Albion Technology & General VCT PLC - Ordinary ...
As required by the UK Listing Authority's Disclosure and Transparency Rules 4.1 and 6.3, Albion Technology & General VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2011.
This announcement was approved for release by the Board of Directors on 3 April 2012.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 31 December 2011 (which have been audited) at: www.albion-ventures.co.uk by clicking on 'Our Funds' and then 'Albion Technology & General VCT PLC'. The Annual Report and Financial Statements for the year to 31 December 2011 will be available as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objectives
Albion Technology & General VCT PLC ("the Company") is a Venture Capital Trust which raised £14.3 million in December 2000 and 2002, and raised a further £35.0 million during 2006 through the launch of a C share issue. The Company raised a further £2.5m under the Albion VCTs Linked Top Up Offers in 2011 and 2012.
The Company offers investors the opportunity to participate in a balanced portfolio of technology and non-technology businesses. The Company's investment portfolio is intended to be split approximately as follows:
40 per cent. in unquoted UK technology-related companies; and
60 per cent. in unquoted UK non-technology companies.
The Investment Manager pursues a longer term investment approach, with a view to providing shareholders with a strong, predictable dividend flow combined with the prospects of capital growth. This is achieved in two ways. First, by controlling the VCT's exposure to technology risk through ensuring that many of the companies in the non-technology portfolio have property as their major asset, with no external borrowings. Second, by balancing the investment portfolio by sector, so that those areas such as leisure and business services, which are susceptible to changes in consumer sentiment, are complemented by sectors with more predictable long term characteristics, such as healthcare and the environment.
Financial calendar
| Record date for first dividend | 13 April 2012 |
| Payment of first dividend | 30 April 2012 |
| Annual General Meeting | 22 June 2012 |
| Announcement of half-yearly results for the six months ended 30 June 2012 | August 2012 |
| Payment of second dividend subject to Board approval | October 2012 |
Financial highlights
Ordinary shares
| 151.1p | Net asset value plus dividends since launch to 31 December 2011 |
| 5.0p | Tax free dividend per share paid in the year to 31 December 2011 |
| 85.1p | Net asset value per share as at 31 December 2011 |
| 2.5p | The Board has declared a first dividend for the year to 31 December 2012 of 2.5 pence per share |
| 31 December 2011 (pence per share) | 31 December 2010 (pence per share) | |
| Dividends paid | 5.0 | 8.0 |
| Revenue return | 1.6 | 1.6 |
| Capital return | 0.6 | 1.0 |
| Net asset value | 85.1 | 87.6 |
| Total shareholder net asset value return to 31 December 2011: | ||
| Ordinary shares 31 December 2011 (pence per share) (i) | C shares 31 December 2011 (pence per share) (i) | |
| Total dividends paid during the year ended: 31 December 2001(ii) | 1.0 | - |
| 31 December 2002 | 2.0 | - |
| 31 December 2003 | 1.5 | - |
| 31 December 2004 | 7.5 | - |
| 31 December 2005 | 9.0 | - |
| 31 December 2006 | 8.0 | 0.5 |
| 31 December 2007 | 8.0 | 2.5 |
| 31 December 2008 (iii) | 16.0 | 4.5 |
| 31 December 2009 | - | 1.0 |
| 31 December 2010 | 8.0 | 3.0 |
| 31 December 2011 | 5.0 | 3.8 |
| Total dividends paid to 31 December 2011 | 66.0 | 15.3 |
| Net asset value as at 31 December 2011 | 85.1 | 66.2 |
| Total shareholder net asset return to 31 December 2011 | 151.1 | 81.5 |
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 31 December 2012, of 2.5 pence per Ordinary share to be paid on 30 April 2012 to shareholders on the register at 13 April 2012.
The C shares converted to Ordinary shares on 31 March 2011 on the basis of the respective net asset values with each C shareholder receiving 0.7779 Ordinary shares for each C share that they owned.
Notes
(i) Excludes tax benefits upon subscription.
(ii) Based on subscription by the first closing on 16 January 2001. Investors subscribing thereafter, up to 30 June 2001 received 0.5 pence per share.
(iii) The Ordinary shares' dividend of 8.0 pence per share for 2009 was paid in advance on 30 December 2008. The C shares' first dividend for 2009 of 1.5 pence per share was also paid in advance on 30 December 2008.
Chairman's statement
Introduction
The results for Albion Technology & General VCT for the year to 31 December 2011, which is the first year following the merger of the Ordinary shares and the C shares, showed an improvement over 2010, with a total return of 2.2 pence per share. The year saw both a welcome rise in income and an overall net gain on investments.
Investment performance and progress
The investment return benefited both from the sale of our investment in Dexela, which realised a return of between two and three times cost (dependent on an earn-out) and from the successful sale of the investment in Evolutions Television at a level considerably higher than its previous holding value. This underpins the Board's conservative approach to valuations of its unquoted investments. In addition, there were further improved performances from our portfolio of cinemas, from our long-standing investment in Sparesfinder, and a good uplift in the third party professional valuation of Radnor House School. Against this there were disappointing reductions in the values of Helveta, Xceleron and Mi-Pay, each of which required further finance to support slower than anticipated growth, which partially held back the VCT's overall performance for the year.
During the year, some £4.8 million new money was invested or committed for investment. New investments included a number of projects in the renewable energy sector, as well as participation in the MBO of Hilson Moran, an international firm of mechanical and engineering consultants.
Risks and uncertainties
The outlook for the UK and Global economies continues to be the key risk affecting your Company, including the effects of the currency and debt constraints which are increasingly becoming apparent. Importantly, however, investment risk is mitigated through a variety of processes including our policy of ensuring that the VCT has a first charge over investee companies' assets wherever possible. Meanwhile, opportunities within our target sectors continue to arise at attractive valuations, including in the healthcare and environmental sectors, which continue to be two core areas of activity.
A more detailed analysis of risks and uncertainties is set out in note 23 to this announcement.
Related party transactions
Details of material related party transactions can be found in note 22 to this announcement.
Discount management and share buy-backs
It remains the Board's primary objective to maintain sufficient resources for investment in existing and new investee companies and for the continued payment of dividends to shareholders. Therefore, the Board's policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the VCT's interests, including the maintenance of sufficient resources for investment in new and existing investee companies and the continued payment of dividends to shareholders.
It is the Board's intention for such buy-backs to be in the region of 10 to 15 per cent discount to net asset value, so far as market conditions and liquidity permit. In order to ensure that these conditions are satisfied, the Company will limit the sum available for buy-backs for the 6 month period to 30 June 2012 to £250,000.
Results and dividends
As at 31 December 2011, the net asset value was 85.1 pence per share. The revenue return before taxation was £835,000 compared to £778,000 for the aggregate of the Ordinary and C shares for the previous year.
The Company will pay a first dividend for the financial year to 31 December 2012 of 2.50 pence per Ordinary share on 30 April 2012 to shareholders on the register on 13 April 2012.
Continuation as a venture capital trust
Under the terms of your Company's Articles of Association at the 2012 Annual General Meeting and every five years thereafter, members have the opportunity to confirm that they wish the Company to continue as a venture capital trust. Otherwise the Board is required to make proposals for the reorganisation, reconstruction or the orderly liquidation and winding up of the Company and present these to the members at a general meeting. Those shareholders who have been using their investment in the VCT to defer a capital gain should note that, on a return of capital, that gain would become chargeable at the prevailing rate of capital gains tax.
Since its launch in 2000, the Ordinary share portfolio has paid out dividends of 66 pence per share and achieved a total return (net asset value plus dividends but not counting the up-front tax benefits) of just over 151 pence per share. This puts the Company firmly in the top quartile of all venture capital trusts. The C shares, by contrast, which were launched at the end of 2005, suffered from the fact that the portfolio's key investment period was at the top of the market in the years 2006 and 2007, and has fared less well; it has paid out total dividends of just over 15 pence per share, and recorded a total return of just over 81 pence per share. The disappointing return of the C shares to date, however, has not been driven by realised capital losses but by unrealised write-downs of investments that we believe still have significant potential. Now that the two classes of share have merged, the investments in the Ordinary share portfolio offer a strong degree of maturity while the C share portfolio offers the potential for further capital upside.
Your Board believes that VCTs have the potential to be highly effective long-term savings vehicles with strong tax-free dividend streams. Consequently, in view of the track record of the Ordinary shares and the potential latent within the enlarged investment portfolio, your Board recommends that shareholders should vote in favour of the Company continuing as a venture capital trust for a further five years, as they intend to vote in respect of their own shares.
The Albion VCTs Linked Top Up Offers
On 1 November 2011, the Company announced the launch of the Albion VCTs Linked Top Up Offer 2011/2012. In aggregate, the Albion VCTs will be aiming to raise approximately £15 million across seven of the VCTs managed by Albion Ventures LLP, of which Albion Technology & General VCT PLC's share will be £2.25 million. This builds on the success of the Albion VCTs Linked Top Up Offer 2010/2011, which raised £11.8 million, of which Albion Technology & General VCT's share was £1.7 million.
The proceeds of the Offer will be used to provide further resources to the Albion VCTs at a time when a number of attractive new investment opportunities are being seen. An Investor Guide and Offer document has been sent to shareholders and may be obtained from www.albion-ventures.co.uk.
After the year end, the Company issued 936,304 Ordinary shares under the Offer at a price of 88.9 pence per share. Further details are shown in note 21 to this announcement.
Outlook and prospects
The outlook for the UK and Global economies remains uncertain. Nevertheless, a significant number of our companies have special assets or business capabilities, and we believe that, over the longer term, they will provide strong returns for shareholders. In addition, we have been rebalancing our investment portfolio to provide more emphasis on areas that we see as being more resilient, such as renewable energy, which we see as having promising growth prospects.
Dr Neil Cross
Chairman
3 April 2012
Manager's report
The sector analysis of Albion Technology & General VCT PLC's investment portfolio as at 31 December 2011 is shown below. By valuation, the "general" portfolio, including asset-based investments, now accounts for 57 per cent. of the net asset value, while the technology portfolio accounts for 33 per cent., with cash, liquid resources and other net current assets providing the balance of the portfolio.
The healthcare element of the portfolio now accounts for 18 per cent. (2010: 22 per cent., including Dexela, which was sold during 2011), while the environmental and renewable portion is now 10 per cent., up from 7 per cent. last year.
Split of portfolio by sector
Please see the end of this announcement for the PDF of the sector split of the portfolio by valuation as at 31 December 2011.
Portfolio Review
In the technology portfolio, sparesFinder, Blackbay, Mirada Medical and Rostima all showed the potential for strong further growth and uplifts in value. The key reductions in value within the portfolio were our investments in Xceleron (where there was a major restructuring), Helveta and Mi-Pay, all of which are operating in young, potentially high-growth, global markets and all of which required further financing during the year, as those markets have been taking longer to develop than anticipated. Partial provisions were also made against our investments in Masters Pharmaceuticals and Dysis.
In our "General" portfolio, cinemas continue to perform particularly well, while profitability continues to climb at our health and fitness clubs and our pubs . Meanwhile, the first year's operation of Radnor House School was sufficiently strong to justify a substantially increased professional valuation, plus it now has twice its budgeted pupils and Chichester Holdings has seen a sharp increase in profitability, leading it to begin paying interest once more.
Realisations
Your Company has been going through an extensive programme of realisations. In 2010 these amounted to £1.5 million, while in 2011, the sales of Evolutions Television and the initial proceeds on Dexela, amounted to £3.6 million. Together, these two disposals resulted in gains of £1.4 million above the holding levels at 31 December 2010, and net positive returns since investment of £1.5 million. Further disposals are anticipated in the current year.
New investments
During the year £1.2 million was invested in renewable energy projects, £770,000 in care homes, £440,000 in the MBO of Hilson Moran and £75,000 in Abcodia, a life sciences spin-out from University College London. The balance of investments, amounting to £2.3 million, were to fund growth in existing portfolio companies. Looking to the future, we are planning for renewable energy, with its long-term, inflation projected cash flows, to account for up to 15 per cent. of the investment portfolio.
Albion Ventures LLP
Manager
3 April 2012
Responsibility Statement
In preparing these financial statements for the year to 31 December 2011, the Directors of the Company, being Dr Neil Cross, Lt Gen Sir Edmund Burton, Michael Hart and Patrick Reeve, confirm that to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2011 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 and loss of the Company for the year ended 31 December 2011 as required by DTR 4.1.12.R;
-the Chairman's statement and Manager's report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 31 December 2011 and description of principal risks and uncertainties that the Company faces); and
-the Chairman's statement and Manager's report include a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).
A detailed "Statement of Directors' responsibilities for the preparation of the Company's financial statements" is contained within the full audited Annual Report and Financial Statements.
By order of the Board
Dr Neil Cross
Chairman
Income statement
| Ordinary shares | Combined Ordinary and C shares | ||||||
| Year ended 31 December 2011 | Year ended 31 December 2010 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains/(losses) on investments | 3 | - | 687 | 687 | - | (391) | (391) |
| Investment income | 4 | 1,257 | - | 1,257 | 1,197 | - | 1,197 |
| Investment management fees | 5 | (216) | (647) | (863) | (225) | (673) | (898) |
| Other expenses | 6 | (206) | - | (206) | (194) | - | (194) |
| Return/(loss) on ordinary activities before tax | 835 | 40 | 875 | 778 | (1,064) | (286) | |
| Tax (charge)/credit on ordinary activities | 8 | (184) | 172 | (12) | (198) | 183 | (15) |
| Return/(loss) attributable to shareholders | 651 | 212 | 863 | 580 | (881) | (301) | |
| Basic and diluted return/(loss) per share (pence)* | |||||||
| 10 | 1.6 | 0.6 | 2.2 | 1.6 | 1.0 | 2.6 |
| - | - | - | 1.1 | (3.0) | (1.9) | |
* excluding 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 have been prepared in accordance with the Association of Investment Companies' Statement of Recommended Practice.
All revenue and capital items in the above statement derive from continuing operations.
There are no recognised gains or losses other than the results for the year disclosed above. Accordingly a statement of total recognised gains and losses is not required.
The difference between the reported profit on ordinary activities before tax and the historical profit/(loss) is due to the fair value movements on investments. As a result a note on historical cost profit and losses has not been prepared.
The Income statement for the year is in respect of Ordinary shares only since C shares were converted into Ordinary shares on 31 March 2011.
The comparatives for the year ended 31 December 2010 have been re-presented to show the combined Income statement only, as the non-statutory analysis between Ordinary and C shares is no longer considered relevant to shareholders.
Balance sheet
| Ordinary shares | Combined Ordinary and C shares | ||
| 31 December 2011 | 31 December 2010 | ||
| £'000 | £'000 | ||
| Fixed asset investments | |||
| Qualifying | 30,353 | 28,018 | |
| Non-qualifying | 627 | 1,369 | |
| Total fixed asset investments | 11 | 30,980 | 29,387 |
| Current assets | |||
| Trade and other debtors | 13 | 195 | 304 |
| Current asset investments | 13 | 1,238 | 1,005 |
| Cash at bank and in hand | 17 | 1,447 | 3,895 |
| 2,880 | 5,204 | ||
| Creditors: amounts falling due within one year | 14 | (313) | (500) |
| Net current assets | 2,567 | 4,704 | |
| Net assets | 33,547 | 34,091 | |
| Capital and reserves | |||
| Called up share capital | 15 | 21,862 | 24,772 |
| Share premium | 959 | 294 | |
| Capital redemption reserve | 4,473 | 400 | |
| Unrealised capital reserve | (8,001) | (9,312) | |
| Special reserve | 6,862 | 14,914 | |
| Treasury shares reserve | (3,417) | (2,166) | |
| Realised capital reserve | 9,246 | 4,278 | |
| Revenue reserve | 1,563 | 911 | |
| Total equity shareholders' funds | 33,547 | 34,091 | |
| Basic and diluted net asset value per share (pence)* | |||
| 16 | 85.1 | 87.6 |
| - | 68.1 |
The accompanying notes form an integral part of these Financial Statements.
The Balance sheet as at 31 December 2011 represents Ordinary shares only following the conversion of C shares into Ordinary shares on 31 March 2011.
The comparatives for the year ended 31 December 2010 have been re-presented to show the combined Balance sheet only, as the non-statutory analysis between Ordinary and C shares is no longer considered relevant to shareholders.
These financial statements were approved by the Board of Directors, and were authorised for issue on 3 April 2012 and were signed on its behalf by
Dr Neil Cross
Chairman
Company number: 4114310
Reconciliation of movements in shareholders' funds
| Called- up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve * | Special reserve* | Treasury shares reserve* | Realised capital reserve* | Revenue reserve* | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 January 2011 | 24,772 | 294 | 400 | (9,312) | 14,914 | (2,166) | 4,278 | 911 | 34,091 |
| Net realised gains on investments in the year | - | - | - | - | - | - | 428 | - | 428 |
| Unrealised gains on investments | - | - | - | 259 | - | - | - | - | 259 |
| Transfer of previously unrealised losses on sale of investments | - | - | - | 1,052 | - | - | (1,052) | - | - |
| Transfer on conversion of C Shares | (4,073) | - | 4,073 | - | - | - | - | - | - |
| Capitalised investment management fee | - | - | - | - | - | - | (647) | - | (647) |
| Tax on capitalised management fees | - | - | - | - | - | - | 172 | - | 172 |
| Purchase of own treasury shares | - | - | - | - | - | (1,251) | - | - | (1,251) |
| Issue of equity (net of costs) | 1,163 | 665 | - | - | - | - | - | - | 1,828 |
| Transfer from special reserve to revenue reserve | - | - | - | - | (1,985) | - | - | 1,985 | - |
| Transfer from special reserve to realised capital reserve** | - | - | - | - | (6,067) | - | 6,067 | - | - |
| Revenue return attributable to shareholders | - | - | - | - | - | - | - | 651 | 651 |
| Dividends paid | - | - | - | - | - | - | - | (1,985) | (1,985) |
| As at 31 December 2011 | 21,862 | 959 | 4,473 | (8,001) | 6,862 | (3,417) | 9,246 | 1,563 | 33,547 |
| Called- up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve * | Special reserve* | Treasury shares reserve* | Realised capital reserve* | Revenue reserve* | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 January 2010 | 24,680 | 259 | 400 | (10,083) | 21,327 | (1,372) | 845 | 1,056 | 37,112 |
| Net realised losses on investments in the year | - | - | - | - | - | - | (161) | - | (161) |
| Unrealised losses on investments | - | - | - | (230) | - | - | - | - | (230) |
| Transfer of previously unrealised losses on sale of investments | - | - | - | 1,001 | - | - | (1,001) | - | - |
| Capitalised investment management fee | - | - | - | - | - | - | (673) | - | (673) |
| Tax on capitalised management fees | - | - | - | - | - | - | 183 | - | 183 |
| Purchase of own treasury shares | - | - | - | - | - | (794) | - | - | (794) |
| Issue of equity (net of costs) | 92 | 35 | - | - | - | - | - | - | 127 |
| Transfer from special reserve to realised capital reserve** | - | - | - | - | (5,152) | - | 5,152 | - | - |
| Revenue return attributable to shareholders | - | - | - | - | - | - | - | 580 | 580 |
| Dividends paid | - | - | - | - | (1,261) | - | (67) | (725) | (2,053) |
| As at 31 December 2010 | 24,772 | 294 | 400 | (9,312) | 14,914 | (2,166) | 4,278 | 911 | 34,091 |
* Included within these reserves is an amount of £6,253,000 (2010: £8,625,000) which is considered distributable. The special reserve has been treated as distributable in determining the amounts available for distribution.
** The special reserve allows the Company, amongst other things, to facilitate the payment of dividends earlier than would otherwise have been possible as transfers can be made from this reserve to the realised capital reserve to offset gross losses on disposal of investments. During the year a transfer of £6,067,000 has been made from special reserve to realised capital reserve representing £1,676,000 gross realised losses on disposal of investments during the year ended 31 December 2011 and £4,391,000 historical capital dividends paid.
In addition, a transfer of £1,985,000 representing the dividend payment made from revenue reserve has been made from the special reserve to the revenue reserve.
The comparatives for the year ended 31 December 2010 have been re-presented to show the combined Reconciliation of movements in shareholder's funds only, as the non-statutory analysis between Ordinary and C shares is no longer considered relevant to shareholders.
Cash flow statement
| Ordinary shares | Combined Ordinary and C shares | ||
| Year ended 31 December 2011 | Year ended 31 December 2010 | ||
| Note | £'000 | £'000 | |
| Operating activities | |||
| Investment income received | 1,355 | 1,095 | |
| Deposit interest received | 42 | 105 | |
| Dividend income received | 14 | 4 | |
| Investment management fees paid | (875) | (904) | |
| Other cash payments | (232) | (193) | |
| Net cash flow from operating activities | 18 | 304 | 107 |
| Taxation | |||
| UK corporation tax recovered | 154 | 131 | |
| Capital expenditure and financial investments | |||
| Purchase of fixed asset investments | (5,780) | (5,148) | |
| Disposal of fixed asset investments | 4,280 | 2,776 | |
| Net cash flow from investing activities | (1,500) | (2,372) | |
| Management of liquid resources | |||
| Purchase of current asset investment | (1,000) | - | |
| Disposal of current asset investment | 1,000 | - | |
| Net cash flow from liquid resources | - | - | |
| Equity dividends paid (net of costs of issuing shares under the Dividend Reinvestment Scheme) | (1,820) | (1,911) | |
| Net cash flow before financing | (2,862) | (4,045) | |
| Financing | |||
| Issue of share capital (net of issue costs) | 1,665 | - | |
| Purchase of own shares | 15 | (1,251) | (794) |
| Cost of issue of share capital | - | (15) | |
| Net cash flow from financing | 414 | (809) | |
| Cash flow in the year | 17 | (2,448) | (4,854) |
The comparatives for the year ended 31 December 2010 have been re-presented to show the combined Cash flow statement only, as the non-statutory analysis between Ordinary and C shares is no longer considered relevant to shareholders.
Notes to the Financial Statements
1. Accounting convention
The Financial Statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, in accordance with applicable United Kingdom law and accounting standards and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('AIC SORP') issued by the Association of Investment Companies in January 2009. Accounting policies have been applied consistently in current and prior periods.
2. Accounting policies
Investments
Unquoted equity investments, debt issued at a discount, and convertible bonds
In accordance with FRS 26 "Financial Instruments Recognition and Measurement", unquoted equity, debt issued at a discount and convertible bonds are designated as fair value through profit or loss ("FVTPL"). Unquoted investments' fair value is determined by the Directors in accordance with the September 2009 International Private Equity and Venture Capital Valuation Guidelines (IPEVCV guidelines).
Desk top reviews are carried out by independent RICS qualified surveyors by updating previously prepared full valuations for current trading and market indices. Formal valuations are prepared by similarly qualified surveyors but in compliance with the RICS Red Book.
Fair value movements on equity investments and gains and losses arising on the disposal of investments are reflected in the capital column of the Income statement in accordance with the AIC SORP and realised gains or losses on the sale of investments will be reflected in the realised capital reserve, and unrealised gains or losses arising from the revaluation of investments will be reflected in the unrealised capital reserve.
Warrants and unquoted equity derived instruments
Warrants and unquoted equity derived instruments are only valued if there is deemed to be additional value to the Company in exercising or converting as at the balance sheet date. Otherwise these instruments are held at nil value. The valuation techniques used are those used for the underlying equity investment.
Unquoted loan stock
Unquoted loan stock (excluding convertible bonds and debt issued at a discount) is classified as loans and receivables as permitted by FRS 26 and measured at amortised cost using the effective interest rate method less impairment. Movements in respect of capital provisions are reflected in the capital column of the Income Statement and are reflected in the realised capital reserve following sale, or in the unrealised capital reserve on revaluation.
For all unquoted loan stock, whether fully performing, renegotiated, past due and impaired, the Board considers whether the fair value is equal to or greater than the security value of these assets. For unquoted loan stock, the amount of any impairment is the difference between the asset's cost and the present value of estimated future cash flows, discounted at the effective interest rate. The future cash flows are estimated based on the fair value of the security held less estimated selling costs.
Current asset investments
In accordance with FRS 26, bonds and floating rate notes are designated as fair value through profit or loss and are valued at market bid price at the balance sheet date. Floating rate notes are classified as current asset investments as they are investments held for the short term.
Contractual future contingent receipts on the disposal of fixed asset investments are designated at fair value through profit and loss and are subsequently measured at fair value.
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 revenue reserve when a share becomes ex-dividend.
Loan stock accrued interest is recognised in the Balance sheet as part of the carrying value of the loans and receivables at the end of each reporting period.
It is not the Company's policy to exercise control or significant influence over investee companies. Therefore in accordance with the exemptions under FRS 9 "Associates and joint ventures", those undertakings in which the Company holds more than 20 per cent. of the equity are not regarded as associated undertakings.
Investment income
Unquoted equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis using the effective interest rate over the life of the financial instrument. Income which is not capable of being received within a reasonable period of time is reflected in the capital value of the investment.
Bank interest income
Interest income is recognised on an accrual basis using the rate of interest agreed with the bank.
Floating rate note income
Floating rate note income is recognised on an accrual basis using the interest rate applicable to the floating rate note at that time.
Investment management fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the revenue account except the following, which are charged through the realised capital reserve:
75 per cent. of management fees are allocated to the capital account to the extent that these relate to an enhancement in the value of the investments and in line with the Board's expectation that over the long term 75 per cent. of the Company's investment returns will be in the form of capital gains; and
expenses which are incidental to the purchase or disposal of an investment are charged through the Realised capital reserve.
Performance incentive fee
In the event that a performance incentive fee crystallises, the fee will be allocated between revenue and realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns.
Taxation
Taxation is applied on a current basis in accordance with FRS 16 "Current tax". Taxation associated with capital expenses is applied in accordance with the SORP. In accordance with FRS 19 "Deferred tax", deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the Financial Statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.
The Directors have considered the requirements of FRS 19 and do not believe that any provision should be made for deferred tax.
Reserves
Share premium account
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs and transfers to the special reserve.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company's own shares. This reserve also accounts for the difference between the nominal value of the total C shares in issue on 31 March 2011 and the nominal value of the Ordinary shares into which those C shares converted on the same date. The reserve is non-distributable.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Special reserve
The cancellation of the share premium account has created a special reserve that can be used to fund market purchases and subsequent cancellation of own shares, to cover gross realised losses, and for other distributable purposes.
Treasury shares reserve
This reserve accounts for amounts by which the distributable reserves of the Company are diminished through the repurchase of the Company's own shares for treasury.
Realised capital reserve
The following are disclosed in this reserve:
gains and losses compared to cost on the realisation of investments;
expenses, together with the related taxation effect, charged in accordance with the above policies; and
capital dividends paid to equity holders.
Dividends
In accordance with FRS 21 "Events after the balance sheet date", dividends declared by the Company are accounted for in the period in which the dividend has been paid or approved by shareholders in an annual general meeting.
3. Gains/(losses) on investments
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Unrealised (losses)/gains on fixed asset investments held at fair value through profit or loss account | (138) | 113 |
| Unrealised reversals of impairments/(impairments) on fixed asset investments held at amortised cost | 397 | (333) |
| Unrealised gains/(losses) on fixed asset investments | 259 | (220) |
| Unrealised losses on current asset investments held at fair value through profit or loss account | - | (10) |
| Unrealised gains/(losses) sub total | 259 | (230) |
| Realised losses on fixed asset investments held at fair value through profit or loss account | (147) | (56) |
| Realised gains/(losses) on fixed asset investments held at amortised cost | 580 | (105) |
| Realised losses on current asset investments held at fair value through profit or loss account | (5) | - |
| Realised gains/(losses) sub total | 428 | (161) |
| 687 | (391) |
Investments measured at amortised cost are unquoted loan stock investments as described in note 2.
4. Investment income
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Income recognised on investments held at fair value through profit or loss | ||
| Dividend income | 14 | 4 |
| Floating rate note interest | 10 | 27 |
| Income from convertible bonds and discounted debt | 95 | 53 |
| Other interest | 1 | 2 |
| 120 | 86 | |
| Income recognised on investments held at amortised cost | ||
| Return on loan stock investments | 1,103 | 1,017 |
| Bank deposit interest | 34 | 94 |
| 1,137 | 1,111 | |
| 1,257 | 1,197 |
Interest income earned on impaired investments at 31 December 2011 amounted to £219,000 (2010: £246,000). These investments are all held at amortised cost.
5. Investment management fees
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Investment management fee charged to revenue | 216 | 225 |
| Investment management fee charged to capital | 647 | 673 |
| 863 | 898 |
Further details of the Management agreement under which the investment management fee is paid are shown in the Directors' report and enhanced business review in the full Annual Report and Financial Statements.
6. Other expenses
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Directors' fees (including VAT and NIC) | 78 | 77 |
| Other administrative expenses | 78 | 73 |
| Tax services | 19 | 17 |
| Auditor's remuneration for statutory audit services (including VAT) | 28 | 27 |
| Auditor's remuneration for other services (including VAT) | 3 | - |
| 206 | 194 |
7. Directors' fees
The amounts paid to Directors during the year are as follows:
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Directors' fees | 70 | 70 |
| National insurance and/or VAT | 8 | 7 |
| 78 | 77 |
Further information regarding Directors' remuneration can be found in the Directors' remuneration report in the full Annual Report and Financial Statements.
8. Tax (charge)/credit on ordinary activities
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| UK corporation tax in respect of current year | (35) | (21) |
| UK corporation tax in respect of prior year | 23 | 6 |
| (12) | (15) |
Factors affecting the tax charge:
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Return/(loss) on ordinary activities before taxation | 875 | (286) |
| Tax (charge)/credit on profit/(loss) at the small companies rate (2010: standard rate) | (175) | 80 |
| Factors affecting the charge: | ||
| Non-taxable gains/(losses) | 137 | (109) |
| Non-taxable income | 3 | 1 |
| Consortium relief in respect of prior years | 23 | 6 |
| Marginal relief | - | 7 |
| (12) | (15) |
The tax charge for the year shown in the Income statement is lower than the small companies rate of corporation tax in the UK of 21 per cent. to 31 March 2011 and 20 per cent. from 1 April 2011 (standard rate in 2010: 28 per cent.). The differences are explained above.
Consortium relief is recognised in the accounts in the period in which the claim is submitted to HMRC and is shown as tax in respect of prior year.
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) No deferred tax asset or liability has arisen in the year.
9. Dividends
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Ordinary shares' dividend of 4.0p per share paid on 21 May 2010 | - | 512 |
| C shares' dividend of 2.5p per share paid on 21 May 2010 | - | 521 |
| Ordinary shares' dividend of 4.0p per share paid on 29 October 2010 | - | 510 |
| C shares' dividend of 2.5p per share paid on 29 October 2010 | - | 510 |
| Ordinary shares' dividend of 2.5p per share paid on 28 April 2011 | 998 | - |
| Ordinary shares' dividend of 2.5p per share paid on 28 October 2011 | 987 | - |
| 1,985 | 2,053 |
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 December 2012 of 2.5 pence per Ordinary share. This dividend will be paid on 30 April 2012 to shareholders on the register as at 13 April 2012. The total dividend will be approximately £1,009,000.
10. Basic and diluted return per share
| Year ended 31 December 2011 | |||
| Revenue | Capital | Total | |
| Return attributable to equity shares (£'000) | 651 | 212 | 863 |
| Weighted average shares in issue (excluding treasury shares) | 39,764,003 | ||
| Return attributable per equity share (pence) | 1.6 | 0.6 | 2.2 |
| Year ended 31 December 2010 | ||||||
| Ordinary shares | C shares | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Return attributable to equity shares (£'000) | 208 | 132 | 340 | 372 | (1,013) | (641) |
| Weighted average shares in issue (excluding treasury shares) | 12,800,207 | 34,251,343 | ||||
| Return attributable per equity share (pence) | 1.6 | 1.0 | 2.6 | 1.1 | (3.0) | (1.9) |
The weighted average number of shares is calculated excluding treasury shares of 4,290,372 (2010: 1,125,870 Ordinary shares and 1,986,267 C shares).
There are no convertible instruments, derivatives or contingent share agreements in issue, and therefore no dilution affecting the return per share. The basic return per share is therefore the same as the diluted return per share.
11. Fixed asset investments
The classification of investments by nature of instruments is as follows:
| 31 December 2011 £'000 | 31 December 2010 £'000 | |
| Unquoted equity | 10,659 | 10,219 |
| Unquoted loan stock | 16,775 | 19,168 |
| Discounted debt and convertible loan stock | 3,546 | - |
| 30,980 | 29,387 |
| 31 December 2011 £'000 | 31 December 2010 £'000 | |
| Opening valuation | 29,387 | 27,405 |
| Purchases at cost | 7,410 | 5,194 |
| Disposal proceeds | (6,117) | (2,817) |
| Realised gains/(losses) | 433 | (161) |
| Movement in loan stock accrued income | (160) | (14) |
| Transfer of unrealised gains to current asset investments | (232) | - |
| Unrealised gains/(losses) | 259 | (220) |
| Closing valuation | 30,980 | 29,387 |
| Movement in loan stock accrued income | ||
| Opening accumulated movement in loan stock accrued income | 439 | 453 |
| Movement in loan stock accrued income | (160) | (14) |
| Closing accumulated movement in loan stock accrued income | 279 | 439 |
| Movement in unrealised losses | ||
| Opening accumulated unrealised losses | (9,366) | (10,147) |
| Transfer of previously unrealised losses to realised reserve on disposal of investments | 1,058 | 1,001 |
| Transfer of unrealised gains to current asset investments | (232) | - |
| Movement in unrealised gains/(losses) | 259 | (220) |
| Closing accumulated unrealised losses | (8,281) | (9,366) |
| Historic cost basis | ||
| Opening book cost | 38,314 | 37,099 |
| Purchases at cost | 7,410 | 5,194 |
| Sales at cost | (6,742) | (3,979) |
| Closing book cost | 38,982 | 38,314 |
Purchases and disposals detailed above do not agree to the Cash flow statement due to restructuring of investments and settlement debtors and creditors.
Fixed asset investments held at fair value through the profit or loss account total £14,205,000 (2010: £13,151,000). Investments measured at amortised cost total £16,775,000 (2010: £16,236,000).
The Directors believe that the carrying value of loan stock measured at amortised cost is not materially different to fair value. 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 impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted equity investments and convertible and discounted debt are valued at fair value in accordance with the IPEVCV guidelines as follows:
| 31 December 2011 | 31 December 2010 | |
| Valuation methodology | £'000 | £'000 |
| Cost reviewed for impairment | 2,100 | 2,257 |
| Net asset value supported by third party or desktop valuation | 1,875 | 814 |
| Price of recent investment reviewed for impairment | 625 | 1,981 |
| Earnings multiple | 3,899 | 2,864 |
| Revenue multiple | 5,706 | 5,235 |
| 14,205 | 13,151 |
Fair value investments had the following movements between valuation methodologies between 31 December 2010 and 31 December 2011:
| Change in valuation methodology (2010 to 2011) | Value as at 31 December 2011 £'000 | Explanatory note |
| Cost reviewed for impairment to net asset value supported by third party valuation | 870 | More recent information available |
| Recent investment price reviewed for impairment to revenue multiple | 590 | Industry benchmarks available |
| Earnings multiple to revenue multiple | 571 | Temporary trading losses |
| Cost reviewed for impairment to earnings multiple | 514 | Improvement in investment performance |
| Revenue multiple to earnings multiple | 135 | Improvement in investment performance |
| Cost reviewed for impairment to revenue multiple | 63 | Industry benchmarks available |
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 September 2009 IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 December 2011.
The amended FRS 29 'Financial Instruments: Disclosures' requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy according to the following definitions:
| Fair value hierarchy | Definition |
| Level 1 | Unadjusted quoted (bid) prices applied |
| Level 2 | Inputs to valuation are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
All of the Company's fixed asset investments as at 31 December 2011 which are valued at fair value through profit or loss, are valued according to Level 3 methods (2010: Level 3).
Investments held at fair value through profit or loss (Level 3) had the following movements in the year to 31 December 2011:
| 31 December 2011 | 31 December 2010 | |
| £'000 | £'000 | |
| Opening balance | 13,151 | 8,978 |
| Additions | 4,286 | 3,641 |
| Disposals | (2,715) | (1,010) |
| Realised losses | (147) | (726) |
| Re-presentation of convertible bond and discounted debt | - | 2,205 |
| Transfer to current asset investments | (232) | - |
| Unrealised (losses)/gains | (138) | 63 |
| Closing balance | 14,205 | 13,151 |
FRS 29 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. The valuation methodology applied to 32 per cent. of the equity, discounted debt and convertible bond investments (by valuation) is based on third-party independent evidence and recent investment price. The Directors believe that changes to reasonable possible alternative assumptions for the valuation of the portfolio could result in an increase in the valuation of investments by £1,314,000 or a decrease in the valuation of investments by £1,512,000.
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 investee company, it will not take a controlling interest or become involved in the management. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the investee companies as at 31 December 2011 as described below:
| Company | Country of incorporation | Principal activity | % class and share type | % total voting rights |
| Albion Investment Properties Limited | Great Britain | Owner of residential property | 22.6% A Ordinary | 22.6% |
| Blackbay Limited | Great Britain | Mobile data solutions | 24.3% A Ordinary | 8.5% |
| Consolidated PR Limited | Great Britain | Public relations agency | 50.0% A Ordinary | 11.8% |
| Evolutions Group Limited | Great Britain | In liquidation | 22.3% A Ordinary | 22.3% |
| Prime Care Holdings Limited | Great Britain | Domiciliary care services | 31.2% A Ordinary | 15.6% |
| The Q Garden Company Limited | Great Britain | Garden centre operator | 67.0% A Ordinary | 33.4% |
As permitted by FRS 9, the investments listed above are held as part of an investment portfolio, and their value to the Company is as part of a portfolio of investments. Therefore, these investments are not considered to be associated undertakings.
13. Current assets
| Trade and other debtors | 31 December 2011 | 31 December 2010 |
| £'000 | £'000 | |
| Prepayments and accrued income | 15 | 16 |
| UK corporation tax receivable | - | 136 |
| Other debtors | 180 | 152 |
| 195 | 304 |
The Directors consider that the carrying amount of debtors is not materially different to their fair value.
| 31 December 2011 | 31 December 2010 | |
| Current asset investments | £'000 | £'000 |
| UBS floating rate note May 2011 | - | 1,005 |
| Contingent future receipts from the disposal of fixed asset investments | 232 | - |
| Royal Skandia Collective Bond | 1,006 | - |
| 1,238 | 1,005 |
The fair value hierarchy applied to contingent future receipts on disposal of fixed asset investments is Level 3. The fair value hierarchy applied to bonds and floating rate notes is Level 1.
The only movements in current asset investments during the year were the recognition of contingent future receipts on disposal of fixed asset investments, the redemption of the floating rate note and the purchase of the bond.
14. Creditors: amounts falling due within one year
| 31 December 2011 | 31 December 2010 | |
| £'000 | £'000 | |
| Trade creditors | 1 | 234 |
| Accruals and deferred income | 267 | 69 |
| UK corporation tax payable | 28 | - |
| Other creditors | 17 | 197 |
| 313 | 500 |
The Directors consider that the carrying amount of creditors is not materially different to their fair value.
15. Called up share capital
| 31 December 2011 £'000 | 31 December 2010 £'000 | |
| Allotted, called up and fully paid | ||
| 43,723,776 Ordinary shares of 50p each (2010: 13,770,233 Ordinary shares) | 21,862 | 6,885 |
| Nil C shares (2010: 35,774,708 C shares) | - | 17,887 |
| 21,862 | 24,772 |
| Voting rights |
| 39,433,404 Ordinary shares of 50p each (net of treasury shares) (2010: 12,644,363 Ordinary shares and 33,788,441 C shares of 50p each in issue (net of treasury shares)). |
The C shares converted to Ordinary shares on 31 March 2011 at a ratio of 0.7779 Ordinary shares to each C share. As a result, 36,678,643 C shares were cancelled and a further 28,532,316 Ordinary shares were issued at a total nominal value of £14,266,158.
The Company purchased 1,357,000 Ordinary shares and 337,300 C Shares (2010: 257,776 Ordinary shares and 991,235 C shares) to be held in treasury at a cost of £1,251,000 (2010: £794,000). The shares purchased for treasury were funded from the treasury shares reserve.
As part of the above, 2,323,567 C shares held in treasury as at 31 March 2011 were converted to 1,807,502 Ordinary shares, which were added to treasury as a result of the conversion of C shares to Ordinary shares at that date.
The Company holds a total of 4,290,372 Ordinary shares in treasury (2010: 1,125,870 Ordinary shares and 1,986,267 C shares), representing 9.8 per cent. of the share capital as at 31 December 2011.
Under the terms of the Dividend Reinvestment Scheme, the following Ordinary shares of nominal value 50 pence per share were allotted in the year to 31 December 2011:
| Date of allotment | Number of Ordinary shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price per share on allotment date (pence per share) |
| 16 May 2011 | 96,099 | 48 | 85.1 | 75 | 78.0 |
| 28 October 2011 | 105,475 | 53 | 85.4 | 83 | 78.0 |
| 201,574 | 101 | 158 |
Under the terms of the Albion VCTs Linked Top Up Offer 2010/2011, the following shares of nominal value 50 pence each were allotted during the year:
Ordinary shares
| Date of allotment | Number of Ordinary shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price per share on allotment date (pence per share) |
| 7 January 2011 | 344,862 | 172 | 94.8 | 309 | 78.0 |
| 23 March 2011 | 360,737 | 180 | 90.1 | 307 | 78.0 |
| 5 April 2011 | 474,229 | 237 | 90.1 | 404 | 78.0 |
| 16 May 2011 | 39,825 | 20 | 91.1 | 34 | 78.0 |
| 1,219,653 | 609 | 1,054 |
C shares
| Date of allotment | Number of C shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price per share on allotment date (pence per share) |
| 7 January 2011 | 440,166 | 220 | 74.3 | 309 | 61.0 |
| 23 March 2011 | 463,769 | 232 | 70.1 | 307 | 60.0 |
| 903,935 | 452 | 616 |
16. Basic and diluted net asset value per share
| 31 December 2011 | 31 December 2010 | |
| (pence per share) | (pence per share) | |
| Basic and diluted net asset value per Ordinary share | 85.1 | 87.6 |
| Basic and diluted net asset value per C share | - | 68.1 |
The basic and diluted net asset values per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (less treasury shares) of 39,433,404 Ordinary shares (2010: 12,644,363 Ordinary shares) at 31 December 2011.
17. Analysis of changes in cash during the year
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Opening cash balances | 3,895 | 8,749 |
| Net cash flow | (2,448) | (4,854) |
| Closing cash balances | 1,447 | 3,895 |
18. Reconciliation of net return on ordinary activities before taxation to net cash flow from operating activities
| Year ended 31 December 2011 £'000 | Year ended 31 December 2010 £'000 | |
| Revenue return on ordinary activities before taxation | 835 | 778 |
| Investment management fee charged to capital | (647) | (673) |
| Movement in accrued amortised loan stock interest | 160 | 14 |
| Decrease in debtors | 1 | 18 |
| (Decrease) in creditors | (45) | (30) |
| Net cash flow from operating activities | 304 | 107 |
19. Capital and financial instruments risk management
The Company's capital comprises Ordinary shares. The Company is permitted to buy back its own shares for cancellation or treasury purposes and this is described in more detail in the Chairman's statement.
During the year the Company issued shares under the Albion VCTs Linked Top Up Offer launched in November 2010. The Offer closed on 16 May 2011. On 31 March 2011, the Company converted the C shares into Ordinary shares.
The Company's financial instruments comprise equity and loan stock investments in unquoted companies, bonds, cash balances and debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short term creditors. The Company does not use any derivatives for the management of its balance sheet.
The principal risks arising from the Company's operations are:
Investment (or market) risk (which comprises investment price and cash flow interest rate risk);
credit risk; and
liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a venture capital trust, it is the Company's specific nature to evaluate and control the investment risk of its portfolio in unquoted and in quoted investments, details of which are shown on pages 11 to 13 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the investee company and the dynamics of market quoted comparators. The Manager receives management accounts from investee companies, and members of the investment management team often sit on the boards of unquoted investee companies; this enables the close identification, monitoring and management of investment risk.
The Manager and the Board formally review investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the balance sheet date is the value of the fixed and current asset investment portfolio which is £32,218,000 (2010: £30,392,000). Fixed and current asset investments form 96 per cent. of the net asset value as at 31 December 2011 (2010: 89 per cent.).
More details regarding the classification of fixed and current asset investments are shown in notes 11 and 13.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. To mitigate the investment price risk for the Company as a whole, the strategy of the Company is to invest in a broad spread of industries with up to two-thirds of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 11 to 13 of the full Annual Report and Financial Statements and in the Manager's report.
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 IPEVCV Guidelines.
As required under FRS 29 "Financial Instruments: Disclosures", the Board is required to illustrate by way of a sensitivity analysis the degree of exposure to market risk. The Board considers that the value of the fixed and current asset investment portfolio is sensitive to a 10 per cent. change based on the current economic climate. The impact of a 10 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
The sensitivity of a 10 per cent. increase or decrease in the valuation of the fixed and current asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £3,222,000 (2010: £3,039,000).
Cash flow 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 one percentage point in all interest rates would have increased total return before tax for the year by approximately £30,000 (2010: £69,000). Furthermore, it is considered that a fall of interest rates below current levels during the year would have been very unlikely.
The weighted average interest rate applied to the Company's fixed rate assets during the year was approximately 5.2 per cent. (2010: 5.0 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 2.6 years (2010: 2.6 years).
The Company's financial assets and liabilities as at 31 December 2011, all denominated in pounds sterling, consist of the following:
| 31 December 2011 | 31 December 2010 | |||||||
| Fixed rate £'000 | Floating rate £'000 | Non-interest bearing £'000 | Total £'000 | Fixed rate £'000 | Floating rate £'000 | Non-interest bearing £'000 | Total £'000 | |
| Unquoted equity | - | - | 10,659 | 10,659 | - | - | 10,219 | 10,219 |
| Unquoted loan stock+ | 18,450 | 526 | 1,345 | 20,321 | 18,349 | 432 | 387 | 19,168 |
| Debtors* | - | - | 183 | 183 | - | - | 304 | 304 |
| Current asset investments | 1,006 | - | 232 | 1,238 | - | 1,005 | - | 1,005 |
| Current liabilities* | - | - | (285) | (285) | - | - | (500) | (500) |
| Cash | 143 | 1,304 | - | 1,447 | 3,077 | 818 | - | 3,895 |
| Total | 19,599 | 1,830 | 12,134 | 33,563 | 21,426 | 2,255 | 10,410 | 34,091 |
*The debtors and current liabilities do not reconcile to the balance sheet as prepayments and tax payable are not included in the above table.
+ Including convertible loan stock and debt issued at a discount.
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 debtors, investment in unquoted loan stock, and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock 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. Typically loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the investee company in order to mitigate the gross credit risk. The Manager receives management accounts from investee companies, and members of the investment management team sit on the boards of unquoted investee companies; this enables the close identification, monitoring and management of investment specific credit risk.
The Manager and the Board formally review credit risk (including debtors) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company's total gross credit risk as at 31 December 2011 was limited to £20,321,000 (2010: £19,168,000) of unquoted loan stock instruments, bonds of £1,006,000 (2010: £nil) and £1,447,000 (2010: £3,895,000) cash deposits with banks.
As at the balance sheet date, the cash held by the Company is held with the Royal Bank of Scotland plc, Lloyds TSB Bank plc, Scottish Widows and Standard Life. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to regulatory supervision, with Moody's credit ratings of at least 'A' or equivalent as assigned by international credit-rating agencies.
The Company has an informal policy of limiting counterparty banking and floating rate note exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The cost, impairment and carrying value of impaired loan stocks in the Ordinary share portfolio held at amortised cost at 31 December 2011 and 31 December 2010 are as follows:
| 31 December 2011 | 31 December 2010 | |||||
| Cost £'000 | Impairment £'000 | Carrying value £'000 | Cost £'000 | Impairment £'000 | Carrying value £'000 | |
| Impaired loan stock | 9,079 | (3,441) | 5,638 | 9,415 | (3,530) | 5,885 |
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the investee company and the Board deem the security value to be the carrying value.
Liquidity risk
Liquid assets are held as cash on current account, on deposit, in bonds or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its adjusted capital and reserves of the latest published audited balance sheet, which amounts to £3,254,000 as at 31 December 2011 (2010: £3,309,000).
The Company has no committed borrowing facilities as at 31 December 2011 (2010: £nil). The Company had cash balances of £1,447,000 (2010: £3,895,000) and bonds of £1,006,000 (2010: £nil). The main cash outflows are for new investments, share buy-backs and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company's financial liabilities are short term in nature and total £313,000 as at 31 December 2011 (2010: £500,000).
The carrying value of loan stock investments at 31 December 2011, as analysed by expected maturity dates was as follows:
| Redemption date | Fully performing loan stock £'000 | Impaired loan stock £'000 | Past due loan stock £'000 | Total £'000 |
| Less than one year | 938 | 1,255 | 1,689 | 3,882 |
| 1-2 years | 2,424 | 1,625 | 2,256 | 6,305 |
| 2-3 years | 958 | 1,995 | 149 | 3,102 |
| 3-5 years | 4,926 | 763 | 693 | 6,382 |
| +5 years | 433 | - | 217 | 650 |
| Total | 9,679 | 5,638 | 5,004 | 20,321 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.
Loan stock categorised as past due includes:
Loan stock with a carrying value of £13,000 yielding 14.6 per cent. which has capital past due by 8 months, and loan stock with a carrying value of £104,000 yielding 14.6 per cent. on cost which has capital past due by 14 months;
Loan stock with a carrying value of £1,424,000 which has interest overdue for less than 12 months yielded 5.6 per cent. on cost;
Loan stock with a carrying value of £3,201,000 had loan stock interest past due greater than 12 months (through not paying all of its contractual interest). However, this investment has yielded 7.8 per cent. on cost during the year;
Loan stock with a carrying value of £217,000 had capital past due of 6 years and yielded 13.0 per cent. on cost;
Loan stock with a carrying value of £45,000 had loan stock interest past due of 6 years.
The carrying value of loan stock investments held at amortised cost at 31 December 2010, as analysed by expected maturity dates, was as follows:
| Redemption date | Fully performing loan stock £'000 | Renegotiated loan stock £'000 | Impaired loan stock £'000 | Past due loan stock £'000 | Total £'000 |
| Less than one year | - | - | 1,217 | 205 | 1,422 |
| 1-2 years | 1,817 | 248 | 1,175 | 1,878 | 5,118 |
| 2-3 years | 1,779 | - | 1,348 | 2,182 | 5,309 |
| 3-5 years | 4,416 | 45 | 2,145 | 659 | 7,265 |
| +5 years | 54 | - | - | - | 54 |
| Total |
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