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 2022.
This announcement was approved for release by the Board of Directors on 3 October 2022.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 30 June 2022 (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/30Jun22.pdf.
Investment policy
The Company invests in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments take the form of equity or a mixture of equity and loans.
Whilst allocation of funds is determined by the investment opportunities which are available, efforts are made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of investee businesses. Funds held pending investment or for liquidity purposes will be held principally as cash on deposit.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors using a mixture of securities, as permitted. The maximum amount which the Company will invest in a single portfolio company is 15 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 interim dividend | 4 November 2022 |
| Annual General Meeting | Noon on 28 November 2022 |
| Payment date of first interim dividend | 30 November 2022 |
| Announcement of half-yearly results for the six months ending 31 December 2022 | February 2023 |
| Payment date of second interim dividend (subject to Board approval) | 31 March 2023 |
Financial highlights
| 33.70p | Net asset value per share as at 30 June 2022 |
| 2.12p | Increase in total shareholder value for the year ended 30 June 2022† |
| 6.10% | Total uplift on opening net asset value per share† |
| 3.21p | Total tax-free dividends per share paid during the year ended 30 June 2022 |
| 30 June 2022 | 30 June 2021 | |
| pence per share | pence per share | |
| Opening net asset value | 34.79 | 33.14 |
| Capital return | 1.95 | 5.58 |
| Revenue return/(loss) | 0.14 | (0.03) |
| Total return | 2.09 | 5.55 |
| Dividends paid | (3.21) | (3.61) |
| Impact from share capital movements | 0.03 | (0.29) |
| Closing net asset value | 33.70 | 34.79 |
| Shareholder return and shareholder value | (pence per share) | ||
| Shareholder return from launch to April 2005: | |||
| Total dividends paid to 6 April 2005(i) | 24.93 | ||
| Decrease in net asset value | (56.60) | ||
| Total shareholder return to 6 April 2005 | (31.67) | ||
| Shareholder return from April 2005 to 30 June 2022 (period that Albion Capital has been investment manager): | |||
| Total dividends paid | 41.62 | ||
| Decrease in net asset value | (9.70) | ||
| Total shareholder return from April 2005 to 30 June 2022 | 31.92 | ||
| Shareholder value since launch: | |||
| Total dividends paid to 30 June 2022(i) | 66.55 | ||
| Net asset value as at 30 June 2022 | 33.70 | ||
| Total shareholder value as at 30 June 2022 | 100.25 | ||
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.
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/CRWN under the ‘Dividend History’ section.
In addition to the dividends paid above, the Board has declared a first interim dividend for the year ending 30 June 2023 of 0.84 pence per share payable on 30 November 2022 to shareholders on the register on 4 November 2022.
Chairman’s statement
Introduction
I am pleased to report an increase in total shareholder value of 2.12 pence per share for the year, representing a 6.1% uplift on the opening net asset value. The Company continues to benefit from the positive performance of its portfolio companies, particularly its healthcare and software businesses, many of which have shown growth over the past year, despite the high levels of inflation, both in the UK and across the world, rising interest rates, the Russian invasion of Ukraine and the ongoing uncertainty of the Covid-19 pandemic. Although it is still unclear how long the economy will be impacted by these ongoing disruptions and in spite of the uncertainty faced, we have seen continuing resilience from our portfolio.
Results and dividends
As at 30 June 2022, the net asset value (“NAV”) was £85.8 million or 33.70 pence per share compared with £77.7 million or 34.79 pence per share at 30 June 2021. The continuing progress of a number of our portfolio companies is discussed later in this statement and in the Strategic report below.
In line with the dividend policy targeting payment equivalent to around 5% of NAV per annum, the Company paid ordinary dividends of 1.71 pence per share during the year to 30 June 2022, which equates to 4.9% of the opening NAV. In addition to this, following a number of disposals in 2021, the Company paid a special dividend of 1.50 pence per share, resulting in total dividends of 3.21 pence per share for the year ended 30 June 2022 (30 June 2021: 3.61 pence per share).
The Board is pleased to declare a first interim dividend for the year ending 30 June 2023 of 0.84 pence per share, representing 2.5% of the prevailing NAV, to be paid on 30 November 2022 to shareholders on the register on 4 November 2022.
For those that wish to take it, an opportunity remains to re-invest their dividends in the Company via the Dividend Reinvestment Scheme (“DRIS”). Shareholders can elect for the DRIS via the registrar’s website at www.investorcentre.co.uk. Please note that shareholders who hold their shares in CREST will need to contact their CREST service provider.
Investment realisations
The positive return for the year was largely driven by a number of successful exits which generated total proceeds of £7.4 million for the Company. During the year the Company completed the sales of:
| Portfolio company | Proceeds (£’000) | Return on cost |
| Credit Kudos | 2,352 | 5.2 x |
| Phrasee | 2,162 | 3.5 x |
| MyMeds&Me | 1,476 | 3.4 x |
| MPP Global Solutions | 730 | 1.3 x |
| Innovation Broking | 278 | 10.3 x |
Further details on the investment realisations during the year can be found in the table on page 30 of the full Annual Report and Financial Statements.
Investment performance and progress
Many of our portfolio companies have performed well despite the global uncertainties faced, and this has contributed to the total uplift in value of £6.4 million to the Company’s investments for the year.
Cantab Research (trading as Speechmatics) and The Voucher Market (trading as WeGift) have both been revalued after externally led funding rounds, resulting in uplifts of £0.5 million each. Elliptic continues to trade well both within the UK and in the US; the Company also had a successful external funding round during the year resulting in an uplift of £0.4 million. Other investments with uplifts in the year include Radnor House (£0.4 million), Beddlestead (£0.4 million) and The Evewell (£0.3 million), all of which continue to trade well. However, our investments in Concirrus (£0.8 million) and Avora (£0.2 million) were written down following difficult trading conditions, in part because of the Covid-19 pandemic. We have also written-off our investment in Xperiome (£0.2 million) which went into administration.
The Company has been an active investor during the year with more than £7.7 million invested in new and existing portfolio companies. Alongside the other Albion managed VCTs, the Company has invested £2.0 million in four new portfolio companies, all of which are expected to require further investment as the companies continue to grow:
- £0.7 million into PeakData, a provider of insights and analytics to pharmaceutical companies;
- £0.7 million into PerchPeek, a digital relocation platform;
- £0.5 million into Ophelos, an autonomous debt resolution platform; and
- £0.1 million into Regulatory Genome Development, a provider of machine readable structured regulatory content.
A further £5.7 million was invested into 16 existing portfolio companies, of which the largest were: £1.0 million into Oviva; £0.8 million into TransFICC; £0.7 million into Cantab Research (trading as Speechmatics); £0.6 million into Seldon Techologies; and £0.5m into Gravitee.
A review of the business and future prospects is included in the Strategic report below.
A full list of the Company’s investments and disposals, including their movements in value for the year, can be found in the Portfolio of investments section on pages 27 to 29 of the full Annual Report and Financial Statements.
Risks and uncertainties
The UK is experiencing its highest level of inflation in decades, rising interest rates, and uncertainty over the future course, and global impact, of Russia’s invasion of Ukraine, in addition to the risks around Covid-19. Our investment portfolio, while concentrated mainly in the technology and healthcare sectors, remains diversified in terms of both sub-sector and stage of maturity and, importantly, we believe it to be appropriately valued. While we would expect these valuations to be robust within the tolerance of normal market fluctuations, the potential, but unknown, scale of any further adverse events arising out of the increasingly volatile geopolitical backdrop remain a major risk factor.
A detailed review of risk management is set out in the Strategic report below.
Sunset Clause
In 2015 a VCT “sunset clause” was introduced as a requirement of an EU state aid notification. This provides that income tax relief will no longer be given to subscriptions made on or after 6 April 2025, unless the legislation is amended to make the scheme permanent or the “sunset clause” is extended. The Chancellor of the Exchequer has announced that VCTs will extend beyond 2025, but at this stage the duration of the extension is not known.
Our Manager, Albion Capital Group LLP (Albion Capital), continues to work alongside the VCT industry, to demonstrate to Government the importance of VCTs as a source of early-stage capital to support entrepreneurs creating innovative growth businesses employing thousands of people throughout the UK.
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. The Board’s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest. Given the stability of the portfolio and the Company’s current cash position, the Board has decided that there will be no limit on the level of share buy-backs.
It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.
Albion VCTs’ Top Up Offers
Your Board, in conjunction with the boards of other VCTs managed by Albion Capital, launched prospectus top up Offers of new Ordinary shares on 6 January 2022. The Company announced on 31 January 2022 that it would exercise its over-allotment facility, bringing the total amount to be raised to £12 million. On 2 March 2022 the Offers were fully subscribed and closed. The Board was pleased to see the high level of demand for the Company’s shares from existing and new shareholders.
As recently announced, the Company intends to participate in the Albion VCTs Top Up Offers 2022/23. Full details of the Offers will be contained in a prospectus that is expected to be published in October 2022 and will be available on the Albion Capital website (www.albion.capital).
The proceeds raised by the Company pursuant to the Offers are added to the liquid resources available for investment, positioning the Company to take advantage of investment opportunities over the next two to three years. Details on the share allotments during the year can be found in note 15.
Annual General Meeting
Based on the success of last year’s live webcast AGM, the Board has decided to adopt a virtual format for the AGM again this year. The AGM will be held at noon on 28 November 2022 via the Lumi platform. Information on how to participate in the virtual AGM can be found on the Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcome questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform during the AGM. Alternatively, shareholders can email their questions to crownchair@albion.capital prior to the AGM.
Shareholders' views are important, and the Board encourages shareholders to vote on the resolutions.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 40 and 41 and in the Notice of the Meeting on pages 77 to 80 of the full Annual Report and Financial Statements.
Shareholder seminar
The Board is pleased to report that the next Shareholders Seminar will be held in person at the Royal College of Surgeons, Lincoln’s Inn Field, London on 23 November 2022 and the Board will be delighted to see as many shareholders as possible at the event. The Board and Manager are keen to interact with shareholders and look forward to sharing with you further portfolio updates, as well as answering any questions. Places are limited and to reserve a place please email info@albion.capital with subject heading “Shareholders Seminar” and include your full name. You will receive an email confirmation of your place, subject to availability.
More details are available on the Albion Capital website: www.albion.capital.
Outlook
The Board is encouraged by the positive results for the year just ended in what are challenging times. Despite the uncertainty around the high levels of inflation in the UK and across the world, rising interest rates, an increasingly volatile geopolitical and economic backdrop, and the longer-term impact of the pandemic, the Board believes the Company, through its investments, has the potential to deliver long term value to our shareholders.
Penny Freer
Chairman
3 October 2022
Strategic report
Crown Place VCT PLC (the “Company”) 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 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 show the split of the portfolio valuation as at 30 June 2022 by: sector; stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, portfolio companies’ maturity measured by revenues and their size measured by the number of people employed. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 27 to 29 of the full Annual Report and Financial Statements.
Direction of portfolio
The analysis of the Company’s investment portfolio shows that it is well diversified and evenly spread across the FinTech, healthcare, other software and technology, renewable energy, and education sectors.
Due to the share allotments under the 2021/22 Prospectus Top Up Offer, and the portfolio company exits in the year, cash is a significant proportion of the portfolio at 33%. These funds will be invested predominantly into higher growth technology companies, and therefore the shift away from asset based companies will continue. The Company has a significant speciality in healthcare, FinTech and software investing, which account for 53% of the net asset value of the Company.
Results and dividends
| £’000 | |
| Revenue return for the year ended 30 June 2022 | 325 |
| Capital return for the year ended 30 June 2022 | 4,564 |
| Total return for the year ended 30 June 2022 | 4,889 |
| Special dividend of 1.50 pence per share paid on 30 November 2021 | (3,331) |
| First interim dividend of 0.87 pence per share paid on 30 November 2021 | (1,932) |
| Second interim dividend of 0.84 pence per share paid on 31 March 2022 | (2,134) |
| Unclaimed dividends | 13 |
| Transferred to reserves | (2,495) |
| Net assets as at 30 June 2022 | 85,839 |
| Net asset value as at 30 June 2022 (pence per share) | 33.70 |
The Company paid dividends totalling 3.21 pence per share during the year ended 30 June 2022 (2021: 3.61 pence per share). The dividend objective of the Board is to provide shareholders with a regular dividend flow. The Board declared a first interim dividend for the year ending 30 June 2023 of 0.84 pence per share. This dividend will be paid on 30 November 2022 to shareholders on the register on 4 November 2022.
As shown in the Company’s Income statement below, the total return for the year was 2.09 pence per share (2021: 5.55 pence per share). Investment income has increased to £853,000 (2021: £820,000). This is a result of Radnor House repaying previously capitalised interest and the Evewell Group paying interest. The revenue return has benefitted from the increased percentage of investment management fees and performance incentive fees allocated to the realised capital reserve, to better align with the Board’s expectation that over the long term the majority of the Company’s investment returns will be in the form of capital gains. Consequently, there is a net revenue gain to shareholders of £324,000 (2021: loss of £63,000). Further information can be found in the Notes to the Financial Statements below.
The gain on investments for the year was £6,386,000 (2021: gain of £13,016,000). The key drivers of this gain are detailed in the Chairman’s statement above. The net asset value has decreased to 33.70 pence per share (2021: 34.79 pence per share), which can be seen on the Balance sheet below. This decrease in net asset value was primarily due to the payment of 3.21 pence per share of dividends during the year, including a special dividend of 1.50 pence per share. A full analysis of the Portfolio of investments can be seen on pages 27 to 29 of the full Annual Report and Financial Statements.
The cash flow for the Company has been a net inflow of £598,000 for the year (2021: £3,460,000), reflecting disposal proceeds, loan stock income, and the issue of new Ordinary shares under the Top Up Offer, offset by dividends paid, ongoing expenses, new investments 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.
There is a continuing focus on growing the healthcare (including digital healthcare) and software and other technology sectors. The majority of these investment returns are delivered through equity and capital gains and therefore we expect our investment income to continually reduce in future years.
Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.
Future prospects
The Company’s financial results for the year to 30 June 2022 demonstrates that the portfolio remains well balanced across sectors and risk classes, and is largely weathering the ongoing global issues caused as a result of high levels of inflation, rising interest rates, the Russian invasion of Ukraine, and persisting impacts of the pandemic. Although there remains much uncertainty, the Manager has a strong pipeline of investment opportunities in which the Company’s cash can be deployed. The Board considers that the current portfolio and the pipeline of opportunities should enable the Company to maintain a predictable stream of dividend payments to shareholders, as well as delivering long term growth for shareholders.
Key Performance Indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs and APMs, 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 KPIs and APMs, 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 2.12 pence per share to 100.25 pence per share (2021: 98.13) for the year ended 30 June 2022.
2. Shareholder return in the year †
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| 6.6% | 7.1% | 4.5% | 1.5% | 14.0% | 14.6% | 11.3% | (0.4%) | 15.9% | 6.10% |
† Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.
3. Dividend distributions
The Company’s annual dividend target is 5% of opening net asset value. Dividends paid in respect of the year ended 30 June 2022 were 3.21 pence per share (2021: 3.61 pence per share), which included a special dividend of 1.50 pence per share (2021: special dividend of 2.00 pence per share). Cumulative dividends paid since launch (on 18 January 1998) amount to 66.55 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year ended 30 June 2022 was 2.18 per cent. (2021: 2.25 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, but excluding any performance incentive fees) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to remain stable at approximately 2.2 per cent.
5. VCT compliance*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on pages 37 and 38 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 2022. These showed that the Company has complied with all tests and continues to do so.
*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.
Gearing
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to its adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
Operational arrangements
The Company has delegated the investment management of the portfolio to the Manager, which is authorised and regulated by the Financial Conduct Authority. The Manager also provides company secretarial and other accounting and administrative support to the Company.
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 a £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. In some instances, the Manager is entitled to an arrangement fee, payable by a portfolio company in which the Company invests, in the region of 2.0 per cent. of the 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 fee
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.
For the year ended 30 June 2022, the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period amounted to 37.14 pence per share, compared to a hurdle of 36.00 pence per share. As a result, a performance incentive fee of £584,000 is payable to the Manager (2021: £823,000).
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 80% qualifying holdings investment requirement for VCT status;
• the long term prospects of the current portfolio of investments;
• the management of treasury, including use of buy-backs and participation in fund raising;
• a review of the Management agreement and the services provided therein; and
• benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive (“AIFMD”)
The Board appointed the Manager as the Company’s AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides other AIFMD duties with respect to the Company.
Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole in both the long and short term, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.
The Board is very conscious of these wider responsibilities in the ways it promotes the Company’s culture and ensures, as part of its regular oversight, that the integrity of the Company’s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company’s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs, as well as visibility and openness in how the affairs are conducted.
The Company is an externally managed investment company with no employees, and as such has nothing to report in relation to employee engagement but does keep close attention to how the Board operates as a cohesive and competent unit. The Company has no customers in the traditional sense and, therefore, there is also nothing to report in relation to relationships with customers.
The table below sets out the stakeholders the Board considers most relevant, details how the Board has engaged with these key stakeholders and the effect of these considerations on the Company’s decisions and strategies during the year.
| Stakeholder | Engagement with Stakeholder | Decision outcomes based on engagement |
| Shareholders | The key methods of engaging with Shareholders are as follows:
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| Suppliers | The key suppliers with regular engagement from the Manager are:
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| Manager | The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance practice. |
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| Portfolio companies | The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. However, as discussed in the Environmental, Social and Governance (“ESG”) report on pages 21 to 23 of the full Annual Report and Financial Statements, the portfolio companies’ impact on their stakeholders is also important to the Company. |
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| Community and environment | The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board. |
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Environmental, Social and Governance (“ESG”)
The Board and the Company’s Manager, Albion Capital Group LLP, take ESG very seriously and more detail can be found on this in the ESG report on pages 21 to 23 of the full Annual Report and 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 formal policies in these matters, however, it is at the core of its responsible investment strategy as detailed above.
General Data Protection Regulation
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union, GDPR forms part of the UK law after Brexit, now known as UK GDPR. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
Further policies 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.
These are set out in the Directors’ report on page 39 of the full Annual Report and Financial Statements.
Risk management
The Board carries out a regular review of the risk environment in which the Company operates, together with changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable risks have been the emergence of rising inflation, caused in part as a result of the Russian invasion of Ukraine, whilst the pandemic has continued to impact on mobility, public health and have an adverse influence on the economy. The full impact of these risks are likely to continue to be uncertain for some time.
The Directors have carried out a robust assessment of the Company’s principal risks and uncertainties, and explain how they are being mitigated as follows.
| Risk | Possible consequence | Risk assessment during the year | 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. | Increased in the year due to the heightened economic and geopolitical issues as referred to in the Chairman’s statement. | 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 for all investments, and at least one external investment professional for investments greater than £1 million in aggregate across all the Albion managed VCTs. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The Board and Manager regularly review the deployment of investments and cash resources available to the Company in assessing liquidity required for servicing the Company’s buy-backs, dividend payments and operational expenses. The decision to issue a Prospectus for the 2021/22 Top-Up was due to careful analysis of these factors. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines updated in 2018. 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. | No change in the year | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust management, used to operating within the requirements of the Venture Capital Trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the Venture Capital Trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required. |
| Regulatory and compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the Financial Conduct Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | No change in the year | Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, 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 every two months. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors. |
| Operational and internal control risk (including cyber and data security) | The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | No change in the year | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Board receives reports from the Manager on its internal controls and risk management, including on matters relating to cyber security. The Audit and Risk Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets and has access to their internal audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. Ocorian Depositary (UK) Limited is the Company’s Depositary, appointed to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited to ensure that the Manager is adhering to its policies and procedures as required by the AIFMD. In addition, the Board annually reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual. |
| Economic, political and social risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection. | Increased in the year, due to the high levels of inflation, rising interest rates and the geopolitical risks from the invasion of Ukraine. | The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow-on investments. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term. The Board and Manager are continuously assessing the resilience of the portfolio, the Company and its operations and the robustness of the Company’s external agents, as well as considering longer term impacts on how the Company might be positioned in how it invests and operates. Ensuring liquidity in the portfolio to cope with exigent and unexpected pressures on the finances of the portfolio and the Company is an important part of the risk mitigation in these uncertain times. The portfolio is structured as an all-weather portfolio with c.60 companies which are diversified as discussed above. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel. |
| Liquidity risk | The Company may not have sufficient cash available to meet its financial obligations. The Company’s portfolio is primarily in smaller unquoted companies, which are inherently illiquid as there is no readily available market, and thus it may be difficult to realise their fair value at short notice. | No change in the year | To reduce this risk, the Board reviews the Company’s three year cash flow forecasts on a quarterly basis. These include potential investment realisations (which are closely monitored by the Manager), Top Up Offers, dividend payments and operational expenditure. This ensures that there are sufficient cash resources available for the Company’s liabilities as they fall due. |
| Environmental, social and governance (“ESG”) risk | An insufficient ESG policy could lead to an increased negative impact on the environment, including the Company’s carbon footprint. Non-compliance with reporting requirements could lead to a fall in demand from investors, reputational damage and penalties. Climate risks could also negatively impact on the value of portfolio investments. | Increased, due to the new guidance issued on climate change reporting and increased importance to stakeholders. | The Manager is a signatory of the UN PRI and the Board is kept appraised of the evolving ESG policies at quarterly Board meetings. Full details of the specific procedures and risk mitigation can be found in the ESG report on pages 21 to 32 of the full Annual Report and Financial Statements. These procedures ensure that this increased risk continues to be mitigated where possible. Whilst the Company itself has limited impact on climate change, due to no employees nor greenhouse gas emissions, the Board works closely with the Manager to ensure the Manager themselves are working towards reducing their impact on the environment, and that the Manager takes account of ESG factors, including climate change, when making new investment decisions. With specific respect to the Company, a key operation is increasing the use of electronic communications with Shareholders, where that preference has been specified. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 30 June 2025. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities as they fall due. This is the period used by the Board as part of its strategic planning process, which includes: the estimated timelines for finding, assessing and completing investments; the potential impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that could threaten its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. The Board carefully assessed, and were satisfied with, the risk management processes in place to avoid or reduce the impact of these risks. The Board has carried out robust stress testing of cashflows which included assessing the resilience of portfolio companies, including the requirement for any future financial support, and evaluating the impact of high inflation, both within the Company and within its portfolio.
The Board has additionally considered the ability of the Company to comply with the ongoing conditions to ensure it maintains its VCT qualifying status under its current investment policy. As a result of the Board’s quarterly valuation reviews, it has concluded that the portfolio is well balanced and geared towards delivering long term growth and strong returns to shareholders.
The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 June 2025. The Board is mindful of the ongoing risks and will continue to ensure that appropriate safeguards are in place, in addition to monitoring the quarterly cashflow forecasts to ensure the Company has sufficient liquidity.
This Strategic report of the Company for the year ended 30 June 2022 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
Penny Freer
Chairman
3 October 2022
Statement of Directors' responsibilities
In preparing these Financial Statements for the year to 30 June 2022, the Directors of the Company, being Penny Freer, James Agnew, Pam Garside and Ian Spence, confirm to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 30 June 2022 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 42 of the full Annual Report and Financial Statements.
For and on behalf of the Board
Penny Freer
Chairman
3 October 2022
Income statement
| Year ended 30 June 2022 | Year ended 30 June 2021 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
Gain on investments | 3 | - | 6,386 | 6,386 | - | 13,016 | 13,016 |
| Investment income | 4 | 853 | - | 853 | 820 | - | 820 |
| Investment Manager’s fees | 5 | (137) | (1,822) | (1,959) | (497) | (1,490) | (1,987) |
| Other expenses | 6 | (391) | - | (391) | (386) | - | (386) |
Profit/(loss) on ordinary activities before tax | 325 | 4,564 | 4,889 | (63) | 11,526 | 11,463 | |
| Tax on ordinary activities | 8 | - | - | - | - | - | - |
| Profit/(loss) and total comprehensive income attributable to shareholders | 325 | 4,564 | 4,889 | (63) | 11,526 | 11,463 | |
| Basic and diluted earnings per Ordinary share (pence)* | 10 | 0.14 | 1.95 | 2.09 | (0.03) | 5.58 | 5.55 |
* 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 2022 | 30 June 2021 | ||
| Note | £’000 | £’000 | |
| Fixed asset investments | 11 | 57,170 | 50,454 |
| Current assets | |||
| Trade and other receivables | 13 | 1,869 | 1,213 |
| Cash and cash equivalents | 28,024 | 27,426 | |
| 29,893 | 28,639 | ||
| Total assets | 87,063 | 79,093 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (1,224) | (1,443) |
| Total assets less current liabilities | 85,839 | 77,650 | |
| Equity attributable to equity holders | |||
| Called up share capital | 15 | 2,905 | 2,521 |
| Share premium | 35,522 | 23,011 | |
| Unrealised capital reserve | 20,384 | 18,643 | |
| Realised capital reserve | 12,729 | 9,905 | |
| Other distributable reserve | 14,299 | 23,570 | |
| Total equity shareholders’ funds | 85,839 | 77,650 | |
| Basic and diluted net asset value per share (pence)* | 16 | 33.70 | 34.79 |
* 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 3 October 2022 and were signed on its behalf by
Penny Freer
Chairman
Company number: 03495287
Statement of changes in equity
| Called up share capital | Share premium | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 July 2021 | 2,521 | 23,011 | 18,643 | 9,905 | 23,570 | 77,650 |
| Profit and total comprehensive income | - | - | 2,756 | 1,808 | 325 | 4,889 |
| Transfer of previously unrealised gains on disposal of investments | - | - | (1,015) | 1,015 | - | - |
| Dividends paid | - | - | - | - | (7,384) | (7,384) |
| Purchase of shares for treasury (including costs) | - | - | - | - | (2,212) | (2,212) |
| Issue of equity | 384 | 12,834 | - | - | - | 13,218 |
| Cost of issue of equity | - | (323) | - | - | - | (323) |
| As at 30 June 2022 | 2,905 | 35,522 | 20,384 | 12,729 | 14,299 | 85,839 |
| As at 1 July 2020 | 2,200 | 13,366 | 12,032 | 4,990 | 32,685 | 65,273 |
| Profit/(loss) and total comprehensive income | - | - | 11,564 | (38) | (63) | 11,463 |
| Transfer of previously unrealised gains on disposal of investments | - | - | (4,953) | 4,953 | - | - |
| Dividends paid | - | - | - | - | (7,314) | (7,314) |
| Purchase of shares for treasury (including costs) | - | - | - | - | (1,738) | (1,738) |
| Issue of equity | 321 | 9,874 | - | - | - | 10,195 |
| Cost of issue of equity | - | (229) | - | - | - | (229) |
| As at 30 June 2021 | 2,521 | 23,011 | 18,643 | 9,905 | 23,570 | 77,650 |
* Included within these reserves is an amount of £24,165,000 (2021: £28,289,000) which is considered distributable.
The nature of each reserve is described in note 2 below.
Statement of cash flows
| Year ended 30 June 2022 £’000 | Year ended 30 June 2021 £’000 | ||
| Cash flow from operating activities | |||
| Loan stock income received | 671 | 1,033 | |
| Deposit interest received | 17 | 2 | |
| Dividend income received | 64 | 13 | |
| Investment Manager’s fees paid | (2,162) | (1,110) | |
| Other cash payments | (390) | (398) | |
| Corporation tax paid | - | - | |
| Net cash flow from operating activities | (1,800) | (460) | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments* | (7,510) | (8,326) | |
| Disposal of fixed asset investments* | 6,643 | 11,156 | |
| Net cash flow from investing activities | (867) | 2,830 | |
| Cash flow from financing activities | |||
| Issue of share capital | 11,710 | 8,789 | |
| Cost of issue of equity** | (36) | (20) | |
| Equity dividends paid*** | (6,176) | (6,106) | |
| Purchase of own shares for treasury (including costs) | (2,233) | (1,573) | |
| Net cash flow from financing activities | 3,265 | 1,090 | |
| Increase in cash and cash equivalents | 598 | 3,460 | |
| Cash and cash equivalents at the start of the year | 27,426 | 23,966 | |
| Cash and cash equivalents at the end of the year | 28,024 | 27,426 | |
* Purchases and disposals detailed above do not agree to note 11 due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.
** The cost of issue of equity does not agree to the Statement of changes in equity due to prospectus fundraising amounts being received net of fees.
*** The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on pages 37 and 38 of the full Annual Report and Financial Statements.
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at Fair Value Through Profit and Loss (“FVTPL”) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines as updated in 2018 and further detail on the valuation techniques used are outlined in note 2 below.
Company information is shown 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 price 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.
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables and cash are carried at amortised cost, in accordance with FRS 102. Debtors due after more than one year meet the definition of a financing transaction held at amortised cost, and interest will be recognised through capital over the credit period using the effective interest method. There are no financial liabilities other than payables.
Investment income
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 fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
- 90 per cent. of management fees and 100 per cent. of performance incentive fees, if any, are allocated to the realised capital reserve. This has changed from 75 per cent. for both management fees and performance fees in the year ended 30 June 2021, to better align with the Board’s expectation that over the long term the majority of the Company’s investment returns will be in the form of capital gains; and
- expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.
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.
Share capital and reserves
Called up share capital
This accounts for the nominal value of the Company’s shares.
Share premium
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.
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 (including gains recognised on the realisation of investment where consideration is deferred and not distributable as a matter of law);
- finance income in respect of the unwinding of the discount on deferred consideration that is not distributable as a matter of law;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders where paid out by capital.
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares 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. Gain on investments
| Year ended 30 June 2022 | Year ended 30 June 2021 | |
| £’000 | £’000 | |
| Unrealised gain on fixed asset investments | 2,756 | 11,564 |
| Realised gain on fixed asset investments | 3,440 | 1,368 |
| Unwinding of discount on deferred consideration | 190 | 84 |
| 6,386 | 13,016 | |
4. Investment income
| Year ended 30 June 2022 | Year ended 30 June 2021 | |
| £’000 | £’000 | |
| Loan stock interest | 763 | 806 |
| UK dividend income | 74 | 13 |
| Bank deposit interest | 16 | 1 |
| 853 | 820 |
5. Investment Manager’s fees
| Year ended 30 June 2022 | Year ended 30 June 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Investment management fee | 137 | 1,238 | 1,375 | 291 | 873 | 1,164 |
| Performance incentive fee | - | 584 | 584 | 206 | 617 | 823 |
| 137 | 1,822 | 1,959 | 497 | 1,490 | 1,987 | |
Further details of the Management agreement under which the investment manger’s fee is paid are given in the Strategic report above.
During the year, services of a total value of £1,425,000 (2021: £1,214,000) were purchased by the Company from Albion Capital Group LLP (Albion Capital) comprising £1,375,000 of management fees (2021: £1,164,000) and £50,000 of administration fees (2021: £50,000). There is a performance incentive fee of £584,000 payable this year (2021: £823,000). At the financial year end, the amount due to Albion Capital in respect of these services disclosed as accruals and deferred income was £971,500 (administration fee accrual: £12,500, management fee accrual £375,000, performance incentive fee £584,000) (2021: £1,173,500).
Albion Capital is, from time to time, eligible to receive an arrangement fee and monitoring fees from portfolio companies. During the year ended 30 June 2022 fees of £121,000 attributable to the investments of the Company were received pursuant to these arrangements (2021: £223,000).
Albion Capital, its partners and staff holds 1,943,989 Ordinary shares in the Company as at 30 June 2022.
The Company entered into an offer agreement relating to the Offers with the Company’s investment manager, Albion Capital, pursuant to which Albion Capital received a fee of 2.5 per cent. of the gross proceeds of the Offers and out of which Albion Capital paid the costs of the Offers, as detailed in the Prospectus.
6. Other expenses
| Year ended 30 June 2022 | Year ended 30 June 2021 | |
| £’000 | £’000 | |
| Directors’ fees (including NIC) | 107 | 105 |
| Auditor’s remuneration for statutory audit services (excluding VAT) | 40 | 37 |
| Other administrative expenses | 244 | 244 |
| 391 | 386 | |
7. Directors’ fees
The amounts paid to (or on behalf of) the Directors during the year are as follows:
| Year ended 30 June 2022 £’000 | Year ended 30 June 2021 £’000 | |
| Directors’ fees | 98 | 97 |
| National insurance | 9 | 8 |
| 107 | 105 |
The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 49 to 51 of the full Annual Report and Financial Statements.
8. Tax on ordinary activities
| Year ended 30 June 2022 £’000 | Year ended 30 June 2021 £’000 | |
| UK corporation tax charge | - | - |
| Year ended 30 June 2022 | Year ended 30 June 2021 | |
| Factors affecting the tax charge | £’000 | £’000 |
| Return on ordinary activities before taxation | 4,889 | 11,463 |
| Tax charge on return at the average companies rate of 19.0% (2021: 19.0%) | 929 | 2,178 |
| Factors affecting the charge: | ||
| Non-taxable gains | (1,213) | (2,473) |
| Income not taxable | (14) | (2) |
| Unutilised management expenses | 298 | 297 |
| - | - |
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. (2021: 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.
(iii) No provision for deferred tax has been made in the current or prior accounting period. The Company has excess management expenses of £20,279,000 (2021: £18,700,000) that are available for offset against future profits. A deferred tax asset of £3,853,000 (2021: £3,553,000) has not been recognised in respect of these losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
9. Dividends
| Year ended 30 June 2022 | Year ended 30 June 2021 | |
| £’000 | £’000 | |
| Special dividend of 1.50 pence per share paid on 30 November 2021 (30 October 2020 – 2.00 pence per share) | 3,331 | 3,940 |
| First interim dividend of 0.87 pence per share paid on 30 November 2021 (30 November 2020 – 0.83 pence per share) | 1,932 | 1,642 |
| Second interim dividend of 0.84 pence per share paid on 31 March 2022 (31 March 2021 – 0.78 pence per share) | 2,134 | 1,744 |
| Unclaimed dividends | (13) | (12) |
| 7,384 | 7,314 |
In addition to the dividends paid above, the Board has declared a first interim dividend for the year ending 30 June 2023 of 0.84 pence per share. This will be paid on 30 November 2022 to shareholders on the register on 4 November 2022. The total dividend will be approximately £2,139,000. All dividends are paid from the other distributable reserve.
During the year, unclaimed dividends older than twelve years of £13,000 (2021: £12,000) 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/(loss) per share
| Year ended 30 June 2022 | Year ended 30 June 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Return/(loss) attributable to equity shares (£’000) | 325 | 4,564 | 4,889 | (63) | 11,526 | 11,463 |
| Weighted average shares (adjusted for treasury shares) | 234,049,617 | 206,558,772 | ||||
| Return/(loss) attributable per Ordinary share (pence) (basic and diluted) | 0.14 | 1.95 | 2.09 | (0.03) | 5.58 | 5.55 |
The return/(loss) per share has been calculated after adjusting for treasury shares of 35,822,916 (2021: 28,895,986).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return/(loss) per share are the same.
11. Fixed asset investments
| Investments held at fair value through profit or loss | 30 June 2022 £’000 | 30 June 2021 £’000 |
| Unquoted equity and preference shares | 47,449 | 41,381 |
| Quoted equity | 760 | 544 |
| Loan stock | 8,961 | 8,529 |
| 57,170 | 50,454 |
| 30 June 2022 £’000 | 30 June 2021 £’000 | |
| Opening valuation | 50,454 | 41,621 |
| Purchases at cost | 7,675 | 8,326 |
| Disposal proceeds | (7,247) | (12,281) |
| Realised gains | 3,440 | 1,452 |
| Movement in loan stock accrued income | 92 | (228) |
| Unrealised gains | 2,756 | 11,564 |
| Closing valuation | 57,170 | 50,454 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 50 | 278 |
| Movement in loan stock accrued income | 92 | (228) |
| Closing accumulated loan stock accrued income | 142 | 50 |
Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 18,576 | 11,965 |
| Transfer of previously unrealised gains to realised reserves on disposal of investments | (1,015) | (4,953) |
| Movement in unrealised gains | 2,756 | 11,564 |
| Closing accumulated unrealised gains | 20,317 | 18,576 |
| Historic cost basis | ||
| Opening book cost | 31,828 | 29,378 |
| Purchases at cost | 7,675 | 8,326 |
| Disposals at cost | (2,792) | (5,876) |
| Closing book cost | 36,711 | 31,828 |
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 2022 | 30 June 2021 | |
| Investment valuation methodology | £’000 | £’000 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 37,393 | 26,279 |
| Revenue multiple | 7,801 | 13,146 |
| Third party valuation – discounted cash flow | 7,221 | 6,853 |
| Third party valuation – earnings multiple | 3,159 | 2,768 |
| Net assets | 791 | 801 |
| Earnings multiple | 45 | 63 |
| 56,410 | 49,910 |
When using the cost or price of a recent investment in the valuations the Company looks to ‘re-calibrate’ this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (i.e. using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.
The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and revenue multiples (based on the most recent revenue, EBITDA or earnings achieved and equivalent corresponding revenue, EBITDA or earnings multiples of comparable companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the Company’s investments, being in growth and technology companies which are not normally expected to achieve profitability or scale for a number of years. Where an investment has achieved scale and profitability the Company would normally then expect to switch to using an EBITDA or earnings multiple methodology.
In the calibration exercise and in determining the valuation for the Company’s equity instruments, comparable trading multiples are used. In accordance with the Company’s policy, appropriate comparable companies based on industry, size, developmental stage, revenue generation and strategy are determined and a trading multiple for each comparable company identified is then calculated. The multiple is calculated by dividing the enterprise value of the comparable group by its revenue, EBITDA or earnings. The trading multiple is then adjusted for considerations such as illiquidity, marketability and other differences, advantages and disadvantages between the portfolio company and the comparable public companies based on company specific facts and circumstances.
Fair value investments had the following movements between investment methodologies between 30 June 2021 and 30 June 2022:
Change in investment valuation methodology (2021 to 2022) | Value as at 30 June 2022 £’000 | Explanatory note |
| Revenue multiple to cost and price of recent investment (reviewed for impairment or uplift) | 4,189 | Recent funding round |
| Cost and price of recent investment (reviewed for impairment or uplift) to revenue multiple | 26 | More appropriate valuation methodology |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be more appropriate as at 30 June 2022.
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 FRS 102 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 |
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:
| 30 June 2022 | 30 June 2021 | |
| £’000 | £’000 | |
| Opening balance | 49,910 | 41,621 |
| Additions* | 7,675 | 8,246 |
| Disposal proceeds* | (7,202) | (12,281) |
| Realised gains | 3,395 | 1,452 |
| Unrealised gains | 2,540 | 11,310 |
| Accrued loan stock interest | 92 | (228) |
| Investments transferred to level 1 | - | (210) |
| Closing balance | 56,410 | 49,910 |
*Additions and disposals do not agree to the cash flow due to loan stock conversions and non-cash consideration.
FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 65 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. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 84 per cent. of the portfolio of investments. The main inputs considered for each type of valuation is as follows:
| Valuation technique | Portfolio company sector | Input | Base case* | Change in input | Change in fair value of investments (£’000) | Change in NAV (pence per share) |
| Revenue multiple | Healthcare (including digital healthcare) | Revenue multiple | 5.2x | +0.5x | 366 | 0.14 |
| -0.5x | (366) | (0.14) | ||||
| Third party valuation – discounted cash flow | Renewable energy | Discount factor | 5.5% | +0.5% | (198) | (0.08) |
| -0.5% | 217 | 0.09 | ||||
| Third party valuation – earnings multiple | Other (including education) | Earnings multiple | 22.5x | +0.3x | 235 | 0.09 |
| -0.3x | (235) | (0.09) | ||||
| Third party valuation – discounted cash flow | Renewable energy | Discount factor | 5.5% | +0.5% | (56) | (0.02) |
| -0.5% | 59 | 0.02 |
*As detailed in the accounting policies above, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the valuation of the equity investments by £877,000 (1.8%) or a decrease in the valuation of equity investments by £855,000 (1.8%).
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The Company has no interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 30 June 2022.
13. Current assets
| Trade and other receivables | 30 June 2022 | 30 June 2021 |
| £’000 | £’000 | |
| Prepayments and accrued income | 34 | 30 |
| Deferred consideration under one year | 510 | 48 |
| Deferred consideration over one year | 1,325 | 1,135 |
| 1,869 | 1,213 |
The deferred consideration over one year relates to the sale of G.Network Communications in December 2020. These proceeds are receivable in January 2024, and have been discounted to present value at the prevailing market rate, including a provision for counterparty risk. This constitutes a financing transaction, and has been accounted for using the policy disclosed in note 2.
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
14. Payables: amounts falling due within one year
| 30 June 2022 | 30 June 2021 | |
| £’000 | £’000 | |
| Accruals and deferred income | 1,061 | 1,264 |
| Trade payables | 163 | 179 |
| 1,224 | 1,443 |
The Directors consider that the carrying amount of payables is not materially different to their fair value.
15. Called up share capital
| Allotted, called up and fully paid | £'000 |
| 252,120,092 Ordinary shares of 1 penny each at 30 June 2021 | 2,521 |
| 38,403,745 Ordinary shares of 1 penny each issued during the year | 384 |
| 290,523,837 Ordinary shares of 1 penny each at 30 June 2022 | 2,905 |
| 28,895,986 Ordinary shares of 1 penny each held in treasury at 30 June 2021 | (289) |
| 6,926,930 Ordinary shares of 1 penny each purchased during the year to be held in treasury | (69) |
| 35,822,916 Ordinary shares of 1 penny each held in treasury at 30 June 2022 | (358) |
| Voting rights of 254,700,921 Ordinary shares of 1 penny each at 30 June 2022 | 2,547 |
The Company purchased 6,926,930 Ordinary shares for treasury (2021: 5,834,356) during the year at a total cost of £2,212,000 (2021: £1,738,000).
The total number of shares held in treasury as at 30 June 2022 was 35,822,916 (2021: 28,895,986) representing 12.3 per cent. of the shares in issue as at 30 June 2022.
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 2021 | 2,546,864 | 25 | 33.25 | 829 | 31.80 |
| 31 March 2022 | 1,137,670 | 11 | 32.92 | 356 | 31.40 |
| 3,684,534 | 1,185 |
Under the terms of the Albion VCTs’ Prospectus Top Up Offers 2021/22, 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) |
| 25 February 2022 | 2,622,491 | 26 | 34.30 | 886 | 32.20 |
| 25 February 2022 | 1,032,741 | 10 | 34.50 | 349 | 32.20 |
| 25 February 2022 | 27,010,348 | 270 | 34.70 | 9,139 | 32.20 |
| 31 March 2022 | 1,838,353 | 18 | 33.80 | 606 | 31.40 |
| 11 April 2022 | 575,304 | 6 | 33.50 | 190 | 31.40 |
| 11 April 2022 | 22,320 | - | 33.60 | 7 | 31.40 |
| 11 April 2022 | 1,617,654 | 16 | 33.80 | 533 | 31.40 |
| 34,719,211 | 11,710 |
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 2022 | 30 June 2021 | |||
| Net asset value per share (pence) | 33.70 | 34.79 |
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 254,700,921 shares as at 30 June 2022 (2021: 223,224,106).
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 on page 41 of the Directors’ report in the full Annual Report and Financial Statements.
The Company’s financial instruments comprise equity and loan stock investments in unquoted 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:
- Market and investment risk (which comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below:
Market risk
As a Venture Capital Trust, it is the Company’s specific nature to evaluate the market risk of its portfolio in unquoted companies. Market risk is the exposure of the Company to the revaluation and devaluation of investments as a result of macroeconomic changes. The main driver of market risk is the dynamics of market quoted comparators, as well as the financial and operational performance of portfolio companies. The Board seeks to reduce this risk by having a spread of investments across a variety of sectors. More details on the sectors the Company invests in can be found in the pie chart at the end of this announcement.
The Manager and the Board formally review market risk, both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
Under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the extent to which the assets are exposed to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a change of 10% based on the current economic climate. The impact of a 10% change has been selected as this is considered reasonable given the current level of volatility observed. When considering the appropriate level of sensitivity to be applied, the Board has considered both historic performance and future expectations.
The sensitivity of a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £5,717,000. Further sensitivity analysis on fixed asset investments is included in note 11.
Investment risk (including investment price risk)
Investment risk (including investment price risk) is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk. The Directors monitor the Manager’s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the pie chart at the end of this announcement.
The maximum investment risk on the balance sheet date is the value of the fixed asset investment portfolio which is £57,170,000 (2021: £50,454,000). Fixed asset investments form 67% of the net asset value on 30 June 2022 (2021: 65%).
More details regarding the classification of fixed asset investments are shown 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 of half a percentage point in all interest rates would have increased total return before tax for the year by approximately £139,000 (2021: £128,000). Furthermore, it was considered that a material fall in interest rates below current levels during the year would have been unlikely.
The weighted average interest rate applied to the Company’s fixed rate assets during the year was approximately 10.1 per cent. (2021: 4.5 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 2.1 years (2021: 2.7 years).
The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 30 June 2022 | 30 June 2021 | |||||||
Fixed rate £’000 | Floating rate £’000 | Non-interest £’000 | Total £’000 | Fixed rate £’000 | Floating rate £’000 | Non-interest £’000 | Total £’000 | |
| Loan stock | 7,527 | - | 1,434 | 8,961 | 8,000 | - | 529 | 8,529 |
| Equity | - | - | 48,209 | 48,209 | - | - | 41,925 | 41,925 |
| Receivables* | - | - | 1,835 | 1,835 | - | - | 1,183 | 1,183 |
| Payables | - | - | (1,224) | (1,224) | - | - | (1,443) | (1,443) |
| Cash | - | 28,024 | - | 28,024 | - | 27,426 | - | 27,426 |
| 7,527 | 28,024 | 50,254 | 85,805 | 8,000 | 27,426 | 42,194 | 77,620 | |
*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 86.5 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 2022 was limited to £8,961,000 (2021: £8,529,000) of loan stock instruments, £28,024,000 (2021: £27,426,000) of cash deposits with banks and £1,835,000 (2021: £1,183,000) 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, Societe Generale S.A, Bank of Montreal 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 £83,700,000 (2021: £72,360,000) as at 30 June 2022.
The Company has no committed borrowing facilities as at 30 June 2022 (2021: nil) and had cash balances of £28,024,000 (2021: £27,426,000). 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 £1,224,000 (2021: £1,443,000) as at 30 June 2022.
The carrying value of loan stock investments, analysed by expected maturity dates is as follows:
| 30 June 2022 | 30 June 2021 | |||||||||
| 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 | 4,704 | 1,374 | 410 | 6,488 | 2,534 | 381 | 411 | 3,326 | ||
| 1-2 years | 94 | - | - | 94 | 1,037 | 845 | 1 | 1,883 | ||
| 2-3 years | 116 | - | - | 116 | 30 | - | - | 30 | ||
| 3-5 years | 1,238 | - | - | 1,238 | 1,975 | - | - | 1,975 | ||
| 5 + years | 1,025 | - | - | 1,025 | 1,315 | - | - | 1,315 | ||
| Total | 7,177 | 1,374 | 410 | 8,961 | 6,891 | 1,226 | 412 | 8,529 | ||
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 considered to be impaired.
The cost of loan stock investments valued below cost is £681,000 (2021: £681,000).
The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both those valued below cost and past due assets are covered by the value of security held for these loan stock investments.
In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 30 June 2022 are stated at fair value as determined by the Directors, with the exception of receivables (including debtors due after more than one year), 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 2022, the Company had no financial commitments in respect of investments (2021: £nil).
There are no contingencies or guarantees of the Company as at 30 June 2022 (2021: £nil).
19. Post balance sheet events
Since 30 June 2022 the Company has completed the following material investment transactions:
- Investment of £1,017,000 into a new portfolio company, a Software as a Service (SaaS) based global financial orchestration platform;
- Investment of £618,000 into a new portfolio company, who develop single-cell sequencing solutions;
- Investment of £505,000 into a new portfolio company, a SaaS platform to measure and manage human risk for enterprises; and
- Investment of £432,000 into a new portfolio company, a platform providing digital neurorehabilitation.
On 21 September 2022 the Company announced that it intends to launch prospectus top up offers of new ordinary shares for subscription in the 2022/2023 and 2023/2024 tax years. Full details of the Offers will be contained in a prospectus that is expected to be published in October 2022 and will be available on the Albion Capital website (www.albion.capital).
20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, and the Directors’ remuneration disclosed in the Directors’ remuneration report on page 50 of the full Annual Report and Financial Statements, there are no other related party transactions or balances requiring disclosure.
21. Other information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 30 June 2022 and 30 June 2021, 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 2022, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
22. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/CRWN, where the Report can be accessed via a link in the 'Financial Reports and Circulars' section.
Attachment
