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 2021.
This announcement was approved for release by the Board of Directors on 29 September 2021.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 30 June 2021 (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/30Jun21.pdf.
Investment policy
The Company invests in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments take the form of equity or a mixture of equity and loans.
Whilst allocation of funds is determined by the investment opportunities which are available, efforts are made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of investee businesses. Funds held pending investment or for liquidity purposes will be held principally as cash on deposit.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors using a mixture of securities, as permitted. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company’s assets at cost thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company’s maximum exposure in relation to gearing is restricted to the amount of its adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.
Financial calendar
| Record date for first interim dividend and special dividend | 5 November 2021 |
| � | |
| Annual General Meeting | Noon on 9 November 2021 |
| Payment date of first interim dividend and special dividend | 30 November 2021 |
| Announcement of half-yearly results for the six months ending 31 December 2021 | February 2022 |
| Payment date of second interim dividend (subject to Board approval) | 31 March 2022 |
Financial highlights
| 34.79p | Net asset value per share as at 30 June 2021 |
| 5.26p | Increase in total shareholder value for the year ended 30 June 2021 |
| 15.87% | Total uplift on opening net asset value per share |
| 3.61p | Total tax-free dividends per share paid during the year ended 30 June 2021 |
| 30 June 2021 | 30 June 2020 | |
| pence per share | pence per share | |
| Opening net asset value | 33.14 | 35.29 |
| Revenue (loss)/return | (0.03) | 0.25 |
| Capital return/(loss) | 5.58 | (0.46) |
| Total return/(loss) | 5.55 | (0.21) |
| Dividends paid | (3.61) | (2.00) |
| Impact from share capital movements | (0.29) | 0.06 |
| Closing net asset value | 34.79 | 33.14 |
| 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 2021 (period that Albion Capital has been investment manager): | |||
| Total dividends paid | 38.41 | ||
| Decrease in net asset value | (8.61) | ||
| Total shareholder return from April 2005 to 30 June 2021 | 29.80 | ||
| Shareholder value since launch: | |||
| Total dividends paid to 30 June 2021(i) | 63.34 | ||
| Net asset value as at 30 June 2021 | 34.79 | ||
| Total shareholder value as at 30 June 2021 | 98.13 | ||
Notes
(i) Prior to 6 April 1999, Venture Capital Trusts were able to add 20 per cent. to dividends and figures for the period up until 6 April 1999 are included at the gross equivalent rate actually paid to shareholders.
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/CRWN under the Dividend History section.
In addition to the dividends paid above, the Board has declared a first interim dividend for the year ending 30 June 2022 of 0.87 pence per share payable on 30 November 2021 to shareholders on the register on 5 November 2021. The Board has also declared a special dividend of 1.50 pence per share payable on 30 November 2021 to shareholders on the register on 5 November 2021. Details of the special dividend can be found in the Chairmans statement below.
Chairmans statement
Introduction
I am delighted to report a strong increase in total shareholder value of 5.26 pence per share for the year, representing a 15.87% uplift on the opening net asset value. Last years results included several months where our portfolio companies were impacted by the uncertainty seen in the early stages of the pandemic. One year later and, although there is still uncertainty, we have seen continuing resilience and, in many cases, growth from our portfolio, with many of our companies continuing to provide products and services that are innovative and considered essential to their customers.
Results and dividends
As at 30 June 2021, the net asset value (NAV) was £77.7 million or 34.79 pence per share compared with £65.3 million or 33.14 pence per share at 30 June 2020. The continuing progress of a number of our portfolio companies is discussed later in this statement and in the Strategic report below. These excellent results have resulted in a performance incentive fee payable to the Manager of £823,000. More detail on the calculation of this fee can be found in the Strategic report below.
In line with the dividend policy targeting around 5% of NAV per annum, announced last year, the Company paid dividends of 1.61 pence per share during the year to 30 June 2021. In addition to this, the Company paid a special dividend of 2.00 pence per share following a number of disposals in 2019, resulting in total dividends of 3.61 pence per share for the year ended 30 June 2021 (30 June 2020: 2.00 pence per share).
The successful sale of the Companys three care home investments generated substantial cash proceeds, and together with the Albion VCTs Top Up Offers discussed below, has resulted in the cash balances of the Company reaching £27 million on 30 June 2021 (2020: £24 million), representing 35% (2020: 36%) of NAV.
Whilst it is important for a Venture Capital Trust to hold sufficient cash to manage operating costs, to service dividends and buy-backs and to make follow-on and new investments as opportunities arise, this must be balanced against the requirements of a Venture Capital Trust to meet a minimum threshold of 80% invested in qualifying assets.
Therefore, the Board has concluded that a special dividend of 1.50 pence per share should be paid to shareholders, alongside the first interim dividend for the year ending 30 June 2022 of 0.87 pence per share to be paid on 30 November 2021 to shareholders on the register on 5 November 2021.
For those that wish to take it, an opportunity remains to re-invest the combined special dividend and first interim dividend in the Company via the Dividend Reinvestment Scheme (DRIS). Shareholders can elect for the DRIS via the registrars website at www.investorcentre.co.uk. Please note that shareholders who hold their shares in CREST will need to contact their CREST service provider.
Investment realisations
The strong return for the year was primarily driven by a number of successful exits which generated total proceeds of £12.3 million for the Company. As noted above, the bulk of the proceeds came from the sale of the three care homes; Active Lives Care, Ryefield Court Care, and Shinfield Lodge Care. The first investment in the homes was made over five years ago and the sale generated proceeds of £9.8 million which represents a 2.5x return on cost (including interest received over the holding period), an excellent result for the Company. The homes were trading at mature occupancy levels and were sold at attractive profit multiples.
The sale of G.Network Communications was also completed in December 2020, with a strong headline total return on all monies invested of 3.8x cost, although the terms of the sale will see proceeds being received in three years time. In addition to this, Clear Review, a software investment made in 2019, was sold during the year, generating 2.1x return on cost. Further details on realisations can be found in the table on page 29 of the full Annual Report and Financial Statements.
Investment performance and progress
Many of our portfolio companies have performed well despite the Covid-19 pandemic and this has contributed to the total uplift in value of £13.0 million to the Companys investments for the year.
Quantexa and Oviva have both been revalued after externally led funding rounds, resulting in uplifts of £5.3 million and £1.6 million respectively. Proveca continues to trade well both within the UK and the EU resulting in an uplift of £1.1 million. Other investments with uplifts in the year were Phrasee (£1.0 million) and The Evewell (£0.9 million), both of which continue to trade well. Inevitably some of our portfolio companies were impacted by the pandemic, with Mirada Medical being written down by a further £0.3 million due to sales to hospitals being delayed by the pandemic, and Avora being written down by £0.3 million following a period of difficult trading.
The Company has been an active investor during the year with more than £8.3 million invested in new and existing portfolio companies. Alongside the other Albion managed VCTs, the Company has invested £4.4 million in eight new portfolio companies, all of which are expected to require further investment as the companies continue to grow:
A further £3.9 million was invested into 14 existing portfolio companies, of which the largest were: £1.4 million into Quantexa as part of a larger externally led funding round to support the growth of its analytics platform which helps detect and protect against financial crime; £0.8 million into uMotif to take advantage of a growing market for its software that gathers data from clinical trials; £0.5 million into Healios to continue providing psychological care to children and adolescents using a family centric approach; and £0.3 million into Black Swan Data, to support the restructure of its business to focus primarily on predictive analytics for consumer brands.
Full details of the companies in which we invest can be found in the Portfolio of investments section on pages 26 to 29 of the full Annual Report and Financial Statements.
Risks and uncertainties
The wide reaching implications of the Covid-19 crisis continue to be the key risk facing the Company, including its impact on the UK and Global economies. The risk of potential implications of the UKs departure from the European Union adversely affecting our underlying portfolio companies appears to be reducing as detail of new policies and procedures, where relevant, continue to be communicated and portfolio companies are able to adapt. The Manager is continually assessing the exposure to such risks for each portfolio company and, where possible, appropriate mitigating actions are being taken.
A detailed review of risk management is set out below in the Strategic report.
Share buy-backs
It remains the Boards primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Boards policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Companys interest. Given the current stability of the portfolio and the Companys current cash position, the Board has decided that there will be no limit on the level of share buy-backs.
It is the Boards intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.
Albion VCTs Top Up Offers
Your Board, in conjunction with the boards of other VCTs managed by Albion Capital Group LLP, launched prospectus top up Offers of new Ordinary shares on 5 January 2021. The Company announced on 26 January 2021 that it would exercise its over-allotment facility, bringing the total amount to be raised to £9 million. On 10 February 2021 the Offers were fully subscribed and closed. The Board was pleased to see the high level of demand for the Companys shares from existing and new shareholders.
The proceeds raised by the Company pursuant to the Offer have been added to the liquid resources available for investment, positioning the Company to take advantage of investment opportunities over the next two to three years. Details on the share allotments during the year can be found in note 15.
Annual General Meeting
Based on the success of last years live streamed AGM, with a record number of shareholders attending, and also to avoid the risk of having to make any changes as a result of updated government guidelines on Covid-19, the Board has decided to use the same format for the AGM this year. The AGM will be held at noon on 9 November 2021, at the registered office being 1 Benjamin Street, London, EC1M 5QL. Shareholders will not be allowed entry into the building where the AGM is held, but will be able to attend the event via the free platform, Hopin.
The quorum for the meeting is two, therefore, at least two Directors will attend in person to allow the continuation of this AGM. There will also be a representative of Albion Capital Group LLP as Company Secretary.
The AGM will include a presentation from the Manager, the formal business of the AGM and the answers to questions we receive from shareholders. Registration details for the live stream will be emailed to shareholders and will be available at www.albion.capital/annual-general-meeting-updates prior to the Meeting.
Full details of the business to be conducted at the AGM are given in the Notice of the Meeting on pages 76 and 77 of the full Annual Report and Financial Statements, and in the Directors report on pages 39 and 40 of the full Annual Report and Financial Statements.
We always welcome questions from our shareholders at the AGM, and shareholders will be able to ask questions using the Hopin platform during the AGM. Alternatively, shareholders can email their questions to crownchair@albion.capital prior to the Meeting.
Following the Meeting, a summary of responses will be published on the Managers website at www.albion.capital/funds/CRWN.
Shareholders views are important, and the Board encourages shareholders to vote on the resolutions using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the AGM and recommends shareholders to vote in favour of all the resolutions being proposed.
Shareholder seminar
The Board is pleased to report that the current intention of the Manager, Albion Capital, is to host a physical rather than virtual shareholder seminar this year on 12 November 2021, in central London with the venue to be confirmed. This will be dependent on government guidelines and any changes thereto, and we will keep shareholders informed as the date approaches. The Board is keen to interact with shareholders and looks forward to updating you on portfolio developments, as well as answering any questions.
More details will shortly be available on the Albion Capital website www.albion.capital.
Outlook
These positive results demonstrate the resilience of our portfolio which is both diversified with companies at different stages of maturity and targeted at sectors such as software and healthcare which have proved resilient during the Covid-19 pandemic. I am confident that our portfolio companies are well positioned to grow, providing products and services critical to their customers despite the uncertainty around the longer-term impact of the pandemic. The Board believes the Company is well placed to continue to deliver long term value to our shareholders.
Penny Freer
Chairman
29 September 2021
Strategic report
Crown Place VCT PLC (the Company) is a Venture Capital Trust and its investment policy can be found above.
Business model
The Company operates as a Venture Capital Trust. This means that the Company has no employees and has outsourced the management of all its operations to Albion Capital Group LLP, including secretarial and administrative services. Further details of the Management agreement can be found below.
Current portfolio sector allocation
The pie charts at the end of this announcement shows the split of the portfolio valuation as at 30 June 2021 by: sector; stage of investment; and number of employees. This is a useful way of assessing how the Company and its portfolio is diversified across sector, portfolio companies maturity measured by revenues and their size measured by the number of people employed. As the Company continues to invest in software and other technology companies, FinTech (which is technology specifically applicable to financial services companies) becomes a more prominent investment, and therefore is included as a subsector. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 26 to 29 of the full Annual Report and Financial Statements.
Direction of portfolio
The analysis of the Companys investment portfolio shows that it is well diversified and evenly spread across the FinTech, healthcare, other software and technology, renewable energy, and education sectors.
Due to the share allotments under the 2020/21 Prospectus Top Up Offer, and the sale of the Companys care homes in March 2021, cash is a significant proportion of the portfolio at 35%. These funds will be invested predominantly into higher growth technology companies, and therefore the shift away from asset based companies will continue. The Company has a significant speciality in FinTech investing, which can be seen as a growing part of the portfolio, represented by a 10% increase this year. The 8% decrease in the healthcare sector is attributable to the sale of the care homes, and, given that healthcare technology is another area of particular strength, we would expect this to increase in the future.
Results and dividends
| £000 | |
| Revenue loss for the year ended 30 June 2021 | (63) |
| Capital return for the year ended 30 June 2021 | 11,526 |
| Total return for the year ended 30 June 2021 | 11,463 |
| Special dividend of 2.00 pence per share paid on 30 October 2020 | (3,940) |
| First interim dividend of 0.83 pence per share paid on 30 November 2020 | (1,642) |
| Second interim dividend of 0.78 pence per share paid on 31 March 2021 | (1,744) |
| Unclaimed dividends | 12 |
| Transferred to reserves | 4,149 |
| Net assets as at 30 June 2021 | 77,650 |
| Net asset value as at 30 June 2021 (pence per share) | 34.79 |
The Company paid dividends totalling 3.61 pence per share during the year ended 30 June 2021 (2020: 2.00 pence per share). The dividend objective of the Board is to provide shareholders with a regular dividend flow. The Board declared a first interim dividend for the year ending 30 June 2022 of 0.87 pence per share. This dividend will be paid on 30 November 2021 to shareholders on the register on 5 November 2021. The Board has also declared a special dividend of 1.50 pence per share, payable on 30 November 2021 to shareholders on the register on 5 November 2021.
The gain on investments for the year was £13,016,000 (2020: loss of £21,000). The key drivers of this gain are detailed in the Chairmans statement above. This has led to a significant increase in net asset value to 34.79 pence per share (2020: 33.14 pence per share), which can be seen on the Balance sheet below. This increase in net asset value is after taking account of the payment of 3.61 pence per share of dividends during the year. A full analysis of the Portfolio of investments can be seen on pages 26 to 29 of the full Annual Report and Financial Statements.
Investment income has decreased to £820,000 (2020: £1,112,000) predominantly as a result of the sale of the care homes during the year which, after accounting for the performance incentive fee, resulted in a revenue loss of £63,000 (2020: gain £473,000). The total gain for the year was 5.55 pence per share (2020: loss of 0.21 pence per share).
The cash flow for the Company has been a net inflow of £3,460,000 for the year (2020: £7,883,000), reflecting disposal proceeds, loan stock income, and the issue of new Ordinary shares under the Top Up Offer, offset by dividends paid, ongoing expenses, new investments and the buy-back of shares.
Review of the business and future changes
A review of the Companys business during the year is set out in the Chairmans statement above.
There is a continuing focus on growing the FinTech, healthcare and other software and technology sectors. The majority of these investment returns are delivered through equity and capital gains. The Company will continue to receive income from its renewable energy portfolio for the foreseeable future, however, following the sale of the care homes, we expect our investment income to decrease in the next year.
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 Companys financial results for the year to 30 June 2021 demonstrates that the portfolio remains well balanced across sectors and risk classes, despite the effects of the pandemic so far. Many of the companies in the portfolio have continued to grow throughout the pandemic and have been providing products and services that are considered innovative and essential to their customers. Although there remains much uncertainty, the Manager has a strong pipeline of investment opportunities in which the Companys cash can be deployed. The Board considers that the pipeline will continue to enable the Company to maintain a predictable stream of dividend payments to shareholders, and ultimately continue to deliver long term growth.
Key Performance Indicators (KPIs) and Alternative Performance Measures (APMs)
The Directors believe that the following KPIs and APMs, which are typical for VCTs and used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company has been applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs, taken overall, give a good indication that the Company is achieving its investment objective and policy. These are:
The graph on page 13 of the full Annual Report and Financial Statements shows that total shareholder value increased by 5.26 pence per share to 98.13 pence per share (2020: 92.87) for the year ended 30 June 2021.
2. Shareholder return in the year
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| 4.3% | 6.6% | 7.1% | 4.5% | 1.5% | 14.0% | 14.6% | 11.3% | (0.4%) | 15.9% |
Source: Albion Capital Group LLP
Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.
3. Dividend distributions
Dividends paid in respect of the year ended 30 June 2021 were 3.61 pence per share (2020: 2.00 pence per share). Cumulative dividends paid since launch (on 18 January 1998) amount to 63.34 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year ended 30 June 2021 reduced slightly to 2.2 per cent. (2020: 2.3 per cent.). The ongoing charges ratio has been calculated using The Association of Investment Companies (AIC) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to remain stable at approximately 2.2 per cent.
5. VCT compliance*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors report on page 37 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 2021. 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 Companys maximum exposure in relation to gearing is restricted to its adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.
Management agreement
Under the terms of the Management agreement, the Manager is paid an annual fee equal to 1.75 per cent. of the net asset value of the Company plus a £50,000 fee per annum for administrative and secretarial services. Total normal running costs, including the management fee, are limited to 3.0 per cent. of the net asset value. In some instances, the Manager is entitled to an arrangement fee, payable by a portfolio company in which the Company invests, in the region of 2.0 per cent. of the investment made, and also monitoring fees where the Manager has a representative on the portfolio companys board.
Further details of fees paid to the Manager can be found in note 5.
The management agreement can be terminated by either party on 12 months notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party.
Management performance incentive fee
In order to provide the Manager with an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels per share. Under the incentive arrangements, the Company will pay an incentive fee to the Manager of an amount equal to 20% of such excess return that is calculated for each financial year.
The target level requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period (both revenue and capital), compared with the previous accounting date, exceeds the average base rate of the Royal Bank of Scotland plc plus 2.0 per cent. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.
For the year ended 30 June 2021, 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 69.26 pence per share, compared to a hurdle of 67.42 pence per share. As a result, a performance incentive fee of £823,000 is payable to the Manager (2020: £nil). The previous time a performance incentive fee was paid was in 2007.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on:
the returns generated by the Company;
the continuing achievement of the 80% qualifying holdings investment requirement for VCT status;
the long term prospects of the current portfolio of investments;
the management of treasury, including use of buy-backs and participation in fund raising;
a review of the Management agreement and the services provided therein; and
benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive (AIFMD)
The Board appointed Albion Capital Group LLP as the Companys AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides other AIFMD duties with respect to the Company.
Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole in both the long and short term, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.
The Board is very conscious of these wider responsibilities in the ways it promotes the Companys culture and ensures, as part of its regular oversight, that the integrity of the Companys 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 Companys 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 Companys 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 below sets out the stakeholders the Board considers most relevant, details how the Board has engaged with these key stakeholders and the effect of these considerations on the Companys decisions and strategies during the year.
| Stakeholder | Engagement with Stakeholder | Decision outcomes based on engagement |
| Shareholders | The key methods of engaging with Shareholders are as follows:
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| Suppliers | The key suppliers with regular engagement from the Manager are:
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| Manager | The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance practice. |
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| Portfolio companies | The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. However, as discussed in the Environmental, Social and Governance (ESG) section below, the portfolio companies impact on their stakeholders is also important to the Company. |
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| Community and environment | The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies ESG impact is extremely important to the Board. |
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Environmental, Social, and Governance (ESG)
The Companys Manager, Albion Capital Group LLP, takes the concept of sustainable and responsible investment very seriously for existing investments and in reviewing new investment opportunities. In turn, the Board is kept appraised of ESG issues in connection with both the portfolio and in how Company affairs are conducted more generally as a regular part of Board oversight.
Albion Capital Group LLP is a signatory of the UN PRI. The UN PRI is the worlds leading proponent of responsible investment, working to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
The Board and Manager have exercised conscious principles in making responsible investments throughout the life of the Company, not least in providing finance for promising companies in a variety of important sectors such as technology, healthcare and renewable energy. In making the investments, the Manager is directly involved in the oversight and governance of these investments, including ensuring standards of reporting and visibility on business practices, all of which are reported to the Board of the Company. By its nature, not least in making qualifying investments which fulfil the criteria set by HMRC, the Company has focused on sustainable and longer-term investment propositions, some of which will grow and serve important societal demands. One of the most important drivers of performance is the quality of the investment portfolio, which goes beyond the individual valuations and examines the prospects of each of the portfolio companies, as well as the sectors in which they operate all requiring a longer- term view.
In the nature of venture capital investment, Albion Capital Group LLP is more intimately involved in the affairs of portfolio companies than might be the case for funds invested in listed securities. As such, Albion Capital Group LLP is in a position to influence good governance and behaviour in the portfolio companies, many of which are relatively small companies without the support of a larger companys administration and advisory infrastructure.
The Company adheres to the principles of the AIC Code of Corporate Governance and is also aware of other governance and corporate conduct guidance which it meets as far as practical, including in the constitution of a diversified and independent Board capable of providing constructive challenge.
The Company’s portfolio is currently invested in healthcare, renewable energy, education, FinTech, software and other technology (which includes cyber security and data protection), with the most significant percentage of the Companys portfolio invested in sectors and companies which would be seen by many measures to be both sustainable and socially aware on the services they render.
Albion Capital Group LLP incorporates ESG considerations into its investment decisions. These form part of its process to create value for investors and develop sustainable long-term strategies for portfolio companies. Albion Capital Group LLP reports ESG criteria to UN PRI annually and to the Board quarterly.
ESG principles are integrated at the pre-investment, investment and exit stages. This is reflected in transparency of reporting, governance principles adopted by the Company and the portfolio companies, and increasingly in the positive environmental or socially impactful nature of investments made. Albion Capital Group LLP, where relevant, considers climate-specific issues in its investment policies and activities. However, as the majority of the Companys portfolio consists of small (2-250 full time employees), private, typically software companies with limited environmental impact, climate change is not considered to be a significant risk, and actions are proportionate to that risk.
Pre-investment stage
An exclusion list is used to rule out investments in unsustainable areas, or in areas which might be perceived as socially detrimental. ESG due diligence is performed on each potential portfolio company to identify any sustainability risks associated with the investment. Identified sustainability risks are ranked from low to high and are reported to the relevant investment committee. The investment committee considers each potential investment. If sustainability risks are identified, mitigations are assessed and, if necessary, mitigation plans are put in place. If this is not deemed sufficient, the committee would consider the appropriate level and structure of funding to balance the associated risks. If this is not possible, investment committee approval will not be provided, and the investment will not proceed.
Investment stage
All new and existing portfolio companies are asked to report against an ESG Balanced Score Card annually. The ESG Balanced Score Card contains a number of sustainability factors against which a portfolio company will be assessed in order to determine the potential sustainability risks and opportunities arising from the investment. The score cards form part of the Managers internal review meetings alongside discussions around other risk factors, and any outstanding issues are addressed in collaboration with the portfolio companies senior management.
Exit stage
Albion Capital Group LLP aims to ensure that good ESG practices remain in place following exit. For example, by ensuring that the portfolio company creates a self-sustaining ESG management system during our period of ownership, wherever feasible.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 (the Act) to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters, however, it is at the core of its responsible investment strategy as detailed above.
General Data Protection Regulation
The General Data Protection Regulation has the objective of unifying data privacy requirements across the European Union, and continues to apply in the United Kingdom after Brexit. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
Further policies and statements
The Company has adopted a number of further policies and statements relating to:
These are set out in the Directors report on page 38 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 risk has been the global pandemic which has impacted not only public health and mobility but also has had an adverse impact on the economy, the full impact of which is likely to be uncertain for some time.
The Directors have carried out a robust assessment of the Companys principal risks and uncertainties, and explain how they are being mitigated as follows.
| Risk | Possible consequence | Risk management |
| Investment, performance and valuation risk | The risk of investment in poor quality businesses, which could reduce the returns to shareholders and could negatively impact on the Companys current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust purposes, are more volatile than larger, long established businesses. The Companys investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager for all investments, and at least one external investment professional for investments greater than £1 million in aggregate across all the Albion managed VCTs. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Managers 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 Companys buy-backs, dividend payments and operational expenses. The decision to issue a Prospectus for the 2020/21 Top-Up was due to careful analysis of these factors. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines updated in 2018. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. |
| VCT approval risk | The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. | To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust management, used to operating within the requirements of the Venture Capital Trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the Venture Capital Trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required. |
| Regulatory and compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the Financial Conduct Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Companys shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Managers compliance officer, and any issues arising from compliance or regulation are reported to its own board every two months. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Managers compliance officer. The report on controls is also evaluated by the internal auditors. |
| Operational and internal control risk | The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Managers business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. | The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Board receives reports from the Manager on its internal controls and risk management, including on matters relating to cyber security. The Audit and Risk Committee reviews the Internal Audit Reports prepared by the Managers internal auditors, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. Ocorian Depositary (UK) Limited is the Companys 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 Albion Capital is adhering to its policies and procedures as required by the AIFMD. |
| Economic, political and social risk | Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Companys 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. The political risk with the most uncertainty for the future of the UK economy, which the Company largely operates in, is Brexit. The current significant exogenous risk to the Company, the wider population and economy, is the Covid-19 pandemic. | 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 Company largely operates within the UK, and increasingly the US, and therefore impacts from Brexit are reduced as there are few cross-border transactions with Europe. Since 2016, the portfolio of companies has not seen any significant impacts from the uncertainty around Brexit, nor since the end of the transition period (1 January 2021). The Board and Manager are continuously assessing the resilience of the portfolio, the Company and its operations and the robustness of the Companys external agents during the health crisis, 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. |
| Emerging risks | The Board meets at least four times a year to discuss current affairs and any potential emerging risks which could affect the Company. The key emerging risk affecting the Company is the Environmental (including climate change), Social and Governance requirements, both from a regulatory and investor preferences standpoint. There is the risk of loss of funding from investors, as well as the risk of penalties from regulatory non-compliance. | The ESG section above details the Companys work towards these risks, and highlights the importance of these, above the statutory reporting requirements, to the Company. Whilst the Company itself has limited impact on climate change, due to no employees nor greenhouse gas emissions, the Board works closely with the Manager to ensure the Manager themselves are working towards reducing their impact on the environment, and that the Manager takes account of ESG factors, including climate change, when making new investment decisions. With specific respect to the Company, a key operation is increasing the use of electronic communications with Shareholders, where that preference has been specified. |
| Market value of Ordinary shares | The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value. | The Company operates a share buy-back policy, which is designed to limit the discount at which the Ordinary shares trade to around 5% to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buy-back authorities. The Companys corporate broker helps to ensure that the discount is appropriate. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors. |
| Reputational risk | The Company relies on the judgement and reputation of the Manager which is itself subject to the risk of loss. | The Board regularly questions the Manager on its ethics, procedures, safeguards and investment philosophy, which should consequently result in the risk to reputational damage being minimised. |
Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and principle 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 30 June 2024. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board requires from the Manager and the estimated timelines for finding, assessing and completing investments. The three year period also takes account of the potential impact of new regulations, should they be imposed, and how they may impact the Company over the longer term, and the availability of cash, but cannot take into account the full extent of the exogenous risks that are impacting on global economies at the date of these accounts.
The Directors have carried out a robust assessment of the emerging and principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the procedures in place to identify emerging risks and the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment, including any potential impact from Brexit. The Board, after careful consideration, believes that Brexit has had no major impact on the going concern of the Company, primarily due to the markets our portfolio companies target, which in most cases are the UK and increasingly, the US, for our software and technology businesses. Portfolio companies targeting European markets have also shown resilience so far. The coronavirus (Covid-19) pandemic therefore remains the largest uncertainty impacting on the Company. In light of this continuing uncertainty, robust stress tested cashflows, process resilience and contingencies have been examined in trying to deal with the principal risks faced by the Company.
The Board assessed the ability of the Company to raise finance and deploy capital, as well as the existing cash resources of the Company. The portfolio is well balanced and geared towards long term growth, delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Companys income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.
Taking into account the processes for mitigating risks, monitoring costs, share buy-backs and issuance, the Managers compliance with the investment objective, policies and business model and the balance of the portfolio, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 June 2024.
This Strategic report of the Company for the year ended 30 June 2021 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
29 September 2021
Responsibility Statement
In preparing these Financial Statements for the year to 30 June 2021, the Directors of the Company, being Penny Freer, James Agnew, Pam Garside and Ian Spence, confirm that to the best of their knowledge:
– summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 30 June 2021 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 Companys position, performance, business model and strategy.
A detailed Statement of Directors’ responsibilities is contained on page 41 within the full Annual Report and Financial Statements.
On behalf of the Board,
Penny Freer
Chairman
29 September 2021
Income statement
| Year ended 30 June 2021 | Year ended 30 June 2020 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £000 | £000 | £000 | £000 | £000 | £000 | |
| Gain/(loss) on investments | 3 | – | 13,016 | 13,016 | – | (21) | (21) |
| Investment income | 4 | 820 | – | 820 | 1,112 | – | 1,112 |
| Investment management fees | 5 | (291) | (873) | (1,164) | (285) | (856) | (1,141) |
| Performance incentive fee | 5 | (206) | (617) | (823) | – | – | – |
| Other expenses | 6 | (386) | – | (386) | (354) | – | (354) |
| (Loss)/profit on ordinary activities before tax | (63) | 11,526 | 11,463 | 473 | (877) | (404) | |
| Tax on ordinary activities | 8 | – | – | – | – | – | – |
| (Loss)/profit and total comprehensive income attributable to shareholders | (63) | 11,526 | 11,463 | 473 | (877) | (404) | |
| Basic and diluted earnings per Ordinary share (pence)* | 10 | (0.03) | 5.58 | 5.55 | 0.25 | (0.46) | (0.21) |
* 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 2021 | 30 June 2020 | ||
| Note | £000 | £000 | |
| Fixed asset investments | 11 | 50,454 | 41,621 |
| Current assets | |||
| Trade and other receivables | 13 | 1,213 | 81 |
| Cash and cash equivalents | 27,426 | 23,966 | |
| 28,639 | 24,047 | ||
| Total assets | 79,093 | 65,668 | |
| Payables: amounts falling due within one year | |||
| Trade and other payables less than one year | 14 | (1,443) | (395) |
| Total assets less current liabilities | 77,650 | 65,273 | |
| Equity attributable to equity holders | |||
| Called up share capital | 15 | 2,521 | 2,200 |
| Share premium | 23,011 | 13,366 | |
| Unrealised capital reserve | 18,643 | 12,032 | |
| Realised capital reserve | 9,905 | 4,990 | |
| Other distributable reserve | 23,570 | 32,685 | |
| Total equity shareholders funds | 77,650 | 65,273 | |
| Basic and diluted net asset value per share (pence)* | 16 | 34.79 | 33.14 |
* 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 29 September 2021 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 2020 | 2,200 | 13,366 | 12,032 | 4,990 | 32,685 | 65,273 |
| Profit/(loss) and total comprehensive income | – | – | 11,564 | (38) | (63) | 11,463 |
| Transfer of previously unrealised gains on disposal of investments | – | – | (4,953) | 4,953 | – | – |
| Dividends paid | – | – | – | – | (7,314) | (7,314) |
| Purchase of shares for treasury (including costs) | – | – | – | – | (1,738) | (1,738) |
| Issue of equity | 321 | 9,874 | – | – | – | 10,195 |
| Cost of issue of equity | – | (229) | – | – | – | (229) |
| As at 30 June 2021 | 2,521 | 23,011 | 18,643 | 9,905 | 23,570 | 77,650 |
| As at 1 July 2019 | 2,072 | 9,061 | 19,756 | (1,857) | 36,963 | 65,995 |
| (Loss)/profit and total comprehensive income | – | – | (651) | (226) | 473 | (404) |
| Transfer of previously unrealised gains on disposal of investments | – | – | (7,073) | 7,073 | – | – |
| Dividends paid | – | – | – | – | (3,814) | (3,814) |
| Purchase of shares for treasury (including costs) | – | – | – | – | (937) | (937) |
| Issue of equity | 129 | 4,418 | – | – | – | 4,547 |
| Cost of issue of equity | – | (114) | – | – | – | (114) |
| As at 30 June 2020 | 2,200 | 13,366 | 12,032 | 4,990 | 32,685 | 65,273 |
* Included within these reserves is an amount of £28,289,000 (2020: £26,438,000) which is considered distributable. On 1 July 2021, a further £5,186,000 became distributable.
The nature of each reserve is described in note 2 below.
Statement of cash flows
| Year ended 30 June 2021 £000 | Year ended 30 June 2020 £000 | ||
| Cash flow from operating activities | |||
| Loan stock income received | 1,033 | 935 | |
| Deposit interest received | 2 | 89 | |
| Dividend income received | 13 | 16 | |
| Investment management fees paid | (1,110) | (1,145) | |
| Other cash payments | (398) | (341) | |
| Corporation tax paid | – | – | |
| Net cash flow from operating activities | (460) | (446) | |
| Cash flow from investing activities | |||
| Purchase of fixed asset investments | (8,326) | (4,195) | |
| Disposal of fixed asset investments | 11,156 | 12,837 | |
| Net cash flow from investing activities | 2,830 | 8,642 | |
| Cash flow from financing activities | |||
| Issue of share capital | 8,789 | 3,839 | |
| Cost of issue of equity | (20) | (30) | |
| Equity dividends paid* | (6,106) | (3,185) | |
| Purchase of own shares for treasury (including costs) | (1,573) | (937) | |
| Net cash flow from financing activities | 1,090 | (313) | |
| Increase in cash and cash equivalents | 3,460 | 7,883 | |
| Cash and cash equivalents at the start of the year | 23,966 | 16,083 | |
| Cash and cash equivalents at the end of the year | 27,426 | 23,966 | |
* The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.
Notes to the Financial Statements
1. Basis of preparation
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (FRS 102), and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts (SORP) issued by The Association of Investment Companies (AIC). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors report on pages 36 and 37 of the full Annual Report and Financial Statements.
The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at Fair Value Through Profit and Loss (FVTPL) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (IPEV) Guidelines as updated in 2018 and further detail on the valuation techniques used are outlined in note 2 below.
Company information is shown on page 2 of the full Annual Report and Financial Statements.
2. Accounting policies
Fixed asset investments
The Companys business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.
In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.
Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).
Subsequently, the investments are valued at fair value, which is measured as follows:
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.
Current assets and payables
Receivables (including debtors due after more than one year), payables and cash are carried at amortised cost, in accordance with FRS 102. Debtors due after more than one year meet the definition of a financing transaction held at amortised cost, and interest will be recognised through capital over the credit period using the effective interest method. There are no financial liabilities other than payables.
Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are recognised when the Companys right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fee, performance incentive fee and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:
Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.
Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the Financial Statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the Financial Statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT in the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.
Share capital and reserves
Called up share capital
This accounts for the nominal value of the Companys shares.
Share premium
This reserve accounts for the difference between the price paid for the Companys shares and the nominal value of those shares, less issue costs.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Companys own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost, are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.
This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.
Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.
3. Gains/(losses) on investments
| Year ended 30 June 2021 | Year ended 30 June 2020 | |
| £000 | £000 | |
| Unrealised gain/(loss) on fixed asset investments | 11,564 | (651) |
| Realised gains on fixed asset investments | 1,452 | 630 |
| 13,016 | (21) | |
4. Investment income
| Year ended 30 June 2021 | Year ended 30 June 2020 | |
| Income recognised on investments | £000 | £000 |
| Loan stock interest | 806 | 1,007 |
| UK dividend income | 13 | 16 |
| Bank deposit interest | 1 | 89 |
| 820 | 1,112 |
5. Investment management fees
| Year ended 30 June 2021 | Year ended 30 June 2020 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Investment management fee | 291 | 873 | 1,164 | 285 | 856 | 1,141 |
| Performance incentive fee | 206 | 617 | 823 | – | – | – |
Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report above.
During the year, services of a total value of £1,214,000 (2020: £1,191,000) were purchased by the Company from Albion Capital Group LLP comprising £1,164,000 of management fees (2020: £1,141,000) and £50,000 of administration fees (2020: £50,000). There is a performance incentive fee of £823,000 payable this year (2020: £nil). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals and deferred income was £1,173,500 (administration fee accrual: £12,500, management fee accrual £338,000, performance incentive fee £823,000) (2020: £296,500).
Albion Capital Group LLP is, from time to time, eligible to receive an arrangement fee and monitoring fees from portfolio companies. During the year ended 30 June 2021 fees of £223,000 attributable to the investments of the Company were received pursuant to these arrangements (2020: £131,000).
Albion Capital Group LLP, its partners and staff holds 1,363,508 Ordinary shares in the Company as at 30 June 2021.
The Company entered into an offer agreement relating to the Offers with the Companys investment manager, Albion Capital Group LLP, pursuant to which Albion Capital Group LLP received a fee of 2.5 per cent. of the gross proceeds of the Offers and out of which Albion Capital paid the costs of the Offers, as detailed in the Prospectus.
6. Other expenses
| Year ended 30 June 2021 | Year ended 30 June 2020 | |
| £000 | £000 | |
| Directors fees (including NIC) | 105 | 109 |
| Auditors remuneration for statutory audit services (excluding VAT) | 37 | 35 |
| Other administrative expenses | 244 | 210 |
| 386 | 354 | |
7. Directors fees
The amounts paid to (or on behalf of) the Directors during the year are as follows:
| Year ended 30 June 2021 £000 | Year ended 30 June 2020 £000 | |
| Directors fees | 97 | 100 |
| National insurance | 8 | 9 |
| 105 | 109 |
The Companys key management personnel are the Directors. Further information regarding Directors remuneration can be found in the Directors remuneration report on pages 48 to 50 of the full Annual Report and Financial Statements.
8. Tax on ordinary activities
| Year ended 30 June 2021 £000 | Year ended 30 June 2020 £000 | |
| UK corporation tax charge | – | – |
| Year ended 30 June 2021 | Year ended 30 June 2020 | |
| Factors affecting the tax charge | £000 | £000 |
| Return/(loss) on ordinary activities before taxation | 11,463 | (404) |
| Tax charge on return/(loss) at the average companies rate of 19.0% (2020: 19.0%) | 2,178 | (77) |
| Factors affecting the charge: | ||
| Non-taxable (gains)/losses | (2,473) | 4 |
| Income not taxable | (2) | (3) |
| Unutilised management expenses | 297 | 76 |
| – | – |
The tax charge for the year shown in the Income statement is lower than the average standard rate of corporation tax of 19.0 per cent. (2020: 19.0 per cent.). The differences are explained above.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii) No provision for deferred tax has been made in the current or prior accounting period. The Company has excess management expenses of £18,700,000 (2020: £17,144,000) that are available for offset against future profits. A deferred tax asset of £3,553,000 (2020: £3,257,000) 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 2021 | Year ended 30 June 2020 | |
| £000 | £000 | |
| Special dividend of 2.00 pence per share paid on 30 October 2020 | 3,940 | – |
| Dividend of 0.83 pence per share paid on 30 November 2020 (29 November 2019 1 penny per share) | 1,642 | 1,861 |
| Dividend of 0.78 pence per share paid on 31 March 2021 (31 March 2020 1 penny per share) | 1,744 | 1,964 |
| Unclaimed dividends | (12) | (11) |
| 7,314 | 3,814 |
In addition to the dividends paid above, the Board has declared a first interim dividend for the year ending 30 June 2022 of 0.87 pence per share. This will be paid on 30 November 2021 to shareholders on the register on 5 November 2021. The total dividend will be approximately £1,942,000.
The Board has also declared a special dividend of 1.50 pence per share, payable on 30 November 2021 to shareholders on the register on 5 November 2021. The total dividend will be approximately £3,348,000.
Details of the special dividend can be found in the Chairmans statement above. All dividends are paid from the other distributable reserve.
During the year, unclaimed dividends older than twelve years of £12,000 (2020: £11,000) 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 (loss)/return per share
| Year ended 30 June 2021 | Year ended 30 June 2020 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| (Loss)/return attributable to equity shares (£000) | (63) | 11,526 | 11,463 | 473 | (877) | (404) |
| Weighted average shares (adjusted for treasury shares) | 206,558,772 | 190,892,747 | ||||
| (Loss)/return attributable per Ordinary share (pence) (basic and diluted) | (0.03) | 5.58 | 5.55 | 0.25 | (0.46) | (0.21) |
The (loss)/return per share has been calculated after adjusting for treasury shares of 28,895,986 (2020: 23,061,630).
There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted (loss)/return per share are the same.
11. Fixed asset investments
| Investments held at fair value through profit or loss | 30 June 2021 £000 | 30 June 2020 £000 |
| Unquoted equity and preference shares | 41,381 | 29,031 |
| Quoted equity | 544 | – |
| Loan stock | 8,529 | 12,590 |
| 50,454 | 41,621 |
| 30 June 2021 £000 | 30 June 2020 £000 | |
| Opening valuation | 41,621 | 49,943 |
| Purchases at cost | 8,326 | 4,409 |
| Disposal proceeds | (12,281) | (12,782) |
| Realised gains | 1,452 | 630 |
| Movement in loan stock accrued income | (228) | 72 |
| Unrealised gains/(losses) | 11,564 | (651) |
| Closing valuation | 50,454 | 41,621 |
| Movement in loan stock accrued income | ||
| Opening accumulated loan stock accrued income | 278 | 206 |
| Movement in loan stock accrued income | (228) | 72 |
| Closing accumulated loan stock accrued income | 50 | 278 |
| Movement in unrealised gains | ||
| Opening accumulated unrealised gains | 11,965 | 19,689 |
| Transfer of previously unrealised gains to realised reserves on disposal of investments | (4,953) | (7,073) |
| Movement in unrealised gains | 11,564 | (651) |
| Closing accumulated unrealised gains | 18,576 | 11,965 |
| Historic cost basis | ||
| Opening book cost | 29,378 | 30,048 |
| Purchases at cost | 8,326 | 4,409 |
| Disposals at cost | (5,876) | (5,079) |
| Closing book cost | 31,828 | 29,378 |
Purchases and disposals detailed above do not agree to the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.
The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.
Unquoted fixed asset investments are valued in accordance with the IPEV guidelines as follows:
| 30 June 2021 | 30 June 2020 | |
| Investment valuation methodology | £000 | £000 |
| Cost and price of recent investment (reviewed for impairment or uplift) | 26,279 | 13,884 |
| Revenue multiple | 13,146 | 7,338 |
| Third party valuation discounted cash flow | 6,853 | 7,194 |
| Third party valuation earnings multiple | 2,768 | 11,542 |
| Net assets | 801 | 1,091 |
| Earnings multiple | 63 | 572 |
| 49,910 | 41,621 |
When using the cost or price of a recent investment in the valuations the Company looks to re-calibrate this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (i.e. using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.
The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and 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 Companys 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 Companys equity instruments, comparable trading multiples are used. In accordance with the Companys policy, appropriate comparable companies based on industry, size, developmental stage, revenue generation and strategy are determined and a trading multiple for each comparable company identified is then calculated. The multiple is calculated by dividing the enterprise value of the comparable group by its revenue, EBITDA or earnings. The trading multiple is then adjusted for considerations such as illiquidity, marketability and other differences, advantages and disadvantages between the portfolio company and the comparable public companies based on company specific facts and circumstances.
Fair value investments had the following movements between investment methodologies between 30 June 2020 and 30 June 2021:
| Change in investment valuation methodology (2020 to 2021) | Value as at 30 June 2021 £000 | Explanatory note |
| Cost and price of recent investment (reviewed for impairment or uplift) to revenue multiple | 3,004 | More appropriate valuation methodology |
| Revenue multiple to cost and price of recent investment (reviewed for impairment or uplift) | 321 | Recent funding round |
The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 30 June 2021.
FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS 102 s.11.27.
| Fair value hierarchy | Definition |
| Level 1 | Unadjusted quoted prices in an active market |
| Level 2 | Inputs to valuations are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.
The Companys investments measured at fair value through profit or loss (Level 3) had the following movements:
| 30 June 2021 | 30 June 2020 | |
| £000 | £000 | |
| Opening balance | 41,621 | 49,405 |
| Additions* | 8,246 | 4,429 |
| Disposal proceeds | (12,281) | (12,373) |
| Realised gains | 1,452 | 738 |
| Unrealised gains/(losses) | 11,310 | (651) |
| Accrued loan stock interest | (228) | 72 |
| Investments transferred to level 1 | (210) | – |
| Closing balance | 49,910 | 41,621 |
*Additions do not agree to the cash flow due to loan stock conversions and non-cash consideration.
FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 65 per cent. of the portfolio of investments consisting of equity and loan stock is based on recent investment price, net assets and cost, and as such the Board believe that changes to reasonable possible alternative input assumptions (by adjusting the earnings and revenue multiples) for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 84 per cent. of the portfolio of investments. The main inputs considered for each type of valuation is as follows:
| Valuation technique | Portfolio company sector | Input | Base Case* | Change in input | Change in Fair Value of Investments (£000) | Change in NAV (pence per share) |
| Revenue multiple | Healthcare (including digital healthcare) | Revenue multiple | 5.5x | +0.5x | 313 | 0.14 |
| -0.5x | (313) | (0.14) | ||||
| Third party valuation discounted cash flow | Renewable energy | Discount factor | 5.5% | +0.5% | (213) | (0.10) |
| -0.5% | 235 | 0.11 | ||||
| Third party valuation discounted cash flow | Renewable energy | Discount factor | 5.5% | +0.5% | (58) | (0.03) |
| -0.5% | 61 | 0.03 | ||||
| Revenue multiple | Software and other technology | Revenue multiple | 6.0x | +0.5x | 133 | 0.06 |
| -0.5x | (133) | (0.06) | ||||
| Revenue multiple | Software and other technology | Revenue multiple | 8.0x | +0.5x | 69 | 0.03 |
| -0.5x | (69) | (0.03) |
* As detailed in the accounting policies above, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.
The impact of these changes could result in an overall increase in the valuation of the equity investments by £812,000 (2.0%) or a decrease in the valuation of equity investments by £786,000 (1.9%).
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.
The Company has no interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 30 June 2021.
13. Current assets
| Trade and other receivables | 30 June 2021 | 30 June 2020 |
| £000 | £000 | |
| Prepayments and accrued income | 30 | 13 |
| Deferred consideration under one year | 48 | 68 |
| Deferred consideration over one year | 1,135 | – |
| 1,213 | 81 |
The deferred consideration over one year relates to the sale of G.Network Communications Limited in December 2020. These proceeds are receivable in January 2024, and have been discounted to present value at the prevailing market rate, including a provision for counterparty risk. This constitutes a financing transaction, and has been accounted for using the policy disclosed in note 2.
The Directors consider that the carrying amount of receivables is not materially different to their fair value.
14. Payables: amounts falling due within one year
| 30 June 2021 | 30 June 2020 | |
| £000 | £000 | |
| Accruals and deferred income | 1,264 | 379 |
| Trade payables | 179 | 16 |
| 1,443 | 395 |
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 |
| 220,036,874 Ordinary shares of 1 penny each at 30 June 2020 | 2,200 |
| 32,083,218 Ordinary shares of 1 penny each issued during the year | 321 |
| 252,120,092 Ordinary shares of 1 penny each at 30 June 2021 | 2,521 |
| 23,061,630 Ordinary shares of 1 penny each held in treasury at 30 June 2020 | (231) |
| 5,834,356 Ordinary shares of 1 penny each purchased during the year to be held in treasury | (58) |
| 28,895,986 Ordinary shares of 1 penny each held in treasury at 30 June 2021 | (289) |
| Voting rights of 223,224,106 Ordinary shares of 1 penny each at 30 June 2021 | 2,232 |
The Company purchased 5,834,356 Ordinary shares for treasury (2020: 2,893,220) during the year at a total cost of £1,738,000 (2020: £937,000).
The total number of shares held in treasury as at 30 June 2021 was 28,895,986 (2020: 23,061,630) representing 11.5 per cent. of the shares in issue as at 30 June 2021.
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 October 2020 | 2,031,730 | 20 | 31.14 | 616 | 30.00 |
| 30 November 2020 | 877,066 | 9 | 30.51 | 266 | 29.40 |
| 31 March 2021 | 976,922 | 10 | 30.35 | 295 | 29.40 |
| 3,885,718 | 1,177 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2020/21, 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) |
| 26 February 2021 | 4,058,515 | 41 | 31.70 | 1,267 | 29.60 |
| 26 February 2021 | 1,224,514 | 12 | 31.80 | 382 | 29.60 |
| 26 February 2021 | 21,684,450 | 217 | 32.00 | 6,767 | 29.60 |
| 09 April 2021 | 372,349 | 4 | 30.90 | 113 | 29.40 |
| 09 April 2021 | 21,290 | – | 31.00 | 6 | 29.40 |
| 09 April 2021 | 836,382 | 8 | 31.20 | 254 | 29.40 |
| 28,197,500 | 8,789 |
16. Basic and diluted net asset value per share
The net asset value attributable to the Ordinary shares at the year end was as follows:
| 30 June 2021 | 30 June 2020 | |||
| Net asset value per share (pence) | 34.79 | 33.14 |
The net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon total shares in issue (adjusted for treasury shares) of 223,224,106 shares as at 30 June 2021 (2020: 196,975,244).
There are no convertible instruments, derivatives or contingent share agreements in issue.
17. Capital and financial instruments risk management
The Companys capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail in the Directors report on page 36 of the full Annual Report and Financial Statements.
The Companys financial instruments comprise equity and loan stock investments in unquoted companies, deferred receipts on disposal of fixed asset investments, cash balances, receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate revenue and capital appreciation for the Companys 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 Companys operations are:
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below:
Market risk
As a Venture Capital Trust, it is the Companys specific nature to evaluate the market risk of its portfolio in unquoted companies, details of which are shown on pages 26 to 29 of the full Annual Report and Financial Statements. 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 the announcement.
The Manager and the Board formally review market risk, both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
Under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the extent to which the assets are exposed to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a change of 10% based on the current economic climate. The impact of a 10% change has been selected as this is considered reasonable given the current level of volatility observed. When considering the appropriate level of sensitivity to be applied, the Board has considered both historic performance and future expectations.
The sensitivity of a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £5,045,000. 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 Managers compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the portfolio on a regular basis.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the pie chart at the end of this announcement.
The maximum investment risk on the balance sheet date is the value of the fixed asset investment portfolio which is £50,454,000 (2020: £41,621,000). Fixed asset investments form 65% of the net asset value on 30 June 2021 (2020: 64%).
More details regarding the classification of fixed asset investments are shown in note 11.
Interest rate risk
It is the Companys 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 Companys analysis, it is estimated that a rise of half a percentage point in all interest rates would have increased total return before tax for the year by approximately £128,000 (2020: £100,000). 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 Companys fixed rate assets during the year was approximately 4.5 per cent. (2020: 8.1 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 2.7 years (2020: 2.2 years).
The Companys financial assets and liabilities, all denominated in pounds sterling, consist of the following:
| 30 June 2021 | 30 June 2020 | |||||||
| Fixed rate | Floating rate £000 | Non-interest £000 | Total £000 | Fixed rate | Floating rate £000 | Non-interest £000 | Total £000 | |
| Loan stock | 8,000 | – | 529 | 8,529 | 11,814 | – | 776 | 12,590 |
| Equity | – | – | 41,925 | 41,925 | – | – | 29,031 | 29,031 |
| Receivables* | – | – | 1,183 | 1,183 | – | – | 70 | 70 |
| Payables | – | – | (1,443) | (1,443) | – | – | (395) | (395) |
| Cash | – | 27,426 | – | 27,426 | – | 23,966 | – | 23,966 |
| 8,000 | 27,426 | 42,194 | 77,620 | 11,814 | 23,966 | 29,482 | 65,262 | |
*The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in loan stock, and cash on deposit with banks.
The Manager evaluates credit risk on loan stock and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. For loan stock investments made prior to 6 April 2018, which account for 69.9 per cent. of loan stock by value, typically loan stock instruments have a fixed or floating charge, which may or may not have been subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.
The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk.
Bank deposits are held with banks with high credit ratings assigned by international credit rating agencies. The Company has an informal policy of limiting counterparty banking exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Companys total gross credit risk at 30 June 2021 was limited to £8,529,000 (2020: £12,590,000) of loan stock instruments, £27,426,000 (2020: £23,966,000) of cash deposits with banks and £1,183,000 (2020: £70,000) of deferred consideration and receivables.
At the balance sheet date, the cash held by the Company was held with Lloyds Bank Plc, Scottish Widows Bank plc (part of Lloyds Banking Group), National Westminster Bank plc and Barclays Bank plc. Credit risk on cash transactions was mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.
The credit profile of loan stock is described under liquidity risk shown below.
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.
Liquidity risk
Liquid assets are held as cash on current short term deposit accounts. Under the terms of its Articles, the Company has the ability to borrow up to the amount of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £72,360,000 (2020: £59,698,000) as at 30 June 2021.
The Company has no committed borrowing facilities as at 30 June 2021 (2020: nil) and had cash balances of £27,426,000 (2020: £23,966,000). 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 Companys financial liabilities are short term in nature and total £1,443,000 (2020: £395,000) as at 30 June 2021.
The carrying value of loan stock investments, analysed by expected maturity dates is as follows:
| 30 June 2021 | 30 June 2020 | ||||||||
| 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 | 2,534 | 381 | 411 | 3,326 | 6,290 | 613 | 443 | 7,346 | |
| 1-2 years | 1,037 | 845 | 1 | 1,883 | 452 | – | 42 | 494 | |
| 2-3 years | 30 | – | – | 30 | 1,287 | 738 | 65 | 2,090 | |
| 3-5 years | 1,975 | – | – | 1,975 | 1,120 | 105 | – | 1,225 | |
| 5 + years | 1,315 | – | – | 1,315 | 1,435 | – | – | 1,435 | |
| Total | 6,891 | 1,226 | 412 | 8,529 | 10,584 | 1,456 | 550 | 12,590 | |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. Past due loan stock is not considered to be impaired.
The cost of loan stock investments valued below cost is £681,000 (2020: £670,000).
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 Companys financial assets and liabilities as at 30 June 2021 are stated at fair value as determined by the Directors, with the exception of receivables (including debtors due after more than one year), and payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Companys financial liabilities are all non-interest bearing. It is the Directors opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
18. Contingencies and guarantees
As at 30 June 2021, the Company had no financial commitments in respect of investments (2020: £nil).
There are no contingencies or guarantees of the Company as at 30 June 2021 (2020: £nil).
19. Post balance sheet events
Since 30 June 2021 the Company has completed the following investment transactions:
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 pages 48 to 50 of the full Annual Report and Financial Statements, there are no other related party transactions or balances requiring disclosure.
21. Other information
The information set out in this announcement does not constitute the Company’s statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 30 June 2021 and 30 June 2020, 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 2021, 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
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