Albion Technical & General VCT (AATG) AGM 2019

[Gostevie]

Albion Technical & General VCT (AATG) AGM 2019

This year’s Albion Technical & General VCT AGM was held on Tuesday 4th June 2019 at 11:00hrs at the City of London Club in Old Broad Street, conveniently located between Liverpool Street and Bank stations – the same venue as the two recent Kings Arms Yard VCT and Albion Development VCT AGMs from the same Albion stable. As previously reported, this is the final year that these AGMs were held there due to forthcoming redevelopment of the venue, with future ones due to be held at (I think) The Charterhouse, close to Albion’s new offices in Farringdon.

The Annual Report and Accounts for year ending 31st December 2018 can be found here:

https://www.albion.capital/sites/defaul ... ersion.pdf

The Interim Management Statement to March 31st 2019 was also released in the morning just before the AGM and reported NAV at 78.6p per share on March 31st, which was an increase of 1.2p per share (1.6%) since 31st December 2018.

https://www.investegate.co.uk/albion-te ... 2950H6056/

Manager’s Presentation

The meeting was opened by long-serving Chairman Dr Neil Cross, who introduced Albion’s Managing Partner Will Fraser-Allen who then gave the Manager’s presentation, which summarised the highlights of the year.

2018 was a good year with a 13.2% total return on NAV. The current portfolio consists of 56 companies employing over 1,800 people – something which Albion investors can feel proud of and which justifies the tax treatment that VCTs receive from HMRC. The latest fundraising was successful, raising the maximum £8m and closing early.

There were £5.6m exits, primarily the sale of Grapeshot to Oracle, even though this particular fund had a smaller holding in Grapeshot than some of the others in the Albion stable. Several other investee companies also showed an uplift in value, primarily through external fundraisings. The Radnor House schools also showed an uplift as the number of pupils increased. Negatives included Memsstar, Albion OLIM UK Equity Income Fund and Mi-Pay.

Follow-on investments were made with the focus on “backing winners”. Such investments were made in Egress (data protection) and Quantexa (data analytics with a focus on fraud detection), both of which received substantial external funding which Albion was able to join in with to avoid dilution.

Looking ahead, there is, as with other VCTs, a gradual move away from asset backed investments towards the IT and healthcare sectors because of the current rules, with the focus on business-to-business software and technology enabled services, with a low exposure to discretionary consumer-facing sectors.

Q&A

(These are paraphrased from my scribbled notes, not a word-for-word account, except for words or phrases in “inverted commas” which are direct quotes.)

Q. Regarding the rule that a VCT can invest no more than 15% of its funds into any company, is there a danger that you could be in trouble if an investee company is particularly successful and thus exceeds that?
A. No. There is no regulatory problem if the NAV growth of an investee company causes it to exceed 15%, but we might feel uncomfortable if it leads to too great a degree of concentration in one company.

Q. Would you have to reduce your holding in the asset-backed Radnor House if its value continues to rise?
A. No, but we can’t add to it.

Q. Will the change in regulation meaning that 80%, rather than 70%, of your funds have to be invested in qualifying investments “cramp your style”, and are you there yet?
A. We are not quite there yet but we are prepared for this. The board has instructed us to aim for 85% for leeway.

Q. These new software and medi-tech companies are harder to understand than pub companies for example. Do you have the expertise to properly analyse these companies?
A. We have been doing tech investments for a long time, but will bring in more people with particular specialisms as required. In fact we have already started doing this.

Q. New investments seem to be smaller than they were previously, with Albion overall starting with a less than 20% stake. Does it worry you that this reduces your influence over these companies?
A. No, we still usually have an “observer” role at board discussions and it gives us the opportunity to “follow the money” in successful investments with follow-up funds.

Q. What yield do you get on the Albion OLIM Fund?
A. 4% basic, but an effective 4.75% as we waive the management fee.

Q. How reliant are your investee companies in the healthcare sector on selling to the NHS?
A. On the whole, “not a lot”. Most are selling more globally, particularly to the USA.

Formal AGM

All resolutions at the formal AGM were passed without dissent. (Being sat towards the rear of the room and with not particularly good eyesight, I couldn’t see the poll results displayed in the screen but I think they were all 90-something percent in favour.)

Investee Company

https://www.sbdautomotive.com/

A presentation was given by David Bell, Chief Executive of investee company Secured By Design (a.k.a. SBD Automotive).

The company brings “practical insights and depth of knowledge to improve the decisions and actions of the automotive industry”. It does this in three areas – research (about 30%), consulting (about two thirds) and solutions (by far the smallest but also the most rapidly growing area).

Okay, I’ll be honest here, I really don’t know what any of the above actually means in practical terms but they have an impressive list of customers including Toyota, Nissan, Ford, GM and Hyundai, and is a global business with 115 employees in six offices around the world in the UK, Japan, USA, Germany, China and India. Albion first invested in 2016, since when the company has grown its revenues rapidly. It was profitable before 2016, since when it has focused on achieving its growth aims rather than generating a profit, and should be returning to profitability again by the end of this year. Albion’s Robert Whitby-Smith is on the Board of Directors.

Lunch

At around 1215hrs the meeting was brought to a close, and a pleasant cold buffet lunch with soft drinks and wine was served. Sadly we didn’t have the use of the roof terrace this time around but it was a convivial end to the meeting nevertheless and a great opportunity to chat with fellow investors and with representatives from both the company and Albion. (On a personal note it was a particular pleasure to meet again with Chairman Dr Neil Cross, who many years ago was a Non-Executive Director with what was then Taylor Nelson way back in the 1990s when I was a very junior member of staff at its head office in Hanger Lane and I bumped into him occasionally. He doesn’t look a day older than he did then!)