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Albion Venture (AAVC) 2018/19 results

Sophisticated and complex high-risk tax-sensitive investments in small companies: handle with care
BusyBumbleBee
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Albion Venture (AAVC) 2018/19 results

#233231

Postby BusyBumbleBee » July 1st, 2019, 7:07 pm

Albion Venture Capital Trust PLC published its results today for the year ending march 2019 - see https://www.investegate.co.uk/albion-ve ... 4108H0251/

Up to their usual standard both in the achievement during the year and also in the clarity of their reporting - well worth a read.

Financial Highlights ~:
7.9p Basic and diluted total return per share for the year ended 31 March 2019
5.0p Total tax-free dividend per share paid during the year ended 31 March 2019
79.0p Net asset value per share as at 31 March 2019
233.8p Total shareholder return since launch to 31 March 2019
6.5% Annualised return since launch (without tax relief)

Next dividend
the Board has declared a first dividend for the year ending 31 March 2020 of 2.50 pence per share to be paid on 31 July 2019 to shareholders on the register on 12 July 2019.
and were able to do so because as the chairman said :
I am pleased to report that the results for the year to 31 March 2019 achieved a total return of 7.86 pence per share, which is a 10.3% return on opening net asset value per share. This is the fifth consecutive year the Company’s return has exceeded the dividend paid out of 5 pence per share per annum to shareholders.

The Annual General Meeting of the Company will be held at The Charterhouse, Charterhouse Square, London EC1M 6AN at noon on 21 August 2019.
and will be well attended cos it is a good event.

These are their dividends paid over the past 23 years

Code: Select all

  31 March 1997   2.00
  31 March 1998   5.20
  31 March 1999   11.05
  31 March 2000   3.00
  31 March 2001   8.55
  31 March 2002   7.60
  31 March 2003   7.70
  31 March 2004   8.20
  31 March 2005   9.75
  31 March 2006   11.75
  31 March 2007   10.00
  31 March 2008   10.00
  31 March 2009   10.00
  31 March 2010   5.00
  31 March 2011   5.00
  31 March 2012   5.00
  31 March 2013   5.00
  31 March 2014   5.00
  31 March 2015   5.00
  31 March 2016   5.00
  31 March 2017   5.00
  31 March 2018   5.00
  31 March 2019   5.00

Total dividends paid to 31 March 2019 154.80

Net asset value as at 31 March 2019 79.00

Total shareholder return to 31 March 2019 233.80

Hopefully they can continue in their winning ways.

BusyBumbleBee
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Re: Albion Venture (AAVC) 2018/19 results

#233244

Postby BusyBumbleBee » July 1st, 2019, 8:15 pm

At the same time as the results AAVC published a proposal for a New Performance Incentive for the manager. See https://www.albion.capital/sites/defaul ... 202019.pdf

The current incentive scheme simply doesn't work as an incentive cos it is still 17.5 pence below the target levels required to trigger a payment mostly because it was designed before many changes to VCT legislation going back many years.

They want to replace this with a scheme which allows the manager 20 per cent.share of the excess return above a hurdle which is set at RPI + 2 per cent increasing every year. At current NAV and RPI it means the manager would get 20% of everything over 4.4% per annum or 3.5 pence per share. So if the return is 7 pence per share the manager would get 0.7 of a penny and the shareholder would get 6.3 pence. In my view this is quite acceptable as it does incentivise the manager.

As a quid pro quo the are going to cut the cap on management feed from 3% to 2.5% - which is good but actually pretty meaningless because
The ongoing charges ratio for the year ended 31 March 2019 was 2.4% (2018: 2.4%).

for which the managers and board must be congratulated because this is very low compared to other VCTs - especially some of those that are not making any new investments because they are invested in solar and wind.

My only suggestion for change is that they specify in advance which month's RPI figure they will be taking as the RPI for the whole year. Otherwise it is slightly open to abuse.

onslow
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Re: Albion Venture (AAVC) 2018/19 results

#233252

Postby onslow » July 1st, 2019, 8:41 pm

Solid result, my largest VCT holding.

Half hoping they would increase the divi slightly to 5.5c from 5c as its been held for some time, appears that they have some headroom if their earnings were 7p in the year to March 2019.

Gostevie
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Re: Albion Venture (AAVC) 2018/19 results

#233274

Postby Gostevie » July 1st, 2019, 10:01 pm

Perfectly content with these results.

I am certainly planning to attend the AGM. Hope to see some other Lemon Fools there too. New venue. I'll miss the City of London Club but I'm hopeful that The Charterhouse will be just as good. There had better be wine. :lol:

I too have no issue with the new management incentive scheme.

Gostevie

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Re: Albion Venture (AAVC) 2018/19 results

#233604

Postby oxmatt » July 3rd, 2019, 9:31 am

I think the trend to take the change in rules to cover up failure to meet previous hurdles and reset performance fees is verging on egregious despite strong recent performance. While I don't object in principal to ensuring that the manager is properly incentivised the RPI+2% hurdle is pitiful (even if this is the new normal in VCTs). If investors are expecting lumpier and more risky returns then this is a very low return target - RPI+2% over an investment cycle would be a very disapointing long term level of return for this type of risk. An "institutional" venture capital/ lower middle market PE fund would be typically have terms more like 20% over an 8% return - I'd like to see a leading VCT take the lead in trying to replicate a fee model that better represents a reasonable return target rather than simply saying this is what all the other VCT funds are doing so we will fill our pockets as well.

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Re: Albion Venture (AAVC) 2018/19 results

#235028

Postby londoninvestor » July 8th, 2019, 10:11 pm

oxmatt wrote:I think the trend to take the change in rules to cover up failure to meet previous hurdles and reset performance fees is verging on egregious despite strong recent performance. While I don't object in principal to ensuring that the manager is properly incentivised the RPI+2% hurdle is pitiful (even if this is the new normal in VCTs).


Agreed. Shareholders are giving a lot away here:

1) Resetting the hurdle and removing the need for the trust to make up its cumulative shortfall
2) More than doubling the performance fee, from 8% to 20%
3) Switching to an RPI+2% hurdle, which is currently a bit lower than the 5% existing hurdle

OK, (3) is a bit marginal, but (1) and (2) are substantial transfers of value from shareholders to Albion.

The cap of ongoing costs at 2.5% (when they're running at 2.4% anyway) isn't enough to make this a decent deal.

I'm overall happy with this VCT, and I don't necessarily object to a bigger % performance fee - but it would have to be offset by a more onerous hurdle. The proposed deal really is one-way traffic in Albion's direction, that shareholders shouldn't be expected to swallow.

The stated rationale is the regulatory-driven move to a higher-risk portfolio. But the composition of AAVC isn't changing all of a sudden - Albion themselves have said there is no hurry to sell the asseet-backed investments. The portfolio will shift towards more "start-up" investments gradually over time, not as a sharp one-off event. So a sharp one-off rise in performance fee isn't warranted either.

The tone of the circular from the board is also concerning - it's a pretty straight sales pitch, complete with a moan that if the deal is voted down they'll have spent £9000 in vain on sending the circular in the post to shareholders! Having read it, I feel like the directors have got so used to working day to day with Albion (as they should!) that they - quite possibly unconsciously - no longer stand up independently for shareholders' interests.

I'm sorry for the £9k spent on all those stamps, but I find it very difficult to support this deal.

What are the good reasons to switch to this rather than stick with the arrangement we've got?

timbo003
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Re: Albion Venture (AAVC) 2018/19 results

#235052

Postby timbo003 » July 9th, 2019, 12:32 am

Agreed. Shareholders are giving a lot away here:

1) Resetting the hurdle and removing the need for the trust to make up its cumulative shortfall
2) More than doubling the performance fee, from 8% to 20%
3) Switching to an RPI+2% hurdle, which is currently a bit lower than the 5% existing hurdle


I am neutral on proposal 3
I don't like proposal 1 as it stands, perhaps the hurdle should be reset, but at a higher level than proposed
I am very opposed to proposal 2

A 20% fee is definitely too high

Did the director's do any bench marking when they agreed this new incentive scheme?

If they did, it was woefully inadequate as they clearly did not bench mark it against Kings Arms Yard (another Albion VCT)

It is basically the same incentive scheme (which started in 2014 for KAY), except for the KAY scheme the fee is just 15% (not 20%) of everything in excess of the hurdle (adjusted by RPI plus 2%)

See page 12 of the last KAY annual report
https://www.albion.capital/sites/defaul ... %20web.pdf

The performance hurdle is equal to the greater of the Starting NAV of 20 pence per share, increased by the increase in RPI plus 2% per annum from the Start Date of 1 January 2014 (calculated on a simple and not compound basis) and the highest Total Return for any earlier period after the Start Date (the ‘high watermark’). An annual fee (in respect of each share in issue) of an amount equal to 15% of any excess of the Total Return (this being NAV per share plus dividends paid after the Start Date) as at the end of the relevant accounting period over the performance hurdle will be due to the Manager.


So, when the portfolios of the various Albion VCTs become aligned (as they are bound to do under the new rules) Albion shareholders will have to pay out 33% more than Kings Arms Yard shareholders for the same level of performance. Surely the directors can see that this is just not right.

I will vote against the introduction of the new scheme and I am mindful to vote against any director who is up for re-election this year for agreeing to it.

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Re: Albion Venture (AAVC)8/19 results

#236412

Postby rhowitt » July 13th, 2019, 12:27 pm

Regarding the new performance incentive, I am not clear whether the NAV value to be used in future will be after the dividend is taken into account as would be the case of the stated starting point of 79p. If this were the case then the starting point that the incentive would kick in would be currently 5p + inflation + 2%. There is no mention of the dividend being added back. Can anyone through any light on this?

Regarding the performance fee, I feel that it should be based on only new investments. Over the life of this VCT, performance has not been great. I always thought that the investment in pubs and hotels was not very wise. Therefore, any capital gains from the sale of the care homes and schools over existing values I think should accrue wholly to shareholders.

Looking at my and my wife's total shareholding in this VCT it exceeds all but 2 directors. I feel that any director that has been receiving director's fees for more than 2 years should have shares in the company valued at least as much as 1 year's fees.

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Re: Albion Venture (AAVC) 2018/19 results

#236436

Postby barchid » July 13th, 2019, 1:42 pm

I think the points made by the previous posters are very informative, I certainly did not realise that KAY performance fee was lower than the proposed one for AAVC, and the dividend query raised definitely needs clarification.
I intend to vote against this scheme and I am inclined to agree with timbo that the directors should be shown some shareholder displeasure as well.It gives the impression of being ill thought out as a deal, which is surprising as Albion are generally very fair with their shareholders and not the sort of board to try and pull a fast one over investors.

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Re: Albion Venture (AAVC)8/19 results

#236504

Postby londoninvestor » July 13th, 2019, 9:45 pm

rhowitt wrote:Regarding the new performance incentive, I am not clear whether the NAV value to be used in future will be after the dividend is taken into account as would be the case of the stated starting point of 79p. If this were the case then the starting point that the incentive would kick in would be currently 5p + inflation + 2%. There is no mention of the dividend being added back. Can anyone through any light on this?


I'm sure the dividend would be added back (and to be fair, there's nothing wrong with that - the manager shouldn't be disincentivised by dividend payments). But you're right it's not very clear in the circular. It refers to amending the text in the existing Management Agreement, which I can't find anywhere online to check against.

rhowitt wrote:Regarding the performance fee, I feel that it should be based on only new investments. Over the life of this VCT, performance has not been great. I always thought that the investment in pubs and hotels was not very wise. Therefore, any capital gains from the sale of the care homes and schools over existing values I think should accrue wholly to shareholders.


Agreed. I wouldn't necessarily object to a higher performance fee *solely on the growth-oriented portfolio*. That would mean essentially two separate subportfolios with their own fee structure. Dividing up the valuation to calculate fees would be slightly tricky - the NAV is fine but you'd need to make an attribution as to where the dividends are deemed to come from. I'm sure a way could be found to do that though.

(Although commensurately, the hurdle on the growth portfolio ought to be higher than RPI+2 - the manager should only be rewarded for performance over and above what is normal for the risk profile of the investments.)
Last edited by londoninvestor on July 13th, 2019, 9:47 pm, edited 1 time in total.

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Re: Albion Venture (AAVC) 2018/19 results

#236505

Postby londoninvestor » July 13th, 2019, 9:46 pm

barchid wrote:It gives the impression of being ill thought out as a deal, which is surprising as Albion are generally very fair with their shareholders and not the sort of board to try and pull a fast one over investors.


Yes, of all my VCTs I'd have put Albion last on the list of those I expected to take the pee. You live and learn!

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Re: Albion Venture (AAVC) 2018/19 results

#237151

Postby shootingstar » July 16th, 2019, 11:30 pm

I am not happy with the proposed performance fee changes and have submitted a complaint. I invested in the AAVC raise earlier this year and part of my investment decision was that they had to catch up a lot of ground before any performance fee would be payable.

now they try to shift the mechanism, despite having not warned about potential changes in fees when they raised money... a classic "bait" and "switch"

I am also concerned a widening discount to NAV may occur given higher performance fees.

I'm not sure how the non exec directors can approve this

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Re: Albion Venture (AAVC) 2018/19 results

#237153

Postby scotia » July 16th, 2019, 11:51 pm

shootingstar wrote:I am not happy with the proposed performance fee changes and have submitted a complaint.

A concerted amount of well publicised complaints may change their minds. I remember the amount of bad publicity Artemis VCT received many years ago when they proposed to reset the performance hurdle at a lower level, after a few bad years in the AIM market. It worked - Artemis did not proceed with the change - and their VCT has since been a reasonably good performer.

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Re: Albion Venture (AAVC) 2018/19 results

#237155

Postby londoninvestor » July 17th, 2019, 12:03 am

shootingstar wrote:I am not happy with the proposed performance fee changes and have submitted a complaint.


How did you do so? Write to the directors collectively? I will happily add my voice too!

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Re: Albion Venture (AAVC) 2018/19 results

#237229

Postby shootingstar » July 17th, 2019, 11:06 am

In the first instance I have emailed a formal complaint letter to the shareholder liaison officer Sarah Fitton who is shown on their website

I also called up the FCA consumer helpline. They gave me a reference number but basically said I should complain directly

BusyBumbleBee
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Re: Albion Venture (AAVC) 2018/19 results

#237270

Postby BusyBumbleBee » July 17th, 2019, 3:42 pm

shootingstar wrote:In the first instance I have emailed a formal complaint letter to the shareholder liaison officer Sarah Fitton who is shown on their website

I also called up the FCA consumer helpline. They gave me a reference number but basically said I should complain directly

The FCA are useless for consumer complaints. However, writing to the company secretary is usually the best way. You can also write to the chairman if it makes you feel better. I would expect a sensible response from the board as they are usually pretty shareholder friendly unlike some others.

timbo003
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Re: Albion Venture (AAVC) 2018/19 results

#237490

Postby timbo003 » July 18th, 2019, 11:55 am

A concerted amount of well publicised complaints may change their minds. I remember the amount of bad publicity Artemis VCT received many years ago when they proposed to reset the performance hurdle at a lower level, after a few bad years in the AIM market. It worked - Artemis did not proceed with the change - and their VCT has since been a reasonably good performer.


From the ShareSoc blog earlier this week:
https://www.sharesoc.org/blog/vcts/albi ... blem-case/

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Re: Albion Venture (AAVC) 2018/19 results

#237689

Postby Karellan » July 19th, 2019, 6:46 am

Would anyone know where the directors email addresses can be found ?

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Re: Albion Venture (AAVC) 2018/19 results

#237711

Postby longtermreturns » July 19th, 2019, 9:48 am

I'm also very surprised and disappointed to see this proposal. Not only because it comes so soon after the recent fundraise, but also because it would immediately trigger an incentive payment. For example, if performance was only at the historical return (shown as 6.5%), and inflation was at the current 2.7%, then the incentive payment would be 6.5% - (2.7%+2%) = 1.8% 'outperformance', times 20% is .36% and on an asset base of 67 mio that give nearly a quarter million performance fee - for merely doing as they have been.
Bear in mind also that the fee level is rebased (i.e. the past is simply scratched), and the reduction in the cap is a false saving, as costs are below the cap anyway.
Very disappointing.

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Re: Albion Venture (AAVC) 2018/19 results

#237721

Postby longtermreturns » July 19th, 2019, 10:43 am

Karellan, I was told that all correspondence must go via sfitton@albion.capital and that she will pass it on. I've written via Sarah. But of course if you can get direct details, that's more efficient.


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