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Kings Arms Yard VCT PLC  -  KAY   

Kings Arms Yard VCT PLC: Half-yearly Financial Report

Released 15:35 29-Aug-2018

Kings Arms Yard VCT PLC: Half-yearly Financial Report

Kings Arms Yard VCT PLC

LEI Code 213800DK8H27QY3J5R45

As required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.2, Kings Arms Yard VCT PLC today makes public its information relating to the Half-yearly Financial Report (which is unaudited) for the six months to 30 June 2018. This announcement was approved by the Board of Directors on 29 August 2018.

The full Half-yearly Financial Report (which is unaudited) for the period to 30 June 2018, 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/KAY/30Jun18.pdf.  

Investment policy

Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.

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

Funds held pending investment or for liquidity purposes are held as cash on deposit or similar instruments with bank or other financial institutions with high credit ratings assigned by international credit rating agencies.

Risk diversification and maximum exposures

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

The Company’s maximum exposure in relation to gearing is restricted to the amount equal to its adjusted capital and reserves. The Directors do not currently have any intention to utilise long term gearing.

Financial calendar

Record date for second dividend5 October 2018
Payment date of second dividend31 October 2018
Financial year end31 December

Financial highlights

 Unaudited
six months ended
30 June 2018
Unaudited
six months ended
30 June 2017
Audited
year ended
31 December 2017
 (pence per share)(pence per share)(pence per share)
    
Revenue return0.15 0.23 0.56 
Capital return1.62 0.75 0.69 
Total return1.770.981.25
Dividends paid0.600.501.00
Net asset value22.7421.8121.60


Total shareholder returnFrom Launch to
31 December 2010
(pence per share)
1 January 2011 to
30 June 2018
(pence per share)
From Launch to
30 June 2018
(pence per share)
Subscription price per share at launch 100.00- 100.00
Dividends paid 58.667.2765.93 
(Decrease)/increase in net asset value(83.40)6.14(77.26)
Total shareholder return 75.2613.4188.67 
    


Current annual dividend objective (pence per share)1.20

The Directors have declared a second dividend of 0.60 pence per share for the year ending 31 December 2018, which will be paid on 31 October 2018 to shareholders on the register on 5 October 2018.

The above financial summary is for the Company, Kings Arms Yard VCT PLC only. Details of the financial performance of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be found at the end of this announcement.

Interim management report

Introduction

We are pleased to report a total return of 1.77 pence per share (8.2% on opening net asset value) for the six month period to 30 June 2018, compared to a total return of 0.98 pence per share for the six month period to 30 June 2017. This continues to build on the strong performance the Company has had in recent years of a 1.25 pence per share return in 2017 and 2.32 pence per share return in 2016.

Results

Net asset value increased from 21.60 pence per share at 31 December 2017 to 22.74 pence per share at 30 June 2018, following the payment of a 0.60 pence per share dividend on 30 April 2018. 

Dividends

Progress to date gives the Board confidence in the sustainability of our dividend policy and we are therefore pleased to announce a further dividend of 0.60 pence per share to be paid on 31 October 2018, to shareholders on the register on 5 October 2018. The annual dividend target per share of 1.20 pence represents a tax free yield of 5.6% on the mid-market share price of 21.60 pence per share as at 30 June 2018. The Company continues to offer a Dividend Reinvestment Scheme whereby shareholders can elect to receive dividends in the form of new shares.

Valuations

The net effect of the Board’s regular portfolio revaluation has been an overall gain on investments of £5.8m. The key movements in the period include: a further £2.3m uplift following the disposal of Grapeshot to Oracle Corporation (NYSE:ORCL); a £1.4m uplift in the valuation of Quantexa following a third party led funding round. There were increases on a variety of investments following independent valuations performed as at March 2018 including: Active Lives Care, Chonais River Hydro, and Ryefield Court Care offset by a reduction in the valuation of a number of investments including Edo Consulting and Elateral due to lower growth than anticipated. Further details of the portfolio of investments can be found below.

Investment activity

There has been a significant level of investment activity in the six months ended 30 June 2018. The Company has invested £0.4m into three new portfolio companies, with the expectation of further funding rounds over time to support success. In addition, the Company invested £1.9m to support existing portfolio companies scale.

New investments in the period included:

In the period, the Company sold its investment in Grapeshot generating proceeds at completion of £4.3m (excluding an amount placed in escrow). If the full escrow amount is received, the Company will realise approximately 10x the total investment cost of £0.5m. In addition, the Company sold all of its remaining quoted securities in Oxford Immunotec Global (£0.8m) and disposed of further securities in ErgoMed (£0.3m). For more information please see the realisation table below.

Current portfolio sector allocation

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

Transactions with the Manager

Details of transactions with the Manager for the reporting period can be found in note 4. Details of related party transactions can be found in note 10.

Albion VCTs Top Up Offers

The Company is pleased to announce that its participation in the Albion VCTs Prospectus Top Up Offers 2017/18 was fully subscribed and closed early raising net proceeds of £7.8m. Further details can be found in note 7. The proceeds of the Offer are being deployed into new investments as mentioned above, and supporting further funding of existing portfolio companies to promote growth.

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. This includes the maintenance of sufficient cash resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board’s intention over time 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.

Risks and uncertainties

The outlook for the UK economy continues to be the key risk affecting your Company. 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 both resilient and sustainable.

Other risks and uncertainties remain unchanged and are detailed in note 12 below.

Outlook

Your Board remains cautious on the economic outlook but positive on the long term prospects of the portfolio. Our investments are well diversified in more than 50 companies in a wide variety of sectors and stages of maturity. The Board believes the portfolio offers significant long-term growth potential which will be determined primarily by the success of the underlying businesses rather than the macroeconomic environment.

Robin Field
Chairman
29 August 2018

Responsibility statement

The Directors, Robin Field, Thomas Chambers and Martin Fiennes, are responsible for preparing the Half-yearly Financial Report. In preparing these condensed Financial Statements for the period to 30 June 2018 we, the Directors of the Company, confirm that to the best of our knowledge:

(a) the condensed set of Financial Statements, which has been prepared in accordance with Financial Reporting Standard 104 “Interim Financial Reporting”, gives 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;

(b) 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

(c) 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

Robin Field
Chairman
29 August 2018

Portfolio of investments
The following is a summary of fixed asset investments as at 30 June 2018:

       
Fixed asset investments% voting rightsCost(1)
£’000
Cumulative movement
in value
£’000
Value
£’000
 Change in
value for the period(2)
£’000
Unquoted investments      
Active Lives Care Limited20.34,3952,5886,983 615
Ryefield Court Care Limited18.73,0702,0435,113 457
Chonais River Hydro Limited6.52,4289483,376 373
Proveca Limited14.71,3041,6132,917 (147)
Antenova Limited28.71,7338882,621 (4)
Elateral Group Limited47.94,663(2,070)2,593 (213)
Egress Software Technologies Limited5.31,0031,2642,267 -
Anthropics Technology Limited13.8191,9331,952 177
The Street by Street Solar Programme Limited10.01,0407591,799 89
MyMeds&Me Limited15.41,4592291,688 (9)
Alto Prodotto Wind Limited11.19746911,665 144
Perpetuum Limited13.42,373(755)1,618 -
Quantexa Limited1.71901,3781,568 1,378
Regenerco Renewable Energy Limited9.89885071,495 26
Dragon Hydro Limited17.27364531,189 84
Academia Inc3.03517811,132 (30)
Bravo Inns II Limited5.08002531,053 63
G.Network Communications Limited6.86353971,032 397
Sandcroft Avenue Limited5.395438992 26
Shinfield Lodge Care Limited2.9535412947 61
OmPrompt Holdings Limited13.21,197(273)924 (10)
Earnside Energy Limited5.283513848 4
Symetrica Limited3.5389458847 (134)
Gharagain River Hyrdo Limited5.0620184804 100
Sift Limited42.12,306(1,607)699 (29)
AVESI Limited14.8484206690 (3)
Black Swan Data Limited1.4671-671 -
Women’s Health (London West One) Limited4.7583-583 -
Convertr Media Limited3.1425127552 150
MPP Global Solutions Limited1.9550-550 -
Beddlestead Limited5.1502-502 -
Edo Consulting Limited38.6923(442)481 (555)
Greenenerco Limited8.6286194480 46
Oviva AG2.136791458 -
Zift Channel Solutions Inc0.632157378 58
Celoxica Holdings plc4.4513(144)369 -
Mirada Medical Limited1.130358361 21
Panaseer Limited1.525397350 30
Secured By Design Limited1.726081341 81
Abcodia Limited4.3735(475)260 (128)
Koru Kids Limited1.7204-204 -
The Wentworth Wooden Jigsaw Company Limited5.4-178178 (33)
Infinite Ventures (Goathill) Limited2.711248160 12
uMotif Limited1.0160-160 -
Erin Solar Limited5.7160(7)153 -
Aridhia Informatics Limited2.2381(243)138 (52)
InCrowd Sports Limited1.512612138 12
Cisiv Limited2.8216(104)112 -
Locum’s Nest Limited1.6752398 23
Healios Limited0.880-80 -
Harvest AD Limited(i)-70272 2
Innovation Broking Group Limited4.5452469 1
Xention Limited10.638(28)10 -
Other holdings (7 companies) 26(19)7 -
Total unquoted investments43,86612,86156,727 3,083
       
Quoted investments     
ErgoMed PLC8412101,051 (30)
Total quoted investments8412101,051 (30)
Total fixed asset investments44,70713,07157,778 3,053
       
  1. Amounts shown as cost represent the acquisition cost in the case of investments originally made by the Company and/or the valuation attributed to the investments acquired from Quester VCT 2 plc and Quester VCT 3 plc at the date of the merger in 2005, and those acquired from Kings Arms Yard VCT 2 PLC at the merger on 30 September 2011, plus any subsequent acquisition costs, as reduced in certain cases by amounts written off as representing an impairment value.
     
  2. The above column shows the movement in the period from the opening balance as at 1 January 2018 to the closing balance as at 30 June 2018 after adjustments for additions and disposals.

(i) Early stage investment of convertible loan stock.

Total change in value of investments for the period    3,053
Movement in loan stock accrued interest (74)
Unrealised gains on fixed asset investments sub-total 2,979
Realised gains in current period 2,426
Unrealised gains on current asset investments 373
Total gains on investments as per Income statement    5,778


Current asset investmentsCost
£’000
Cumulative movement
in value
£’000
Value
£’000
 Change in
value for the period
£’000
ErgoMed PLC*-373373 373
Total current asset investments-373373 373

      *Amounts shown represent future contingent receipts.

Realisations in the period to 30 June 2018Cost
£’000
Opening
 carrying value
£’000
Disposal proceeds
£’000
 

Realised gain on cost
£’000
Gain/(loss) on opening or acquired value
£’000
Disposals:     
Grapeshot Limited5182,4784,7954,2772,317
Oxford Immunotec Global PLC27974377649733
ErgoMed PLC17122029512475
      
Loan stock repayments and other:     
MyMeds&Me Limited620840839219(1)
Alto Prodotto Wind Limited1116165-
Greenenerco Limited6882-
Escrow adjustments--222
      
Total1,6054,3056,7315,1262,426

Condensed income statement

  Unaudited
six months ended
30 June 2018
Unaudited
six months ended
30 June 2017
Audited
year ended
31 December 2017
 NoteRevenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Gains on investments2-5,7785,778-2,527 2,527-2,753 2,753
           
Investment income3918-918940- 9402,116- 2,116
           
Investment management fee4(162)(486)(648)(142)(427)(569)(291)(873)(1,164)
           
Performance incentive fee4(142)(426)(568)(32)(95)(127)-- -
           
Other expenses (159)-(159)(152)-(152)(303)-(303)
           
Profit on ordinary activities before tax 4554,8665,3216142,005 2,6191,5221,880 3,402
Tax on ordinary activities ----- --- -
Profit and total comprehensive income attributable to shareholders  4554,8665,3216142,005 2,6191,5221,880 3,402
Basic and diluted return per share (pence)*60.151.621.770.230.75 0.980.560.69 1.25

 *excluding treasury shares
  

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

Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2017 and the audited statutory accounts for the year ended 31 December 2017. 

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 June 2018
£’000
 Unaudited
30 June 2017
£’000
 Audited
31 December 2017
£’000
       
 

Fixed asset investments
 57,778 54,697 55,815
       
Current assets
Current asset investments
 373 - -
Trade and other receivables less than one year 713 66 368
Cash and cash equivalents 11,689 5,388 6,700
  12,775 5,454 7,068
       
Total assets 70,553 60,151 62,883
       
Payables: amounts falling due within one year      
Trade and other payables less than one year (1,032) (605) (391)
       
Total assets less current liabilities 69,521 59,546 62,492
       
Equity attributable to equity holders      
Called up share capital73,509 3,127 3,321
Share premium 27,693 19,899 23,841
Capital redemption reserve 11 11 11
Unrealised capital reserve 12,770 14,523 12,118
Realised capital reserve 9,934 3,440 5,720
Other distributable reserve 15,604 18,546 17,481
       
Total equity shareholders’ funds 69,521 59,546 62,492
       
Basic and diluted net asset value per share (pence)* 22.74 21.81 21.60

*excluding treasury shares

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

Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2017 and the audited statutory accounts for the year ended 31 December 2017. 

These Financial Statements were approved by the Board of Directors, and authorised for issue on 29 August 2018 and were signed on its behalf by

Robin Field

Chairman
Company number: 03139019

Condensed statement of changes in equity

 Called up  share
capital
Share premium Capital redemption reserve Unrealised capital reserveRealised capital reserve*Other distributable reserve*Total
 £’000£’000£’000£’000£’000£’000£’000
At 1 January 2018 3,32123,8411112,1185,72017,48162,492
Profit and total comprehensive income for the period---3,3521,5144555,321
Transfer of previously unrealised gains on disposal of investments---(2,700)2,700--
Purchase of own shares for treasury-----(495)(495)
Issue of equity1883,952----4,140
Cost of issue of equity-(100)----(100)
Dividends paid-----(1,837)(1,837)
At 30 June 20183,50927,6931112,7709,93415,60469,521
        
At 1 January 20172,84014,2181112,5263,43219,98353,010
Profit/(loss) and total comprehensive income for the period---2,395(390)6142,619
Transfer of previously unrealised gains on disposal of investments---(398)398--
Purchase of own shares for treasury-----(676)(676)
Issue of equity2875,853----6,140
Cost of issue of equity-(172)----(172)
Dividends paid-----(1,375)(1,375)
At 30 June 20173,12719,8991114,5233,44018,54659,546
        
At 1 January 20172,84014,2181112,5263,43219,98353,010
Profit and total comprehensive income for the period---1,6951851,5223,402
Transfer of previously unrealised gains on disposal of investments---(2,103)2,103--
Purchase of own shares for treasury-----(1,301)(1,301)
Issue of equity4819,880----10,361
Cost of issue of equity-(257)----(257)
Dividends paid-----(2,723)(2,723)
At 31 December 2017 3,32123,8411112,1185,72017,48162,492

*The total distributable reserves are £25,538,000 (30 June 2017: £21,986,000; 31 December 2017: £23,201,000).

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

Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2017 and the audited statutory accounts for the year ended 31 December 2017. 

Condensed statement of cash flows

  Unaudited
six months ended
30 June 2018
£’000
 Unaudited
six months ended
30 June 2017
£’000
 Audited
year ended
31 December 2017
£’000
Cash flow from operating activities      
Investment income received 596 594 1,218
Deposit interest received 9 1 3
Dividend income received 32 337 782
Investment management fees paid (609) (526) (1,128)
Performance incentive fee paid - (513) (513)
Other cash payments (173) (136) (295)
Net cash flow from operating activities (145) (243) 67
       
       
Cash flow from investing activities      
Purchase of fixed asset investments (2,304) (1,573) (5,735)
Disposal of fixed asset investments 5,688 1,422 4,498
Net cash flow from investing activities 3,384 (151) (1,237)
       
       
Cash flow from financing activities      
Issue of share capital 3,826 5,824 9,814
Cost of issue of equity (2) - (2)
Purchase of own shares (including costs) (448) (602) (1,300)
Equity dividends paid* (1,626) (1,228) (2,430)
Net cash flow from financing activities 1,750 3,994 6,082
       
       
Increase in cash and cash equivalents 4,989 3,600 4,912
Cash and cash equivalents at start of period 6,700 1,788 1,788
Cash and cash equivalents at end of period 11,689 5,388 6,700
       
Cash and cash equivalents comprise:      
Cash at bank and in hand 11,689 5,388 6,700
Cash equivalents - - -
Total cash and cash equivalents 11,689 5,388 6,700

* The equity dividend paid in the cash flow is different to the dividend disclosed in note 5 due to the non-cash effect of the Dividend Reinvestment Scheme.

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

Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 June 2017 and the audited statutory accounts for the year ended 31 December 2017. 

Notes to the condensed Financial Statements

1. Basis of accounting
The condensed 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”), 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 IPEVCV Guidelines and further detail on the valuation techniques used are outlined below.

The 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.

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% 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, are designated by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).

Subsequently, the investments are valued at ‘fair value’, which is measured as follows:

●       Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;

●       Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEVCV Guidelines. Indicators of fair value are derived using established methodologies including earnings  multiples, the level of third party offers received, prices of recent investment rounds, net assets and industry valuation benchmarks. Where the Company has an investment in an early stage enterprise, the price of a recent investment round is often the most appropriate approach to determining fair value. In situations where a period of time has elapsed since the date of the most recent transaction, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
●    the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
●    a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
●    market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.

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

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

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

Current asset investments
Contractual future contingent receipts on the disposal of investments are designated at fair value through profit or loss and are subsequently measured at fair value.

Gains and losses on investments
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the period as a capital item and are allocated to the unrealised capital reserve.

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

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

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

Investment management fees 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:

• 75 per cent. of management fees are allocated to the realised capital reserve. This is in line with the Board’s expectation that over the long term 75 per cent. of the Company’s investment returns will be in the form of capital gains; and

• expenses which are incidental to the purchase or disposal of an investment 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.

Foreign exchange
The currency of the primary economic environment in which the Company operates (the functional currency) is pounds Sterling (“Sterling”), which is also the presentational currency of the Company. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each Balance sheet date, monetary items and non-monetary assets and liabilities that are measured at fair value, which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Exchange differences arising on settlement of monetary items and from retranslating at the Balance sheet date of investments and other financial instruments measured at FVTPL, and other monetary items, are included in the Income statement. Exchange differences relating to investments and other financial instruments measured at fair value are subsequently included in the unrealised capital reserve.

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 and transfers to the other distributable reserve.

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 smaller companies principally based in the UK.

2.            Gains on investments

 Unaudited
six months ended
30 June 2018
£’000
 Unaudited
six months ended
30 June 2017
£’000
  Audited
year ended
31 December 2017
£’000
Unrealised gains on fixed asset investments2,979 2,395 1,695
Unrealised gains on current asset investments373 - -
Realised gains on fixed asset investments2,426 132 1,058
 5,778 2,527 2,753
      

3.            Investment income

 Unaudited
six months ended
30 June 2018
£’000
 Unaudited
six months ended
30 June 2017
£’000
  Audited
year ended
31 December 2017
£’000
Interest from loans to portfolio companies743 602 1,331
Dividends165 337 782
Bank deposit interest10 1 3
 918 940 2,116

4.            Investment management fee and performance incentive fee

 Unaudited
six months ended
30 June 2018
£’000
 Unaudited
six months ended
30 June 2017
£’000
  Audited
year ended
31 December 2017
£’000
Investment management fee charged to revenue162 142 291
Investment management fee charged to capital486 427 873
Performance incentive fee charged to revenue142 32 -
Performance incentive fee charged to capital426 95 -
 1,216 696 1,164

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 page 12 of the Annual Report and Financial Statements for the year ended 31 December 2017.

During the period, services with a value of £648,000 (30 June 2017: £569,000; 31 December 2017: £1,164,000) and £25,000 (30 June 2017: £25,000; 31 December 2017: £50,000) were purchased by the Company from Albion Capital Group LLP in respect of investment management and administration fees respectively. At the period end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £348,000 (30 June 2017: £317,000; 31 December 2017: £309,000). For the period to 30 June 2018, a provisional performance incentive fee of £568,000 has been accrued, however any performance incentive fee is only payable on year end results (30 June 2017: £127,000; 31 December 2017: nil).

Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the period, fees of £145,000 (30 June 2017: £113,000; 31 December 2017: £233,000) attributable to the investments of the Company were paid pursuant to these arrangements.
Albion Capital Group LLP, its partners and staff hold 897,071 Ordinary shares in the Company.

5.            Dividends

 Unaudited
six months ended
30 June 2018
£’000
Unaudited
six months ended
30 June 2017
£’000
Audited
year ended
31 December 2017
£’000
First dividend of 0.5 pence per share paid on 28 April 2017-1,3751,375
Second dividend of 0.5 pence per share paid on 31 October 2017--1,363
First dividend of 0.6 pence per share paid on 30 April 20181,842--
Unclaimed dividends returned to the Company(5)-(15)
 1,8371,3752,723

The Directors have declared a second dividend of 0.6 pence per share for the year ending 31 December 2018, which will be paid on 31 October 2018 to shareholders on the register on 5 October 2018.

6.            Basic and diluted return per share

 Unaudited
six months ended
30 June 2018
Unaudited
six months ended
30 June 2017
Audited
year ended
31 December 2017
 RevenueCapitalRevenueCapitalRevenueCapital
 

Profit attributable to shareholders (£’000)
4554,8666142,0051,5221,880
       
Weighted average shares in issue (excluding treasury shares)299,536,878 

267,189,319
272,042,345
       
Return attributable per equity share (pence)0.151.620.230.750.560.69

The weighted average number of Ordinary shares is calculated excluding the treasury shares of 45,209,000 (30 June 2017: 39,731,000; 31 December 2017: 42,771,000)

There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.

7.            Called up share capital

 Unaudited
30 June 2018
£’000
 Unaudited
30 June 2017
£’000
 Audited
31 December 2017
£’000
Allotted, issued and fully paid:
350,885,505 Ordinary shares of 1 penny each (30 June 2017: 312,691,928; 31 December 2017: 332,100,215)
 

 

 

3,509
  

 

 

3,127
 3,321

Voting rights
305,676,505 Ordinary shares of 1 penny each (net of treasury shares) (30 June 2017: 272,960,928; 31 December 2017: 289,329,215).

The Company operates a share buy-back programme, as detailed in the Interim management report above. During the period the Company purchased 2,438,000 Ordinary shares (nominal value of £24,380) at a cost of £495,000. The total number of Ordinary shares held in treasury as at 30 June 2018 was 45,209,000 (30 June 2017: 39,731,000; 31 December 2017: 42,771,000) representing 12.9% of the issued Ordinary share capital as at 30 June 2018.

During the period from 1 January 2018 to 30 June 2018, the Company issued the following new Ordinary shares of 1 penny each under the terms of the Dividend Reinvestment Scheme Circular dated 19 April 2011:

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 April 20181,030,2251021.0021422.40

Under the terms of the Albion VCTs Prospectus Top Up Offers 2017/18, the following new Ordinary shares of nominal value 1 penny each were allotted during the period to 30 June 2018:


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 20185,979,4936021.901,27721.30
5 April 20189,261,3919322.202,00519.80
11 April 201894,086122.002019.80
11 April 20188,144-22.10219.80
11 April 20182,411,9512422.2052219.80
 17,755,065178 3,826 

8.   Commitments, contingencies and guarantees
                As at 30 June 2018, the Company had no financial commitments (30 June 2017: £5,000; 31 December 2017: nil).

There were no contingent liabilities or guarantees given by the Company as at 30 June 2018 (30 June 2017: nil; 31 December 2017: nil).
             
9.   Post balance sheet events
      Since 30 June 2018, the Company has completed the following investments:
        ·Investment of £374,000 in Phrasee Limited;
        ·Investment of £248,000 in Quantexa Limited.

10. Related party disclosures
                Other than transactions with the Manager as disclosed in note 4, there are no related party transactions or balances requiring disclosure.

11. Going concern
The Board’s assessment of liquidity risk remains unchanged and is detailed on page 61 of the Annual Report and Financial Statements for the year ended 31 December 2017. 

The Company has adequate cash and liquid resources. The portfolio of investments is diversified in terms of sector, and the major cash outflows of the Company (namely investments, dividends and share buy-backs) 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.

12. 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 major risks and uncertainties:

  1. 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 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.

  1. 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 or our professional advisers.

  1. 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.
       

  1. 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 and cyber security. 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.

  1. 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 buy-backs and follow on investments.
       

  1. 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 provdiding 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 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.

13. 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 435 of the Companies Act 2006 for the periods ended 30 June 2018 and 30 June 2017, and is unaudited.  The information for the year ended 31 December 2017 does not constitute statutory accounts within the terms of section 435 of the Companies Act 2006 and is derived from the statutory accounts for that 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 a statement under s498 (2) or (3) of the Companies Act 2006.

14. 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/KAY, where the Report can be accessed from the 'Financial Reports and Circulars' section.  

Merger history for the Company and for previous funds

February 1996Quester VCT PLC (QVCT) launched
June 2005Quester VCT 2 PLC (QVCT2) and Quester VCT 3 PLC (QVCT3) merged into QVCT
June 2008All Quester names changed to SPARK:
 QVCT became Spark VCT plc (SVCT)
 Quester VCT 4 PLC (QVCT4) became Spark VCT 2 plc (SVCT2)
 Quester VCT 5 PLC (QVCT5) became Spark VCT 3 plc (SVCT3)
November 2008SVCT3 merged into SVCT2
January 2011Albion Capital became Manager
February 2011All SPARK names changed to Kings Arms Yard:
 SVCT became Kings Arms Yard VCT PLC (KAY)
 SVCT2 became Kings Arms Yard VCT 2 PLC (KAY2)
September 2011KAY2 merged into KAY

Financial summary for the Company and for previous funds

 30 June 201830 June 201731 December 2017
 (pence per share)(pence per share)(pence per share)
    
Net asset value of the Company22.7421.8121.60
    
Dividends paid to shareholders of the Company    
Dividends paid during the period0.600.501.00
Cumulative dividend paid65.9364.8365.33
    
Total shareholder return(1) (per 100p invested)   
To shareholders of the Company
(formerly SPARK VCT plc; Quester VCT plc)
88.6786.6486.93
Total shareholder return including tax benefits(2)108.67106.64106.93
    
    
Total shareholder return to former shareholders of:   
    
Quester VCT 2 plc, per 100p invested in shares of that company    
Total shareholder return74.9472.8673.16
Total shareholder return including tax benefits(2)94.9492.8693.16
    
Quester VCT 3 plc, per 100p invested in shares of that company    
Total shareholder return48.2346.2446.53
Total shareholder return including tax benefits(2)68.2366.2466.53
    
Quester VCT 4 plc (renamed SPARK VCT 2 PLC and then Kings Arms Yard VCT 2 PLC), per 100p invested in shares of that company    
Total shareholder return46.4843.8844.25
Total shareholder return including tax benefits(2)66.4863.8864.25
 

 
   
Quester VCT 5 plc (renamed SPARK VCT 3 PLC), per 100p invested in shares of that company    
Total shareholder return61.3357.5358.07
Total shareholder return including tax benefits(2)81.3377.5378.07

(1)           Net asset value plus cumulative dividend per share to ordinary shareholders in the Company since the launch of the Company (then called Quester VCT plc) in 1996.

(2)           Return after 20 per cent. income tax relief but excluding capital gains deferral.

The total returns stated are applicable only to shareholders of shares at the time of each companies launch. They do not represent the return to subsequent subscribers or purchasers of shares.

Source: Albion Capital Group LLP

Dividend history for the Company and for previous funds

Kings Arms Yard VCT PLC (KAY)
Dividends paid to shareholders of KAY launched in 1996 (formerly SPARK VCT plc (“SVCT”) and originally Quester VCT PLC (“QVCT”)).

 (pence per share)
31 January 19970.937
31 January 19982.547
31 January 19992.875
31 January 20007.110
31 January 200126.650
31 January 20021.350
28 February 20061.250
28 February 20073.910
31 December 20074.220
31 December 20082.810
31 December 20105.000
31 December 20110.670
31 December 20121.000
31 December 20131.000
31 December 20141.000
31 December 20151.000
31 December 20161.000
31 December 20171.000
30 June 20180.600
Total dividends paid to 30 June 201865.929
Net asset value as at 30 June 201822.740
Total shareholder return to 30 June 201888.669

Quester VCT 2 PLC (QVCT2)
QVCT2 was launched in 1998 and was merged with KAY (formerly SPARK VCT plc (“SVCT”) and originally Quester VCT PLC (“QVCT”)) in June 2005 with a share exchange ratio of 1.0249 QVCT shares for each QVCT2 share.

 (pence per share)
28 February 19991.000
29 February 20003.065
28 February 200120.500
28 February 20022.000
28 February 20061.281
28 February 20074.007
31 December 20074.325
31 December 20082.880
31 December 20105.125
31 December 20110.687
31 December 20121.025
31 December 20131.025
31 December 20141.025
31 December 20151.025
31 December 20161.025
31 December 20171.025
30 June 20180.615
Total dividends paid to 30 June 201851.635
Net asset value as at 30 June 201823.306
Total shareholder return to 30 June 201874.941

Quester VCT 3 PLC (QVCT3)
QVCT3 was launched in 2000 and was merged with KAY (formerly SPARK VCT plc (“SVCT”) and originally Quester VCT PLC (“QVCT”)) in June 2005 with a share exchange ratio of 0.9816 QVCT shares for each QVCT3 share.

 (pence per share)
28 February 20010.750
28 February 20021.000
28 February 20030.150
28 February 20061.227
28 February 20073.838
31 December 20074.142
31 December 20082.758
31 December 20104.908
31 December 20110.658
31 December 20120.982
31 December 20130.982
31 December 20140.982
31 December 20150.982
31 December 20160.982
31 December 20170.982
30 June 20180.589
Total dividends paid to 30 June 201825.912
Net asset value as at 30 June 201822.322
Total shareholder return to 30 June 201848.234

Quester VCT 4 PLC (QVCT4)

QVCT4 was launched in 2000 and was renamed SPARK VCT 2 plc (“SVCT2”) and then Kings Arms Yard VCT 2 PLC (“KAY2”). KAY2 merged with Kings Arms Yard VCT PLC (“KAY”) in September 2011 with a share exchange ratio of 1.2806 KAY shares for each KAY2 share.

 (pence per share)
31 October 20021.750
31 October 20031.150
31 October 20051.000
31 October 20061.000
31 December 20071.000
31 December 20081.000
31 December 20101.000
31 December 20111.000
31 December 20121.281
31 December 20131.281
31 December 20141.281
31 December 20151.281
31 December 20161.281
31 December 20171.281
30 June 20180.768
Total dividends paid to 30 June 201817.354
Net asset value as at 30 June 201829.121
Total shareholder return to 30 June 201846.475

Quester VCT 5 PLC (QVCT5)
QVCT5 was launched in 2002 and was renamed SPARK VCT 3 plc (“SVCT3”) and merged with SPARK VCT 2 plc (“SVCT2”) (originally QVCT4) in November 2008 with a share exchange ratio of 1.4613 SVCT2 shares for each SVCT3 share. The merged company was then renamed Kings Arms Yard VCT 2 PLC (“KAY2”). KAY2 merged with Kings Arms Yard VCT PLC (“KAY”) in September 2011 with a share exchange ratio of 1.2806 KAY shares for each KAY2 share.

 (pence per share)
31 December 20030.500
31 December 20041.000
31 December 20061.000
31 December 20071.000
31 December 20101.461
31 December 20111.461
31 December 20121.871
31 December 20131.871
31 December 20141.871
31 December 20151.871
31 December 20161.871
31 December 20171.871
30 June 20181.123
Total dividends paid to 30 June 201818.771
Net asset value as at 30 June 201842.554
Total shareholder return to 30 June 201861.325

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Kings Arms Yard VCT PLC: Half-yearly Financial Report - RNS