Albion Development VCT PLC

Annual Financial Report

Albion Development VCT PLC

LEI Code 213800FDDMBD9QLHLB38

As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Albion Development VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2019.

This announcement was approved for release by the Board of Directors on 27 March 2020.

This announcement has not been audited.

The Annual Report and Financial Statements for the year ended 31 December 2019 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/AADV/31Dec2019.pdf. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rules, including Rule 4.1.

Investment policy

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

Funds held pending investment or for liquidity purposes will be held as cash on deposit or up to 8 per cent. of its assets, at the time of investment, in liquid open-ended equity funds providing income and capital equity exposure (where it is considered economic to do so).

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 10 per cent. of the adjusted share capital and reserves.

Background to the Company

The Company is a venture capital trust which raised a total of £33.3 million through the issue of shares between 1999 and 2004. The C shares merged with the Ordinary shares in 2007. A further £6.3 million was raised through an issue of new D shares in 2010. The D shares converted to Ordinary shares in 2015.

An additional £45.1 million has been raised for the Ordinary shares through the Albion VCTs Top Up Offers since January 2011.

Financial calendar

Record date for first dividend	8 May 2020
Annual General Meeting	Noon on 9 June 2020
Payment of first dividend	29 May 2020
Announcement of half-yearly results for the six months ending 30 June 2020	September 2020

Financial highlights

183.72p	Total shareholder return per Ordinary share from launch to 31 December 2019
3.87%	Total return on opening net asset value for the year ended 31 December 2019
4.50p	Tax-free dividend per Ordinary share for the year ended 31 December 2019
83.47p	Net asset value per Ordinary share as at 31 December 2019

Financial highlights

			Ordinary shares
			31 December 2019 pence per share	31 December 2018 pence per share
Opening net asset value			84.70	73.80
Revenue return			0.73	0.20
Capital return			2.55	14.80
Total return			3.28	15.00
Impact from share capital movements			(0.01)	(0.10)
Dividends paid			(4.50)	(4.00)
Net asset value			83.47	84.70

Total shareholder return to 31 December 2019:

	Ordinary shares  (pence per share)	C shares  (pence per share) (i)	D shares  (pence per share)(ii)
Total dividends paid during the year ended:  31 December 1999	1.00	-	-
31 December 2000	2.90	-	-
31 December 2001	3.95	-	-
31 December 2002	4.20	-	-
31 December 2003	4.50	0.75	-
31 December 2004	4.00	2.00	-
31 December 2005	5.20	5.90	-
31 December 2006	3.00	4.50	-
31 December 2007	5.00	5.36	-
31 December 2008	12.00	12.86	-
31 December 2009	4.00	4.29	-
31 December 2010	8.00	8.57	1.00
31 December 2011	5.00	5.36	2.50
31 December 2012	5.00	5.36	3.50
31 December 2013	5.00	5.36	5.00
31 December 2014	5.00	5.36	5.00
31 December 2015	5.00	5.36	7.49
31 December 2016	5.00	5.36	7.49
31 December 2017	4.00	4.29	5.99
31 December 2018	4.00	4.29	5.99
31 December 2019	4.50	4.82	6.74
Total dividends paid to 31 December 2019	100.25	89.76	50.69
Net asset value as at 31 December 2019	83.47	89.44	125.00
Total shareholder return to 31 December 2019	183.72	179.20	175.69

In addition to the dividends paid above, the Board has declared a first dividend for the year ending 31 December 2020 of 2.25 pence per Ordinary share payable on 29 May 2020 to shareholders on the register on 8 May 2020.

Notes
Total shareholder return for every 100 pence invested on initial allotment. The table above excludes tax benefits upon subscription.
 (i) The C shares were converted into Ordinary shares on 31 March 2007, with a conversion ratio of 1.0715 Ordinary shares for each C share. The net asset value per share and all dividends paid subsequent to the conversion of the C shares to the Ordinary shares are multiplied by the conversion factor of 1.0715 in respect of the C shares return, in order to give an accurate picture of the shareholder value since launch relating to the C shares.
(ii) The D shares were converted into Ordinary shares on 31 March 2015, with a conversion ratio of 1.4975 Ordinary shares for each D share. The net asset value per share and all dividends paid subsequent to the conversion of the D shares to the Ordinary shares are multiplied by the conversion factor of 1.4975 in respect of the D shares return, in order to give an accurate picture of the shareholder value since launch relating to the D shares.

Chairman’s statement

Introduction
The Company achieved a total return for the year to 31 December 2019 of 3.28 pence per Ordinary share. These results represent a 3.9% gain on opening net asset value. After a strong previous two years, this current year has been more subdued. Whilst I am optimistic on the longer term prospects of the portfolio, in the shorter term it will be affected by the current financial crisis arising out of the Coronavirus pandemic.

Board Composition
As detailed in the Half-yearly Financial Report, the Company’s longest serving Director and Chairman, Geoffrey Vero, sadly passed away on 19 May 2019. Geoffrey’s good humour and wise counsel, over many years, will be sorely missed. Therefore, the composition of the Board has changed, and I became Chairman effective from 8 July 2019. The Chairman of the Audit Committee is Lyn Goleby, effective from 3 September 2019. The Board was pleased to announce that Lord O’Shaughnessy was appointed to the Board with effect from 8 July 2019. Biographies of each of the directors are included on page 17 of the full Annual Report and Financial Statements.

Investment performance and progress
We had a number of realisations during the year totalling £10.5 million (2018: £8.5 million), of which Radnor House School (Twickenham) accounted for £4.1 million. The sale of Process Systems Enterprise delivered a 10 times return on cost, and realised £1.3 million. We realised our holding in our two pub companies, delivering a 1.85 times return on cost. Our investment in Mi-Pay Group has been disappointing and following the sale of its trading subsidiary after the year end, the investment will realise a return of 0.03 on cost. The success of Process Systems Enterprise and the failure of Mi-Pay highlight the risks and rewards associated with investing in higher growth businesses. Further details on realisations can be found in the realisations table on page 22 of the full Annual Report and Financial Statements.

The results for the year showed net gains on investments of £3.1 million, against £12.3 million for the previous year. The key contributors were the uplift on Proveca, which has been revalued after a successful further funding round and the sale of Process Systems Enterprise. Against this, there were write-downs against Zift Channel Solutions, Convertr Media, and Aridhia, due to weaker growth than anticipated.

A busy year resulted in £2.8 million invested in seven new portfolio companies, all of which are targeted to require further investment as the companies prove themselves and grow: 

• £685,000 into Cantab Research (trading as Speechmatics), a provider of low footprint automated speech recognition software which can be deployed in the cloud, on premise or on device across 29 languages;
• £639,000 into Elliptic Enterprises, a provider of Anti Money Laundering services to digital asset institutions;
• £440,000 into Limitless Technology, a provider of a customer service platform powered by the crowd and machine learning technology;
• £409,000 into Clear Review, a provider of talent management software to mid market enterprises;
• £400,000 into Avora, which develops software to improve decision making through augmented analytics & machine learning;
• £166,000 into Imandra, a provider of automated software testing and an enhanced learning experience for artificial neural networks; and
• £76,000 into Symetrica, a designer and manufacturer of radiation detection equipment.

A further £2.9 million was invested in existing portfolio companies, including £745,000 into Proveca to support its development of further paediatric drugs, £293,000 into InCrowd Sports to support its growth, and £240,000 in Oviva to support the expansion of its geographical footprint, as well as to further transition the company’s focus on digital diabetes therapeutics.

For a review of business and future prospects please see the Strategic report below.

Dividends and results
The Company paid dividends totaling 4.5 pence per share during the year ended 31 December 2019 (2018: 4.0 pence per share). The total return after tax was £2.7 million compared to £11.2 million in the year to 31 December 2018.

The Company will pay a first dividend for the financial year ending 31 December 2020 of 2.25 pence per Ordinary share payable on 29 May 2020 to shareholders on the register on 8 May 2020.

Management performance incentive and total expenses cap
At the General Meeting in 2019, a new management performance incentive fee was approved with 86.8% of Shareholders voting in favour of the changes, which also reduced the total expenses cap to 2.5%, where any additional expenses above this are borne by the Manager.

The new performance incentive fee has not resulted in a payment this year. The expenses cap has resulted in a saving of £105,000 to shareholders. Further details of these changes can be found in the Strategic report below.

Risks and uncertainties

The implication of the financial turmoil arising from the Coronavirus crisis is the key risk facing the Company, including its impact on the UK and Global economies. As well as the potential implications of the UK leaving the European Union, our underlying portfolio companies may be adversely affected by the Coronavirus Pandemic and recent quoted market turmoil. The Manager is continually assessing the exposure to these risks for each portfolio company, and appropriate actions, where possible, are being implemented.

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

Share buy-backs

Given uncertainty on valuations caused by the Coronavirus and its impact on financial markets in recent times, the Board agreed to suspend the Company’s buy back operation on 18 March 2020, until such time as the Company can provide an updated valuation as at 31 March 2020 of the portfolio and the Company’s net asset value. The Board does not intend to resume the Company’s buyback programme until after the announcement of the 31 March 2020 unaudited net asset value.

Albion VCTs Prospectus Top Up Offers
During the year, your Board, in conjunction with the boards of four of the other VCTs managed by Albion Capital Group LLP, launched a prospectus top up offer of new Ordinary shares on 22 October 2019. The Board was pleased to announce the Offer closed on 7 January 2020, at which time the Board elected to not exercise the over allotment facility, having raised £8 million. The proceeds will be used to provide further resources at a time when a number of attractive investment opportunities are being seen, alongside the funds received from our successful exits in 2019. The first allotment of shares under the Offer was on 31 January 2020. Further details can be found in note 19.

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

Annual General Meeting

As a Board, we have been deliberating the potential impact of the Coronavirus outbreak on the arrangements for our upcoming Annual General Meeting (“AGM”). These arrangements will evolve and we will keep shareholders updated of any changes on our Manager's website at www.albion.capital/funds/AADV.

We are required by law to hold an AGM within six months of our financial year end and lengthy postponement or adjournment is not possible in this case. Our AGM will therefore be held at noon on 9 June 2020, at the offices of Albion Capital Group LLP, 1 Benjamin Street, London, EC1M 5QL. We are putting in place contingency arrangements which mean that the meeting is unlikely to follow the same format as in previous years but will still meet the minimum legal requirements for an AGM. As a result, there will be no presentation from the Manager or from a portfolio company, and we will not be providing lunch after the AGM.

Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 64 and 65 of the full Annual Report and Financial Statements.

This year, we would strongly encourage shareholders to consider whether attendance in person is necessary, especially given the public health advice. Shareholders’ views are important, and the Board encourages shareholders’ to vote on the resolutions within the Notice of Annual General Meeting on pages 64 and 65 of the full Annual Report and Financial Statements using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the Annual General Meeting and recommends shareholders to vote in favour of all the resolutions being proposed. We encourage shareholders to submit their votes by proxy, rather than attending in person. If circumstances improve and you have submitted a proxy, you can still attend the meeting.

We always welcome questions from our shareholders at the AGM but this year, we request that shareholders submit their questions to the Board before the AGM, and the Board will ensure a summary of responses are published on the Managers website at www.albion.capital/funds/AADV.

You can submit questions up until noon on 8 June 2020 in the following ways:

• By email: send your questions to [e-mail]
• By telephone: contact Shareholder relations on 020 7601 1850

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. Details of how to sell shares through reputable channels can also be found here.

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 [e-mail], if you wish to check whether any claims made are genuine.

Outlook and prospects

This has been another strong year for exits, with disposals of both technology and asset based businesses. The year also saw an active investment programme in ambitious innovative growth companies. The current healthcare and financial crisis creates uncertainty for everyone, and the Company's investment portfolio is not exempt from this. Nevertheless, we remain confident that the spread and quality of the portfolio will continue to drive longer term value for Shareholders.

Ben Larkin
Chairman
27 March 2020

Strategic report

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

The full investment policy can be found above.

Current portfolio sector allocation

The pie charts at the end of this announcement show the split of the portfolio valuation as at 31 December 2019 by: sector; stage of investment; and number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 20 and 21 of the full Annual Report and Financial Statements.

Direction of portfolio

There is a continuing focus on growing the technology and healthcare sectors, which is resulting in a decrease of asset-based investment as a percentage of the portfolio over time. This year, with the sale of our final two pub investments, and one of our schools, we can see the asset-based investments continuing to reduce as a percentage of the portfolio.

The current portfolio is well balanced in terms of sector, with IT/software at 30%, healthcare at 19%, and renewable energy at 13%. Due to our successful realisations in the final quarter of 2019, the cash balance has increased to 26 per cent. of the portfolio. We are now well placed to take advantage of our growing pipeline.

Results and dividend policy

			Ordinary shares
			£’000
Net revenue return for the year			593
Net capital gain for the year			2,080
Total return for the year ended 31 December 2019			2,673
Dividend of 2.25 pence per share paid on 31 May 2019			(1,880)
Dividend of 2.25 pence per share paid on 30 September 2019			(1,885)
Unclaimed dividends			5
Transferred from reserves			(1,087)
Net assets as at 31 December 2019			69,683
Net asset value per share as at 31 December 2019 (pence)			83.47

The Company paid dividends totalling 4.50 pence per Ordinary share (2018: 4.00 pence per Ordinary share). As described in the Chairman’s statement, the Board has declared a first dividend for the year ending 31 December 2020 of 2.25 pence per Ordinary share payable on 29 May 2020 to shareholders on the register on 8 May 2020.

As shown in the Income statement below, the total investment income increased to £1,294,000 (2018: £881,000). This is substantially due to the repayment of the G Network loan stock, including the interest that had been rolled during this time. The investment in the OUEIF has also generated the payment of substantial dividends. The revenue return to equity holders has therefore increased to £593,000 (2018: £181,000).

The after tax capital return for the year was £2,080,000 (2018: £11,037,000). This is mainly attributable to the successful sale of Process Systems Enterprise, which delivered a 10 times return on cost, and Proveca, which experienced a significant uplift in its valuation following an external funding round. This was partly offset by the reductions in Zift Channel Solutions, Convertr Media and Aridhia. We remain confident that the portfolio will deliver over the longer term, and after two excellent years and some very strong realisations from our mature assets, we still consider the Company to have performed well.

The total return was 3.28 pence per share (2018: 15.00 pence per share). The Balance sheet below shows that the net asset value has marginally decreased over the year to 83.47 pence per share (2018: 84.70 pence per share), as a result of the dividends paid in the year totalling 4.50 pence per share.

There was a net cash inflow for the Company of £5,340,000 for the year (2018: net outflow of £1,766,000), mainly resulting from the issue of Ordinary shares under the Albion VCTs Top Up Offers , as well as the sale of Radnor House (Twickenham), the Bravo pub portfolio and Process Systems Enterprise. This has been offset by the investment in current and fixed assets, dividends paid, operating activities and the buy-back of shares.

Review of business and future changes
The results for the year to 31 December 2019 show total shareholder return of 183.72 pence per Ordinary share since launch (2018: 180.50 pence per share).

Following changes to the VCT regulations in 2017, the asset-based investments are decreasing as a proportion of the portfolio. As a result, revenue returns will begin to decrease in the coming years, with the future returns coming from capital gains.

A detailed review of the Company’s business during the year is contained in the Chairman’s statement above.

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

Future prospects

As detailed in the Chairman’s statement, since the Company’s year end, the world has spiralled into a healthcare emergency and it is unlikely that any investment company will remain unaffected. Although it is too early to gauge the full economic consequences, the Board believes that the Company’s portfolio is well balanced across sectors and risk classes and has the potential to deliver returns to shareholders over the long term.

Key performance indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs and APMs, which are typical for venture capital trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs give a good indication that the Company is achieving its investment objective and policy. These are:

      1.     Total shareholder return relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the total shareholder return against the FTSE All-Share Index total return, in both instances with dividends reinvested. Details on the performance of the net asset value and return per share for the year are shown in the Chairman’s statement.

      2.     Net asset value per share and total shareholder return 
Total shareholder return is net asset value plus cumulative dividends paid since launch to 31 December 2019.
Total return to shareholders increased by 3.8% on opening net asset value to 183.72 pence per Ordinary share for the year ended 31 December 2019 as a result of the positive total return of 3.23 pence per share.

      3.     Shareholder return in the year^†

2010	2011	2012	2013	2014	2015	2016	2017	2018	2019
4.9%	7.1%	4.6%	6.9%	5.4%	4.1%	6.5%	10.0%	20.3%	3.8%

Source: Albion Capital Group LLP

^†Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.

      4.     Dividend distributions

Dividends paid in respect of the year ended 31 December 2019 were 4.50 pence per share (2018: 4.00 pence per share). Cumulative dividends paid since inception are 100.25 pence per share.

      5.     Ongoing charges
The ongoing charges ratio for the year to 31 December 2019 was 2.5% (2018: 2.6%). The ongoing charges ratio has been calculated using The Association of Investment Companies’ (AIC) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. From 1 January 2019, the ongoing charges cap was reduced from 3.0% to 2.5%, which has resulted in a saving of £105,000 to shareholders during the year.

      6.     VCT regulation*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on page 29 of the full Annual Report and Financial Statements.

The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2019. These showed that the Company has complied with all tests and continues to do so.

*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.

Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.

Management agreement
Under the Management agreement, the Manager provides investment management, secretarial and administrative services to the Company. The Management agreement may be terminated by either party on 12 months’ notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 2.25 per cent. of the net asset value of the Company paid quarterly in arrears.

Additionally, Albion agreed to reduce that proportion of its management fee relating to the investment in the SVS Albion OLIM UK Equity Income Fund (“OUEIF”) by 0.75 per cent. per annum, which represents the OUEIF management fee charged by OLIM to avoid any double charging for the investment exposure.

Total annual expenses, including the management fee, are limited to 2.5 per cent. of the net asset value, as per the resolution passed at the General Meeting in 2019.

The Manager is also entitled to an arrangement fee, payable by each portfolio company, of approximately 2 per cent. on each investment made and also monitoring fees where the Manager has a representative on the portfolio company’s board.

Management performance incentive
At the 2019 General Meeting, a resolution was passed by 86.8% of shareholders that the two existing current management performance incentive arrangements for the Ordinary shares and the former D shares will be merged into one all-encompassing arrangement so that the Manager is both properly incentivised and its objectives are aligned with those of the Company.

The new hurdle requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company compared with the previous accounting date exceeds RPI plus 2%. The hurdle will be calculated every year, based on the previous year’s closing NAV per Share. The starting NAV is 84.70 pence per Share, being the audited net asset value at 31 December 2018. The Manager continues to receive an amount equal to 20% of the returns achieved in excess of the hurdle. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.

There was no management performance incentive fee payable during the year. As at 31 December 2019 the cumulative shortfall of the target return was 0.29 pence per share and this amount needs to be made up in following accounting periods before an incentive fee becomes payable.

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

Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 70 per cent. (80 per cent. from 1 January 2020 for the Company) qualifying holdings investment requirement for venture capital trust status, the long term prospects of the current portfolio of investments, a review of the Management agreement and the services provided therein, and benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing. The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.

Alternative Investment Fund Managers Directive (“AIFMD”)
The Board appointed Albion Capital Group LLP as the Company’s AIFM in June 2014 as required by the AIFMD. The Manager became a full-scope Alternative Investment Fund Manager under the AIFMD on 1 October 2018. As a result, from that date, Ocorian (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties with respect to the Company.

Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.

The Board is very conscious of these wider responsibilities in the ways it promotes the Company’s culture and ensures, as part of its regular oversight, that the integrity of the Company’s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company’s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs, as well as visibility and openness in how the affairs are conducted.

The Board considers its significant stakeholder groups to be its Shareholders; suppliers, including direct agents of the Company such as the Manager to whom most executive functions are delegated; the community and the environment in the way that investments are made and managed.

The Company’s shareholders are key to the success of the Company. The Board seeks to create value for Shareholders by generating strong and sustainable returns to provide shareholders with a strong, predictable dividend flow and the prospect of capital growth. The Company has in place a buyback back policy as an important means of providing market liquidity for shareholders. Details regarding the current buy-back policy can be found above in the Chairman’s statement. These important components, performance, predictable income return and liquidity when required are fundamental tenets of the way in which the Company operates for its Shareholders.

Shareholders’ views are important. The Board encourages Shareholders to vote on the resolutions at the Annual General Meeting. The Company’s Annual General Meeting, this year on 9 June 2020, is typically used as an opportunity to communicate with investors, including through a presentation made by the investment management team. However, as detailed in the Chairman’s statement above, there will be no presentation from the Manager or from a portfolio company, and we will not be providing lunch after this year’s AGM due to the impact of the COVID-19 outbreak. Details of the location and time of the Annual General Meeting can be found in the Directors’ report on page 31 of the full Annual Report and Financial Statements.

Shareholders are also encouraged to attend the annual Shareholders’ Seminar. The seminar includes some of the portfolio companies sharing insights into their businesses and also have presentations from Albion executives on some of the key factors affecting the investment outlook, as well as a review of the past year and the plans for the year ahead. Details of the seminar event are placed on the Manager’s website. Representatives of the Board attend the seminar.

The Company is an externally managed investment company with no employees, and as such has nothing to report in relation to employee engagement but does keep close attention to how the Board operates as a cohesive and competent unit. The Company also has no customers in the traditional sense and, therefore, there is also nothing to report in relation to relationships with customers.

The Company’s suppliers are fundamental to the operations of the Company, particularly Albion Capital Group LLP as the Manager, given that day-to-day management responsibilities are sub-contracted to the Manager. Details of the Manager’s and Board’s responsibilities can be found in the Statement of corporate governance on pages 34 to 38 of the full Annual Report and Financial Statements.

The contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities. The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found in this report above.

The Board receives reports on Environmental, Social and Governance (“ESG”) factors within its portfolio from Albion Capital Group LLP as it is a signatory of the UN Principles for Responsible Investment. Further details of this are set out below. ESG, without its specific definition, has always been at the heart of the responsible investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.

The Board, although non-executive, is fully engaged in both oversight and the general strategic direction of the Company. During the year the Board’s main strategic discussions focussed around cash management and deployment of cash for future investments, dividends and share buyback, resulting in the decision to participate in the Albion VCTs Top Up Offers 2019/20. Time was also spent in ensuring the Board met Corporate Governance requirements which continue to evolve, including the introduction of the new AIC Code last year.

Environmental, Social, and Governance (“ESG”)

Albion Capital Group LLP became a signatory of the UN Principles for Responsible Investment (“UN PRI”) on 14 May 2019. The UN PRI is the world’s leading proponent of responsible investment, working to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.

Albion will make its first trial submission in 2020 against this framework and the first full submission in 2021. The trial process in 2020 will identify initial gaps in information being collected and areas that require action. This annual process will inform fuller ESG disclosure by 2021 and create a regular audit function to ensure continual improvement.
             
To ensure that the principles are starting to be translated into both the investment and portfolio management processes, since June 2019 all quarterly valuations and investment papers include a section covering relevant aspects of ESG for each investment. In addition, all fund level reports also include ESG sections and ESG will be included as a standing item on the agendas of all investment committees and Albion’s internal board meetings, and any findings are discussed at fund board meetings (VCTs and LP funds). Reporting is intentionally light in the first instance, partly due to the stage and nature of investments and to encourage widespread adoption. The level of reporting is expected to build over time as the range of factors to consider increases and as our compliance with the UN PRI guidelines becomes apparent.

The Board and Manager have exercised conscious principles in making responsible investments throughout the life of the Company, not least in providing finance for nascent companies in a variety of important sectors such as technology, healthcare and renewable energy. In making the investments, the Manager is directly involved in the oversight and governance of these investments, including ensuring standards of reporting and visibility on business practices, all of which is reported to the Board of the Company. By its nature, not least in making qualifying investments which fulfil the criteria set by HMRC, the Company has focused on sustainable and longer-term investment propositions, some of which will fail in the nature of small companies, but some of which will grow and serve important societal demands. One of the most important key performance indicators is the quality of the investment portfolio, which goes beyond the individual valuations and examines the prospects of each of the portfolio companies, as well as the sectors in which they operate – all requiring a longer- term view.
             
The Company adheres to the principles of the AIC Code of Corporate Governance and is also aware of other governance and other corporate conduct guidance which it meets as far as practical, including in the constitution of a diversified and independent board capable of providing constructive challenge but also, through its experience of the Company, continuity over the longer term investments the Company makes.

Social and community issues, employees and human rights

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

General Data Protection Regulation

The General Data Protection Regulation came into effect on 25 May 2018 with the objective of unifying data privacy requirements across the European Union. The Manager, Albion Capital Group LLP, has taken action to ensure that the Manager and the Company are compliant with the regulation.

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

• Environment
• Global greenhouse gas emissions
• Anti-bribery
• Anti-facilitation of tax evasion
• Diversity

and these are set out in the Directors’ report on page 30 of the full Annual Report and Financial Statements.

Risk management
The Board carries out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable emerging risk has been the global pandemic which has impacted on not only public health and mobility but also has had an adverse impact on global traded markets, the impact of which, by its nature, is likely to be uncertain for some time, and at time of publishing the accounts is severe.

The Directors have carried out a robust assessment of the Company’s disclosures below that describe the principal risks, and explain how they are being managed or mitigated. The principal risks and uncertainties of the Company as identified by the Board and how they are managed are as follows:

Risk	Possible consequence	Risk management
Investment, performance and valuation risk	The risk of investment in poor quality businesses, 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. 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 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.
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 our profession advisors or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required.
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, and any issues arising from compliance or regulation are reported to its own Board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors.
Operational and internal control risk	The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.	The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Audit Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, PKF Littlejohn LLP 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.  From 1 October 2018, Ocorian (UK) Limited was appointed as Depositary 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.
Economic, political and social 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. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection.	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 minimising any external bank borrowings within portfolio companies.   At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow on investments.   In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term.
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 buy-back 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 buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buy-back 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.
Reputational risk	The Company relies on the judgement and reputation of the Manager which is itself subject to the risk of loss.	The Board regularly questions the Manager on its ethics, procedures, safeguards and investment philosophy, which should consequently result in the risk to reputation being minimised.

Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and principle 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2022. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is also considered the most appropriate given the forecasts that the Board require from the Manager, and the estimated timelines for finding, assessing and completing investments. The three year period also takes account of the potential impact of new regulations, should they be imposed, and how they may impact the Company over the longer term, and the availability of cash but cannot take into account the exogenous risks that are impacting on global economies at the date of these accounts.

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

The Board assessed the ability of the Company to raise finance and deploy capital, as well as the existing cash resources of the Company. The portfolio is well balanced and geared towards long term growth, delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company’s income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.

Taking into account the processes for mitigating risks, monitoring costs, share price discount, the Manager’s compliance with the investment objective, policies and business model and the balance of the portfolio the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2022.

This Strategic report of the Company for the year ended 31 December 2019 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Act.

On behalf of the Board,

Ben Larkin
Chairman
27 March 2020

Responsibility statement

In preparing these Financial Statements for the year to 31 December 2019, the Directors of the Company, being Ben Larkin, Lyn Goleby, Lord O’Shaughnessy and Patrick Reeve, confirm that to the best of their knowledge:

- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2019 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

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

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

A detailed "Statement of Directors' responsibilities” is contained on page 33 within the full audited Annual Report and Financial Statements.

On behalf of the Board,

Ben Larkin
Chairman
27 March 2020

Income statement

		Year ended 31 December 2019			Year ended 31 December 2018
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£’000	£’000	£’000	£’000	£’000	£’000
Gains on investments	3	-	3,074	3,074	-	12,326	12,326
Investment income	4	1,294	-	1,294	881	-	881
Investment management fee	5	(357)	(1,070)	(1,427)	(334)	(1,004)	(1,338)
Performance incentive fee	5	-	-	-	(105)	(315)	(420)
Other expenses	6	(268)	-	(268)	(231)	-	(231)
Profit on ordinary activities before tax		669	2,004	2,673	211	11,007	11,218
Tax (charge)/credit on ordinary activities	8	(76)	76	-	(30)	30	-
Profit and total comprehensive income attributable to shareholders		593	2,080	2,673	181	11,037	11,218
Basic and diluted return per share (pence)*	10	0.73	2.55	3.28	0.20	14.80	15.00

* adjusted for treasury shares                        

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

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

Balance sheet  

		31 December 2019	31 December 2018
	Note	£’000	£’000
Fixed asset investments	11	51,406	52,663
Current assets
Current asset investments	13	3,878	1,243
Trade and other receivables less than one year	13	304	1,128
Cash and cash equivalents		14,529	9,189
		18,711	11,560
Total assets		70,117	64,223
Payables: amounts falling due within one year
Trade and other payables less than one year	14	(434)	(845)
Total assets less current liabilities		69,683	63,378
Equity attributable to equity holders
Called up share capital	15	938	839
Share premium		36,712	28,406
Capital redemption reserve		12	12
Unrealised capital reserve		14,702	16,234
Realised capital reserve		15,151	11,539
Other distributable reserve		2,168	6,348
Total equity shareholders’ funds		69,683	63,378
Basic and diluted net asset value per share (pence)*	16	83.47	84.70

* excluding treasury shares

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

These Financial Statements were approved by the Board of Directors, and authorised for issue on 27 March 2020 and were signed on its behalf by

Ben Larkin
Chairman
Company number: 03654040

Statement of changes in equity

	Called up share capital	Share premium	Capital redemption reserve	Unrealised capital reserve	Realised capital reserve*	Other distributable reserve*	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 January 2019	839	28,406	12	16,234	11,539	6,348	63,378
Profit and total comprehensive income for the period	-	-	-	1,667	413	593	2,673
Transfer of unrealised gains on disposal of investments	-	-	-	(3,199)	3,199	-	-
Purchase of shares for treasury	-	-	-	-	-	(1,013)	(1,013)
Issue of equity	99	8,521	-	-	-	-	8,620
Cost of issue of equity	-	(215)	-	-	-	-	(215)
Dividends paid	-	-	-	-	-	(3,760)	(3,760)
As at 31 December 2019	938	36,712	12	14,702	15,151	2,168	69,683
As at 1 January 2018	801	25,704	12	10,892	5,844	10,093		53,346
Profit and total comprehensive income for the period	-	-	-	8,560	2,477	181		11,218
Transfer of unrealised gains on disposal of investments	-	-	-	(3,218)	3,218	-		-
Purchase of shares for treasury	-	-	-	-	-	(921)		(921)
Issue of equity	38	2,761	-	-	-	-		2,799
Cost of issue of equity	-	(59)	-	-	-	-		(59)
Dividends paid	-	-	-	-	-	(3,005)		(3,005)
As at 31 December 2018	839	28,406	12	16,234	11,539	6,348		63,378

* These reserves amount to £17,319,000 (2018: £17,887,000) which is considered distributable.

Statement of cash flows

	Year ended 31 December 2019 £’000	Year ended 31 December 2018 £’000
Cash flow from operating activities
Loan stock income received	1,131	809
Deposit interest received	49	38
Dividend income received	151	56
Investment management fees paid	(1,435)	(1,284)
Performance incentive fee paid	(420)	-
Other cash payments	(253)	(227)
Corporation tax paid	-	-
Net cash flow from operating activities	(777)	(608)
Cash flow from investing activities
Purchase of current asset investments	(2,400)	(1,400)
Purchase of fixed asset investments	(5,675)	(5,722)
Disposal of fixed asset investments	10,560	7,154
Net cash flow from investing activities	2,485	32
Cash flow from financing activities
Issue of share capital	7,807	2,244
Cost of issue of shares	(30)	(3)
Equity dividends paid	(3,132)	(2,510)
Purchase of own shares (including costs)	(1,013)	(921)
Net cash flow from financing activities	3,632	(1,190)
Increase/(decrease) in cash and cash equivalents	5,340	(1,766)
Cash and cash equivalents at start of period	9,189	10,955
Cash and cash equivalents at end of period	14,529	9,189

Notes to the Financial Statements

1. Basis of preparation
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”).

The 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 as issued in 2018 and further detail on the valuation techniques used are in note 2 below.

Company information is shown on page 2 of the full Annual Report and Financial Statements.

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

In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.

Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).

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

• Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations.
   
• Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
   
• In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
   
  • the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
  • a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
  • market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.

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

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

Current assets and payables
Receivables, 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 income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.

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

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

• 75 per cent. of management fees and performance incentive fees are allocated to the capital account to the extent that these relate to an enhancement in the value of the investments. 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.

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 reserve
This reserve accounts for the difference between the price paid for the Company’s shares and the nominal value of those 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:

• 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 2012 to form a single reserve named other distributable reserve.

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

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

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

3. Gains on investments

	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
Unrealised gains on fixed asset investments	1,431	8,717
Unrealised gains/(losses) on current asset investments	236	(157)
Realised gains on fixed asset investments	1,407	3,766
	3,074	12,326

4. Investment income

	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
Loan stock interest and other fixed returns	977	787
UK dividend income	268	56
Bank deposit interest	49	38
	1,294	881

5. Investment management fees

	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
Investment management fee charged to revenue	357	334
Investment management fee charged to capital	1,070	1,004
Performance incentive fee charged to revenue	-	105
Performance incentive fee charged to capital	-	315
	1,427	1,758

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

During the year, services of a total value of £1,427,000 (2018: £1,338,000) were purchased by the Company from Albion Capital Group LLP in respect of management fees. There is no performance incentive fee payable this year (2018: £420,000). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £347,000 (2018: £775,000). The total annual running costs of the Company are capped at an amount equal to 2.5 per cent. of the Company’s net assets, with any excess being met by Albion by way of a reduction in management fees. During the year, the management fee was reduced by £105,000 as a result of this cap (2018: £nil).

During the year, the Company was not charged by Albion Capital Group LLP in respect of Patrick Reeve’s services as a Director (2018: £nil).

Albion Capital Group LLP, its partners and staff hold 652,413 Ordinary shares in the Company.

Albion Capital Group LLP is, from time to time, eligible to receive arrangement fees and monitoring fees from portfolio companies. During the year ended 31 December 2019, fees of £198,000 attributable to the investments of the Company were received by Albion Capital Group LLP pursuant to these arrangements (2018: £190,000).

The Company has entered into an offer agreement relating to the Offers with the Company’s investment manager Albion Capital Group LLP, pursuant to which Albion Capital will receive 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, as detailed in the Prospectus.

Additionally, an amount of £2,400,000 was invested in the SVS Albion OLIM UK Equity Income Fund (“OUEIF”) (2018: £1,400,000) as part of the Company’s management of surplus liquid funds. To avoid double charging, Albion agreed to reduce its management fee relating to the investment in the OUEIF by 0.75 per cent. per annum, which represents the OUEIF management fee charged by OLIM. This resulted in a further reduction of the management fee of £20,000 (2018: £3,000).

6. Other expenses

	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
Directors’ fees (including NIC)	74	74
Auditor’s remuneration for statutory audit services (excluding VAT)	31	28
Other administrative expenses	163	129
	268	231

7. Directors’ fees
The amounts paid to the Directors during the year are as follows:

	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
Directors’ fees	69	68
National insurance	5	6
	74	74

The Company’s key management personnel are the non-executive Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 39 and 40 of the full Annual Report and Financial Statements.

8. Tax on ordinary activities

	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
UK corporation tax charge in respect of current year	-	-
	-	-

Factors affecting the tax charge:	Year ended 31 December 2019 £’000	Year ended  31 December 2018 £’000
Return on ordinary activities before taxation	2,673	11,218
Tax charge on profit at the average companies rate of 19 per cent. (2018: 19 per cent.)	508	2,131
Factors affecting the charge:
Non-taxable gains	(584)	(2,342)
Income not taxable	(51)	(11)
Excess management expenses carried forward	127	222
	-	-

The tax charge for the year shown in the Income statement is lower than the average companies rate of corporation tax in the UK of 19 per cent. (2018: 19 per cent.). The differences are explained above.

Notes

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

1. The Company has excess management expenses of £2,652,000 (2018: £1,983,000) that are available for offset against future profits. A deferred tax asset of £451,000 (2018: £337,000) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
    

9. Dividends

	Year ended 31 December 2019	Year ended 31 December 2018
	£’000	£’000
Dividend of 2.00p per Ordinary share paid on 31 May 2018	-	1,505
Dividend of 2.00p per Ordinary share paid on 28 September 2018	-	1,503
Dividend of 2.25p per Ordinary share paid on 31 May 2019	1,880	-
Dividend of 2.25p per Ordinary share paid on 30 September 2019	1,885	-
Unclaimed dividends	(5)	(3)
	3,760	3,005

Details of the consideration issued under the Dividend Reinvestment Scheme included in the dividends above can be found in note 15.

In addition to the dividends summarised above, the Board has declared a first dividend of 2.25 pence per Ordinary share for the year ending 31 December 2020, payable on 29 May 2020 to shareholders on the register on 8 May 2020. The total dividend will be approximately £2,082,000.

10. Basic and diluted return per share

	Year ended 31 December 2019			Year ended 31 December 2018
	Revenue	Capital	Total	Revenue	Capital	Total
Profit attributable to equity shares (£’000)	593	2,080	2,673	181	11,037	11,218
Weighted average shares in issue (adjusted for treasury shares)	81,487,820			74,732,976
Return attributable per equity share (pence)	0.73	2.55	3.28	0.20	14.80	15.00

The weighted average number of Ordinary shares is calculated after adjusting for treasury shares of 10,350,156 (2018: 9,072,156).

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

11. Fixed asset investments

	31 December 2019 £’000	31 December 2018 £’000
Investments held at fair value through profit or loss
Unquoted equity and preference shares	37,372	34,327
Unquoted loan stock	14,012	18,205
Quoted equity	22	131
	51,406	52,663

	31 December 2019 £’000	31 December 2018 £’000
Opening valuation	52,663	42,291
Purchases at cost	6,595	6,518
Disposal proceeds	(10,519)	(8,556)
Realised gains	1,407	3,766
Movement in loan stock accrued income	(171)	(73)
Unrealised gains	1,431	8,717
Closing valuation	51,406	52,663
Movement in loan stock accrued income
Opening accumulated loan stock accrued income	284	357
Movement in loan stock accrued income	(171)	(73)
Closing accumulated loan stock accrued income	113	284
Movement in unrealised gains
Opening accumulated unrealised gains	16,215	10,716
Transfer of previously unrealised gains to realised reserve on disposal of investments	(3,199)	(3,218)
Movement in unrealised gains	1,431	8,717
Closing accumulated unrealised gains	14,447	16,215
Historic cost basis
Opening book cost	36,164	31,218
Purchases at cost	6,595	6,518
Sales at cost	(5,913)	(1,572)
Closing book cost	36,846	36,164

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

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

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

Valuation methodology	31 December 2019 £’000	31 December 2018 £’000
Cost and price of recent investment (reviewed for impairment or uplift)	33,479	27,717
Third party valuation – discounted cash flow	9,104	8,951
Revenue multiple	2,969	3,272
Third party valuation - earnings multiple	2,723	8,244
Net assets	2,347	2,293
Earnings multiple	762	671
Contracted sale price	-	1,384
	51,384	52,532

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

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

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

Fair value investments had the following movements between valuation methodologies between 31 December 2018 and 31 December 2019:

Change in valuation methodology (2018 to 2019)	Value as at 31 December 2019 £’000	Explanatory note
Price of recent investment to revenue multiple	1,173	Discounted revenue multiple more relevant based on current trading
Revenue multiple to price of recent investment	832	Recent external funding round

The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 December 2019.

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

Fair value hierarchy	Definition
Level 1	Unadjusted quoted prices in an active market
Level 2	Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3	Inputs to valuations not based on observable market data

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

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

	31 December 2019	31 December 2018
	£’000	£’000
Opening balance	52,532	42,109
Additions	6,595	6,518
Disposals	(10,513)	(8,556)
Accrued loan stock interest	(171)	(73)
Realised gains	1,510	3,766
Unrealised gains	1,431	8,768
Closing balance	51,384	52,532

FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 85 per cent. of the portfolio of investments is based on cost, recent investment price, net assets, or is loan stock, and as such the Board considers that the assumptions used for their valuations are the most reasonable. The Directors believe that changes to reasonable possible alternative assumptions (by adjusting the revenue and earnings multiples) for the valuations of the remainder of the portfolio companies could result in an increase in the valuation of investments by £444,000 or a decrease in the valuation of investments by £443,000. For valuations based on earnings and revenue multiples, the Board considers that the most significant input is the price/earnings ratio; for valuations based on third party valuations, the Board considers that the most significant inputs are price/earnings ratio, discount factors and market values for buildings; which have been adjusted to drive the above sensitivities.

12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The investment listed below is held as part of an investment portfolio and therefore, as permitted by FRS 102 section 9.9B, it is measured at fair value through profit and loss and not consolidated as a subsidiary.

The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 31 December 2019 as described below:

Company	Registered address and country of incorporation	Principal activity	Aggregate capital and reserves £’000	% class and share type	% total voting rights held by the Company	Profit/(loss) before tax £’000
Albion Investment Properties Limited	EC1M 5QL, UK	Former owner of residential property	(736)	68.2% A Ordinary	68.2%	n/a*

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

13. Current assets

Current asset investments	31 December 2019	31 December 2018
	£’000	£’000
SVS Albion OLIM UK Equity Income Fund	3,878	1,243

Current asset investments at 31 December 2019 consist of cash invested in SVS Albion OLIM UK Equity Income Fund and is capable of realisation within 7 days. These fall into the level 1 fair value hierarchy as defined in note 11.

Trade and other receivables less than one year	31 December 2019	31 December 2018
	£’000	£’000
Prepayments and accrued income	17	16
Other receivables	287	1,112
	304	1,128

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

14. Payables: amounts falling due within one year

	31 December 2019	31 December 2018
	£’000	£’000
Accruals and deferred income	417	836
Trade payables	17	9
	434	845

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

15. Called up share capital

Allotted, called up and fully paid shares:		£’000
83,860,469 Ordinary shares of 1 penny each at 31 December 2018		839
9,967,836 Ordinary shares of 1 penny each issued during the year		99
93,828,305 Ordinary shares of 1 penny each at 31 December 2019		938
9,072,156 Ordinary shares of 1 penny each held in treasury at 31 December 2018		(91)
1,278,000 Ordinary shares of 1 penny each purchased during the year to be held in treasury		(13)
10,350,156 Ordinary shares of 1 penny each held in treasury at 31 December 2019		(104)
Voting rights of 83,478,149 Ordinary shares of 1 penny each at 31 December 2019		835

The Company purchased 1,278,000 Ordinary shares (2018: 1,253,456) at a cost of £1,013,000 including stamp duty (2018: £921,000) to be held in treasury during the year to 31 December 2019. Total share buy backs in 2019 represents 1.4 per cent. (2018: 1.5 per cent.) of called-up share capital as at 31 December 2019.

The Company holds a total of 10,350,156 shares (2018: 9,072,156) in treasury representing 11.0 per cent. (2018: 10.8 per cent.) of the issued Ordinary share capital at 31 December 2019.

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

Date of allotment	Number of shares allotted	Aggregate nominal value of shares (£’000)	Issue price (pence per share)	Net invested (£’000)	Opening market price on allotment date (pence per share)
31 May 2019	376,536	4	83.91	301	78.50
30 September 2019	378,342	4	83.03	298	79.00
	754,878	8		599

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 year:

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)
1 April 2019	1,483,587	15	86.00	1,257	79.50
1 April 2019	280,678	3	86.50	238	79.50
1 April 2019	6,249,810	62	86.90	5,296	79.50
5 April 2019	680,623	7	86.90	577	80.50
12 April 2019	165,805	2	86.00	140	80.50
12 April 2019	3,699	-	86.50	3	80.50
12 April 2019	348,756	3	86.90	296	80.50
	9,212,958	92		7,807

16. Basic and diluted net asset value per share

	31 December 2019 (pence per share)	31 December 2018 (pence per share)
Basic and diluted net asset value per Ordinary share	83.47	84.70

The basic and diluted net asset values per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (less treasury shares) of 83,478,149 Ordinary shares as at 31 December 2019 (2018: 74,788,313).

17. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail on page 28 of the Directors’ report of the full Annual Report and Financial Statements.

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

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

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

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

Investment risk
As a venture capital trust, it is the Company’s specific nature to evaluate and control the investment risk of its portfolio in quoted and unquoted investments, details of which are shown on pages 20 to 22 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio company and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.

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

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

The maximum investment risk as at the Balance sheet date is the value of the fixed and current asset investment portfolio which is £55,284,000 (2018: £53,906,000). Fixed asset and current asset investments form 79 per cent. of net asset value as at 31 December 2019 (2018: 85 per cent.).

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

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

Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the pie chart at the end of this announcement.

Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines.

As required under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the extent to which the assets are exposed to market risk. The Board considers that the value of the fixed and current asset investment portfolio is sensitive to a change of between 15% to 30% based on the current economic climate. The impact of a 15% to 30% change has been selected as this is a range which is considered reasonable given the current level of volatility observed. When considering the appropriate level of sensitivity to be applied, the Board has considered both historic performance and future expectations.

At the lower end of the range, the sensitivity of a 15% increase or decrease in the valuation of the fixed and current asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £8,292,600. At the higher end of the range, the sensitivity of a 30% increase or decrease in the valuation of the fixed and current asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £16,585,200.

Interest rate risk
The Company is exposed to fixed and floating rate interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company’s analysis, it was estimated that a rise of 1 per cent. in all interest rates would have increased total return before tax for the year by approximately £121,000 (2018: £139,000). Furthermore, it was considered that a fall of interest rates below current levels during the year would have been very unlikely.

The weighted average effective interest rate applied to the Company’s fixed rate assets during the year was approximately 7.0 per cent. (2018: 5.3 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 6.0 years (2018: 5.1 years).

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

	31 December 2019				31 December 2018
	Fixed rate £’000	Floating rate £’000	Non-interest bearing £’000	Total £’000	Fixed rate £’000	Floating rate £’000	Non-interest bearing £’000	Total £’000
Unquoted equity	-	-	37,372	37,372	-	-	34,327	34,327
Quoted equity	-	-	22	22	-	-	131	131
Unquoted loan stock	12,913	193	906	14,012	17,542	201	462	18,205
Current asset investments	-	-	3,878	3,878	-	-	1,243	1,243
Receivables*	-	-	289	289	-	-	1,114	1,114
Current liabilities	-	-	(434)	(434)	-	-	(845)	(845)
Cash	-	14,529	-	14,529	-	9,189	-	9,189
Total	12,913	14,722	42,033	69,668	17,542	9,390	36,432	63,364

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

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

The Manager evaluates credit risk on loan stock and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. For loan stock investments made prior to 6 April 2018, which account for 87 per cent. of loan stock by value, typically loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company in order to mitigate the gross credit risk. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk.

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

The Company’s total gross credit risk at 31 December 2019 was limited to £14,012,000 (2018: £18,205,000) of unquoted loan stock instruments, £14,529,000 (2018: £9,189,000) of cash deposits with banks and £304,000 (2018: £1,128,000) of other receivables.

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

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

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

Liquidity risk
Liquid assets are held as cash on current account, cash on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £6,760,000 as at 31 December 2019 (2018: £6,169,000).

The Company had no committed borrowing facilities as at 31 December 2019 (2018: nil) and the Company had cash balances of £14,529,000 (2018: £9,189,000), and current asset investments of £3,878,000 (2018: £1,128,000), which are considered to be readily realisable within the timescales required to make cash available for investment. The main cash outflows are for new investments, buy-back of shares and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts. All of the Company’s financial liabilities are short term in nature and total £434,000 (2018: £845,000).

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

	31 December 2019				31 December 2018
Redemption date	Fully performing £’000	Valued below cost £’000	Past due £’000	Total £’000	Fully performing £’000	Valued below cost £’000	Past due £’000	Total £’000
Less than one year	1,515	613	1,618	3,746	1,996	911	1,311	4,218
1-2 years	608	113	-	721	2,704	171	1,484	4,359
2-3 years	1,658	112	-	1,770	677	112	116	905
3-5 years	1,825	211	-	2,036	2,645	222	-	2,867
5 + years	5,623	-	116	5,739	5,741	-	115	5,856
Total	11,229	1,049	1,734	14,012	13,763	1,416	3,026	18,205

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

The cost of loan stock investments valued below cost is £1,682,000 (2018: £1,746,000).

In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Company is subject to low liquidity risk.

Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 31 December 2019 are stated at fair value as determined by the Directors, with the exception of receivables, payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.

18. Contingencies and commitments                    

As at 31 December 2019, the Company had no financial commitments (2018: £nil).

There were no contingent liabilities or guarantees given by the Company as at 31 December 2019 (2018: £nil).

19. Post balance sheet events
The following are the post balance sheet events since 31 December 2019:
             

• Investment of £601,000 in SVS Albion OLIM UK Equity Income Fund; and
• Investment of £575,000 in a new portfolio company, Concirrus Limited.

The following new Ordinary shares of nominal value 1 penny each were allotted under the Albion VCTs Prospectus Top Up Offers 2019/20 after 31 December 2019:

Date of allotment	Number of shares allotted	Aggregate nominal value of shares	Issue price (pence per	Net consideration received	Opening market price on allotment date
		£’000	share)	£’000	(pence per share)
31 January 2020	1,843,797	18	84.80	1,540	79.50
31 January 2020	401,498	4	85.30	336	79.50
31 January 2020	6,789,082	68	85.70	5,674	79.50
	9,034,377	90		7,550

Since the Company’s year end the world has been plunged into a healthcare emergency the possible extent of which cannot yet be assessed. This will likely have an adverse impact on the market multiples used when valuing portfolio companies and will impact on our own forecasting models. The Board and the Manager will be undertaking an analysis of the underlying portfolio companies with a view to announcing an unaudited net asset value as at 31 March 2020 by the end of April 2020. More details on this can be found in the Chairman’s statement above.

20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, there are no other related party transactions or balances requiring disclosure.

21. Other Information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 December 2019 and 31 December 2018, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 December 2019, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.

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

Attachment

• Pie charts for AADV Announcement 31122019