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Albion Technology & General VCT PLC - Ordinary Shares : Annual Financial Report

Released 17:23 23-Mar-2017

Albion Technology & General VCT PLC - Ordinary Shares : Annual Financial Report

Albion Technology & General VCT PLC
As required by the UK Listing Authority's Disclosure 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 2016.

This announcement was approved for release by the Board of Directors on 23 March 2017.

This announcement has not been audited.

You will shortly be able to view the Annual Report and Financial Statements for the year to 31 December 2016 (which have been audited) at: www.albion-ventures.co.uk/funds/AATG.The Annual Report and Financial Statements for the year to 31 December 2016 will be available as a PDF document via a link in the 'Financial Reports and Circulars' section. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure and Transparency Rules, including Rule 4.1.

Investment objective and policy

Albion Technology & General VCT PLC's investment strategy is to provide investors with a regular and predictable source of dividend income combined with the prospect of longer term capital growth.

This is achieved in two ways.  Firstly, by controlling the VCT's exposure to technology risk through ensuring that many of the companies in the non-technology portfolio have property as their major asset, with no external borrowings. Secondly, by balancing the investment portfolio by sector, so that those areas such as leisure and business services, which are susceptible to changes in consumer sentiment, are complemented by sectors with more predictable long term characteristics, such as healthcare and the environment.

The Company offers investors the opportunity to participate in a balanced portfolio of technology and non-technology businesses. The Company's investment portfolio is intended to be split approximately as follows:

This split is subject to the availability of good quality new investments arising within the UK technology and non-technology sectors.

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 currently have any intention to utilise long term gearing.

Subject to shareholder approval, prior to investing in VCT qualifying assets, the Company can invest cash in deposits, in floating rate notes or similar instruments with banks or other financial institutions with high credit ratings or up to 7.5 per cent. of its assets, at the time of investment, in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so).

Background to the Company

The Company is a venture capital trust which raised £14.3 million in December 2000 and 2002, and raised a further £35.0 million during 2006 through the launch of a C share issue. The Company has raised a further £24.2m under the Albion VCTs Top Up Offers since January 2011.

On 15 November 2013, the Company acquired the assets and liabilities of Albion Income & Growth VCT PLC ("Income & Growth") in exchange for new shares in the Company ("the Merger") resulting in a further £28.1 million of net assets. Each Income & Growth shareholder received 0.7813 shares in the Company for each Income & Growth share that they held at the date of the Merger.

Financial calendar

   
Record date for first dividend

 
13 January 2017
Payment of first dividend

 
31 January 2017

 
Record date for second dividend

 
2 June 2017

 
Annual General Meeting 11.00 am on 7 June 2017

 
Payment of second dividend

 
30 June 2017

 
Announcement of half-yearly results for the six months ended 30 June 2017 September 2017

 
Payment of third dividend (subject to Board approval) 29 December 2017
   

Financial summary

162.6p Total shareholder return per Ordinary share since launch.
   
2.5p Total return per share for the year ended 31 December 2016.
   
4.0p Target tax free dividend per Ordinary share for the year ahead (5.0p per Ordinary share during the year ended 31 December 2016).  
   
71.6p Net asset value per Ordinary share as at 31 December 2016.

    31 December 2016
 (pence per share)
31 December 2015
 (pence per share)
     
Dividends paid 5.0 5.0
Revenue return 0.8 1.6
Capital return/(loss) 1.7 (5.6)
Net asset value 71.6 73.9

Total shareholder return to 31 December 2016:      
  Ordinary share
 (pence per share) (i)
C share
 (pence per share) (i)(ii)
 

Income & Growth  
(pence per share) (i)(iii)
       
Total dividends paid during the year ended:        
31 December 2001 1.0 - -
31 December 2002 2.0 - -
31 December 2003 1.5 - -
31 December 2004 7.5 - -
31 December 2005 9.0 - 0.6
31 December 2006 8.0 0.5 2.6
31 December 2007 8.0 2.5 3.5
31 December 2008 16.0 4.5 3.5
31 December 2009 - 1.0 3.0
31 December 2010 8.0 3.0 3.0
31 December 2011 5.0 3.8 3.5
31 December 2012 5.0 3.9 3.5
31 December 2013 5.0 3.9 3.5
31 December 2014 5.0 3.9 3.9
31 December 2015 5.0 3.9 3.9
31 December 2016 5.0 3.9 3.9
Total dividends paid to 31 December 2016 91.0 34.8 38.4
Net asset value as at 31 December 2016 71.6 55.7 55.9
Total shareholder return to 31 December 2016 162.6 90.5 94.3

In line with the new annual dividend target of 4.0 pence per share, the Board declared a first dividend for the year ending 31 December 2017 of 1 penny per Ordinary share paid on 31 January 2017 to shareholders on the register on 13 January 2017. The Board has declared a second dividend for the year ending 31 December 2017 of 1 penny per Ordinary share to be paid on 30 June 2017 to shareholders on the register on 2 June 2017. The Board anticipates a third dividend to be paid in December 2017 of 2.0 pence per share.

Notes
(i) Excludes tax benefits upon subscription.
(ii) The C shares were converted into Ordinary shares on 31 March 2011. The net asset value per share and all dividends paid subsequent to the conversion of the C shares to the Ordinary shares are multiplied by the conversion factor of 0.7779 in respect of the C shares' return, in order to give an accurate picture of the shareholder value since launch relating to the C shares.
(iii) Albion Income & Growth VCT PLC was merged with Albion Technology & General VCT PLC on 15 November 2013. The net asset value per share and all dividends paid subsequent to the merger of the Income & Growth shares to the Ordinary shares are multiplied by the issue ratio of 0.7813 in respect of the Income & Growth shares' return, in order to give an accurate picture of the shareholder value since launch relating to the Income & Growth shares. Prior to the merger, Albion Income & Growth VCT PLC had a financial year end of 30 September and as such, the above dividends per share relate to the relevant period.

Chairman's statement

Introduction
The results for Albion Technology & General VCT for the year to 31 December 2016 show a recovery from the poor results of the previous year. Although the total return of 2.5 pence per share is still relatively modest, the Board is now more confident that the recovery plan is bearing fruit.

Investment portfolio
The results for the year showed net gains on investments of just over £2.4 million, against losses of £3.7 million for the previous year. The key elements within this included the successful sale of Exco InTouch, the digital health business, which was sold for around three times original cost. Following the year end, we also sold AMS Sciences and exchanged contracts for the sale of Blackbay, both at valuations above the opening value and also our holding in Masters Pharmaceuticals. In addition, strong trading at Radnor House (Sevenoaks) led to a material revaluation of that holding, while Proveca, which develops paediatric drugs, gained its first regulatory approval. Process Systems Enterprise was also written up following continued strong growth.

Against this, the share price of the AIM-quoted Mi-Pay fell during the period, while slower than hoped for progress at DySIS (diagnostics) and the Weybridge Healthclub also resulted in write-downs.

Nevertheless, we believe that the investment portfolio is in better shape than it was 12 months ago, with considerable progress made in repositioning the portfolio, notwithstanding that some of these disposals have resulted in an overall lower level of investment income receivable. Following the disposal of AMS Sciences, Blackbay and the assets held by The Charnwood Pub Company and Q Gardens, the pre 2009 portfolio will only account for 27 per cent. of the Company's net assets. This is in line with the target set by the Board at the start of the portfolio repositioning process in 2015.

Meanwhile, £1.5 million was invested in five new portfolio companies, including Black Swan Data (predictive analytics services), Secured by Design (an international automative consultancy) and Convertr (digital marketing software). A further £2.3 million was invested in existing portfolio companies, including £890,000 in Earnside Energy to double the capacity of its biogas plant and £431,000 into Proveca to bring its newly approved drug, Sialanar, to market.

Overall, 73 per cent. of the portfolio by value is now profitable, measured by earnings before interest, depreciation and tax, with a number of our investments showing strong growth in fast-developing international markets.

Risks and uncertainties
Other than investment performance through stock selection, the key risks facing the Company are from the broader economy. Despite some continued growth in the UK, the outlook for the domestic economy following the decision to leave the EU and an uncertain global situation, continue to be the key risks affecting your Company.

The Manager has a clear focus to allocate resources to those sectors and opportunities where growth can be both resilient and sustainable. Importantly, investment risk is mitigated through a variety of processes, including our policy of ensuring that the Company has a first charge over portfolio companies' assets wherever possible. We can never guarantee that future investments will avoid the failings of some of the previous investments but the rebalancing of the portfolio has resulted in a spread of investments that is more proportionately balanced between stability and growth.

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

Share buy-backs
It remains the Board's primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board's policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest. In order to ensure that these conditions are satisfied, the Company will limit the sum available for buy-backs for the 6 month period to 30 June 2017 to £1 million. 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.

Transactions with the Manager
Details of transactions that took place with the Manager during the year can be found in note 5 and principally relate to the investment management fee. As a result of the lowering of the expenses cap last year to 2.75 per cent. of net assets, the investment management fee was reduced by £94,000 in the year (2015: £76,000).

Results and dividends
As at 31 December 2016, the net asset value was 71.6 pence per share compared to 73.9 pence per share at 31 December 2015. The total return after tax was £2.23 million compared to loss of £3.33 million in the year to 31 December 2015.

It was announced on 22 November 2016 that the Company's dividend target was changing from 5.0 pence per share to 4.0 pence per share and that it would move from paying quarterly dividends to semi-annual dividends. The Company paid dividends totalling 5.0 pence per share during the financial year, in line with the Company's policy, which it has maintained for the last six years.

For most of this period, however, the dividend has not been fully covered by total returns, resulting in a gradual decline in NAV per share over the years. In an economic environment of persistently low interest rates, the Board considers a recalibration of the annual dividend target to 4.0 pence per share to be more appropriate, representing a dividend yield on current NAV of 5.6 per cent.. This target will apply from the commencement of 2017. A first dividend of 1 penny per share was paid on 31 January 2017, with a second dividend of 1 penny per share due to be paid on 30 June 2017 to shareholders on the register on 2 June 2017. Subject to Board approval, a further dividend for the year ended 31 December 2017 will be paid in December 2017. Thereafter, two dividends of 2 pence per share each will be paid per annum in June and December.

Albion VCTs Prospectus Top Up Offers 2016/2017
In November 2016, the Company announced the launch of the Albion VCTs Prospectus Top Up Offers 2016/2017. In aggregate, the Albion VCTs raised £34 million across six of the VCTs managed by Albion Ventures LLP, with the Company raising £6 million. The Offers have now closed.

The funds raised by each Company pursuant to its Offer have been added to the liquid resources available for investment putting each Company into a position to take advantage of investment opportunities over the next two to three years. The proceeds of the Offers are being applied in accordance with the respective Companies' investment policies. The Company continues to participate in the Top Up Offers and also benefits from receipts from dividend reinvestment, the net proceeds of which are invested in new investment opportunities and to provide additional working capital in the Company.  It is important that the Company continues to have cash available for future investments and the top up offers and dividend reinvestments are important sources of that capital.

Modification to investment policy
As described more fully in the Strategic report, the Manager and Board are recommending the restoration of the Company's capacity, under its investment policy, to invest cash with a level of exposure to quoted equities, pending deployment in suitable private equity opportunities. 

The recent acquisition by Albion of OLIM Investment Managers provides an opportunity to invest in an open-ended equity fund, delivering income and capital growth, with good liquidity and with a good performance record, without any double charging of management fees. This will be subject to shareholder approval but both Board and Manager believe that it is a positive development for the Company, particularly in a low interest rate environment.  The revision to policy will contain restrictions as to the amount that can be invested in non-qualifying investments and how the investments will be made, as more fully described in the Strategic report below.

Continuation as a venture capital trust
At the 2017 Annual General Meeting members have the opportunity to confirm that they wish the Company to continue as a venture capital trust. Otherwise the Board is required to make proposals for the reorganisation, reconstruction or the orderly liquidation and winding up of the Company and present these to the members at a general meeting. Those shareholders who have been using their investment in the VCT to defer a capital gain should note that, on a return of capital, that gain would become chargeable at the prevailing rate of capital gains tax.

Your Board believes that the Albion VCTs have the potential to be highly effective long-term investment vehicles, with strong tax-free dividend streams. Therefore, the Board recommends that shareholders should vote in favour of the Company continuing as a venture capital trust, as they intend to vote in respect of their own shares. Further details regarding the resolution can be found in the Directors' report on pages 24 and 25 of the full Annual Reports and Financial Statements.

Outlook and prospects
The portfolio repositioning is well under way and should allow the Company's performance to match more closely the performance seen generally amongst the other Albion VCTs. The combination of steady cash generation seen in the asset-based sectors of renewable energy, leisure and education, combined with measured and incremental investment in the growth sectors that the Manager knows well, such as medical technology and specific areas within IT such as cyber security, gives us confidence in the direction of the Company and of a recovery in returns to shareholders.

Dr. N E Cross
Chairman
23 March 2017

Strategic report

Investment objective
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 allowing investors the opportunity to participate in a balanced portfolio of unquoted technology and non-technology businesses.

Investment policy
It is intended that the Company's investment portfolio will be split approximately as follows:

This split is subject to the availability of good quality new investments arising within the UK technology and non-technology sectors. In neither categories listed above would portfolio companies normally have any external borrowing with a charge ranking ahead of the Company. Up to two thirds of investments (by cost) will comprise loan stock secured with a first charge on the portfolio company's assets.

The Company pursues a longer term investment approach, with a view to providing shareholders with a strong, predictable dividend flow, combined with the prospects of capital growth. This is achieved in two ways.  First, by controlling the Company's exposure to technology risk through ensuring that many of the companies in the non-technology portfolio have property as their major asset, with no external borrowings. Second, by balancing the investment portfolio by sector, so that those areas such as leisure and business services, which are susceptible to changes in consumer sentiment, are complemented by sectors with more predictable long term characteristics, such as healthcare and the environment. In addition to the above, HMRC rules govern the Company's investment allocation and risk diversification policies. These rules result in a spread of investment risk through disallowing holdings of more than 15 per cent. by VCT value in any portfolio company.

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 currently have any intention to utilise long term gearing.

Subject to shareholder approval at the forthcoming Annual General Meeting, the Company can, prior to investing in VCT qualifying assets, invest cash in deposits, in floating rate notes or similar instruments with banks or other financial institutions with high credit ratings or up to 7.5 per cent. of its assets, at the time of investment, in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so). This is explained further below.

Management of liquid resources
From the Company's launch in 2001 up until 2007 its investment policy was to hold 15 per cent. of its assets in a portfolio of non-qualifying quoted international technology stocks. As recommended by the Board, shareholders voted in 2007 to end this policy. This was following a change in emphasis by the Company's technology adviser (which was a fellow subsidiary of the Manager's then owner, Close Brothers Group Plc), away from offering direct technology investment capabilities. Since then, non-qualifying investments have been held in floating rate notes and bank deposits, with the latter category now accounting for all of the Company's funds awaiting investment.

In November 2016, Albion Ventures acquired OLIM Investment Managers ("OLIM"), a specialist fund manager of UK quoted equities. It is now proposed that, in view of the very low interest rates earned on the Company's bank deposits, that the current policy should be updated to allow cash awaiting investment to be invested in liquid open-ended equity funds including the OLIM UK Equity Income Fund ("OUEIF"). This is an authorised UK unit trust which has the objective of achieving a return based on a combination of income and capital over the long term, and invests in a diversified portfolio of FTSE-100 and FTSE-250 UK companies. It has shown a total return, comprising income and capital, since launch in 2002 of 212 per cent., and ranks 18 out of 55 of UK equity income funds in its performance over 10 years. Its historic dividend yield is 4 per cent..

Any investment in OUEIF will be made as part of the Company's management of surplus liquid funds, and will be limited to an amount of not more than 7.5 per cent. of the company's net assets, from time to time, though depending on market conditions, it may be much lower than this. The holding will be capable of realisation within 7 days and, in order to avoid double charging, Albion agrees to reduce that proportion of its management fee relating to the investment in the OUEIF by 0.75 per cent., which represents the OUEIF management fee charged by OLIM.

This change in investment policy, which is recommended by the Board, together with other clarifications of the investment policy, is subject to the approval of shareholders. Accordingly resolution 11 at the forthcoming Annual General Meeting, which is set out on page 25 of the full Annual Reports and Financial Statements, will allow shareholders to vote on the issue.

Current portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio valuation by industrial or commercial sector as at 31 December 2016. Details of the principal investments made by the Company are shown in the Portfolio of Investments on pages 17 to 19 of the full Annual Report and Financial Statements.

Direction of portfolio
The Board has agreed a policy with the Manager to undertake a programme to reduce the proportion of those investments which were made at the high point in the market, before 2009 and this programme, which commenced in 2015, is now well underway. At 31 December 2016, these investments made pre-2009 amounted to £21.4 million, or 33 per cent. of the Company's assets. Sales completed or exchanged after the year end on two further investments, which bring the level of pre-2009 investments down to 27 per cent. of net assets, in line with the Company's target.

The current portfolio is well balanced in terms of sectors, despite the disposal programme referred to above, with education accounting for 15 per cent. renewable energy at 19 per cent. and pubs at 8 per cent. A number of new asset-based areas are under review and it is anticipated that the IT segment of the portfolio will increase.

Results and dividend policy

 

 
Ordinary shares
  £'000
   
Net revenue return for the year ended 31 December 2016 751
Net capital gain for the year ended 31 December 2016 1,478
Total return for the year ended 31 December 2016 2,229
Dividend of 1.25 pence per share paid on 29 January 2016 (1,045)
Dividend of 1.25 pence per share paid on 29 April 2016 (1,146)
Dividend of 1.25 pence per share paid on 30 June 2016 (1,135)
Dividend of 1.25 pence per share paid on 31 October 2016 (1,132)
Transferred from reserves (2,229)
   
Net assets as at 31 December 2016 64,426
   
Net asset value per share as at 31 December 2016 71.6p

The Company paid dividends of 5.0 pence per share during the year ended 31 December 2016 (2015: 5.0 pence per share). The dividend objective of the Board is to provide shareholders with a strong, predictable dividend flow.  As mentioned in the Chairman's statement, going forward the Company will target an annual dividend of 4.0 pence per share. The Board declared a first dividend for the year ending 31 December 2017 of 1 penny per share which was paid on 31 January 2017. The Board has declared a second dividend for the year ending 31 December 2017, of 1 penny per share to be paid on 30 June 2017 to shareholders on the register on 2 June 2017. Whilst in the past the Company has paid quarterly dividends, it will now be moving to paying semi-annual dividends, thereby reducing administration costs.

As shown in the Income statement, investment income has decreased to £1,570,000 (2015: £2,165,000).  This is in part due to the disposal of income producing investments in the prior year as well as capitalising interest on a number of companies in order to fund further acquisitions. As a result, the revenue return to equity holders has decreased to £751,000 (2015: £1,273,000).

The capital gain for the year was £1,478,000 (2015: capital loss of £4,606,000). This is mainly attributable to the realised gain in the year of £797,000 on the sale of Exco InTouch Limited and uplifts in valuations for Radnor House School Holdings Limited (£1,251,000), Process Systems Enterprise Limited (£728,000) and Proveca Limited (£614,000). These were partly offset by unrealised losses on Mi-Pay Group plc (£538,000) as well as DySIS Medical Limited (£499,000) and The Weybridge Club Limited (£415,000). The total return for the period was 2.5 pence per share (2015: loss of 4.0 pence per share).

The Balance sheet shows that the net asset value per share has decreased over the last year to 71.6 pence per share (2015: 73.9 pence per share). The decrease in net asset value can mainly be attributed to the payment of 5.0 pence per share of dividends partly offset by the total return of 2.5 pence per share.

The cash outflow for the year reflected the £3.8 million of new investments, dividends paid of £3.8 million and the buy-back of £1.6 million of shares. This was offset by the issue of new shares under the Albion VCTs Top Up Offers which raised £5.9 million and £3.0 million from the disposal of investments and receipt of deferred consideration.

Review of business and outlook
A detailed review of the Company's business during the year and future prospects is contained in the Chairman's statement above and in this Strategic report.

The Manager will continue with the policy of disposing of further pre-2009 investments and re-aligning the portfolio with particular emphasis on healthcare, capital efficient segments of IT, and other areas where value looks to be supported by longer term demographic and global trends. The Directors do not foresee any major changes in the activity undertaken by the Company in the current year. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to providing both capital growth and a reliable dividend income to shareholders over the long term.

Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.

VCT regulation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors' report on page 23 of the full Annual Report and Financial Statements.

As part of the Government's wider review of the VCT regime, new rules have been introduced under the Finance Act (No.2) 2015 and Finance Act 2016, which include:

While these changes are significant, the Company has been advised that, had they been in place previously, they would have affected only a relatively small minority of the investments that have been made into new portfolio companies over recent years. The Board's current view is that there will be no material change in our investment policy and the application of it as a result.

The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2016. These showed that the Company has complied with all tests and continues to do so.

Future prospects
The recovery in the results for the year, and the progress in portfolio repositioning, give the Board a degree of confidence in the future performance of the Company particularly as the bulk of the portfolio is profitable with good prospects.

Board
Directors' fees, which had previously remained static since 2006, had fallen materially behind those of similar companies and have not taken account of the additional activities of the Board in recent years. Accordingly these were increased in 2016 to a level nearer to market norms. Further details are given on page 33 of the full Annual Report and Financial Statements.

Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following key performance indicators give a good indication that the Company is achieving its investment objective and policy, although the last few years have represented a setback on asset value performance. This has been addressed but may take time to take effect given the longer term nature of venture capital investment. These are:

  1. Net asset value per share and total shareholder return

Please see the "Total shareholder return to 31 December 2016" table at the start of this announcement or on page 5 in the Financial summary section of the full Annual Report and Financial Statements which shows the NAV per share as at 31 December 2016 and total shareholder return split by Ordinary shares, C shares and Income & Growth shares.

Total shareholder return is net asset value plus cumulative dividends paid since launch.

Total shareholder return increased by 1.7 per cent. to 162.6 pence per Ordinary share for the year ended 31 December 2016.

The graph on page 4 of the full Annual Report and Financial Statements reflects the relatively flat performance of the Company in recent years, as discussed in the Chairman's statement above.

  1. Dividend distributions

Dividends paid in respect of the year ended 31 December 2016 were 5.0 pence per share (2015: 5.0 pence per share), in line with the Boards 2016 dividend objective. Cumulative dividends paid since inception are 91.0 pence per share.

As mentioned in the Chairman's statement, the current annual dividend target for the Company is now 4.0 pence per share.

  1. Ongoing charges

As agreed with the Manager in 2015, the ongoing charges ratio for the year to 31 December 2016 was capped at 2.75 per cent. (2015: 2.75 per cent.) with any excess 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 reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be 2.75 per cent. (capped at 2.75 per cent.).

The reduction in Management fees payable to Albion Ventures LLP in the year amounted to £94,000 (2015: £76,000).

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 adjusted share capital and reserves. The Directors do not currently have any intention to utilise 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 Ventures LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Ventures LLP also provides company secretarial and other accounting and administrative support to the Company.

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 fees payable to Albion, 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) are capped at an amount equal to 2.75 per cent. of the Company's net assets, with any excess being met by Albion by way of a reduction in management fees.

The Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2 per cent. of each investment made and monitoring fees where the Investment 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
In order 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 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 as 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.

The fee if applicable, will be payable annually. No performance fee has arisen during the year (2015: £nil). The performance threshold at 31 December 2016  was 188.1 pence for the Ordinary shares, 160.1 pence for the former C shares and 166.1 pence for the former Income & Growth shares which compare to total returns of 162.6 pence, 90.5 pence and 94.3 pence respectively, based on the latest NAV.

Investment and co-investment
The Company co-invests with other Albion Ventures LLP managed venture capital trusts and funds. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.

In the event that the proposed changes to investment policy are approved by shareholders at the Annual General Meeting, the Manager will be able to invest in non-qualifying assets, including an equity fund managed by OLIM Limited, part of the Manager's group. There will be no double charging of fees on any such investments made.

Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 70 per cent. investment requirement for venture capital trust status, the long term prospects of the current portfolio of investments, a review of the Management agreement and the services provided therein, and benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing. The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.

Alternative Investment Fund Managers Directive ("AIFMD")
The Board appointed Albion Ventures LLP as the Company's AIFM in June 2014 as required by the AIFMD.

Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 (the "Act") to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no policies in these matters and as such these requirements do not apply.

Further policies
The Company has adopted a number of further policies relating to:

and these are set out in the Directors' report on pages 23 and 24 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. The principal risks and uncertainties of the Company as identified by the Board and how they are managed are as follows:

Risk Possible consequence  Risk management
Investment and performance risk The risk of investment in poor quality assets, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company's current and future valuations.
By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses.

 
To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings.
VCT approval risk The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status.

 
To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs.
Regulatory and compliance risk The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager's Compliance Officer. The Manager reports monthly to its Board on any issues arising from compliance or regulation. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager's Compliance Officer. The report on controls is also evaluated by the internal auditors.
Operational and internal control risk The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager's business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year.
The Audit Committee reviews the Internal Audit Reports prepared by the Manager's internal auditors, PKF Littlejohn LLP. On an annual basis, the Audit Committee chairman meets with the internal audit Partner to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity. 
In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company's investment objective and policies. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP.
Economic and political risk Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways.

 
The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of equity and secured loan stock in portfolio companies and has a policy of not normally permitting any external bank borrowings within portfolio companies.
At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy back and follow on investments.
Market value of Ordinary shares The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly the market price of the Ordinary shares may not fully reflect their underlying net asset value. The Company operates a share buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent to net asset value, by providing a purchaser through the Company in absence of market purchasers.  From time to time buyback cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust its buyback authorities, which are renewed each year.
New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors.

Viability statement
In accordance with the FRC UK Corporate Governance Code published in September 2014 and principle 21 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2019. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timelines for finding, assessing and completing investments.

The Directors have carried out a robust assessment of the principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment. The Board deliberated over the importance of the Manager and the processes that they have in place for dealing with the principal risks.

The Board assessed the ability of the Company to raise finance and deploy capital. As explained in the Chairman's statement above and in this Strategic report the repositioning of the portfolio will help secure the long term future for the Company. The portfolio is well balanced after the process of reducing the proportion of the portfolios holdings in investments made prior to the crash in 2008 and geared towards long term growth delivering dividends and capital growth 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.

Taking into account the processes for mitigating risks, monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model and the balance of the portfolio the Directors have 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 2019.

This Strategic report of the Company for the year ended 31 December 2016 has been prepared in accordance with the requirements of section 414A of 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,

Dr. N E Cross
Chairman
23 March 2017

Responsibility Statement

In preparing these financial statements for the year to 31 December 2016, the Directors of the Company, being Dr Neil Cross, Robin Archibald, Mary Anne Cordeiro, Modwenna Rees-Mogg 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 2016 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 and loss of the Company for the year ended 31 December 2016 as required by DTR 4.1.12R;

 -the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 31 December 2016 and description of principal risks and uncertainties that the Company faces); and

  -the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).

 A detailed "Statement of Directors' responsibilities" is contained on page 27 within the full audited Annual Report and Financial Statements.

By order of the Board
Dr N E Cross
Chairman
23 March 2017

Income statement

    Year ended 31 December 2016 Year ended 31 December 2015
    Revenue Capital Total Revenue Capital Total
  Note £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments 3 - 2,419 2,419 - (3,684) (3,684)
Investment income 4 1,570 - 1,570 2,165 - 2,165
Investment management fees 5 (369) (1,108) (1,477) (386) (1,157) (1,543)
Other expenses 6 (284) - (284) (239) - (239)
Profit/(loss) on ordinary activities before tax   917 1,311 2,228 1,540 (4,841) (3,301)
Tax (charge)/credit on ordinary activities 8 (166) 167 1 (267) 235 (32)
Profit/(loss) and total comprehensive income attributable to shareholders   751 1,478 2,229 1,273 (4,606) (3,333)
Basic and diluted return/(loss) per share (pence)* 10 0.8 1.7 2.5 1.6 (5.6) (4.0)

* excluding 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 2016 31 December 2015
  Note £'000 £'000
Fixed asset investments 11 57,021 52,711
       
Current assets      
Trade and other receivables less than one year 13 1,096 1,982
Cash and cash equivalents   6,752 7,509
    7,848 9,491
       
Total assets   64,869 62,202
       
Creditors: amounts falling due within one year      
Trade and other payables less than one year 14 (443) (411)
       
Total assets less current liabilities   64,426 61,791
       
Equity attributable to equity holders      
Called up share capital 15 1,007 919
Share premium   46,585 40,171
Capital redemption reserve   28 28
Unrealised capital reserve   4,625 (424)
Realised capital reserve   9,658 13,229
Other distributable reserve   2,523 7,868
Total equity shareholders' funds   64,426 61,791
Basic and diluted net asset value per share (pence)* 16 71.6 73.9
       


* 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 23 March 2017 and were signed on its behalf by

Dr. N E Cross
Chairman
Company number: 04114310

Statement of changes in equity

  Called up share
capital
Share premium Capital redemption reserve Unrealised capital reserve Realised capital reserve* Other distributable reserve* Total
  £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 January 2016 919 40,171 28 (424) 13,229 7,868 61,791
Return/(loss) and total comprehensive income for the year - - - 1,937 (459) 751 2,229
Transfer of previously unrealised losses on disposal of investments - - - 3,112 (3,112) - -
Purchase of shares for treasury - - - - - (1,638) (1,638)
Issue of equity 88 6,574 - - - - 6,662
Cost of issue of equity - (160) - - - - (160)
Dividends paid - - - - - (4,458) (4,458)
As at 31 December 2016 1,007 46,585 28 4,625 9,658 2,523 64,426
               
As at 1 January 2015 840 33,917 28 (632) 11,515 19,218 64,886
(Loss)/return and total comprehensive income for the year - - - (1,632) (2,974) 1,273 (3,333)
Transfer of previously unrealised losses on disposal of investments - - - 1,840 (1,840) - -
Purchase of shares for treasury - - - - - (1,973) (1,973)
Issue of equity 79 6,429 - - - - 6,508
Cost of issue of equity - (175) - - - - (175)
Transfer from other distributable reserve to realised capital reserve - - - - 6,528 (6,528) -
Dividends paid - - - - - (4,122) (4,122)
As at 31 December 2015 919 40,171 28 (424) 13,229 7,868 61,791

* These reserves amount to £12,181,000 (2015: £20,673,000) which is considered distributable.

Statement of cash flows

  Year ended
31 December 2016
Year ended
31 December 2015
  £'000 £'000
Cash flow from operating activities    
Loan stock income received 1,185 1,949
Dividend income received 76 85
Deposit interest received 80 35
Investment management fees paid (1,413) (1,742)
Other cash payments (281) (261)
Corporation tax paid (32) -
Net cash flow from operating activities (385) 66
     
Cash flow from investing activities    
Purchase of fixed asset investments (3,821) (7,622)
Disposal of fixed asset investments 3,044 13,381
Net cash flow from investing activities (777) 5,759
     
     
Cash flow from financing activities    
Issue of ordinary share capital 5,869 5,832
Cost of issue of equity (8) (11)
Dividends paid (3,818) (3,613)
Purchase of own shares (including costs) (1,638) (1,973)
Net cash flow from financing activities 405 235
     
     
(Decrease)/increase in cash and cash equivalents (757) 6,060
Cash and cash equivalents at start of period 7,509 1,449
Cash and cash equivalents at end of period 6,752 7,509
     
Cash and cash equivalents comprise    
Cash at bank and in hand 6,752 7,509
Cash equivalents - -
Total cash and cash equivalents 6,752 7,509
     

 Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 ("FRS 102"), and with the 2014 Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by The Association of Investment Companies ("AIC").

The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss (FVTPL). The Company values investments by following the IPEVCV Guidelines and further detail on the valuation techniques used are outlined in note 2 below.

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

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

In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 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 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 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.

Debtors and creditors and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than creditors.

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 expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.

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

Investment management fees 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:

Performance incentive fee
Any performance incentive fee will be allocated between other distributable and realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns.

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

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

Reserves
Share premium account
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs.

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

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

Realised capital reserve
The following are disclosed in this reserve:

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

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

Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.

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

3. Gains/(losses) on investments

  Year ended
31 December 2016
£'000
Year ended
 31 December 2015
£'000
Unrealised gains/(losses) on fixed asset investments 1,937 (1,632)
Realised gains/(losses) on fixed asset investments 482 (2,052)
  2,419 (3,684)

4. Investment income

  Year ended
31 December 2016
£'000
Year ended
31 December 2015
£'000
Income recognised on investments    
Loan stock interest and other fixed returns 1,417 2,042
UK dividend income 76 85
Bank deposit interest 77 38
  1,570 2,165

Interest income earned on impaired investments at 31 December 2016 amounted to £154,000 (2015: £215,000).

5. Investment management fees

  Year ended
31 December 2016
£'000
Year ended
31 December 2015
£'000
Investment management fee charged to revenue 369 386
Investment management fee charged to capital 1,108 1,157
  1,477 1,543

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

During the year, services of a total value of £1,477,000 (2015: £1,543,000) were purchased by the Company from Albion Ventures LLP in respect of management fees. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals was £373,000 (2015: £310,000).

During the year, the Company was not charged by Albion Ventures LLP in respect of Patrick Reeve's services as a Director (2015: £nil). 

Albion Ventures LLP, the Manager, holds 22,795 Ordinary shares in the Company.

Albion Ventures LLP is, from time to time, eligible to receive transaction fees and Directors' fees from portfolio companies.  During the year ended 31 December 2016, fees of £197,000 attributable to the investments of the Company were received by Albion Ventures LLP pursuant to these arrangements (2015: £273,000).

6. Other expenses

  Year ended
31 December 2016
£'000
Year ended
31 December 2015
£'000
 

Directors' fees (including NIC)
97 81
Other administrative expenses 144 117
Tax services 17 15
Auditor's remuneration for statutory audit services (excluding VAT) 26 26
  284 239

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

  Year ended
31 December 2016
£'000
Year ended
31 December 2015
£'000
 

Directors' fees
90 76
National insurance 7 5
  97 81

The Company's key management personnel are the Directors. Further information regarding Directors' remuneration can be found in the Directors' remuneration report on pages 33 to 35 of the full Annual Report and Financial Statements.

8. Tax on ordinary activities

  Year ended
31 December 2016
£'000
Year ended
31 December 2015
£'000
 

UK corporation tax charge in respect of current year
- 32
UK corporation tax credit in respect of prior years (1) -
  (1) 32

Factors affecting the tax charge:

  Year ended
31 December 2016
£'000
Year ended
31 December 2015
£'000
 

Return/(loss) on ordinary activities before taxation
2,228 (3,301)
     
Tax charge/(credit) on profit at the companies rate of 20 per cent. 446 (660)
     
Factors affecting the charge:    
Non-taxable (gains)/losses (484) 737
Income not taxable (15) (17)
Excess management expenses carried forward/(utilised) 53 (28)
Adjustment in respect of prior years (1) -
  (1) 32

The tax charge for the year shown in the Income statement is lower than the companies rate of corporation tax in the UK of 20 per cent. (2015: 20 per cent.). The differences are explained above.

Consortium relief is recognised in the accounts in the period in which the claim is submitted to HMRC and is shown as tax in respect of prior year.

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 £267,000 (2015: £nil) that are available for offset against future profits. A deferred tax asset of £53,000 (2015: £nil) 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 2016
£'000
Year ended
31 December 2015
£'000
     
Dividend of 1.25p per share paid on 9 February 2015 - 979
Dividend of 1.25p per share paid on 30 April 2015 - 1,050
Dividend of 1.25p per share paid on 30 June 2015 - 1,035
Dividend of 1.25p per share paid on 30 October 2015 - 1,058
Dividend of 1.25p per share paid on 29 January 2016 1,045 -
Dividend of 1.25p per share paid on 29 April 2016 1,146 -
Dividend of 1.25p per share paid on 30 June 2016 1,135 -
Dividend of 1.25p per share paid on 31 October 2016 1,132 -
  4,458 4,122

In addition to the dividends summarised above, the Board declared a first dividend for the year ending 31 December 2017 of 1 penny per share.  This dividend was paid on 31 January 2017 to shareholders on the register on 13 January 2017. The total dividend was £900,000. The Board has declared a second dividend for the year ending 31 December 2017 of 1 penny per share. The dividend will be paid on 30 June 2017 to shareholders on the register on 2 June 2017. The total dividend will be approximately £955,000.

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

  Year ended 31 December 2016 Year ended 31 December 2015
  Revenue Capital Total Revenue Capital Total
             
Profit/(loss) attributable to equity shares (£'000) 751 1,478 2,229 1,273 (4,606) (3,333)
Weighted average shares in issue (excluding treasury shares)    

89,594,274
  82,538,109
Return/(loss) attributable per equity share (pence) 0.8 1.7 2.5 1.6 (5.6) (4.0)

The weighted average number of shares is calculated excluding treasury shares of 10,705,070 (2015: 8,282,070).

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

  31 December 2016
£'000
31 December 2015
£'000
Investments held at fair value through profit or loss    
Unquoted equity and preference shares 23,887 20,014
Quoted equity 1,850 2,394
Unquoted loan stock 31,284 30,303
  57,021 52,711

  31 December 2016
£'000
31 December 2015
£'000
Opening valuation 52,711 63,520
Purchases at cost 3,821 7,765
Disposal proceeds (2,164) (14,983)
Realised gains/(losses) 482 (2,052)
Movement in loan stock accrued income 234 93
Unrealised gains/(losses) 1,937 (1,632)
Closing valuation 57,021 52,711
     
Movement in loan stock accrued income    
Opening accumulated movement in loan stock accrued income 187 94
Movement in loan stock accrued income 234 93
Closing accumulated movement in loan stock accrued income 421 187
     
Movement in unrealised gains/(losses)    
Opening accumulated unrealised losses (472) (680)
Transfer of previously unrealised losses to realised reserve on disposal of investments 3,112 1,840
Movement in unrealised gains/(losses) 1,937 (1,632)
Closing accumulated unrealised gains/(losses) 4,577 (472)
     
Historic cost basis    
Opening book cost 52,996 64,106
Purchases at cost 3,821 7,765
Sales at cost (4,795) (18,875)
Closing book cost 52,023 52,996

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 debtors and creditors.

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 impaired and past due assets are covered by the value of security held for these loan stock investments.

Unquoted fixed asset investments are valued at fair value in accordance with the IPEVCV guidelines as follows:

Valuation methodology 31 December 2016
£'000
31 December 2015
£'000
     
Valuation supported by third party or desktop valuation 30,251 25,557
Cost and price of recent investment (reviewed for impairment or uplift) 8,238 6,189
Revenue multiple 7,192 12,391
Earnings multiple 4,282 4,593
Offer price 5,208 1,587
  55,171 50,317

Fair value investments had the following movements between valuation methodologies between 31 December 2015 and 31 December 2016:

Change in valuation methodology (2015 to 2016) Value as at
31 December 2016
£'000
Explanatory note
     
Revenue multiple to offer price 5,208 Third party offer received
Revenue multiple to price of recent investment 888 Recent external funding round
Cost to valuation supported by third party valuation 495 Third party valuation has recently taken place
Cost to revenue multiple 82 More recent information available

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 IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 December 2016.

FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27, which has been adopted early.

Fair value hierarchy Definition
Level 1 Unadjusted 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 in the year to 31 December 2016:

  31 December 2016 31 December 2015
  Equity Unquoted
loan stock
Total Equity Unquoted
loan stock
Total
  £'000 £'000 £'000 £'000 £'000 £'000
Opening balance 20,014 30,303 50,317 26,086 34,994 61,080
Additions 2,081 1,740 3,821 1,211 6,176 7,387
Disposals (1,473) (691) (2,164) (6,557) (8,344) (14,901)
Accrued loan stock interest - 234 234 - 93 93
Realised gains/(losses) 531 (49) 482 (1,391) (742) (2,133)
Debt/equity swap and restructurings 1,500 (1,500) - 434 (434) -
Unrealised gains 1,234 1,247 2,481 231 (1,440) (1,209)
Closing balance 23,887 31,284 55,171 20,014 30,303 50,317
             

FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions.  64 per cent. of the portfolio of investments is based on cost, recent investment price, agreed offer price or is loan stock, and as such the Board considers that the assumptions used for their valuations are the most reasonable. The Directors believe that changes to reasonable possible alternative assumptions (by adjusting the revenue and earnings multiples) for the valuations of the remainder of the portfolio companies could result in an increase in the valuation of investments by £1,996,000 or a decrease in the valuation of investments by £1,943,000. For valuations based on earnings and revenue multiples, the Board considers that the most significant input is the price/earnings ratio; for valuations based on third party valuations, the Board considers that the most significant inputs are price/earnings ratio, discount factors and market values for buildings; which have been adjusted to drive the above sensitivities.

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 9.9B, 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 2016 as described below:


 

Company
Country of incorporation (Loss)/
profit before tax
£'000
Net
(liabilities)/ assets
£'000
 

 

Result for year ended
% class and share type % total voting rights  
               
Albion Investment Properties Limited Great Britain n/a* (988) 31 December 2015 31.8% A Ordinary 31.8%  
AMS Sciences Limited Great Britain n/a* 845 30 June 2015 41.7% Ordinary 41.7%  
Blackbay Limited Great Britain (820) (4,945) 31 December 2015 67.1% A Ordinary 23.5%  
Bravo Inns Limited Great Britain n/a* (211) 31 March 2016 28.8% Ordinary 28.8%  
Mi-Pay Group PLC Great Britain (1,436) 1,077 31 December 2015 21.6% Ordinary 21.6%  
memsstar Limited Great Britain (282) 2,128 31 December 2015 67.3% A Ordinary 30.1%  
Premier Leisure (Suffolk) Limited Great Britain n/a* 833 30 June 2015 25.8% Ordinary 25.8%  
The Charnwood Pub Company Limited Great Britain n/a* (3,774) 31 March 2016 22.5% Ordinary 22.5%  
The Q Garden Company Limited Great Britain n/a* (6,255) 31 January 2016 33.4% A Ordinary 33.4%  
The Weybridge Club Limited Great Britain (1,775) (7,867) 30 September 2015 25.2% Ordinary 25.2%  
             

*The Company files abbreviated accounts which does not disclose this information.

13. Current assets

Trade and other receivables less than one year 31 December 2016 31 December 2015
  £'000 £'000
Prepayments and accrued income 20 22
Other debtors 60 123
UK corporation tax receivable 1 -
Deferred consideration 1,015 1,837
  1,096 1,982

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

14. Creditors: amounts falling due within one year

   31 December 2016 31 December 2015
  £'000 £'000
Trade creditors 8 19
Accruals and deferred income 435 360
UK corporation tax payable - 32
  443 411

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

15. Called up share capital

Allotted, called up and fully paid £'000
91,872,004 Ordinary shares of 1 penny each at 31 December 2015 919
8,799,230 Ordinary shares of 1 penny each issued during the year 88
100,671,234 Ordinary shares of 1 penny each at 31 December 2016 1,007
   
8,282,070 Ordinary shares of 1 penny each held in treasury at 31 December 2015 (83)
2,423,000 Ordinary shares purchased during the year to be held in treasury (24)
10,705,070 Ordinary shares of 1 penny each held in treasury at 31 December 2016 (107)
   
89,966,164 Ordinary shares of 1 penny each in circulation* at 31 December 2016 900

* Carrying one vote each

The Company purchased 2,423,000 Ordinary shares (2015: 2,617,000) to be held in treasury at a cost of £1,638,000 including stamp duty (2015: £1,973,000) during the period to 31 December 2016. Total share buy backs in 2016 represents 2.4 per cent. (2015: 2.8 per cent.) of called-up share capital.

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 allotment
Number of  shares allotted Aggregate nominal
value
 of shares
(£'000)
Issue price (pence per share) Net invested (£'000) Opening market price on allotment date
(pence per share)
29 January 2016 186,693 2 75.86 140 73.25
29 April 2016 232,412 2 71.42 164 71.00
30 June 2016 238,967 2 69.58 165 67.00
31 October 2016 244,254 2 67.97 164 65.50
  902,326     633  

During the period to 31 December 2016, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCTs Prospectus Top Up Offers 2015/2016:


Date of allotment
Number of shares allotted Aggregate nominal
value
of shares
(£'000)
Issue price
(pence per share)
Net consideration received
(£'000)
Opening market price on allotment date
(pence per share)
29 January 2016 2,651,878 27 77.50 2,014 73.25
29 January 2016 1,207,352 12 77.90 917 73.25
31 March 2016 3,793,157 38 75.00 2,760 73.00
6 April 2016 184,763 2 74.20 134 73.00
6 April 2016 9,604 - 74.60 7 73.00
6 April 2016 50,150 - 75.00 37 73.00
  7,896,904 79   5,869  

16. Basic and diluted net asset value per share

  31 December 2016 31 December 2015
  (pence per share)  (pence per share)
Basic and diluted net asset value per Ordinary share 71.6 73.9

The basic and diluted net asset values per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (less treasury shares) of 89,966,164 Ordinary shares at 31 December 2016 (2015: 83,589,934 Ordinary shares).

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.

The Company's financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances and debtors and creditors 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 creditors. 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:

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 17 to 19 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 £57,021,000 (2015: £52,711,000). Fixed asset investments form 89 per cent. of the net asset value as at 31 December 2016 (2015: 85 per cent.).

More details regarding the classification of fixed asset investments are shown in notes 11 and 13.

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. To mitigate the investment price risk for the Company as a whole, the strategy of the Company is to invest in a broad spread of industries with up to two-thirds of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 17 to 19 of the full Annual Report and Financial Statement and in the Strategic report.

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 IPEVCV Guidelines.

As required under FRS 102 section 34.29, the Board is required to illustrate by way of a sensitivity analysis the degree of exposure to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a 10 per cent. change based on the current economic climate. The impact of a 10 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.

The sensitivity of a 10 per cent. increase or decrease in the valuation of the fixed asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £5,702,000 (2015: £5,271,000).

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 is estimated that a rise of one percentage point in all interest rates would have increased total return before tax for the year by approximately £77,000 (2015: £25,000).  Furthermore, it is 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 4.7 per cent. (2015: 5.4 per cent.). The weighted average period to maturity for the unquoted loan stock is approximately 3.1 years (2015: 3.4 years).

The Company's financial assets and liabilities as at 31 December 2016, all denominated in pounds sterling, consist of the following:

  31 December 2016 31 December 2015
   

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
- - 23,887 23,887 - - 20,014 20,014
Quoted equity - - 1,850 1,850 - - 2,394 2,394
Unquoted loan stock 28,440 - 2,844 31,284 26,283 - 4,020 30,303
Debtors* - - 1,076 1,076 - - 1,963 1,963
Current liabilities* - - (443) (443) - - (379) (379)
Cash - 6,752 - 6,752 - 7,509 - 7,509
Total 28,440 6,752 29,214 64,406 26,283 7,509 28,012 61,804

*The debtors and current liabilities do not reconcile to the Balance sheet as prepayments and tax refundable/(payable) 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 debtors, 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. Typically loan stock instruments have a first fixed charge or a fixed and floating charge 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 debtors) 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 2016 was limited to £31,284,000 (2015: £30,303,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £6,752,000 (2015: £7,509,000) cash deposits with banks and £1,076,000 (2015: £1,959,000) of other debtors.

As at the Balance sheet date, the cash held by the Company is held with Lloyds Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc and National Westminster Bank plc. Credit risk on cash transactions is 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 £6,347,000 as at 31 December 2016 (2015: £5,965,000).

The Company has no committed borrowing facilities as at 31 December 2016 (2015: £nil). The Company had cash balances of £6,752,000 (2015: £7,509,000). 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 £443,000 as at 31 December 2016 (2015: £411,000).

The carrying value of loan stock investments at 31 December 2016, as analysed by expected maturity dates was as follows:

Redemption date Fully performing
£'000
Impaired
£'000
Past due
£'000
Total
£'000
Less than one year 7,267 4,647 4,029 15,943
1-2 years 1,881 1,869 544 4,294
2-3 years 548 26 862 1,436
3-5 years 3,929 64 1,198 5,191
+5 years 3,085 413 922 4,420
Total 16,710 7,019 7,555 31,284

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

The average annual interest yield on the total cost of past due loan stock is 4.1 per cent. (2015: 3.0 per cent.).

Impaired loan stock has a cost of £9,300,000.

The carrying value of loan stock investments at 31 December 2015, as analysed by expected maturity dates, was as follows:

Redemption date Fully performing
£'000
Impaired
£'000
Past due
£'000
Total
£'000
Less than one year 9,420 4,846 144 14,410
1-2 years 1,906 1,769 - 3,675
2-3 years 793 - 1,037 1,830
3-5 years 5,413 103 1,049 6,565
+5 years 2,992 - 831 3,823
Total 20,524 6,718 3,061 30,303

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 2016 are stated at fair value as determined by the Directors, with the exception of debtors and creditors and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than creditors. 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 at 31 December 2016.
       
19. Post balance sheet events
Since 31 December 2016 the Company has had the following post balance sheet events:

On 29 November 2016 the Company announced the publication of a prospectus in relation to an offer for subscription for new Ordinary shares. A Securities Note, which forms part of the prospectus, has been sent to shareholders.

The following new Ordinary shares of nominal value 1 penny each were allotted under the Offers after 31 December 2016:

Date of allotment Number of shares allotted Aggregate
nominal
value of
shares
(£'000)
Issue price (pence per share) Net consideration received (£'000) Opening market
price on
allotment date
(pence per share)
31 January 2017 1,063,482 11 70.2 732 61.50
31 January 2017 377,120 4 70.6 260 61.50
31 January 2017 3,856,902 38 70.9 2,652 61.50
  5,297,504 53   3,644  

As a result of the strong demand for the Company's shares the Board was able to announce on 22 February 2017 that subscription had reached its £6 million limit under the prospectus offer and was closed.

Under the terms of the dividend reinvestment scheme, the following new Ordinary shares of nominal value 1 penny each were allotted after 31 December 2016:

Date of allotment Number of  shares allotted Aggregate nominal value of shares (£'000)  

Issue price (pence per share)
Net invested (£'000) Opening market price on allotment date (pence per share)
31 January 2017 193,189 2 68.75 131 61.50

             
             
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, 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 2016 and 31 December 2015, 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 2016, 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 s498 (2) or (3) of the Companies Act 2006.

The Company's Annual General Meeting will be held at The City of London Club, 19 Old Broad Street, London, EC2N 1DS on 7 June 2017 at 11.00am.

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-ventures.co.uk/funds/AATG,  where the Report can be accessed as a PDF document via a link in the 'Financial Reports and Circulars' section.

LEI number: 213800TKJUY376H3KN16

AATG Split of portfolio by sector



This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Albion Technology & General VCT PLC - Ordinary Shares via Globenewswire


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Albion Technology & General VCT PLC - Ordinary Shares : Annual Financial Report - RNS