Crown Place VCT PLC: Annual Financial Report
*Crown Place VCT PLC*
LEI number: 213800SYIQPA3L3T1Q68
As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Crown Place VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 30 June 2023.
This announcement was approved for release by the Board of Directors on 11 October 2023.
This announcement has not been audited.
The Annual Report and Financial Statements for the year ended 30 June 2023 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/CRWN/30Jun23.pdf.
*Investment policy*
The Company invests in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments take the form of equity or a mixture of equity and loans.
Whilst allocation of funds is determined by the investment opportunities which are available, efforts are made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of investee businesses. Funds held pending investment or for liquidity purposes will be held principally as cash on deposit.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors using a mixture of securities, as permitted. The maximum amount which the Company will invest in a single portfolio company is 15% of the Company's assets at cost thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.
The Company's maximum exposure in relation to gearing is restricted to the amount of its adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.
*Financial calendar*
3 November 2023 Record date for first dividend
Noon on 22 November 2023 Annual General Meeting
30 November 2023 Payment date of first dividend
March 2024 Announcement of Half-yearly results for the six months ending 31 December 2023
28 March 2024 Payment date of second dividend (subject to Board approval)
*Financial highlights*
*1.06p* *3.15%* *1.63p* *33.13p*
Increase in total shareholder value per share for the year ended 30 June 2023 (2022: 2.12p)† Total return uplift on opening net asset value per share (2022: 6.10%)† Total tax-free dividends per share paid during the year ended 30 June 2023 (2022: 3.21p) Net asset value per share as at 30 June 2023 (2022: 33.70p)
†These are considered Alternative Performance Measures, see notes 2 and 3 of the Strategic report below for further explanation.
*Movements in net asset value*
*30 June 2023* 30 June 2022 *pence per share* pence per share
Opening net asset value *33.70* 34.79
Capital return *0.92* 1.95
Revenue return *0.13* 0.14
Total return *1.05* 2.09
Dividends paid *(1.63)* (3.21)
Impact of share capital movements *0.01* 0.03
Closing net asset value *33.13* 33.70
*Total shareholder value*
*Shareholder return and shareholder value*
*(pence per share)*
*Shareholder return from launch to April 2005:*
Total dividends paid to 6 April 2005^(i) 24.93
Decrease in net asset value (56.60)
Total shareholder return to 6 April 2005 (31.67)
*Shareholder return from April 2005 to 30 June 2023 **(period that Albion Capital has been investment manager)**:*
Total dividends paid 43.25
Decrease in net asset value (10.27)
Total shareholder return from April 2005 to 30 June 2023 32.98
*Shareholder value since launch:*
Total dividends paid to 30 June 2023^(i) 68.18
Net asset value as at 30 June 2023 33.13
Total shareholder value as at 30 June 2023 101.31
Note
(i) Prior to 6 April 1999, Venture Capital Trusts were able to add 20% to dividends and figures for the period up until 6 April 1999 are included at the gross equivalent rate actually paid to shareholders.
A more detailed breakdown of the dividends paid per year can be found at www.albion.capital/funds/CRWN under the ‘Dividend History’ section.
*In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2024 of 0.83 pence per share payable on 30 November 2023 to shareholders on the register on 3 November 2023. *
*Chairman’s statement*
*Introduction*
The year saw the Company’s portfolio facing a challenging macroeconomic and geopolitical backdrop due to high inflation, rising interest rates and political instability which has caused the valuation of quoted technology companies to fall sharply. In spite of this, I am pleased to report an increase in total shareholder value of 1.06 pence per share for the year ended 30 June 2023, representing a 3.1% uplift on the opening net asset value.
Although the Company’s portfolio faces uncertainties, the Board remains encouraged by the progress that is being made by many of the portfolio companies. The Board recognises the importance of evaluating the Company’s returns over the longer-term, as a venture capital portfolio can, by its nature, experience periods of short term volatility.
*Results and dividends *
As at 30 June 2023, the net asset value (“NAV”) was £94.0 million or 33.13 pence per share compared with £85.8 million or 33.70 pence per share at 30 June 2022. The continuing progress of a number of our portfolio companies is discussed later in this statement and in the Strategic report below.
In line with the dividend policy targeting payment of around 5.0% of NAV per annum, the Company paid ordinary dividends of 1.63 pence per share during the year to 30 June 2023, which equates to 4.8% of the opening NAV (30 June 2022: 3.21 pence per share, which included a special dividend of 1.50 pence per share).
The Board is pleased to declare a first dividend for the year ending 30 June 2024 of 0.83 pence per share, representing 2.5% of the prevailing NAV, to be paid on 30 November 2023 to shareholders on the register on 3 November 2023.
*Investment performance and progress*
Our portfolio has performed well despite the global uncertainties faced, and this has contributed to the total uplift in value of £3.8 million to the Company’s investments for the year (30 June 2022: £6.4 million). Quantexa, the largest company within our portfolio (18% of net asset value), was the main contributor to the net gain, increasing its value by £6.8 million following an externally led $129 million Series E fundraising which completed in April 2023. Other unrealised gains in the year, again driven by strong trading and revenue growth, included Convertr of £0.6 million and Solidatus of £0.5 million. These gains were partially offset by write downs in Black Swan which decreased by £1.5 million, uMotif by £0.9 million and Oviva by £0.8 million.
The Company realised disposal proceeds of £0.7 million (2022: £7.2 million). The largest disposals being a part disposal of our shareholding in our AIM quoted investment, Arecor Therapeutics PLC (£0.3 million) and an exit of Zift (£0.2 million). There were also several investments written off during the year, however their valuations had already been substantially reduced in previous years and had little impact on the return for the year. Further details on the realisations during the year can be found in the realisations table on page 29 of the full Annual Report and Financial Statements.
The three largest investments in the Company’s portfolio, Quantexa, Proveca and Radnor House are valued at £24.8 million and represent 26.4% of the Company’s net asset value. The company regularly monitors its concentration risk and as announced on 6 October 2023, the Company sold £1.2 million of its holding in Quantexa at its current valuation to reduce its concentration risk.
The Company has been an active investor during the year with £7.9 million invested in 11 new and 11 existing portfolio companies. The new portfolio companies are expected to require further investment as the companies prove themselves and grow. The following are the five largest new investments:
· £1.2 million into Peppy Health, a platform providing expert support for underserved areas of health and wellness (e.g. menopause) via content, video, chat support as an employment benefit for employees
· £1.0 million into Toqio FinTech Holdings which bridges the gap between financial services and financial outcomes by providing an orchestration platform to any business large or small which wishes to launch a financial product
· £0.6 million into GX Molecular (T/A CS Genetics), a developer of a wet-phase approach to single cell indexing in a single tube that enables increased scalability and high quality single cell analysis
· £0.5 million into OutThink, a software platform to measure and manage human risk enterprises
· £0.4 million into Neurofenix, a platform providing neurorehabilitation for patients recovering from stroke, TBI and spinal cord injury
A full list of the Company’s investments and disposals, including their movements in value for the year, can be found in the Portfolio of investments section on pages 27 to 29 of the full Annual Report and Financial Statements.
*Board composition*
I have had the privilege of serving as a Director of the Company for nine years, including three as Chairman, and I will retire at the Annual General Meeting in November 2023. I am delighted that James Agnew, an existing Board member, will succeed me as Chairman.
Following a formal selection process and as part of its ongoing succession planning, the Board is pleased to welcome Tony Ellingham who joined the Board on 1 September 2023.
When James Agnew becomes Chairman of the Board, Tony Ellingham will become the Chairman of the Audit and Risk Committee; Pam Garside will become the Senior Independent Director; and Ian Spence will become Chairman of the Remuneration Committee.
*Risks and uncertainties*
The Company faces a number of significant risks, including higher interest rates, high levels of inflation, the ongoing impact of geopolitical tensions, and an expected period of economic stagnation in the UK and other markets. This complex backdrop is factored into how the Company is managed, including in its management of cash.
Our investment portfolio, while concentrated mainly in the technology and healthcare sectors, remains diversified in terms of both sub-sector and stage of maturity and, importantly, we believe it to be appropriately valued.
The Manager is continually assessing the exposure to these risks for each portfolio company and appropriate actions, where possible, are being implemented. This includes the potential provision of further financial support to portfolio companies where necessary.
A detailed analysis of the principal risks and uncertainties facing the business is shown in the Strategic report below.
*Share buy-backs and reserves*
It remains the Board’s primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board’s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest. It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.
The Company also manages a relatively high level of distributable reserves which can be used for share buy-backs and the payment of dividends. As in the past, the Company has sought authority from shareholders for the reclassification of the share premium account to create additional distributable reserves, which is being done again this year as explained on page 50 of the full Annual Report and Financial Statements.
*Albion VCTs Prospectus Top Up Offers *
Your Board, in conjunction with the boards of the other five VCTs managed by Albion Capital Group LLP, launched a prospectus top up Offer of new Ordinary shares on 10 October 2022. On 10 March 2023 the Offer was fully subscribed and closed to further applications raising £11.5 million including the overallotment facility. The Board was pleased to see the high level of demand for the Company’s shares from existing and new shareholders.
The proceeds raised by the Company pursuant to the Offer are added to the liquid resources available for investment, positioning the Company to take advantage of new investment opportunities. Details on the share allotments during the year can be found in note 15.
*Annual General Meeting*
The AGM will be held virtually at noon on 22 November 2023 via the Lumi platform. Information on how to participate in the live webcast can be found on the Manager’s website www.albion.capital/vct-hub/agms-events.
The Board welcomes questions from shareholders at the AGM and shareholders will be able to ask questions using the Lumi platform during the AGM. Alternatively, shareholders can email their questions to crownchair@albion.capital prior to the AGM.
Shareholders' views are important, and the Board encourages shareholders to vote on the resolutions.
Further details on the format and business to be conducted at the AGM can be found in the Directors’ report on pages 49 and 50, and in the Notice of the Meeting on pages 91 and 92, of the full Annual Report and Financial Statements.
*Audit tender process*
Following a formal and rigorous audit tender process, the intention is to appoint Johnston Carmichael LLP (“Johnston Carmichael”) as the new Auditor of the Company in October 2023. Johnston Carmichael will conduct the audit of the Annual Report and Financial Statements for the year ended 30 June 2024. Shareholders will be asked to confirm the appointment of Johnston Carmichael at the forthcoming Annual General Meeting. BDO conducted the audit of the Annual Report and Financial Statements for the year ended 30 June 2023 and their report can be found on pages 64 to 70 of the full Annual Report and Financial Statements. The Board would like to express their gratitude to BDO for their diligent service over 16 years. Further details on the tender process can be found in the Statement of corporate governance on page 56 of the full Annual Report and Financial Statements.
*Shareholder seminar*
The next Shareholder Seminar will be held at the Royal College of Surgeons, Lincoln’s Inn Fields, London WC2A 3PE on 15 November 2023 and the Board will be delighted to see as many shareholders as possible at the event. The Board and Manager are keen to interact with shareholders and look forward to sharing with you further portfolio updates, as well as answering any questions. Places are limited and to reserve a place please email info@albion.capital with subject heading “Shareholder Seminar” and include your full name. You will receive an email confirmation of your place, subject to availability.
More details are available on the Albion Capital website: www.albion.capital.
*Outlook and prospects*
The Board is encouraged by the positive results for the year just ended in what are uncertain times, principally outside the Company’s control. The Board believes the portfolio is well diversified in terms of maturity and target sectors, many of which do not depend on consumer sentiment. Therefore, the Board continues to have confidence that the Company is well positioned in the current economic environment to generate long term value for shareholders.
*Penny Freer*
Chairman
11 October 2023
*Strategic report*
Crown Place VCT PLC (the “Company”) is a Venture Capital Trust and its investment policy can be found above.
*Business model*
As a Venture Capital Trust, the Company has no employees and has outsourced the management of all its operations to Albion Capital Group LLP, including secretarial and administrative services. Further details of the Investment Management Agreement can be found below.
*Current portfolio sector allocation *
The pie charts at the end of this announcement are a useful way of showing the split of the portfolio valuation as at 30 June 2023 by: sector; stage of investment measured by revenues; and size measured by number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 27 to 29 of the full Annual Report and Financial Statements.
*Direction of portfolio*
The analysis of the Company’s investment portfolio shows that it is well diversified and spread across the FinTech, healthcare (including digital healthcare), software and technology, renewable energy, and education sectors.
Cash and net current assets are a significant proportion of the portfolio at 28%. The main use of these funds will be to invest in higher growth technology companies, and therefore the shift away from asset based companies will continue. The funds will also be used to pay dividends, buyback shares and for the operating expenses of the Company. The Company has a significant speciality in healthcare, FinTech and software investing, which account for 58% of the net asset value of the Company.
*Results and dividends*
*£’000*
Net revenue return for the year ended 30 June 2023 351
Net capital return for the year ended 30 June 2023 2,466
*Total return for the year ended 30 June 2023* *2,817*
First dividend of 0.84 pence per share paid on 30 November 2022 (2,130)
Second dividend of 0.79 pence per share paid on 31 March 2023 (2,120)
Unclaimed dividends 13
*Transferred from reserves* *(1,420)*
Net assets as at 30 June 2023 93,969
*Net asset value as at 30 June 2023* *33.13 pence per share*
The Company paid dividends totalling 1.63 pence per share during the year ended 30 June 2023 (2022: 3.21 pence per share which included a 1.50 pence per share special dividend). The dividend objective of the Board is to provide shareholders with a regular dividend flow. The Board declared a first dividend for the year ending 30 June 2024 of 0.83 pence per share. This dividend will be paid on 30 November 2023 to shareholders on the register on 3 November 2023.
As shown in the Company’s Income statement below, the total return for the year was 1.05 pence per share (2022: 2.09 pence per share). The net asset value decreased to 33.13 pence per share (2022: 33.70 pence per share). This decrease in net asset value was primarily due to the payment of 1.63 pence per share of dividends during the year, partly offset by the total return in the year.
Investment income has increased to £936,000 (2022: £853,000). This is a result of bank interest and income from fixed term funds increasing to £283,000 (2022: £17,000) as a result of rising interest rates. Loan stock income decreased to £569,000 (2022: £763,000) as the prior year included a large payment of previously capitalised interest.
The gain on investments for the year was £3,846,000 (2022: gain of £6,386,000). The key drivers of this gain are detailed in the Chairman’s statement above. A full analysis of the Portfolio of investments can be seen on pages 27 to 29 of the full Annual Report and Financial Statements.
The net cash flow for the Company has been a net outflow of £3,018,000 for the year (2022: inflow of £598,000), reflecting new investments, dividends paid, ongoing expenses and the buy-back of shares, offset by disposal proceeds, loan stock income, and the issue of new Ordinary shares under the Top Up Offer.
*Review of the business and future changes*
A detailed review of the Company’s business during the year is contained in the Chairman’s statement above.
There is a continuing focus on growing the healthcare (including digital healthcare), FinTech and software and other technology sectors. The majority of these investment returns are delivered through equity and capital gains and are expected to be the key driver of success for the Company. Investment income, which is received primarily from our renewable energy investments, is expected to remain steady over the coming years.
Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.
*Future prospects*
The Company’s financial results for the year ended 30 June 2023 demonstrate that the portfolio remains well balanced across sectors and risk classes, and is largely weathering the ongoing global issues caused as a result of high levels of interest rates and inflation, and other economic headwinds. Although there remains much uncertainty, the Board considers that the current portfolio and the pipeline of opportunities should enable the Company to maintain a predictable stream of dividend payments to shareholders, as well as delivering long term growth for shareholders. Further details on the Company’s outlook and prospects can be found in the Chairman’s statement above.
*Key Performance Indicators (“KPIs”) and Alternative Performance Measures (“APMs”)*
The Directors believe that the following KPIs (some of which are APMs), which are typical for Venture Capital Trusts, used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs give a good indication that the Company is achieving its investment objective and policy. These are:
1. Total shareholder value relative to FTSE All Share Index total return
The graph on page 8 of the full Annual Report and Financial Statements shows the Company’s total shareholder value relative to the FTSE All-Share Index total return, with dividends reinvested. The FTSE All-Share Index is considered a reasonable benchmark as the Company is classed as a generalist UK VCT investor, and this index includes over 600 companies listed in the UK, including small-cap, covering a range of sectors. Details on the performance of the net asset value and return per share for the year are shown in the Chairman’s statement.
Total shareholder value increased by 1.06 pence per share to 101.31 pence per share (2022: 100.25) for the year ended 30 June 2023.
2. Movement in shareholder value in the year †
*2014* *2015* *2016* *2017* *2018* *2019* *2020* *2021* *2022* *2023*
7.1% 4.5% 1.5% 14.0% 14.6% 11.3% (0.4%) 15.9% 6.1% 3.1%
† Methodology: Calculated as the movement in total shareholder value for the year divided by the opening net asset value.
3. Dividend distributions
Dividends paid in respect of the year ended 30 June 2023 were 1.63 pence per share (2022: 3.21 pence per share, which included a special dividend of 1.50 pence per share). Cumulative dividends paid since launch (on 18 January 1998) amount to 68.18 pence per share.
4. Ongoing charges
The ongoing charges ratio for the year ended 30 June 2023 was 2.20% (2022: 2.18%). The ongoing charges ratio has been calculated using The Association of Investment Companies’ (“AIC”) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve, but excluding any performance incentive fees) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to remain stable at approximately 2.20%.
5. VCT compliance*
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors’ report on page 46 of the full Annual Report and Financial Statements.
The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 30 June 2023. These showed that the Company has complied with all tests and continues to do so.
*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.
*Gearing*
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to the adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.
*Operational arrangements *
The Company has delegated the investment management of the portfolio to the Manager, Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. The Manager also provides company secretarial and other accounting and administrative support to the Company.
*Investment Management Agreement*
Under the Investment Management Agreement (“IMA”), the Manager provides investment management, secretarial and administrative services to the Company. The IMA can be terminated by either party on 12 months’ notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party. The Manager is paid an annual fee equal to 1.75% of the net asset value of the Company, and an annual secretarial and administrative fee of £50,000 per annum. Total annual expenses, including the management fee, are limited to 3% of the net asset value.
In some instances, the Manager is entitled to an arrangement fee, payable by a portfolio company in which the Company invests, in the region of 2.0% of the investment made, and also monitoring fees where the Manager has a representative on the portfolio company’s board.
*Management performance incentive fee*
In order to align the interests of the Manager and shareholders with regards to generating positive returns, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels. Under the incentive arrangements, the Company will pay an incentive fee to the Manager of an amount equal to 20% of such excess return that is calculated for each financial year.
The performance hurdle requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period (both revenue and capital), compared with the previous accounting date, exceeds the average base rate of the Royal Bank of Scotland plc plus 2.0%. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.
For the year ended 30 June 2023, the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period amounted to 34.76 pence per share, compared to a hurdle of 35.69 pence per share. As a result, no performance incentive fee is payable to the Manager (2022: £584,000).
*Investment and co-investment*
The Company co-invests with other Venture Capital Trusts and funds managed by the Manager. Allocation of investments is on the basis of an allocation agreement which is based, inter alia, on the ratio of funds available for investment.
*Evaluation of the Manager*
The Board has evaluated the performance of the Manager based on:
• the returns generated by the Company;
• the continuing achievement of the HMRC tests for VCT status;
• the long term prospects of the current portfolio of investments;
• the management of treasury, including use of buy-backs and participation in fund raising; and
• benchmarking the performance of the Manager to other service providers including the performance of other VCTs that the Manager is responsible for managing.
The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
*Alternative Investment Fund Managers Directive (“AIFMD”)*
The Board appointed the Manager as the Company’s AIFM in 2014 as required by the AIFMD. The Manager is a full-scope Alternative Investment Fund Manager under the AIFMD. Ocorian Depositary (UK) Limited is the appointed Depositary and oversees the custody and cash arrangements and provides other AIFMD duties with respect to the Company.
*Consumer duty*
The Consumer Duty came into effect from 31 July 2023. These new rules set a higher standard of consumer protection in financial services. The Manager as AIFM is within scope of the FCA’s Consumer Duty, but the Company itself is not.
The Manager is a manufacturer of the Company’s shares as it is a firm that has some influence over design and distribution of the Company’s share product. The Manager’s first assessment of value for the Company’s shares was completed in April 2023. The value assessment concluded that the Company provides fair value for shareholders.
Where the Manager concludes that changes will help deliver good outcomes for consumers, it will recommend these changes to the Board.
*Companies Act 2006 Section 172 Reporting *
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole in both the long and short term, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.
The Board is very conscious of these wider responsibilities in the ways it promotes the Company’s culture and ensures, as part of its regular oversight, that the integrity of the Company’s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company’s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs, as well as visibility and openness in how the affairs are conducted.
The Company is an externally managed investment company with no employees, and as such has nothing to report in relation to employee engagement but does keep close attention to how the Board operates as a cohesive and competent unit. The Company also has no customers in the traditional sense and, therefore, there is also nothing to report in relation to relationships with customers.
The table that follows sets out the key stakeholders, details how the Board has engaged with these key stakeholders, and the effect of these considerations on the Company’s decisions and strategies during the year.
*Engagement with Stakeholder* *Decision outcomes based on engagement*
*Shareholders*
The key methods of engaging with Shareholders are as follows:
· Annual General Meeting (“AGM”)
· Shareholder seminar
· Annual Report and Financial Statements, Half-yearly financial report, and Interim management statements
· RNS announcements in accordance with Listing Rules and Disclosure Guidance and Transparency Rules (“DTRs”) covering such things as the publication of a Prospectus
· Albion Capital website, social media pages, as well as publishing Albion News shareholder magazine
· Shareholders’ views are important and the Board encourages Shareholders to exercise their right to vote on the resolutions at the AGM. The Company’s AGM is typically used as an opportunity to communicate with investors, including through a presentation made by the Manager. Undertaking this virtually enabled engagement with a wider audience of shareholders from across the country, and gave shareholders the opportunity to ask questions and vote during the virtual AGM last year. The virtual medium helps facilitate greater shareholder participation and to help those who are unable to attend the AGM in person, as well as provide a recording of the event for Shareholders to watch on demand.
· Shareholders are also encouraged to attend the in person annual Shareholder Seminar. Last year’s event took place on 23 November 2022. The seminar included portfolio companies sharing insights into their businesses and also a Q&A from Albion executives on some of the key factors affecting the investment outlook, as well as a review of the past year and the plans for the year ahead. Representatives of the Board attended the seminar. The Board considers this an important interactive event and invites shareholders to attended this year’s event scheduled for 15 November 2023 at the Royal College of Surgeons. To reserve your place email info@albion.capital with your full name.
· The Board recognises the importance to Shareholders of maintaining a share buy-back policy, in order to provide market liquidity, and considered this when establishing the current policy. The Board closely monitors the discount to the net asset value to ensure this is in the region of 5%.
· The Board seeks to create value for Shareholders by generating strong and sustainable returns to provide Shareholders with regular dividends and the prospect of capital growth. The Board takes this into consideration when making the decision to pay dividends to Shareholders. The variable dividend policy has resulted in a dividend yield of 4.8% on opening net asset value.
· During the year, the Board made the decision to participate in the Albion Prospectus Top Up Offer, launched on 10 October 2022, in order to raise funds for deployment into new and existing portfolio companies. The Board carefully considered whether further funds were required, whether the VCT tests would continue to be met, and whether it would be in the interest of Shareholders, before agreeing to publish the Prospectus. On allotment, an issue price formula based on the prevailing net asset value was used to ensure there was no dilution to existing Shareholders.
· Cash management and liquidity of the Company are key quarterly discussions amongst the Board, with focus on deployment of cash for future investments, dividends and share buy-backs. The Board has therefore proposed a special resolution at the 2023 AGM to increase the Company’s distributable reserves by way of a reduction of the share premium account. This will provide flexibility, if it is required, for the Company to make buy backs and dividend payments. Further details on this can be found in the Chairman’s Statement above.
· Shareholders can contact the Chairman using the email crownchair@albion.capital.
*Manager*
The performance of Albion Capital Group LLP is essential to the long term success of the Company, including achieving the investment policy and generating returns to shareholders, as well as the impact the Company has on Environment, Social and Governance (“ESG”) practice. · The Manager meets with the Board at least quarterly to discuss the performance of the Company, and is in regular contact in between these meetings, e.g. to share investment papers for new and follow-on investments. All strategic decisions are discussed in detail and minuted, with an open dialogue between the Board and the Manager.
· The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found in this report.
· Details of the Manager’s responsibilities can be found in the Statement of corporate governance on page 54 of the full Annual Report and Financial Statements.
*Suppliers*
The key suppliers are:
· Auditor;
· Corporate broker;
· Depositary;
· Legal adviser;
· Registrar; and
· VCT taxation adviser.
· The Manager, on behalf of the Company, is in regular contact with the suppliers and the contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities.
· The Manager reviews the performance of the providers annually and was satisfied with their performance.
*Portfolio companies*
The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. Also, as discussed in the ESG report on pages 35 to 38 of the full Annual Report and Financial Statements the portfolio companies’ impact on their stakeholders is also important to the Company. · The Board aims to have a diversified portfolio in terms of sector and stage of investment. Further details of this can be found in the pie charts at the end of this announcement.
· In most cases, an Albion executive has either a place on the board of a portfolio company or is an observer, in order to help with both business operation decisions, as well as good ESG practices.
· The Manager provides access to deep expertise on growth strategy alignment, leadership team hiring, organisational scaling and founder leader development.
· The Manager facilitates good dialogue with portfolio companies, and often puts on events in order to help portfolio companies benefit from the Albion network.
*Community and environment*
The Company, with no employees, has no effect itself on the community and environment. However, as discussed above, the portfolio companies’ ESG impact is extremely important to the Board. · The Board receives reports on ESG factors within its portfolio from the Manager as it is a signatory of the United Nations Principles for Responsible Investment (“UN PRI”). Further details of this are set out in the ESG report. ESG, without its specific definition, has always been at the heart of the responsible investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.
*Social and community issues, employees and human rights*
The Board recognises the requirement under section 414C of the Act to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters, however, it is at the core of its responsible investment strategy as detailed above.
*General Data Protection Regulation *
The General Data Protection Regulation (“GDPR”) has the objective of unifying data privacy requirements across the European Union. GDPR forms part of the UK law after Brexit, now known as UK GDPR. The Manager continues to take action to ensure that the Manager and the Company are compliant with the regulation.
*Further policies*
The Company has adopted a number of further policies relating to:
· Environment;
· Global greenhouse gas emissions;
· Anti-bribery;
· Anti-facilitation of tax evasion; and
· Diversity.
and these are set out in the Directors’ report on page 47 of the full Annual Report and Financial Statements.
*Risk management*
The Board carries out a regular review of the risk environment in which the Company operates, together with changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable risks have been rising interest rates and inflation, caused in part as a result of the geopolitical tensions, and pricing volatility in world markets, particularly affecting growth stocks. The full impact of these risks are likely to continue to be uncertain for some time.
The Board has carried out a robust assessment of the Company’s principal risks and uncertainties and seeks to mitigate these risks through regular reviews of performance and monitoring progress and compliance. The Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, in the mitigation and management of these risks. More information on specific mitigation measures for the principal risks and uncertainties are explained below:
*Possible consequence* *Risk assessment during the year* *Risk management*
*Risk: Investment, performance, technology, and valuation risk*
The risk of investment in poor quality businesses, which could reduce the returns to shareholders and could negatively impact on the Company’s current and future valuations.
By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust purposes, are more volatile than larger, long-established businesses.
Technology related risks are also likely to be greater in early, rather than later, stage technology investments, including the risks of the technology not becoming generally accepted by the market or the obsolescence of the technology concerned, often due to greater financial resources being available to competing companies.
The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported. Increased in the year due to the heightened economic and geopolitical issues as referred to in the Chairman’s statement. In addition, in the current economic climate the valuations of technology companies are more volatile. To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record of making successful investments in higher growth technology businesses. The Manager operates a structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager for all investments, and at least one external investment professional for investments greater than £1 million in aggregate across all the Albion managed VCTs. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings.
Investments are actively and regularly monitored by the Manager (investment managers normally observe or sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The Board and Manager regularly review the deployment of investments and cash resources available to the Company in assessing liquidity required for servicing the Company’s buy-backs, dividend payments and operational expenses. The decision to issue a Prospectus for the 2022/23 Top Ups was due to careful analysis of these factors.
The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines updated in 2022. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board.
*Risk: VCT approval and regulatory change risk*
The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. No change in the year. To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust management, used to operating within the requirements of the Venture Capital Trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the Venture Capital Trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required.
*Risk: Regulatory and compliance risk*
The Company is listed on The London Stock Exchange and is required to comply with the rules of the Financial Conduct Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company’s shares, or other penalties under the Companies Act or from financial reporting oversight bodies.
No change in the year. Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, legal advisors and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance function, and any issues arising from compliance or regulation are reported to its own board every two months. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors.
*Risk: Operational and internal control risk *
The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders. No change in the year. The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Board receives reports from the Manager on its internal controls and risk management.
The Audit and Risk Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditors, Azets and has access to their internal audit partner to whom it can ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security, as mentioned below.
Ocorian Depositary (UK) Limited is the Company’s Depositary, appointed to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian Depositary (UK) Limited to ensure that the Manager is adhering to its policies and procedures as required by the AIFMD.
In addition, the Board annually reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
*Risk: Cyber and data security risk*
A cyber-attack on one of the Company’s third party suppliers could result in the security of, potentially sensitive, data being compromised, leading to financial loss, disruption or damage to the reputation of the Company. Increased in the year, due to an increase in cyber-attacks worldwide. The Manager outsources some of its IT services, including hardware and software procurement, server management, backup provision and day-to-day support through an outsourcing arrangement with an IT consultant. In house IT support is also provided.
The Manager takes cyber risks seriously and the need to guard against these are in the Service level agreement with our key outsourced service provider. During the year, further investment was made in the Manager’s IT infrastructure and awareness training.
In addition, the Manager also has a business continuity plan which includes off-site storage of records and remote access provisions. This is revised and tested annually and is also subject to Compliance, Group Risk and Internal Audit reporting. Penetration tests are also carried out to ensure that IT systems are not susceptible to cyber-attacks.
The Manager’s Internal Auditor performs reviews on IT general controls and data confidentiality and makes recommendations where necessary. The most recent internal audit focused specifically on IT systems, and was completed in February 2023.
*Risk: Economic and political risk*
Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events, and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection. Increased in the year, due to the high levels of inflation, rising interest rates and the general risks. The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests in a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies.
At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow-on investments.
In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term.
The Board and Manager are continuously assessing the resilience of the portfolio, the Company and its operations and the robustness of the Company’s external agents, as well as considering longer term impacts on how the Company might be positioned in how it invests and operates. Ensuring liquidity in the portfolio to cope with exigent and unexpected pressures on the finances of the portfolio and the Company is an important part of the risk mitigation in these uncertain times. The portfolio is structured as an all-weather portfolio with c.60 companies which are diversified as discussed above. Exposure is relatively small to at-risk sectors that include leisure, hospitality, retail and travel.
*Risk: Environmental, social and governance (“ESG”) risk*
An insufficient ESG policy could lead to an increased negative impact on the environment, including the Company’s carbon footprint. Non-compliance with reporting requirements could lead to a fall in demand from investors, reputational damage and penalties. Climate risks could also negatively impact on the value of portfolio investments. No change in the year. The Manager is a signatory of the UN PRI and the Board is kept updated of the evolving ESG policies at quarterly Board meetings. Full details of the specific procedures and risk mitigation can be found in the ESG report on pages 35 to 38 of the full Annual Report and Financial Statements. These procedures ensure that this risk continues to be mitigated where possible.
Whilst the Company itself has limited impact on climate change, due to no employees nor greenhouse gas emissions, the Board works closely with the Manager to ensure the Manager themselves are working towards reducing their impact on the environment, and that the Manager takes account of ESG factors, including climate change, when making new investment decisions. With specific respect to the Company, a key operation is increasing the use of electronic communications with Shareholders.
*Risk: Liquidity risk*
The Company may not have sufficient cash available to meet its financial obligations. The Company’s portfolio is primarily in smaller unquoted companies, which are inherently illiquid as there is no readily available market, and thus it may be difficult to realise their fair value at short notice. No change in the year. To reduce this risk, the Board reviews the Company’s three year cash flow forecasts on a quarterly basis. These include potential investment realisations (which are closely monitored by the Manager), Top Up Offers, dividend payments and operational expenditure. This ensures that there are sufficient cash resources available for the Company’s commitments and liabilities as they fall due.
*Viability statement*
In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 30 June 2026. The Directors believe that three years is a reasonable period in which they can assess the ability of the Company to continue to operate and meet its liabilities as they fall due. This is the period used by the Board as part of its strategic planning process, which includes: the estimated timelines for finding, assessing and completing investments; the potential impact of any new regulations; and the availability of cash.
The Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that could threaten its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. The Board carefully assessed, and were satisfied with, the risk management processes in place to avoid or reduce the impact of these risks. The Board has carried out robust stress testing of cashflows which included; factoring in higher levels of inflation when budgeting for future expenses, only including proceeds from investment disposals where there is a high probability of completion, whilst also assessing the requirement for any future financial support of portfolio companies.
The Board has additionally considered the ability of the Company to comply with the ongoing conditions to ensure it maintains its VCT qualifying status under its current investment policy. As a result of the Board’s quarterly valuation reviews, it has concluded that the portfolio is well balanced and geared towards delivering long term growth and strong returns to shareholders.
The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 June 2026. The Board is mindful of the ongoing risks and will continue to ensure that appropriate safeguards are in place, in addition to monitoring the quarterly cashflow forecasts to ensure the Company has sufficient liquidity.
*Companies Act 2006*
This Strategic report of the Company for the year ended 30 June 2023 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with Section 172 of the Act.
For and on behalf of the Board
*Penny Freer *
Chairman
11 October 2023
*Statement of Directors' responsibilities*
In preparing these Financial Statements for the year to 30 June 2023, the Directors of the Company, being Penny Freer, James Agnew, Tony Ellingham, Pam Garside and Ian Spence, confirm to the best of their knowledge:
· summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 30 June 2023 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
· the Chairman's statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.
We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
A detailed "Statement of Directors' responsibilities" is contained on page 52 of the full Annual Report and Financial Statements.
For and on behalf of the Board
*Penny Freer *
Chairman
11 October 2023
*Income statement*
*Year ended *
*30 June 2023* Year ended
30 June 2022 *Revenue* *Capital* *Total* Revenue Capital Total *Note* *£’000* *£’000* *£’000* £’000 £’000 £’000Gain on investments 3 *-* *3,846* *3,846* - 6,386 6,386
Investment income 4 *936* *-* *936* 853 - 853
Investment Manager’s fees 5 *(153)* *(1,380)* *(1,533)* (137) (1,822) (1,959)
Other expenses 6 *(432)* *-* *(432)* (391) - (391)*Profit on ordinary activities before tax* *351* *2,466* *2,817* 325 4,564 4,889
Tax on ordinary activities 8 *-* *-* *-* - - -
*Profit and total comprehensive income attributable to shareholders* *351* *2,466* *2,817* 325 4,564 4,889
*Basic and diluted earnings per Ordinary share (pence)* * 10 *0.13* *0.92* *1.05* 0.14 1.95 2.09
* adjusted for treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.
*Balance sheet*
*30 June 2023* 30 June 2022 *Note* *£’000* £’000
*Fixed asset investments* 11 *68,000* 57,170
*Current assets*
Trade and other receivables 13 *1,684* 1,869
Cash in bank and at hand *25,006* 28,024 *26,690* 29,893
*Payables: amounts falling due within one year*
Trade and other payables less than one year 14 *(721)* (1,224)
*Net current assets* *25,969* 28,669
*Total assets less current liabilities* *93,969* 85,839
*Equity attributable to equity holders*
Called up share capital 15 *3,269* 2,905
Share premium *47,067* 35,522
Unrealised capital reserve *26,402* 20,384
Realised capital reserve *9,177* 12,729
Other distributable reserve *8,054* 14,299
*Total equity shareholders’ funds* *93,969* 85,839
*Basic and diluted net asset value per share (pence)** 16 *33.13* 33.70
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and authorised for issue on 11 October 2023 and were signed on its behalf by
*Penny Freer*
Chairman
*Company number: 03495287*
*Statement of changes in equity*
*Called up share*
*capital* *Share premium* *Unrealised capital reserve* *Realised capital reserve** *Other distributable reserve** *Total* *£’000* *£’000* *£’000* *£’000* *£’000* *£’000*
*As at 1 July 2022* 2,905 35,522 20,384 12,729 14,299 85,839
Profit and total comprehensive income - - 3,803 (1,337) 351 2,817
Transfer of previously unrealised losses on disposal of investments - - 2,216 (2,216) - -
Dividends paid - - - - (4,237) (4,237)
Purchase of shares for treasury (including costs) - - - - (2,359) (2,359)
Issue of equity 364 11,854 - - - 12,218
Cost of issue of equity - (309) - - - (309)
*As at 30 June 2023* *3,269* *47,067* *26,402* *9,177* *8,054* *93,969*
As at 1 July 2021 2,521 23,011 18,643 9,905 23,570 77,650
Profit and total comprehensive income - - 2,756 1,808 325 4,889
Transfer of previously unrealised gains on disposal of investments - - (1,015) 1,015 - -
Dividends paid - - - - (7,384) (7,384)
Purchase of shares for treasury (including costs) - - - - (2,212) (2,212)
Issue of equity 384 12,834 - - - 13,218
Cost of issue of equity - (323) - - - (323)
As at 30 June 2022 2,905 35,522 20,384 12,729 14,299 85,839
* Included within these reserves is an amount of £12,804,000 (2022: £24,165,000) which is considered distributable.
The nature of each reserve is described in note 2 below.
*Statement of cash flows*
* Year ended *
*30 June *
*2023*
*£’000* Year ended
30 June
2022
£’000
*Cash flow from operating activities*
Loan stock income received *550* 671
Dividend income received *39* 64
Income from fixed term funds received *145* 9
Deposit interest received *138* 8
Investment Manager’s fees paid *(2,081)* (2,162)
Other cash payments *(425)* (390)
Corporation tax paid *-* -
*Net cash flow generated from operating activities* *(1,634)* (1,800)
*Cash flow from investing activities*
Purchase of fixed asset investments* *(7,870)* (7,510)
Proceeds from disposals of fixed asset investments* *1,139* 6,643
*Net cash flow generated from investing activities* *(6,731)* (867)
*Cash flow from financing activities*
Issue of share capital *11,226* 11,710
Cost of issue of equity** *(37)* (36)
Equity dividends paid*** *(3,517)* (6,176)
Purchase of own shares for treasury (including costs) *(2,325)* (2,233)
*Net cash flow generated from financing activities* *5,347* 3,265
*(Decrease)/increase in cash in bank and at hand * *(3,018)* 598
Cash in bank and at hand at the start of the year *28,024* 27,426
*Cash in bank and at hand at the end of the year* *25,006* 28,024
* Purchases and disposals detailed above do not agree to note 11 due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.
** The cost of issue of equity does not agree to the Statement of changes in equity due to prospectus fundraising amounts being received net of fees.
*** The equity dividends paid shown in the cash flow are different t