Crown Place VCT PLC: Annual Financial Report
Crown Place VCT PLC
As required by the UK Listing Authority's Disclosure and Transparency Rules 4.1 and 6.3, Crown Place VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 30 June 2016.
This announcement was approved for release by the Board of Directors on 30 September 2016.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 30 June 2016 (which have been audited) at: www.albion-ventures.co.uk/funds/CRWN. The Annual Report and Financial Statements for the year to 30 June 2016 will be available as a PDF document via a link in the 'Fund reports' 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 objective
The investment objective and policy of the Company* is to achieve long term capital and income growth principally through investment in smaller unquoted companies in the United Kingdom.
In pursuing this policy, the Manager aims to build a portfolio which concentrates on two complementary investment areas. The first are more mature or asset-based investments that can provide a strong income stream combined with a degree of capital protection. These will be balanced by a lesser proportion of the portfolio being invested in higher risk companies with greater growth prospects.
*The 'Company' is Crown Place VCT PLC. The 'Group' is the Company together with its subsidiaries CP1 VCT PLC and CP2 VCT PLC.
Financial calendar
| Record date for first dividend | 4 November 2016 |
| Annual General Meeting | 11.00 am on 17 November 2016 |
| Payment of first dividend | 30 November 2016 |
| Announcement of half-yearly results for the six months ended 31 December 2016 | February 2017 |
| Payment of second dividend (subject to Board approval) | 31 March 2017 |
Financial highlights
| 28.9p | Net asset value per share as at 30 June 2016 |
| 0.4p | Total return per share to shareholders for the year ended 30 June 2016 |
| 1.5% | Increase in total shareholder value for the year |
| 2.5p | Total tax-free dividends per share paid during the year ended 30 June 2016 |
| 9.1% | Tax-free dividend yield on share price (dividend paid in the year/share price as at 30 June 2016) |
| 30 June 2016 | 30 June 2015 | |
| pence per share | pence per share | |
| Opening net asset value | 30.97 | 32.04 |
| Revenue return | 0.59 | 0.73 |
| Capital (loss)/return | (0.18) | 0.67 |
| Total return | 0.41 | 1.40 |
| Dividends paid | (2.50) | (2.50) |
| Impact from buy-backs and issue of share capital | 0.06 | 0.03 |
| Closing net asset value | 28.94 | 30.97 |
Shareholder return and shareholder value
| Crown Place VCT PLC* | |||
| pence per share | |||
| Shareholder return from launch to April 2005 (date that Albion Ventures was appointed investment manager): | |||
| Total dividends paid to 6 April 2005 (i) | 24.93 | ||
| Decrease in net asset value | (56.60) | ||
| Total shareholder return to 6 April 2005 | (31.67) | ||
| Shareholder return from April 2005 to 30 June 2016: | |||
| Total dividends paid | 26.80 | ||
| Decrease in net asset value | (14.46) | ||
| Total shareholder return from April 2005 to 30 June 2016 | 12.34 | ||
| Shareholder value since launch: | |||
| Total dividends paid to 30 June 2016 (i) | 51.73 | ||
| Net asset value as at 30 June 2016 | 28.94 | ||
| Total shareholder value as at 30 June 2016 | 80.67 | ||
| Current annual dividend objective | 2.00 | ||
| Dividend yield on net asset value as at 30 June 2016 | 6.9% |
Notes
(i) Prior to 6 April 1999, venture capital trusts were able to add 20 per cent. to dividends and figures for the period up until 6 April 1999 are included at the gross equivalent rate actually paid to shareholders.
* Formerly Murray VCT 3 PLC
The above financial summary is for the Company, Crown Place VCT PLC only. Details of the financial performance of CP1 VCT PLC (previously Murray VCT PLC) and CP2 VCT PLC (previously Murray VCT 2 PLC), which have been merged into the Company, can be found on page 64 of the full Annual Report and Financial Statements.
Total shareholder value since launch:
| 30 June 2016 (pence per share) | ||
| Total dividends paid during the period from launch to 6 April 2005 (prior to change of manager) | 24.93 | |
| Total dividends paid during: | ||
| the year ended 28 February 2006 | 1.00 | |
| the period ended 30 June 2007* | 3.30 | |
| the year ended 30 June 2008 | 2.50 | |
| the year ended 30 June 2009 | 2.50 | |
| the year ended 30 June 2010 | 2.50 | |
| the year ended 30 June 2011 | 2.50 | |
| the year ended 30 June 2012 | 2.50 | |
| the year ended 30 June 2013 | 2.50 | |
| the year ended 30 June 2014 | 2.50 | |
| the year ended 30 June 2015 | 2.50 | |
| the year ended 30 June 2016 | 2.50 | |
| Total dividends paid to 30 June 2016 | 51.73 | |
| Net asset value as at 30 June 2016 | 28.94 | |
| Total shareholder value as at 30 June 2016 | 80.67 | |
*16 month period
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2017, of 1 penny per Crown Place VCT PLC share, payable on 30 November 2016 to shareholders on the register as at 4 November 2016.
Chairman's statement
Introduction
Crown Place VCT PLC delivered a disappointing total return of 0.41 pence per share (1.3 per cent. on average NAV) for the year ended 30 June 2016 compared to 1.40 pence per share in the previous year (4.5 per cent. on average NAV). Whilst the Company has delivered a positive return to shareholders for each of the past seven years, the total return for the period was impacted by write-downs in certain of the Company's higher risk growth investments.
Results and dividends
As at 30 June 2016, the net asset value was £37.4 million or 28.94 pence per share compared to £33.0 million or 30.97 pence per share at 30 June 2015. The revenue return before taxation showed a slight decline to £676,000 compared to £700,000 in the previous year, though pleasingly, the ongoing charges ratio for the year reduced marginally to 2.5 per cent. (2015: 2.6 per cent.).
During the year, the Company's realised and unrealised capital gains amounted to £238,000 compared to £1,036,000 in the previous year. Notable increases in valuations include Radnor House School, which continues to perform well and has grown its pupil size at both sites; Shinfield Lodge Care, a luxury care home near Reading which completed construction and opened in April 2016; and Exco Intouch. These uplifts were offset by reductions in valuations of Blackbay, ELE Advanced Technologies and DySIS which were made against a background of an increasingly competitive environment in their respective markets. Write down to market value were also required in respect of the Company's three quoted investments, Mi-Pay Group, Augean and Avanti Communications. Further details of the Company's financial performance are given in the Strategic report.
The Company paid dividends totalling 2.5 pence per share during the financial year in line with the Company's policy, which it has maintained for the last nine years. This dividend, however, has not been fully covered by total returns, resulting in a gradual decline in NAV per share over the years. In an economic environment of persistently low interest rates, the Board considers an annual dividend target of 2.0 pence per share to be more appropriate, representing a dividend yield on NAV of 6.9 per cent. (2015: 8.1 per cent.). Consequently the Board is proposing a first dividend for the year to 30 June 2017 of 1 penny per share, payable on 30 November 2016 to shareholders on the register as at 4 November 2016. The Company's balance sheet was strengthened in the year by successful Prospectus Top-Up Offers which raised £6.6 million, net of costs. The Company intends to deploy these funds into new investment opportunities.
Investment performance
We had three principal exits in 2015: Kensington Health Club, Lowcosttravelgroup and Silent Herdsman, which in total, returned cash disposal proceeds in excess of £2.3 million, with further deferred consideration due. The sale of Kensington Health Clubs achieved a return, including interest, of 1.4 times cost; Silent Herdsman achieved a return of 1.0 times cost and was sold for £58,000 more than its closing value at the end of last year; while we received cash proceeds of £408,000 for our investment in Lowcosttravelgroup, achieving a return including interest of 1.5 times cost with further sums due by way of deferred consideration. Overall, the Company achieved cash disposal proceeds, including repayments of loan stock by portfolio companies, of £2.9 million compared to £7.2 million in the previous year. Further information on realisations can be found on page 20 of the full Annual Report and Financial Statements.
During the year, a total of £4.6 million was invested in new and existing portfolio companies, including £585,000 in Radnor House School, to purchase Combe Bank School in Sevenoaks, Kent; a combined £2.3 million in Active Lives Care, Ryefield Court Care and Shinfield Lodge Care to fund the construction of the three care homes; and £638,000 in Earnside Energy a company operating in the anaerobic digestion industry. A strong investment pipeline allowed new growth investments totalling £234,000 to be made namely; Panaseer Limited, a cybersecurity company offering data integration platforms to the financial services sector, Incrowd Sports Limited, a sports marketing company, Black Swan Data Limited which provides market research to consumer brands and Dickson Financial Services, a corporate insurance broker trading as Innovation Broking.
Overall, the value of the Company's unquoted investment portfolio, excluding investments disposed of, increased by £704,000 during the year, largely driven by the asset-based investments, while that of the small quoted portfolio fell by £196,000.
Companies in the portfolio that performed particularly well during the year included Radnor House School, where the existing Twickenham school is now close to being full and the Sevenoaks school starting to perform well; Shinfield Lodge Care, which following construction, opened in April 2016 providing luxury care for the elderly near Reading; Exco Intouch where the company's healthcare IT products are seeing strong customer demand; and Proveca, a company re-purposing off-patent medicines for use in children and other patient groups. The asset-based portfolio companies, on the whole, are continuing to make good progress with the remaining two care homes, Active Lives and Ryefield Court, now completed, operational, and successfully filling in line with budget. The renewable energy investments continue to perform to plan and provide a good yield to the Company despite falling global energy prices.
The largest negative valuation movements over the period were mainly in the growth portfolio and included Blackbay, which was reduced by £296,000 due to a slowdown in sales with its largest customers; ELE Advanced Technologies reduced by £202,000; DySIS Medical reduced by £174,000 as sales, although encouraging, remain slower than hoped for; and AMS Sciences, reduced by £102,000, which has suffered from volatility in demand.
Risks and uncertainties
The prospective exit of the UK from the EU may have a negative effect on consumer and business confidence and it would be wise to prepare for a renewed economic slowdown in the UK. Meanwhile, global growth is muted and many countries are close to recession. Overall investment risk, however, is mitigated through a variety of processes, including our policies of ensuring that the Company has a first charge over portfolio companies' assets wherever possible, and secondly by aiming to achieve balance in the portfolio through the inclusion of sectors that are less exposed to the business and consumer cycles.
A detailed review of risk management is set out in the Strategic report.
Changes in VCT legislation
The July 2015 budget introduced a number of changes to VCT legislation, including restrictions over the age of investments; a prohibition on management buyouts or the purchase of existing businesses; and an overall lifetime investment cap of £12 million from tax-advantaged funds into any portfolio company. While these changes are significant, the Manager's assessment is that had these been in place previously they would have affected only a relatively small number of the investments made into new portfolio companies over recent years. The Board's current view is that there will be no material change in our investment policy as a result.
Albion VCTs Top Up Offers
In November 2015, the Company announced the launch of the Albion VCTs Prospectus Top Up Offers 2015/2016. In aggregate, the Albion VCTs aimed to raise up to £36 million across six of the VCTs managed by Albion Ventures LLP, with the Company aiming to raise up to £6 million.
The Company was pleased to announce on 23 March 2016 before the tax year end that the Company reached its £6 million limit under its Offer which was fully subscribed and closed. During the year the Company raised in total £6.6 million under the Company's Offer as part of the Albion VCTs Top Up Offers 2014/2015 and 2015/2016, as shown in note 14. The proceeds of the Offers will be used to provide further resources at a time when a number of attractive new investment opportunities are being seen.
Further Top Up Offers are planned for later this year and details are expected to be sent to shareholders in November 2016.
Dividend re-investment scheme
During the year, the Company raised £421,000 from the dividend re-investment scheme. Through the scheme, shareholders may elect to reinvest the whole of the dividend received by subscribing for new shares in the Company. Under current tax rules, shareholders re-investing their dividends will be eligible for the income and capital gains tax advantages available to investors subscribing for new shares in venture capital trusts and will be able to increase their shareholding in the Company, without incurring dealing costs or stamp duty. Full details of the scheme and the application form are available on the Manager's website at: www.albion-ventures.co.uk/funds/CRWN.
Board composition
Rachel Beagles retired from the Board on 12 November 2015 after nine years with the Company. I would like to thank her for her excellent work, particularly as Chairman of the Audit Committee and many years of wise counsel. James Agnew was appointed as a Director on 1 November 2015. James has extensive experience in investment banking and private equity fund management and is currently a partner at Harwood Capital.
Continuation as a venture capital trust
At the 2016 Annual General Meeting 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.
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 its track record since the appointment of the Manager and the strong tax-free dividend stream to shareholders, your Board recommends that shareholders vote in favour of the Company to continuing as a venture capital trust for a further five years, as they intend to in respect of their own shares.
Outlook
Although the total return for the year was disappointingly low, there are a number of drivers in the portfolio that make us more confident for the year to 30 June 2017. On the asset-based side, two of our care homes and Radnor House School Sevenoaks, all of which are performing well, are still held at cost and these will be reviewed by our third party valuers during the year. On the growth side of the portfolio, meanwhile, we have a reasonable number of investments in companies that are showing good growth in their respective markets.
Richard Huntingford
Chairman
30 September 2016
Strategic report
Investment objective and policy
The Company's investment objective is to achieve long term capital and income growth principally through investment in smaller unquoted companies in the United Kingdom.
The Company's investment portfolio is structured to provide a balance between income and capital growth for the longer term through a diversified, balanced approach to investment. The asset-based portfolio is designed to provide stability and income whilst maintaining the potential for capital growth, whilst the growth portfolio is intended to provide diversified exposure through its portfolio of investments in predominately unquoted UK companies. In neither category do portfolio companies normally have any external borrowing with a charge ranking ahead of the Company.
Business model
The Company operates as a Venture Capital Trust. This means that the Company has no employees other than its Directors and has outsourced the management of all its operations to Albion Ventures LLP, including secretarial and administrative services. Further details of the Management agreement can be found below.
Current and future portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio valuation by industrial or commercial sector as at 30 June 2016. The portfolio remains well diversified and as at the year end comprised 56 investments. There were 23 unquoted asset-based investments accounting for 57 per cent. of the net asset value of the Company; 29 unquoted growth investments accounting for 23 per cent. of the net asset value of the Company; and 4 quoted investments, accounting for 1 per cent. of the net asset value of the Company. 19 per cent. of the Company's net asset value was represented by cash and cash equivalents.
The sector analysis of the Company's investment portfolio shows that healthcare (both asset-based and growth) now accounts for 21 per cent. of the portfolio, compared to 15 per cent. at the end of the previous financial year, following further investments in the Company's three care homes (and a revaluation of Shinfield). This is likely to increase as the value of the care homes grows in the future.
Overall, the direction of the portfolio remained unchanged in the past financial year, with the major development being the continued construction of our three new care homes. The healthcare sector will continue to be a core area of investment, particularly healthcare services and medical technology. It is not currently envisaged to increase our weighting in the renewable energy or education sectors. Other potential asset-based areas are under review.
Results and dividend policy
| £'000 | |
| Consolidated revenue return for the year ended 30 June 2016 | 676 |
| Consolidated capital loss for the year ended 30 June 2016 | (210) |
| Dividend of 1.25p per share paid on 30 November 2015 | (1,361) |
| Dividend of 1.25p per share paid on 31 March 2016 | (1,476) |
| Transferred from reserves | (2,371) |
| Net assets as at 30 June 2016 | 37,385 |
| Net asset value as at 30 June 2016 (pence per share) | 28.94 |
The Company paid dividends totalling 2.50 pence per share during the year ended 30 June 2016 (2015: 2.50 pence per share). The dividend objective of the Board is to provide Shareholders with a strong, predictable dividend flow. As mentioned in the Chairman's statement, going forward the Company will target an annual dividend of 2.00 pence per share.
The Board has declared a first dividend for the year ending 30 June 2017 of 1 penny per share. This dividend will be paid on 30 November 2016 to shareholders on the register as at 4 November 2016.
As shown in the Consolidated statement of comprehensive income, investment income has increased marginally to £1,114,000 (2015: £1,105,000), the revenue return decreased by £24,000 to £676,000 (2015: £700,000). The capital loss for the year was £210,000 (2015: profit of £639,000), as a result of the lower gains on investments in the year not covering the portion of management fees charged to capital. The total return for the year was 0.41 pence per share (2015: 1.40 pence per share).
The Consolidated balance sheet shows that the net asset value has decreased over the year to 28.94 pence per share (2015: 30.97 pence per share), due to the payment of the dividend of 2.50 pence per share during the year, partially offset by the total return for the year of 0.41 pence per share.
The consolidated cash flow for the business has been a net inflow of £2,890,000 for the year (2015: £2,540,000), reflecting cash inflows from operations, disposal proceeds and the issue of Ordinary shares under the Albion VCTs Top Up Offers, offset by dividends paid, new investments in the year and the buy-back of shares.
Review of the business
A review of the Company's business during the year is set out in the Chairman's statement.
The Directors do not foresee any major changes in the activity undertaken by the Company in the current year and have outlined their thoughts on the direction of the portfolio above. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to providing both capital growth and a reliable dividend income to shareholders over the longer term.
Details of significant events which have occurred since the end of the financial year are listed in note 18. Details of transactions with the Manager are shown in note 4. The subsidiary undertakings affecting the profits and net assets of the Group in the year are listed in note 11 to the Financial Statements.
Update on CP2 VCT PLC
CP2 VCT PLC is a wholly-owned subsidiary of the Company. CP2 VCT PLC transferred its business to Crown Place VCT PLC and ceased trading with effect from the date of merger on 12 January 2006. Since then, CP2 VCT PLC has had no further business other than to hold cash and intercompany balances. CP2 VCT PLC had significant tax losses which have been utilised by the Company through group relief. Following a review in December 2015, the Board concluded that it was in the best interests of the Company to appoint BDO LLP as liquidators and commence the process of members' voluntary liquidation for CP2 VCT PLC. This is expected to be completed by November 2016.
VCT legislation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors' report on page 24 of the full Annual Report and Financial Statements.
As part of the Government's wider review of the VCT regime, new rules have been introduced under the Finance Act (No.2) 2015 which received Royal Assent on 18 November 2015, which include:
- Restrictions over the age of investments;
- A prohibition on management buyouts or the purchase of existing businesses; and
- An overall lifetime investment cap of £12 million from tax-advantaged funds into any portfolio company.
Further restrictions have been introduced on non-qualifying investments with effect from 6 April 2016 (VCTs will only be able to make certain limited non-qualifying investments for liquidity purposes).
While these changes are significant, the Manager's assessment is that had they been in place previously, these would have affected only a relatively small minority of the investments that we have made into new portfolio companies over recent years. The Board's current view is that there will be no material change in our investment policy and the application of it as a result.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 30 June 2016. These showed that the Company has complied with all tests and continues to do so.
Future prospects
The key drivers for returns within the portfolio are those sectors that have exposure to longer term growth trends. These include healthcare in an ageing population, sustainable energy against a background of climate change and the developing use of information technology in an environment of universal information. The portfolio is well diversified and many investments are underpinned by property and other physical assets. In addition, the great majority of investments are structured to be cash generative in order to provide further support for your Company's dividend. The Board remains confident in the long term prospects of the Company to deliver an attractive return to shareholders.
Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts and used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company has been applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following key performance indicators, taken overall, give a good indication that the Company is achieving its investment objective and policy. These are:
- Increase in total shareholder value
The graph on page 10 of the full Annual Report and Financial Statements shows that total shareholder value increased by 0.47 pence per share to 80.67 pence per share (2015: 80.20) for the year ended 30 June 2016.
2. Movement in total shareholder value +
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 |
| 3.8% | 11.9% | (2.7%) | (10.6%) | 6.3% | 6.6% | 4.3% | 6.6% | 7.1% | 4.5% | 1.5% |
Source: Albion Ventures LLP
+ Methodology: Total shareholder value is calculated by including original amount invested (rebased to 100) from when Albion Ventures LLP became Manager on 6 April 2005, assuming that dividends were reinvested at net asset value of the Company at the time the shares were quoted ex-dividend. Transaction costs are not taken into account.
Annual total return to shareholders has remained positive for the seventh consecutive year and for the year ended 30 June 2016 was 1.5 per cent.
3. Dividend distributions
Dividends paid in respect of the year ended 30 June 2016 were 2.50 pence per share (2015: 2.50 pence per share). Cumulative dividends paid since launch (on 18 January 1998) amount to 51.73 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year to 30 June 2016 was 2.5 per cent. (2015: 2.6 per cent.). The ongoing charges ratio has been calculated using The Association of Investment Companies' (AIC) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be approximately 2.5 per cent.
5. Running yield
The running yield on the portfolio (gross income divided by the average net asset value) for the year to 30 June 2016 was 3.2 per cent. (2015: 3.6 per cent.).
Gearing
As defined by the Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. The Directors do not currently have any intention to utilise long term gearing.
Operational arrangements
The Group has delegated the investment management of the portfolio to Albion Ventures LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Ventures LLP also provides company secretarial and other accounting and administrative support to the Group.
Management agreement
Under the terms of the Management agreement, the Manager is paid an annual fee equal to 1.75 per cent. of the net asset value of the Company plus £50,000 fee per annum for administrative and secretarial services. Total normal running costs, including the management fee, are limited to 3.0 per cent. of the net asset value. The Manager is entitled to an arrangement fee, payable by each portfolio company in which the Company invests, in the region of 2.0 per cent. on each investment made, and is also entitled to non-executive director fees when placing an investment executive from Albion Ventures LLP on the portfolio company Board.
Further details of fees paid to the Manager can be found in note 4.
The management agreement can be terminated by either party on 12 months' notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party.
Management performance incentive
In order to provide the Manager with an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels per share.
The target level requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period (both revenue and capital), compared with the previous accounting date, exceeds the average base rate of the Royal Bank of Scotland plc plus 2.0 per cent. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.
There was no management performance incentive fee payable during the year (2015: nil). As at 30 June 2016 the cumulative shortfall of the target return was 8.40 pence per share (2015: 7.41 pence per share) and this amount needs to be made up in the next accounting period before an incentive fee becomes payable.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 70 per cent. investment requirement for venture capital trust status, the long term prospects of current investments, a review of the Management agreement and the services provided therein and benchmarking the performance of the Manager to other service providers. The Board believes that it is in the interest of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive ("AIFMD")
The Board has appointed Albion Ventures LLP as the Company's AIFM as required by the AIFMD.
Discount management and share buy-back policy
It remains the Board's primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. 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 VCT's interest and it is the Board's intention for such buy-backs to be in the region of a 5 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Further details of shares bought back during the year ended 30 June 2016 can be found in note 14 of the Financial Statements.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 (the "Act") to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no policies in these matters and as such these requirements do not apply.
Further policies and statements
The Company has adopted a number of further policies and statements relating to:
- Environment
- Global greenhouse gas emissions
- Anti-bribery
- Diversity
and these are set out in the Directors' report on pages 24 and 25 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates. The principal risks and uncertainties of the Company, as identified by the Board, and how they are managed are as follows:
| Risk | Possible consequence | Risk management |
| Economic risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways. | To reduce this risk, in addition to investing equity in portfolio companies, the Company often invests in fixed interest secured loan stock and has a policy of not normally permitting any external bank borrowings within portfolio companies. Additionally, the Manager has been rebalancing the sector exposure of the portfolio with a view to reducing reliance on consumer led sectors. |
| Investment risk | This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively impacts on the Company's reputation. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses. The success of investments in certain sectors is also subject to regulatory risk, such as those affecting companies involved in UK renewable energy. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager in investing in this segment of the market. The Manager invests in a diversified portfolio of companies, across a number of sectors of the economy, thus spreading investment risk. In addition, the Manager operates a formal and structured investment process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites, and takes account of, comments from non-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards) and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings. It is the policy of the Company for portfolio companies to not normally have external borrowings. The Board and the Manager closely monitor regulatory changes in the sectors in which the Company is invested. |
| Valuation risk | The Company's investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. | As described in note 1 of the Financial Statements, the unquoted equity investments, convertible loan stock and debt issued at a discount held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgements about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgements the valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. The sensitivity of these assumptions are commented on further in notes 9 and 16. All other unquoted loan stock is measured at amortised cost. The values of a number of investments are also underpinned by independent third party professional valuations. |
| VCT approval risk | The Company's current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax-free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the tax relief on initial investment and loss of tax relief on any tax-free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs. |
| VCT regulatory changes risk | The Company is required to comply with regular changes to VCT specific regulations including the latest ones relating to European State Aid regulations which are enacted by the UK Government. Non-compliance could result in a loss of VCT status and/or demands for repayment of State Aid by a portfolio company or by VCT investors. | The Board receives advice from Philip Hare & Associates LLP in respect of these requirements and conducts its affairs in order to comply with these requirements. The Manager engages regularly with policy makers on regulation. In addition, the Board places reliance upon the skills and expertise of the Manager in investing in this segment of the market. |
| Compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | Board members and the Manager have experience of operating at senior levels within or advising quoted businesses. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks via the Manager's Compliance Officer. The Manager reports monthly to its Board on any issues arising from compliance or regulation. These controls are also reviewed as part of the quarterly Manager Board meetings, and also as part of the review work undertaken by the Manager's Compliance Officer. The report on controls is evaluated by Internal Audit during its reports. |
| Internal control risk | Failures in key controls, within the Board or within the Manager's business, could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Audit and Risk Committee meets with the Manager's Internal Auditor, PKF Littlejohn LLP, when required, receiving a report regarding the last formal internal audit performed on the Manager, and providing the opportunity for the Audit and Risk Committee to ask specific and detailed questions. Karen Brade as the Chairman of the Audit and Risk Committee meets during the year with the internal audit partner of PKF Littlejohn LLP to discuss the Internal Audit Report on the Manager. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Further details regarding the Board's management and review of the Company's internal controls through the implementation of the Risk Guidance report are detailed on page 31 of the full Annual Report and Financial Statements. Measures are in place to mitigate information security risk in order to ensure the integrity, availability and confidentiality of information used within the business. |
| Reliance upon third parties risk | The Group and the Company are reliant upon the services of Albion Ventures LLP and other third party service providers for the provision of investment management and administrative functions. | There are provisions within the Management agreement for the change of Manager under certain circumstances (for further detail, see the Management agreement paragraph above). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP. The Board monitors the performance of other third party service providers annually. |
| Financial risk | By its nature, as a venture capital trust, the Company is exposed to investment risk (which comprises investment price risk and cash flow interest rate risk), credit risk and liquidity risk. | The Company's policies for managing these risks and its financial instruments are outlined in full in note 16 to the Financial Statements. All of the Group's income and expenditure is denominated in sterling and hence the Group has no foreign currency risk. The Group is financed through equity and does not have any borrowings. The Group does not use derivative financial instruments for speculative purposes. |
| Reputational risk | This arises from broader performance and ethical issues, including investment in businesses and sectors that are inconsistent with the values of Board and the VCT or, by the Boards of portfolio companies taking actions which similarly are inconsistent with the values of the VCT. | The Board clearly articulates to the Investment Manager its broader aims and standards including those sectors which are consistent with the values of the Board. The Board regularly reviews the performance and investment strategy of the Investment Manager. The Investment Manager periodically attends Board meetings of the VCT's portfolio companies and across the portfolio receives periodic management information and is alert to potential threats to reputation. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in September 2014 and principle 21 of the AIC Code of Corporate Governance published by the AIC in February 2015, the Directors have assessed the prospects of the Company over three years to 30 June 2019. The Directors have taken a three year period as the Code does not specify a time period, except it must be longer than 12 months. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size.
The Directors have carried out a robust assessment of the principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment. The Board deliberated over the importance of the Manager and the processes that they have in place for dealing with the principal risks.
The Board assessed the ability of the Company to raise finance. The Company's income more than covers on-going expenses which going forward should increase as our asset-based investments continue to mature. The portfolio is well balanced and geared towards long term growth delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company's income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.
Taking into account the processes for mitigating risks, monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model and the balance of the portfolio the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 June 2019.
This Strategic report of the Company for the year ended 30 June 2016 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the "Act"). The purpose of this report is to provide shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Act.
On behalf of the Board,
Richard Huntingford
Chairman
30 September 2016
Responsibility Statement
In preparing these financial statements for the year to 30 June 2016, the Directors of the Company, being Richard Huntingford, James Agnew, Karen Brade and Penny Freer, 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 30 June 2016 for the Group has been prepared in accordance with International Financial Reporting Standards, and 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 Group and the Company for the year ended 30 June 2016 as required by DTR 4.1.12R;
- the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 30 June 2016 and description of principal risks and uncertainties that the Group and the Company faces); and
- the Chairman's statement and Strategic 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" is contained on page 27 of the full audited Annual Report and Financial Statements.
By order of the Board
Richard Huntingford
Chairman
30 September 2016
Consolidated statement of comprehensive income
| Year ended 30 June 2016 | Year ended 30 June 2015 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments | 2 | - | 238 | 238 | - | 1,036 | 1,036 |
| Investment income and deposit interest | 3 | 1,114 | - | 1,114 | 1,105 | - | 1,105 |
| Investment management fees | 4 | (149) | (448) | (597) | (133) | (397) | (530) |
| Other expenses | 5 | (289) | - | (289) | (272) | - | (272) |
| Profit/(loss) before taxation | 676 | (210) | 466 | 700 | 639 | 1,339 | |
| Taxation | 6 | - | - | - | - | - | - |
| Profit/(loss) and total comprehensive income attributable to shareholders | 676 | (210) | 466 | 700 | 639 | 1,339 | |
| Basic and diluted earnings/(loss) per Ordinary share (pence)* | 8 | 0.59 | (0.18) | 0.41 | 0.73 | 0.67 | 1.40 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ('IFRS'). The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations and are wholly attributable to the owners of the parent Company.
Consolidated balance sheet
| 30 June 2016 | 30 June 2015 | ||
| Note | £'000 | £'000 | |
| Non-current assets | |||
| Investments | 9 | 30,296 | 28,531 |
| Current assets | |||
| Trade and other receivables less than one year | 12 | 476 | 788 |
| Cash and cash equivalents | 6,896 | 4,006 | |
| 7,372 | 4,794 | ||
| Total assets | 37,668 | 33,325 | |
| Current liabilities | |||
| Trade and other payables less than one year | 13 | (283) | (244) |
| Total assets less current liabilities | 37,385 | 33,081 | |
| Equity attributable to equityholders | |||
| Ordinary share capital | 14 | 14,110 | 11,767 |
| Share premium | 13,872 | 9,234 | |
| Capital redemption reserve | 1,415 | 1,415 | |
| Unrealised capital reserve | 2,131 | 1,612 | |
| Realised capital reserve | (900) | (171) | |
| Other distributable reserve | 6,757 | 9,224 | |
| Total equity shareholders' funds | 37,385 | 33,081 | |
| Basic and diluted net asset value per share (pence)* | 15 | 28.94 | 30.97 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 30 September 2016 and were signed on its behalf by
Richard Huntingford
Chairman
Company number: 03495287
Company balance sheet
| 30 June 2016 | 30 June 2015 | ||
| Note | £'000 | £'000 | |
| Non-current assets | |||
| Investments | 9 | 30,296 | 28,531 |
| Investment in subsidiary undertakings | 11 | 6,823 | 6,619 |
| 37,119 | 35,150 | ||
| Current assets | |||
| Investment in subsidiary undertakings | 11 | 8,230 | 8,473 |
| Trade and other receivables less than one year | 12 | 436 | 788 |
| Cash and cash equivalents | 6,880 | 3,950 | |
| 15,546 | 13,211 | ||
| Total assets | 52,665 | 48,361 | |
| Current liabilities | |||
| Trade and other payables less than one year | 13 | (15,280) | (15,280) |
| Total assets less current liabilities | 37,385 | 33,081 | |
| Equity attributable to equityholders | |||
| Ordinary share capital | 14 | 14,110 | 11,767 |
| Share premium | 13,872 | 9,234 | |
| Capital redemption reserve | 1,415 | 1,415 | |
| Unrealised capital reserve | 2,127 | 1,647 | |
| Realised capital reserve | (1,109) | (380) | |
| Other distributable reserve | 6,970 | 9,398 | |
| Total equity shareholders' funds | 37,385 | 33,081 | |
| Basic and diluted net asset value per share (pence)* | 15 | 28.94 | 30.97 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 30 September 2016 and were signed on its behalf by
Richard Huntingford
Chairman
Company number: 03495287
Consolidated statement of changes in equity
| Ordinary share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve | Other distributable reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 July 2015 | 11,767 | 9,234 | 1,415 | 1,612 | (171) | 9,224 | 33,081 |
| Profit and total comprehensive income | - | - | - | 422 | (632) | 676 | 466 |
| Transfer of previously unrealised losses on sale or write off of investments | - | - | - | 97 | (97) | - | - |
| Dividends paid | - | - | - | - | - | (2,837) | (2,837) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (306) | (306) |
| Issue of equity | 2,343 | 4,819 | - | - | - | - | 7,162 |
| Cost of issue of equity | - | (181) | - | - | - | - | (181) |
| As at 30 June 2016 | 14,110 | 13,872 | 1,415 | 2,131 | (900) | 6,757 | 37,385 |
| As at 1 July 2014 | 10,006 | 5,527 | 1,415 | 657 | 145 | 11,300 | 29,050 |
| Profit and total comprehensive income | - | - | - | 759 | (120) | 700 | 1,339 |
| Transfer of previously unrealised losses on sale or write off of investments | - | - | - | 196 | (196) | - | - |
| Dividends paid | - | - | - | - | - | (2,337) | (2,337) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (439) | (439) |
| Issue of equity | 1,761 | 3,860 | - | - | - | - | 5,621 |
| Cost of issue of equity | - | (153) | - | - | - | - | (153) |
| As at 30 June 2015 | 11,767 | 9,234 | 1,415 | 1,612 | (171) | 9,224 | 33,081 |
The nature of each reserve is described in note 1 below.
Company statement of changes in equity
| Ordinary share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 July 2015 | 11,767 | 9,234 | 1,415 | 1,647 | (380) | 9,398 | 33,081 |
| Profit and total comprehensive income | - | - | - | 422 | (632) | 715 | 505 |
| Revaluation of investment in subsidiaries | - | - | - | (39) | - | - | (39) |
| Transfer of previously unrealised losses on disposal of investments | - | - | - | 97 | (97) | - | - |
| Dividends paid | - | - | - | - | - | (2,837) | (2,837) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (306) | (306) |
| Issue of equity | 2,343 | 4,819 | - | - | - | - | 7,162 |
| Cost of issue of equity | - | (181) | - | - | - | - | (181) |
| As at 30 June 2016 | 14,110 | 13,872 | 1,415 | 2,127 | (1,109) | 6,970 | 37,385 |
| As at 1 July 2014 | 10,006 | 5,527 | 1,415 | 695 | (64) | 11,471 | 29,050 |
| Profit and total comprehensive income | - | - | - | 759 | (120) | 703 | 1,342 |
| Revaluation of investment in subsidiaries | - | - | - | (3) | - | - | (3) |
| Transfer of previously unrealised losses on disposal of investments | - | - | - | 196 | (196) | - | - |
| Dividends paid | - | - | - | - | - | (2,337) | (2,337) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (439) | (439) |
| Issue of equity | 1,761 | 3,860 | - | - | - | - | 5,621 |
| Cost of issue of equity | - | (153) | - | - | - | - | (153) |
| As at 30 June 2015 | 11,767 | 9,234 | 1,415 | 1,647 | (380) | 9,398 | 33,081 |
* Included within these reserves is an amount of £5,861,000 (2015: £9,018,000) which is considered distributable.
The nature of each reserve is described in note 1 below.
Consolidated statement of cash flows
| Year ended 30 June 2016 £'000 | Year ended 30 June 2015 £'000 | ||
| Operating activities | |||
| Investment income received | 948 | 965 | |
| Deposit interest received | 47 | 30 | |
| Dividend income received | 38 | 51 | |
| Investment management fees paid | (579) | (512) | |
| Other cash payments | (283) | (282) | |
| Net cash flow from operating activities | 171 | 252 | |
| Cash flow from investing activities | |||
| Purchase of non-current asset investments | (4,566) | (7,006) | |
| Disposal of non-current asset investments | 2,879 | 7,187 | |
| Net cash flow from investing activities | (1,687) | 181 | |
| Cash flow from financing activities | |||
| Issue of share capital | 7,164 | 4,614 | |
| Equity dividends paid | (2,413) | (2,078) | |
| Cost of issue of equity | (2) | (4) | |
| Purchase of shares for treasury | (303) | (425) | |
| Transfer of CP2 VCT PLC cash to liquidator | (40) | - | |
| Net cash flow from financing activities | 4,406 | 2,107 | |
| Increase in cash and cash equivalents | 2,890 | 2,540 | |
| Cash and cash equivalents at the start of the year | 4,006 | 1,466 | |
| Cash and cash equivalents at the end of the year | 6,896 | 4,006 |
Company statement of cash flows
| Year ended 30 June 2016 £'000 | Year ended 30 June 2015 £'000 | ||
| Operating activities | |||
| Investment income received | 948 | 965 | |
| Deposit interest received | 47 | 30 | |
| Dividend income received | 943 | 1,866 | |
| Investment management fees paid | (579) | (512) | |
| Intercompany interest paid | (905) | (1,815) | |
| Other cash payments | (283) | (282) | |
| Net cash flow from operating activities | 171 | 252 | |
| Cash flow from investing activities | |||
| Purchase of non-current asset investments | (4,566) | (7,006) | |
| Disposal of non-current asset investments | 2,879 | 7,187 | |
| Net cash flow from investing activities | (1,687) | 181 | |
| Cash flow from financing activities | |||
| Issue of share capital | 7,164 | 4,614 | |
| Equity dividends paid | (2,413) | (2,078) | |
| Cost of issue of equity | (2) | (4) | |
| Purchase of own shares for treasury (including costs) | (303) | (425) | |
| Net cash flow from financing activities | 4,446 | 2,107 | |
| Increase in cash and cash equivalents | 2,930 | 2,540 | |
| Cash and cash equivalents at the start of the year | 3,950 | 1,410 | |
| Cash and cash equivalents at the end of the year | 6,880 | 3,950 |
Notes to the Financial Statements
1. Accounting policies
The following policies refer to the Group and the Company except where noted. References to International Financial Reporting Standards ('IFRS') relate to the Group Financial Statements. Following the publication of FRS 100 'Application of Financial Reporting Requirements' by the Financial Reporting Council, the Company is required to change the accounting framework for its individual financial statements, the Company has adopted FRS 101 "Reduced Disclosure Framework", which is based on the recognition and measurement requirements of International Financial Reporting Standards ('EU IFRS') as adopted by the European Union.
Basis of accounting
The Financial Statements have been prepared in accordance with International Financial Reporting Standards ('EU IFRS') as adopted by the European Union (and therefore comply with Article 4 of the EU IAS regulation), in the case of the Group, and in accordance with FRS 101 "Reduced Disclosure Framework" in the case of the Company. No disclosure exemptions have been taken by the Company.
Both the Group and the Company Financial Statements also apply the Statement of Recommended Practice: "Financial Statements of Investment Companies and Venture Capital Trusts" ('SORP') issued by the Association of Investment Companies ("AIC") in 2014, in so far as this does not conflict with IFRS. The Financial Statements have been prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and UK GAAP. These Financial Statements are presented in Sterling to the nearest thousand. Accounting policies have been applied consistently in current and prior periods.
At the balance sheet date, there are no new International Accounting Standards and interpretations that were in issue but not yet effective that are expected to have any material impact on the Financial Statements, although some changes may be required to the format of the Financial Statements and disclosures.
Basis of consolidation
The Group consolidated Financial Statements incorporate the Financial Statements of the Company for the year ended 30 June 2016 and the entities controlled by the Company (its subsidiaries), for the same period. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. The amount of the Company's profit before tax for the year dealt with in the accounts of the Group is £505,000 (2015: £1,342,000).
Segmental reporting
The Directors are of the opinion that the Group and the Company are engaged in a single operating segment of business, being investment in equity and debt. The Group and the Company report to the Board which acts as the chief operating decision maker. The Group invests in smaller companies principally based in the UK.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method in the Group Financial Statements. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the subsidiaries, plus any costs directly attributable to the business combination. The subsidiary's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 "Business Combinations" are recognised at their fair value at the acquisition date.
Estimates
The preparation of the Group's and Company's Financial Statements requires estimates, assumptions and judgements to be made, which affect the reported results and balances. Actual outcomes may differ from these estimates, with a consequential impact on the results of future periods. Those estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are those used to determine the fair value of investments at fair value through the profit or loss. Reasonable possible alternative assumptions have been considered, details of which are given in note 9.
The valuation of investments held at fair value through profit or loss or measured in assessing any impairment of loan stocks is determined by using valuation techniques. The Group and the Company use judgements to select a variety of methods and makes assumptions that are mainly based on market conditions and portfolio company performance at each balance sheet date.
Investment in subsidiaries
Investments in subsidiaries are revalued at the balance sheet date based on the fair value of the net assets of the subsidiary. Revaluation movements are recognised in the unrealised reserve.
CP2 VCT PLC is a wholly-owned subsidiary of the Company. CP2 VCT PLC transferred its business to Crown Place VCT PLC and ceased trading with effect from the date of merger on 12 January 2006. Since then, CP2 VCT PLC has had no further business other than to hold cash and intercompany balances. CP2 VCT PLC had significant tax losses which have been utilised by the Company through group relief. The Directors took the decision to appoint a liquidator and commence a process of members' voluntary liquidation for CP2 VCT PLC which is expected to be completed by November 2016. As a result, the assets and liabilities of CP2 VCT PLC totalling £8,230,000 included in the consolidated financial statements have been determined on a basis other than going concern.
The above decision will not affect CP1 VCT PLC, which continues to be a wholly supported subsidiary company.
Non-current asset investments
Quoted and unquoted equity investments, debt issued at a discount, and convertible bonds
In accordance with IAS 39 'Financial Instruments: Recognition and Measurement', quoted and unquoted equity, debt issued at a discount and convertible bonds are designated as fair value through profit or loss ("FVTPL"). Investments listed on recognised exchanges are valued at the closing bid prices at the end of the accounting period. Unquoted investments' fair value is determined by the Directors in accordance with the International Private Equity and Venture Capital Valuation Guidelines (IPEVCV guidelines).
Fair value movements and gains and losses arising on the disposal of investments are reflected in the capital column of the Statement of comprehensive income 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.
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.
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 as a whole on a unit of account basis.
Unquoted loan stock
Unquoted loan stock (excluding debt issued at a discount and convertible bonds) is classified as loans and receivables as permitted by IAS 39 and measured at amortised cost using the effective interest rate method less impairment. Movements in the amortised cost relating to interest income are reflected in the revenue column of the Statement of comprehensive income, and hence are reflected in the other distributable reserve, and movements in respect of capital provisions are reflected in the capital column of the Statement of comprehensive income and are reflected in the realised capital reserve following sale, or in the unrealised capital reserve for impairments arising from revaluations of the fair value of the security.
For all unquoted loan stock, fully performing, past due or 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.
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.
In accordance with the exemptions under IAS 28 "Investments in associates", those undertakings in which the Group or Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method.
Investment income
Quoted and unquoted equity income
Dividends receivable on quoted equity shares are recognised on the ex-dividend date. Income receivable on unquoted equity is recognised when the Company's right to receive payment and expected settlement is established.
Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis using an 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 accruals basis using the rate of interest agreed with the bank.
Investment management fees, performance incentive fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of comprehensive income, except for management fees and performance incentive fees which are allocated in part to the capital column of the Statement of comprehensive income, to the extent that these relate to the maintenance or 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 Group's investment returns will be in the form of capital gains.
Issue costs
Issue costs associated with the allotment of share capital have been deducted from the share premium account.
Taxation
Taxation is applied on a current basis in accordance with IAS 12 "Income taxes". Taxation associated with capital expenses is applied in accordance with the SORP. Deferred taxation is provided in full on timing differences, and temporary differences (in accordance with IAS 12) 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. Temporary differences arise from differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for taxation purposes. Timing differences (IAS 12) 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 probable that future taxable profit will be available against which unused tax losses and credits can be utilised. Deferred tax assets and liabilities are not discounted.
Dividends
In accordance with IAS 10 "Events after the balance sheet date", dividends are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
Reserves
Share premium reserve
This reserve accounts for the difference between the price paid for the Company's shares and the nominal value of those shares, less issue costs and transfers to the other distributable 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.
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.
Other distributable reserve
This reserve accounts for movements from the revenue column of the Statement of Comprehensive Income, the payment of dividends, the buy-back of shares and other non-capital realised movements.
2. Gains on investments
| Year ended 30 June 2016 | Year ended 30 June 2015 | |
| £'000 | £'000 | |
| Unrealised gains on investments held at fair value through profit or loss | 288 | 185 |
| Reversal of impairments on investments measured at amortised cost | 133 | 574 |
| Unrealised gains on investments | 422 | 759 |
| Realised (losses)/gains on investments held at fair value through profit or loss | (152) | 487 |
| Realised losses on investments measured at amortised cost | (32) | (216) |
| Realised (losses)/gains on non-current asset investments sub-total | (184) | 271 |
| Realised gains on current asset investments held at fair value through profit or loss | - | 6 |
| Realised (losses)/gains on investments | (184) | 277 |
| 238 | 1,036 |
Investments measured at amortised cost are unquoted loan stock investments as described in note 9.
3. Investment income and deposit interest
| Year ended 30 June 2016 | Year ended 30 June 2015 | |
| £'000 | £'000 | |
| Income recognised on investments held at fair value through profit or loss | ||
| UK dividend income | 38 | 51 |
| Interest on convertible bonds and debt issued at a discount | 469 | 295 |
| 507 | 346 | |
| Income recognised on investments measured at amortised cost | ||
| Return on loan stock investments | 557 | 729 |
| Bank deposit interest | 50 | 30 |
| 607 | 759 | |
| 1,114 | 1,105 |
Interest income earned on impaired investments at 30 June 2016 amounted to £88,000 (2015: £205,000). These investments are all held at amortised cost.
4. Investment management fees
| Year ended 30 June 2016 | Year ended 30 June 2015 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 149 | 448 | 597 | 133 | 397 | 530 |
Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report.
During the year, services of a total value of £647,000 (2015: £580,000) were purchased by the Company from Albion Ventures LLP comprising £597,000 in respect of management fees (2015: £530,000) and £50,000 in respect of administration fees (2015: £50,000). At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £174,500 (administration fee accrual: £12,500, management fee accrual £162,000) (2015: £156,500).
Albion Ventures LLP is, from time to time, eligible to receive transaction fees and Directors' fees from portfolio companies. During the year ended 30 June 2016 fees of £125,000 attributable to the investments of the Company were received pursuant to these arrangements (2015: £211,000).
Albion Ventures LLP, the Manager, holds 54,323 Ordinary shares in the Company.
5. Other expenses
| Year ended 30 June 2016 | Year ended 30 June 2015 | |
| £'000 | £'000 | |
| Directors' remuneration | 81 | 75 |
| National insurance on Directors' remuneration | 6 | 6 |
| Auditor's remuneration: - audit of the statutory Financial Statements (excluding VAT) | 28 | 26 |
| - the auditing of accounts of subsidiaries of the Company pursuant to legislation (excluding VAT) | 3 | 5 |
| Fees for the liquidation of CP2 VCT PLC (excluding VAT) | 3 | - |
| Other expenses | 168 | 160 |
| 289 | 272 | |
Further information regarding Directors' remuneration can be found in the audited section of the Directors' remuneration report on page 34 of the full Annual Report and Financial Statements.
6. Taxation
| Year ended 30 June 2016 | Year ended 30 June 2015 | |||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| UK corporation tax charge | - | - | - | - | - | - |
The tax charge for the year shown in the Statement of comprehensive income is lower than the standard rate of corporation tax of 20 per cent. (2015: average rate of 20.75 per cent.). The differences are explained below:
| Year ended 30 June 2016 | Year ended 30 June 2015 | |
| £'000 | £'000 | |
| Profit before taxation | 466 | 1,339 |
| Profit multiplied by the standard rate of corporation tax | (93) | (278) |
| Effect of capital gains not subject to taxation | 48 | 215 |
| Effect of income not subject to taxation | 8 | 11 |
| Utilisation of tax losses | 37 | 52 |
| - | - |
No provision for deferred tax has been made in the current or prior accounting period. The Company and Group have not recognised a deferred tax asset of £3,013,000 (2015: £3,037,000) in respect of unutilised management expenses and non-trading deficits as it is not considered sufficiently probable that there will be taxable profits against which to utilise these expenses in the foreseeable future. The Group has not recognised a further deferred tax asset of £122,000 (2015: £302,000) in respect of unutilised management expenses and deficits arising from non-trading relationships which would only be used if its subsidiaries made significant profits.
7. Dividends
| Year ended 30 June 2016 | Year ended 30 June 2015 | |||||||
| £'000 | £'000 | |||||||
| First dividend paid on 30 November 2015 (28 November 2014) (1.25 pence per share) | 1,361 | 1,142 | ||||||
| Second dividend paid on 31 March 2016 (31 March 2015) (1.25 pence per share) | 1,476 | 1,195 | ||||||
| 2,837 | 2,337 | |||||||
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2017, of 1 penny per share. This will be paid on 30 November 2016 to shareholders on the register as at 4 November 2016. The total dividend will be approximately £1,292,000.
8. Basic and diluted return/(loss) per share
| Year ended 30 June 2016 | Year ended 30 June 2015 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Return/(loss) attributable to equity shares (£'000) | 676 | (210) | 466 | 700 | 639 | 1,339 |
| Weighted average shares (excluding treasury shares) | 114,998,634 | 95,555,497 | ||||
| Return/(loss) attributable per Ordinary share (pence) (basic and diluted) | 0.59 | (0.18) | 0.41 | 0.73 | 0.67 | 1.40 |
The return per share has been calculated excluding treasury shares of 11,915,410 (2015: 10,852,410).
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.
9. Non-current asset investments
| 30 June 2016 £'000 | 30 June 2015 £'000 | |
| Group and Company | ||
| Investments held at fair value through profit or loss | ||
| Unquoted equity and preference shares | 11,542 | 10,467 |
| Quoted equity | 518 | 701 |
| Discounted debt and convertible loan stock | 8,903 | 7,277 |
| 20,963 | 18,445 | |
| Investments measured at amortised cost | ||
| Unquoted loan stock | 9,333 | 10,086 |
| 30,296 | 28,531 |
| 30 June 2016 £'000 | 30 June 2015 £'000 | |
| Opening valuation | 28,531 | 27,689 |
| Purchases at cost | 4,614 | 7,060 |
| Disposal proceeds | (3,174) | (7,316) |
| Realised gains/(losses) | (184) | 271 |
| Movement in loan stock accrued income | 86 | 69 |
| Unrealised gains | 422 | 759 |
| Closing valuation | 30,296 | 28,531 |
| Movement in loan stock accrued income | ||
| Opening accumulated movement in loan stock accrued income | 131 | 62 |
| Movement in loan stock accrued income | 86 | 69 |
| Closing accumulated movement in loan stock accrued income | 217 | 131 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 1,545 | 549 |
| Transfer of previously unrealised gains to realised reserves on disposal | (300) | (1,305) |
| Transfer of previously unrealised losses to realised reserves on investments written off but still held | 397 | 1,542 |
| Movement in unrealised gains | 422 | 759 |
| Closing accumulated unrealised gains | 2,064 | 1,545 |
| Historic cost basis | ||
| Opening book cost | 26,855 | 27,079 |
| Purchases at cost | 4,614 | 7,060 |
| Disposals at cost | (2,980) | (5,383) |
| Cost of investments written off but still held | (474) | (1,901) |
| Closing book cost | 28,015 | 26,855 |
| Closing cost is net of amounts of £2,030,000 (2015: £1,901,000) written off in respect of investments still held at the balance sheet date. | ||
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 a result of the enforcement of security during the year, 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.
Additions and disposal proceeds included in the statement of cash flows differ from the amounts shown in the note above, due to deferred consideration and settlement creditors and the restructuring of investments.
A schedule of disposals during the year is shown on page 20 of the full Annual Report and Financial Statements.
IFRS 13 'Fair value measurement' and IFRS 7 'Financial Instruments: Disclosures' requires the Company to disclose 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 of valuation method |
| 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 are not based on observable market data |
Quoted investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares, convertible loan stock and debt issued at a discount are all valued according to Level 3 valuation methods.
The Company's investments measured at fair value through profit or loss (Level 3) had the following movements in the year to 30 June 2016:
| 30 June 2016 | 30 June 2015 | |||||
| Equity | Discounted debt and convertible loan stock | Total | Equity | Discounted debt and convertible loan stock | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening balance | 10,467 | 7,277 | 17,744 | 12,161 | 3,635 | 15,796 |
| Additions | 1,438 | 1,799 | 3,237 | 1,137 | 4,260 | 5,397 |
| Disposal proceeds | (738) | (243) | (981) | (3,819) | (611) | (4,430) |
| Debt/equity conversion | 40 | (40) | - | 299 | (120) | 179 |
| Realised (losses)/gains | (93) | (60) | (153) | 734 | (15) | 719 |
| Unrealised gains/(losses) | 428 | 126 | 554 | (45) | 73 | 28 |
| Accrued loan stock interest | - | 44 | 44 | - | 55 | 55 |
| Closing balance | 11,542 | 8,903 | 20,445 | 10,467 | 7,277 | 17,744 |
Unquoted investments held at fair value through profit or loss are valued in accordance with the IPEVCV guidelines as follows:
| 30 June 2016 | 30 June 2015 | |
| Investment valuation methodology | £'000 | £'000 |
| Valuation supported by third party valuation | 13,004 | 9,124 |
| Earnings multiple | 828 | 1,356 |
| Net asset value | 1,910 | 2,112 |
| Cost and price of recent investment | 2,546 | 2,650 |
| Revenue multiple | 1,566 | 1,189 |
| Agreed sale price/Offer price | 591 | 1,313 |
| 20,445 | 17,744 |
Level 3 valuations include inputs based on non-observable market data. IFRS 13 requires an entity to disclose quantitative information about the significant unobservable inputs used. Of the Company's Level 3 investments, 12 per cent are held on an Earnings or Revenue multiple basis, which have significant judgement applied to the valuation inputs. The table below sets out the range of Earnings and Revenue multiples and discounts applied. The remainder of Level 3 investments are held at cost (reviewed for impairment), recent investment price, net asset value (supported by independent valuation) or net assets.
| Support services | Healthcare (growth) | Software | |
| Earnings multiples | |||
| PE multiple range | 8.7 - 26.1 | 14.0 | 3.5 - 10.0 |
| Marketability discount range | 9.6% - 75% | 30% | 50% - 75% |
| Revenue Multiples | |||
| Revenue multiple range | - | 1.0 - 3.0 | 2.8 - 3.0 |
| Marketability discount range | - | 0%-50% | 11% - 50% |
IFRS 13 and IFRS 7 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. After due consideration and noting that the valuation methodology applied to 79 per cent. of the Level 3 investments (by valuation) is based on third party independent evidence, recent investment price, agreed sale price/offer price and cost, the Directors believe that changes to reasonable possible alternative input assumptions (a reasonable discount to the earnings or revenue multiple) for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. The impact of these changes could result in an increase in the valuation of the equity investments by £637,000 or a decrease in the valuation of equity investments by £426,000.
The unquoted instruments held at FVTPL had the following movements between investment methodologies between 30 June 2015 and 30 June 2016:
Change in investment valuation methodology (2015 to 2016) | Value as at 30 June 2016 £'000 | Explanatory note |
| Cost to revenue multiple | 611 | More relevant valuation methodology |
| Cost and price of recent investment to valuation supported by third party valuation | 317 | Third party valuation has recently taken place |
| Revenue multiple to price of recent investment | 222 | More appropriate following recent investment round |
The valuation method used will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 30 June 2016.
10. Significant interests
The principal activity of the Group is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 30 June 2016 as described below:
| Company | Country of incorporation | Principal activity | % class and share type | % total voting rights |
| ELE Advanced Technologies Limited | Great Britain | Manufacturer of precision engineering components for the industrial gas turbine, aerospace and automotive markets | 74.3% B Ordinary | 41.9% |
| Uctal Limited | Great Britain | TV production company | 56.7% B Ordinary/A Preference and B Preference | 24.2% |
The investments listed above are held as part of an investment portfolio and therefore, as permitted by IAS 28, they are measured at fair value and not accounted for using the equity method.
11. Investments in subsidiary undertakings
| 30 June 2016 | |||
| CP1 VCT PLC | CP2 VCT PLC | Total | |
| £'000 | £'000 | £'000 | |
| Carrying value as at 1 July 2015 | 6,619 | 8,473 | 15,092 |
| Movement in subsidiary net assets | 204 | (243) | (39) |
| Carrying value as at 30 June 2016 | 6,823 | 8,230 | 15,053 |
| 30 June 2015 | |||
| CP1 VCT PLC | CP2 VCT PLC | Total | |
| £'000 | £'000 | £'000 | |
| Carrying value as at 1 July 2014 | 6,622 | 8,473 | 15,095 |
| Movement in subsidiary net assets | (3) | - | (3) |
| Carrying value as at 30 June 2015 | 6,619 | 8,473 | 15,092 |
The subsidiary companies currently hold intercompany balances and CP1 VCT PLC also holds cash. These investments are valued according to Level 2 valuation methods.
Both CP1 VCT PLC and CP2 VCT PLC are wholly owned by Crown Place VCT PLC as follows:
| 30 June 2016 | ||
| CP1 VCT PLC | CP2 VCT PLC | |
| Nominal value of shares held | £6,382,746 | £8,219,350 |
| Percentage of total voting rights held | 100% | 100% |
| 30 June 2015 | ||
| CP1 VCT PLC | CP2 VCT PLC | |
| Nominal value of shares held | £6,382,746 | £8,219,350 |
| Percentage of total voting rights held | 100% | 100% |
12. Trade and other receivables less than one year
| 30 June 2016 | 30 June 2015 | |||
| Group | Company | Group | Company | |
| £'000 | £'000 | £'000 | £'000 | |
| Trade and other receivables less than one year | 476 | 436 | 788 | 788 |
13. Trade and other payables less than one year
| 30 June 2016 | 30 June 2015 | |||
| Group | Company | Group | Company | |
| £'000 | £'000 | £'000 | £'000 | |
| Amounts due to subsidiary undertakings | - | 14,997 | - | 15,036 |
| Other payables | 46 | 46 | 23 | 23 |
| Accruals | 237 | 237 | 221 | 221 |
| 283 | 15,280 | 244 | 15,280 | |
Interest is chargeable on intercompany balances at a rate of 12 per cent. per annum. Intercompany balances are payable on demand. CP1 VCT PLC's current business is to hold cash and intercompany balances. CP2 VCT PLC holds intercompany balances only.
14. Ordinary share capital
| 30 June 2016 £'000 | 30 June 2015 £'000 | |
| Allotted, called up and fully paid | ||
| 141,097,990 Ordinary shares of 10p each (2015: 117,667,064) | 14,110 | 11,767 |
| Voting rights | ||
| 129,182,580 Ordinary shares of 10p each (2015: 106,814,654) |
The Company purchased 1,063,000 Ordinary shares for treasury (2015: 1,476,000) during the year at a total cost of £306,000 (2015: £439,000).
The total number of shares held in treasury as at 30 June 2016 was 11,915,410 (2015: 10,852,410) representing 8.4 per cent. of the shares in issue as at 30 June 2016.
Under the terms of the Dividend Reinvestment Scheme Circular dated 26 February 2009, the following Ordinary shares of nominal value 10 pence each were allotted during the year:
| Allotment date | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment (pence per share) |
| 30 November 2015 | 641,404 | 64 | 30.32 | 193 | 29.00 |
| 31 March 2016 | 791,479 | 80 | 29.01 | 228 | 29.00 |
| 1,432,883 | 144 | 421 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2014/2015, the following Ordinary shares of nominal value 10 pence were issued during the year:
| Allotment date | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment (pence per share) |
| 30 September 2015 | 2,156,003 | 216 | 32.00 | 669 | 29.00 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2015/2016, the following Ordinary shares of nominal value 10 pence were issued during the year:
| Allotment date | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment (pence per share) |
| 29 January 2016 | 5,883,837 | 588 | 31.00 | 1,788 | 28.50 |
| 29 January 2016 | 3,383,685 | 338 | 31.10 | 1,026 | 28.50 |
| 31 March 2016 | 10,148,414 | 1,015 | 30.00 | 2,953 | 29.00 |
| 6 April 2016 | 271,378 | 27 | 29.70 | 79 | 28.75 |
| 6 April 2016 | 123,968 | 12 | 30.00 | 36 | 28.75 |
| 6 April 2016 | 30,758 | 3 | 29.80 | 9 | 28.75 |
| 19,842,040 | 1,983 | 5,891 |
15. Basic and diluted net asset value per share
The Group and Company net asset value attributable to the Ordinary shares at the year end was as follows:
| 30 June 2016 | 30 June 2015 | |||
| Net asset value per share attributable (pence) | 28.94 | 30.97 |
The net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon total shares in issue less treasury shares of 129,182,580 shares (2015: 106,814,654) as at 30 June 2016.
There are no convertible instruments, derivatives or contingent share agreements in issue.
16. Capital and financial instruments risk management
The following policies are with reference to both the Company and the Group except where 'the Company' is used below.
The Group's capital comprises Ordinary shares as described in note 14. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail in the Strategic report.
The Group's financial instruments comprise equity and loan stock investments in unquoted companies, equity in quoted companies, contingent receipts on disposal of non-current asset investments, cash balances, debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate revenue and capital appreciation for the Group's operations. The Group has no gearing or other financial liabilities apart from short term creditors. The Group does not use any derivatives for the management of its balance sheet.
The principal risks arising from the Group'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 Group 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 as follows:
Investment risk
As a venture capital trust, it is the Group's specific nature to evaluate and control the investment risk of its portfolio in unquoted and quoted companies, details of which are shown on pages 18 to 20 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Group to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio companies and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.
The 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 Group 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 non-current and current asset investment portfolio which is £30,296,000 (2015: £28,531,000). Non-current and current asset investments form 81 per cent. of the net asset value as at 30 June 2016 (2015: 86 per cent.).
More details regarding the classification of non-current investments are shown in note 9.
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 Group as a whole, the strategy of the Group is to invest in a broad spread of industries with approximately 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 18 to 20 of the full Annual Report and Financial Statements and in the Strategic report. The Company's investments in subsidiaries are explained further in note 11.
The valuation method used will be 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 IFRS 7, 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 non-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. (2015: 10 per cent.) increase or decrease in the valuation of the non-current asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £3,029,600 (2015: £2,853,100).
Interest rate risk
It is the Group'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 Group's and Company's analysis, it is estimated that a rise or fall of half a percentage point in all interest rates would be immaterial due to the level of fixed rate loan stock held within the portfolio. The impact of half a percentage point 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 weighted average interest rate applied to the Group's fixed rate assets during the year was approximately 5.7 per cent. (2015: 5.1 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 3.6 years (2015: 3.6 years).
The Group's financial assets and liabilities as at 30 June 2016, all denominated in pounds sterling, consist of the following:
| 30 June 2016 | 30 June 2015 | |||||||
| Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | |
| Unquoted loan stock (including convertible loan stock and discounted debt) | 16,243 | - | 1,993 | 18,236 | 15,290 | - | 2,073 | 17,363 |
| Equity | - | - | 12,060 | 12,060 | - | - | 11,168 | 11,168 |
| Receivables* | - | - | 460 | 460 | - | - | 772 | 772 |
| Payables | - | - | (283) | (283) | - | - | (244) | (244) |
| Cash | - | 6,896 | - | 6,896 | - | 4,006 | - | 4,006 |
| 16,243 | 6,896 | 14,230 | 37,369 | 15,290 | 4,006 | 13,769 | 33,065 | |
*The receivables do not reconcile to the balance sheet as prepayments are not included in the above table.
The Company's financial assets and liabilities as at 30 June 2016, all denominated in pounds sterling, consist of the following:
| 30 June 2016 | 30 June 2015 | |||||||
| Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | |
| Unquoted loan stock (including convertible loan stock and discounted bonds) | 16,243 | - | 1,993 | 18,236 | 15,290 | - | 2,073 | 17,363 |
| Equity | - | - | 12,060 | 12,060 | - | - | 11,168 | 11,168 |
| Receivables* | - | - | 420 | 420 | - | - | 772 | 772 |
| Payables | (14,997) | - | (283) | (15,280) | (15,036) | - | (244) | (15,280) |
| Cash | - | 6,880 | - | 6,880 | - | 3,950 | - | 3,950 |
| 1,246 | 6,880 | 14,190 | 22,316 | 254 | 3,950 | 13,769 | 17,973 | |
*The receivables do not reconcile to the balance sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group. The Group is exposed to credit risk through its debtors, investment in unquoted loan stock, and cash on deposit with banks.
The Manager evaluates credit risk on loan stock and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. Typically loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company in order to mitigate the gross credit risk. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk.
Bank deposits are held with banks with high credit ratings assigned by international credit rating agencies. The Group has an informal policy of limiting counterparty banking exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Group's total gross credit risk at 30 June 2016 was limited to £18,236,000 (2015: £17,363,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £6,896,000 (2015: £4,006,000) of cash deposits with banks and £460,000 (2015: £772,000) of deferred consideration and receivables.
The Company's total gross credit risk at 30 June 2016 was limited to £18,236,000 (2015: £17,363,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £6,880,000 (2015: £3,950,000) of cash deposits with banks and £420,000 (2015: £772,000) of deferred consideration and receivables.
As at the balance sheet date, the cash held by the Group is held with Lloyds Bank Plc, Scottish Widows Bank plc (part of Lloyds Banking Group), National Westminster Bank plc and Barclays Bank plc. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The credit profile of unquoted loan stock is described under liquidity risk shown below.
The cost, impairment and carrying value of impaired loan stocks at 30 June 2016 and 30 June 2015 are as follows:
| 30 June 2016 | 30 June 2015 | |||||
| Cost | Impairment | Carrying value | Cost | Impairment | Carrying value | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Impaired loan stock | 4,314 | (970) | 3,344 | 5,738 | (549) | 5,189 |
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.
Liquidity risk
Liquid assets are held as cash on current or liquidity account. Under the terms of its Articles, the Group has the ability to borrow up to the amount of its adjusted capital and reserves of the latest published audited consolidated balance sheet, which amounts to £35,770,000 (2015: £31,719,000) as at 30 June 2016.
The Group has no committed borrowing facilities as at 30 June 2016 (2015: nil) and had cash balances of £6,896,000 (2015: £4,006,000) (Company £6,880,000; 2015: £3,950,000). The main cash outflows are for new investments, dividends and share buy-backs, which are within the control of the Group. The Manager formally reviews the cash requirements of the Group on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts.
All of the Group's financial liabilities are short term in nature and total £283,000 (2015: £244,000) for the year to 30 June 2016 (Company: £15,280,000; 2015: £15,280,000). An amount of £14,997,000 (2015: £15,036,000) which is included within the Company's creditors, relates to intercompany balances and is not considered to carry liquidity risk because the Board has control over the intercompany repayments.
The carrying value of loan stock investments at 30 June 2016, analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 4,036 | 438 | 3,328 | 7,802 |
| 1-2 years | 205 | 309 | 6 | 520 |
| 2-3 years | 723 | 146 | - | 869 |
| 3-5 years | 5,649 | 607 | 10 | 6,266 |
| More than 5 years | 2,305 | 474 | - | 2,779 |
| 12,918 | 1,974 | 3,344 | 18,236 |
The carrying value of loan stock investments at 30 June 2015, analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 4,672 | - | 2,652 | 7,324 |
| 1-2 years | 312 | - | 2,484 | 2,796 |
| 2-3 years | 160 | 307 | - | 467 |
| 3-5 years | 3,209 | 760 | 53 | 4,022 |
| More than 5 years | 2,342 | 412 | - | 2,754 |
| 10,695 | 1,479 | 5,189 | 17,363 |
Loan stocks can be past due as a result of interest or capital not being paid in accordance with contractual terms.
The average annual interest yield on the total cost of past due loan stocks is 10.2 per cent. (2015: 5.1 per cent.).
No balances, other than loan stock, are past due or impaired.
In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Group is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Group's financial assets and liabilities as at 30 June 2016 are stated at fair value as determined by the Directors, with the exception of loans and receivables included within investments, cash, receivables and payables, which are measured at amortised cost, as permitted by IAS 39. In the opinion of the Directors, the amortised cost of loan stock is not materially different to the fair value of the loan stock. There are no financial liabilities other than short term trade and other payables. The Group's financial liabilities are all non-interest bearing. It is the Directors' opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year, and that the Group is subject to low financial risk as a result of having nil gearing and positive cash balances.
17. Contingencies and guarantees
As at 30 June 2016, the Company had the following financial commitments in respect of investments:
- Ryefield Court Care Limited; £190,000
- Active Lives Care Limited; £180,000
- DySIS Medical Limited; £87,000
- Shinfield Lodge Care Limited; £50,000
- Proveca Limited; £22,000
There are no contingencies or guarantees of the Company as at 30 June 2016 (2015: £nil).
Under the terms of the Transfer Agreement dated 16 January 2006, Crown Place VCT PLC has indemnified its subsidiaries, CP1 VCT PLC and CP2 VCT PLC in respect of all costs, claims and liabilities in exchange for the transfer of assets.
18. Post balance sheet events
Since 30 June 2016 the Company has completed the following investment transactions:
- Investment of £220,000 in Secured by Design Limited;
- Investment of £190,000 in Ryefield Court Care Limited;
- Investment of £180,000 in Active Lives Care Limited;
- Investment of £108,000 in Oviva AG;
- Investment of £87,000 in DySIS Medical Limited;
- Investment of £69,000 in Proveca Limited;
- Investment of £27,000 in Abcodia Limited;
- Proceeds of £50,000 (deferred consideration) from the sale of House of Dorchester Limited in July 2014; and
- Proceeds of £30,000 received from the repayment of loan stock by Kew Green VCT (Stansted) Limited.
As detailed in note 1, CP2 VCT PLC is in the process of a members' voluntary liquidation. HMRC clearance permitting closing the liquidation was received on 13 June 2016 and therefore CP2 VCT PLC is expected to be dissolved by the Registrar of Companies by the end of November 2016.
19. Related party transactions
Other than transactions with 100 per cent. owned Group companies and those with the Manager as disclosed in note 4, there are no other related party transactions.
20. Other information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 30 June 2016 and 30 June 2015, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 30 June 2016, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
The Company's Annual General Meeting will be held at The City of London Club, 19 Old Broad Street, London, EC2N 1DS on 17 November 2016 at 11:00 am.
21. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion-ventures.co.uk/funds/CRWN, where the Report can be accessed as a PDF document via a link in the 'Financial Reports and Circulars' section.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Crown Place VCT PLC via Globenewswire
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