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Albion Enterprise VCT PLC   -  AAEV   

Albion Enterprise VCT PLC: Half-yearly Financial Report

Released 14:04 04-Dec-2019

Albion Enterprise VCT PLC: Half-yearly Financial Report

Albion Enterprise VCT PLC

LEI Code 213800OVSRDHRJBMO720

As required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.2, Albion Enterprise VCT PLC today makes public its information relating to the Half-yearly Financial Report (which is unaudited) for the six months to 30 September 2019. This announcement was approved by the Board of Directors on 4 December 2019.

The full Half-yearly Financial Report (which is unaudited) for the period to 30 September 2019, will shortly be sent to shareholders. Copies of the full Half-yearly Financial Report will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/AAEV/30Sep19.pdf.

Albion Enterprise VCT PLC (the “Company”) is a Venture Capital Trust and the investment objective of the Company is to provide investors with a regular and predictable source of income, combined with the prospect of longer term capital growth.

Investment policy

The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.

VCT qualifying and non-VCT qualifying investments

Application of the investment policy is designed to ensure that the Company continues to qualify and is 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 investment.

Funds held prior to investing 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 or 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 10 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 venture capital trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single company is 15 per cent. of the Company’s assets at cost, thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where is represents a significantly higher proportion of total assets prior to a realisation opportunity being available.

Gearing

The Company’s maximum exposure in relation to gearing is restricted to 10 per cent. of its adjusted share capital and reserves.

Financial calendar

Record date for second dividend7 February 2020
  
Payment date for second dividend28 February 2020
  
Financial year end31 March

Financial highlights

 Unaudited six months ended
 30 September 2019
Unaudited six months ended
30 September 2018
Audited year ended
31 March 2019
 (pence per share)(pence per share)(pence per share)
    
Opening net asset value117.76109.46109.46
Capital return4.525.7714.35
Revenue return0.31(0.02)(0.01)
Total return4.835.7514.34
Dividends paid(3.00)(3.00)(6.00)
Impact of Fundraising(0.17)(0.09)(0.04)
    
Net asset value119.42112.12117.76

 

Total shareholder return to 30 September 2019:(Pence per share)
  
Dividends paid during the year ended: 
31 March 20080.70
31 March 20091.65
31 March 20102.00
31 March 20113.00
31 March 20123.00
31 March 20133.50
31 March 20145.00
31 March 20155.00
31 March 20165.00
31 March 20175.00
31 March 20185.00
31 March 20196.00
Dividends paid in the six months to 30 September 20193.00
Total dividends paid to 30 September 201947.85
Net asset value as at 30 September 2019119.42
Total shareholder return to 30 September 2019167.27

In addition to the dividends summarised above, the Board has declared a second dividend for the year ending 31 March 2020, of 3.00 pence per share to be paid on 28 February 2020 to shareholders on the register on 7 February 2020.

Notes
 ·The dividend of 0.70 pence per share paid during the period ended 31 March 2008 and first dividend of 0.40 pence per share paid during the year ended 31 March 2009 were paid to shareholders who subscribed in the 2006/2007 offer only.

Interim management report

Introduction

I am pleased to report a total return of 4.83 pence per share for the six months to 30 September 2019 (30 September 2018: 5.75 pence per share). These results demonstrate continued growth within our investment portfolio after excellent results over the past two years (31 March 2019: 14.34 pence per share; 31 March 2018: 13.40 pence per share).

Results and dividends

On 30 September 2019, the net asset value was £76.2 million or 119.42 pence per share compared to £67.4 million or 117.76 pence per share on 31 March 2019. The total return before taxation was £3.1 million compared to £3.3 million for the six months to 30 September 2018.

A first dividend of 3.00 pence per share was paid on 30 August 2019. The Directors have declared a second dividend of 3.00 pence per share payable on 28 February 2020, to shareholders on the register on 7 February 2020. This is in line with the current annual dividend target of 6.00 pence per share. The Company continues to offer a Dividend Reinvestment Scheme whereby shareholders can elect to receive dividends in the form of new shares.

Investment performance and progress

The Company had four significant investment disposals during and after the period end.

Shortly after the period end, our holding in Process Systems Enterprise was sold to Siemens, realising £4.1 million (an uplift of £2.5 million in the period) and resulting in a 10 times return on the original investment. Following the successful sale of Grapeshot in 2018 this is the second time in just over a year that the Company has sold a technology investment for a ten times multiple.

As part of a restructuring of Radnor House, one of our school investments, we exited Radnor House Twickenham in November 2019 realising £4.4 million. This exit resulted in an average Internal Rate of Return of 19.6% per annum over the past nine years. The Company has retained its stake in Radnor House Sevenoaks, which has further capacity to grow.

Our investments in the pub sector, Bravo Inns and Bravo Inns II, were also sold after the period end generating combined proceeds of £3.9 million. Over the life of our investment, including interest received, we generated a blended return of 1.7 times cost.

The sale of Earnside Energy completed during the period realising £1.7 million. Including interest received during the time this investment was held, the sale resulted in a total return of 1.4 times original cost.

The Company’s unrealised and realised gains totalled £3.9 million for the six months to 30 September 2019. The key movements in the period, apart from the disposals detailed above, included: uplifts in Oviva AG and Koru Kids of £341,000 and £301,000 respectively after the agreement of new external funding rounds; and reductions in value of Zift Channel Solutions of £321,000 due to slow trading growth, and Aridhia Informatics of £294,000.

During the period, some £2.7 million was invested in new and existing companies. Investments in new companies included:

Significant follow on investments included £606,000 in Proveca, for the reformulation of paediatric medicines and £221,000 in Koru Kids, which provides an online marketplace connecting parents and nannies.

Investment portfolio by sector

The pie chart at the end of this announcement outlines the different sectors in which the Company’s assets, at carrying value, are currently held.

New management arrangements and reduction in total expenses cap

The Board has reviewed the management arrangements in place with Albion Capital Group LLP, the Manager, with a view to provide further benefit to shareholders.

Shareholders who invested on 5 April 2007, the Company’s first allotment, and reinvested their dividends will have seen a return (including tax relief) of three times their initial net investment. This excellent investment performance has resulted in the payment of higher management and performance fees to the Manager than were originally anticipated. The Board feels these have been well deserved. However, whilst these management arrangements were in line with market levels at the time of launch in 2007, the VCT market has developed since then. The Board and Manager therefore feel there is now a need for an amendment to the fee level and the performance incentive structure.

After a comprehensive exercise reviewing the management arrangements, the Board and the Manager have today agreed that the following changes be made:

  1. A reduction in the management fee from 2.5% to 2.0% of net asset value;
  2. Implementation of an administration fee of 0.2% of net asset value;
  3. Increasing the hurdle, before which any performance incentive fee is payable, to the higher of (i) Retail Price Index plus 2% and (ii) the existing arrangement of Base Rate plus 2%; and
  4. Reducing the total expenses cap from 3.0% to 2.5% of ongoing charges (before any incentive fee).

This was a collaborative exercise with the Manager, who has voluntarily agreed to a change in the contractual terms of the Investment Management Agreement set out above, for which the Board is appreciative. These changes, which are beneficial to shareholders, will take effect from 1 October 2019.

Risks & uncertainties

The outlook for the UK economy continues to be a key risk affecting the Company. The forthcoming General Election and the effect of the withdrawal of Britain from the European Union are considered the biggest risks for the Company. They continue to be difficult to quantify.

The Company’s investment risk is mitigated through a variety of processes, including investing in a diversified portfolio in terms of sector and stage of maturity and focusing on opportunities where it is believed growth can be resilient and sustainable.

Other principal risks and uncertainties remain unchanged and are detailed in note 13 below.

Share buy-backs

It remains the Board’s policy to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest, including the maintenance of sufficient resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value so far as market conditions and liquidity permit.

Transactions with the Manager

Details of the transactions that took place with the Manager during the period can be found in note 5. Details of related party transactions can be found in note 11.

Albion VCTs Prospectus Top Up Offers

The Company was pleased to announce on 2 April 2019 that it had reached its £8 million limit under the Albion VCTs Prospectus Top Up Offers 2018/19 which was fully subscribed and closed. Details of shares issued under the Offer can be found in note 8.

The proceeds of the Offer are being deployed into new investments as detailed above and further funding of existing portfolio companies to support growth.

The Company announced on 22 October 2019 that it has launched a Prospectus Top Up Offer to raise up to £6 million before issue costs, with a further over-allotment facility of £2 million, of new Ordinary shares for subscription in the 2019/20 and 2020/21 tax years. Full details of the offer are contained in a Prospectus that was published on the same date on the Manager’s website at www.albion.capital/investor-centre/current-offers.

Fraud warning
We note over recent months an increase in the number of shareholders being contacted in connection with increasingly sophisticated but fraudulent financial scams. This is often by a phone call or an email which normally originates from outside of the UK, often claiming or appearing to come from a corporate finance firm and typically offering to buy your VCT shares at an inflated price. If you are contacted, we recommend that you do not respond with any personal information and say you are not interested.

The Manager maintains a page on their website in relation to fraud advice at www.albion.capital/investor-centre/fraud-advice.

If you are in any doubt, we recommend that you seek financial advice before taking any action. You can also call Shareholder relations on 020 7601 1850, or email info@albion.capital, if you wish to check whether any claims made are genuine.

Outlook

We are encouraged by these interim results and the successful exit of both technology and asset backed businesses during and after the period end. We as a Board see the portfolio as being well balanced across a variety of growth sectors. There is a strong pipeline of investments, as well as a number of existing businesses having the potential to continue to deliver positive returns for shareholders.

Maxwell Packe

Chairman
4 December 2019

Responsibility statement

The Directors, Maxwell Packe, Lord St John of Bletso, The Dowager Lady Balfour of Burleigh, Christopher Burrows and Patrick Reeve, are responsible for preparing the Half-yearly Financial Report. In preparing these condensed Financial Statements for the period to 30 September 2019 we, the Directors of the Company, confirm that to the best of our knowledge:

  1. the condensed set of Financial Statements, which has been prepared in accordance with Financial Reporting Standard 104 “Interim Financial Reporting”, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company as required by DTR 4.2.4R;
     
  2. the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
     
  3. the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).

This Half-yearly Financial Report has not been audited or reviewed by the Auditor.

For and on behalf of the Board

Maxwell Packe

Chairman
4 December 2019

Portfolio of investments

  As at 30 September 2019  
Fixed asset investments% voting rights Cost
£’000
Cumulative movement
in value
£’000
 

Value
£’000
 Change in
value for the period*
£’000
Egress Software Technologies Limited9.93,3655,9369,301 -
Radnor House School (Holdings) Limited9.82,9914,7077,698 391
Process Systems Enterprise Limited4.04063,6944,100 2,542
Mirada Medical Limited14.21,4872,3003,787 184
Proveca Limited9.61,5122,0973,609 (14)
Bravo Inns II Limited13.12,1501,0323,182 276
Quantexa Limited2.76992,1972,896 -
Regenerco Renewable Energy Limited12.51,2618502,111 43
The Street by Street Solar Programme Limited8.68917361,627 59
Alto Prodotto Wind Limited11.19185961,514 (40)
G.Network Communications Limited2.72731,2061,479 218
Greenenerco Limited28.68495921,441 (2)
DySIS Medical Limited6.02,742(1,325)1,417 19
Sandcroft Avenue Limited (T/A Hussle)7.01,273(184)1,089 (118)
Convertr Media Limited6.3992201,012 5
Oviva AG3.5642346988 341
OmPrompt Holdings Limited10.7994(32)962 (8)
Beddlestead Limited8.1966(5)961 (2)
The Evewell (Harley Street) Limited7.3953-953 -
MPP Global Solutions Limited2.9950-950 -
Zift Channel Solutions Inc.2.01,053(193)860 (321)
Koru Kids Limited2.5541301842 301
Elliptic Enterprises Limited1.0792-792 -
Black Swan Data Limited1.6749-749 -
MyMeds&Me Limited7.6720(39)681 -
Cisiv Limited9.0799(185)614 (153)
Panaseer Limited2.3405156561 -
Oxsensis Limited4.4717(163)554 90
Secured by Design Limited1.9280257537 (27)
Bravo Inns Limited8.4755(221)534 60
Locum's Nest Limited4.8500(25)475 (56)
Phrasee Limited2.4474-474 -
Avora Limited2.4430-430 -
memsstar Limited8.8282108390 14
Abcodia Limited5.6953(616)337 -
Limitless Technology Limited2.1320-320 -
Arecor Limited1.5290-290 -
AVESI Limited5.517987266 4
Clear Review Limited2.0256-256 -
InCrowd Sports Limited2.723122253 -
Aridhia Informatics Limited6.41,244(1,035)209 (294)
Innovation Broking Group Limited8.484108192 24
Mi-Pay Group PLC5.81,504(1,333)171 (118)
ePatient Network Limited (T/A Raremark)1.7160-160 -
uMotif Limited1.3210(63)147 (63)
Imandra Inc.1.3121-121 -
Healios Limited0.9100-100 -
Forward Clinical Limited1.8190(95)95 (95)
MHS 1 Limited1.283(1)82 -
Symetrica Limited0.247-47 -
Total fixed asset investments 40,78321,83362,616 3,260

 

 As at 30 September 2019  
Current asset investmentsCost
£’000
Cumulative movement
in value
£’000
 

Value
£’000
 Change in
value for the period*
£’000
SVS Albion OLIM UK Equity Income Fund4,990(42)4,948 115
Total current asset investments4,990(42)4,948 115

* as adjusted for additions and disposals during the period; including realised gains/(losses).

Investment realisations in the period to 30 September 2019Cost
£’000
Opening
carrying
value
£’000
Disposal
proceeds
£’000
Total
realised
gain
£’000
Gain/(loss) on
opening
value
£’000
Disposals:     
Earnside Energy Limited1,3941,8531,675281(178)
      
Loan stock repayments and other:     
G.Network Communications Limited577577577--
Greenenerco Limited27383811-
Alto Prodotto Wind Limited23343411-
memsstar Limited161616--
Escrow adjustments**--439439439
Total fixed asset realisations2,0372,5182,779742261

** Fair value movements on deferred consideration from previously disposed investments.

Total change in value of investments for the period 3,260
Movement in loan stock accrued interest     224
Unrealised gains on fixed asset investments     3,484
Realised gains on fixed asset investments     261
Unrealised gains on current asset investments     115
Total gains on investments as per Income statement    3,860

Condensed income statement

  Unaudited
six months ended
30 September 2019
Unaudited
six months ended
30 September 2018
Audited
year ended
31 March 2019
 NoteRevenue £’000Capital £’000Total £’000Revenue £’000Capital £’000Total £’000Revenue £’000Capital £’000Total £’000
           
Gains on
investments
3-3,8603,860-4,2654,265-10,40810,408
           
Investment income4659-659434-434992-992
           
Investment
management fee
5(220)(661)(881)(195)(586)(781)(398)(1,195)(1,593)
           
Performance incentive fee5(105)(314)(419)(125)(375)(500)(333)(999)(1,332)
           
Other expenses (138)-(138)(128)-(128)(263)-(263)
           
Return/(loss) on
ordinary activities before taxation
 1962,8853,081(14)3,3043,290(2)8,2148,212
           
Tax on ordinary activities ---------
           
Return/(loss) and total comprehensive income attributable to shareholders 1962,8853,081(14)3,3043,290(2)8,2148,212
           
Basic and diluted return/(loss) per share (pence)*70.314.524.83(0.02)5.775.75(0.01)14.3514.34

* adjusting for treasury shares

Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 September 2018 and the audited statutory accounts for the year ended 31 March 2019.

The accompanying notes form an integral part of this Half-yearly Financial Report.

The total column of this Condensed 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.

Condensed balance sheet

 NoteUnaudited
30 September 2019
£’000
Unaudited
30 September 2018
£’000
Audited
31 March
2019
£’000
     
Fixed asset investments 62,61650,98759,146
     
Current assets    
Current asset investments 4,9482,5603,642
Trade and other receivables less than one year 2,6811,2561,974
Cash and cash equivalents 6,94710,4014,441
  14,57614,21710,057
     
Total assets 77,19265,20469,203
     
Payables: amounts falling due within one year    
Trade and other payables less than one year (988)(945)(1,815)
Total assets less current liabilities 76,20464,25967,388
     
Equity attributable to equity holders    
Called up share capital8720648650
Share premium 38,28529,99630,255
Capital redemption reserve 104104104
Unrealised capital reserve 21,78913,10118,672
Realised capital reserve 7,8578,7508,089
Other distributable reserve 7,44911,6609,618
     
Total equity shareholders’ funds 76,20464,25967,388
     
Basic and diluted net asset value per share (pence)* 119.42112.12117.76

* excluding treasury shares

Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 September 2018 and the audited statutory accounts for the year ended 31 March 2019.

The accompanying notes form an integral part of this Half-yearly Financial Report.

These Financial Statements were approved by the Board of Directors, and authorised for issue on 4 December 2019 and were signed on its behalf by

Maxwell Packe

Chairman
Company number: 05990732

Condensed statement of changes in equity

 Called up
share
capital
£’000
Share
premium
£’000
 

Capital redemption reserve
£’000
Unrealised
capital
reserve
£’000
Realised
capital
reserve*
£’000
Other distributable
reserve*
£’000
Total
£’000
As at 1 April 201965030,25510418,6728,0899,61867,388
Return/(loss) and total comprehensive income for the period---3,599(714)1963,081
Transfer of previously unrealised gains on disposal of investments---(482)482--
Issue of equity708,229----8,299
Cost of issue of equity-(199)----(199)
Purchase of own shares for treasury-----(454)(454)
Dividends paid-----(1,911)(1,911)
As at 30 September 201972038,28510421,7897,8577,44976,204
        
As at 1 April 201863828,94510417,65789013,63761,871
Return/(loss) and total comprehensive income for the period---4,071(767)(14)3,290
Transfer of previously unrealised gains on disposal of investments---(8,627)8,627--
Issue of equity101,072----1,082
Cost of issue of equity-(21)----(21)
Purchase of own shares for treasury-----(247)(247)
Dividends paid-----(1,716)(1,716)
As at 30 September 201864829,99610413,1018,75011,66064,259
        
As at 1 April 201863828,94510417,65789013,63761,871
Return/(loss) and total comprehensive income for the year       
---9,835(1,621)(2)8,212
Transfer of previously unrealised gains on disposal of investments---(8,820)8,820--
Issue of equity121,333----1,345
Cost of issue of equity-(23)----(23)
Purchase of own shares for treasury-----(585)(585)
Dividends paid-----(3,432)(3,432)
As at 31 March 201965030,25510418,6728,0899,61867,388

* These reserves amount to £15,306,000 (30 September 2018: £20,410,000; 31 March 2019: £17,707,000) which is considered distributable.

Condensed statement of cash flows

 Unaudited
six months ended
30 September 2019
£’000
Unaudited
six months ended
30 September 2018
£’000
Audited
year ended
31 March 2019
£’000
Cash flow from operating activities   
Investment income received735361773
Dividend income received10647170
Deposit interest received272038
Investment management fee paid(832)(769)(1,568)
Performance incentive fee paid(1,332)(1,100)(1,100)
Other cash payments(160)(158)(261)
UK corporation tax paid---
Net cash flow from operating
activities
(1,456)(1,599)(1,948)
    
Cash flow from investing activities   
Purchase of current asset investments(1,190)(1,400)(2,600)
Purchase of fixed asset investments(2,978)(4,016)(6,824)
Disposal of fixed asset investments2,3408,5598,748
Net cash flow from investing
activities
(1,828)3,143(676)
    
Cash flow from financing activities   
Issue of share capital7,807793793
Cost of issue of equity(2)(2)(3)
Dividends paid(1,603)(1,447)(2,900)
Purchase of own shares (including costs)(412)(247)(585)
Net cash flow from financing activities5,790(903)(2,695)
    
Increase/(decrease) in cash and cash equivalents2,506641(5,319)
Cash and cash equivalents at start of the period4,4419,7609,760
Cash and cash equivalents at end of the period6,94710,4014,441
    
Cash and cash equivalents comprise   
Cash at bank6,94710,4014,441
Cash equivalents---
Total cash and cash equivalents6,94710,4014,441

Notes to the condensed Financial Statements

1.         Accounting convention

The condensed Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), Financial Reporting Standard 104 – Interim Financial Reporting (“FRS 104”), 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 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 International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines and further detail on the valuation techniques used are outlined in note 2 below.

This Half-yearly Financial Report has not been audited, nor has it been reviewed by the auditor pursuant to the FRC’s guidance on Review of interim financial information.

Company information can be found on page 2 of the Half-yearly Financial Report.

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 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.

Other current assets and payables
Receivables, payables and cash are carried at amortised cost, in accordance with FRS 102. 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
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 other 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:

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
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 period 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;
·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 2013 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 buyback 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 on investments

 
Unaudited

six months ended
30 September 2019
£’000

Unaudited
six months ended
30 September 2018
£’000
Audited
year ended
31 March 2019
£’000
Unrealised gains on fixed asset investments3,4844,0389,919
Unrealised gains/(losses) on current asset investments11533(84)
Realised gains on fixed asset investments261194573
    
 3,8604,26510,408

4.        Investment income

 
Unaudited

six months ended
30 September 2019
£’000

Unaudited
six months ended
30 September 2018
£’000
Audited
year ended
31 March 2019
£’000
Interest from loans to portfolio companies526367785
Dividends10647170
Bank deposit interest272037
 659434992

5.        Investment management fee and performance incentive fee

 
Unaudited
six months ended
30 September 2019
£’000

Unaudited
six months ended
30 September 2018
£’000
Audited
year ended
31 March 2019
£’000
Investment management fee charged to revenue220195398
Investment management fee charged to capital6615861,195
Performance incentive fee charged to revenue105125333
Performance incentive fee charged to capital314375999
 1,3001,2812,925

Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report on pages 11 and 12 of the Annual Report and Financial Statements for the year ended 31 March 2019.

During the period, services of a total value of £881,000 (30 September 2018: £781,000; 31 March 2019: £1,593,000) were purchased by the Company from Albion Capital Group LLP. At the financial period end, the amount due to Albion Capital Group LLP in respect of these services disclosed within payables was £460,000 (30 September 2018: £397,000; 31 March 2019: £410,000). For the period to 30 September 2019, a performance incentive fee of £419,000 has been accrued (30 September 2018: £500,000; 31 March 2019: £1,332,000).

The new management arrangements and reduction in total expenses cap detailed in the Interim management report are with effect from 1 October 2019. As Albion is the investment manager of the Company, it is a related party of the Company under the Listing Rules, and therefore this variation to the investment management arrangements is a transaction to which Listing Rule 11.1.10R applies.

Patrick Reeve is the Chairman of the Manager, Albion Capital Group LLP. From 30 June 2018, Patrick Reeve agreed to waive his fees for his services as a Director. During the period, the Company was not charged in respect of Patrick Reeve’s services as a Director (30 September 2018: £6,000; 31 March 2019: £6,000). At the financial period end, the amount due to Albion Capital Group LLP in respect of these services disclosed as payables was £nil (30 September 2018: £nil; 31 March 2019: £nil).

Albion Capital Group LLP, its partners and staff (including Patrick Reeve) hold a total of 391,087 shares in the Company as at 30 September 2019.

Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the period to 30 September 2019, fees of £103,000 attributable to the investments of the Company were received pursuant to these arrangements (30 September 2018: £112,000; 31 March 2019: £201,000).

The Company entered into an offer agreement relating to the Offers which were open in the period with the Company’s investment manager Albion Capital Group LLP, pursuant to which Albion Capital receives a fee of 2.5 per cent. of the gross proceeds of the Offers, and out of which Albion Capital will pay the costs of the Offers. Details of the current Offer are in the Prospectus.

During the period, an amount of £1,190,000 (30 September 2018: £1,400,000; 31 March 2019: £2,600,000) was invested in the SVS Albion OLIM UK Equity Income Fund (“OUEIF”) as part of the Company’s management of surplus liquid funds. To avoid double charging, Albion Capital agreed to reduce 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 resulted in a reduction of the management fee of £16,100 (30 September 2018: £7,400; 31 March 2019: £18,000).

6.       Dividends

 Unaudited
six months ended
30 September 2019
£’000
Unaudited
six months ended
30 September 2018
£’000
Audited
year ended
31 March 2019
£’000
Dividend of 3.00p per share paid on 31 August 2018-1,7161,716
Dividend of 3.00p per share paid on 28 February 2019--1,716
Dividend of 3.00p per share paid on 30 August 20191,911--
 1,9111,7163,432

In addition to the dividends summarised above, the Board has declared a second dividend for the year ending 31 March 2020 of 3.00 pence per share which will be paid on 28 February 2020 to shareholders on the register on 7 February 2020. This is expected to amount to approximately £1,914,000.

7.          Basic and diluted return per share

 Unaudited
six months ended
30 September 2019
Unaudited
six months ended
30 September 2018
Audited
year ended
31 March 2019
 RevenueCapitalTotalRevenueCapitalTotalRevenueCapitalTotal
          
Return/(loss) attributable to equity shares (£’000)1962,8853,081(14)3,3043,290(2)8,2148,212
Weighted average shares in issue (adjusting for treasury shares)63,802,98057,255,90157,257,089
Return/(loss) attributable per Ordinary share (pence) (basic and diluted)0.314.52
4.83
(0.02)5.775.75(0.01)14.3514.34

The weighted average number of shares is calculated after adjusting for treasury shares of 8,231,443 (30 September 2018: 7,509,443; 31 March 2019: 7,821,443).

There are no convertible instruments, derivatives or contingent share agreements in issue for the Company, therefore no dilution affecting the return per share. The basic return per share is therefore the same as the diluted return per share.

8.          Called up share capital

Allotted, called up and fully paid shares of 1 penny eachUnaudited
30 September 2019
Unaudited
30 September 2018
Audited
31 March 2019
 
Number of shares72,041,98464,821,00065,047,503 
Nominal value of allotted shares (£’000)720648650 
Voting rights (number of shares net of treasury shares)63,810,54157,311,55757,226,060 
    

In the six months to 30 September 2019, the Company purchased 410,000 shares (30 September 2018: 239,000; 31 March 2019: 551,000) to be held in treasury at a nominal value of £4,100 and at a cost of £454,000 (30 September 2018: £247,000; 31 March 2019: £585,000), representing 0.6 per cent. of the shares in issue (excluding treasury shares) as at 30 September 2019.

The Company holds a total of 8,231,443 shares (30 September 2018: 7,509,443; 31 March 2019: 7,821,443) in treasury representing 11.4 per cent. of the shares in issue as at 30 September 2019.

Under the terms of the Dividend Reinvestment Scheme Circular (dated 26 November 2009), the following new Ordinary shares of nominal value 1 penny each were allotted during the period to 30 September 2019:

Date of allotmentNumber 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)
30 August 2019265,9203115.42292109.00

Under the terms of the Albion VCTs Prospectus Top Up Offers 2018/19, the following new Ordinary shares of nominal value 1 penny each were allotted during the period to 30 September 2019:

Date of allotmentNumber 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)
1 April 20194,839,36948119.005,615110.00
1 April 20191,028,35910117.801,193110.00
1 April 2019218,5612118.40254110.00
5 April 2019214,4632119.00249110.00
12 April 2019281,5723119.00327110.00
12 April 2019143,5351117.80166110.00
12 April 20192,702-118.403110.00
 6,728,56167 7,807 

9.          Commitments and contingencies
As at 30 September 2019, the Company had no financial commitments in respect of investments (30 September 2018: £58,000; 31 March 2019: £nil).

There were no contingencies or guarantees of the Company as at 30 September 2019 (30 September 2018: £nil; 31 March 2019: £nil).

10.      Post balance sheet events
The following are the post balance sheet events since 30 September 2019:

The Company announced on 22 October 2019 that it has launched a Prospectus Top Up Offer to raise up to £6 million before issue costs, with a further over-allotment facility of £2 million, of new Ordinary shares for subscription in the 2019/20 and 2020/21 tax years. Full details of the offer are contained in a Prospectus that was published on the same date on the Manager’s website at www.albion.capital/investor-centre/current-offers.

11.      Related party transactions
Other than transactions with the Manager as described in note 5, there are no other related party transactions.

12.       Going concern
The Board’s assessment of liquidity risk remains unchanged since the last Annual Report and Financial Statements for the year ended 31 March 2019, and is detailed on pages 61 and 62 of those accounts. The Company has adequate cash and liquid resources and has no borrowing. The portfolio of investments is diversified in terms of sector, and the major cash outflows of the Company (namely investments, share buy-backs and dividends) are within the Company’s control. Accordingly, after making diligent enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors have adopted the going concern basis in preparing this Half-yearly Financial Report and this is in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued by the Financial Reporting Council in September 2014.

13.       Risks and Uncertainties
In addition to the current economic risks outlined in the Interim management report, the Board considers that the Company faces the following principle risks and uncertainties:

1.     Investment, performance and valuation risk
The risk of investment in poor quality assets, which could reduce 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 volatile than larger, long established businesses. Investments in open-ended equity funds result in exposure to market risk through movements in price per unit. The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported.

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 matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The Board and Manager regularly reviews the deployment of cash resources into equity markets, the extent of exposure and performance of the exposure. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board.

2.     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 and are 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 our professional advisers or H.M. Revenue & Customs.

3.     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, 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. 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.

4.     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 place 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, and receives reports from the Manager on internal controls and risk management, including on matters relating to cyber security. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP 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 and cyber security. From 1 October 2018, Ocorian (UK) Limited was appointed as Depository to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian (UK) Limited to ensure that Albion Capital is adhering to its policies and procedures as required by the AIFMD. 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.
                 
5.     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 instruments 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 buybacks and follow on investments.

6.     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 buybacks cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buyback authorities. 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.
                 
14.       Other information
The information set out in this Half-yearly Financial Report does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the periods ended 30 September 2019 and 30 September 2018, and is unaudited. The information for the year ended 31 March 2019 does not constitute statutory accounts within the terms of section 434 of the Companies Act 2006 but is derived from the statutory accounts for the financial year, which have been delivered to the Registrar of Companies. The Auditor reported on those accounts; their report was unqualified and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

15.      Publication
This Half-yearly Financial Report is 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/AAEV, where the Report can be accessed from the ‘Financial Reports and Circulars’ section.

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Albion Enterprise VCT PLC: Half-yearly Financial Report - RNS