Crown Place VCT PLC: Annual Financial Report
Crown Place VCT PLC
LEI number: 213800SYIQPA3L3T1Q68
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Crown Place VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 30 June 2023.
This announcement was approved for release by the Board of Directors on 11 October 2023.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 30 June 2023 (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/CRWN/30Jun23.pdf.
Investment policy
The Company invests in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments take the form of equity or a mixture of equity and loans.
Whilst allocation of funds is determined by the investment opportunities which are available, efforts are made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of investee businesses. Funds held pending investment or for liquidity purposes will be held principally as cash on deposit.
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, as permitted. The maximum amount which the Company will invest in a single portfolio company is 15% of the Company's assets at cost thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company's maximum exposure in relation to gearing is restricted to the amount of its adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.
Financial calendar
| 3 November 2023 | Record date for first dividend |
| Noon on 22 November 2023 | Annual General Meeting |
| 30 November 2023 | Payment date of first dividend |
| March 2024 | Announcement of Half-yearly results for the six months ending 31 December 2023 |
| 28 March 2024 | Payment date of second dividend (subject to Board approval) |
Financial highlights
| 1.06p | 3.15% | 1.63p | 33.13p |
| Increase in total shareholder value per share for the year ended 30 June 2023 (2022: 2.12p)† | Total return uplift on opening net asset value per share (2022: 6.10%)† | Total tax-free dividends per share paid during the year ended 30 June 2023 (2022: 3.21p) | Net asset value per share as at 30 June 2023 (2022: 33.70p) |
†These are considered Alternative Performance Measures, see notes 2 and 3 of the Strategic report below for further explanation.
Movements in net asset value
| 30 June 2023 | 30 June 2022 | |
| pence per share | pence per share | |
| Opening net asset value | 33.70 | 34.79 |
| Capital return | 0.92 | 1.95 |
| Revenue return | 0.13 | 0.14 |
| Total return | 1.05 | 2.09 |
| Dividends paid | (1.63) | (3.21) |
| Impact of share capital movements | 0.01 | 0.03 |
| Closing net asset value | 33.13 | 33.70 |
Total shareholder value
| Shareholder return and shareholder value | (pence per share) | ||
| Shareholder return from launch to April 2005: | |||
| Total dividends paid to 6 April 2005(i) | 24.93 | ||
| Decrease in net asset value | (56.60) | ||
| Total shareholder return to 6 April 2005 | (31.67) | ||
| Shareholder return from April 2005 to 30 June 2023 (period that Albion Capital has been investment manager): | |||
| Total dividends paid | 43.25 | ||
| Decrease in net asset value | (10.27) | ||
| Total shareholder return from April 2005 to 30 June 2023 | 32.98 | ||
| Shareholder value since launch: | |||
| Total dividends paid to 30 June 2023(i) | 68.18 | ||
| Net asset value as at 30 June 2023 | 33.13 | ||
| Total shareholder value as at 30 June 2023 | 101.31 | ||
Note
(i) Prior to 6 April 1999, Venture Capital Trusts were able to add 20% to dividends and figures for the period up until 6 April 1999 are included at the gross equivalent rate actually paid to shareholders.
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/CRWN under the ‘Dividend History’ section.
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2024 of 0.83 pence per share payable on 30 November 2023 to shareholders on the register on 3 November 2023.
Chairman’s statement
Introduction
The year saw the Company’s portfolio facing a challenging macroeconomic and geopolitical backdrop due to high inflation, rising interest rates and political instability which has caused the valuation of quoted technology companies to fall sharply. In spite of this, I am pleased to report an increase in total shareholder value of 1.06 pence per share for the year ended 30 June 2023, representing a 3.1% uplift on the opening net asset value.
Although the Company’s portfolio faces uncertainties, the Board remains encouraged by the progress that is being made by many of the portfolio companies. The Board recognises the importance of evaluating the Company’s returns over the longer-term, as a venture capital portfolio can, by its nature, experience periods of short term volatility.
Results and dividends
As at 30 June 2023, the net asset value (“NAV”) was £94.0 million or 33.13 pence per share compared with £85.8 million or 33.70 pence per share at 30 June 2022. The continuing progress of a number of our portfolio companies is discussed later in this statement and in the Strategic report below.
In line with the dividend policy targeting payment of around 5.0% of NAV per annum, the Company paid ordinary dividends of 1.63 pence per share during the year to 30 June 2023, which equates to 4.8% of the opening NAV (30 June 2022: 3.21 pence per share, which included a special dividend of 1.50 pence per share).
The Board is pleased to declare a first dividend for the year ending 30 June 2024 of 0.83 pence per share, representing 2.5% of the prevailing NAV, to be paid on 30 November 2023 to shareholders on the register on 3 November 2023.
Investment performance and progress
Our portfolio has performed well despite the global uncertainties faced, and this has contributed to the total uplift in value of £3.8 million to the Company’s investments for the year (30 June 2022: £6.4 million). Quantexa, the largest company within our portfolio (18% of net asset value), was the main contributor to the net gain, increasing its value by £6.8 million following an externally led $129 million Series E fundraising which completed in April 2023. Other unrealised gains in the year, again driven by strong trading and revenue growth, included Convertr of £0.6 million and Solidatus of £0.5 million. These gains were partially offset by write downs in Black Swan which decreased by £1.5 million, uMotif by £0.9 million and Oviva by £0.8 million.
The Company realised disposal proceeds of £0.7 million (2022: £7.2 million). The largest disposals being a part disposal of our shareholding in our AIM quoted investment, Arecor Therapeutics PLC (£0.3 million) and an exit of Zift (£0.2 million). There were also several investments written off during the year, however their valuations had already been substantially reduced in previous years and had little impact on the return for the year. Further details on the realisations during the year can be found in the realisations table on page 29 of the full Annual Report and Financial Statements.
The three largest investments in the Company’s portfolio, Quantexa, Proveca and Radnor House are valued at £24.8 million and represent 26.4% of the Company’s net asset value. The company regularly monitors its concentration risk and as announced on 6 October 2023, the Company sold £1.2 million of its holding in Quantexa at its current valuation to reduce its concentration risk.
The Company has been an active investor during the year with £7.9 million invested in 11 new and 11 existing portfolio companies. The new portfolio companies are expected to require further investment as the companies prove themselves and grow. The following are the five largest new investments:
- £1.2 million into Peppy Health, a platform providing expert support for underserved areas of health and wellness (e.g. menopause) via content, video, chat support as an employment benefit for employees
- £1.0 million into Toqio FinTech Holdings which bridges the gap between financial services and financial outcomes by providing an orchestration platform to any business large or small which wishes to launch a financial product
- £0.6 million into GX Molecular (T/A CS Genetics), a developer of a wet-phase approach to single cell indexing in a single tube that enables increased scalability and high quality single cell analysis
- £0.5 million into OutThink, a software platform to measure and manage human risk enterprises
- £0.4 million into Neurofenix, a platform providing neurorehabilitation for patients recovering from stroke, TBI and spinal cord injury
A full list of the Company’s investments and disposals, including their movements in value for the year, can be found in the Portfolio of investments section on pages 27 to 29 of the full Annual Report and Financial Statements.
Board composition
I have had the privilege of serving as a Director of the Company for nine years, including three as Chairman, and I will retire at the Annual General Meeting in November 2023. I am delighted that James Agnew, an existing Board member, will succeed me as Chairman.
Following a formal selection process and as part of its ongoing succession planning, the Board is pleased to welcome Tony Ellingham who joined the Board on 1 September 2023.
When James Agnew becomes Chairman of the Board, Tony Ellingham will become the Chairman of the Audit and Risk Committee; Pam Garside will become the Senior Independent Director; and Ian Spence will become Chairman of the Remuneration Committee.
Risks and uncertainties
The Company faces a number of significant risks, including higher interest rates, high levels of inflation, the ongoing impact of geopolitical tensions, and an expected period of economic stagnation in the UK and other markets. This complex backdrop is factored into how the Company is managed, including in its management of cash.
Our investment portfolio, while concentrated mainly in the technology and healthcare sectors, remains diversified in terms of both sub-sector and stage of maturity and, importantly, we believe it to be appropriately valued.
The Manager is continually assessing the exposure to these risks for each portfolio company and appropriate actions, where possible, are being implemented. This includes the potential provision of further financial support to portfolio companies where necessary.
A detailed analysis of the principal risks and uncertainties facing the business is shown in the Strategic report below.
Share buy-backs and reserves
It remains the Board’s primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board’s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest. It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.
The Company also manages a relatively high level of distributable reserves which can be used for share buy-backs and the payment of dividends. As in the past, the Company has sought authority from shareholders for the reclassification of the share premium account to create additional distributable reserves, which is being done again this year as explained on page 50 of the full Annual Report and Financial Statements.
Albion VCTs Prospectus Top Up Offers
Your Board, in conjunction with the boards of the other five VCTs managed by Albion Capital Group LLP, launched a prospectus top up Offer of new Ordinary shares on 10 October 2022. On 10 March 2023 the Offer was fully subscribed and closed to further applications raising £11.5 million including the overallotment facility. The Board was pleased to see the high level of demand for the Company’s shares from existing and new shareholders.
The proceeds raised by the Company pursuant to the Offer are added to the liquid resources available for investment, positioning the Company to take advantage of new investment opportunities. Details on the share allotments during the year can be found in note 15.
Annual General Meeting
The AGM will be held virtually at noon on 22 November 2023 via the Lumi platform. Information on how to participate in the live webcast can be found on the Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcomes questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform during the AGM. Alternatively, shareholders can email their questions to crownchair@albion.capital prior to the AGM.
Shareholders' views are important, and the Board encourages shareholders to vote on the resolutions.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 49 and 50, and in the Notice of the Meeting on pages 91 and 92, of the full Annual Report and Financial Statements.
Audit tender process
Following a formal and rigorous audit tender process, the intention is to appoint Johnston Carmichael LLP (“Johnston Carmichael”) as the new Auditor of the Company in October 2023. Johnston Carmichael will conduct the audit of the Annual Report and Financial Statements for the year ended 30 June 2024. Shareholders will be asked to confirm the appointment of Johnston Carmichael at the forthcoming Annual General Meeting. BDO conducted the audit of the Annual Report and Financial Statements for the year ended 30 June 2023 and their report can be found on pages 64 to 70 of the full Annual Report and Financial Statements. The Board would like to express their gratitude to BDO for their diligent service over 16 years. Further details on the tender process can be found in the Statement of corporate governance on page 56 of the full Annual Report and Financial Statements.
Shareholder seminar
The next Shareholder Seminar will be held at the Royal College of Surgeons, Lincoln’s Inn Fields, London WC2A 3PE on 15 November 2023 and the Board will be delighted to see as many shareholders as possible at the event. The Board and Manager are keen to interact with shareholders and look forward to sharing with you further portfolio updates, as well as answering any questions. Places are limited and to reserve a place please email info@albion.capital with subject heading “Shareholder Seminar” and include your full name. You will receive an email confirmation of your place, subject to availability.
More details are available on the Albion Capital website: www.albion.capital.
Outlook and prospects
The Board is encouraged by the positive results for the year just ended in what are uncertain times, principally outside the Company’s control. The Board believes the portfolio is well diversified in terms of maturity and target sectors, many of which do not depend on consumer sentiment. Therefore, the Board continues to have confidence that the Company is well positioned in the current economic environment to generate long term value for shareholders.
Penny Freer
Chairman
11 October 2023
Strategic report
Crown Place VCT PLC (the “Company”) is a Venture Capital Trust and its investment policy can be found above.
Business model
As a Venture Capital Trust, the Company has no employees and has outsourced the management of all its operations to Albion Capital Group LLP, including secretarial and administrative services. Further details of the Investment Management Agreement can be found below.
Current portfolio sector allocation
The pie charts at the end of this announcement are a useful way of showing the split of the portfolio valuation as at 30 June 2023 by: sector; stage of investment measured by revenues; and size measured by number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 27 to 29 of the full Annual Report and Financial Statements.
Direction of portfolio
The analysis of the Company’s investment portfolio shows that it is well diversified and spread across the FinTech, healthcare (including digital healthcare), software and technology, renewable energy, and education sectors.
Cash and net current assets are a significant proportion of the portfolio at 28%. The main use of these funds will be to invest in higher growth technology companies, and therefore the shift away from asset based companies will continue. The funds will also be used to pay dividends, buyback shares and for the operating expenses of the Company. The Company has a significant speciality in healthcare, FinTech and software investing, which account for 58% of the net asset value of the Company.
Results and dividends
| £’000 | |
| Net revenue return for the year ended 30 June 2023 | 351 |
| Net capital return for the year ended 30 June 2023 | 2,466 |
| Total return for the year ended 30 June 2023 | 2,817 |
| First dividend of 0.84 pence per share paid on 30 November 2022 | (2,130) |
| Second dividend of 0.79 pence per share paid on 31 March 2023 | (2,120) |
| Unclaimed dividends | 13 |
| Transferred from reserves | (1,420) |
| Net assets as at 30 June 2023 | 93,969 |
| Net asset value as at 30 June 2023 | 33.13 pence per share |
The Company paid dividends totalling 1.63 pence per share during the year ended 30 June 2023 (2022: 3.21 pence per share which included a 1.50 pence per share special dividend). The dividend objective of the Board is to provide shareholders with a regular dividend flow. The Board declared a first dividend for the year ending 30 June 2024 of 0.83 pence per share. This dividend will be paid on 30 November 2023 to shareholders on the register on 3 November 2023.
As shown in the Company’s Income statement below, the total return for the year was 1.05 pence per share (2022: 2.09 pence per share). The net asset value decreased to 33.13 pence per share (2022: 33.70 pence per share). This decrease in net asset value was primarily due to the payment of 1.63 pence per share of dividends during the year, partly offset by the total return in the year.
Investment income has increased to £936,000 (2022: £853,000). This is a result of bank interest and income from fixed term funds increasing to £283,000 (2022: £17,000) as a result of rising interest rates. Loan stock income decreased to £569,000 (2022: £763,000) as the prior year included a large payment of previously capitalised interest.
The gain on investments for the year was £3,846,000 (2022: gain of £6,386,000). The key drivers of this gain are detailed in the Chairman’s statement above. A full analysis of the Portfolio of investments can be seen on pages 27 to 29 of the full Annual Report and Financial Statements.
The net cash flow for the Company has been a net outflow of £3,018,000 for the year (2022: inflow of £598,000), reflecting new investments, dividends paid, ongoing expenses and the buy-back of shares, offset by disposal proceeds, loan stock income, and the issue of new Ordinary shares under the Top Up Offer.
Review of the business and future changes
A detailed review of the Company’s business during the year is contained in the Chairman’s statement above.
There is a continuing focus on growing the healthcare (including digital healthcare), FinTech and software and other technology sectors. The majority of these investment returns are delivered through equity and capital gains and are expected to be the key driver of success for the Company. Investment income, which is received primarily from our renewable energy investments, is expected to remain steady over the coming years.
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
The Company’s financial results for the year ended 30 June 2023 demonstrate that the portfolio remains well balanced across sectors and risk classes, and is largely weathering the ongoing global issues caused as a result of high levels of interest rates and inflation, and other economic headwinds. Although there remains much uncertainty, the Board considers that the current portfolio and the pipeline of opportunities should enable the Company to maintain a predictable stream of dividend payments to shareholders, as well as delivering long term growth for shareholders. Further details on the Company’s outlook and prospects can be found in the Chairman’s statement above.
Key Performance Indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs (some of which are 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:
- Total shareholder value relative to FTSE All Share Index total return
The graph on page 8 of the full Annual Report and Financial Statements shows the Company’s total shareholder value relative to the FTSE All-Share Index total return, with dividends reinvested. The FTSE All-Share Index is considered a reasonable benchmark as the Company is classed as a generalist UK VCT investor, and this index includes over 600 companies listed in the UK, including small-cap, covering a range of sectors. Details on the performance of the net asset value and return per share for the year are shown in the Chairman’s statement.
Total shareholder value increased by 1.06 pence per share to 101.31 pence per share (2022: 100.25) for the year ended 30 June 2023.
2. Movement in shareholder value in the year †
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| 7.1% | 4.5% | 1.5% | 14.0% | 14.6% | 11.3% | (0.4%) | 15.9% | 6.1% | 3.1% |
† Methodology: Calculated as the movement in total shareholder value for the year divided by the opening net asset value.
3. Dividend distributions
Dividends paid in respect of the year ended 30 June 2023 were 1.63 pence per share (2022: 3.21 pence per share, which included a special dividend of 1.50 pence per share). Cumulative dividends paid since launch (on 18 January 1998) amount to 68.18 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year ended 30 June 2023 was 2.20% (2022: 2.18%). 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, but excluding any performance incentive fees) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to remain stable at approximately 2.20%.
5. VCT compliance*
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 46 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 30 June 2023. 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.
Gearing
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to the adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
Operational arrangements
The Company has delegated the investment management of the portfolio to the Manager, Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. The Manager also provides company secretarial and other accounting and administrative support to the Company.
Investment Management Agreement
Under the Investment Management Agreement (“IMA”), the Manager provides investment management, secretarial and administrative services to the Company. The IMA can 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 1.75% of the net asset value of the Company, and an annual secretarial and administrative fee of £50,000 per annum. Total annual expenses, including the management fee, are limited to 3% of the net asset value.
In some instances, the Manager is entitled to an arrangement fee, payable by a portfolio company in which the Company invests, in the region of 2.0% of the investment made, and also monitoring fees where the Manager has a representative on the portfolio company’s board.
Management performance incentive fee
In order to align the interests of the Manager and shareholders with regards to generating positive returns, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels. Under the incentive arrangements, the Company will pay an incentive fee to the Manager of an amount equal to 20% of such excess return that is calculated for each financial year.
The performance hurdle requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period (both revenue and capital), compared with the previous accounting date, exceeds the average base rate of the Royal Bank of Scotland plc plus 2.0%. 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.
For the year ended 30 June 2023, the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period amounted to 34.76 pence per share, compared to a hurdle of 35.69 pence per share. As a result, no performance incentive fee is payable to the Manager (2022: £584,000).
Investment and co-investment
The Company co-invests with other Venture Capital Trusts and funds managed by the Manager. 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 HMRC tests for VCT status;
• the long term prospects of the current portfolio of investments;
• the management of treasury, including use of buy-backs and participation in fund raising; 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 the Manager as the Company’s AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides other AIFMD duties with respect to the Company.
Consumer duty
The Consumer Duty came into effect from 31 July 2023. These new rules set a higher standard of consumer protection in financial services. The Manager as AIFM is within scope of the FCA’s Consumer Duty, but the Company itself is not.
The Manager is a manufacturer of the Company’s shares as it is a firm that has some influence over design and distribution of the Company’s share product. The Manager’s first assessment of value for the Company’s shares was completed in April 2023. The value assessment concluded that the Company provides fair value for shareholders.
Where the Manager concludes that changes will help deliver good outcomes for consumers, it will recommend these changes to the Board.
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 in both the long and short term, 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 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 table that follows sets out the key stakeholders, details how the Board has engaged with these key stakeholders, and the effect of these considerations on the Company’s decisions and strategies during the year.
| Engagement with Stakeholder | Decision outcomes based on engagement |
| Shareholders | |
The key methods of engaging with Shareholders are as follows:
|
|
| Manager | |
| The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance (“ESG”) practice. |
|
| Suppliers | |
The key suppliers are:
|
|
| Portfolio companies | |
| The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. Also, as discussed in the ESG report on pages 35 to 38 of the full Annual Report and Financial Statements the portfolio companies’ impact on their stakeholders is also important to the Company. |
|
| Community and environment | |
| The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board. |
|
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, however, it is at the core of its responsible investment strategy as detailed above.
General Data Protection Regulation
The General Data Protection Regulation (“GDPR”) has the objective of unifying data privacy requirements across the European Union. GDPR forms part of the UK law after Brexit, now known as UK GDPR. The Manager continues to take 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; and
- Diversity.
and these are set out in the Directors’ report on page 47 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, together with 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 risks have been rising interest rates and inflation, caused in part as a result of the geopolitical tensions, and pricing volatility in world markets, particularly affecting growth stocks. The full impact of these risks are likely to continue to be uncertain for some time.
The Board has carried out a robust assessment of the Company’s principal risks and uncertainties and seeks to mitigate these risks through regular reviews of performance and monitoring progress and compliance. The Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, in the mitigation and management of these risks. More information on specific mitigation measures for the principal risks and uncertainties are explained below:
| Possible consequence | Risk assessment during the year | Risk management |
| Risk: Investment, performance, technology, and valuation risk | ||
| The risk of investment in poor quality businesses, which could reduce the returns to shareholders and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust purposes, are more volatile than larger, long-established businesses. Technology related risks are also likely to be greater in early, rather than later, stage technology investments, including the risks of the technology not becoming generally accepted by the market or the obsolescence of the technology concerned, often due to greater financial resources being available to competing companies. 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. | Increased in the year due to the heightened economic and geopolitical issues as referred to in the Chairman’s statement. In addition, in the current economic climate the valuations of technology companies are more volatile. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record of making successful investments in higher growth technology businesses. The Manager operates a structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager for all investments, and at least one external investment professional for investments greater than £1 million in aggregate across all the Albion managed VCTs. 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 observe or sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The Board and Manager regularly review the deployment of investments and cash resources available to the Company in assessing liquidity required for servicing the Company’s buy-backs, dividend payments and operational expenses. The decision to issue a Prospectus for the 2022/23 Top Ups was due to careful analysis of these factors. 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 updated in 2022. 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. |
| Risk: VCT approval and regulatory change 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. | No change in the year. | 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 professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required. |
| Risk: Regulatory and compliance risk | ||
| The Company is listed on The London Stock Exchange and is required to comply with the rules of the Financial Conduct 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. | No change in the year. | 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, legal advisors and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance function, and any issues arising from compliance or regulation are reported to its own board every two months. 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. |
| Risk: 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. | No change in the year. | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Board receives reports from the Manager on its internal controls and risk management. The Audit and Risk Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets and has access to their internal audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security, as mentioned below. Ocorian Depositary (UK) Limited is the Company’s Depositary, appointed to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited to ensure that the Manager is adhering to its policies and procedures as required by the AIFMD. In addition, the Board annually 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 policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual. |
| Risk: Cyber and data security risk | ||
| A cyber-attack on one of the Company’s third party suppliers could result in the security of, potentially sensitive, data being compromised, leading to financial loss, disruption or damage to the reputation of the Company. | Increased in the year, due to an increase in cyber-attacks worldwide. | The Manager outsources some of its IT services, including hardware and software procurement, server management, backup provision and day-to-day support through an outsourcing arrangement with an IT consultant. In house IT support is also provided. The Manager takes cyber risks seriously and the need to guard against these are in the Service level agreement with our key outsourced service provider. During the year, further investment was made in the Manager’s IT infrastructure and awareness training. In addition, the Manager also has a business continuity plan which includes off-site storage of records and remote access provisions. This is revised and tested annually and is also subject to Compliance, Group Risk and Internal Audit reporting. Penetration tests are also carried out to ensure that IT systems are not susceptible to cyber-attacks. The Manager’s Internal Auditor performs reviews on IT general controls and data confidentiality and makes recommendations where necessary. The most recent internal audit focused specifically on IT systems, and was completed in February 2023. |
| Risk: Economic and political risk | ||
| Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Company’s prospects in a number of ways. 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. | Increased in the year, due to the high levels of inflation, rising interest rates and the general risks. | The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in 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. The Board and Manager are continuously assessing the resilience of the portfolio, the Company and its operations and the robustness of the Company’s external agents, as well as considering longer term impacts on how the Company might be positioned in how it invests and operates. Ensuring liquidity in the portfolio to cope with exigent and unexpected pressures on the finances of the portfolio and the Company is an important part of the risk mitigation in these uncertain times. The portfolio is structured as an all-weather portfolio with c.60 companies which are diversified as discussed above. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel. |
| Risk: Environmental, social and governance (“ESG”) risk | ||
| An insufficient ESG policy could lead to an increased negative impact on the environment, including the Company’s carbon footprint. Non-compliance with reporting requirements could lead to a fall in demand from investors, reputational damage and penalties. Climate risks could also negatively impact on the value of portfolio investments. | No change in the year. | The Manager is a signatory of the UN PRI and the Board is kept updated of the evolving ESG policies at quarterly Board meetings. Full details of the specific procedures and risk mitigation can be found in the ESG report on pages 35 to 38 of the full Annual Report and Financial Statements. These procedures ensure that this risk continues to be mitigated where possible. Whilst the Company itself has limited impact on climate change, due to no employees nor greenhouse gas emissions, the Board works closely with the Manager to ensure the Manager themselves are working towards reducing their impact on the environment, and that the Manager takes account of ESG factors, including climate change, when making new investment decisions. With specific respect to the Company, a key operation is increasing the use of electronic communications with Shareholders. |
| Risk: Liquidity risk | ||
| The Company may not have sufficient cash available to meet its financial obligations. The Company’s portfolio is primarily in smaller unquoted companies, which are inherently illiquid as there is no readily available market, and thus it may be difficult to realise their fair value at short notice. | No change in the year. | To reduce this risk, the Board reviews the Company’s three year cash flow forecasts on a quarterly basis. These include potential investment realisations (which are closely monitored by the Manager), Top Up Offers, dividend payments and operational expenditure. This ensures that there are sufficient cash resources available for the Company’s commitments and liabilities as they fall due. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 30 June 2026. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities as they fall due. This is the period used by the Board as part of its strategic planning process, which includes: the estimated timelines for finding, assessing and completing investments; the potential impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that could threaten its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. The Board carefully assessed, and were satisfied with, the risk management processes in place to avoid or reduce the impact of these risks. The Board has carried out robust stress testing of cashflows which included; factoring in higher levels of inflation when budgeting for future expenses, only including proceeds from investment disposals where there is a high probability of completion, whilst also assessing the requirement for any future financial support of portfolio companies.
The Board has additionally considered the ability of the Company to comply with the ongoing conditions to ensure it maintains its VCT qualifying status under its current investment policy. As a result of the Board’s quarterly valuation reviews, it has concluded that the portfolio is well balanced and geared towards delivering long term growth and strong returns to shareholders.
The Board has 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 30 June 2026. The Board is mindful of the ongoing risks and will continue to ensure that appropriate safeguards are in place, in addition to monitoring the quarterly cashflow forecasts to ensure the Company has sufficient liquidity.
Companies Act 2006
This Strategic report of the Company for the year ended 30 June 2023 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.
For and on behalf of the Board
Penny Freer
Chairman
11 October 2023
Statement of Directors' responsibilities
In preparing these Financial Statements for the year to 30 June 2023, the Directors of the Company, being Penny Freer, James Agnew, Tony Ellingham, Pam Garside and Ian Spence, confirm 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 30 June 2023 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 52 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Penny Freer
Chairman
11 October 2023
Income statement
| Year ended 30 June 2023 | Year ended 30 June 2022 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
Gain on investments | 3 | - | 3,846 | 3,846 | - | 6,386 | 6,386 |
| Investment income | 4 | 936 | - | 936 | 853 | - | 853 |
| Investment Manager’s fees | 5 | (153) | (1,380) | (1,533) | (137) | (1,822) | (1,959) |
| Other expenses | 6 | (432) | - | (432) | (391) | - | (391) |
Profit on ordinary activities before tax | 351 | 2,466 | 2,817 | 325 | 4,564 | 4,889 | |
| Tax on ordinary activities | 8 | - | - | - | - | - | - |
| Profit and total comprehensive income attributable to shareholders | 351 | 2,466 | 2,817 | 325 | 4,564 | 4,889 | |
| Basic and diluted earnings per Ordinary share (pence)* | 10 | 0.13 | 0.92 | 1.05 | 0.14 | 1.95 | 2.09 |
* adjusted for treasury shares
The accompanying notes 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 are prepared under guidance published by The Association of Investment Companies.
Balance sheet
| 30 June 2023 | 30 June 2022 | ||
| Note | £’000 | £’000 | |
| Fixed asset investments | 11 | 68,000 | 57,170 |
| Current assets | |||
| Trade and other receivables | 13 | 1,684 | 1,869 |
| Cash in bank and at hand | 25,006 | 28,024 | |
| 26,690 | 29,893 | ||
| Payables: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (721) | (1,224) |
| Net current assets | 25,969 | 28,669 | |
| Total assets less current liabilities | 93,969 | 85,839 | |
| Equity attributable to equity holders | |||
| Called up share capital | 15 | 3,269 | 2,905 |
| Share premium | 47,067 | 35,522 | |
| Unrealised capital reserve | 26,402 | 20,384 | |
| Realised capital reserve | 9,177 | 12,729 | |
| Other distributable reserve | 8,054 | 14,299 | |
| Total equity shareholders’ funds | 93,969 | 85,839 | |
| Basic and diluted net asset value per share (pence)* | 16 | 33.13 | 33.70 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 11 October 2023 and were signed on its behalf by
Penny Freer
Chairman
Company number: 03495287
Statement of changes in equity
| Called up share capital | Share premium | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 July 2022 | 2,905 | 35,522 | 20,384 | 12,729 | 14,299 | 85,839 |
| Profit and total comprehensive income | - | - | 3,803 | (1,337) | 351 | 2,817 |
| Transfer of previously unrealised losses on disposal of investments | - | - | 2,216 | (2,216) | - | - |
| Dividends paid | - | - | - | - | (4,237) | (4,237) |
| Purchase of shares for treasury (including costs) | - | - | - | - | (2,359) | (2,359) |
| Issue of equity | 364 | 11,854 | - | - | - | 12,218 |
| Cost of issue of equity | - | (309) | - | - | - | (309) |
| As at 30 June 2023 | 3,269 | 47,067 | 26,402 | 9,177 | 8,054 | 93,969 |
| As at 1 July 2021 | 2,521 | 23,011 | 18,643 | 9,905 | 23,570 | 77,650 |
| Profit and total comprehensive income | - | - | 2,756 | 1,808 | 325 | 4,889 |
| Transfer of previously unrealised gains on disposal of investments | - | - | (1,015) | 1,015 | - | - |
| Dividends paid | - | - | - | - | (7,384) | (7,384) |
| Purchase of shares for treasury (including costs) | - | - | - | - | (2,212) | (2,212) |
| Issue of equity | 384 | 12,834 | - | - | - | 13,218 |
| Cost of issue of equity | - | (323) | - | - | - | (323) |
| As at 30 June 2022 | 2,905 | 35,522 | 20,384 | 12,729 | 14,299 | 85,839 |
* Included within these reserves is an amount of £12,804,000 (2022: £24,165,000) which is considered distributable.
The nature of each reserve is described in note 2 below.
Statement of cash flows
| Year ended 30 June 2023 £’000 | Year ended 30 June 2022 £’000 | ||
| Cash flow from operating activities | |||
| Loan stock income received | 550 | 671 | |
| Dividend income received | 39 | 64 | |
| Income from fixed term funds received | 145 | 9 | |
| Deposit interest received | 138 | 8 | |
| Investment Manager’s fees paid | (2,081) | (2,162) | |
| Other cash payments | (425) | (390) | |
| Corporation tax paid | - | - | |
| Net cash flow generated from operating activities | (1,634) | (1,800) | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments* | (7,870) | (7,510) | |
| Proceeds from disposals of fixed asset investments* | 1,139 | 6,643 | |
| Net cash flow generated from investing activities | (6,731) | (867) | |
| Cash flow from financing activities | |||
| Issue of share capital | 11,226 | 11,710 | |
| Cost of issue of equity** | (37) | (36) | |
| Equity dividends paid*** | (3,517) | (6,176) | |
| Purchase of own shares for treasury (including costs) | (2,325) | (2,233) | |
| Net cash flow generated from financing activities | 5,347 | 3,265 | |
| (Decrease)/increase in cash in bank and at hand | (3,018) | 598 | |
| Cash in bank and at hand at the start of the year | 28,024 | 27,426 | |
| Cash in bank and at hand at the end of the year | 25,006 | 28,024 | |
* Purchases and disposals detailed above do not agree to note 11 due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.
** The cost of issue of equity does not agree to the Statement of changes in equity due to prospectus fundraising amounts being received net of fees.
*** The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
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 Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on page 45 of the full Annual Report and Financial Statements.
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”) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines as updated in 2022 and further detail on the valuation techniques used are outlined below.
Company information is shown on page 4 of the full Annual Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, 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, revenue multiples, the level of third party offers received, cost or price of recent investment rounds, net assets, discounted cash flows 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; or
- 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.
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based; or
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 (including debtors due after more than one year), payables and cash are carried at amortised cost, in accordance with FRS 102. Deferred consideration meets the definition of a financing transaction held at amortised cost, and interest will be recognised through capital over the credit period using the effective interest method. There are no financial liabilities other than payables.
Investment income
Dividend 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.
Fixed term funds income
Funds income is recognised on an accruals basis using the agreed rate of interest.
Bank deposit income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
- 90% of management fees and 100% of performance incentive fees, if any, are allocated to the realised capital reserve; 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
Called-up share capital
This accounts for the nominal value of the Company’s shares.
Share premium
This accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs and transfers on cancellation of share premium once consent of the court is given.
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, less any transfers on cancellation of share premium once consent of the court is given.
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 (including gains recognised on the realisation of investment where consideration is deferred that are not distributable as a matter of law);
- finance income in respect of the unwinding of the discount on deferred consideration that is not distributable as a matter of law;
- 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, transfers from the share premium and capital redemption reserve, and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for when the liability to make the payment (record date) has been established.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.
3. Gain on investments
| Year ended 30 June 2023 | Year ended 30 June 2022 | |
| £’000 | £’000 | |
| Unrealised gain on fixed asset investments | 3,803 | 2,756 |
| Realised (loss)/gain on fixed asset investments | (178) | 3,440 |
| Unwinding of discount on deferred consideration | 221 | 190 |
| 3,846 | 6,386 | |
4. Investment income
| Year ended 30 June 2023 | Year ended 30 June 2022 | |
| £’000 | £’000 | |
| Loan stock interest | 569 | 763 |
| Dividend income | 84 | 74 |
| Income from fixed term funds | 145 | 9 |
| Bank interest | 138 | 7 |
| 936 | 853 |
5. Investment Manager’s fees
| Year ended 30 June 2023 | Year ended 30 June 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Investment management fee | 153 | 1,380 | 1,533 | 137 | 1,238 | 1,375 |
| Performance incentive fee | - | - | - | - | 584 | 584 |
| 153 | 1,380 | 1,533 | 137 | 1,822 | 1,959 | |
Further details of the Investment Management Agreement under which the investment manager’s fee is paid are given in the Strategic report above.
During the year, services of a total value of £1,583,000 (2022: £1,425,000) were purchased by the Company from Albion Capital Group LLP (“Albion”) comprising £1,533,000 of management fees (2022: £1,375,000) and £50,000 of administration fees (2022: £50,000). There is no performance incentive fee payable this year (2022: £584,000). At the financial year end, the amount due to Albion in respect of these services disclosed as accruals and deferred income was £422,500 (administration fee accrual: £12,500, management fee accrual £410,000) (2022: £971,500).
Albion is, from time to time, eligible to receive an arrangement fee and monitoring fees from portfolio companies. During the year ended 30 June 2023 fees of £299,000 attributable to the investments of the Company were received pursuant to these arrangements (2022: £121,000).
Albion, its partners and staff holds 2,385,697 Ordinary shares in the Company as at 30 June 2023.
The Company entered into an offer agreement relating to the Offers pursuant to which Albion received a fee of 2.5% of the gross proceeds of the Offers and out of which Albion paid the costs of the Offers, as detailed in the Prospectus.
6. Other expenses
| Year ended 30 June 2023 | Year ended 30 June 2022 | |
| £’000 | £’000 | |
| Directors’ fees (including NIC) | 109 | 107 |
| Auditor’s remuneration for statutory audit services (excluding VAT) | 48 | 40 |
| Secretarial and administration fee | 50 | 50 |
| Other administrative expenses | 225 | 194 |
| 432 | 391 | |
7. Directors’ fees
The amounts paid to and on behalf of the Directors during the year are as follows:
| Year ended 30 June 2023 £’000 | Year ended 30 June 2022 £’000 | |
| Directors’ fees | 100 | 98 |
| National insurance | 9 | 9 |
| 109 | 107 |
The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 61 and 62 of the full Annual Report and Financial Statements.
8. Tax (charge)/credit on ordinary activities
| Year ended 30 June 2023 £’000 | Year ended 30 June 2022 £’000 | |
UK corporation tax charge | - | - |
| Year ended 30 June 2023 | Year ended 30 June 2022 | |
| Reconciliation of profit on ordinary activities to taxation charge | £’000 | £’000 |
| Return on ordinary activities before taxation | 2,817 | 4,889 |
| Tax charge on profit at the average rate of 20.50% from 1 April 2023 (2022: 19%) | 577 | 929 |
| Factors affecting the charge: | ||
| Non-taxable gains | (788) | (1,213) |
| Income not taxable | (17) | (14) |
| Unutilised management expenses | 228 | 298 |
| - | - |
The tax charge for the year shown in the Income statement is lower than the average standard rate of corporation tax of 20.50% (2022: 19.0%). The differences are explained above. From 1 April 2023, the Company’s rate of corporation tax increased from 19% to 25%.
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.
(iii) The Company has excess management expenses of £21,392,000 (2022: £20,279,000) that are available for offset against future profits. A deferred tax asset of £5,348,000 (2022: £3,853,000) 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 30 June 2023 | Year ended 30 June 2022 | |
| £’000 | £’000 | |
| First dividend of 0.84 pence per share paid on 30 November 2022 (30 November 2021 – 0.87 pence per share) | 2,130 | 1,932 |
| Second dividend of 0.79 pence per share paid on 31 March 2023 (31 March 2022 – 0.84 pence per share) | 2,120 | 2,134 |
| Special dividend of 1.50 pence per share paid on 30 November 2021 | - | 3,331 |
| Unclaimed dividends | (13) | (13) |
| 4,237 | 7,384 |
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2024 of 0.83 pence per share. This will be paid on 30 November 2023 to shareholders on the register on 3 November 2023. The total dividend will be approximately £2,354,000. All dividends are paid from the other distributable reserve.
During the year, unclaimed dividends older than twelve years of £13,000 (2022: £13,000) were returned to the Company in accordance with the terms of the Articles of Association and have been accounted for on an accruals basis.
10. Basic and diluted return per share
| Year ended 30 June 2023 | Year ended 30 June 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Return attributable to equity shares (£’000) | 351 | 2,466 | 2,817 | 325 | 4,564 | 4,889 |
| Weighted average shares in issue (adjusted for treasury shares) | 266,724,287 | 234,049,617 | ||||
| Return attributable per equity share (pence) | 0.13 | 0.92 | 1.05 | 0.14 | 1.95 | 2.09 |
The weighted average number of shares is calculated after adjusting for treasury shares of 43,285,891 (2022: 35,822,916).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return/(loss) per share are the same.
11. Fixed asset investments
| Investments held at fair value through profit or loss | 30 June 2023 £’000 | 30 June 2022 £’000 |
| Unquoted equity | 57,468 | 47,449 |
| Quoted equity | 260 | 760 |
| Unquoted loan stock | 10,272 | 8,961 |
| 68,000 | 57,170 |
| 30 June 2023 £’000 | 30 June 2022 £’000 | |
| Opening valuation | 57,170 | 50,454 |
| Purchases at cost | 7,870 | 7,675 |
| Disposal proceeds | (684) | (7,247) |
| Realised (loss)/gain | (178) | 3,440 |
| Movement in loan stock accrued income | 19 | 92 |
| Unrealised gains | 3,803 | 2,756 |
| Closing valuation | 68,000 | 57,170 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 142 | 50 |
| Movement in loan stock accrued income | 19 | 92 |
| Closing accumulated loan stock accrued income | 161 | 142 |
Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 20,317 | 18,576 |
| Transfer of previously unrealised gains/(losses) to realised reserves on realisations of investments | 2,216 | (1,015) |
| Unrealised gains | 3,803 | 2,756 |
| Closing accumulated unrealised gains | 26,336 | 20,317 |
| Historic cost basis | ||
| Opening book cost | 36,711 | 31,828 |
| Purchases at cost | 7,870 | 7,675 |
| Disposals at cost | (3,078) | (2,792) |
| Closing book cost | 41,503 | 36,711 |
Purchases and disposals detailed above may not agree to the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.
The Company does not hold any assets as a result of the enforcement of security during the period, and believes that the carrying values for both impaired 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:
| 30 June 2023 | 30 June 2022 | |
| Valuation methodology | £’000 | £’000 |
| Cost and price of recent investment (calibrated and reviewed for impairment) | 40,107 | 37,393 |
| Revenue multiple | 11,281 | 7,801 |
| Third party valuation – Discounted cash flow | 7,358 | 7,221 |
| Third party valuation – Earnings multiple | 4,595 | 3,159 |
| Earnings multiple | 2,472 | 45 |
| Net assets | 971 | 791 |
| Discounted offer price | 956 | - |
| 67,740 | 56,410 |
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 background to the transaction is also considered when the price of investment may not be an appropriate measure of fair value, for example, disproportionate dilution of existing investors from a new investor coming on board or the market conditions at the time of investment no longer being a true reflection of fair value.
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, growth rate 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 30 June 2022 and 30 June 2023:
Change in valuation methodology (2022 to 2023) | Value as at 30 June 2023 £’000 | Explanatory note |
| Cost and price of recent investment (calibrated and reviewed for impairment) to revenue multiple | 3,770 | More appropriate valuation methodology |
| Cost and price of recent investment (calibrated and reviewed for impairment) to earnings multiple | 2,472 | More appropriate valuation methodology |
| Cost and price of recent investment (calibrated and reviewed for impairment) to third party valuation | 970 | Third party valuation conducted |
| Cost and price of recent investment (calibrated and reviewed for impairment) to discounted offer price | 956 | More appropriate valuation methodology |
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 more relevant methods of valuation which would be reasonable as at 30 June 2023.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at FVTPL in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS 102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | The unadjusted quoted price 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:
| 30 June 2023 | 30 June 2022 | |
| £’000 | £’000 | |
| Opening balance | 56,410 | 49,910 |
| Purchases at cost* | 7,870 | 7,675 |
| Disposal proceeds* | (375) | (7,202) |
| Realised net (losses)/gains on disposal | (100) | 3,395 |
| Unrealised gains | 3,916 | 2,540 |
| Movement in loan stock accrued income | 19 | 92 |
| Closing balance | 67,740 | 56,410 |
*Additions and disposals do not agree to the cash flow due to loan stock conversions and non-cash consideration.
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. 70% of the portfolio of investments, consisting of equity and loan stock, is based on recent investment price, net assets and cost. For the remainder of the portfolio, the Board has considered the reasonable possible alternative input assumptions on the valuation of the portfolio and believes that changes to inputs (by adjusting the earnings and revenue multiples) could lead to a change in the fair value of the portfolio. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 84% of the portfolio of investments. The main inputs considered for each type of valuation is as follows:
| Valuation technique | Portfolio company sector | Input | Base case* | Change in input | Change in fair value of investments (£’000) | Change in NAV (pence per share) |
| Revenue multiple | Healthcare (including digital healthcare) | Revenue multiple | 5.1x | +0.5x | 392 | 0.14 |
| -0.5x | (392) | (0.14) | ||||
| Third party valuation – discounted cash flow | Renewable energy | Discount factor | 6.5% | -0.5% | 178 | 0.06 |
| +0.5% | (165) | (0.06) | ||||
| Third party valuation – earnings multiple | Other (including education) | Earnings multiple | 18.8x | +1.9x | 281 | 0.10 |
| -1.9x | (281) | (0.10) | ||||
| Earnings multiple | Healthcare (including digital healthcare) | Earnings multiple | 10.5x | +1.1x | 146 | 0.05 |
| -1.1x | (146) | (0.05) |
* As detailed in the accounting policies above, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the valuation of the unquoted equity investments by £997,000 (1.7%) or a decrease in the valuation of unquoted equity investments by £984,000 (1.7%). Due to the size of the holding in Quantexa, a 10% change in this valuation would result in a movement of £1,694,000 (1.8%).
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 of a portfolio company. 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 Company has no interests of greater than 20% of the nominal value of any class of the allotted shares in the portfolio companies as at 30 June 2023.
13. Trade and other receivables
| 30 June 2023 | 30 June 2022 | |
| £’000 | £’000 | |
| Prepayments | 38 | 34 |
| Deferred consideration under one year | 1,646 | 510 |
| Deferred consideration over one year | - | 1,325 |
| 1,684 | 1,869 |
The deferred consideration under one year includes deferred proceeds from the sale of G.Network Communications in December 2020. These proceeds are receivable in January 2024, and have been discounted to present value at the prevailing market rate, including a provision for counterparty risk. This constitutes a financing transaction, and has been accounted for using the policy disclosed in note 2.
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
14. Trade and other payables
| 30 June 2023 | 30 June 2022 | |
| £’000 | £’000 | |
| Accruals and deferred income | 520 | 1,061 |
| Trade payables | 201 | 163 |
| 721 | 1,224 |
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 | £'000 |
| 290,523,837 Ordinary shares of 1 penny each at 30 June 2022 | 2,905 |
| 36,360,869 Ordinary shares of 1 penny each issued during the year | 364 |
| 326,884,706 Ordinary shares of 1 penny each at 30 June 2023 | 3,269 |
| 35,822,916 Ordinary shares of 1 penny each held in treasury at 30 June 2022 | (358) |
| 7,462,975 Ordinary shares of 1 penny each purchased during the year to be held in treasury | (75) |
| 43,285,891 Ordinary shares of 1 penny each held in treasury at 30 June 2023 | (433) |
| Voting rights of 283,598,815 Ordinary shares of 1 penny each at 30 June 2023 | 2,836 |
The Company purchased 7,462,975 Ordinary shares for treasury (2022: 6,926,930) during the year at a total cost of £2,359,000 (2022: £2,212,000).
The total number of shares held in treasury as at 30 June 2023 was 43,285,891 (2022: 35,822,916) representing 13.2% of the shares in issue as at 30 June 2023.
Under the terms of the Dividend Reinvestment Scheme Circular dated 26 February 2009, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:
Allotment date | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net invested (£’000) | Opening market price on allotment (pence per share) |
| 30 November 2022 | 1,116,653 | 11 | 32.93 | 350 | 31.30 |
| 31 March 2023 | 1,077,920 | 11 | 32.72 | 333 | 31.10 |
| 2,194,573 | 683 |
Under the terms of the Albion VCTs’ Prospectus Top Up Offers 2022/23, the following new Ordinary shares of nominal value 1 penny each were issued during the year:
Allotment date | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net consideration received (£’000) | Opening market price on allotment (pence per share) |
| 2 December 2022 | 3,844,616 | 38 | 33.50 | 1,269 | 31.30 |
| 2 December 2022 | 616,505 | 6 | 33.70 | 204 | 31.30 |
| 2 December 2022 | 10,931,256 | 109 | 33.80 | 3,602 | 31.30 |
| 31 March 2023 | 17,882,171 | 179 | 33.60 | 5,858 | 31.10 |
| 14 April 2023 | 204,704 | 2 | 33.30 | 67 | 31.10 |
| 14 April 2023 | 74,850 | 1 | 33.40 | 25 | 31.10 |
| 14 April 2023 | 612,194 | 6 | 33.60 | 201 | 31.10 |
| 34,166,296 | 11,226 |
16. Basic and diluted net asset value per share
| 30 June 2023 | 30 June 2022 | |||
| Basic and diluted net asset value per share (pence) | 33.13 | 33.70 |
The basic and diluted net asset value per share at the year end is calculated in accordance with the Articles of Association and are based upon total shares in issue (adjusted for treasury shares) of 283,598,815 shares as at 30 June 2023 (2022: 254,700,921).
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.
The Company’s financial instruments comprise equity and loan stock investments in quoted and unquoted companies, cash balances and short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow, 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:
- Market and investment 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 there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below:
Market risk
As a Venture Capital Trust, it is the Company’s specific nature to evaluate the market risk of its portfolio in unquoted companies. Market risk is the exposure of the Company to the revaluation and devaluation of investments as a result of macroeconomic changes. The main driver of market risk is the dynamics of market quoted comparators, as well as the financial and operational performance of portfolio companies. The Board seeks to reduce this risk by having a spread of investments across a variety of sectors. More details on the sectors the Company invests in can be found in the pie chart at the end of this announcement.
The Manager and the Board formally review market 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.
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. In order to show the impact of sensitivity in market movements on the Company, a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £6,800,000. Accordingly, a 20% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £13,600,000. Further sensitivity analysis on fixed asset investments is included in note 11.
Investment risk (including investment price risk)
Investment risk (including 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 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 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.
The maximum investment risk on the balance sheet date is the value of the fixed asset investment portfolio which is £68,000,000 (2022: £57,170,000). Fixed asset investments form 72% of the net asset value on 30 June 2023 (2022: 67%).
Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company’s analysis, it is estimated that a rise of 1% in all interest rates would have increased total return before tax for the year by approximately £265,000 (2022: £139,000). Furthermore, it was considered that a material fall in interest rates below current levels during the year would have been unlikely.
The weighted average interest rate applied to the Company’s fixed rate assets during the year was approximately 7.2% (2022: 10.1%). The weighted average period to maturity for the fixed rate assets is approximately 2.1 years (2022: 2.1 years).
The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 30 June 2023 | 30 June 2022 | |||||||
| Fixed rate £’000 | Floating rate £’000 | Non-interest £’000 | Total £’000 | Fixed rate £’000 | Floating rate £’000 | Non-interest £’000 | Total £’000 | |
| Loan stock | 9,263 | - | 1,009 | 10,272 | 7,527 | - | 1,434 | 8,961 |
| Equity | - | - | 57,728 | 57,728 | - | - | 48,209 | 48,209 |
| Receivables* | - | - | 1,646 | 1,646 | - | - | 1,835 | 1,835 |
| Payables | - | - | (721) | (721) | - | - | (1,224) | (1,224) |
| Cash | - | 25,006 | - | 25,006 | - | 28,024 | - | 28,024 |
| 9,263 | 25,006 | 59,662 | 93,931 | 7,527 | 28,024 | 50,254 | 85,805 | |
*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 78.4% of loan stock by value, typically loan stock instruments have a fixed or floating charge, which may or may not have been subordinated, 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 30 June 2023 was limited to £10,272,000 of unquoted loan stock instruments (2022: £8,961,000), £25,006,000 cash deposits with banks (2022: £28,024,000) and £1,646,000 of other receivables (2022: £1,835,000).
At the balance sheet date, the cash in bank and at hand held by the Company was held with Lloyds Bank Plc, Scottish Widows Bank plc (part of Lloyds Banking Group), Barclays Bank plc, National Westminster Bank plc and Bank of Montreal. 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 limiting counterparty banking and floating rate note exposure to a maximum of 20% of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk.
Liquidity risk
Liquid assets are held as cash on current account, on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to the amount of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £91,615,000 as at 30 June 2023 (2022: £83,700,000).
The Company has no committed borrowing facilities as at 30 June 2023 (2022: nil) and had cash balances of £25,006,000 (2022: £28,024,000). The main cash outflows are for new investments, dividends and share buy-backs, 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 £721,000 as at 30 June 2023 (2022: £1,224,000).
The carrying value of loan stock investments as analysed by expected maturity dates is as follows:
| 30 June 2023 | 30 June 2022 | ||||||||
| Redemption date | Fully performing £’000 | Past due £’000 | Valued below cost £’000 | Total £’000 | Fully performing £’000 | Past due £’000 | Valued below cost £’000 | Total £’000 | |
| Less than one year | 6,027 | 971 | - | 6,998 | 4,704 | 1,374 | 410 | 6,488 | |
| 1-2 years | 110 | - | - | 110 | 94 | - | - | 94 | |
| -3 years | 39 | - | - | 39 | 116 | - | - | 116 | |
| 3-5 years | 2,086 | - | - | 2,086 | 1,238 | - | - | 1,238 | |
| 5 + years | 1,039 | - | - | 1,039 | 1,025 | - | - | 1,025 | |
| Total | 9,301 | 971 | - | 10,272 | 7,177 | 1,374 | 410 | 8,961 | |
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 £nil (2022: £681,000).
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.
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 30 June 2023 are stated at fair value as determined by the Directors, with the exception of receivables, payables and cash which are carried at amortised cost. 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. Commitments and contingencies
The Company had no financial commitments in respect of investments at 30 June 2023 (2022: £nil).
There are no contingencies or guarantees of the Company as at 30 June 2023 (2022: £nil).
19. Post balance sheet events
Since the year end, the Company has completed the following material investment transactions:
- Part disposal of Quantexa for proceeds of £1.2 million; and
- Investments totalling £2.3 million in three new and four existing portfolio companies.
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, and the Directors’ remuneration disclosed in the Directors’ remuneration report on page 61 of the full Annual Report and Financial Statements, 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 30 June 2023 and 30 June 2022, 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 30 June 2023, 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/CRWN, where the Report can be accessed via a link in the 'Financial Reports and Circulars' section.
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