Half-yearly report
Albion Venture Capital Trust PLC
As required by the UK Listing Authority's Disclosure and Transparency Rule 4.2, Albion Venture Capital Trust PLC today makes public its information relating to the Half-yearly Financial Report (which is unaudited) for the six months to 30 September 2011. This announcement was approved by the Board of Directors on 17 November 2011.
The full Half-yearly Financial Report (which is unaudited) for the period to 30 September 2011, will shortly be sent to shareholders. Copies of the full Half-yearly Financial Report will be shown via the Albion Ventures LLP website www.albion-ventures.co.uk under the "Our Funds" section by clicking Albion Venture Capital Trust PLC.
Investment objectives
Albion Venture Capital Trust PLC (the "Company") is a venture capital trust which raised a total of £39.7 million through an issue of Ordinary Shares in the spring of 1996 and through an issue of C Shares in the following year. The Company raised a further £1.67 million in early 2011 under the Albion VCTs Linked Top Up Offer. The C Shares merged with the Ordinary Shares in 2001.
The Company offers tax-paying investors substantial tax benefits at the time of investment, on payment of dividends and on the ultimate disposal of the investment. Its investment strategy is to minimise the risk to investors whilst maintaining an attractive yield. This is achieved as follows:
qualifying unquoted investments are predominantly in specially-formed companies which provide a high level of asset backing for the capital value of the investment; and
Albion Venture Capital Trust PLC invests alongside selected partners with proven experience in the sectors concerned; and
investments are normally structured as a mixture of equity and loan stock. The loan stock represents the majority of the finance provided and is secured on the assets of the investee company. Funds managed or advised by Albion Ventures LLP typically own 50 per cent. of the equity of the investee company; and
other than the loan stock issued to funds managed or advised by Albion Ventures LLP, investee companies do not normally have external borrowings.
Financial calendar
| Record date for second dividend Payment date for second dividend Financial year end | 2 December 2011 30 December 2011 31 March 2012 |
Financial highlights (unaudited)
| Unaudited six months ended 30 September 2011 (pence per share) | Unaudited six months ended 30 September 2010 (pence per share) | Audited year ended 31 March 2011 (pence per share) | |
| Net asset value | 79.5 | 80.8 | 80.5 |
| Revenue return | 1.1 | 1.0 | 2.5 |
| Capital return | 0.2 | 0.6 | 1.2 |
| Total shareholder net asset value return to 30 September 2011 | Ordinary shares | C shares |
| Total dividends paid during the year ended : 31 March 1997 | 2.00 | - |
| 31 March 1998 | 5.20 | 2.00 |
| 31 March 1999 | 11.05 | 8.75 |
| 31 March 2000 | 3.00 | 2.70 |
| 31 March 2001 | 8.55 | 4.80 |
| 31 March 2002 | 7.60 | 7.60 |
| 31 March 2003 | 7.70 | 7.70 |
| 31 March 2004 | 8.20 | 8.20 |
| 31 March 2005 | 9.75 | 9.75 |
| 31 March 2006 | 11.75 | 11.75 |
| 31 March 2007 | 10.00 | 10.00 |
| 31 March 2008 | 10.00 | 10.00 |
| 31 March 2009 | 10.00 | 10.00 |
| 31 March 2010 | 5.00 | 5.00 |
| 31 March 2011 | 5.00 | 5.00 |
| Total dividends paid in the six months to 30 September 2011 | 2.50 | 2.50 |
| Total dividends paid to 30 September 2011 | 117.30 | 105.75 |
| Net asset value as at 30 September 2011 | 79.50 | 79.50 |
| Total shareholder net asset value return to 30 September 2011 | 196.80 | 185.25 |
In addition to the above dividends paid, the Directors have declared a second dividend of 2.50 pence per share, payable on 30 December 2011 to shareholders on the register as at 2 December 2011.
Interim management report
Introduction
The results for Albion Venture Capital Trust PLC for the six months to 30 September 2011 show a positive return of 1.3 pence per share (revenue and capital), which takes the net asset value to 79.5 pence per share (31 March 2011: 80.5 pence per share) after the payment of the first dividend for the year of 2.5 pence per share. This comprised a 1.1 pence revenue return for the period and a 0.2 pence capital return, although it should be noted that independent third party valuations of the underlying investments are not generally carried out until the spring.
Investment performance and progress
The company's hotel portfolio has experienced mixed fortunes over the period. The most significant event was the successful sale of The Place Sandwich VCT, which owned the 37-bedroom Bell Hotel in Sandwich. This realised proceeds of £1,785,000 for the Company compared to the holding value of £1,501,000 and cost of £1,640,000. In addition to the sales proceeds, the Company received £758,000 of interest over the course of the investment, producing a total return of approximately 1.6 times cost. As a result of the sale, the hotel sector as a proportion of the Company's portfolio has reduced from 48% at 31 March 2011 to 42% at 30 September 2011, in line with our policy of reducing our weighting in the sector.
The Holiday Inn Express at Stansted Airport recorded its second best year to date in its financial year to August and trading at the Bear Hotel in Hungerford has been ahead of the previous year. Recent trading at the Crown Hotel in Harrogate, on the other hand, has been a little quieter than last year and while revenues at The Stanwell hotel continue to grow, it has been at a significantly slower pace than hoped for. Accordingly a change of management at The Stanwell hotel has taken place and work is being undertaken to address some building issues that have arisen and to improve the bedroom product.
In addition to the sale of The Place Sandwich VCT, a further £530,000 loan stock has been repaid by other investee companies during the period.
Meanwhile £1,050,000 has been invested in 4 existing investee companies and 2 new companies. The new companies were both in the renewable energy sector, one installing solar panels on commercial premises and the other constructing wind turbines, with the majority of the overall investment being funds already scheduled for Oakland Care Centre, which has been developing a care home for patients suffering from dementia.
In the existing portfolio, notable events have been the successful opening of Radnor House School in Twickenham in September with almost double the budgeted number of pupils, the opening of Orchard Portman's psychiatric unit in Somerset in May 2011 and the opening of Oakland Care Centre's Bayfield Court care home in Chingford in October 2011.
The cinemas are continuing to show strong performance and the health and fitness clubs have all increased profitability in their financial years to September 2011. In the pub sector, the pubs owned by The Charnwood Pub Company were slightly behind budget over the six months while the Bravo Inns pubs in the north west have been performing ahead of expectations.
Split of investment portfolio by valuation
Set out at the bottom of this announcement is the sector diversification of the portfolio of our investments at 30 September 2011.
Source: Albion Ventures LLP
Risks and uncertainties
We remain cautious over the short and medium term prospects of the UK economy in view of the currency and debt constraints which are increasingly becoming apparent within the eurozone and elsewhere. Nevertheless, the portfolio is being gradually repositioned towards sectors that we believe are more resilient and we believe that the majority of the Company's investments are well positioned to withstand an economic downturn in light of our general policy that investee companies have no external bank borrowings.
Other risks and uncertainties remain unchanged and are as detailed in note 14.
Related party transactions
Details of material related party transactions for the reporting period can be found in note 12 to this Half-yearly Financial Report.
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. Thereafter, it is the Board's policy to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest. The Company will limit the sum available for share buy-backs for the six months to 31 March 2012 to £350,000, in line with the total value bought in for the previous six months. Subject to the constraints referred to above, and subject to first purchasing shares held by the marketmakers, the Board will target such buy-backs to be in the region of a 10 to 15 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Results and dividends
As at 30 September 2011 the net asset value of the Company was £28.5 million or 79.5 pence per share compared to £28.8 million or 80.5 pence per share at 31 March 2011. The revenue return before taxation was £529,000 compared to £484,000 for the six months to 30 September 2010. The Company will pay a second dividend of 2.50 pence per share on 30 December 2011 to shareholders on the register as at 2 December 2011, making 5.0 pence per share in total for the full year, in line with your Company's current dividend target.
Albion VCTs Linked Top Up Offer 2011/2012
Your Board, in conjunction with the boards of six of the other VCTs managed by Albion Ventures LLP, has recently launched a top up offer of new Ordinary shares. Albion Venture Capital Trust PLC will be aiming to raise approximately £2.25m, a 15 per cent. share of the £15 million in aggregate that the Albion VCTs plan to raise. The proceeds will be used to provide further resources at a time when a number of attractive investment opportunities are being seen. An Investor Guide and Offer Document have been sent to shareholders.
Outlook and prospects
As already mentioned, the outlook for the UK economy remains uncertain. Nevertheless we believe that the majority of our companies are well positioned to withstand future economic upheaval. Our strategy for new investments continues to be focused on sectors that are likely to be resilient, particularly healthcare and environmental projects.
John Kerr
Director
17 November 2011
Responsibility statement
The Directors, D Watkins, J M B L Kerr, J Warren and J Rounce are responsible for preparing the Half-yearly Financial Report. The Directors have chosen to prepare this Half-yearly Financial Report for the Company in accordance with United Kingdom Generally Accepted Accounting Practice ("UK GAAP").
In preparing these summarised financial statements for the period to 30 September 2011, we the Directors of the Company, confirm that to the best of our knowledge:
(a) the summarised set of financial statements has been prepared in accordance with the pronouncement on interim reporting issued by the Accounting Standards Board;
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
(c) the summarised set of financial statements give a true and fair view in accordance with UK GAAP of the assets, liabilities, financial position and profit and loss of the Company for the six months ended 30 September 2011 and comply with UK GAAP and Companies Act 1985 and 2006; and
(d) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
The accounting policies applied to the Half-yearly Financial Report have been consistently applied in current and prior periods and are those applied in the Annual Report and Financial Statements for the year ended 31 March 2011.
This Half-yearly Financial Report has not been audited or reviewed by the Auditor.
By order of the Board
John Kerr
Director
17 November 2011
Portfolio of investments
The following is a summary of investments as at 30 September 2011:
| As at 30 September 2011 | |||||
| Qualifying investments | % Voting rights | % voting rights of AVL* managed companies | Cost £'000 | Cumulative movement in value £'000 | Total value** £'000 |
| Hotels | |||||
| Kew Green VCT (Stansted) Limited | 28.2 | 50.0 | 4,047 | 2,251 | 6,298 |
| The Stanwell Hotel Limited | 24.6 | 50.0 | 3,421 | (1,043) | 2,378 |
| The Crown Hotel Harrogate Limited | 15.6 | 50.0 | 3,100 | (837) | 2,263 |
| The Bear Hungerford Limited | 26.2 | 50.0 | 2,088 | (747) | 1,341 |
| Total investment in the hotel sector | 12,656 | (376) | 12,280 | ||
| Cinemas and other leisure | |||||
| City Screen (Cambridge) Limited | 50.0 | 50.0 | 535 | 1,277 | 1,812 |
| CS (Greenwich) Limited | 18.3 | 50.0 | 954 | 158 | 1,112 |
| CS (Brixton) Limited | 6.4 | 50.0 | 274 | 125 | 399 |
| City Screen (Liverpool) Limited | 18.2 | 50.0 | 222 | (61) | 161 |
| Premier Leisure (Suffolk) Limited | 5.2 | 50.0 | 380 | (290) | 90 |
| CS (Exeter) Limited | 6.6 | 50.0 | 108 | (30) | 78 |
| CS (Norwich) Limited | 3.1 | 50.0 | 50 | 2 | 52 |
| Total investment in the cinema and other leisure sector | 2,523 | 1,181 | 3,704 | ||
| Health and fitness clubs | |||||
| The Weybridge Club Limited | 8.2 | 50.0 | 1,330 | (242) | 1,088 |
| Kensington Health Clubs Limited | 8.1 | 50.0 | 1,124 | (343) | 781 |
| Tower Bridge Health Clubs Limited | 5.5 | 50.0 | 325 | 54 | 379 |
| Total investment in the health and fitness club sector | 2,779 | (531) | 2,248 | ||
| Healthcare sector | |||||
| Oakland Care Centre Limited | 19.1 | 45.3 | 1,519 | 45 | 1,564 |
| Taunton Hospital Limited | 6.0 | 50.0 | 380 | 1 | 381 |
| Nelson House Hospital Limited | 5.0 | 50.0 | 155 | - | 155 |
| Orchard Portman Hospital Limited | 2.0 | 50.0 | 132 | - | 132 |
| Total investment in the healthcare sector | 2,186 | 46 | 2,232 | ||
| Pubs | |||||
| The Charnwood Pub Company Limited | 8.8 | 50.0 | 3,086 | (1,795) | 1,291 |
| Bravo Inns II Limited | 4.4 | 50.0 | 575 | (26) | 549 |
| Bravo Inns Limited | 5.1 | 50.0 | 450 | (173) | 277 |
| GB Pub Company VCT Limited | 5.9 | 50.0 | 239 | (177) | 62 |
| The Dunedin Pub Company VCT Limited | 4.3 | 50.0 | 47 | (2) | 45 |
| Total investment in the pub sector | 4,397 | (2,173) | 2,224 | ||
| Residential property development | |||||
| G&K Smart Developments VCT Limited | 42.9 | 50.0 | 1,620 | (1,144) | 476 |
| Prime VCT Limited | 50.0 | 50.0 | 990 | (640) | 350 |
| Total investment in the residential property development sector | 2,610 | (1,784) | 826 | ||
| Education sector | |||||
| Radnor House School (Holdings) Limited | 4.6 | 50.0 | 801 | 24 | 825 |
| Total investment in the education sector | 801 | 24 | 825 | ||
| Environmental sector | |||||
| TEG Biogas (Perth) Limited | 3.6 | 50.0 | 207 | 2 | 209 |
| Regenerco Renewable Energy Limited | 2.5 | 50.0 | 138 | - | 138 |
| Alto Prodotto Wind Limited | 2.6 | 50.0 | 112 | 1 | 113 |
| The Street by Street Solar Programe Limited | 2.5 | 50.0 | 99 | - | 99 |
| AVESI Limited | 2.5 | 50.0 | 20 | - | 20 |
| Total investment in the environmental sector | 576 | 3 | 579 | ||
| Total qualifying investments | 28,528 | (3,610) | 24,918 | ||
* AVL is Albion Ventures LLP
** These valuations are based on third party valuations performed for the Annual Report and Financial Statements for the year ended 31 March 2011.Third party valuations will be re-performed for the year ended 31 March 2012.
Summary income statement
| Unaudited six months ended 30 September 2011 | Unaudited six months ended 30 September 2010 | Audited year ended 31 March 2011 | ||||||||
| Note | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| Gain on investments | 3 | - | 232 | 232 | - | 333 | 333 | - | 700 | 700 |
| Investment income | 4 | 711 | - | 711 | 687 | - | 687 | 1,300 | - | 1,300 |
| Investment management fees | (73) | (218) | (291) | (70) | (211) | (281) | (141) | (424) | (565) | |
| Other expenses | (109) | - | (109) | (133) | - | (133) | (248) | - | (248) | |
| Return on ordinary activities before tax | 529 | 14 | 543 | 484 | 122 | 606 | 911 | 276 | 1,187 | |
| Tax (charge)/credit on ordinary activities | (134) | 60 | (74) | (131) | 63 | (68) | (41) | 126 | 85 | |
| Return attributable to shareholders | 395 | 74 | 469 | 353 | 185 | 538 | 870 | 402 | 1,272 | |
| Basic and diluted return per share (pence)* | 6 | 1.1 | 0.2 | 1.3 | 1.0 | 0.6 | 1.6 | 2.5 | 1.2 | 3.7 |
* excluding treasury shares
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 September 2010 and the audited statutory accounts for the year ended 31 March 2011.
The accompanying notes form an integral part of this Half-yearly Financial Report.
The total column of this Summary 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 periods disclosed above. Accordingly a Statement of total recognised gains and losses is not required. The difference between the reported return on ordinary activities before tax and the historical profit is due to the fair value movements on investments. As a result a note on historical cost profit and losses has not been prepared.
Summary balance sheet
| Note | Unaudited 30 September 2011 £'000 | Unaudited 30 September 2010 £'000 | Audited 31 March 2011 £'000 | |
| Fixed asset investments | ||||
| Qualifying | 24,918 | 25,677 | 25,535 | |
| Non-qualifying | - | 439 | 439 | |
| Total fixed asset investments | 24,918 | 26,116 | 25,974 | |
| Current assets | ||||
| Trade and other debtors | 19 | 12 | 130 | |
| Cash at bank and in hand | 9 | 3,923 | 2,261 | 2,971 |
| 3,942 | 2,273 | 3,101 | ||
| Creditors: amounts falling due within one year | (400) | (475) | (314) | |
| Net current assets | 3,542 | 1,798 | 2,787 | |
| Net assets | 28,460 | 27,914 | 28,761 | |
| Capital and reserves | ||||
| Called up share capital | 7 | 19,197 | 18,075 | 18,886 |
| Share premium | 706 | 77 | 538 | |
| Capital redemption reserve | 1,914 | 1,914 | 1,914 | |
| Unrealised capital reserve | (3,791) | (4,268) | (3,871) | |
| Special reserve | - | 13,236 | - | |
| Treasury shares reserve | (1,875) | (1,222) | (1,524) | |
| Realised capital reserve | 10,885 | (441) | 10,891 | |
| Revenue reserve | 1,424 | 543 | 1,927 | |
| Total equity shareholders' funds | 28,460 | 27,914 | 28,761 | |
| Basic and diluted net asset value per share (pence)* | 79.5 | 80.8 | 80.5 |
*excluding treasury shares
Comparative figures have been extracted from the unaudited Half-yearly Financial Report for the six months ended 30 September 2010 and the audited statutory accounts for the year ended 31 March 2011.
The accompanying notes form an integral part of this Half-yearly Financial Report.
These Financial Statements were approved by the Board of Directors and authorised for issue on 17 November 2011, and were signed on its behalf by
John Kerr
Director
Company number: 3142609
Summary reconciliation of movements in shareholders' funds
| Called-up share capital | Share premium | Capital redemption reserve | Unrealised capital reserve* | Treasury shares reserve* | Realised capital reserve* | Revenue reserve* | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| 1 April 2011 (audited) | 18,886 | 538 | 1,914 | (3,871) | (1,524) | 10,891 | 1,927 | 28,761 |
| Realised gains | - | - | - | - | - | 314 | - | 314 |
| Unrealised gains | - | - | - | (82) | - | - | - | (82) |
| Transfer of previously unrealised losses to realised losses | - | - | - | 162 | - | (162) | - | - |
| Capitalised investment management fees | - | - | - | - | - | (218) | - | (218) |
| Tax relief on costs charged to capital | - | - | - | - | - | 60 | - | 60 |
| Purchase of own treasury shares | - | - | - | - | (351) | - | - | (351) |
| Issue of equity (net of costs) | 311 | 168 | - | - | - | - | - | 479 |
| Revenue return attributable to shareholders | - | - | - | - | - | - | 395 | 395 |
| Dividends paid | - | - | - | - | - | - | (898) | (898) |
| As at 30 September 2011 (unaudited) | 19,197 | 706 | 1,914 | (3,791) | (1,875) | 10,885 | 1,424 | 28,460 |
| 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 | |
| 1 April 2010 (audited) | 18,050 | 69 | 1,914 | (4,599) | 13,236 | (1,032) | (295) | 1,057 | 28,400 |
| Realised gains | - | - | - | - | - | - | 2 | - | 2 |
| Unrealised gains | - | - | - | 331 | - | - | - | - | 331 |
| Capitalised investment management fees | - | - | - | - | - | - | (211) | - | (211) |
| Tax relief on costs charged to capital | - | - | - | - | - | - | 63 | - | 63 |
| Purchase of own treasury shares | - | - | - | - | - | (190) | - | - | (190) |
| Issue of equity (net of costs) | 25 | 8 | - | - | - | - | - | - | 33 |
| Revenue return attributable to shareholders | - | - | - | - | - | - | - | 353 | 353 |
| Dividends paid | - | - | - | - | - | - | - | (867) | (867) |
| As at 30 September 2010 (unaudited) | 18,075 | 77 | 1,914 | (4,268) | 13,236 | (1,222) | (441) | 543 | 27,914 |
| 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 April 2010 (audited) | 18,050 | 69 | 1,914 | (4,599) | 13,236 | (1,032) | (295) | 1,057 | 28,400 |
| Realised losses | - | - | - | - | - | - | (7) | - | (7) |
| Unrealised gains | 707 | - | - | - | - | 707 | |||
| Transfer of previously unrealised losses to realised losses | - | - | - | 21 | - | - | (21) | - | - |
| Capitalised investment management fees | - | - | - | - | - | - | (424) | - | (424) |
| Tax on capitalised management fees | - | - | - | - | - | - | 126 | - | 126 |
| Purchase of own treasury shares | - | - | - | - | - | (492) | - | - | (492) |
| Issue of equity (net of costs) | 836 | 469 | - | - | - | - | - | - | 1,305 |
| Revenue return attributable to shareholders | - | - | - | - | - | - | - | 870 | 870 |
| Dividends paid | - | - | - | - | - | - | - | (1,724) | (1,724) |
| Transfer from Special reserve to realised capital reserve | - | - | - | - | (11,512) | - | 11,512 | - | - |
| Transfer from Special reserve to Revenue reserve | - | - | - | - | (1,724) | - | - | 1,724 | - |
| As at 31 March 2011 (audited) | 18,886 | 538 | 1,914 | (3,871) | - | (1,524) | 10,891 | 1,927 | 28,761 |
*Included within these reserves is an amount of £6,643,300 (30 September 2010: £7,848,000; 31 March 2011: £7,423,000) which is considered distributable. The Special reserve has been treated as distributable in determining the amounts available for distribution.
Summary cash flow statement
| Note | Unaudited six months ended 30 September 2011 £'000 | Unaudited six months ended 30 September 2010 £'000 | Audited year ended 31 March 2011 £'000 | |
| Operating activities | ||||
| Investment income received | 669 | 660 | 1,285 | |
| Deposit interest received | 18 | 13 | 19 | |
| Investment management fees paid | (308) | (284) | (601) | |
| Other cash payments | (156) | (154) | (203) | |
| Net cash flow from operating activities | 8 | 223 | 235 | 500 |
| Taxation | ||||
| UK corporation tax recovered | 205 | 514 | 379 | |
| Capital expenditure and financial investments | ||||
| Purchase of fixed asset investments | (1,094) | (988) | (2,365) | |
| Disposal of fixed asset investments | 2,357 | 1,421 | 3,280 | |
| Net cash flow from investing activities | 1,263 | 433 | 915 | |
| Equity dividends paid | ||||
| Dividends paid (net of cost of shares issued under the dividend reinvestment scheme) | (848) | (827) | (1,644) | |
| Net cash flow before financing | 843 | 355 | 150 | |
| Financing | ||||
| Issue of share capital | 461 | - | 1,210 | |
| Purchase of own shares | (352) | (197) | (492) | |
| Net cash flow from financing | 109 | (197) | 718 | |
| Cash flow in the period | 9 | 952 | 158 | 868 |
Notes to the unaudited summarised Financial Statements for the six months ended 30 September 2011
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" ("SORP") issued by the Association of Investment Companies ("AIC") 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"). Fair value is determined by the Directors in accordance with the 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. Full valuations are prepared by similarly qualified surveyors, but in full compliance with the RICS Red Book.
Fair value movements 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; 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 their exercise or contractual conversion terms would allow them to be exercised or converted as at the balance sheet date, and if there is 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 carried at amortised cost using the Effective Interest Rate method ("EIR") 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, fully performing, renegotiated, past due and impaired, the Board considers that the fair value is equal to or greater than the security value of these assets. For unquoted loan stock, the amount of the impairment is the difference between the asset's cost and the present value of estimated future cash flows, discounted at the original effective interest rate. The future cash flows are estimated based on the fair value of the security held less estimated selling costs.
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.
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.
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 for deferred tax should be made.
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.
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
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 on investments
| Unaudited six months ended 30 September 2011 £'000 | Unaudited six months ended 30 September 2010 £'000 | Audited year ended 31 March 2011 £'000 | |
| Unrealised (losses)/gains on fixed asset investments held at fair value through profit or loss account | (200) | 292 | 725 |
| Release of impairments/(impairments) on fixed asset investments held at amortised cost | 118 | 39 | (18) |
| Unrealised (losses)/gains sub-total | (82) | 331 | 707 |
| Realised gains on investments held at fair value through profit or loss account | 288 | - | 8 |
| Realised gains/(losses) on investments held at amortised cost | 26 | 2 | (15) |
| Realised gains/(losses) sub-total | 314 | 2 | (7) |
| 232 | 333 | 700 | |
Investments valued on an amortised cost basis are unquoted loan stock instruments as described in note 2.
4. Investment income
| Unaudited six months ended 30 September 2011 £'000 | Unaudited six months ended 30 September 2010 £'000 | Audited year ended 31 March 2011 £'000 | |
| Income recognised on investments held at fair value through profit or loss account |
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