Crown Place VCT PLC : Annual Financial Report
As required by the UK Listing Authority's Disclosure 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 2014.
This announcement was approved for release by the Board of Directors on 2 October 2014.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 30 June 2014 (which have been audited) at: www.albion-ventures.co.uk by clicking on 'Our Funds' and then 'Crown Place VCT PLC'. The Annual Report and Financial Statements for the year to 30 June 2014 will be available as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objective
The investment objective and policy of the Company* is to achieve long term capital and income growth principally through investment in smaller unquoted companies in the United Kingdom.
In pursuing this policy, the Manager aims to build a portfolio which concentrates on two complementary investment areas. The first are more mature or asset-based investments that can provide a strong income stream combined with a degree of capital protection. These will be balanced by a lesser proportion of the portfolio being invested in higher risk companies with greater growth prospects.
*The 'Company' is Crown Place VCT PLC. The 'Group' is the Company together with its subsidiaries CP1 VCT PLC and CP2 VCT PLC.
Financial calendar
| Record date for first dividend | 7 November 2014 |
| Annual General Meeting | 13 November 2014 |
| Payment of first dividend | 28 November 2014 |
| Announcement of half-yearly results for the six months ended 31 December 2014 | February 2015 |
| Payment of second dividend (subject to Board approval) | 31 March 2015 |
Financial highlights
| 32.04p | Net asset value per share as at 30 June 2014 |
| 2.28p | Total return to shareholders for the year ended 30 June 2014 |
| 7.1% | Net asset value total return for the year |
| 2.50p | Total tax free dividends per share paid during the year ended 30 June 2014 |
| 8.3% | Tax free dividend yield on share price (dividend per annum/share price as at 30 June 2014) |
| 30 June 2014 | 30 June 2013 | |
| pence per share | pence per share | |
| Opening net asset value | 32.26 | 32.60 |
| Dividends paid | (2.50) | (2.50) |
| Revenue return | 0.61 | 0.73 |
| Capital return | 1.67 | 1.41 |
| Net asset value uplift from buy-backs | - | 0.02 |
| Closing net asset value | 32.04 | 32.26 |
Shareholder returns and shareholder value
| Crown Place VCT PLC* | |||
| pence per share | |||
| Shareholder return from launch to April 2005 (date that Albion Ventures was appointed investment manager): | |||
| Total dividends paid to 6 April 2005 (i) | 24.93 | ||
| Decrease in net asset value | (56.60) | ||
| Total shareholder return to 6 April 2005 | (31.67) | ||
| Shareholder return from April 2005 to 30 June 2014: | |||
| Total dividends paid | 21.80 | ||
| Decrease in net asset value | (11.36) | ||
| Total shareholder return from April 2005 to 30 June 2014 | 10.44 | ||
| Shareholder value since launch: | |||
| Total dividends paid to 30 June 2014 (i) | 46.73 | ||
| Net asset value as at 30 June 2014 | 32.04 | ||
| Total shareholder value as at 30 June 2014 | 78.77 | ||
| Current dividend objective | 2.50 | ||
| Dividend yield on net asset value as at 30 June 2014 | 7.8% |
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.
* Formerly Murray VCT 3 PLC
Total shareholder value since launch:
| 30 June 2014 (pence per share) | ||
| Total dividends paid during the period from launch to 6 April 2005 (prior to change of manager) | 24.93 | |
| Total dividends paid during: | ||
| the year ended 28 February 2006 | 1.00 | |
| the period ended 30 June 2007* | 3.30 | |
| the year ended 30 June 2008 | 2.50 | |
| the year ended 30 June 2009 | 2.50 | |
| the year ended 30 June 2010 | 2.50 | |
| the year ended 30 June 2011 | 2.50 | |
| the year ended 30 June 2012 | 2.50 | |
| the year ended 30 June 2013 | 2.50 | |
| the year ended 30 June 2014 | 2.50 | |
| Total dividends paid to 30 June 2014 | 46.73 | |
| Net asset value as at 30 June 2014 | 32.04 | |
| Total shareholder value as at 30 June 2014 | 78.77 | |
*16 month period
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2015, of 1.25 pence per Crown Place VCT PLC share, payable on 28 November 2014 to shareholders on the register as at 7 November 2014.
Chairman's statement
Introduction
I have pleasure in presenting the results for Crown Place VCT PLC for the year ended 30 June 2014. The Group achieved a total return of 2.28 pence per share (7.1 per cent. on the opening NAV for the year), which builds on the return of 2.14 pence per share in the previous year (6.6 per cent.). The Company has delivered a positive return to shareholders in each of the past five years. The Company maintained its regular tax free dividend of 2.50 pence per share for the seventh consecutive year, which represents a yield of 8.3 per cent. based on the share price as at 30 June 2014 of 30.00 pence per share.
Results and dividends
As at 30 June 2014, the net asset value was £29.0 million or 32.04 pence per share compared to £27.2 million or 32.26 pence per share at 30 June 2013. The revenue return before taxation was £525,000 compared to £590,000 in the previous year. The decrease was due to lower income from loan stock investments, following the repayment of loans to the Company. The ongoing charges ratio has continued to decline since Albion Ventures LLP became Manager in 2005 and was 2.7 per cent. for the year ended 30 June 2014 (2013: 2.8 per cent.).
During the year, the Company's realised and unrealised capital gains amounted to £1,812,000 compared to £1,479,000 in the previous year. The capital profit, net of investment management fees, was £1,451,000 or 1.67 pence per share, which is a 18.4% increase on the previous year (2013: 1.41 pence per share). The unquoted asset-based investments and the unquoted growth investments increased in value over the year, the former by 9.8 per cent. and the latter by 4.7 per cent. Further detail of the portfolio performance is given in the Strategic report.
The Board has declared a first dividend for the year ending 30 June 2015 of 1.25 pence per share, payable on 28 November 2014 to shareholders on the register as at 7 November 2014.
Investment performance
Overall, there has been further improvement in the economic environment in the majority of the sectors in which the Company is invested. A number of portfolio companies made loan stock repayments during the year and the Company achieved the sale of two investments, altogether generating proceeds of £1,188,000. This compares to total realisations of £2,254,000 in the previous year. The principal exits were the sale of Opta Sports Data Limited where the total return, including income, was 3.5 times cost and Prime Care Holdings Limited at an overall loss equal to just under 50% of cost. Further detail of realisations is given on page 18 of the full Annual Report and Financial Statements.
During the year, your Company benefited from an improved investment climate and a stronger investment pipeline which more than doubled the investment rate compared to the previous year. £2,539,000 was invested in 11 new and 11 existing portfolio companies (2013: £1,030,000 in three new portfolio companies and eight existing portfolio companies). £1,028,000 was invested in five new asset-based investments including two new care home projects, in west London and Oxford, and one new hydro power project. Further investment tranches have been committed over the next 12 months to fund construction of these projects. It is expected that these investments will add to the income generating capacity of the portfolio as well as deliver a capital upside over time. £825,000 was invested in six growth investments. These include £270,000 in Aridhia Informatics Limited, a company providing analytics software to improve the management of chronic diseases; and £231,000 in Relayware Limited, a company providing software systems to multinational companies allowing them to manage their indirect sales channels.
Overall, the value of the Company's unquoted investment portfolio increased by £1,837,000 during the year, while that of the small AIM portfolio fell by £55,000.
Amongst the unquoted investments, good progress was made by Radnor House School, which has recently launched its Sixth Form enabling it to expand its student numbers further. Oakland Care Centre Limited and Taunton Hospital Limited are experiencing increasing demand for their services with consequent growth in profits. The renewable energy investments have also appreciated in value. In the growth portfolio, Masters Pharmaceuticals and Hilson Moran are growing profitably, while many of the technology investments are making good progress in expanding their businesses. Against this, Helveta has struggled to gain sufficient commercial traction within the constraints of its available funding and has been placed into administration, leading to a further reduction in its value to £22,000. The three hotel investments in the portfolio are also seeing improved trading over recent months, and the Manager is cautiously optimistic about their future performance.
Risks and uncertainties
The UK economic climate is improving and so is investment sentiment, though a number of risks remain. The Company's investment portfolio is well diversified and many of the sectors in which its portfolio companies operate are resilient. Approximately two-thirds of the unquoted portfolio is invested in companies with tangible assets, which support their valuation. It remains the Company's general policy that portfolio companies should have no external bank borrowings, which reduces financial risk. In addition, we believe the new portfolio companies are positioned to grow despite the broader economic uncertainties. Therefore, as the investment portfolio continues to mature, the prospects on the whole look positive. A detailed review of risk management is set out in the Strategic report.
Albion VCTs Top Up Offers 2013/2014
The Albion VCTs Top Up Offers 2013/2014 launched on 6 November 2013. Following higher than anticipated demand for the offer, Albion Ventures took the decision to launch the Albion VCTs Prospectus Top Up Offers 2013/2014 on 19 March 2014, working within a very short timescale in order to capitalise on the opportunity. An encouraging level of subscriptions have been received across both Offers, raising £3.2m for Crown Place VCT PLC. Following full subscription, the Albion Prospectus Top Up Offers 2013/2014 closed for the Company on 24 September 2014. The proceeds of the Offers have been used to provide further resources to the Company at a time when a number of attractive new investment opportunities are being seen.
Further Top Up Offers are planned for later this year and details are expected to be sent to shareholders in November 2014.
Dividend re-investment scheme
During the year the Company raised £166,000 from the dividend re-investment scheme. Through the scheme, shareholders may elect to reinvest the whole of the dividend received by subscribing for new shares in the Company. Under current tax rules, individual shareholders re-investing their dividends will be eligible for the income and capital gains tax advantages available to investors subscribing to new shares in venture capital trusts and will be able to increase their shareholding in the Company simply and without incurring dealing costs or stamp duty. Full details of the scheme and the application form are available on the Manager's website at: www.albion-ventures.co.uk/ourfunds/CRWN.
Board composition
Having served on the Board for over 8 years, I have decided to retire at the forthcoming Annual General Meeting. I would like to thank my fellow Directors, the Manager and particularly the Shareholders for their support. Richard Huntingford, who has been on the Board since May 2012, will succeed me as Chairman and I wish him and the Company well for the future. The Board will seek to appoint a new independent director in due course.
Outlook and prospects
While we are seeing continuing improvement in the economic environment in the UK and increased demand for growth funding by smaller companies, access to traditional funding channels remain difficult. Your Company has capitalised on this opportunity to make 11 new investments during the financial year, more than doubling its investment rate from the previous year, and the investment pipeline remains strong. The Manager has strong proprietary deal flow, enabling it to achieve reasonable entry valuations and attractive investment structures.
The Company's portfolio is well diversified. It includes a number of investments in more resilient sectors, such as healthcare, education and renewable energy, as well as companies with good growth prospects. In addition, the great majority of investments are structured to be cash generative in order to provide further support for your Company's dividend. We look forward to the current financial year with confidence.
Patrick Crosthwaite
Chairman
2 October 2014
Strategic report
Investment objective and policy
The Company's investment objective is to provide investors with a regular and predictable source of income, combined with the prospect of longer term capital growth. The Company's investment portfolio is thus structured to provide a balance between income and capital growth for the longer term through a diversified, balanced approach to investment. The asset-based portfolio, which currently accounts for about two-thirds of unquoted investments by value, is designed to provide stability and income whilst maintaining the potential for capital growth. The growth portfolio is intended to provide diversified exposure through its portfolio of investments predominately in unquoted UK companies. In neither category do portfolio companies normally have any external borrowing with a charge ranking ahead of the Company.
Business model
The Company operates as a Venture Capital Trust. This means that the Company has no employees other than its Directors and has outsourced the management of all its operations to Albion Ventures LLP, including secretarial and administrative services. Further details of the Management agreement can be found below.
Current portfolio sector allocation
The pie chart at the end of this announcement shows the split of the portfolio valuation by industrial or commercial sector as at 30 June 2014. The portfolio remains well diversified and as at the year end comprised 56 investments. There were 26 unquoted asset-based investments accounting for 60 per cent. of the net asset value of the Company, 27 unquoted growth investments accounting for 32 per cent. of the net asset value of the Company and 3 AIM quoted investments, accounting for 3 per cent. of the net asset value of the Company.
Direction of portfolio
During the year, the Company continued to increase its exposure to the less cyclical healthcare and renewable energy sectors which, in addition to the education sector, now account for approximately 45 per cent. of the portfolio value.
Looking ahead, the healthcare sector will continue to be a core area of investment, both in asset-based businesses such as psychiatric hospitals and care homes, and in medical technology. Additional renewable energy investments in the current pipeline will allow the Company to reach its target of 15 per cent. of the portfolio - their main role being to provide more stable, long term, inflation protected income flows to the Company. The IT sector of the portfolio has grown during the year as we have made a number of investments to back new technology developments, such as e-mail encryption and contextual analysis for on-line advertising. The education investment, in the form of Radnor House School, is expected to grow in time as we aim to fund further premises for growth in student numbers, subject to availability of a suitable site.
Results and dividend policy
| £'000 | |
| Consolidated revenue return for the year ended 30 June 2014 | 525 |
| Consolidated capital return for the year ended 30 June 2014 | 1,451 |
| Dividend of 1.25p per share paid on 29 November 2013 | (1,053) |
| Dividend of 1.25p per share paid on 31 March 2014 | (1,079) |
| Transferred from reserves | (156) |
| Net assets as at 30 June 2014 | 29,050 |
| Net asset value per share as at 30 June 2014 (pence) | 32.04p |
As described in the Chairman's statement, the Board has declared a first dividend for the year ending 30 June 2015 of 1.25 pence per share. This dividend will be paid on 28 November 2014 to shareholders on the register as at 7 November 2014.
As shown in the Group's statement of comprehensive income, investment income has decreased slightly to £925,000 (2013: £967,000). This is as a result of the disposal of high yielding loan stock investments in the previous year, resulting in a decrease of revenue return to £525,000 (2013: £590,000). The capital return for the year was a profit of £1,451,000 (2013: £1,136,000), as a result of unrealised gains on investments, in particular Radnor House School, Tower Bridge Health Club and Oakland Care Centre, offset by management fees charged to capital. The total return for the year was 2.28 pence per share (2013: 2.14 pence per share).
The Consolidated balance sheet shows that the net asset value has decreased slightly over the year to 32.04 pence per share (2013: 32.26 pence per share), due to the payment of the dividend of 2.50 pence per share during the year, offset by the total return for the year of 2.28 pence per share.
The consolidated cash flow for the business has been a net outflow of £1,314,000 for the year (2013: inflow £1,039,000) due to the purchase of investments, dividends paid and the purchase of shares for cancellation and treasury offset by cash generated from operations, the disposal of investments and the issue of new share capital.
Review of business and future changes
A review of the Company's business during the year and future prospects is contained in the Chairman's statement.
In addition to the companies mentioned in the Chairman's statement, companies that are particularly worth noting include Lowcosttravelgroup, the online travel specialist, which has seen strong growth over the past year, particularly in Continental Europe; Mi-Pay Limited which merged its business with a company quoted on the Alternative Investment Market (AIM) on the London Stock Exchange, creating a combined business which is now called Mi-Pay Group Plc; and Process Systems Enterprise (computer simulation of complex industrial processes) continues to grow revenue at 20 per cent. per annum - and counts five out of the top six oil majors as its clients. Against this, it is disappointing that Helveta has gone into administration, following the removal of support for forestry projects by the international aid agencies.
The Directors do not foresee any major changes in the activity undertaken by the Company in the current year and have laid out their expectations on the direction of the portfolio above. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to providing both capital growth and a reliable dividend income to shareholders over the long term.
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 4. The subsidiary undertakings affecting the profits and net assets of the Group in the year are listed in note 11 to the Financial Statements.
Future prospects
The key drivers for returns within the portfolio are those sectors that have exposure to longer term growth trends. These include healthcare in an ageing population, sustainable energy against a background of climate change, and the developing use of information technology in an environment of universal information. The portfolio is well positioned to take advantage of these changes.
Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts, will provide shareholders with sufficient information to assess how effectively the Company has been applying its investment policy to meet its objectives. These are:
1. Increase in total shareholder value
The graph on page 9 of the full Annual Report and Financial Statements shows the increase in total shareholder value.
Total shareholder value increased to 78.77 (2013: 76.49) pence per share for the year ended 30 June 2014.
2. Dividend distributions
The graph on page 9 of the full Annual Report and Financial Statements shows the dividend distributions since Albion Ventures LLP became Manager on 6 April 2005.
Dividends paid in respect of the year ended 30 June 2014 were 2.50 pence per share (2013: 2.50 pence per share), in line with the Board's dividend objective. Cumulative dividends paid since launch (on 18 January 1998) amount to 46.73 pence per share.
3. Ongoing charges
The ongoing charges ratio for the year to 30 June 2014 was 2.7 per cent. (2013: 2.8 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 be approximately 2.7 per cent.
4. Running yield
The running yield on the portfolio (gross income divided by the average net asset value) for the year to 30 June 2014 was 3.4 per cent. (2013: 3.7 per cent.).
VCT regulation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors' report on page 22 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 2014. These showed that the Company has complied with all tests and continues to do so.
As part of the Government's wider review of the VCT regime, new rules have been introduced under the Finance Act 2014, which include:
- allowing investors to subscribe for shares via nominee accounts;
- restricting individuals' entitlement to VCT income tax relief where investments have been made within six months of a disposal of shares in the same VCT; and
- preventing VCTs from returning capital that does not relate to profits on investments within three years of the end of the accounting period in which shares were issued to investors.
Gearing
As defined by the Articles of Association, the Company's maximum exposure in relation to gearing is restricted to 10 per cent. of the adjusted share capital and reserves. The Directors do not currently have any intention to utilise long term gearing.
Management agreement
The Company has delegated the investment management of the portfolio to Albion Ventures LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Ventures LLP also provides company secretarial and other accounting and administrative support to the Group. 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.
Under the terms of the management agreement, the Manager is paid an annual fee equal to 1.75 per cent. of the net asset value of the Company plus £50,000 fee per annum for administrative and secretarial services. Total normal running costs, including the management fee, are limited to 3.5 per cent. of the net asset value. The Manager is entitled to an arrangement fee, payable by each portfolio company in which the Company invests, in the region of 2.0 per cent. on each investment made, and is also entitled to non-executive director fees when placing an investment executive from Albion Ventures LLP on the portfolio company Board.
Further details of fees paid to the Manager can be found in note 4.
Management performance incentive
In order to provide the Manager with an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels per share.
The target level requires that the aggregate of the growth in the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period (both revenue and capital), compared with the previous accounting date, exceeds the average base rate of the Royal Bank of Scotland plc plus 2.0 per cent. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.
There was no management performance incentive fee payable during the year (2013: nil). As at 30 June 2014 the cumulative shortfall of the target return was 7.42 pence per share and this amount needs to be made up in the next accounting period before an incentive fee becomes payable.
Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company, the continuing achievement of the 70 per cent. investment requirement for venture capital trust status, the long term prospects of current investments, a review of the management agreement and the services provided therein, and benchmarking the performance of the Manager to other service providers. The Board believes that it is in the interest of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.
Alternative Investment Fund Managers Directive ("AIFMD")
The Board has considered the impact on your Company of the AIFMD, an EU Directive that came into force in July 2013 to regulate the Managers of Alternative Investment Funds. The Board has agreed to appoint Albion Ventures LLP as the Company's AIFM, as required by the AIFMD. Albion Ventures LLP's registration as an AIFM was approved by the Financial Conduct Authority on 3 June 2014. This will not impact on the day-to-day investment activities.
Discount management and share buy-back policy
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 VCT's interest and it is the Board's intention for such buy-backs to be in the region of a 5 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Further details of shares bought back during the year ended 30 June 2014 can be found in note 14 of the Financial Statements.
Social and community issues, employees and human rights
The Board recognises the requirement under section 414C of the Companies Act 2006 (the "Act") to detail information about social and community issues, employees and human rights, including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no policies in these matters and as such these requirements do not apply.
Further policies and statements
The Company has adopted a number of further policies and statements relating to:
- Environment
- Global greenhouse gas emissions
- Anti-bribery
- Diversity
and these are set out in the Directors' report on page 22 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. The principal risks and uncertainties of the Company as identified by the Board, and how they are managed, are as follows:
| Risk | Possible consequence | Risk management |
| Economic 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. | To reduce this risk, in addition to investing equity in portfolio companies, the Company often invests in fixed interest secured loan stock and has a policy of not normally permitting any external bank borrowings within portfolio companies. Additionally, the Manager has been rebalancing the sector exposure of the portfolio with a view to reducing reliance on consumer led sectors. |
| Investment risk | This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively impacts on the Company's reputation. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses. The success of investments in certain sectors is also subject to regulatory risk, such as those affecting companies involved in UK renewable energy. | To reduce this risk, the Board places reliance upon the skills and expertise of the Manager in investing in this segment of the market. In addition, the Manager operates a formal and structured investment process, which includes an Investment Committee comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites, and takes account of, comments from non-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards) and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings. It is the policy of the Company for portfolio companies to not normally have external borrowings. The Board and the Manager closely monitor regulatory changes in the sectors in which the Company is invested. |
| Valuation risk | 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. | As described in note 1 of the Financial Statements, the unquoted equity investments, convertible loan stock and debt issued at a discount held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgments about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgments the valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. The sensitivity of these assumptions are commented on further in notes 9 and 18. All other unquoted loan stock is measured at amortised cost. The values of a number of investments are also underpinned by independent third party professional valuations. |
| VCT approval risk | The Company's current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the tax relief on initial investment and loss of tax relief on any tax-free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares. | 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 PricewaterhouseCoopers LLP as its taxation adviser. PricewaterhouseCoopers LLP 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 H.M. Revenue & Customs. |
| Compliance risk | The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies. | The Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. Directors and the Manager have experience of operating or advising at senior levels within quoted businesses. |
| Internal control risk | Failures in key controls, within the Board or 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. | The Audit Committee meets with the Manager's Internal Auditor, PKF Littlejohn LLP, when required, receiving a report regarding the last formal internal audit performed on the Manager, and providing the opportunity for the Audit Committee to ask specific and detailed questions. The Chairman of the Audit Committee met with the internal audit partner of PKF Littlejohn LLP in January 2014 to discuss the most recent Internal Audit Report on the Manager. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Further details regarding the Board's management and review of the Company's internal controls through the implementation of the Turnbull guidance are detailed on page 29 of the full Annual Report and Financial Statements. Measures are in place to mitigate information security risk in order to ensure the integrity, availability and confidentiality of information used within the business. |
| Reliance upon third parties risk | The Group and the Company are reliant upon the services of Albion Ventures LLP and other third party service providers for the provision of investment management and administrative functions. | There are provisions within the management agreement for the change of Manager under certain circumstances (for further detail, see the management agreement paragraph above). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP. The Board monitors the performance of other third party service providers annually. |
| Financial risk | By its nature, as a venture capital trust, the Company is exposed to investment risk (which comprises investment price risk and cash flow interest rate risk), credit risk and liquidity risk. | The Company's policies for managing these risks and its financial instruments are outlined in full in note 18 to the Financial Statements. All of the Group's income and expenditure is denominated in sterling and hence the Company has no foreign currency risk. The Group is financed through equity and does not have any borrowings. The Group does not use derivative financial instruments for speculative purposes. |
This Strategic report of the Company for the year ended 30 June 2014 has been prepared in accordance with the requirements of section 414A of the Act. The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Act.
On behalf of the Board,
Patrick Crosthwaite
Chairman
2 October 2014
Responsibility Statement
In preparing these financial statements for the year to 30 June 2014, the Directors of the Company, being Patrick Crosthwaite, Rachel Beagles, Karen Brade and Richard Huntingford, 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 2014 for the Group has been prepared in accordance with International Financial Reporting Standards, and 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 and loss of the Group and the Company for the year ended 30 June 2014 as required by DTR 4.1.12.R;
- the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 30 June 2014 and description of principal risks and uncertainties that the Group and the Company faces); and
- the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).
A detailed "Statement of Directors' responsibilities for the preparation of the Group and the Company's financial statements" is contained within the full audited Annual Report and Financial Statements.
By order of the Board
Patrick Crosthwaite
Chairman
2 October 2014
Consolidated statement of comprehensive income
| Year ended 30 June 2014 | Year ended 30 June 2013 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments | 2 | - | 1,812 | 1,812 | - | 1,479 | 1,479 |
| Investment income and deposit interest | 3 | 925 | - | 925 | 967 | - | 967 |
| Investment management fees | 4 | (120) | (361) | (481) | (114) | (343) | (457) |
| Other expenses | 5 | (280) | - | (280) | (263) | - | (263) |
| Profit before taxation | 525 | 1,451 | 1,976 | 590 | 1,136 | 1,726 | |
| Taxation | 6 | - | - | - | - | - | - |
| Profit and total comprehensive income for the year | 525 | 1,451 | 1,976 | 590 | 1,136 | 1,726 | |
| Basic and diluted return per Ordinary share (pence)* | 8 | 0.61 | 1.67 | 2.28 | 0.73 | 1.41 | 2.14 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ('IFRS'). The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations and are wholly attributable to the owners of the parent Company.
Consolidated balance sheet
| 30 June 2014 | 30 June 2013 | ||
| Note | £'000 | £'000 | |
| Non-current assets | |||
| Investments | 9 | 27,689 | 24,567 |
| Current assets | |||
| Trade and other receivables less than one year | 12 | 74 | 17 |
| Current asset investments | 12 | 42 | 21 |
| Cash and cash equivalents | 16 | 1,466 | 2,780 |
| 1,582 | 2,818 | ||
| Total assets | 29,271 | 27,385 | |
| Current liabilities | |||
| Trade and other payables less than one year | 13 | (221) | (219) |
| Net assets | 29,050 | 27,166 | |
| Equity attributable to equityholders | |||
| Ordinary share capital | 14 | 10,006 | 9,300 |
| Share premium | 5,527 | 3,756 | |
| Capital redemption reserve | 1,415 | 1,283 | |
| Unrealised capital reserve | 657 | (1,690) | |
| Realised capital reserve | 145 | 1,041 | |
| Other distributable reserve | 11,300 | 13,476 | |
| Total equity shareholders' funds | 29,050 | 27,166 | |
| Basic and diluted net asset value per share (pence)* | 15 | 32.04 | 32.26 |
* 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 2 October 2014 and were signed on its behalf by
Patrick Crosthwaite
Chairman
Company number: 03495287
Company balance sheet
| 30 June 2014 | 30 June 2013 | ||
| Note | £'000 | £'000 | |
| Fixed assets | |||
| Fixed asset investments | 9 | 27,689 | 24,567 |
| Investment in subsidiary undertakings | 11 | 15,095 | 16,580 |
| 42,784 | 41,147 | ||
| Current assets | |||
| Trade and other debtors | 12 | 74 | 17 |
| Current asset investments | 12 | 42 | 21 |
| Cash at bank and in hand | 16 | 1,410 | 2,723 |
| 1,526 | 2,761 | ||
| Creditors: amounts falling due within one year | 13 | (15,260) | (16,742) |
| Net current assets | (13,734) | (13,981) | |
| Net assets | 29,050 | 27,166 | |
| Capital and reserves | |||
| Ordinary share capital | 14 | 10,006 | 9,300 |
| Share premium | 5,527 | 3,756 | |
| Capital redemption reserve | 1,415 | 1,283 | |
| Unrealised capital reserve | 695 | (167) | |
| Realised capital reserve | (64) | 832 | |
| Other distributable reserve | 11,471 | 12,162 | |
| Total equity shareholders' funds | 29,050 | 27,166 | |
| Basic and diluted net asset value per share (pence)* | 15 | 32.04 | 32.26 |
* excluding treasury shares
The Company balance sheet has been prepared in accordance with UK GAAP.
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 2 October 2014 and were signed on its behalf by
Patrick Crosthwaite
Chairman
Company number: 03495287
Consolidated statement of changes in equity
| Ordinary share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve | Other distributable reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 July 2013 | 9,300 | 3,756 | 1,283 | (1,690) | 1,041 | 13,476 | 27,166 |
| Profit and total comprehensive income | - | - | - | 1,823 | (372) | 525 | 1,976 |
| Transfer of previously unrealised losses on sale or write off of investments | - | - | - | 524 | (524) | - | - |
| Dividends paid | - | - | - | - | - | (2,132) | (2,132) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (174) | (174) |
| Purchase of own shares for cancellation (including costs) | (132) | - | 132 | - | - | (395) | (395) |
| Issue of equity (net of costs) | 838 | 1,771 | - | - | - | - | 2,609 |
| As at 30 June 2014 | 10,006 | 5,527 | 1,415 | 657 | 145 | 11,300 | 29,050 |
| As at 1 July 2012 | 8,844 | 2,335 | 1,065 | (3,755) | 1,970 | 15,491 | 25,950 |
| Profit and total comprehensive income | - | - | - | 1,105 | 31 | 590 | 1,726 |
| Transfer of previously unrealised losses on sale or write off of investments | - | - | - | 960 | (960) | - | - |
| Dividends paid | - | - | - | - | - | (1,983) | (1,983) |
| Cancellation of treasury shares | (77) | - | 77 | - | - | - | - |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (206) | (206) |
| Purchase of own shares for cancellation (including costs) | (141) | - | 141 | - | - | (416) | (416) |
| Issue of equity (net of costs) | 674 | 1,421 | - | - | - | - | 2,095 |
| As at 30 June 2013 | 9,300 | 3,756 | 1,283 | (1,690) | 1,041 | 13,476 | 27,166 |
The nature of each reserve is described in note 1 below.
Company reconciliation of movements in shareholders' funds
| Ordinary share capital | Share premium | Capital redemption reserve | Unrealised capital reserve | Realised capital reserve* | Other distributable reserve* | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 July 2013 | 9,300 | 3,756 | 1,283 | (167) | 832 | 12,162 | 27,166 |
| Return for the year | - | - | - | 1,823 | (372) | 2,010 | 3,461 |
| Revaluation of investment in subsidiaries | - | - | - | (1,485) | - | - | (1,485) |
| Transfer of previously unrealised losses on sale or write off of investments | - | - | - | 524 | (524) | - | - |
| Dividends paid in year | - | - | - | - | - | (2,132) | (2,132) |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (174) | (174) |
| Purchase of own shares for cancellation (including costs) | (132) | - | 132 | - | - | (395) | (395) |
| Issue of equity (net of costs) | 838 | 1,771 | - | - | - | - | 2,609 |
| As at 30 June 2014 | 10,006 | 5,527 | 1,415 | 695 | (64) | 11,471 | 29,050 |
| As at 1 July 2012 | 8,844 | 2,335 | 1,065 | (3,252) | 1,761 | 15,197 | 25,950 |
| Return for the year | - | - | - | 1,105 | 31 | (430) | 706 |
| Revaluation of investment in subsidiaries | - | - | - | 1,020 | - | - | 1,020 |
| Transfer of previously unrealised losses on sale or write off of investments | - | - | - | 960 | (960) | - | - |
| Dividends paid in year | - | - | - | - | - | (1,983) | (1,983) |
| Cancellation of treasury shares | (77) | - | 77 | - | - | - | - |
| Purchase of shares for treasury (including costs) | - | - | - | - | - | (206) | (206) |
| Purchase of own shares for cancellation (including costs) | (141) | - | 141 | - | - | (416) | (416) |
| Issue of equity (net of costs) | 674 | 1,421 | - | - | - | - | 2,095 |
| As at 30 June 2013 | 9,300 | 3,756 | 1,283 | (167) | 832 | 12,162 | 27,166 |
* Included within these reserves is an amount of £11,407,000 (2013: £12,827,000) which is considered distributable.
The nature of each reserve is described in note 1 below.
Consolidated cashflow statement
| Note | Year ended 30 June 2014 £'000 | Year ended 30 June 2013 £'000 | |
| Operating activities | |||
| Investment income received | 880 | 917 | |
| Deposit interest received | 18 | 22 | |
| Dividend income received | 29 | 34 | |
| Investment management fees paid | (473) | (453) | |
| Other cash payments | (267) | (269) | |
| Net cash flows from operating activities | 17 | 187 | 251 |
| Cash flows from investing activities | |||
| Purchase of non-current asset investments | (2,539) | (1,062) | |
| Disposal of non-current asset investments | 1,129 | 2,399 | |
| Net cash flows from investing activities | (1,410) | 1,337 | |
| Cash flows from financing activities | |||
| Issue of share capital (net of issue costs) | 2,444 | 1,993 | |
| Equity dividends paid (net of costs of dividend reinvestment scheme and unclaimed dividends returned) | (1,966) | (1,883) | |
| Purchase of shares for treasury | (174) | (243) | |
| Purchase of shares for cancellation | (395) | (416) | |
| Net cash flows used in financing activities | (91) | (549) | |
| (Decrease)/increase in cash and cash equivalents | (1,314) | 1,039 | |
| Cash and cash equivalents at the start of the year | 2,780 | 1,741 | |
| Cash and cash equivalents at the end of the year | 16 | 1,466 | 2,780 |
Company cashflow statement
| Note | Year ended 30 June 2014 £'000 | Year ended 30 June 2013 £'000 | |
| Operating activities | |||
| Loan stock income received | 880 | 917 | |
| Deposit interest received | 18 | 22 | |
| Dividend income received | 3,416 | 934 | |
| Investment management fees paid | (473) | (453) | |
| Intercompany interest paid | (3,387) | (900) | |
| Other cash payments | (267) | (269) | |
| Net cash flows from operating activities | 17 | 187 | 251 |
| Taxation | |||
| UK corporation tax paid | - | - | |
| Capital expenditure and financial investments | |||
| Purchase of fixed asset investments | (2,539) | (1,062) | |
| Disposal of fixed asset investments | 1,129 | 2,399 | |
| Net cash flows from investing activities | (1,410) | 1,337 | |
| Equity dividends paid | |||
| Dividends paid (net of costs of shares issued under the dividend reinvestment scheme and unclaimed dividends returned) | (1,966) | (1,883) | |
| Net cash flows before financing | (3,189) | (295) | |
| Financing activities | |||
| Issue of share capital (net of issue costs) | 2,444 | 1,993 | |
| Purchase of own shares for treasury (including costs) | (174) | (243) | |
| Purchase of own shares for cancellation (including costs) | (395) | (416) | |
| Net cash flows from financing | 1,875 | 1,334 | |
| Cash flow in the year | 16 | (1,314) | 1,039 |
Notes to the Financial Statements
1. Accounting policies
The following policies refer to the Group and the Company except where noted. References to International Financial Reporting Standards ('IFRS') relate to the Group Financial Statements and United Kingdom Generally Accepted Accounting Practice ('UK GAAP') relate to the Company Financial Statements.
Basis of accounting
The Financial Statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') adopted for use in the European Union (and therefore comply with Article 4 of the EU IAS regulation), in the case of the Group, and in accordance with UK GAAP in the case of the Company.
Both the Group and the Company Financial Statements also apply the Statement of Recommended Practice: "Financial Statements of Investment Companies and Venture Capital Trusts" ('SORP') issued by the Association of Investment Companies ("AIC") in January 2009, in so far as this does not conflict with IFRS. The Financial Statements have been prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and UK GAAP. These Financial Statements are presented in Sterling to the nearest thousand. Accounting policies have been applied consistently in current and prior periods.
At the balance sheet date, the following International Accounting Standards and interpretations were in issue but not yet effective:
- IFRS 9 Financial instruments: Recognition and measurement (effective for annual periods beginning on or after 1 January 2015)
- IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2014)
- IFRS 11 Accounting for Acquisitions of Interest in Joint Operations (effective for annual periods beginning on or after 1 January 2014)
- IFRS 12 Disclosure of Interest in Other Entities (effective for annual periods beginning on or after 1 January 2014)
- IFRS 14 Regulatory Deferral Accounts (effective for annual periods beginning on or after 1 January 2016)
- IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2017)
- IAS 16/IAS 41 Clarification of Acceptable Methods of Depreciation and Amortisation (effective for annual periods beginning on or after 1 January 2016)
- IAS 19 Defined Benefit Plans: Employee Contributions (effective for annual periods beginning on or after 1 July 2014)
- IAS 27 Separate Financial Statements (effective for annual periods beginning on or after 1 January 2014)
- IAS 28 Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2014)
- IAS 32 Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January 2014)
- IAS 36 Recoverable amounts disclosures for non-financial assets (effective for annual periods beginning on or after 1 January 2014)
- IAS 39 Novation of Derivatives and Continuation of Hedge Accounting (effective for annual periods beginning on or after 1 January 2014)
The above International Accounting Standards and interpretations have not been applied in this Annual Report and Financial Statements and are not expected to have any material impact on the Financial Statements although some changes may be required to the format of the Financial Statements and disclosures.
Basis of consolidation
The Group consolidated Financial Statements incorporate the Financial Statements of the Company for the year ended 30 June 2014 and the entities controlled by the Company (its subsidiaries), for the same period. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. The amount of the Company's profit before tax for the year dealt with in the accounts of the Group is £3,461,000 (2013: £706,000).
Segmental reporting
The Directors are of the opinion that the Group and the Company are engaged in a single operating segment of business, being investment in equity and debt. The Group and the Company report to the Board which acts as the chief operating decision maker. The Group invests in smaller companies principally based in the UK.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method in the Group Financial Statements. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the subsidiaries, plus any costs directly attributable to the business combination. The subsidiary's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 "Business Combinations" are recognised at their fair value at the acquisition date.
Estimates
The preparation of the Group's and Company's Financial Statements requires estimates, assumptions and judgments to be made, which affect the reported results and balances. Actual outcomes may differ from these estimates, with a consequential impact on the results of future periods. Those estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are those used to determine the fair value of investments at fair value through the profit or loss.
The valuation of investments held at fair value through profit or loss or measured in assessing any impairment of loan stocks is determined by using valuation techniques. The Group and the Company use judgments to select a variety of methods and makes assumptions that are mainly based on market conditions and portfolio company performance at each balance sheet date.
Investment in subsidiaries
Investments in subsidiaries are revalued at the balance sheet date based on the underlying net assets of the subsidiary undertakings. Revaluation movements are recognised in the unrealised reserve.
The Directors have not yet made a formal decision on the future of CP2 VCT plc, but the parent Company has undertaken to support the ongoing operations of the subsidiary company for a period of not less than 12 months from the date of the accounts.
Non-current asset investments
Quoted and unquoted equity investments, debt issued at a discount, and convertible bonds
In accordance with IAS 39 'Financial Instruments: Recognition and Measurement', and FRS 26 'Financial Instruments: Recognition and Measurement', quoted and unquoted equity, debt issued at a discount and convertible bonds are designated as fair value through profit or loss ("FVTPL"). Investments listed on recognised exchanges are valued at the closing bid prices at the end of the accounting period. Unquoted investments' fair value is determined by the Directors in accordance with the International Private Equity and Venture Capital Valuation Guidelines (IPEVCV guidelines).
Fair value movements and gains and losses arising on the disposal of investments are reflected in the capital column of the Statement of comprehensive income in accordance with the AIC SORP. Realised gains or losses on the sale of investments will be reflected in the realised capital reserve, and unrealised gains or losses arising from the revaluation of investments will be reflected in the unrealised capital reserve.
Warrants and unquoted equity derived instruments
Warrants and unquoted equity derived instruments are only valued if there is deemed to be additional value to the Company in exercising or converting as at the balance sheet date. Otherwise these instruments are held at nil value. The valuation techniques used are those used for the underlying equity investment.
Unquoted loan stock
Unquoted loan stock (excluding debt issued at a discount and convertible bonds) is classified as loans and receivables as permitted by IAS 39 and FRS 26 and measured at amortised cost using the effective interest rate method less impairment. Movements in the amortised cost relating to interest income are reflected in the revenue column of the Statement of comprehensive income, and hence are reflected in the other distributable reserve, and movements in respect of capital provisions are reflected in the capital column of the Statement of comprehensive income and are reflected in the realised capital reserve following sale, or in the unrealised capital reserve for impairments arising from revaluations of the fair value of the security.
For all unquoted loan stock, fully performing, past due or impaired, the Board considers that the fair value is equal to or greater than the security value of these assets. For unquoted loan stock, the amount of the impairment is the difference between the asset's cost and the present value of estimated future cash flows, discounted at the original effective interest rate. The future cash flows are estimated based on the fair value of the security held less estimated selling costs.
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.
Loan stock accrued interest is recognised in the Balance sheet as part of the carrying value of the loans and receivables at the end of each reporting period.
In accordance with the exemptions under IAS 28 "Investments in associates" and FRS 9 "Associates and joint ventures", those undertakings in which the Group or Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method.
Current asset investments
Contractual future contingent receipts on the disposal of fixed asset investments are designated as fair value through profit and loss and are subsequently measured at fair value.
Investment income
Quoted and unquoted 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 on a time apportionment basis using an effective interest rate over the life of the financial instrument. Income which is not capable of being received within a reasonable period of time is reflected in the capital value of the investment.
Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.
Investment management fees, performance incentive fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of comprehensive income, except for management fees and performance incentive fees which are allocated in part to the capital column of the Statement of comprehensive income, to the extent that these relate to the maintenance or enhancement in the value of the investments and in line with the Board's expectation that over the long term 75 per cent. of the Group's investment returns will be in the form of capital gains.
Issue costs
Issue costs associated with the allotment of share capital have been deducted from the share premium account.
Taxation
Taxation is applied on a current basis in accordance with IAS 12 "Income taxes" and FRS 16 "Current tax". Taxation associated with capital expenses is applied in accordance with the SORP. Deferred taxation is provided in full on timing differences (in accordance with FRS 16) and temporary differences (in accordance with IAS 12) that result in an obligation at the balance sheet date to pay more tax or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Temporary differences (FRS 16) arise from differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for taxation purposes. Timing differences (IAS 12) arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the Financial Statements. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which unused tax losses and credits can be utilised. Deferred tax assets and liabilities are not discounted.
Dividends
In accordance with IAS 10 and FRS 21 "Events after the balance sheet date", dividends are accounted for in the period in which the dividend is declared.
Reserves
Share premium reserve
This reserve accounts for the difference between the price paid for the Company's shares and the nominal value of those shares, less issue costs and transfers to the other distributable reserve.
Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company's own shares.
Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end, against cost are included in this reserve.
Realised capital reserve
The following are disclosed in this reserve:
- gains and losses compared to cost on the realisation of investments;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders.
Other distributable reserve
This reserve accounts for movements from the revenue column of the Statement of comprehensive income, the payment of dividends, the buyback of shares and other non capital realised movements.
2. Gains on investments
| Year ended 30 June 2014 | Year ended 30 June 2013 | |
| £'000 | £'000 | |
| Unrealised gains on investments held at fair value through profit or loss | 1,780 | 1,208 |
| Reversal of impairments/(impairments) on investments measured at amortised cost | 22 | (124) |
| Unrealised gains on non-current asset investments sub-total | 1,802 | 1,084 |
| Unrealised gains on current asset investments held at fair value through profit or loss | 21 | 21 |
| Unrealised gains on investments | 1,823 | 1,105 |
| Realised gains on investments held at fair value through profit or loss | - | 389 |
| Realised losses on investments measured at amortised cost | (11) | (15) |
| Realised (losses)/gains on investments | (11) | 374 |
| 1,812 | 1,479 |
Investments measured at amortised cost are unquoted loan stock investments as described in note 9.
3. Investment income and deposit interest
| Year ended 30 June 2014 | Year ended 30 June 2013 | |
| £'000 | £'000 | |
| Income recognised on investments held at fair value through profit or loss | ||
| UK dividend income | 29 | 34 |
| Interest on convertible bonds and debt issued at a discount | 145 | 134 |
| 174 | 168 | |
| Income recognised on investments measured at amortised cost | ||
| Return on loan stock investments | 732 | 776 |
| Bank deposit interest | 19 | 23 |
| 751 | 799 | |
| 925 | 967 |
Interest income earned on impaired investments at 30 June 2014 amounted to £172,000 (2013: £240,000). These investments are all held at amortised cost.
4. Investment management fees
| Year ended 30 June 2014 | Year ended 30 June 2013 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 120 | 361 | 481 | 114 | 343 | 457 |
Further details of the management agreement under which the investment management fee is paid are given in the Strategic report.
During the year, services of a total value of £531,000 (2013: £507,000) were purchased by the Company from Albion Ventures LLP comprising £481,000 in respect of management fees and £50,000 in respect of administration fees. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £139,500 (administration fee accrual: £12,500, management fee accrual £127,000) (2013: £131,000).
Albion Ventures LLP is, from time to time, eligible to receive transaction fees and Directors' fees from portfolio companies. During the year ended 30 June 2014 fees of £67,000 attributable to the investments of the Company were received pursuant to these arrangements (2013: £43,000).
During the year, the Company raised new funds through the Albion VCTs Top Up Offers 2013/2014 and the Albion VCT Prospectus Top Up Offers 2013/2014 as described in note 14. The Manager, Albion Ventures LLP, acted as receiving agent for the Offer. The total receiving agents costs were £25,000 of which £3,200 (2013: £3,300) was paid by Crown Place VCT PLC to the Manager.
Albion Ventures LLP holds 1,256 Ordinary shares as a result of fractional entitlements arising on the merger of Crown Place VCT PLC, CP1 VCT PLC and CP2 VCT PLC on 13 January 2006. In addition, Albion Ventures LLP holds a further 16,202 Ordinary shares in the Company.
5. Other expenses
| Year ended 30 June 2014 | Year ended 30 June 2013 | |
| £'000 | £'000 | |
| Directors' remuneration | 75 | 75 |
| National insurance on Directors' remuneration | 6 | 6 |
| Auditor's remuneration: - audit of the statutory Financial Statements (excluding VAT) | 26 | 25 |
| 5 | 5 |
| Impairment of accrued interest | 10 | - |
| Other expenses | 158 | 152 |
| 280 | 263 | |
Further information regarding Directors' remuneration can be found in the audited section of the Directors' remuneration report on page 32 of the full Annual Report and Financial Statements.
6. Taxation
| Year ended 30 June 2014 | Year ended 30 June 2013 | |||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| UK corporation tax charge | - | - | - | - | - | - |
The tax charge for the year shown in the Statement of comprehensive income is lower than the standard rate of corporation tax of 23 per cent. to 31 March 2014 and 21 per cent. from 1 April 2014. (average rate of 22.5 per cent.; 2013: average rate of 23.75 per cent.). The differences are explained below:
| Year ended 30 June 2014 | Year ended 30 June 2013 | ||
| £'000 | £'000 | ||
| Profit before taxation | 1,976 | 1,726 | |
| Profit multiplied by the standard rate of corporation tax | (445) | (410) | |
| Effect of capital gains not subject to taxation | 408 | 351 | |
| Effect of income not subject to taxation | 7 | 8 | |
| Utilisation of tax losses | 30 | 51 | |
| - | - | ||
No provision for deferred tax has been made in the current or prior accounting period. The Company and Group have not recognised a deferred tax asset of £2,725,000 (2013: £2,725,000) in respect of unutilised management expenses and non-trading deficits as it is not considered sufficiently probable that there will be taxable profits against which to utilise these expenses in the foreseeable future. The Group has not recognised a further deferred tax asset of £664,000 (2013: £1,202,000) in respect of unutilised management expenses and deficits arising from non-trading relationships which would only be used if its subsidiaries made significant profits.
7. Dividends
| Year ended 30 June 2014 | Year ended 30 June 2013 | ||||||
| £'000 | £'000 | ||||||
| First dividend paid on 29 November 2013 (1.25 pence per share) | 1,053 | 993 | |||||
| Second dividend paid on 31 March 2014 (1.25 pence per share) | 1,079 | 992 | |||||
| Unclaimed dividends returned to the Company during the year | - | (2) | |||||
| 2,132 | 1,983 | ||||||
In addition to the dividends paid above, the Board has declared a first dividend for the year ending 30 June 2015, of 1.25 pence per share. This will be paid on 28 November 2014 to shareholders on the register as at 7 November 2014. The total dividend will be approximately £1,147,000.
During the year, no unclaimed dividends older than twelve years (2013: £2,000) were returned to the Company in accordance with the terms of the Articles of Association.
8. Basic and diluted return per share
| Year ended 30 June 2014 | Year ended 30 June 2013 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Return attributable to equity shares (£'000) | 525 | 1,451 | 1,976 | 590 | 1,136 | 1,726 | ||
| Weighted average shares (excluding treasury shares) | 86,017,237 | 80,500,879 | ||||||
| Return attributable per Ordinary share (pence) (basic and diluted) | 0.61 | 1.67 | 2.28 | 0.73 | 1.41 | 2.14 | ||
The return per share has been calculated excluding treasury shares of 9,376,410 (2013: 8,794,410).
There are no convertible instruments, derivatives or contingent share agreements in issue, and therefore no dilution affecting the return per share. The basic return per share is therefore the same as the diluted return per share.
9. Non-current asset investments
| 30 June 2014 £'000 | 30 June 2013 £'000 | |
| Group and Company | ||
| Investments held at fair value through profit or loss | ||
| Unquoted equity and preference shares | 12,161 | 9,582 |
| Quoted equity | 896 | 461 |
| Discounted debt and convertible loan stock | 3,635 | 2,824 |
| 16,692 | 12,867 | |
| Investments measured at amortised cost | ||
| Unquoted loan stock | 10,997 | 11,700 |
| 27,689 | 24,567 |
| 30 June 2014 £'000 | |
| Opening valuation as at 1 July 2013 | 24,567 |
| Purchases at cost | 2,539 |
| Disposal proceeds | (1,188) |
| Realised losses | (11) |
| Movement in loan stock accrued income | (20) |
| Unrealised gains | 1,802 |
| Closing valuation as at 30 June 2014 | 27,689 |
| Movement in loan stock accrued income | |
| Opening accumulated movement in loan stock accrued income | 82 |
| Movement in loan stock accrued income | (20) |
| Closing accumulated movement in loan stock accrued income | 62 |
| Movement in unrealised gains | |
| Opening accumulated unrealised losses | (1,777) |
| Transfer of previously unrealised gains to realised reserves on disposal | (227) |
| Transfer of previously unrealised losses to realised reserves on investments written off but still held | 751 |
| Movement in unrealised gains | 1,802 |
| Closing accumulated unrealised gains | 549 |
| Historic cost basis | |
| Opening book cost | 26,262 |
| Purchases at cost | 2,539 |
| Disposals at cost | (945) |
| Cost of investments written off but still held | (777) |
| Closing book cost | 27,079 |
| Closing cost is net of amounts of £1,881,000 (2013: £1,104,000) written off in respect of investments still held at the balance sheet date. | |
| 30 June 2013 £'000 | |
| Opening valuation as at 1 July 2012 | 24,333 |
| Purchases at cost | 1,030 |
| Disposal proceeds | (2,254) |
| Realised gains | 374 |
| Movement in loan stock accrued income | - |
| Unrealised gains | 1,084 |
| Closing valuation as at 30 June 2013 | 24,567 |
| Movement in loan stock accrued income | |
| Opening accumulated movement in loan stock accrued income | 82 |
| Movement in loan stock accrued income | - |
| Closing accumulated movement in loan stock accrued income | 82 |
| Movement in unrealised losses | |
| Opening accumulated unrealised losses | (3,914) |
| Movement in unrealised gains | 1,084 |
| Transfer of previously unrealised gains to realised reserves on disposal | (51) |
| Transfer of previously unrealised losses to realised reserves on investments written off but still held | 1,104 |
| Closing accumulated unrealised losses | (1,777) |
| Historic cost basis | |
| Opening book cost | 28,164 |
| Purchases at cost | 1,030 |
| Disposals at cost | (1,828) |
| Cost of investments written off but still held | (1,104) |
| Closing book cost | 26,262 |
The Directors believe that the carrying value of loan stock measured at amortised cost is not materially different to fair value. The Company does not hold any assets as the result of the enforcement of security during the year, 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.
Additions and disposal proceeds included in the cash flow statement differ from the amounts shown in the note above, due to deferred consideration and settlement creditors and the restructuring of investments.
A schedule of disposals during the year is shown on page 18 of the full Annual Report and Financial Statements.
IFRS 13 'Fair value measurement' and IFRS 7 'Financial Instruments: Disclosures' requires the Company to disclose the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy according to the following definitions:
| Fair value hierarchy | Definition of valuation method |
| Level 1 | Unadjusted quoted (bid) prices applied |
| Level 2 | Inputs to valuation are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations are not based on observable market data |
Quoted AIM investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares, convertible loan stock and debt issued at a discount are all valued according to Level 3 valuation methods.
The Company's investments measured at fair value through profit or loss (Level 3) had the following movements in the year to 30 June 2014:
| 30 June 2014 | 30 June 2013 | |||||
| Equity | Discounted debt and convertible loan stock | Total | Equity | Discounted debt and convertible loan stock | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening balance | 9,582 | 2,824 | 12,406 | 8,711 | 2,140 | 10,851 |
| Additions | 773 | 1,337 | 2,110 | 216 | 530 | 746 |
| Disposal proceeds | (193) | (293) | (486) | (1,400) | (244) | (1,644) |
| Transfer to Level 1 | (473) | (193) | (666) | - | - | - |
| Representation of convertible debt | - | 417 | 417 | - | - | - |
| Debt/equity conversion | 342 | (342) | - | 812 | - | 812 |
| Realised (losses)/gains | (12) | 12 | - | 329 | 18 | 347 |
| Unrealised gains/(losses) | 2,142 | (131) | 2,011 | 914 | 374 | 1,288 |
| Accrued loan stock interest | - | 4 | 4 | - | 6 | 6 |
| Closing balance | 12,161 | 3,635 | 15,796 | 9,582 | 2,824 | 12,406 |
Unquoted investments held at fair value through profit or loss are valued in accordance with the IPEVCV guidelines as follows:
| 30 June 2014 | 30 June 2013 | |
| Investment valuation methodology | £'000 | £'000 |
| Net asset value supported by independent valuation | 6,000 | 4,675 |
| Cost (reviewed for impairment) | 2,313 | 522 |
| Net asset value | 2,288 | 2,319 |
| Earnings multiple | 1,990 | 2,069 |
| Revenue multiple | 1,664 | 1,829 |
| Agreed sale price/Offer price | 993 | 408 |
| Recent investment price | 548 | 584 |
| 15,796 | 12,406 |
Level 3 valuations include inputs based on non-observable market data. IFRS 13 requires an entity to disclose quantitative information about the significant unobservable inputs used. Of the Company's Level 3 investments, 23 per cent are held on an Earnings or Revenue multiple basis, which have significant judgment applied to the valuation inputs. The table below sets out the range of Earnings and Revenue multiples and discounts applied. The remainder of Level 3 investments are held at cost (reviewed for impairment), recent investment price, net asset value (supported by independent valuation) or net assets.
| Travel and leisure | Support services | Healthcare (growth) | Software | |
| Earnings multiples | ||||
| PE multiple range | 6.0 | 8.9-11.0 | 15.2 | 10.0 |
| Marketability discount range | 65% | 20%-50% | 50% | 50% |
| Revenue multiples | ||||
| Revenue multiple range | - | - | 1.3 - 3.3 | 0.1 - 2.4 |
| Marketability discount range | - | - | 35% | 30% - 96% |
IFRS 13 and IFRS 7 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. After due consideration and noting that the valuation methodology applied to 62 per cent. of the Level 3 investments (by valuation) is based on third party independent evidence, recent investment price, agreed sale price/offer price and cost, the Directors believe that changes to reasonable possible alternative input assumptions for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. The impact of these changes could result in an increase in the valuation of the equity investments by £1,545,000 or a decrease in the valuation of equity investments by £1,094,000.
The unquoted equity instruments had the following movements between investment methodologies between 30 June 2013 and 30 June 2014:
Change in investment valuation methodology (2013 to 2014) | Value as at 30 June 2014 £'000 | Explanatory note |
| Net asset value supported by independent valuation to Agreed sale price/Offer price | 731 | Agreed offer price |
| Earnings multiple to revenue multiple | 501 | More appropriate methodology after reduction in earnings |
| Net assets to Agreed sale price/Offer price | 262 | Agreed offer price |
| Recent investment price to Cost (reviewed for impairment) | 62 | More relevant valuation methodology |
The valuation method used will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 30 June 2014.
10. Significant interests
The principal activity of the Group 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 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 2014 as described below:
| Company | Country of incorporation | Principal activity | % class and share type | % total voting rights |
| ELE Advanced Technologies Limited | Great Britain | Manufacturer of precision engineering components for the industrial gas turbine, aerospace and automotive markets | 74.3% B Ordinary | 41.9% |
| House of Dorchester Limited | Great Britain | Chocolate manufacturer | 33.0% B Ordinary | 22.2% |
| Uctal Limited | Great Britain | TV production company | 56.7% B Ordinary/A Preference and B Preference | 24.2% |
The investments listed above are held as part of an investment portfolio and therefore, as permitted by IAS 28 and FRS 9, they are measured at fair value and not accounted for using the equity method.
11. Investments in subsidiary undertakings
| 30 June 2014 | |||
| CP1 VCT PLC | CP2 VCT PLC | Total | |
| £'000 | £'000 | £'000 | |
| Carrying value as at 1 July 2013 | 7,299 | 9,281 | 16,580 |
| Movement in subsidiary net assets | (677) | (808) | (1,485) |
| Carrying value as at 30 June 2014 | 6,622 | 8,473 | 15,095 |
| 30 June 2013 | |||
| CP1 VCT PLC | CP2 VCT PLC | Total | |
| £'000 | £'000 | £'000 | |
| Carrying value as at 1 July 2012 | 6,820 | 8,740 | 15,560 |
| Movement in subsidiary net assets | 479 | 541 | 1,020 |
| Carrying value as at 30 June 2013 | 7,299 | 9,281 | 16,580 |
The subsidiary companies currently hold cash and intercompany balances.
Both CP1 VCT PLC and CP2 VCT PLC are wholly owned by Crown Place VCT PLC as follows:
| 30 June 2014 | ||
| CP1 VCT PLC | CP2 VCT PLC | |
| Nominal value of shares held | £6,382,746 | £8,219,350 |
| Percentage of total voting rights held | 100% | 100% |
| 30 June 2013 | ||
| CP1 VCT PLC | CP2 VCT PLC | |
| Nominal value of shares held | £6,382,746 | £8,219,350 |
| Percentage of total voting rights held | 100% | 100% |
12. Trade and other receivables/debtors and current asset investments
| 30 June 2014 | 30 June 2013 | |||
| Group | Company | Group | Company | |
| £'000 | £'000 | £'000 | £'000 | |
| Trade and other receivables/debtors less than one year | 74 | 74 | 17 | 17 |
| 30 June 2014 | 30 June 2013 | |||
| Group | Company | Group | Company | |
| £'000 | £'000 | £'000 | £'000 | |
| Contingent future receipts on disposal of fixed asset investments | 42 | 42 | 21 | 21 |
The fair value hierarchy applied to contingent future receipts on disposal of fixed asset investments is Level 3. The only movement in the contingent future receipts is an unrealised increase in the fair value.
13. Trade and other payables/creditors
| 30 June 2014 | 30 June 2013 | |||
| Group | Company | Group | Company | |
| £'000 | £'000 | £'000 | £'000 | |
| Amounts falling due within one year: | ||||
| Amounts due to subsidiary undertakings | - | 15,039 | - | 16,523 |
| Other payables | 21 | 21 | 28 | 28 |
| Accruals | 200 | 200 | 191 | 191 |
| 221 | 15,260 | 219 | 16,742 | |
Interest is chargeable on intercompany balances at a rate of 12 per cent. per annum. Intercompany balances are payable on demand. The subsidiaries' current business is to hold cash and intercompany balances.
14. Ordinary share capital
| 30 June 2014 £'000 | 30 June 2013 £'000 | |
| Allotted, called up and fully paid | ||
| 100,057,224 Ordinary shares of 10p each (2013: 92,999,904) | 10,006 | 9,300 |
| Voting rights | ||
| 90,680,814 Ordinary shares of 10p each (2013: 84,205,494) |
The Company purchased 1,317,000 Ordinary shares for cancellation (2013: 1,407,000) during the year at a total cost of £395,000 (2013: £416,000).
The Company purchased 582,000 Ordinary shares for treasury (2013: 728,000) during the year at a total cost of £174,000 (2013: £206,000). The Company did not cancel any Ordinary shares from treasury during the year (2013: 769,500).
The total number of shares held in treasury as at 30 June 2014 was 9,376,410 (2013: 8,794,410) representing 9.4 per cent. of the shares in issue as at 30 June 2014.
Under the terms of the Dividend Reinvestment Scheme Circular dated 26 February 2009, the following Ordinary shares of nominal value 10 pence were allotted 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) |
| 29 November 2013 | 257,201 | 26 | 31.01 | 77 | 30.00 |
| 31 March 2014 | 294,674 | 29 | 30.91 | 89 | 30.00 |
| 551,875 | 55 | 166 |
Under the terms of the Albion VCTs Top Up Offers 2013/2014, the following Ordinary shares of nominal value 10 pence 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) |
| 31 January 2014 | 1,597,074 | 160 | 32.60 | 506 | 30.00 |
| 31 January 2014 | 1,063,942 | 106 | 32.40 | 339 | 30.00 |
| 31 January 2014 | 46,728 | 5 | 32.10 | 15 | 30.00 |
| 5 April 2014 | 1,294,447 | 129 | 31.90 | 401 | 30.00 |
| 5 April 2014 | 39,411 | 4 | 31.60 | 12 | 30.00 |
| 5 April 2014 | 42,765 | 4 | 31.70 | 13 | 30.00 |
| 4,084,367 | 408 | 1,286 |
Under the terms of the Albion VCTs Prospectus Top Up Offers 2013/2014, the following Ordinary shares of nominal value 10 pence 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) |
| 5 April 2014 | 3,738,078 | 374 | 31.90 | 1,157 | 30.00 |
15. Basic and diluted net asset value per share
The Group and Company net asset value attributable to the Ordinary shares at the year end was as follows:
| 30 June 2014 | 30 June 2013 | |||
| Net asset value per share attributable (pence) | 32.04 | 32.26 |
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 less treasury shares of 90,680,814 shares (2013: 84,205,494) as at 30 June 2014.
There are no convertible instruments, derivatives or contingent share agreements in issue.
16. Analysis of changes in cash during the year
| 30 June 2014 | 30 June 2013 | |||
| Group | Company | Group | Company | |
| £'000 | £'000 | £'000 | £'000 | |
| Opening cash balances | 2,780 | 2,723 | 1,741 | 1,684 |
| Net cash flow | (1,314) | (1,314) | 1,039 | 1,039 |
| Closing cash balances | 1,466 | 1,410 | 2,780 | 2,723 |
17. Reconciliation of revenue return before taxation to net cash flow from operating activities
| Year ended 30 June 2014 | Year ended 30 June 2013 | |||||||
| Group | Company | Group | Company | |||||
| £'000 | £'000 | £'000 | £'000 | |||||
| Revenue return before tax | 525 | 525 | 590 | 590 | ||||
| Capitalised expenses | (361) | (361) | (343) | (343) | ||||
| Increase in accrued amortised loan stock interest | 20 | 20 | - | - | ||||
| Decrease in receivables | - | - | 4 | 4 | ||||
| Increase in payables | 3 | 3 | - | - | ||||
| Net cash flow from operating activities | 187 | 187 | 251 | 251 | ||||
18. Capital and financial instruments risk management
The following policies are with reference to both the Company and the Group except where 'the Company' is used below.
The Group's capital comprises Ordinary shares as described in note 14. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail in the Strategic report.
The Group's financial instruments comprise equity and loan stock investments in unquoted companies, equity in AIM quoted companies, contingent receipts on disposal of fixed asset investments, cash balances, debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate revenue and capital appreciation for the Group's operations. The Group has no gearing or other financial liabilities apart from short term creditors. The Group does not use any derivatives for the management of its balance sheet.
The principal risks arising from the Group's operations are:
- Investment (or market) risk (which comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Group has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised as follows:
Investment risk
As a venture capital trust, it is the Group's specific nature to evaluate and control the investment risk of its portfolio in unquoted and quoted companies, details of which are shown on pages 16 to 18 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Group to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio companies and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.
The Manager and the Board formally review investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Group are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the balance sheet date is the value of the non-current and current asset investment portfolio which is £27,731,000 (2013: £24,588,000). Non-current and current asset investments form 95 per cent. of the net asset value as at 30 June 2014 (2013: 91 per cent.).
More details regarding the classification of non-current investments are shown in note 9.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. To mitigate the investment price risk for the Group as a whole, the strategy of the Group is to invest in a broad spread of industries with approximately two-thirds of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 16 to 18 of the full Annual Report and Financial Statements and in the Strategic report.
The valuation method used will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines.
As required under IFRS 7 and FRS 29, the Board is required to illustrate by way of a sensitivity analysis, the degree of exposure to market risk. The Board considers that the value of the non-current and current asset investment portfolio is sensitive to a 10 per cent. change based on the current economic climate. The impact of a 10 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
The sensitivity of a 10 per cent. (2013: 10 per cent.) increase or decrease in the valuation of the non-current and current asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £2,773,100 (2013: £2,458,800).
Cash flow interest rate risk
It is the Group's policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Group's analysis, it is estimated that a rise of half a percentage point in all interest rates would be immaterial due to the level of fixed rate loan stock held within the portfolio. On the basis of the Company's analysis, it is considered that further falls in interest rates would be highly unlikely.
The weighted average interest rate applied to the Group's fixed rate assets during the year was approximately 5.7 per cent. (2013: 5.7 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 4.2 years (2013: 3.6 years).
The Group's financial assets and liabilities as at 30 June 2014, all denominated in pounds sterling, consist of the following:
| 30 June 2014 | 30 June 2013 | |||||||
| Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | |
| Unquoted loan stock (including convertible loan stock and discounted bonds) | 14,128 | - | 504 | 14,632 | 13,197 | 78 | 1,249 | 14,524 |
| Equity | - | - | 13,057 | 13,057 | - | - | 10,043 | 10,043 |
| Receivables* | - | - | 59 | 59 | - | - | 2 | 2 |
| Current asset investments | - | - | 42 | 42 | - | - | 21 | 21 |
| Payables | - | - | (221) | (221) | - | - | (219) | (219) |
| Cash | - | 1,466 | - | 1,466 | - | 2,780 | - | 2,780 |
| 14,128 | 1,466 | 13,441 | 29,035 | 13,197 | 2,858 | 11,096 | 27,151 | |
*The receivables do not reconcile to the balance sheet as prepayments are not included in the above table.
The Company's financial assets and liabilities as at 30 June 2014, all denominated in pounds sterling, consist of the following:
| 30 June 2014 | 30 June 2013 | |||||||
| Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | Fixed rate £'000 | Floating rate £'000 | Non-interest £'000 | Total £'000 | |
| Unquoted loan stock (including convertible loan stock and discounted bonds) | 14,128 | - | 504 | 14,632 | 13,197 | 78 | 1,249 | 14,524 |
| Equity** | - | - | 13,057 | 13,057 | - | - | 10,043 | 10,043 |
| Debtors* | - | - | 59 | 59 | - | - | 2 | 2 |
| Current asset investments | - | - | 42 | 42 | - | - | 21 | 21 |
| Current liabilities | (15,039) | - | (221) | (15,260) | (16,523) | - | (219) | (16,742) |
| Cash | - | 1,410 | - | 1,410 | - | 2,723 | - | 2,723 |
| (911) | 1,410 | 13,441 | 13,940 | (3,326) | 2,801 | 11,096 | 10,571 | |
*The debtors do not reconcile to the balance sheet as prepayments are not included in the above table.
** The equity does not reconcile to the balance sheet as investments in subsidiaries are excluded from 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 Group. The Group is exposed to credit risk through its debtors, investment in unquoted 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. Typically loan stock instruments have a first fixed charge or a fixed and floating charge 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 which have a Moody's credit rating of at least 'A'. The Group 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 Group's total gross credit risk at 30 June 2014 was limited to £14,632,000 (2013: £14,524,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £1,466,000 (2013: £2,780,000) of cash deposits with banks and £99,000 (2013: £21,000) of deferred consideration and receivables.
The Company's total gross credit risk at 30 June 2014 was limited to £14,632,000 (2013: £14,524,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £1,410,000 (2013: £2,723,000) of cash deposits with banks and £99,000 (2013: £21,000) of deferred consideration and receivables.
As at the balance sheet date, the cash held by the Group is 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 is 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 unquoted loan stock is described under liquidity risk shown below.
The cost, impairment and carrying value of impaired loan stocks at 30 June 2014 and 30 June 2013 are as follows:
| 30 June 2014 | 30 June 2013 | |||||
| Cost | Impairment | Carrying value | Cost | Impairment | Carrying value | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Impaired loan stock | 6,793 | (1,914) | 4,879 | 7,163 | (2,085) | 5,078 |
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 account and cash on deposit or short term money market account. Under the terms of its Articles, the Group has the ability to borrow up to the amount of its adjusted capital and reserves of the latest published audited consolidated balance sheet, which amounts to £27,903,000 (2013: £26,113,000) as at 30 June 2014.
The Group has no committed borrowing facilities as at 30 June 2014 (2013: nil) and had cash balances of £1,466,000 (2013: £2,780,000) (Company £1,410,000; 2013: £2,723,000). The main cash outflows are for new investments, dividends and share buy backs, which are within the control of the Group. The Manager formally reviews the cash requirements of the Group on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts.
All of the Group's financial liabilities are short term in nature and total £221,000 (2013: £219,000) for the year to 30 June 2014 (Company: £15,260,000; 2013: £16,742,000). An amount of £15,039,000 (2013: £16,523,000) which is included within the Company's creditors, relates to intercompany balances and is not considered to carry liquidity risk because the Board has control over the intercompany repayments.
The carrying value of loan stock investments at 30 June 2014, analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 836 | 160 | 69 | 1,065 |
| 1-2 years | 987 | 660 | 1,049 | 2,696 |
| 2-3 years | 3,223 | 83 | 1,799 | 5,105 |
| 3-5 years | 1,052 | 90 | 1,839 | 2,981 |
| More than 5 years | 2,591 | 71 | 123 | 2,785 |
| 8,689 | 1,064 | 4,879 | 14,632 |
The carrying value of loan stock investments at 30 June 2013, analysed by expected maturity dates is as follows:
| Redemption date | Fully performing £'000 | Past due £'000 | Impaired £'000 | Total £'000 |
| Less than one year | 744 | 1,354 | 282 | 2,380 |
| 1-2 years | 369 | 209 | 1,009 | 1,587 |
| 2-3 years | 3,143 | 412 | 1,906 | 5,461 |
| 3-5 years | 1,174 | 324 | 1,803 | 3,301 |
| More than 5 years | 713 | 1,004 | 78 | 1,795 |
| 6,143 | 3,303 | 5,078 | 14,524 |
Loan stocks can be past due as a result of interest or capital not being paid in accordance with contractual terms.
The average annual interest yield on the total cost of past due loan stocks is 7.1 per cent.
Loan stock with a carrying value of £882,000 had loan stock interest past due of less than 12 months.
Loan stock with a carrying value of £182,000 had loan stock interest past due greater than 12 months but less than 5 years.
In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Group is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Group's financial assets and liabilities as at 30 June 2014 are stated at fair value as determined by the Directors, with the exception of loans and receivables included within investments, cash, receivables and payables, which are measured at amortised cost, as permitted by IAS 39. In the opinion of the Directors, the amortised cost of loan stock is not materially different to the fair value of the loan stock. There are no financial liabilities other than short term trade and other payables. The Group's financial liabilities are all non-interest bearing. It is the Directors' opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year, and that the Group is subject to low financial risk as a result of having nil gearing and positive cash balances.
19. Post balance sheet events
Since 30 June 2014 the Company has completed the following investment transactions:
- Investment of £256,000 in Infinite Ventures (Goathill) Limited;
- Investment of £113,000 in Green Highland Renewables (Ledgowan) Limited;
- Investment of £100,000 in Chonais Holdings Limited;
- Investment of £100,000 in Omprompt Limited;
- Investment of £99,000 in Rostima Holdings Limited;
- Investment of £94,000 in Relayware Limited;
- Investment of £56,000 in Proveca Limited;
- Investment of £48,000 in Taunton Hospital Limited;
- Further investments totalling £106,000 in five other portfolio companies;
- Proceeds of £212,000 (excluding deferred consideration) received from the disposal of the investment in House of Dorchester Limited;
- Proceeds of £116,000 received from the repayment of loan stock by Chichester Holdings Limited;
- Proceeds of £105,000 received from the repayment of capitalised interest and loan stock by Radnor House School (Holdings) Limited ;
- Proceeds of £69,000 received from the disposal of the investment in The Dunedin Pub Company VCT Limited;
- Deferred consideration of £48,000 received following the previous disposal of Dexela Limited; and
- Helveta Limited went into administration on 18 September 2014.
The following Ordinary shares of nominal value 10 pence were allotted:
Under the Albion VCTs Top Up Offers 2013/2014 after 30 June 2014:
| Date of allotment | Number of Ordinary shares allotted | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 4 July 2014 | 101,104 | 32.10 | 32 | 30.00 |
| 4 July 2014 | 23,321 | 31.80 | 7 | 30.00 |
| 4 July 2014 | 12,538 | 31.90 | 4 | 30.00 |
| 136,963 | 43 |
Under the Albion VCT Prospectus Top Up Offers 2013/2014 after 30 June 2014:
| Date of allotment | Number of Ordinary shares allotted | Issue price (pence per share) | Net consideration received (£'000) | Opening market price on allotment date (pence per share) |
| 4 July 2014 | 953,781 | 32.10 | 297 | 30.00 |
20. Contingencies and guarantees
As at 30 June 2014, the Company had the following financial commitments in respect of investments:
- Active Lives Care Limited; £412,000
- Proveca Limited; £358,000
- Albion Small Company Growth Limited; £345,000
- Chonais Holdings Limited; £258,000
- MyMeds&Me Limited; £66,000
- DySIS Medical Limited; £5,000
There are no contingencies or guarantees of the Company as at 30 June 2014 (2013: £nil).
Under the terms of the Transfer Agreement dated 16 January 2006, Crown Place VCT PLC has indemnified its subsidiaries, CP1 VCT PLC and CP2 VCT PLC in respect of all costs, claims and liabilities in exchange for the transfer of assets.
21. Related party transactions
Other than transactions with 100 per cent. owned Group companies and those with the Manager as disclosed in note 4, there are no other related party transactions.
22. 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 2014 and 30 June 2013, 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 2014, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
The Company's Annual General Meeting will be held at The City of London Club, 19 Old Broad Street, London, EC2N 1DS on 13 November 2013 at 11:00 am.
23. 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-ventures.co.uk under the 'Our Funds' section, by clicking on 'Crown Place VCT PLC', where the Report can be accessed as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Crown Place VCT PLC via Globenewswire
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