 31 December 2021 as described below:

CompanyRegistered postcodeProfit/(loss) before tax
£’000
Net
(liabilities)/assets
£’000
Result for year ended% class and share type% total voting rights 
MHS 1 LimitedEC1M 5QL, UK(1,017)(9,982)31 August 202122.5% Ordinary22.5% 
memsstar LimitedEH3 9EP, UK1,0903,53431 December 202067.3% A Ordinary30.1% 
Premier Leisure (Suffolk) LimitedEC1M 5QL, UKn/a*(1,506)31 August 202025.8% Ordinary25.8% 
The Q Garden Company LimitedEC1M 5QL, UKn/a*(4,595)31 August 202033.4% A Ordinary33.4% 

*The company files filleted accounts which does not disclose this information.

13. Current assets

Trade and other receivables31 December 202131 December 2020
 £’000£’000
Prepayments and accrued income2525
Other receivables5461
Deferred consideration under one year88111
Deferred consideration over one year2,2191,901
 2,8782,038

The deferred consideration over one year relates to the sale of G.Network Communications Limited in December 2020. These proceeds are receivable in January 2024, and have been discounted to present value at the prevailing market rate, including a provision for counterparty risk. This constitutes a financing transaction and has been accounted for using the policy disclosed in note 2.

The Directors consider that the carrying amount of receivables is not materially different to their fair value.

14. Payables: amounts falling due within one year

 31 December 202131 December 2020
 £’000£’000
Trade payables733
Accruals and deferred income773580
 780613

The Directors consider that the carrying amount of payables is not materially different to their fair value.

15. Called-up share capital

Allotted, called-up and fully paid£’000
130,710,891 Ordinary shares of 1 penny each at 31 December 20201,307
22,852,406 Ordinary shares of 1 penny each issued during the year229
153,563,297 Ordinary shares of 1 penny each at 31 December 20211,536
  
18,196,470 Ordinary shares of 1 penny each held in treasury at 31 December 2020(182)
2,707,734 Ordinary shares of 1 penny each purchased for treasury during the year(27)
20,904,204 Ordinary shares of 1 penny each held in treasury at 31 December 2021(209)
  
Voting rights of 132,659,093 Ordinary shares of 1 penny each at 31 December 20211,327

The Company purchased 2,707,734 Ordinary shares to be held in treasury (2020: 2,031,283 to be cancelled) at a cost of £1,906,000 including stamp duty (2020: £1,473,000) during the year ended 31 December 2021. Total share buy backs in 2021 represents 1.8 per cent. (2020: 1.6 per cent.) of called-up share capital.

The Company holds a total of 20,904,204 shares (2020: 18,196,470) in treasury representing 13.6 per cent. (2020: 13.9 per cent.) of the issued Ordinary share capital at 31 December 2021.

Under the terms of the Dividend Reinvestment Scheme, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:

Date of allotmentNumber of shares allottedAggregate nominal value of shares
(£’000)
Issue price (pence per share)Net invested (£’000)Opening market price on allotment date (pence per share)
30 June 2021512,667573.6236070.00
31 December 2021528,039579.2140076.00
 1,040,706  760 

Under the terms of the Albion VCTs Prospectus Top Up Offers 2020/21, the following new Ordinary shares, of nominal value 1 penny each, were allotted during the year:

Date of allotmentNumber of shares allottedAggregate nominal value of shares (£’000)Issue price (pence per share)Net consideration received (£’000)Opening market price on allotment date (pence per share)
26 February 20212,059,0202170.301,42666.00
26 February 2021520,699570.7036166.00
26 February 202118,541,66018571.1012,85466.00
9 April 2021175,959270.5012266.00
9 April 202116,384-70.801166.00
9 April 2021497,978571.2034666.00
 21,811,700  15,120 

16. Basic and diluted net asset value per share

 31 December 202131 December 2020
 (pence per share)(pence per share)
Basic and diluted net asset value per share80.6569.35

The basic and diluted net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon total shares in issue (less treasury shares) of 132,659,093 at 31 December 2021 (2020: 112,514,421).

17. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail in the Chairman’s statement above.

The Company’s financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances, receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow and revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.

The principal financial risks arising from the Company’s operations are:

  • investment (or market) risk (which comprises investment price and cash flow interest rate risk);
  • credit risk; and
  • liquidity risk.

The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.

Investment risk
As a Venture Capital Trust, it is the Company’s specific nature to evaluate and control the investment risk of its portfolio in quoted and unquoted investments, details of which are shown on pages 28 to 30 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio company and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.

The Manager and the Board formally review investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.

The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of quoted and unquoted investments.

The maximum investment risk as at the Balance sheet date is the value of the fixed asset investment portfolio which is £90,535,000 (2020: £65,152,000). Fixed asset investments form 85 per cent. of the net asset value as at 31 December 2021 (2020: 83 per cent.).

More details regarding the classification of fixed asset investments are shown in note 11.

Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. As a Venture Capital Trust, the Company invests in accordance with the investment policy set out above. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. The Directors monitor the Manager’s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.

Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 28 to 30 of the full Annual Report and Financial Statements and in the Strategic report.

As required under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the extent to which the assets are exposed to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a change of 10% based on the current economic climate. The impact of a 10% change has been selected as this is considered reasonable given the current level of volatility observed. When considering the appropriate level of sensitivity to be applied, the Board has considered both historic performance and future expectations.

The sensitivity of a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £9,054,000. Further sensitivity analysis on fixed asset investments is included in note 11.

Interest rate risk
The Company is exposed to fixed and floating rate interest rate risk on its financial assets. On the basis of the Company’s analysis, it was estimated that a rise of 1% in all interest rates would have increased the profit before tax for the year by approximately £129,000 (2020: £232,000). Furthermore, it was considered that a fall of interest rates below current levels during the year would have been very unlikely.

The weighted average effective interest rate applied to the Company’s unquoted loan stock during the year was approximately 7.1 per cent. (2020: 3.2 per cent.). The weighted average period to maturity for the unquoted loan stock is approximately 3.4 years (2020: 3.9 years).

The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:

 31 December 202131 December 2020
 

Fixed rate £’000
Floating rate
£’000
Non-interest bearing
£’000
Total
£’000


Fixed rate £’000
Floating rate
£’000
Non-interest bearing
£’000
Total
£’000
Unquoted equity--70,20970,209--45,89145,891
Quoted equity--936936----
Unquoted loan stock18,700-69019,39018,297-96419,261
Receivables*--2,8532,853--2,0132,013
Current liabilities--(780)(780)--(613)(613)
Cash-14,361-14,361-11,451-11,451
Total 18,70014,36173,908106,96918,29711,45148,25578,003

*The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.

Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in unquoted loan stock, and through the holding of cash on deposit with banks.

The Manager evaluates credit risk on loan stock prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. For loan stock investments made prior to 6 April 2018, which account for 58.6 per cent. of loan stock value, typically loan stock instruments will have a fixed or floating charge, which may or may not be subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.

The Manager receives management accounts from portfolio companies, and members of the investment management team sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.

The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.

The Company’s total gross credit risk as at 31 December 2021 was limited to £19,390,000 (2020: £19,261,000) of unquoted loan stock instruments, £14,361,000 (2020: £11,451,000) cash deposits with banks and £2,878,000 (2020: £2,038,000) of other receivables.

At the Balance sheet date, the cash and cash equivalents held by the Company were held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc, Société Générale S.A. and National Westminster Bank plc. Credit risk on cash transactions was mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.

The Company has an informal policy of limiting counterparty banking and floating rate note exposure to a maximum of 20 per cent. of net asset value for any one counterparty.

The credit profile of unquoted loan stock is described under liquidity risk below.

Liquidity risk
Liquid assets are held as cash on current account, on deposit, in bonds or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £10,373,000 as at 31 December 2021 (2020: £7,572,000).

The Company has no committed borrowing facilities as at 31 December 2021 (2020: £nil). The Company had cash balances of £14,361,000 (2020: £11,451,000). The main cash outflows are for new investments, share buy-backs and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company’s financial liabilities are short term in nature and total £780,000 as at 31 December 2021 (2020: £613,000).

The carrying value of loan stock investments analysed by expected maturity dates is as follows:

 31 December 202131 December 2020
Redemption dateFully performing
£’000
Valued below cost
£’000
Past due
£’000
Total
£’000
Fully performing
£’000
Valued below cost
£’000
Past due
£’000
Total
£’000
Less than one year 4,436 2,746 620 7,802 2,2662,3411,6736,280
1-2 years 195 1 - 196 2,03626792,141
2-3 years 3,571 6 64 3,641 19592-287
3-5 years 4,525 - - 4,525 7,012-657,077
5+ years 2,871 - 355 3,226 3,097-3793,476
Total 15,598 2,753 1,039 19,390 14,6062,4592,19619,261

Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.

The cost of loan stock investments valued below cost is £3,743,000 (2020: £3,033,000).

The Company does not hold any assets as the result of the enforcement of security during the period and believes that the carrying values for both those valued below cost and past due assets are covered by the value of security held for these loan stock investments.

In view of the factors identified above, the Board considers that the Company is subject to low liquidity risk.

Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 31 December 2021 are stated at fair value as determined by the Directors, with the exception of receivables (including debtors due after more than one year), payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.

18. Commitments and contingencies
The Company had no financial commitments in respect of investments as at 31 December 2021 (2020: nil).

There were no contingent liabilities or guarantees given by the Company as at 31 December 2021 (2020: nil).

19. Post balance sheet events
Since 31 December 2021 the Company has had the following material post balance sheet events:

  • Disposal of Credit Kudos Limited for proceeds of £4,697,000;
  • Disposal of Phrasee Limited for proceeds of £2,046,000;
  • Disposal of MyMeds&Me Limited for proceeds of £1,467,000;
  • Investment of £953,000 in an existing portfolio company, Black Swan Data Limited;
  • Investment of £877,000 in an existing portfolio company, TransFICC Limited;
  • Investment of £849,000 in an existing portfolio company, Cantab Research Limited (T/A Speechmatics); and
  • Investment of £546,000 in a new portfolio company, PerchPeek Limited.

Since 31 December 2021, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCTs’ Prospectus Top Up Offers 2021/22:


Date of allotment
Number of shares allottedAggregate nominal
value of shares
(£’000)
Issue price
(pence per share)
Net consideration received
(£’000)
Opening market price on allotment date
(pence per share)
25 February 20221,308,0321381.901,05577.00
25 February 2022443,854482.3035877.00
25 February 202212,172,71212282.809,82877.00
31 March 202214,154,98914282.8011,42877.00
11 April 2022170,608281.9013877.00
11 April 202213,972-82.301177.00
11 April 2022737,806782.8059677.00
 29,001,973290 23,414 

20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, the Directors’ remuneration disclosed in the Directors’ remuneration report on pages 49 to 51 of the full Annual Report and Financial Statements, and that disclosed above, there are no other related party transactions requiring disclosure.

21. Other Information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of Section 434 of the Companies Act 2006 for the years ended 31 December 2021 and 31 December 2020, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 December 2021, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

22. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/AATG, where the Report can be accessed as a PDF document via a link in the 'Financial Reports and Circulars' section.

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Split of Portfolio by sector, stage of investment and number of employees