Annual Financial Report
11/10/2023 18:13
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231011:nGNEbD9yHx&default-theme=true
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 2023.
This announcement was approved for release by the Board of Directors on 11
October 2023.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 30 June 2023
(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/30Jun23.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% 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
3 November 2023 Record date for first dividend
Noon on 22 November 2023 Annual General Meeting
30 November 2023 Payment date of first dividend
March 2024 Announcement of Half-yearly results for the six months ending 31 December 2023
28 March 2024 Payment date of second dividend (subject to Board approval)
Financial highlights
1.06p 3.15% 1.63p 33.13p
Increase in total shareholder value per share for the year ended 30 June 2023 (2022: 2.12p)† Total return uplift on opening net asset value per share (2022: 6.10%)† Total tax-free dividends per share paid during the year ended 30 June 2023 (2022: 3.21p) Net asset value per share as at 30 June 2023 (2022: 33.70p)
†These are considered Alternative Performance Measures, see notes 2 and 3 of
the Strategic report below for further explanation.
Movements in net asset value
30 June 2023 30 June 2022
pence per share pence per share
Opening net asset value 33.70 34.79
Capital return 0.92 1.95
Revenue return 0.13 0.14
Total return 1.05 2.09
Dividends paid (1.63) (3.21)
Impact of share capital movements 0.01 0.03
Closing net asset value 33.13 33.70
Total shareholder value
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 2023 (period that Albion Capital has been investment manager) :
Total dividends paid 43.25
Decrease in net asset value (10.27)
Total shareholder return from April 2005 to 30 June 2023 32.98
Shareholder value since launch:
Total dividends paid to 30 June 2023 ((i)) 68.18
Net asset value as at 30 June 2023 33.13
Total shareholder value as at 30 June 2023 101.31
Note
(i) Prior to 6 April 1999, Venture Capital Trusts were able to add
20% 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
dividend for the year ending 30 June 2024 of 0.83 pence per share payable on
30 November 2023 to shareholders on the register on 3 November 2023.
Chairman’s statement
Introduction
The year saw the Company’s portfolio facing a challenging macroeconomic and
geopolitical backdrop due to high inflation, rising interest rates and
political instability which has caused the valuation of quoted technology
companies to fall sharply. In spite of this, I am pleased to report an
increase in total shareholder value of 1.06 pence per share for the year ended
30 June 2023, representing a 3.1% uplift on the opening net asset value.
Although the Company’s portfolio faces uncertainties, the Board remains
encouraged by the progress that is being made by many of the portfolio
companies. The Board recognises the importance of evaluating the Company’s
returns over the longer-term, as a venture capital portfolio can, by its
nature, experience periods of short term volatility.
Results and dividends
As at 30 June 2023, the net asset value (“NAV”) was £94.0 million or
33.13 pence per share compared with £85.8 million or 33.70 pence per share at
30 June 2022. 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 of around 5.0% of NAV per
annum, the Company paid ordinary dividends of 1.63 pence per share during the
year to 30 June 2023, which equates to 4.8% of the opening NAV (30 June 2022:
3.21 pence per share, which included a special dividend of 1.50 pence per
share).
The Board is pleased to declare a first dividend for the year ending 30 June
2024 of 0.83 pence per share, representing 2.5% of the prevailing NAV, to be
paid on 30 November 2023 to shareholders on the register on 3 November 2023.
Investment performance and progress
Our portfolio has performed well despite the global uncertainties faced, and
this has contributed to the total uplift in value of £3.8 million to the
Company’s investments for the year (30 June 2022: £6.4 million). Quantexa,
the largest company within our portfolio (18% of net asset value), was the
main contributor to the net gain, increasing its value by £6.8 million
following an externally led $129 million Series E fundraising which completed
in April 2023. Other unrealised gains in the year, again driven by strong
trading and revenue growth, included Convertr of £0.6 million and Solidatus
of £0.5 million. These gains were partially offset by write downs in Black
Swan which decreased by £1.5 million, uMotif by £0.9 million and Oviva by
£0.8 million.
The Company realised disposal proceeds of £0.7 million (2022: £7.2 million).
The largest disposals being a part disposal of our shareholding in our AIM
quoted investment, Arecor Therapeutics PLC (£0.3 million) and an exit of Zift
(£0.2 million). There were also several investments written off during the
year, however their valuations had already been substantially reduced in
previous years and had little impact on the return for the year. Further
details on the realisations during the year can be found in the realisations
table on page 29 of the full Annual Report and Financial Statements.
The three largest investments in the Company’s portfolio, Quantexa, Proveca
and Radnor House are valued at £24.8 million and represent 26.4% of the
Company’s net asset value. The company regularly monitors its concentration
risk and as announced on 6 October 2023, the Company sold £1.2 million of its
holding in Quantexa at its current valuation to reduce its concentration risk.
The Company has been an active investor during the year with £7.9 million
invested in 11 new and 11 existing portfolio companies. The new portfolio
companies are expected to require further investment as the companies prove
themselves and grow. The following are the five largest new investments:
* £1.2 million into Peppy Health, a platform providing expert support for
underserved areas of health and wellness (e.g. menopause) via content, video,
chat support as an employment benefit for employees
* £1.0 million into Toqio FinTech Holdings which bridges the gap between
financial services and financial outcomes by providing an orchestration
platform to any business large or small which wishes to launch a financial
product
* £0.6 million into GX Molecular (T/A CS Genetics), a developer of a
wet-phase approach to single cell indexing in a single tube that enables
increased scalability and high quality single cell analysis
* £0.5 million into OutThink, a software platform to measure and manage human
risk enterprises
* £0.4 million into Neurofenix, a platform providing neurorehabilitation for
patients recovering from stroke, TBI and spinal cord injury
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.
Board composition
I have had the privilege of serving as a Director of the Company for nine
years, including three as Chairman, and I will retire at the Annual General
Meeting in November 2023. I am delighted that James Agnew, an existing Board
member, will succeed me as Chairman.
Following a formal selection process and as part of its ongoing succession
planning, the Board is pleased to welcome Tony Ellingham who joined the Board
on 1 September 2023.
When James Agnew becomes Chairman of the Board, Tony Ellingham will become the
Chairman of the Audit and Risk Committee; Pam Garside will become the Senior
Independent Director; and Ian Spence will become Chairman of the Remuneration
Committee.
Risks and uncertainties
The Company faces a number of significant risks, including higher interest
rates, high levels of inflation, the ongoing impact of geopolitical tensions,
and an expected period of economic stagnation in the UK and other markets.
This complex backdrop is factored into how the Company is managed, including
in its management of cash.
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.
The Manager is continually assessing the exposure to these risks for each
portfolio company and appropriate actions, where possible, are being
implemented. This includes the potential provision of further financial
support to portfolio companies where necessary.
A detailed analysis of the principal risks and uncertainties facing the
business is shown in the Strategic report below.
Share buy-backs and reserves
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. 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.
The Company also manages a relatively high level of distributable reserves
which can be used for share buy-backs and the payment of dividends. As in the
past, the Company has sought authority from shareholders for the
reclassification of the share premium account to create additional
distributable reserves, which is being done again this year as explained on
page 50 of the full Annual Report and Financial Statements.
Albion VCTs Prospectus Top Up Offers
Your Board, in conjunction with the boards of the other five VCTs managed by
Albion Capital Group LLP, launched a prospectus top up Offer of new Ordinary
shares on 10 October 2022. On 10 March 2023 the Offer was fully subscribed and
closed to further applications raising £11.5 million including the
overallotment facility. The Board was pleased to see the high level of demand
for the Company’s shares from existing and new shareholders.
The proceeds raised by the Company pursuant to the Offer are added to the
liquid resources available for investment, positioning the Company to take
advantage of new investment opportunities. Details on the share allotments
during the year can be found in note 15.
Annual General Meeting
The AGM will be held virtually at noon on 22 November 2023 via the Lumi
platform. Information on how to participate in the live webcast can be found
on the Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcomes 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 49 and 50, and in the Notice of the
Meeting on pages 91 and 92, of the full Annual Report and Financial
Statements.
Audit tender process
Following a formal and rigorous audit tender process, the intention is to
appoint Johnston Carmichael LLP (“Johnston Carmichael”) as the new Auditor
of the Company in October 2023. Johnston Carmichael will conduct the audit of
the Annual Report and Financial Statements for the year ended 30 June 2024.
Shareholders will be asked to confirm the appointment of Johnston Carmichael
at the forthcoming Annual General Meeting. BDO conducted the audit of the
Annual Report and Financial Statements for the year ended 30 June 2023 and
their report can be found on pages 64 to 70 of the full Annual Report and
Financial Statements. The Board would like to express their gratitude to BDO
for their diligent service over 16 years. Further details on the tender
process can be found in the Statement of corporate governance on page 56 of
the full Annual Report and Financial Statements.
Shareholder seminar
The next Shareholder Seminar will be held at the Royal College of Surgeons,
Lincoln’s Inn Fields, London WC2A 3PE on 15 November 2023 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 “Shareholder 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 and prospects
The Board is encouraged by the positive results for the year just ended in
what are uncertain times, principally outside the Company’s control. The
Board believes the portfolio is well diversified in terms of maturity and
target sectors, many of which do not depend on consumer sentiment. Therefore,
the Board continues to have confidence that the Company is well positioned in
the current economic environment to generate long term value for shareholders.
Penny Freer
Chairman
11 October 2023
Strategic report
Crown Place VCT PLC (the “Company”) is a Venture Capital Trust and its
investment policy can be found above.
Business model
As a Venture Capital Trust, 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 Investment
Management Agreement can be found below.
Current portfolio sector allocation
The pie charts at the end of this announcement are a useful way of showing the
split of the portfolio valuation as at 30 June 2023 by: sector; stage of
investment measured by revenues; and size measured by number of employees.
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 spread across the FinTech, healthcare (including digital
healthcare), software and technology, renewable energy, and education sectors.
Cash and net current assets are a significant proportion of the portfolio at
28%. The main use of these funds will be to invest in higher growth technology
companies, and therefore the shift away from asset based companies will
continue. The funds will also be used to pay dividends, buyback shares and for
the operating expenses of the Company. The Company has a significant
speciality in healthcare, FinTech and software investing, which account for
58% of the net asset value of the Company.
Results and dividends
£’000
Net revenue return for the year ended 30 June 2023 351
Net capital return for the year ended 30 June 2023 2,466
Total return for the year ended 30 June 2023 2,817
First dividend of 0.84 pence per share paid on 30 November 2022 (2,130)
Second dividend of 0.79 pence per share paid on 31 March 2023 (2,120)
Unclaimed dividends 13
Transferred from reserves (1,420)
Net assets as at 30 June 2023 93,969
Net asset value as at 30 June 2023 33.13 pence per share
The Company paid dividends totalling 1.63 pence per share during the year
ended 30 June 2023 (2022: 3.21 pence per share which included a 1.50 pence per
share special dividend). The dividend objective of the Board is to provide
shareholders with a regular dividend flow. The Board declared a first dividend
for the year ending 30 June 2024 of 0.83 pence per share. This dividend will
be paid on 30 November 2023 to shareholders on the register on 3 November
2023.
As shown in the Company’s Income statement below, the total return for the
year was 1.05 pence per share (2022: 2.09 pence per share). The net asset
value decreased to 33.13 pence per share (2022: 33.70 pence per share). This
decrease in net asset value was primarily due to the payment of 1.63 pence per
share of dividends during the year, partly offset by the total return in the
year.
Investment income has increased to £936,000 (2022: £853,000). This is a
result of bank interest and income from fixed term funds increasing to
£283,000 (2022: £17,000) as a result of rising interest rates. Loan stock
income decreased to £569,000 (2022: £763,000) as the prior year included a
large payment of previously capitalised interest.
The gain on investments for the year was £3,846,000 (2022: gain of
£6,386,000). The key drivers of this gain are detailed in the Chairman’s
statement above. 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 net cash flow for the Company has been a net outflow of £3,018,000 for
the year (2022: inflow of £598,000), reflecting new investments, dividends
paid, ongoing expenses and the buy-back of shares, offset by disposal
proceeds, loan stock income, and the issue of new Ordinary shares under the
Top Up Offer.
Review of the business and future changes
A detailed review of the Company’s business during the year is contained in
the Chairman’s statement above.
There is a continuing focus on growing the healthcare (including digital
healthcare), FinTech and software and other technology sectors. The majority
of these investment returns are delivered through equity and capital gains and
are expected to be the key driver of success for the Company. Investment
income, which is received primarily from our renewable energy investments, is
expected to remain steady over the coming 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 ended 30 June 2023 demonstrate
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 interest rates and inflation, and other economic headwinds. Although
there remains much uncertainty, 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. Further details on the Company’s outlook
and prospects can be found in the Chairman’s statement above.
Key Performance Indicators (“KPIs”) and Alternative Performance Measures
(“APMs”)
The Directors believe that the following KPIs (some of which are APMs), which
are typical for Venture Capital Trusts, used in its own assessment of the
Company, will provide shareholders with sufficient information to assess how
effectively the Company is applying its investment policy to meet its
objectives. The Directors are satisfied that the results shown in the
following KPIs and APMs give a good indication that the Company is achieving
its investment objective and policy. These are:
1. Total shareholder value relative to FTSE All Share Index total return
The graph on page 8 of the full Annual Report and Financial Statements shows
the Company’s total shareholder value relative to the FTSE All-Share Index
total return, with dividends reinvested. The FTSE All-Share Index is
considered a reasonable benchmark as the Company is classed as a generalist UK
VCT investor, and this index includes over 600 companies listed in the UK,
including small-cap, covering a range of sectors. Details on the performance
of the net asset value and return per share for the year are shown in the
Chairman’s statement.
Total shareholder value increased by 1.06 pence per share to 101.31 pence per
share (2022: 100.25) for the year ended 30 June 2023.
2. Movement in shareholder value in the year †
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
7.1% 4.5% 1.5% 14.0% 14.6% 11.3% (0.4%) 15.9% 6.1% 3.1%
† Methodology: Calculated as the movement in total shareholder value for the
year divided by the opening net asset value.
3. Dividend distributions
Dividends paid in respect of the year ended 30 June 2023 were 1.63 pence per
share (2022: 3.21 pence per share, which included a special dividend of 1.50
pence per share). Cumulative dividends paid since launch (on 18 January 1998)
amount to 68.18 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year ended 30 June 2023 was 2.20% (2022:
2.18%). 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 2.20%.
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 page 46 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 2023. 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 the 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, Albion Capital Group LLP, 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.
Investment Management Agreement
Under the Investment Management Agreement (“IMA”), the Manager provides
investment management, secretarial and administrative services to the Company.
The IMA 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. The Manager is paid an annual fee equal to 1.75%
of the net asset value of the Company, and an annual secretarial and
administrative fee of £50,000 per annum. Total annual expenses, including the
management fee, are limited to 3% 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% of the
investment made, and also monitoring fees where the Manager has a
representative on the portfolio company’s board.
Management performance incentive fee
In order to align the interests of the Manager and shareholders with regards
to generating positive returns, the Manager is entitled to charge an incentive
fee in the event that the returns exceed minimum target levels. 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 performance hurdle 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%. 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 2023, 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 34.76 pence per
share, compared to a hurdle of 35.69 pence per share. As a result, no
performance incentive fee is payable to the Manager (2022: £584,000).
Investment and co-investment
The Company co-invests with other Venture Capital Trusts and funds managed by
the Manager. Allocation of investments is on the basis of an allocation
agreement which is based, inter alia, on the ratio of funds available for
investment.
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 HMRC tests 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; 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.
Consumer duty
The Consumer Duty came into effect from 31 July 2023. These new rules set a
higher standard of consumer protection in financial services. The Manager as
AIFM is within scope of the FCA’s Consumer Duty, but the Company itself is
not.
The Manager is a manufacturer of the Company’s shares as it is a firm that
has some influence over design and distribution of the Company’s share
product. The Manager’s first assessment of value for the Company’s shares
was completed in April 2023. The value assessment concluded that the Company
provides fair value for shareholders.
Where the Manager concludes that changes will help deliver good outcomes for
consumers, it will recommend these changes to the Board.
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 also has no customers in the traditional sense and, therefore,
there is also nothing to report in relation to relationships with customers.
The table that follows sets out the key stakeholders, 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.
Engagement with Stakeholder Decision outcomes based on engagement
Shareholders
The key methods of engaging with Shareholders are as follows: * Annual General Meeting (“AGM”) * Shareholders’ views are important and the Board encourages Shareholders to exercise their right to vote on the resolutions at the AGM. The Company’s AGM is typically used as an opportunity to communicate with investors, including through a presentation
* Shareholder seminar made by the Manager. Undertaking this virtually enabled engagement with a wider audience of shareholders from across the country, and gave shareholders the opportunity to ask questions and vote during the virtual AGM last year. The virtual medium helps
* Annual Report and Financial Statements, Half-yearly financial report, and Interim management statements facilitate greater shareholder participation and to help those who are unable to attend the AGM in person, as well as provide a recording of the event for Shareholders to watch on demand.
* RNS announcements in accordance with Listing Rules and Disclosure Guidance and Transparency Rules (“DTRs”) covering such things as the publication of a Prospectus * Shareholders are also encouraged to attend the in person annual Shareholder Seminar. Last year’s event took place on 23 November 2022. The seminar included portfolio companies sharing insights into their businesses and also a Q&A from Albion executives
* Albion Capital website, social media pages, as well as publishing Albion News shareholder magazine on some of the key factors affecting the investment outlook, as well as a review of the past year and the plans for the year ahead. Representatives of the Board attended the seminar. The Board considers this an important interactive event and invites
shareholders to attended this year’s event scheduled for 15 November 2023 at the Royal College of Surgeons. To reserve your place email info@albion.capital with your full name.
* The Board recognises the importance to Shareholders of maintaining a share buy-back policy, in order to provide market liquidity, and considered this when establishing the current policy. The Board closely monitors the discount to the net asset value to
ensure this is in the region of 5%.
* The Board seeks to create value for Shareholders by generating strong and sustainable returns to provide Shareholders with regular dividends and the prospect of capital growth. The Board takes this into consideration when making the decision to pay
dividends to Shareholders. The variable dividend policy has resulted in a dividend yield of 4.8% on opening net asset value.
* During the year, the Board made the decision to participate in the Albion Prospectus Top Up Offer, launched on 10 October 2022, in order to raise funds for deployment into new and existing portfolio companies. The Board carefully considered whether
further funds were required, whether the VCT tests would continue to be met, and whether it would be in the interest of Shareholders, before agreeing to publish the Prospectus. On allotment, an issue price formula based on the prevailing net asset value
was used to ensure there was no dilution to existing Shareholders.
* Cash management and liquidity of the Company are key quarterly discussions amongst the Board, with focus on deployment of cash for future investments, dividends and share buy-backs. The Board has therefore proposed a special resolution at the 2023 AGM to
increase the Company’s distributable reserves by way of a reduction of the share premium account. This will provide flexibility, if it is required, for the Company to make buy backs and dividend payments. Further details on this can be found in the
Chairman’s Statement above.
* Shareholders can contact the Chairman using the email crownchair@albion.capital .
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 (“ESG”) practice. * The Manager meets with the Board at least quarterly to discuss the performance of the Company, and is in regular contact in between these meetings, e.g. to share investment papers for new and follow-on investments. All strategic decisions are discussed
in detail and minuted, with an open dialogue between the Board and the Manager.
* The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further
details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found in this report.
* Details of the Manager’s responsibilities can be found in the Statement of corporate governance on page 54 of the full Annual Report and Financial Statements.
Suppliers
The key suppliers are: * Auditor; * The Manager, on behalf of the Company, is in regular contact with the suppliers and the contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers
* Corporate broker; in acquitting their responsibilities.
* Depositary; * The Manager reviews the performance of the providers annually and was satisfied with their performance.
* Legal adviser;
* Registrar; and
* VCT taxation adviser.
Portfolio companies
The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. Also, as discussed in the ESG report on pages 35 to 38 of the full Annual Report and Financial Statements the portfolio companies’ impact on their stakeholders is also important to the Company. * The Board aims to have a diversified portfolio in terms of sector and stage of investment. Further details of this can be found in the pie charts at the end of this announcement.
* In most cases, an Albion executive has either a place on the board of a portfolio company or is an observer, in order to help with both business operation decisions, as well as good ESG practices.
* The Manager provides access to deep expertise on growth strategy alignment, leadership team hiring, organisational scaling and founder leader development.
* The Manager facilitates good dialogue with portfolio companies, and often puts on events in order to help portfolio companies benefit from the Albion network.
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. * The Board receives reports on ESG factors within its portfolio from the Manager as it is a signatory of the United Nations Principles for Responsible Investment (“UN PRI”). Further details of this are set out in the ESG report. ESG, without its specific
definition, has always been at the heart of the responsible investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of 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 (“GDPR”) 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
The Company has adopted a number of further policies relating to:
* Environment;
* Global greenhouse gas emissions;
* Anti-bribery;
* Anti-facilitation of tax evasion; and
* Diversity.
and these are set out in the Directors’ report on page 47 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 rising interest
rates and inflation, caused in part as a result of the geopolitical tensions,
and pricing volatility in world markets, particularly affecting growth stocks.
The full impact of these risks are likely to continue to be uncertain for some
time.
The Board has carried out a robust assessment of the Company’s principal
risks and uncertainties and seeks to mitigate these risks through regular
reviews of performance and monitoring progress and compliance. The Board
applies the principles detailed in the Financial Reporting Council’s
Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting, in the mitigation and management of these risks. More
information on specific mitigation measures for the principal risks and
uncertainties are explained below:
Possible consequence Risk assessment during the year Risk management
Risk: Investment, performance, technology, 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. Technology related risks are also likely to be greater in early, rather than later, stage technology investments, including the risks of the technology not becoming generally accepted by the market or the obsolescence of the technology concerned, often due to greater financial resources being available to competing companies. 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. In addition, in the current economic climate the valuations of technology companies are more volatile. To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record of making successful investments in higher growth
technology businesses. The Manager operates a 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 observe or 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 2022/23 Top Ups 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 2022. 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.
Risk: VCT approval and regulatory change 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.
Risk: 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, legal advisors and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance
function, 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.
Risk: Operational and internal control risk
The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could 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. 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, as mentioned below. 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.
Risk: Cyber and data security risk
A cyber-attack on one of the Company’s third party suppliers could result in the security of, potentially sensitive, data being compromised, leading to financial loss, disruption or damage to the reputation of the Company. Increased in the year, due to an increase in cyber-attacks worldwide. The Manager outsources some of its IT services, including hardware and software procurement, server management, backup provision and day-to-day support through an
outsourcing arrangement with an IT consultant. In house IT support is also provided. The Manager takes cyber risks seriously and the need to guard against these are in
the Service level agreement with our key outsourced service provider. During the year, further investment was made in the Manager’s IT infrastructure and awareness
training. In addition, the Manager also has a business continuity plan which includes off-site storage of records and remote access provisions. This is revised and tested
annually and is also subject to Compliance, Group Risk and Internal Audit reporting. Penetration tests are also carried out to ensure that IT systems are not susceptible
to cyber-attacks. The Manager’s Internal Auditor performs reviews on IT general controls and data confidentiality and makes recommendations where necessary. The most
recent internal audit focused specifically on IT systems, and was completed in February 2023.
Risk: Economic and political risk
Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Company’s prospects in a number of ways. 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 general risks. 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.
Risk: 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. No change in the year. The Manager is a signatory of the UN PRI and the Board is kept updated 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 35 to 38 of the full Annual Report and Financial Statements. These procedures ensure that this 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.
Risk: 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 commitments and liabilities as they fall due.
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 2026. 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; factoring in
higher levels of inflation when budgeting for future expenses, only including
proceeds from investment disposals where there is a high probability of
completion, whilst also assessing the requirement for any future financial
support of portfolio companies.
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 2026. 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.
Companies Act 2006
This Strategic report of the Company for the year ended 30 June 2023 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
11 October 2023
Statement of Directors' responsibilities
In preparing these Financial Statements for the year to 30 June 2023, the
Directors of the Company, being Penny Freer, James Agnew, Tony Ellingham, 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 2023 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 52
of the full Annual Report and Financial Statements.
For and on behalf of the Board
Penny Freer
Chairman
11 October 2023
Income statement
Year ended 30 June 2023 Year ended 30 June 2022
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Gain on investments 3 - 3,846 3,846 - 6,386 6,386
Investment income 4 936 - 936 853 - 853
Investment Manager’s fees 5 (153) (1,380) (1,533) (137) (1,822) (1,959)
Other expenses 6 (432) - (432) (391) - (391)
Profit on ordinary activities before tax 351 2,466 2,817 325 4,564 4,889
Tax on ordinary activities 8 - - - - - -
Profit and total comprehensive income attributable to shareholders 351 2,466 2,817 325 4,564 4,889
Basic and diluted earnings per Ordinary share (pence)* 10 0.13 0.92 1.05 0.14 1.95 2.09
* 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 2023 30 June 2022
Note £’000 £’000
Fixed asset investments 11 68,000 57,170
Current assets
Trade and other receivables 13 1,684 1,869
Cash in bank and at hand 25,006 28,024
26,690 29,893
Payables: amounts falling due within one year
Trade and other payables less than one year 14 (721) (1,224)
Net current assets 25,969 28,669
Total assets less current liabilities 93,969 85,839
Equity attributable to equity holders
Called up share capital 15 3,269 2,905
Share premium 47,067 35,522
Unrealised capital reserve 26,402 20,384
Realised capital reserve 9,177 12,729
Other distributable reserve 8,054 14,299
Total equity shareholders’ funds 93,969 85,839
Basic and diluted net asset value per share (pence)* 16 33.13 33.70
* 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 11 October 2023 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 2022 2,905 35,522 20,384 12,729 14,299 85,839
Profit and total comprehensive income - - 3,803 (1,337) 351 2,817
Transfer of previously unrealised losses on disposal of investments - - 2,216 (2,216) - -
Dividends paid - - - - (4,237) (4,237)
Purchase of shares for treasury (including costs) - - - - (2,359) (2,359)
Issue of equity 364 11,854 - - - 12,218
Cost of issue of equity - (309) - - - (309)
As at 30 June 2023 3,269 47,067 26,402 9,177 8,054 93,969
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
* Included within these reserves is an amount of £12,804,000 (2022:
£24,165,000) which is considered distributable.
The nature of each reserve is described in note 2 below.
Statement of cash flows
Year ended 30 June 2023 £’000 Year ended 30 June 2022 £’000
Cash flow from operating activities
Loan stock income received 550 671
Dividend income received 39 64
Income from fixed term funds received 145 9
Deposit interest received 138 8
Investment Manager’s fees paid (2,081) (2,162)
Other cash payments (425) (390)
Corporation tax paid - -
Net cash flow generated from operating activities (1,634) (1,800)
Cash flow from investing activities
Purchase of fixed asset investments* (7,870) (7,510)
Proceeds from disposals of fixed asset investments* 1,139 6,643
Net cash flow generated from investing activities (6,731) (867)
Cash flow from financing activities
Issue of share capital 11,226 11,710
Cost of issue of equity** (37) (36)
Equity dividends paid*** (3,517) (6,176)
Purchase of own shares for treasury (including costs) (2,325) (2,233)
Net cash flow generated from financing activities 5,347 3,265
(Decrease)/increase in cash in bank and at hand (3,018) 598
Cash in bank and at hand at the start of the year 28,024 27,426
Cash in bank and at hand at the end of the year 25,006 28,024
* 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 page 45
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 2022 and further detail on the valuation techniques
used are outlined below.
Company information is shown on page 4 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% 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, discounted
cash flows 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; or
* a significant adverse change either in the portfolio company’s business or
in the technological, market, economic, legal or regulatory environment in
which the business operates; or
* market conditions have deteriorated, which may be indicated by a fall in the
share prices of quoted businesses operating in the same or related sectors.
Investments are recognised as financial assets on legal completion of the
investment contract and are de-recognised on legal completion of the sale of
an investment.
Dividend income is not recognised as part of the fair value movement of an
investment, but is recognised separately as investment income through the
other distributable reserve when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables and
cash are carried at amortised cost, in accordance with FRS 102. Deferred
consideration meets 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
Dividend 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.
Fixed term funds income
Funds income is recognised on an accruals basis using the agreed rate of
interest.
Bank deposit 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% of management fees and 100% of performance incentive fees, if any, are
allocated to the realised capital reserve; 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.
Reserves
Called-up share capital
This accounts for the nominal value of the Company’s shares.
Share premium
This accounts for the difference between the price paid for shares and the
nominal value of the shares, less issue costs and transfers on cancellation of
share premium once consent of the court is given.
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, less any transfers on cancellation of share premium once consent of
the court is given.
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 diminutions in value (including gains recognised on the realisation
of investment where consideration is deferred that are 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, transfers from
the share premium and capital redemption reserve, and other non-capital
realised movements.
Dividends
Dividends by the Company are accounted for when the liability to make the
payment (record date) has been established.
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 2023 Year ended 30 June 2022
£’000 £’000
Unrealised gain on fixed asset investments 3,803 2,756
Realised (loss)/gain on fixed asset investments (178) 3,440
Unwinding of discount on deferred consideration 221 190
3,846 6,386
4. Investment income
Year ended 30 June 2023 Year ended 30 June 2022
£’000 £’000
Loan stock interest 569 763
Dividend income 84 74
Income from fixed term funds 145 9
Bank interest 138 7
936 853
5. Investment Manager’s fees
Year ended 30 June 2023 Year ended 30 June 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 153 1,380 1,533 137 1,238 1,375
Performance incentive fee - - - - 584 584
153 1,380 1,533 137 1,822 1,959
Further details of the Investment Management Agreement under which the
investment manager’s fee is paid are given in the Strategic report above.
During the year, services of a total value of £1,583,000 (2022: £1,425,000)
were purchased by the Company from Albion Capital Group LLP (“Albion”)
comprising £1,533,000 of management fees (2022: £1,375,000) and £50,000 of
administration fees (2022: £50,000). There is no performance incentive fee
payable this year (2022: £584,000). At the financial year end, the amount due
to Albion in respect of these services disclosed as accruals and deferred
income was £422,500 (administration fee accrual: £12,500, management fee
accrual £410,000) (2022: £971,500).
Albion is, from time to time, eligible to receive an arrangement fee and
monitoring fees from portfolio companies. During the year ended 30 June 2023
fees of £299,000 attributable to the investments of the Company were received
pursuant to these arrangements (2022: £121,000).
Albion, its partners and staff holds 2,385,697 Ordinary shares in the Company
as at 30 June 2023.
The Company entered into an offer agreement relating to the Offers pursuant to
which Albion received a fee of 2.5% of the gross proceeds of the Offers and
out of which Albion paid the costs of the Offers, as detailed in the
Prospectus.
6. Other expenses
Year ended 30 June 2023 Year ended 30 June 2022
£’000 £’000
Directors’ fees (including NIC) 109 107
Auditor’s remuneration for statutory audit services (excluding VAT) 48 40
Secretarial and administration fee 50 50
Other administrative expenses 225 194
432 391
7. Directors’ fees
The amounts paid to and on behalf of the Directors during the year are as
follows:
Year ended 30 June 2023 £’000 Year ended 30 June 2022 £’000
Directors’ fees 100 98
National insurance 9 9
109 107
The Company’s key management personnel are the Directors. Further
information regarding Directors’ remuneration can be found in the
Directors’ remuneration report on pages 61 and 62 of the full Annual Report
and Financial Statements.
8. Tax (charge)/credit on ordinary activities
Year ended 30 June 2023 £’000 Year ended 30 June 2022 £’000
UK corporation tax charge - -
Year ended 30 June 2023 Year ended 30 June 2022
Reconciliation of profit on ordinary activities to taxation charge £’000 £’000
Return on ordinary activities before taxation 2,817 4,889
Tax charge on profit at the average rate of 20.50% from 1 April 2023 (2022: 19%) 577 929
Factors affecting the charge:
Non-taxable gains (788) (1,213)
Income not taxable (17) (14)
Unutilised management expenses 228 298
- -
The tax charge for the year shown in the Income statement is lower than the
average standard rate of corporation tax of 20.50% (2022: 19.0%). The
differences are explained above. From 1 April 2023, the Company’s rate of
corporation tax increased from 19% to 25%.
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) The Company has excess management expenses of
£21,392,000 (2022: £20,279,000) that are available for offset against future
profits. A deferred tax asset of £5,348,000 (2022: £3,853,000) 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 2023 Year ended 30 June 2022
£’000 £’000
First dividend of 0.84 pence per share paid on 30 November 2022 (30 November 2021 – 0.87 pence per share) 2,130 1,932
Second dividend of 0.79 pence per share paid on 31 March 2023 (31 March 2022 – 0.84 pence per share) 2,120 2,134
Special dividend of 1.50 pence per share paid on 30 November 2021 - 3,331
Unclaimed dividends (13) (13)
4,237 7,384
In addition to the dividends paid above, the Board has declared a first
dividend for the year ending 30 June 2024 of 0.83 pence per share. This will
be paid on 30 November 2023 to shareholders on the register on 3 November
2023. The total dividend will be approximately £2,354,000. All dividends are
paid from the other distributable reserve.
During the year, unclaimed dividends older than twelve years of £13,000
(2022: £13,000) were returned to the Company in accordance with the terms of
the Articles of Association and have been accounted for on an accruals basis.
10. Basic and diluted return per share
Year ended 30 June 2023 Year ended 30 June 2022
Revenue Capital Total Revenue Capital Total
Return attributable to equity shares (£’000) 351 2,466 2,817 325 4,564 4,889
Weighted average shares in issue (adjusted for treasury shares) 266,724,287 234,049,617
Return attributable per equity share (pence) 0.13 0.92 1.05 0.14 1.95 2.09
The weighted average number of shares is calculated after adjusting for
treasury shares of 43,285,891 (2022: 35,822,916).
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 2023 £’000 30 June 2022 £’000
Unquoted equity 57,468 47,449
Quoted equity 260 760
Unquoted loan stock 10,272 8,961
68,000 57,170
30 June 2023 £’000 30 June 2022 £’000
Opening valuation 57,170 50,454
Purchases at cost 7,870 7,675
Disposal proceeds (684) (7,247)
Realised (loss)/gain (178) 3,440
Movement in loan stock accrued income 19 92
Unrealised gains 3,803 2,756
Closing valuation 68,000 57,170
Movement in loan stock accrued income
Opening accumulated loan stock accrued income 142 50
Movement in loan stock accrued income 19 92
Closing accumulated loan stock accrued income 161 142
Movement in unrealised gains
Opening accumulated unrealised gains 20,317 18,576
Transfer of previously unrealised gains/(losses) to realised reserves on realisations of investments 2,216 (1,015)
Unrealised gains 3,803 2,756
Closing accumulated unrealised gains 26,336 20,317
Historic cost basis
Opening book cost 36,711 31,828
Purchases at cost 7,870 7,675
Disposals at cost (3,078) (2,792)
Closing book cost 41,503 36,711
Purchases and disposals detailed above may 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 a 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 at fair value in accordance with
the IPEV guidelines as follows:
30 June 2023 30 June 2022
Valuation methodology £’000 £’000
Cost and price of recent investment (calibrated and reviewed for impairment) 40,107 37,393
Revenue multiple 11,281 7,801
Third party valuation – Discounted cash flow 7,358 7,221
Third party valuation – Earnings multiple 4,595 3,159
Earnings multiple 2,472 45
Net assets 971 791
Discounted offer price 956 -
67,740 56,410
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
background to the transaction is also considered when the price of investment
may not be an appropriate measure of fair value, for example, disproportionate
dilution of existing investors from a new investor coming on board or the
market conditions at the time of investment no longer being a true reflection
of fair value.
The main inputs into the calibration exercise, and for the valuation models
using multiples, are revenue, EBITDA and P/E 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, growth rate 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 valuation
methodologies between 30 June 2022 and 30 June 2023:
Change in valuation methodology (2022 to 2023) Value as at 30 June 2023 £’000 Explanatory note
Cost and price of recent investment (calibrated and reviewed for impairment) to revenue multiple 3,770 More appropriate valuation methodology
Cost and price of recent investment (calibrated and reviewed for impairment) to earnings multiple 2,472 More appropriate valuation methodology
Cost and price of recent investment (calibrated and reviewed for impairment) to third party valuation 970 Third party valuation conducted
Cost and price of recent investment (calibrated and reviewed for impairment) to discounted offer price 956 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 more relevant methods of valuation which would
be reasonable as at 30 June 2023.
FRS 102 and the SORP requires the Company to disclose the inputs to the
valuation methods applied to its investments measured at FVTPL 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 The unadjusted quoted price in an active market
Level 2 Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3 Inputs to valuations not based on observable market data
Quoted investments are valued according to Level 1 valuation methods. Unquoted
equity, preference shares and loan stock are all valued according to Level 3
valuation methods.
Investments held at fair value through profit or loss (Level 3) had the
following movements:
30 June 2023 30 June 2022
£’000 £’000
Opening balance 56,410 49,910
Purchases at cost* 7,870 7,675
Disposal proceeds* (375) (7,202)
Realised net (losses)/gains on disposal (100) 3,395
Unrealised gains 3,916 2,540
Movement in loan stock accrued income 19 92
Closing balance 67,740 56,410
*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. 70% of the portfolio of investments, consisting of
equity and loan stock, is based on recent investment price, net assets and
cost. For the remainder of the portfolio, the Board has considered the
reasonable possible alternative input assumptions on the valuation of the
portfolio and believes that changes to inputs (by adjusting the earnings and
revenue multiples) could lead to a 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% 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 5.1x +0.5x 392 0.14
-0.5x (392) (0.14)
Third party valuation – discounted cash flow Renewable energy Discount factor 6.5% -0.5% 178 0.06
+0.5% (165) (0.06)
Third party valuation – earnings multiple Other (including education) Earnings multiple 18.8x +1.9x 281 0.10
-1.9x (281) (0.10)
Earnings multiple Healthcare (including digital healthcare) Earnings multiple 10.5x +1.1x 146 0.05
-1.1x (146) (0.05)
* 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 unquoted equity investments by £997,000 (1.7%) or a decrease
in the valuation of unquoted equity investments by £984,000 (1.7%). Due to
the size of the holding in Quantexa, a 10% change in this valuation would
result in a movement of £1,694,000 (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% of the nominal value of any
class of the allotted shares in the portfolio companies as at 30 June 2023.
13. Trade and other receivables
30 June 2023 30 June 2022
£’000 £’000
Prepayments 38 34
Deferred consideration under one year 1,646 510
Deferred consideration over one year - 1,325
1,684 1,869
The deferred consideration under one year includes deferred proceeds from 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. Trade and other payables
30 June 2023 30 June 2022
£’000 £’000
Accruals and deferred income 520 1,061
Trade payables 201 163
721 1,224
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
290,523,837 Ordinary shares of 1 penny each at 30 June 2022 2,905
36,360,869 Ordinary shares of 1 penny each issued during the year 364
326,884,706 Ordinary shares of 1 penny each at 30 June 2023 3,269
35,822,916 Ordinary shares of 1 penny each held in treasury at 30 June 2022 (358)
7,462,975 Ordinary shares of 1 penny each purchased during the year to be held in treasury (75)
43,285,891 Ordinary shares of 1 penny each held in treasury at 30 June 2023 (433)
Voting rights of 283,598,815 Ordinary shares of 1 penny each at 30 June 2023 2,836
The Company purchased 7,462,975 Ordinary shares for treasury (2022: 6,926,930)
during the year at a total cost of £2,359,000 (2022: £2,212,000).
The total number of shares held in treasury as at 30 June 2023 was 43,285,891
(2022: 35,822,916) representing 13.2% of the shares in issue as at 30 June
2023.
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 2022 1,116,653 11 32.93 350 31.30
31 March 2023 1,077,920 11 32.72 333 31.10
2,194,573 683
Under the terms of the Albion VCTs’ Prospectus Top Up Offers 2022/23, 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)
2 December 2022 3,844,616 38 33.50 1,269 31.30
2 December 2022 616,505 6 33.70 204 31.30
2 December 2022 10,931,256 109 33.80 3,602 31.30
31 March 2023 17,882,171 179 33.60 5,858 31.10
14 April 2023 204,704 2 33.30 67 31.10
14 April 2023 74,850 1 33.40 25 31.10
14 April 2023 612,194 6 33.60 201 31.10
34,166,296 11,226
16. Basic and diluted net asset value per share
30 June 2023 30 June 2022
Basic and diluted net asset value per share (pence) 33.13 33.70
The basic and diluted net asset value per share at the year end is calculated
in accordance with the Articles of Association and are based upon total shares
in issue (adjusted for treasury shares) of 283,598,815 shares as at 30 June
2023 (2022: 254,700,921).
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.
The Company’s financial instruments comprise equity and loan stock
investments in quoted and unquoted companies, cash balances and short term
receivables and payables which arise from its operations. The main purpose of
these financial instruments is to generate cash flow, 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 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.
As required 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. In order to show the impact of sensitivity in market movements on the
Company, 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 £6,800,000.
Accordingly, a 20% 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 £13,600,000. 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 investment portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an
investment within its market, with regard to the financial health of the
investment and the IPEV Guidelines. Details of the industries in which
investments have been made are contained in the 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 £68,000,000 (2022: £57,170,000).
Fixed asset investments form 72% of the net asset value on 30 June 2023 (2022:
67%).
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 1% in all interest
rates would have increased total return before tax for the year by
approximately £265,000 (2022: £139,000). 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 7.2% (2022: 10.1%). The weighted
average period to maturity for the fixed rate assets is approximately 2.1
years (2022: 2.1 years).
The Company’s financial assets and liabilities, all denominated in pounds
sterling, consist of the following:
30 June 2023 30 June 2022
Fixed rate £’000 Floating rate £’000 Non-interest £’000 Total £’000 Fixed rate £’000 Floating rate £’000 Non-interest £’000 Total £’000
Loan stock 9,263 - 1,009 10,272 7,527 - 1,434 8,961
Equity - - 57,728 57,728 - - 48,209 48,209
Receivables* - - 1,646 1,646 - - 1,835 1,835
Payables - - (721) (721) - - (1,224) (1,224)
Cash - 25,006 - 25,006 - 28,024 - 28,024
9,263 25,006 59,662 93,931 7,527 28,024 50,254 85,805
*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 unquoted loan stock, and through the holding of 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 78.4%
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.
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 2023 was limited to
£10,272,000 of unquoted loan stock instruments (2022: £8,961,000),
£25,006,000 cash deposits with banks (2022: £28,024,000) and £1,646,000 of
other receivables (2022: £1,835,000).
At the balance sheet date, the cash in bank and at hand held by the Company
was held with Lloyds Bank Plc, Scottish Widows Bank plc (part of Lloyds
Banking Group), Barclays Bank plc, National Westminster Bank plc and Bank of
Montreal. 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 Company has an informal policy limiting counterparty banking and floating
rate note exposure to a maximum of 20% of net asset value for any one
counterparty.
The credit profile of unquoted loan stock is described under liquidity risk.
Liquidity risk
Liquid assets are held as cash on current account, on deposit or short term
money market account. 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 £91,615,000 as at 30
June 2023 (2022: £83,700,000).
The Company has no committed borrowing facilities as at 30 June 2023 (2022:
nil) and had cash balances of £25,006,000 (2022: £28,024,000). 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 £721,000
as at 30 June 2023 (2022: £1,224,000).
The carrying value of loan stock investments as analysed by expected maturity
dates is as follows:
30 June 2023 30 June 2022
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 6,027 971 - 6,998 4,704 1,374 410 6,488
1-2 years 110 - - 110 94 - - 94
-3 years 39 - - 39 116 - - 116
3-5 years 2,086 - - 2,086 1,238 - - 1,238
5 + years 1,039 - - 1,039 1,025 - - 1,025
Total 9,301 971 - 10,272 7,177 1,374 410 8,961
Loan stock can be past due as a result of interest or capital not being paid
in accordance with contractual terms. The cost of loan stock investments
valued below cost is £nil (2022: £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 2023 are
stated at fair value as determined by the Directors, with the exception of
receivables, payables and cash which are carried at amortised cost. 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. Commitments and contingencies
The Company had no financial commitments in respect of investments at 30 June
2023 (2022: £nil).
There are no contingencies or guarantees of the Company as at 30 June 2023
(2022: £nil).
19. Post balance sheet events
Since the year end, the Company has completed the following material
investment transactions:
* Part disposal of Quantexa for proceeds of £1.2 million; and
* Investments totalling £2.3 million in three new and four existing portfolio
companies.
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 61 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 2023 and 30 June 2022, 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 2023, 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
* Current portfolio sector allocation
(https://ml-eu.globenewswire.com/Resource/Download/dcbd09ff-5213-422d-8a3f-d1a28e9fecab)