Crown Place VCT PLC: Annual Financial Report
Crown Place VCT PLC
LEI number: 213800SYIQPA3L3T1Q68
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Crown Place VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 30 June 2019.
This announcement was approved for release by the Board of Directors on 27 September 2019.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 30 June 2019 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/CRWN/30Jun19.pdf. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rules, including Rule 4.1.
Investment policy
The Company will invest in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments may take the form of equity or a mixture of equity and loans.
Whilst allocation of funds will be determined by the investment opportunities which become available, efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of investee businesses. Funds held pending investment or for liquidity purposes will be held principally as cash on deposit.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within venture capital trust qualifying industry sectors using a mixture of securities, as permitted. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company's assets at cost thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company's maximum exposure in relation to gearing is restricted to the amount of its adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.
Financial calendar
| Record date for first dividend | 1 November 2019 |
| Annual General Meeting | Noon on 27 November 2019 |
| Payment of first dividend | 29 November 2019 |
| Announcement of half-yearly results for the six months ending 31 December 2019 | February 2020 |
| Payment of second dividend (subject to Board approval) | 31 March 2020 |
Financial highlights
| 35.29p | Net asset value per share as at 30 June 2019 |
| 3.75p | Total return per share to shareholders for the year ended 30 June 2019 |
| 11.2% | Total return on opening net asset value per share |
| 2.0p | Total tax-free dividends per share paid during the year ended 30 June 2019 |
| 6.0% | Tax-free dividend yield on share price (total dividends paid in the year/share price as at 30 June 2019) |
| 30 June 2019 | 30 June 2018 | |
| pence per share | pence per share | |
| Opening net asset value | 33.50 | 30.98 |
| Revenue return | 0.41 | 0.36 |
| Capital return | 3.34 | 4.28 |
| Total return | 3.75 | 4.64 |
| Dividends paid | (2.00) | (2.00) |
| Impact from buy-backs and issue of share capital | 0.04 | (0.12) |
| Closing net asset value | 35.29 | 33.50 |
| Shareholder return and shareholder value | (pence per share) | ||
| Shareholder return from launch to April 2005 (date that Albion Capital 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 2019: | |||
| Total dividends paid | 32.80 | ||
| Decrease in net asset value | (8.11) | ||
| Total shareholder return from April 2005 to 30 June 2019 | 24.69 | ||
| Shareholder value since launch: | |||
| Total dividends paid to 30 June 2019 (i) | 57.73 | ||
| Net asset value as at 30 June 2019 | 35.29 | ||
| Total shareholder value as at 30 June 2019 | 93.02 | ||
Notes
- 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.
| Current annual dividend objective | 2.00 | ||
| Dividend yield on net asset value as at 30 June 2019 | 5.7% |
Total shareholder value since launch: | (pence per share) | |
| Total dividends paid during: | ||
| the period from launch to 6 April 2005 (prior to change of manager) | 24.93 | |
| 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 | |
| the year ended 30 June 2017 | 2.00 | |
| the year ended 30 June 2018 | 2.00 | |
| the year ended 30 June 2019 | 2.00 | |
| Total dividends paid to 30 June 2019 | 57.73 | |
| Net asset value as at 30 June 2019 | 35.29 | |
| Total shareholder value as at 30 June 2019 | 93.02 | |
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2020, of 1 penny per Crown Place VCT PLC share, payable on 29 November 2019 to shareholders on the register on 1 November 2019.
Chairman’s statement
Introduction
I am delighted to report that Crown Place VCT PLC achieved a total return of 3.75 pence per share for the year ended 30 June 2019, which is an 11.2 per cent. return on our opening net asset value per share, extending our track record of delivering a positive total return to shareholders for the last ten years. This is also the third consecutive year where return on opening NAV is greater than 10 per cent. and where total return has more than covered the dividend paid to shareholders. The portfolio has performed well across all sectors and stages of maturity, and pleasingly the Company saw significant interest from investors, with the Top Up Offer raising the full subscription amount of £8.0 million, well ahead of its planned closing date.
Results and dividends
As at 30 June 2019, the net asset value was £66.0 million or 35.29 pence per share compared to £55.4 million or 33.50 pence per share at 30 June 2018. The ongoing charges ratio for the year decreased to 2.3 per cent. (2018: 2.4 per cent.).
Further details of the Company’s financial performance are given in the Strategic report below.
The Company paid dividends totalling 2.0 pence per share during the financial year, representing a dividend yield on closing NAV of 5.7 per cent. (2018: 6.0 per cent.). The Board is proposing a first dividend for the year ending 30 June 2020 of 1 penny per share, payable on 29 November 2019 to shareholders on the register on 1 November 2019.
Investment performance
We had two significant exits in 2019: Earnside Energy and The Stanwell Hotel which, in total, returned disposal proceeds of £2.2 million. For Earnside Energy, we have received proceeds of £1.3 million, resulting in a return (including interest received) of 1.4 times cost, and for The Stanwell Hotel we received proceeds of £915,000, returning 0.6 times our original investment (including interest received). Overall, the Company achieved disposal proceeds, including repayments of loan stock by portfolio companies, of £3.4 million compared to £6.0 million in the previous year. Further information on realisations can be found on page 24 of the full Annual Report and Financial Statements.
Following the year end, the Company exchanged contracts for the sale of Process Systems Enterprise for a return of over ten times cost. This is the second time in just over a year that the Company has sold a technology investment for a ten times multiple after the successful sale of Grapeshot in 2018.
During the year, the Company’s realised and unrealised capital gains on investments amounted to £6,475,000 compared to £7,366,000 in the previous year. Notable increases in valuation include a £1.0 million uplift for ELE Advanced Technologies, which has continued to trade strongly; £923,000 for Process Systems Enterprise, as noted above; £796,000 uplift for Radnor House School, where the Sevenoaks school has seen an increase in the student roll as it continues to expand; and £718,000 for Proveca, following a further fundraising round.
As in any large portfolio, there were a few investments where valuations declined over the year, the largest being a £167,000 write-down in Convertr Media, which required further finance as it continues to develop its business.
A total of £3.5 million was deployed into portfolio companies, including £2.0 million invested in new portfolio companies namely;
- £510,000 into Avora, a developer of software to improve decision making through augmented analytics and machine learning;
- £356,000 into Phrasee, which uses artificial intelligence to generate language for optimised marketing campaigns;
- £280,000 into Limitless Technology, a customer service platform powered by crowd and machine learning technology;
- £231,000 into Clear Review, a provider of talent management software to mid-market enterprises;
- £210,000 into Arecor, a biopharmaceuticals business specialising in diabetes care;
- £160,000 into Forward Clinical, a provider of secure mobile messaging services for doctors and care workers;
- £115,000 into ePatient Network (trading as Raremark), a patient engagement and data business focused on rare diseases;
- £106,000 into Imandra, a provider of automated software testing and an enhanced learning experience for artificial neural networks; and
- £43,000 into Symetrica, a designer and manufacturer of radiation detection equipment.
We also continued to support existing portfolio companies, with a total of £1.5 million deployed, including £388,000 in Proveca following a £3.5 million funding round to continue the development of paediatric medicines; £320,000 in Locum’s Nest to accelerate growth of its web platform and mobile application which allows NHS Trusts to manage their requirements for locum doctors; and £248,000 in Quantexa as part of a £15.2 million funding round to further grow its network analytics business.
Full details of the companies we are invested in can be found in the Portfolio of investments section on pages 21 to 23 of the full Annual Report and Financial Statements.
Board composition
As announced on 14 February 2019, Karen Brade, who has been on the Board since October 2010, will resign on 30 September 2019. I would like to thank Karen for her invaluable input as a Director and her work as Chairman of the Audit and Risk Committee over the past four years. James Agnew, who has been on the Board since November 2015, will succeed her as Chairman of the Audit and Risk Committee upon her resignation.
I am delighted to welcome Pam Garside, a highly experienced healthcare entrepreneur, member of the Cambridge Business Angels and advisor to government, NHS and private sector organisations, to the Board following her appointment in March 2019. Pam joins the Board at a time when increasing numbers of healthcare investment opportunities are being considered by the Company.
Transactions with the Manager
The Board continues to closely monitor the Manager’s performance and reporting and remains satisfied with the Company’s progress.
Details of transactions that took place with the Manager during the year can be found in note 5 and principally relate to the management fees.
Risks and uncertainties
The outlook for the UK and global economies continues to be the key risk affecting the Company, and the withdrawal of the UK from the European Union is likely to have an impact on the Company and its investments. An analysis has been carried out at a portfolio company level to assess exposure to Europe, and appropriate actions, where possible, have been implemented. Overall investment risk, however, is mitigated through a variety of processes, including investing in a diversified portfolio in terms of sector and stage of maturity, with a focus on opportunities where growth can be sustained and resilient.
A detailed review of risk management is set out in the Strategic report below.
Albion VCTs Top Up Offers
In January 2019, the Company announced the launch of the Albion VCTs Prospectus Top Up Offers 2018/19 and was pleased to announce on 3 April 2019 that it had reached its £8 million limit under its Offer which was fully subscribed and closed, as detailed in note 15. The proceeds raised continue to be deployed into new portfolio companies, some of which are noted above, but also used to further support growth in our existing portfolio companies. We continue to develop an attractive pipeline of new investment opportunities.
The Company is pleased to announce that, subject to obtaining the requisite regulatory approval, the Company intends to launch prospectus Top Up Offers of new Ordinary shares for subscription in the 2019/2020 and 2020/2021 tax years (the "Offers").
Full details of the Offers will be contained in a prospectus that is expected to be published in Autumn 2019 and will be available on the Albion Capital website (www.albion.capital).
Annual General Meeting
The Annual General Meeting of the Company will be held at The Charterhouse, Charterhouse Square, London EC1M 6AN at noon on 27 November 2019. Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 69 and 70 of the full Annual Report and Financial Statements. Please note that this is a new location for the Annual General Meeting.
The Board welcomes your attendance at the meeting as it gives an opportunity for shareholders to ask questions of the Board and the Manager. If you are unable to attend the Annual General Meeting in person, we would encourage you to make use of your proxy votes.
Fraud warning
We note over recent months an increase in the number of shareholders being contacted in connection with increasingly sophisticated but fraudulent financial scams. This is often by a phone call or an email which normally originates from outside of the UK, often claiming or appearing to come from a corporate finance firm and typically offering to buy your VCT shares at an inflated price. If you are contacted, we recommend that you do not respond with any personal information and say you are not interested.
The Manager maintains a page on their website in relation to fraud advice at www.albion.capital/investor-centre/fraud-advice. Details of how to sell shares through reputable channels can also be found here.
If you are in any doubt, we recommend that you seek financial advice before taking any action. You can also call Shareholder relations on 020 7601 1850, or email info@albion.capital, if you wish to check whether any claims made are genuine.
Outlook
It is encouraging to see continued strong performance by the Company. The portfolio remains well balanced across a variety of sectors, despite its exposure to an increasing number of early stage technology businesses. Although recent changes to the Company’s investment policy, brought about by the changes in VCT tax legislation, may result in increased volatility within the portfolio, we remain confident that the fundamentals of the companies within our portfolio, and the new companies that we are backing, give the Company the potential to deliver positive shareholder returns. I do however note the broader uncertain political and economic environment.
Richard Huntingford
Chairman
27 September 2019
Strategic report
Crown Place VCT PLC is a venture capital trust and its investment policy can be found above.
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 Capital Group LLP, including secretarial and administrative services. Further details of the Management agreement can be found below.
Current portfolio sector allocation
The pie charts at the end of this announcement shows the split of the portfolio valuation as at 30 June 2019 by: sector; stage of investment; and number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 21 to 23 of the full Annual Report and Financial Statements.
Direction of portfolio
The analysis of the Company’s investment portfolio shows that it is well diversified and evenly spread across the renewable energy, healthcare, education, IT and healthcare technology sectors.
The IT and healthcare technology sectors have continued to grow as a proportion of the portfolio as we invest in key areas such as cyber security and machine learning applications. In line with the new investment policy, we will continue to invest in higher growth technology companies in the future. The renewable energy portfolio has decreased, mainly as a result of the sale of Earnside Energy, however there is currently no intention to dispose of any other renewable energy investments in the short term as these investments generate stable income for the Company.
Results and dividends
| £’000 | |
| Revenue return for the year ended 30 June 2019 | 697 |
| Capital return for the year ended 30 June 2019 | 5,695 |
| Total return for the year ended 30 June 2019 | 6,392 |
| Dividend of 1 penny per share paid on 30 November 2019 | (1,649) |
| Dividend of 1 penny per share paid on 29 March 2019 | (1,646) |
| Unclaimed dividends | 15 |
| Transferred to reserves | 3,112 |
| Net assets as at 30 June 2019 | 65,995 |
| Net asset value as at 30 June 2019 (pence per share) | 35.29 |
The Company paid dividends totalling 2.00 pence per share during the year ended 30 June 2019 (2018: 2.00 pence per share). The dividend objective of the Board is to provide shareholders with a stable dividend flow. The Company will target an annual dividend of 2.00 pence per share for the year ending 30 June 2020 and has declared a first dividend for the year ending 30 June 2020 of 1 penny per share. This dividend will be paid on 29 November 2019 to shareholders on the register on 1 November 2019.
As shown in the Income statement below, the capital gain for the year was £5,695,000 (2018: £6,706,000), mainly as a result of the unrealised capital uplifts of £1.0 million in ELE Advanced Technologies, £923,000 in Process Systems Enterprise, £796,000 in Radnor House School (Holdings) and £718,000 in Proveca, and a £402,000 gain on the disposal of The Stanwell Hotel.
As shown on the Income statement below, investment income has increased to £1,285,000 (2018: £1,105,000), resulting in an increased revenue return of £697,000 (2018: £560,000). The total return for the year was 3.75 pence per share (2018: 4.64 pence per share).
The Balance sheet below, shows that the net asset value has increased over the year to 35.29 pence per share (2018: 33.50 pence per share), due to the total return for the year of 3.75 pence per share offset by the payment of the dividend of 2.00 pence per share during the year.
The cash flow for the Company has been a net inflow of £3,479,000 for the year (2018: £3,355,000), reflecting disposal proceeds, operating activities and the issue of new Ordinary shares under the Top Up Offer, offset by dividends paid, new investments in the year and the buy-back of shares.
Review of the business and future changes
A review of the Company’s business during the year is set out in the Chairman’s statement above. We believe there should be further progress in the current year, with selected disposals and new investments, and a continued focus on healthcare and technology companies, alongside other new growth opportunities.
Following changes to the VCT regulations in 2017, 99.7% of shareholders approved a change to the Company’s investment policy at the Annual General Meeting in 2018. As a result, a greater emphasis continues to be given to growth and technology investments and asset-based investments will continue to decrease over time as a proportion of the portfolio.
Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.
Future prospects
The Company’s portfolio is well balanced across sectors and risk classes and the Board believes that the Company is well positioned to seek out and capitalise on new opportunities.
After another promising result for the year, the Board remains confident that the fundamentals of the companies within the portfolio and the new companies that are being backed, give the Company the potential to deliver attractive returns for shareholders but the political and economic background remains challenging.
Key performance indicators
The Directors believe that the following key performance indicators, which are typical for VCTs 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 12 of the full Annual Report and Financial Statements shows that total shareholder value increased by 3.79 pence per share to 93.02 pence per share (2018: 89.23) for the year ended 30 June 2019.
2. Shareholder return in the year †
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| 3.8% | 11.9% | (2.7%) | (10.6%) | 6.3% | 6.6% | 4.3% | 6.6% | 7.1% | 4.5% | 1.5% | 14.0% | 14.6% | 11.3% |
Source: Albion Capital Group LLP
† Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.
Annual total return to shareholders has remained positive for the tenth consecutive year and for the year ended 30 June 2019 was 11.3 per cent.
3. Dividend distributions
Dividends paid in respect of the year ended 30 June 2019 were 2.00 pence per share (2018: 2.00 pence per share). Cumulative dividends paid since launch (on 18 January 1998) amount to 57.73 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year ended 30 June 2019 marginally decreased to 2.3 per cent. (2018: 2.4 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 remain stable at approximately 2.3 per cent.
5. Running yield
The running yield on the portfolio (investment income divided by the average net asset value) for the year to 30 June 2019 was 2.2 per cent. (2018: 2.2 per cent.).
6. VCT regulation
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 32 of the full Annual Report and Financial Statements.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 30 June 2019. These showed that the Company has complied with all tests and continues to do so.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.
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 also monitoring fees where the Manager has a representative on the portfolio company’s board.
Further details of fees paid to the Manager can be found in note 5.
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. Under the incentive arrangements, the Company will pay an incentive fee to the Manager of an amount equal to 20% of such excess return that is calculated for each financial year.
The 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 (2018: nil). As at 30 June 2019 the cumulative shortfall of the target return was 0.60 pence per share (2018: 2.68 pence per share) and this amount needs to be made up in the next accounting period(s) 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. (now 80 per cent. from 1 July 2019) 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. Having carried out this evaluation, 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 Capital Group LLP as the Company’s AIFM as required by the AIFMD. The Manager became a full-scope Alternative Investment Fund Manager under the AIFMD on 1 October 2018. As a result, from that date, Ocorian (UK) Limited was appointed as Depository to oversee the custody and cash arrangements and provide other AIFMD duties with respect to the Company.
Share buy-backs
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 Company’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 2019 can be found in note 15 of the Financial Statements.
Environmental, Social, and Governance (“ESG”)
Albion Capital Group LLP became a signatory of the UN Principles for Responsible Investment (“UN PRI”) on 14 May 2019. The UN PRI is the world’s leading proponent of responsible investment, working to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
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.
General Data Protection Regulation
The General Data Protection Regulation came into effect on 25 May 2018 with the objective of unifying data privacy requirements across the European Union. The Manager, Albion Capital Group LLP, has taken action to ensure that the Manager and the Company are compliant with the regulation.
Further policies and statements
The Company has adopted a number of further policies and statements relating to:
- Environment;
- Global greenhouse gas emissions;
- Anti-bribery;
- Anti-facilitation of tax evasion; and
- Diversity.
and these are set out in the Directors’ report on pages 32 and 33 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. In addition to the risks and uncertainties outlined in the Chairman’s statement, 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 |
| Investment, performance and valuation risk | The risk of investment in poor quality businesses, which could reduce the returns to shareholders, and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more volatile than larger, long established businesses. 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. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review 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 matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. |
| VCT approval risk | The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, and are used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. |
| Regulatory and 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 companies. In addition, the Board and the Manager receive regular updates on new regulation, including legislation on the management of the Company, from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors. |
| Operational and internal control risk | The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could place assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year, and receives reports from the Manager on internal controls and risk management, including on matters relating to cyber security. The Audit and Risk Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditor, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. From 1 October 2018, Ocorian (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian (UK) Limited to ensure that Albion Capital is adhering to its policies and procedures as required by the AIFMD. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policies. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual. |
| Economic and political risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company’s prospects in a number of ways. | The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow on investments. |
| Market value of Ordinary shares | The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buy-back policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent. to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buy-back authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2016 and principle 21 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 30 June 2022. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities, as they fall due 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 three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timelines for finding, assessing and completing investments.
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 it has in place for dealing with the principal risks.
The Board assessed the ability of the Company to raise finance and deploy capital. 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 2022.
This Strategic report of the Company for the year ended 30 June 2019 has been prepared in accordance with the requirements of section 414A of 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
27 September 2019
Responsibility Statement
In preparing these financial statements for the year to 30 June 2019, the Directors of the Company, being Richard Huntingford, James Agnew, Karen Brade, Penny Freer and Pam Garside, 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 2019 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
-the Chairman's statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.
We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.
A detailed "Statement of Directors' responsibilities” is contained on page 36 within the full audited Annual Report and Financial Statements.
On behalf of the Board,
Richard Huntingford
Chairman
27 September 2019
Income statement
| Year ended 30 June 2019 | Year ended 30 June 2018 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gains on investments | 3 | - | 6,475 | 6,475 | - | 7,366 | 7,366 |
| Investment income | 4 | 1,285 | - | 1,285 | 1,105 | - | 1,105 |
| Investment management fees | 5 | (260) | (780) | (1,040) | (220) | (660) | (880) |
| Other expenses | 6 | (328) | - | (328) | (325) | - | (325) |
| Profit on ordinary activities before tax | 697 | 5,695 | 6,392 | 560 | 6,706 | 7,266 | |
| Tax on ordinary activities | 8 | - | - | - | - | - | - |
| Profit and total comprehensive income attributable to shareholders | 697 | 5,695 | 6,392 | 560 | 6,706 | 7,266 | |
| Basic and diluted earnings per Ordinary share (pence)* | 10 | 0.41 | 3.34 | 3.75 | 0.36 | 4.28 | 4.64 |
* adjusted for treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.
Balance sheet
| 30 June 2019 | 30 June 2018 | ||
| Note | £’000 | £’000 | |
| Fixed asset investments | 11 | 49,943 | 42,911 |
| Current assets | |||
| Trade and other receivables less than one year | 13 | 359 | 266 |
| Cash and cash equivalents | 16,083 | 12,604 | |
| 16,442 | 12,870 | ||
| Total assets | 66,385 | 55,781 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (390) | (367) |
| Total assets less current liabilities | 65,995 | 55,414 | |
| Equity attributable to equity holders | |||
| Called up share capital | 15 | 2,072 | 1,829 |
| Share premium | 9,061 | 974 | |
| Capital redemption reserve | - | - | |
| Unrealised capital reserve | 19,756 | 12,973 | |
| Realised capital reserve | (1,857) | (769) | |
| Other distributable reserve | 36,963 | 40,407 | |
| Total equity shareholders’ funds | 65,995 | 55,414 | |
| Basic and diluted net asset value per share (pence)* | 16 | 35.29 | 33.50 |
* 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 27 September 2019 and were signed on its behalf by
Richard Huntingford
Chairman
Company number: 03495287
Statement of changes in equity
| Called up 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 2018 | 1,829 | 974 | - | 12,973 | (769) | 40,407 | 55,414 |
| Profit/(loss) and total comprehensive income | - | - | - | 5,929 | (234) | 697 | 6,392 |
| Transfer of previously unrealised losses on disposal of investments | - | - | - | 854 | (854) | - | - |
| Dividends paid | - | - | - | - | - | (3,280) | (3,280) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (861) | (861) |
| Issue of equity | 243 | 8,277 | - | - | - | - | 8,520 |
| Cost of issue of equity | - | (190) | - | - | - | - | (190) |
| As at 30 June 2019 | 2,072 | 9,061 | - | 19,756 | (1,857) | 36,963 | 65,995 |
| As at 1 July 2017 | 16,211 | 18,032 | 1,415 | 6,311 | (813) | 4,425 | 45,581 |
| Profit and total comprehensive income | - | - | - | 5,814 | 892 | 560 | 7,266 |
| Transfer of previously unrealised losses on disposal of investments | - | - | - | 420 | (420) | - | - |
| Transfer of previously unrealised revaluations on liquidation of subsidiaries | - | - | - | 428 | (428) | - | - |
| Dividends paid | - | - | - | - | - | (3,085) | (3,085) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (715) | (715) |
| Issue of equity | 1,778 | 4,724 | - | - | - | - | 6,502 |
| Cost of issue of equity | - | (135) | - | - | - | - | (135) |
| Reduction of share capital and cancellation of reserves | (16,160) | (21,647) | (1,415) | - | - | 39,222 | - |
| As at 30 June 2018 | 1,829 | 974 | - | 12,973 | (769) | 40,407 | 55,414 |
* Included within these reserves is an amount of £17,123,000 (2018: £20,029,000) which is considered distributable. In time, a further £17,983,000 will become distributable.
The nature of each reserve is described in note 2 below.
Statement of cash flows
| Year ended 30 June 2019 £’000 | Year ended 30 June 2018 £’000 | ||
| Cash flow from operating activities | |||
| Loan stock income received | 1,378 | 950 | |
| Deposit interest received | 45 | 15 | |
| Dividend income received | 61 | 36 | |
| Investment management fees paid | (993) | (836) | |
| Other cash payments | (316) | (316) | |
| Corporation tax paid | - | - | |
| Net cash flow from operating activities | 175 | (151) | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments | (3,536) | (4,252) | |
| Disposal of fixed asset investments | 2,686 | 5,188 | |
| Receipt of subsidiary cash upon liquidation | - | 11 | |
| Net cash flow from investing activities | (850) | 947 | |
| Cash flow from financing activities | |||
| Issue of share capital | 7,802 | 5,869 | |
| Cost of issue of equity | (3) | (3) | |
| Equity dividends paid | (2,749) | (2,595) | |
| Purchase of own shares for treasury (including costs) | (896) | (712) | |
| Net cash flow from financing activities | 4,154 | 2,559 | |
| Increase in cash and cash equivalents | 3,479 | 3,355 | |
| Cash and cash equivalents at the start of the year | 12,604 | 9,249 | |
| Cash and cash equivalents at the end of the year | 16,083 | 12,604 | |
| Cash and cash equivalents comprise: | |||
| Cash at bank | 16,083 | 12,604 | |
| Cash equivalents | - | - | |
| Total cash and cash equivalents | 16,083 | 12,604 | |
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”).
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss (“FVTPL”). The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines and further detail on the valuation techniques used are outlined in note 2 below.
Company information can be found on page 2 of the full Annual Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at ‘fair value’, which is measured as follows:
- Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;
- Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, revenue multiples, the level of third party offers received, cost or prices of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.
- In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.
Current assets and payables
Receivables, payables and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
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 Income statement, except for management fees and performance incentive fees which are allocated in part to the capital column of the Income statement, 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 Company’s investment returns will be in the form of capital gains.
Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.
Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the Financial Statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the Financial Statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT in the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.
Reserves
Share premium
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs.
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, or permanent diminution in value;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.
3. Gains on investments
| Year ended 30 June 2019 | Year ended 30 June 2018 | |
| £’000 | £’000 | |
| Unrealised gains on fixed asset investments | 5,929 | 5,814 |
| Realised gains on fixed asset investments | 546 | 1,552 |
| 6,475 | 7,366 |
4. Investment income
| Year ended 30 June 2019 | Year ended 30 June 2018 | |
| £’000 | £’000 | |
| Income recognised on investments | ||
| Loan stock interest and other fixed returns | 1,179 | 1,056 |
| UK dividend income | 61 | 32 |
| Bank deposit interest | 45 | 17 |
| 1,285 | 1,105 |
5. Investment management fees
| Year ended 30 June 2019 | Year ended 30 June 2018 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Investment management fee | 260 | 780 | 1,040 | 220 | 660 | 880 |
Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report above.
During the year, services of a total value of £1,090,000 (2018: £930,000) were purchased by the Company from Albion Capital Group LLP comprising £1,040,000 in respect of management fees (2018: £880,000) and £50,000 in respect of administration fees (2018: £50,000). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals and deferred income was £300,500 (administration fee accrual: £12,500, management fee accrual £288,000) (2018: £254,500).
Albion Capital Group LLP is, from time to time, eligible to receive an arrangement fee and monitoring fees from portfolio companies. During the year ended 30 June 2019 fees of £167,000 attributable to the investments of the Company were received pursuant to these arrangements (2018: £155,000).
Albion Capital Group LLP, its partners and staff holds 855,040 Ordinary shares in the Company as at 30 June 2019.
The Company has entered into an offer agreement relating to the Offers with the Company’s investment manager Albion Capital Group LLP, pursuant to which Albion Capital will receive a fee of 2.5 per cent. of the gross proceeds of the Offers and out of which Albion Capital will pay the costs of the Offers, as detailed in the Prospectus.
6. Other expenses
| Year ended 30 June 2019 | Year ended 30 June 2018 | |
| £’000 | £’000 | |
| Directors’ fees (including NIC) | 105 | 93 |
| Auditor’s remuneration for statutory audit services (excluding of VAT) | 29 | 29 |
| Fees for the liquidation of CP1 VCT PLC (excluding VAT) | - | 4 |
| Other administrative expenses | 194 | 199 |
| 328 | 325 | |
7. Directors’ fees
The amounts paid to the Directors during the year are as follows:
| Year ended 30 June 2019 £’000 | Year ended 30 June 2018 £’000 | |
| Directors’ fees | 97 | 86 |
| National insurance | 8 | 7 |
| 105 | 93 |
The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 43 and 44 of the full Annual Report and Financial Statements.
8. Tax on ordinary activities
| Year ended 30 June 2019 £’000 | Year ended 30 June 2018 £’000 | |
| UK corporation tax charge | - | - |
| Year ended 30 June 2019 | Year ended 30 June 2018 | |
| Factors affecting the tax charge | £’000 | £’000 |
| Return on ordinary activities before taxation | 6,392 | 7,266 |
| Tax charge on profit at the average companies rate of 19.0% (2018: 19.0%) | 1,214 | 1,381 |
| Factors affecting the charge: | ||
| Non-taxable gains | (1,230) | (1,400) |
| Income not taxable | (12) | (6) |
| Unutilised management expenses | 28 | 25 |
| - | - |
The tax charge for the year shown in the Income statement is lower than the average standard rate of corporation tax of 19.0 per cent. (2018: average rate of 19.0 per cent.). The differences are explained above.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
- No provision for deferred tax has been made in the current or prior accounting period. The Company has not recognised a deferred tax asset of £2,847,000 (2018: £2,822,000) 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.
9. Dividends
| Year ended 30 June 2019 | Year ended 30 June 2018 | ||||||
| £’000 | £’000 | ||||||
| First dividend of 1 penny per share paid on 30 November 2018 (30 November 2017 – 1 penny per share) | 1,649 | 1,467 | |||||
| Second dividend of 1 penny per share paid on 29 March 2019 (29 March 2018 – 1 penny per share) | 1,646 | 1,632 | |||||
| Unclaimed dividends | (15) | (14) | |||||
| 3,280 | 3,085 | ||||||
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2020, of 1 penny per share. This will be paid on 29 November 2019 to shareholders on the register on 1 November 2019. The total dividend will be approximately £1,870,000. All dividends are paid from the other distributable reserve.
During the year, unclaimed dividends older than twelve years of £15,000 (2018: £14,000) were returned to the Company in accordance with the terms of the Articles of Association and have been accounted for on an accruals basis.
10. Basic and diluted return per share
| Year ended 30 June 2019 | Year ended 30 June 2018 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Return attributable to equity shares (£’000) | 697 | 5,695 | 6,392 | 560 | 6,706 | 7,266 | ||
| Weighted average shares (adjusted for treasury shares) | 170,478,118 | 156,706,633 | ||||||
| Return attributable per Ordinary share (pence) (basic and diluted) | 0.41 | 3.34 | 3.75 | 0.36 | 4.28 | 4.64 | ||
The return per share has been calculated after adjusting for treasury shares of 20,168,410 (2018: 17,471,410).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.
11. Fixed asset investments
| 30 June 2019 £’000 | 30 June 2018 £’000 | |
| Investments held at fair value through profit or loss | ||
| Unquoted equity and preference shares | 35,377 | 26,105 |
| Quoted equity | 538 | 273 |
| Loan stock | 14,028 | 16,533 |
| 49,943 | 42,911 |
| 30 June 2019 £’000 | 30 June 2018 £’000 | |
| Opening valuation | 42,911 | 36,328 |
| Purchases at cost | 4,122 | 5,069 |
| Disposal proceeds | (3,366) | (5,951) |
| Realised gains | 546 | 1,552 |
| Movement in loan stock accrued income | (199) | 99 |
| Unrealised gains | 5,929 | 5,814 |
| Closing valuation | 49,943 | 42,911 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 405 | 306 |
| Movement in loan stock accrued income | (199) | 99 |
| Closing accumulated loan stock accrued income | 206 | 405 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 12,906 | 6,672 |
| Transfer of previously unrealised losses to realised reserves on disposal of investments | 854 | 420 |
| Movement in unrealised gains | 5,929 | 5,814 |
| Closing accumulated unrealised gains | 19,689 | 12,906 |
| Historic cost basis | ||
| Opening book cost | 29,600 | 29,350 |
| Purchases at cost | 4,122 | 5,069 |
| Disposals at cost | (3,674) | (4,819) |
| Closing book cost | 30,048 | 29,600 |
Purchases and disposals detailed above do not agree to the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.
The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted fixed asset investments are valued in accordance with the IPEV guidelines as follows:
| 30 June 2019 | 30 June 2018 | |
| Investment valuation methodology | £’000 | £’000 |
| Third party valuation – earnings multiple | 17,238 | 16,142 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 16,324 | 10,103 |
| Third party valuation – discounted cash flow | 7,129 | 8,795 |
| Earnings multiple | 5,092 | 3,900 |
| Contracted sales price | 1,372 | - |
| Revenue multiple | 1,249 | 2,715 |
| Net assets | 1,001 | 983 |
| 49,405 | 42,638 |
Fair value investments had the following movements between investment methodologies between 30 June 2018 and 30 June 2019:
Change in investment valuation methodology (2018 to 2019) | Value as at 30 June 2019 £’000 | Explanatory note |
| Revenue multiple to cost and price of recent investment (reviewed for impairment or uplift) | 1,531 | More recent funding round |
| Revenue multiple to contracted sale price | 1,372 | Third party offer accepted |
| Cost to net assets | 12 | More relevant valuation methodology |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 30 June 2019.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | Unadjusted quoted prices in an active market |
| Level 2 | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
Quoted investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.
The Company’s investments measured at fair value through profit or loss (Level 3) had the following movements in the year to 30 June 2019:
| 30 June 2019 | 30 June 2018 | |
| £’000 | £’000 | |
| Opening balance | 42,638 | 35,933 |
| Additions | 4,122 | 5,069 |
| Disposal proceeds | (3,358) | (5,951) |
| Realised gains | 548 | 1,552 |
| Unrealised gains | 5,654 | 5,936 |
| Accrued loan stock interest | (199) | 99 |
| Closing balance | 49,405 | 42,638 |
FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 56 per cent. of the portfolio of investments consisting of equity and loan stock is based on recent investment price, net assets and cost, and as such the Board believe that changes to reasonable possible alternative input assumptions (by adjusting the earnings and revenue multiples) 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 £855,000 (2.4%) or a decrease in the valuation of equity investments by £748,000 (2.1%). For valuations based on earnings and revenue multiples, the Board considers that the most significant input is the price/earnings ratio; for valuations based on third party valuations, the Board considers that the most significant inputs are price/earnings ratio, discount factors, market values for buildings and market value per room for care homes; which have been adjusted to drive the above sensitivities.
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102 section 9.9B, they are measured at fair value through profit or loss and not consolidated as subsidiaries.
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 2019 as described below:
| Company | Registered address and country of incorporation | Principal activity | % class and share type | % total voting rights | Aggregate capital and reserves £’000 | Profit for the year £’000 |
| ELE Advanced Technologies Limited | Cotton Tree Lane, Colne, BB8 7BH, Great Britain | Manufacturer of precision engineering components | 74.3% B Ordinary | 41.9% | 5,417 | 1,017 |
13. Current assets
| Trade and other receivables less than one year | 30 June 2019 | 30 June 2018 |
| £’000 | £’000 | |
| Prepayments and accrued income | 16 | 18 |
| Other receivables | 343 | 248 |
| 359 | 266 |
14. Payables: amounts falling due within one year
| 30 June 2019 | 30 June 2018 | |
| £’000 | £’000 | |
| Accruals & deferred income | 371 | 319 |
| Trade payables | 19 | 48 |
| 390 | 367 |
15. Called up share capital
| Allotted, called up and fully paid | £'000 |
| 182,866,158 Ordinary shares of 1 penny each at 30 June 2018 | 1,829 |
| 24,304,489 Ordinary shares of 1 penny each issued during the year | 243 |
| 207,170,647 Ordinary shares of 1 penny each at 30 June 2019 | 2,072 |
| 17,471,410 Ordinary shares of 1 penny each held in treasury at 30 June 2018 | (175) |
| 2,697,000 Ordinary shares of 1 penny each purchased during the year to be held in treasury | (27) |
| 20,168,410 Ordinary shares of 1 penny each held in treasury at 30 June 2019 | (202) |
| Voting rights of 187,002,237 Ordinary shares of 1 penny each at 30 June 2019 | 1,870 |
The Company purchased 2,697,000 Ordinary shares for treasury (2018: 2,469,000) during the year at a total cost of £861,000 (2018: £715,000).
The total number of shares held in treasury as at 30 June 2019 was 20,168,410 (2018: 17,471,410) representing 9.7 per cent. of the shares in issue as at 30 June 2019.
Under the terms of the Dividend Reinvestment Scheme Circular dated 26 February 2009, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:
| Allotment date | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net invested (£’000) | Opening market price on allotment (pence per share) |
| 30 November 2018 | 791,634 | 8 | 33.56 | 264 | 33.40 |
| 29 March 2019 | 775,908 | 8 | 34.26 | 264 | 32.50 |
| 1,567,542 | 16 | 528 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2018/19, the following new Ordinary shares of nominal value 1 penny each were issued during the year:
| Allotment date | Number of shares allotted | Aggregate nominal value of shares (£’000) | Issue price (pence per share) | Net consideration received (£’000) | Opening market price on allotment (pence per share) |
| 1 April 2019 | 2,729,267 | 27 | 34.80 | 936 | 32.50 |
| 1 April 2019 | 687,998 | 7 | 35.00 | 236 | 32.50 |
| 1 April 2019 | 16,134,611 | 161 | 35.20 | 5,537 | 32.50 |
| 5 April 2019 | 1,887,622 | 19 | 35.20 | 648 | 32.50 |
| 12 April 2019 | 566,458 | 6 | 34.80 | 194 | 32.50 |
| 12 April 2019 | 9,142 | - | 35.00 | 3 | 32.50 |
| 12 April 2019 | 721,849 | 7 | 35.20 | 248 | 32.50 |
| 22,736,947 | 227 | 7,802 |
16. Basic and diluted net asset value per share
The net asset value attributable to the Ordinary shares at the year end was as follows:
| 30 June 2019 | 30 June 2018 | |||
| Net asset value per share (pence) | 35.29 | 33.50 |
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 (adjusted for treasury shares) of 187,002,237 shares (2018: 165,394,748) as at 30 June 2019.
There are no convertible instruments, derivatives or contingent share agreements in issue.
17. Capital and financial instruments risk management
The Company’s capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail in the Strategic report above.
The Company’s financial instruments comprise equity and loan stock investments in unquoted companies, equity in quoted companies, deferred receipts on disposal of fixed asset investments, cash balances, receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its balance sheet.
The principal risks arising from the Company’s operations are:
- Investment (or market) risk (which comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised as follows:
Investment risk
As a venture capital trust, it is the Company’s specific nature to evaluate and control the investment risk of its portfolio in unquoted and quoted companies, details of which are shown on pages 21 to 23 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the 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 Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the balance sheet date is the value of the fixed asset investment portfolio which is £49,943,000 (2018: £42,911,000). Fixed asset investments form 76 per cent. of the net asset value as at 30 June 2019 (2018: 77 per cent.).
More details regarding the classification of fixed asset investments are shown in note 11.
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. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. The Directors monitor the Manager’s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 21 to 23 of the full Annual Report and Financial Statements, and in the Strategic report above.
As required under FRS 102 section 34.29, the Board is required to illustrate by way of a sensitivity analysis, the degree of exposure to market risk. The Board considers that the value of the fixed 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. (2018: 10 per cent.) increase or decrease in the valuation of the fixed asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £4,994,300 (2018: £4,291,100). Further sensitivity analysis on fixed asset investments is included in note 11.
Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company’s analysis, it is estimated that a rise 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 Company’s fixed rate assets during the year was approximately 9.5 per cent. (2018: 7.0 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 2.7 years (2018: 3.2 years).
The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 30 June 2019 | 30 June 2018 | |||||||
| Fixed rate £’000 | Floating rate £’000 | Non-interest £’000 | Total £’000 | Fixed rate £’000 | Floating rate £’000 | Non-interest £’000 | Total £’000 | |
| Loan stock | 13,674 | - | 354 | 14,028 | 15,913 | - | 620 | 16,533 |
| Equity | - | - | 35,915 | 35,915 | - | - | 26,378 | 26,378 |
| Receivables* | - | - | 344 | 344 | - | - | 248 | 248 |
| Payables | - | - | (390) | (390) | - | - | (367) | (367) |
| Cash | - | 16,083 | - | 16,083 | - | 12,604 | - | 12,604 |
| 13,674 | 16,083 | 36,223 | 65,980 | 15,913 | 12,604 | 26,879 | 55,396 | |
*The receivables do not reconcile to the balance sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in 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. For loan stock investments made prior to 6 April 2018, which account for 98.1 per cent. of loan stock by value, typically loan stock instruments have a fixed or floating charge, which may or may not have been subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.
The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk.
Bank deposits are held with banks with high credit ratings assigned by international credit rating agencies. The Company 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 Company’s total gross credit risk at 30 June 2019 was limited to £14,028,000 (2018: £16,533,000) of loan stock instruments, £16,083,000 (2018: £12,604,000) of cash deposits with banks and £344,000 (2018: £248,000) of deferred consideration and receivables.
At the balance sheet date, the cash held by the Company was 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 was mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The credit profile of loan stock is described under liquidity risk shown below.
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 short term deposit accounts. Under the terms of its Articles, the Company has the ability to borrow up to the amount of its adjusted capital and reserves of the latest published audited balance sheet, which amounts to £64,125,000 (2018: £53,760,000) as at 30 June 2019.
The Company has no committed borrowing facilities as at 30 June 2019 (2018: nil) and had cash balances of £16,083,000 (2018: £12,604,000). The main cash outflows are for new investments, dividends and share buy-backs, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts.
All of the Company’s financial liabilities are short term in nature and total £390,000 (2018: £367,000) for the year to 30 June 2019.
The carrying value of loan stock investments, analysed by expected maturity dates is as follows:
| 30 June 2019 | 30 June 2018 | ||||||||
| Redemption date | Fully performing £’000 | Past due £’000 | Valued below cost £’000 | Total £’000 | Fully performing £’000 | Past due £’000 | Valued below cost £’000 | Total £’000 | |
| Less than one year | 5,162 | 282 | 770 | 6,214 | 785 | 307 | 1,288 | 2,380 | |
| 1-2 years | 2,507 | - | 111 | 2,618 | 4,971 | 979 | 63 | 6,013 | |
| 2-3 years | 675 | - | 42 | 717 | 2,580 | 637 | 105 | 3,322 | |
| 3-5 years | 2,360 | - | 95 | 2,455 | 2,111 | 332 | - | 2,443 | |
| 5 + years | 1,871 | 153 | - | 2,024 | 701 | 1,674 | - | 2,375 | |
| Total | 12,575 | 435 | 1,018 | 14,028 | 11,148 | 3,929 | 1,456 | 16,533 | |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. Past due loan stock is not impaired.
The cost of loan stock investments valued below cost is £1,189,000 (2018: £2,158,000).
In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 30 June 2019 are stated at fair value as determined by the Directors, with the exception of receivables and payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
18. Contingencies and guarantees
As at 30 June 2019, the Company had no financial commitments in respect of investments (2018: £nil).
There are no contingencies or guarantees of the Company as at 30 June 2019 (2018: £nil).
19. Post balance sheet events
Since 30 June 2019 the Company has completed the following investment transactions:
- Investment of £724,000 in Elliptic Enterprises Limited;
- Disposal of Augean PLC for £368,000;
- Investment of £31,000 in The Evewell (Harley Street) Limited; and
- Investment of £16,000 in Convertr Media Limited.
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, there are no other related party transactions or balances
21. Other information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 30 June 2019 and 30 June 2018, 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 2019, 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 Charterhouse, Charterhouse Square, London, EC1M 6AN on 27 November 2019 at noon.
22. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/CRWN, where the Report can be accessed via a link in the 'Financial Reports and Circulars' section.
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