Crown Place VCT PLC: Annual Financial Report

Crown Place VCT PLC

LEI number: 213800SYIQPA3L3T1Q68

As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Crown Place VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 30 June 2020.

This announcement was approved for release by the Board of Directors on 24 September 2020.

This announcement has not been audited.

The Annual Report and Financial Statements for the year ended 30 June 2020 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/CRWN/30Jun20.pdf. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rules, including Rule 4.1.

Investment policy

The Company invests in a broad portfolio of smaller, unquoted growth businesses across a variety of sectors including higher risk technology companies. Investments take the form of equity or a mixture of equity and loans.

Whilst allocation of funds is determined by the investment opportunities which are available, efforts are made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of investee businesses. Funds held pending investment or for liquidity purposes will be held principally as cash on deposit.

Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within Venture Capital Trust qualifying industry sectors using a mixture of securities, as permitted. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company's assets at cost thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.

The Company's maximum exposure in relation to gearing is restricted to the amount of its adjusted share capital and reserves. The Directors do not have any intention of utilising long-term gearing.

Financial calendar

Record date for special dividend	9 October 2020
Payment date for special dividend	30 October 2020
Record date for first interim dividend	6 November 2020
Annual General Meeting	Noon on 26 November 2020
Payment date of first interim dividend	30 November 2020
Announcement of half-yearly results for the six months ending 31 December 2020	February 2021
Payment date of second interim dividend (subject to Board approval)	31 March 2021

Financial summary

33.14p	Net asset value per share as at 30 June 2020
(0.21p)	Total loss per share to shareholders for the year ended 30 June 2020
(0.6%)	Total loss on opening net asset value per share
2.0p	Total tax-free dividends per share paid during the year ended 30 June 2020

	30 June 2020	30 June 2019
	pence per share	pence per share
Opening net asset value	35.29	33.50
Revenue return	0.25	0.41
Capital (loss)/return	(0.46)	3.34
Total (loss)/return	(0.21)	3.75
Dividends paid	(2.00)	(2.00)
Impact from share capital movements	0.06	0.04
Closing net asset value	33.14	35.29

Shareholder return and shareholder value			(pence per share)
Shareholder return from launch to April 2005:
Total dividends paid to 6 April 2005(i)			24.93
Decrease in net asset value			(56.60)
Total shareholder return to 6 April 2005			(31.67)
Shareholder return from April 2005 to 30 June 2020 (period that Albion Capital has been investment manager):
Total dividends paid			34.80
Decrease in net asset value			(10.26)
Total shareholder return from April 2005 to 30 June 2020			24.54
Shareholder value since launch:
Total dividends paid to 30 June 2020(i)			59.73
Net asset value as at 30 June 2020			33.14
Total shareholder value as at 30 June 2020			92.87

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.

Total shareholder value since launch:		(pence per share)
Total dividends paid during:
the period from launch to 6 April 2005 (prior to change of manager)		24.93
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
the year ended 30 June 2015	2.50
the year ended 30 June 2016	2.50
the year ended 30 June 2017	2.00
the year ended 30 June 2018	2.00
the year ended 30 June 2019	2.00
the year ended 30 June 2020	2.00
Total dividends paid to 30 June 2020		59.73
Net asset value as at 30 June 2020		33.14
Total shareholder value as at 30 June 2020		92.87

In addition to the dividends paid above, the Board has declared a first interim dividend for the year ending 30 June 2021 of 0.83 pence per share payable on 30 November 2020 to shareholders on the register on 6 November 2020. The Board has also declared a special dividend of 2.00 pence per share payable on 30 October 2020 to shareholders on the register on 9 October 2020. Details of the new variable dividend policy and the special dividend can be found in the Chairman’s statement below.

Chairman’s statement

Introduction
Without doubt it has been a year of two halves for our Company with the reporting period dominated by the emergence of the coronavirus (Covid-19) pandemic which has had such an impact on all our lives.

I am therefore pleased to report some excellent outcomes from various exits during the year and some significant unrealised gains, which offset some of the effect of the ongoing health and economic crisis on our wider portfolio. The Board has undertaken a robust revaluation process to quantify the effect on the Company’s portfolio, which, in turn, has impacted on the year-end net asset value of the Company.

Results and investment performance
As at 30 June 2020, the net asset value was £65.3 million or 33.14 pence per share compared to £66.0 million or 35.29 pence per share at 30 June 2019. The ongoing charges ratio for the year remained at 2.3% (2019: 2.3%).

Further details of the Company’s financial performance are given in the Strategic report below.

In the first half of the financial year, the Company took advantage of the prevailing favourable financial conditions to realise profits from the sale of a number of portfolio companies with proceeds totalling £12.8 million (2019: £3.4 million) equivalent to 19.6% of the Company’s net asset value. There were four significant disposals in this period:

• The investment in ELE Advanced Technologies was sold for £5.0 million, resulting in a total return of 4.75 times original cost;

• Following a reorganisation, Radnor House (Twickenham), one of the two Radnor House branded schools, was sold generating proceeds of £4.1 million. The Company first invested in Radnor House Twickenham in 2010 and achieved a return of 3.75 times cost (including interest received);

• The sale of Process Systems Enterprise delivered a return of 10 times cost, and realised £1.4 million. Following the successful sale of Grapeshot last year this is the second time that the Company has sold a technology investment for a return of ten times investment cost; and

• We sold our holding in the two Bravo Inns pub companies, delivering a return of 1.85 times cost (including interest received).

Further information on realisations can be found on page 28 of the full Annual Report and Financial Statements.

Impact of Covid-19
The second half of the year saw a dramatic change in economic conditions, as the effects of the pandemic took hold. The Board has taken this into account when reassessing the carrying values of all companies within the portfolio and has reduced those which are adversely impacted by the changed economic and market conditions. Therefore, the results for the year show net losses on investments of £21,000, against a gain of £6.5 million for the previous year. We have benefitted from our diversified portfolio with weightings in sectors that are less badly affected by the pandemic, such as digital health and enterprise software technology, and that many companies in which we have invested are well suited to operating remotely which has reduced the disruption to their operations.

The companies most affected by the pandemic have been Mirada Medical, DySIS Medical, Zift Channel Solutions and Beddlestead, which account for a devaluation of £2.1 million in the year. The first two have a direct sales model into hospitals, which became impossible given hospital’s immediate priorities, while the latter is a wedding venue which has not been able to operate given the rules on public health. This devaluation was offset by a £1.6 million valuation uplift for Quantexa, following a further £51.2 million externally led fundraising round to continue to grow globally, and £542,000 for Proveca, due to strong sales of its specialist pharmaceutical product Sialanar across Europe.

Notwithstanding the onset of the pandemic in the final half of the year, the Company continued to look for investment opportunities and a further £1.7 million was invested in new and existing companies, adding to the £2.5 million invested in the first half. Of the total £4.2 million invested during the full year, the Company invested £2.9 million in five new portfolio companies, all of which are expected to require further planned investment as the companies accelerate their growth:

• £779,000 into Cantab Research (trading as Speechmatics), a provider of low footprint automated speech recognition software across 29 languages which can be deployed in the cloud, on premise or on device;

• £755,000 into Concirrus, a software provider bringing real-time behavioural data analytics to the marine and transport insurance industries;

• £724,000 into Elliptic Enterprises, a provider of Anti Money Laundering technology and services to digital asset institutions;

• £454,000 into Credit Kudos, a challenger credit bureau helping lenders optimise and automate their affordability and risk assessments; and

• £220,000 into TransFICC, a provider of connectivity solutions, giving financial institutions access to trading venues via a single API.

We also continued to invest in our existing portfolio companies, with a total of £1.3 million deployed, including £257,000 in Oviva, as part of an externally led funding round, to support the expansion of its geographical footprint, as well as to further transition the company’s focus on digital diabetes therapeutics, £171,000 in InCrowd Sport and £160,000 in Black Swan Data, to support their growth.

Full details of the companies in which we invest can be found in the Portfolio of investments section on pages 25 to 28 of the full Annual Report and Financial Statements.

Special dividend
Following changes to the VCT rules and the investment policy, the Company continues to focus on investing in higher growth technology companies, which inevitably leads to increased volatility in returns. As detailed above, there has been a number of significant disposals in the year, which has resulted in cash balances at 30 June 2020 of £24.0 million, which represents 36% of net assets (2019: 24%). Whilst it is important for a Venture Capital Trust, which by its nature has illiquid investments, to hold sufficient cash to manage operating costs, to service dividends and buy-backs and, most importantly, to make follow on and new investments as opportunities arise, this must be balanced against the requirements of a Venture Capital Trust to meet a minimum threshold of 80% invested in qualifying investments. As a result of these significant disposals and the additional liquidity they generated, and in order to maintain the Company’s qualifying VCT status, the Board has declared a special dividend of 2.00 pence per share, payable on 30 October 2020 to shareholders on the register on 9 October 2020. Whilst this reduces the Company’s assets, it provides a significant income return to shareholders and, for those that wish to take it, an opportunity to re-invest the special dividend in the Company via the Dividend Reinvestment Scheme as described below.

The Company continues to offer a Dividend Reinvestment Scheme (“DRIS”) whereby shareholders can elect to receive dividends in the form of new shares. For shareholders not currently in the DRIS, the Company is offering shareholders the option to elect for a one-off sign up to have this special dividend reinvested into new shares through the DRIS. Shareholders can take advantage of this by emailing crownchair@albion.capital before midday on 7 October 2020. To elect for the reinvestment, please ensure your email contains your full name, Shareholder Reference Number, telephone number and confirms you have read the DRIS terms and conditions. As outlined below, the Company has moved to a variable dividend, calculated as a percentage of the net asset value, which will, in the near term, reduce the absolute amount of dividend receivable per ordinary share (previously 2 pence per annum, 1 penny semi-annually). By re-investing the special dividend in the capital of the Company, shareholders would be expected to broadly maintain the level of relative income they have been receiving from the Company under the new variable dividend policy.

The terms and conditions for the DRIS can be found on the Company’s webpage on the Manager’s website at www.albion.capital/funds/CRWN under the Fund reports section.

New dividend policy
The Board is aware of the importance of dividends to shareholders and it remains its intention to continue to pay regular dividends, as far as liquidity permits. Given the uncertainty that the current pandemic has created and the volatile nature of investing in small unquoted growth businesses, the Board considers it appropriate to move to a variable dividend policy targeting an annual dividend yield of around 5%. Semi-annual dividends will be paid calculated as 2.5% of the most recently announced net asset value when the dividend is declared (in most cases this will be the net asset value announced in the Half-yearly Financial Report or in the Annual Report and Financial Statements). This has the advantage of avoiding unsustainably high dividends if the net asset value falls, whilst rewarding shareholders more immediately if the net asset value rises.

As a result, the Company will pay a first interim dividend for the year ending 30 June 2021 of 0.83 pence per share (29 November 2019: 1 penny per share), payable on 30 November 2020 to shareholders on the register on 6 November 2020.

Board composition
As announced on 20 February 2020, after almost eight years on the Board including six years as Chairman, I will retire from the Board on 30 September 2020. Penny Freer, who has been on the Board since 2014 and Chairman of the Remuneration Committee since 2015, will succeed me as Chair.

It has been a huge pleasure to Chair your Company and I would like to thank my fellow Directors (past and present), the Albion management and staff, our advisers and service providers, and all our shareholders for their support over the years.

The Board announced on 21 April 2020 that, following a formal selection process, Ian Spence would be appointed to the Board as a non-executive Director with effect from 1 May 2020. Ian is highly experienced in the technology sector, having researched and advised companies in this industry for over 20 years. Ian joins the Board at a time when the Company’s technology portfolio is increasing in size and will continue to do so and his knowledge and experience will therefore be highly relevant and valuable to the Board and the Company.

Risks and uncertainties
The implication of the financial turmoil arising from the coronavirus (Covid-19) crisis is the key risk facing the Company, including its impact on the UK and Global economies. There are also potential implications of the UK leaving the European Union which may adversely affect our underlying portfolio companies. The Manager is continually assessing the exposure to these risks for each portfolio company alongside its management and other co-investors, and appropriate mitigating actions, where possible, are being implemented.

A detailed review of risk management is set out in the Strategic report below.

Corporate broker and share buy-backs
The Board was pleased to announce on 17 June 2020 the appointment of Panmure Gordon (UK) Limited as corporate broker.

It remains the Board’s primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board’s policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company’s interest. Given the current stability of the portfolio and the Company’s current cash position, the Board have decided that there will be no limit on the level of share buy-backs.

It is the Board’s intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.

Albion VCTs’ Top Up Offers
The Board was pleased to announce on 10 December 2019 that the Company had reached its £4 million limit under its Offer pursuant to the Prospectus dated 22 October 2019, and so was closed to further applications. Due to the successful disposals detailed above, the Board elected not to exercise the over-allotment facility. The proceeds of the Offer will be used to provide further resources at a time when a number of attractive investment opportunities are being seen.

Annual General Meeting
The Board has been considering the potential impact of the Covid-19 outbreak on the arrangements for our forthcoming Annual General Meeting (“AGM”). These arrangements will evolve and we will keep shareholders up to date with any changes on our Manager's website at www.albion.capital/funds/CRWN.

We are required by law to hold an AGM within six months of our financial year end and a lengthy postponement or adjournment is not possible in this case. Our AGM will therefore be held at noon on 26 November 2020, at the registered office being 1 Benjamin Street, London, EC1M 5QL.

Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 74 to 77 of the full Annual Report and Financial Statements, and in the Directors’ report on pages 38 and 39 of the full Annual Report and Financial Statements.

Based on the current government advice and social distancing guidelines, shareholders will not be allowed entry into the building where the AGM is held. The quorum for the meeting is two, therefore, two Directors will attend in person to allow the continuation of this AGM. There will also be a representative of Albion Capital Group LLP as Company Secretary. Our Articles of Association do not currently allow hybrid or wholly virtual AGMs, however, as outlined below a resolution is being proposed to allow this in the future.

In order to maintain shareholder engagement, the Board has decided to live stream the AGM, which will include a presentation from the Manager, the formal business of the AGM and the answering of some of the questions we receive from shareholders in advance of the Meeting. Registration details for the live stream will be emailed to shareholders and available at www.albion.capital/funds/CRWN prior to the Meeting.

We always welcome questions from our shareholders at the AGM, and this year we request that shareholders submit their questions to the Board before the AGM. Shareholders can submit questions up until noon on 25 November 2020 in the following ways:
• by email: send your questions to crownchair@albion.capital; and
• by telephone: contact Shareholder Relations on 020 7601 1850.

Following the Meeting, a summary of responses will be published on the Manager’s website at www.albion.capital/funds/CRWN.

Shareholders’ views are important, and the Board encourages shareholders to vote on the resolutions using the proxy form enclosed with this Annual Report and Financial Statements, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the AGM and recommends shareholders to vote in favour of all the resolutions being proposed.

Virtual and hybrid Annual General Meetings
The Company’s Articles of Association do not currently allow for hybrid or virtual meetings. The Covid-19 pandemic, and the resulting social distancing rules, have brought to the Board’s attention the importance of the ability to continue to interact with shareholders during unprecedented times. A resolution will be proposed at the upcoming AGM to update the Articles of Association in order to allow the Company to have the flexibility to hold hybrid or virtual meetings in the future if required.

Electronic communications
To ensure efficient shareholder communication the Board is actively encouraging shareholders who are currently receiving hard copy information to change their preferences to electronic communications. To encourage the change, for every shareholder signing up to receive electronic communications, the Manager will donate £1 towards a Covid-19 supporting charity chosen by the Albion team.

There are many reasons why we think this is the right thing to do including less human contact, speed, reduced paper use and cost savings for the Company. All the information and documents relating to the Company can be found on the Company’s webpage on the Manager’s website at www.albion.capital/funds/CRWN.

We encourage shareholders to sign up to electronic communications by registering on the Computershare website at www.investorcentre.co.uk. Once registered, shareholders are able to update their electronic communication details for all their Albion managed VCTs, and can also update their address or bank details, as well as see their dividend payment history. Alternatively, please contact Shareholder Relations at info@albion.capital who will also be able to assist.

Fraud warning
We note that shareholders continue to be contacted in connection with increasingly sophisticated but fraudulent financial scams. This is often by a phone call or an email which normally originates from outside of the UK, often claiming or appearing to come from a corporate finance firm and typically offering to buy your VCT shares at an inflated price. If you are contacted, we recommend that you do not respond with any personal information and say you are not interested.

The Manager maintains a page on their website in relation to fraud advice at www.albion.capital/investor-centre/fraud-advice. Details of how to sell shares through reputable channels can also be found here.

If you are in any doubt, we recommend that you seek financial advice before taking any action. You can also call Shareholder Relations on 020 7601 1850, or email info@albion.capital, if you wish to check whether any claims made are genuine.

Outlook
Whilst there are still considerable uncertainties as to the full extent of the ongoing economic and societal impact of Covid-19, our priority will be to support our existing portfolio companies as they weather the storm and take advantage of new opportunities. The Company will also be making selective new investments into businesses that are driving innovation in a rapidly changing world. Encouragingly, despite the challenges caused by the pandemic, many of the companies in which we have invested continue to show strong growth, and we remain confident that the Company has the potential to continue to deliver attractive long term returns to shareholders.

Richard Huntingford
Chairman
24 September 2020

Strategic report

Crown Place VCT PLC (the “Company”) is a Venture Capital Trust and its investment policy can be found above.

Business model
The Company operates as a Venture Capital Trust. This means that the Company has no employees and has outsourced the management of all its operations to Albion Capital Group LLP, including secretarial and administrative services. Further details of the Management agreement can be found below.

Current portfolio sector allocation
The pie charts at the end of this announcement shows the split of the portfolio valuation as at 30 June 2020 by: sector; stage of investment; and number of employees. Details of the principal investments made by the Company are shown in the Portfolio of investments on pages 25 to 28 of the full Annual Report and Financial Statements.

Direction of portfolio
The analysis of the Company’s investment portfolio shows that it is well diversified and evenly spread across the renewable energy, healthcare, education, IT and healthcare technology sectors.

The IT sector has continued to grow as a proportion of the portfolio as we invest in key areas such as cyber security and machine learning applications. During the year the Company sold a number of its asset-based businesses, which has resulted in its cash and net current assets increasing to 36% of the portfolio at 30 June 2020 (2019: 24%). In line with the Company’s investment policy, these funds will be invested predominately into higher growth technology companies. The substantial cash balance of the Company will allow it to give support to our portfolio companies who require it, as well as to be able to capitalise on any new investment opportunities that may arise.

Results and dividends

	£’000
Revenue return for the year ended 30 June 2020	473
Capital loss for the year ended 30 June 2020	(877)
Total loss for the year ended 30 June 2020	(404)
Dividend of 1 penny per share paid on 30 November 2020	(1,861)
Dividend of 1 penny per share paid on 31 March 2020	(1,964)
Unclaimed dividends	11
Transferred from reserves	(4,218)
Net assets as at 30 June 2020	65,273
Net asset value as at 30 June 2020 (pence per share)	33.14

The Company paid dividends totalling 2.00 pence per share during the year ended 30 June 2020 (2019: 2.00 pence per share). The dividend objective of the Board is to provide shareholders with a regular dividend flow. As noted in the Chairman’s statement, the Board has approved a new variable dividend policy where the Company will target an annual dividend yield of around 5% per annum and has therefore declared a first interim dividend for the year ending 30 June 2021 of 0.83 pence per share. This dividend will be paid on 30 November 2020 to shareholders on the register on 6 November 2020. The Board has also declared a special dividend of 2.00 pence per share, payable on 30 October 2020 to shareholders on the register on 9 October 2020.

As shown in the Income statement below, the capital loss on investments for the year was £21,000 (2019: gain of £6,475,000). There were some excellent exits in the year, including the sale of our investment in ELE Advanced Technologies for £5.0 million, resulting in a total return of 4.75 times original cost, and the sale of PSE, delivering a ten times return on cost. Additionally, following a third party investment round, Quantexa was written-up by £1.6 million. However, due to the impact of coronavirus, a number of our portfolio companies have experienced a devaluation, the significant write-downs being Mirada Medical, DySIS Medical, Zift Channel Solutions and Beddlestead. Together these account for £2.1 million of write-downs, which offset the gains listed above. A full analysis of the Portfolio of investments can be seen on pages 25 to 28 of the full Annual Report and Financial Statements.

Investment income has decreased to £1,112,000 (2019: £1,285,000), resulting in a decreased revenue return of £473,000 (2019: £697,000). The total loss for the year was 0.21 pence per share (2019: gain of 3.75 pence per share).

The Balance sheet below, shows that the net asset value has decreased over the year to 33.14 pence per share (2019: 35.29 pence per share), mainly due to the payment of the dividend of 2.00 pence per share during the year and the total loss for the year of 0.21 pence per share.

The cash flow for the Company has been a net inflow of £7,883,000 for the year (2019: £3,479,000), reflecting disposal proceeds, loan stock income, and the issue of new Ordinary shares under the Top Up Offer, offset by dividends paid, ongoing expenses, new investments and the buy-back of shares.

Review of the business and future changes
A review of the Company’s business during the year is set out in the Chairman’s statement above. Total losses on investments for the year were £21,000 (2019: gain of £6.5 million).

There is a continuing focus on growing the technology and healthcare sectors. There have been strong exits this year from our final two pub investments, and one of our schools, which has resulted in a decrease of asset-based investment as a percentage of the portfolio. As a consequence, we expect our investment income to reduce in future years, as most of our loan stock interest is received from the asset-based portion of the portfolio, and the returns for the Company to be delivered from capital rather than revenue.

Details of significant events which have occurred since the end of the financial year are listed in note 19. Details of transactions with the Manager are shown in note 5.

Future prospects
The world is currently navigating a global pandemic, which will likely leave no company unaffected. The Board believes that the Company’s portfolio is well balanced, and with a significant proportion in cash (36% of the net asset value) the Board believes the Company has the potential to both support our portfolio companies, as well as deliver long term results to shareholders.

Key Performance Indicators (“KPIs”) and Alternative Performance Measures (“APMs”)
The Directors believe that the following KPIs and APMs, which are typical for VCTs and used in its own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company has been applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following KPIs and APMs, taken overall, give a good indication that the Company is achieving its investment objective and policy. These are:

1. Increase in total shareholder value
The graph on page 14 of the full Annual Report and Financial Statements shows that total shareholder value decreased by 0.15 pence per share to 92.87 pence per share (2019: 93.02) for the year ended 30 June 2020.

2. Shareholder return in the year †

2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
6.6%	4.3%	6.6%	7.1%	4.5%	1.5%	14.0%	14.6%	11.3%	(0.4%)

Source: Albion Capital Group LLP

† Methodology: Shareholder return is calculated by the movement in total shareholder value for the year divided by the opening net asset value.

3. Dividend distributions

Dividends paid in respect of the year ended 30 June 2020 were 2.00 pence per share (2019: 2.00 pence per share). Cumulative dividends paid since launch (on 18 January 1998) amount to 59.73 pence per share.

4. Ongoing charges
The ongoing charges ratio for the year ended 30 June 2020 remained at 2.3 per cent. (2019: 2.3 per cent.). The ongoing charges ratio has been calculated using The Association of Investment Companies’ (“AIC”) recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to remain stable at approximately 2.3 per cent.

5. Running yield
The running yield on the portfolio (investment income divided by the average net asset value) for the year to 30 June 2020 was 1.7 per cent. (2019: 2.2 per cent.). Following a number of disposals, particularly those of asset-based investments as most of our loan stock interest is received from the asset-based portion of the portfolio, we expect our investment income to reduce in future years, and the returns for the Company to be delivered from capital growth rather than revenue income.

6. 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 36 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 2020. These showed that the Company has complied with all tests and continues to do so.

*VCT compliance is not a numerical measure of performance and thus cannot be defined as an APM.

Gearing
As defined by the Articles of Association, the Company’s maximum exposure in relation to gearing is restricted to its adjusted share capital and reserves. The Directors do not currently have any intention to utilise gearing for the Company.

Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.

Management agreement
Under the terms of the Management agreement, the Manager is paid an annual fee equal to 1.75 per cent. of the net asset value of the Company plus a £50,000 fee per annum for administrative and secretarial services. Total normal running costs, including the management fee, are limited to 3.0 per cent. of the net asset value. In some instances, the Manager is entitled to an arrangement fee, payable by a portfolio company in which the Company invests, in the region of 2.0 per cent. of the investment made, and also monitoring fees where the Manager has a representative on the portfolio company’s board.

Further details of fees paid to the Manager can be found in note 5.

The management agreement can be terminated by either party on 12 months’ notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party.

Management performance incentive
In order to provide the Manager with an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels per share. Under the incentive arrangements, the Company will pay an incentive fee to the Manager of an amount equal to 20% of such excess return that is calculated for each financial year.

The target level requires that the growth of the aggregate of the net asset value per share and dividends paid by the Company or declared by the Board and approved by the shareholders during the relevant period (both revenue and capital), compared with the previous accounting date, exceeds the average base rate of the Royal Bank of Scotland plc plus 2.0 per cent. If the target return is not achieved in a period, the cumulative shortfall is carried forward to the next accounting period and has to be made up before an incentive fee becomes payable.

There was no management performance incentive fee payable during the year (2019: nil). As at 30 June 2020 the cumulative shortfall of the target return was 2.40 pence per share (2019: 0.60 pence per share) and this amount needs to be made up in the next accounting period(s) 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 80 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. Having carried out this evaluation, 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 appointed Albion Capital Group LLP as the Company’s AIFM as required by the AIFMD. The Manager became a full-scope Alternative Investment Fund Manager under the AIFMD on 1 October 2018. As a result, from that date, Ocorian (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties with respect to the Company.

Companies Act 2006 Section 172 Reporting
Under Section 172 of the Companies Act 2006, the Board has a duty to promote the success of the Company for the benefit of its members as a whole, having regard to the interests of other stakeholders in the Company, such as suppliers, and to do so with an understanding of the impact on the community and environment and with high standards of business conduct, which includes acting fairly between members of the Company.

The Board is very conscious of these wider responsibilities in the way it promotes the Company’s culture and ensures, as part of its regular oversight, that the integrity of the Company’s affairs is foremost in the way the activities are managed and promoted. This includes regular engagement with the wider stakeholders of the Company and being alert to issues that might damage the Company’s standing in the way that it operates. The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs, as well as visibility and openness in how the affairs are conducted.

The Board considers its significant stakeholder groups to be its shareholders; suppliers, including direct agents of the Company such as the Manager to whom most executive functions are delegated; its portfolio companies; the community and the environment in the way that investments are made and managed.

The Company’s shareholders are key to the success of the Company. The Board seeks to create value for shareholders by generating strong and sustainable returns to provide shareholders with regular dividends and the prospect of capital growth. During the year, the Board has approved a new dividend policy, further details of which can be found in the Chairman’s statement above. The new variable policy has the advantage of avoiding unsustainably high dividends if the net asset value falls, whilst rewarding shareholders more immediately if the net asset value rises.

The Board temporarily suspended buy-backs on 18 March 2020 due to the increasing uncertainty of the net asset value at the time. Buy-backs were resumed from 22 April 2020 after the announcement of the Interim Management Statement which included the net asset value for 31 March 2020. The buy-back policy is an important means of providing market liquidity for shareholders.

Shareholders’ views are important and the Board encourages shareholders to vote on the resolutions at the AGM. The Company’s AGM is typically used as an opportunity to communicate with investors, including through a presentation made by the investment management team. However, due to the impact of the coronavirus outbreak, special circumstances are required for this year’s AGM and further details are in the Chairman’s statement above. Details of the location and time of the AGM can be found in the Directors’ report on page 38 of the full Annual Report and Financial Statements.

The Company is an externally managed investment company with no employees, and as such has nothing to report in relation to employee engagement but does keep close attention to how the Board operates as a cohesive and competent unit. The Company also has no customers in the traditional sense and, therefore, there is also nothing to report in relation to relationships with customers.

The Company’s suppliers are fundamental to the operations of the Company, particularly Albion Capital Group LLP as the Manager, given that day-to-day management responsibilities are sub-contracted to the Manager. Details of the Manager’s and Board’s responsibilities can be found in the Statement of corporate governance on pages 41 to 46 of the full Annual Report and Financial Statements.

The contractual arrangements with all the principal suppliers to the Company are reviewed regularly and formally once a year, alongside the performance of the suppliers in acquitting their responsibilities. The performance of the Manager in managing the portfolio and in providing company secretarial, administration and accounting services is reviewed in detail each year, which includes reviewing comparator engagement terms and portfolio performance. Further details on the evaluation of the Manager, and the decision to continue the appointment of the Manager for the forthcoming year, can be found above.

The portfolio companies are considered key stakeholders, not least because they are principal drivers of value for the Company. However, as discussed in the Environmental, Social and Governance (“ESG”) section below, the portfolio companies’ impact on their stakeholders is also important to the Company. In most cases, an Albion executive has a place on the board of a portfolio company, in order to help with both business operation decisions, as well as good ESG practice.

The Board receives reports on ESG factors within its portfolio from the Manager as it is a signatory of the UN Principles for Responsible Investment. Further details of this are set out below. ESG, without its specific definition, has always been at the heart of the responsible investing that the Company engages in and in how the Company conducts itself with all of its stakeholders.

The Board, although non-executive, is fully engaged in both oversight and the general strategic direction of the Company. During the year the Board’s main strategic discussions focussed around cash management and deployment of cash for future investments, dividends and share buybacks, resulting in the decision to participate in the Albion VCTs’ Top Up Offers 2019/20. Time was also spent in ensuring the Board met Corporate Governance requirements which continue to evolve, including the introduction of the new AIC Code last year. During the year the Board held a further meeting in addition to its regular quarterly meetings to discuss the effect of the coronavirus (Covid-19) pandemic on the Company’s portfolio.

Environmental, Social, and Governance (“ESG”)
The Manager became a signatory of the UN Principles for Responsible Investment (“UN PRI”) on 14 May 2019. The UN PRI is the world’s leading proponent of responsible investment, working to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.

The Manager made its first trial submission in 2020 against this framework and will make the first full submission in 2021. The trial process in 2020 will identify initial gaps in information being collected and areas that require action. This annual process will inform fuller ESG disclosure by 2021 and create a regular audit function to ensure continual improvement.

To ensure that the principles are starting to be translated into both the investment and portfolio management processes, since June 2019 all quarterly valuations and investment papers include a section covering relevant aspects of ESG for each investment. In addition, all fund level reports also include ESG sections and ESG will be included as a standing item on the agendas of all investment committees and the Manager’s internal board meetings, and any findings are discussed at our board meetings. Reporting is intentionally light in the first instance, partly due to the stage and nature of investments and to encourage widespread adoption. The level of reporting is expected to build over time as the range of factors to be considered increases and as our compliance with the UN PRI guidelines becomes apparent.

The Board and Manager have exercised conscious principles in making responsible investments throughout the life of the Company, not least in providing finance for nascent companies in a variety of important sectors such as technology, healthcare and renewable energy. In making the investments, the Manager is directly involved in the oversight and governance of these investments, including ensuring standards of reporting and visibility on business practices, all of which are reported to the Board of the Company. By its nature, not least in making qualifying investments which fulfil the criteria set by HMRC, the Company has focused on sustainable and longer-term investment propositions, some of which will fail in the nature of small companies, but some of which will grow and serve important societal demands. The quality of the investment portfolio goes beyond the individual valuations and examines the prospects of each of the portfolio companies, as well as the sectors in which they operate – all requiring a longer-term view.

The Company adheres to the principles of the AIC Code of Corporate Governance and is also aware of other governance and other corporate conduct guidance which it meets as far as practical including in the constitution of a diversified and independent board capable of providing constructive challenge.

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.

General Data Protection Regulation
The General Data Protection Regulation came into effect on 25 May 2018 with the objective of unifying data privacy requirements across the European Union. The Manager, Albion Capital Group LLP, has taken action to ensure that the Manager and the Company are compliant with the regulation.

Further policies and statements
The Company has adopted a number of further policies and statements relating to:

• Environment;

• Global greenhouse gas emissions;

• Anti-bribery;

• Anti-facilitation of tax evasion; and

• Diversity.

These are set out in the Directors’ report on page 37 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, changes to the environment and individual risks. The Board also identifies emerging risks which might impact on the Company. In the period the most noticeable emerging risk has been the global pandemic which has impacted on not only public health and mobility but also has had an adverse impact on global traded markets, the full impact of which, by its nature, is likely to be uncertain for some time.

The Directors have carried out a robust assessment of the Company’s principal risks and emerging uncertainties, and explain how they are being mitigated as follows:

Risk	Possible consequence	Risk management
Investment, performance and valuation risk	The risk of investment in poor quality businesses, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company’s current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for Venture Capital Trust purposes, are more volatile than larger, long established businesses. The Company’s investment valuation methodology is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported.	To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager’s report at quarterly board meetings. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines as updated in 2018. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board.
VCT approval risk	The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status.	To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in Venture Capital Trust management used to operating within the requirements of the Venture Capital Trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the Venture Capital Trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with our professional advisers or H.M. Revenue & Customs. The Company monitors closely the extent of qualifying holdings and addresses this as required.
Regulatory and compliance risk	The Company is listed on The London Stock Exchange and is required to comply with the rules of the 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.	Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager’s compliance officer, and any issues arising from compliance or regulation are reported to its own board on a monthly basis. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager’s compliance officer. The report on controls is also evaluated by the internal auditors.
Operational and internal control risk	The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager’s business could place assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.	The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year, and receives reports from the Manager on internal controls and risk management, including on matters relating to cyber security. The Audit and Risk Committee reviews the Internal Audit Reports prepared by the Manager’s internal auditor, PKF Littlejohn LLP and has access to the internal audit partner of PKF Littlejohn LLP to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. From 1 October 2018, Ocorian (UK) Limited was appointed as Depositary to oversee the custody and cash arrangements and provide other AIFMD duties. The Board reviews the quarterly reports prepared by Ocorian (UK) Limited to ensure that Albion Capital is adhering to its policies and procedures as required by the AIFMD. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company’s investment objective and policy. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
Economic, political and social risk	Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company’s prospects in a number of ways. This also includes risks of social upheaval, including from infection and population re-distribution, as well as economic risk challenges as a result of healthcare pandemics/infection. The current risk to the Company, and the wider population and economy, is the coronavirus (Covid-19) pandemic.	The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of instruments in portfolio companies and has a policy of minimising any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow-on investments. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk and the Company does what it can to address these risks where possible, not least as the nature of the investments the Company makes are long term. With regards to coronavirus (Covid-19), the Manager is having ongoing discussions with all portfolio companies, in order to ascertain where support is most needed. Cash comprises a significant proportion of net assets, following a strong year of exits and the most recent Top Up, which can be used in part to help mitigate any immediate cashflow problems for these portfolio companies. The portfolio is structured as an all-weather portfolio with c.60 companies which are diversified as discussed above. Exposure is small to at-risk sectors that include leisure, hospitality, retail and travel.
Market value of Ordinary shares	The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly, the market price of the Ordinary shares may not fully reflect their underlying net asset value.	The Company operates a share buy-back policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent. to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buy-backs cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buy-back authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors.
Reputational risk	The Company relies on the judgement and reputation of the Manager which is itself subject to the risk of loss.	The Board regularly questions the Manager on its ethics, procedures, safeguards and investment philosophy, which should consequently result in the risk to reputation being minimised.

Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2018 and principle 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 30 June 2023. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timelines for finding, assessing and completing investments. The three year period also takes account of the potential impact of new regulations, should they be imposed, and how they may impact the Company over the longer term, and the availability of cash but cannot fully take into account the exogenous risks that are impacting on global economies at the date of these accounts.

The Directors have carried out a robust assessment of the emerging and principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the procedures in place to identify emerging risks and the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment. The Board have deliberated at length the potential impact of the coronavirus (Covid-19) pandemic on the Company. They have examined robust stress tested cashflows, and also deliberated over the importance of the Manager and the processes that they have in place for dealing with the principal risks.

The Board assessed the ability of the Company to raise finance and deploy capital, as well as the existing cash resources of the Company. The portfolio is well balanced and geared towards long term growth, delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company’s income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.

Taking into account the processes for mitigating risks, monitoring costs, share price discount, the Manager’s compliance with the investment objective, policies and business model and the balance of the portfolio the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 June 2023.

This Strategic report of the Company for the year ended 30 June 2020 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the “Act”). The purpose of this report is to provide shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Act.

On behalf of the Board,

Richard Huntingford
Chairman
24 September 2020

Responsibility Statement

In preparing these Financial Statements for the year to 30 June 2020, the Directors of the Company, being Richard Huntingford, James Agnew, Penny Freer, Pam Garside and Ian Spence, confirm that to the best of their knowledge:

- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 30 June 2020 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

-the Chairman's statement and Strategic report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

A detailed Statement of Directors' responsibilities is contained on page 40 within the full Annual Report and Financial Statements.

On behalf of the Board,

Richard Huntingford
Chairman
24 September 2020

Income statement

		Year ended 30 June 2020			Year ended 30 June 2019
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£’000	£’000	£’000	£’000	£’000	£’000
(Loss)/Gain on investments	3	-	(21)	(21)	-	6,475	6,475
Investment income	4	1,112	-	1,112	1,285	-	1,285
Investment management fees	5	(285)	(856)	(1,141)	(260)	(780)	(1,040)
Other expenses	6	(354)	-	(354)	(328)	-	(328)
Profit/(loss) on ordinary activities before tax		473	(877)	(404)	697	5,695	6,392
Tax on ordinary activities	8	-	-	-	-	-	-
Profit/(loss) and total comprehensive income attributable to shareholders		473	(877)	(404)	697	5,695	6,392
Basic and diluted earnings per Ordinary share (pence)*	10	0.25	(0.46)	(0.21)	0.41	3.34	3.75

* adjusted for treasury shares

The accompanying notes form an integral part of these Financial Statements.

The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by The Association of Investment Companies.

Balance sheet

		30 June 2020	30 June 2019
	Note	£’000	£’000
Fixed asset investments	11	41,621	49,943
Current assets
Trade and other receivables less than one year	13	81	359
Cash and cash equivalents		23,966	16,083
		24,047	16,442
Total assets		65,668	66,385
Payables: amounts falling due within one year
Trade and other payables less than one year	14	(395)	(390)
Total assets less current liabilities		65,273	65,995
Equity attributable to equity holders
Called up share capital	15	2,200	2,072
Share premium		13,366	9,061
Unrealised capital reserve		12,032	19,756
Realised capital reserve		4,990	(1,857)
Other distributable reserve		32,685	36,963
Total equity shareholders’ funds		65,273	65,995
Basic and diluted net asset value per share (pence)*	16	33.14	35.29

* 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 24 September 2020 and were signed on its behalf by

Richard Huntingford
Chairman

Company number: 03495287

Statement of changes in equity

	Called up share capital	Share premium	Unrealised capital reserve	Realised capital reserve*	Other distributable reserve*	Total
	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 July 2019	2,072	9,061	19,756	(1,857)	36,963	65,995
(Loss)/profit and total comprehensive income	-	-	(651)	(226)	473	(404)
Transfer of previously unrealised gains on disposal of investments	-	-	(7,073)	7,073	-	-
Dividends paid	-	-	-	-	(3,814)	(3,814)
Purchase of shares for treasury (including costs)	-	-	-	-	(937)	(937)
Issue of equity	129	4,418	-	-	-	4,547
Cost of issue of equity	-	(114)	-	-	-	(114)
As at 30 June 2020	2,200	13,366	12,032	4,990	32,685	65,273
As at 1 July 2018	1,829	974	12,973	(769)	40,407	55,414
Profit/(loss) and total comprehensive income	-	-	5,929	(234)	697	6,392
Transfer of previously unrealised losses on disposal of investments	-	-	854	(854)	-	-
Dividends paid	-	-	-	-	(3,280)	(3,280)
Purchase of shares for treasury (including costs)	-	-	-	-	(861)	(861)
Issue of equity	243	8,277	-	-	-	8,520
Cost of issue of equity	-	(190)	-	-	-	(190)
As at 30 June 2019	2,072	9,061	19,756	(1,857)	36,963	65,995

* Included within these reserves is an amount of £26,438,000 (2019: £17,123,000) which is considered distributable. In time, a further £11,237,000 will become distributable.

The nature of each reserve is described in note 2 below.

Statement of cash flows

		Year ended 30 June 2020 £’000	Year ended 30 June 2019 £’000
Cash flow from operating activities
Loan stock income received		935	1,378
Deposit interest received		89	45
Dividend income received		16	61
Investment management fees paid		(1,145)	(993)
Other cash payments		(341)	(316)
Corporation tax paid		-	-
Net cash flow from operating activities		(446)	175
Cash flow from investing activities
Purchase of fixed asset investments		(4,195)	(3,536)
Disposal of fixed asset investments		12,837	2,686
Net cash flow from investing activities		8,642	(850)
Cash flow from financing activities
Issue of share capital		3,839	7,802
Cost of issue of equity		(30)	(3)
Equity dividends paid*		(3,185)	(2,749)
Purchase of own shares for treasury (including costs)		(937)	(896)
Net cash flow from financing activities		(313)	4,154
Increase in cash and cash equivalents		7,883	3,479
Cash and cash equivalents at the start of the year		16,083	12,604
Cash and cash equivalents at the end of the year		23,966	16,083

* The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 9 as a result of the non-cash effect of the Dividend Reinvestment Scheme.

Notes to the Financial Statements

1. Basis of preparation
The Financial Statements have been prepared in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 (“FRS 102”), and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) issued by The Association of Investment Companies (“AIC”). The Financial Statements have been prepared on a going concern basis and further details can be found in the Directors’ report on pages 35 and 36 of the full Annual Report and Financial Statements.

The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at Fair Value Through Profit and Loss (“FVTPL”) in accordance with FRS 102 sections 11 and 12. The Company values investments by following the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines as issued in 2018 and further detail on the valuation techniques used are outlined in note 2 below.

Company information is shown on page 2 of the full Annual Report and Financial Statements.

2. Accounting policies
Fixed asset investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.

In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.

Upon initial recognition (using trade date accounting) investments, including loan stock, are classified by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).

Subsequently, the investments are valued at ‘fair value’, which is measured as follows:

• Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;

• Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, revenue multiples, the level of third party offers received, cost or price of recent investment rounds, net assets and industry valuation benchmarks. Where price of recent investment is used as a starting point for estimating fair value at subsequent measurement dates, this has been benchmarked using an appropriate valuation technique permitted by the IPEV guidelines.

• In situations where cost or price of recent investment is used, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
  

  • the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;

  • a significant adverse change either in the portfolio company’s business or in the technological, market, economic, legal or regulatory environment in which the business operates; or

  • market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.

Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.

Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the other distributable reserve when a share becomes ex-dividend.

Current assets and payables
Receivables, payables and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables.

Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.

Unquoted loan stock income
Fixed returns on non-equity shares and debt securities are recognised when the Company’s right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.

Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.

Investment management fees, performance incentive fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:

• 75 per cent. of management fees and performance incentive fees, if any, are allocated to the capital account to the extent that these relate to an enhancement in the value of the investments. This is in line with the Board’s expectation that over the long term 75 per cent. of the Company’s investment returns will be in the form of capital gains; and

• expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.

Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.

Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the Financial Statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the Financial Statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT in the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.

Reserves
Called up share capital
This reserve accounts for the nominal value of the shares.

Share premium
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs.

Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company’s own shares.

Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year end against cost, are included in this reserve.

Realised capital reserve
The following are disclosed in this reserve:

• gains and losses compared to cost on the realisation of investments, or permanent diminution in value;

• expenses, together with the related taxation effect, charged in accordance with the above policies; and

• dividends paid to equity holders where paid out by capital.

Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.

This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.

Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid.

Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.

3. Gains on investments

	Year ended 30 June 2020	Year ended 30 June 2019
	£’000	£’000
Unrealised (loss)/gain on fixed asset investments	(651)	5,929
Realised gains on fixed asset investments	630	546
	(21)	6,475

4. Investment income

	Year ended 30 June 2020	Year ended 30 June 2019
Income recognised on investments	£’000	£’000
Loan stock interest	1,007	1,179
UK dividend income	16	61
Bank deposit interest	89	45
	1,112	1,285

5. Investment management fees

	Year ended 30 June 2020			Year ended 30 June 2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Investment management fee	285	856	1,141	260	780	1,040

Further details of the Management agreement under which the investment management fee is paid are given in the Strategic report above.

During the year, services of a total value of £1,191,000 (2019: £1,090,000) were purchased by the Company from Albion Capital Group LLP comprising £1,141,000 in respect of management fees (2019: £1,040,000) and £50,000 in respect of administration fees (2019: £50,000). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals and deferred income was £296,500 (administration fee accrual: £12,500, management fee accrual £284,000) (2019: £300,500).

Albion Capital Group LLP is, from time to time, eligible to receive an arrangement fee and monitoring fees from portfolio companies. During the year ended 30 June 2020 fees of £131,000 attributable to the investments of the Company were received pursuant to these arrangements (2019: £167,000).

Albion Capital Group LLP, its partners and staff holds 1,113,080 Ordinary shares in the Company as at 30 June 2020.

The Company entered into an offer agreement relating to the Offers with the Company’s investment manager Albion Capital Group LLP, pursuant to which Albion Capital received a fee of 2.5 per cent. of the gross proceeds of the Offers and out of which Albion Capital paid the costs of the Offers, as detailed in the Prospectus.

6. Other expenses

	Year ended 30 June 2020	Year ended 30 June 2019
	£’000	£’000
Directors’ fees (including NIC)	109	105
Auditor’s remuneration for statutory audit services (excluding VAT)	35	29
Other administrative expenses	210	194
	354	328

7. Directors’ fees
The amounts paid to (or on behalf of) the Directors during the year are as follows:

	Year ended 30 June 2020 £’000	Year ended 30 June 2019 £’000
Directors’ fees	100	97
National insurance	9	8
	109	105

The Company’s key management personnel are the Directors. Further information regarding Directors’ remuneration can be found in the Directors’ remuneration report on pages 47 to 49 of the full Annual Report and Financial Statements.

8. Tax on ordinary activities

	Year ended 30 June 2020 £’000	Year ended 30 June 2019 £’000
UK corporation tax charge	-	-

	Year ended 30 June 2020	Year ended 30 June 2019
Factors affecting the tax charge	£’000	£’000
(Loss)/return on ordinary activities before taxation	(404)	6,392
Tax charge on (loss)/profit at the average companies rate of 19.0% (2019: 19.0%)	(77)	1,214
Factors affecting the charge:
Non-taxable (losses)/gains	4	(1,230)
Income not taxable	(3)	(12)
Unutilised management expenses	76	28
	-	-

The tax charge for the year shown in the Income statement is lower than the average standard rate of corporation tax of 19.0 per cent. (2019: average rate of 19.0 per cent.). The differences are explained above.

Notes

(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.

1. No provision for deferred tax has been made in the current or prior accounting period. The Company has not recognised a deferred tax asset of £3,257,000 (2019: £2,847,000) 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.

9. Dividends

	Year ended 30 June 2020	Year ended 30 June 2019
	£’000	£’000
First dividend of 1 penny per share paid on 29 November 2019 (30 November 2018 – 1 penny per share)	1,861	1,649
Second dividend of 1 penny per share paid on 31 March 2020 (29 March 2019 – 1 penny per share)	1,964	1,646
Unclaimed dividends	(11)	(15)
	3,814	3,280

In addition to the dividends paid above, the Board has declared a first interim dividend for the year ending 30 June 2021 of 0.83 pence per share. This will be paid on 30 November 2020 to shareholders on the register on 6 November 2020. The total dividend will be approximately £1,635,000.

The Board has also declared a special dividend of 2.00 pence per share, payable on 30 October 2020 to shareholders on the register on 9 October 2020. The total dividend will be approximately £3,940,000.

Details of the new variable dividend policy and special dividend can we found in the Chairman’s statement above. All dividends are paid from the other distributable reserve.

During the year, unclaimed dividends older than twelve years of £11,000 (2019: £15,000) were returned to the Company in accordance with the terms of the Articles of Association and have been accounted for on an accruals basis.

10. Basic and diluted return/(loss) per share

	Year ended 30 June 2020			Year ended 30 June 2019
	Revenue	Capital	Total	Revenue	Capital	Total
Return/(loss) attributable to equity shares (£’000)	473	(877)	(404)	697	5,695	6,392
Weighted average shares (adjusted for treasury shares)	190,892,747			170,478,118
Return/(loss) attributable per Ordinary share (pence) (basic and diluted)	0.25	(0.46)	(0.21)	0.41	3.34	3.75

The return/(loss) per share has been calculated after adjusting for treasury shares of 23,061,630 (2019: 20,168,410).

There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return/(loss) per share are the same.

11. Fixed asset investments

Investments held at fair value through profit or loss	30 June 2020 £’000	30 June 2019 £’000
Unquoted equity and preference shares	29,031	35,377
Quoted equity	-	538
Loan stock	12,590	14,028
	41,621	49,943

	30 June 2020 £’000	30 June 2019 £’000
Opening valuation	49,943	42,911
Purchases at cost	4,409	4,122
Disposal proceeds	(12,782)	(3,366)
Realised gains	630	546
Movement in loan stock accrued income	72	(199)
Unrealised (losses)/gains	(651)	5,929
Closing valuation	41,621	49,943
Movement in loan stock accrued income
Opening accumulated loan stock accrued income	206	405
Movement in loan stock accrued income	72	(199)
Closing accumulated loan stock accrued income	278	206
Movement in unrealised gains
Opening accumulated unrealised gains	19,689	12,906
Transfer of previously unrealised (gains)/losses to realised reserves on disposal of investments	(7,073)	854
Movement in unrealised (losses)/gains	(651)	5,929
Closing accumulated unrealised gains	11,965	19,689
Historic cost basis
Opening book cost	30,048	29,600
Purchases at cost	4,409	4,122
Disposals at cost	(5,079)	(3,674)
Closing book cost	29,378	30,048

Purchases and disposals detailed above do not agree to the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.

The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.

Unquoted fixed asset investments are valued in accordance with the IPEV guidelines as follows:

	30 June 2020	30 June 2019
Investment valuation methodology	£’000	£’000
Cost and price of recent investment (reviewed for impairment or uplift)	13,884	16,324
Third party valuation – earnings multiple	11,542	17,238
Revenue multiple	7,338	1,249
Third party valuation – discounted cash flow	7,194	7,129
Net assets	1,091	1,001
Earnings multiple	572	5,092
Contracted sales price	-	1,372
	41,621	49,405

When using the cost or price of a recent investment in the valuations the Company looks to ‘re-calibrate’ this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (i.e. using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.

The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA and P/E multiples (based on the most recent revenue, EBITDA or earnings achieved and equivalent corresponding revenue, EBITDA or earnings multiples of comparable companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the Company’s investments, being in growth and technology companies which are not normally expected to achieve profitability or scale for a number of years. Where an investment has achieved scale and profitability the Company would normally then expect to switch to using an EBITDA or earnings multiple methodology.

In the calibration exercise and in determining the valuation for the Company’s equity instruments, comparable trading multiples are used. In accordance with the Company’s policy, appropriate comparable companies based on industry, size, developmental stage, revenue generation and strategy are determined and a trading multiple for each comparable company identified is then calculated. The multiple is calculated by dividing the enterprise value of the comparable group by its revenue, EBITDA or earnings. The trading multiple is then adjusted for considerations such as illiquidity, marketability and other differences, advantages and disadvantages between the portfolio company and the comparable public companies based on company specific facts and circumstances.

Fair value investments had the following movements between investment methodologies between 30 June 2019 and 30 June 2020:

Change in investment valuation methodology (2019 to 2020)	Value as at 30 June 2020 £’000	Explanatory note
Cost and price of recent investment (reviewed for impairment or uplift) to revenue multiple	6,749	More appropriate valuation methodology
Revenue multiple to cost and price of recent investment (reviewed for impairment or uplift)	682	Recent funding round
Cost and price of recent investment (reviewed for impairment or uplift) to net assets	225	More appropriate valuation methodology
Bid price to net assets	20	Portfolio company delisted

The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 30 June 2020.

FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy. The table below sets out fair value hierarchy definitions using FRS102 s.11.27.

Fair value hierarchy	Definition
Level 1	Unadjusted quoted prices in an active market
Level 2	Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3	Inputs to valuations not based on observable market data

Unquoted equity, preference shares and loan stock are all valued according to Level 3 valuation methods.

The Company’s investments measured at fair value through profit or loss (Level 3) had the following movements:

	30 June 2020	30 June 2019
	£’000	£’000
Opening balance	49,405	42,638
Additions*	4,429	4,122
Disposal proceeds	(12,373)	(3,358)
Realised gains	738	548
Unrealised (losses)/gains	(651)	5,654
Accrued loan stock interest	72	(199)
Closing balance	41,621	49,405

*Additions do not agree to the cash flow due to £214,000 of loan stock conversions and non-cash consideration, and £20,000 of delisted investments in the year.

FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 58 per cent. of the portfolio of investments consisting of equity and loan stock is based on recent investment price, net assets and cost, and as such the Board believe that changes to reasonable possible alternative input assumptions (by adjusting the earnings and revenue multiples) for the valuation of the remainder of the portfolio could lead to a significant change in the fair value of the portfolio. Therefore, for the remainder of the portfolio, the Board has adjusted the inputs for a number of the largest portfolio companies (by value) resulting in a total coverage of 83 per cent. of the portfolio of investments. The main inputs considered for each type of valuation is as follows:

Valuation technique	Portfolio company sector	Input	Base Case*	Change in input	Change in Fair Value of Investments (£’000)	Change in NAV (pence per share)
Third party valuation – earnings multiple	Healthcare	Earnings multiple	11x	+1.0	569	0.29
				-1.0	(569)	(0.29)
Third party valuation – earnings multiple	Education	Discount applied	7.5%	+2.5%	(145)	(0.07)
				-2.5%	145	0.07
Revenue multiple	Healthcare technology	Revenue multiple	4.2x	+0.5	293	0.15
				-0.5	(293)	(0.15)
Third party valuation – discounted cash flow	Renewable energy	Discount rate	5.75%	+0.5%	(217)	(0.11)
				-0.5%	240	0.12

* As detailed in the accounting policies, the base case is based on market comparables, discounted where appropriate for marketability, in accordance with the IPEV guidelines.

The impact of these changes could result in an overall increase in the valuation of the equity investments by £1,247,000 (4.3%) or a decrease in the valuation of equity investments by £1,224,000 (4.2%).

12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company. The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.

The Company has no interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio companies as at 30 June 2020.

13. Current assets

Trade and other receivables less than one year	30 June 2020	30 June 2019
	£’000	£’000
Prepayments and accrued income	13	16
Other receivables	68	343
	81	359

14. Payables: amounts falling due within one year

	30 June 2020	30 June 2019
	£’000	£’000
Accruals and deferred income	379	371
Trade payables	16	19
	395	390

15. Called up share capital

Allotted, called up and fully paid	£'000
207,170,647 Ordinary shares of 1 penny each at 30 June 2019	2,072
12,866,227 Ordinary shares of 1 penny each issued during the year	129
220,036,874 Ordinary shares of 1 penny each at 30 June 2020	2,200
20,168,410 Ordinary shares of 1 penny each held in treasury at 30 June 2019	(202)
2,893,220 Ordinary shares of 1 penny each purchased during the year to be held in treasury	(29)
23,061,630 Ordinary shares of 1 penny each held in treasury at 30 June 2020	(231)
Voting rights of 196,975,244 Ordinary shares of 1 penny each at 30 June 2020	1,970

The Company purchased 2,893,220 Ordinary shares for treasury (2019: 2,697,000) during the year at a total cost of £937,000 (2019: £861,000).

The total number of shares held in treasury as at 30 June 2020 was 23,061,630 (2019: 20,168,410) representing 10.5 per cent. of the shares in issue as at 30 June 2020.

Under the terms of the Dividend Reinvestment Scheme Circular dated 26 February 2009, the following new Ordinary shares of nominal value 1 penny each were allotted during the year:

Allotment date	Number of shares allotted	Aggregate nominal value of shares (£’000)	Issue price (pence per share)	Net invested (£’000)	Opening market price on allotment (pence per share)
29 November 2019	864,564	9	34.82	285	32.70
31 March 2020	967,763	10	33.73	310	29.50
	1,832,327			595

Under the terms of the Albion VCTs’ Prospectus Top Up Offers 2019/20, the following new Ordinary shares of nominal value 1 penny each were issued during the year:

Allotment date	Number of shares allotted	Aggregate nominal value of shares (£’000)	Issue price (pence per share)	Net consideration received (£’000)	Opening market price on allotment (pence per share)
31 January 2020	4,051,167	41	35.40	1,413	32.70
31 January 2020	904,613	9	35.60	316	32.70
31 January 2020	5,684,033	57	35.80	1,983	32.70
30 April 2020	287,098	3	32.60	92	32.50
30 April 2020	106,989	1	32.90	34	32.50
	11,033,900			3,838

16. Basic and diluted net asset value per share

The net asset value attributable to the Ordinary shares at the year end was as follows:

			30 June 2020	30 June 2019
Net asset value per share (pence)			33.14	35.29

The net asset value per share at the year end is calculated in accordance with the Articles of Association and is based upon total shares in issue (adjusted for treasury shares) of 196,975,244 shares as at 30 June 2020 (2019: 187,002,237).

There are no convertible instruments, derivatives or contingent share agreements in issue.

17. Capital and financial instruments risk management

The Company’s capital comprises Ordinary shares as described in note 15. The Company is permitted to buy back its own shares for cancellation or treasury purposes, and this is described in more detail in the Directors’ report on page 35 of the full Annual Report and Financial Statements.

The Company’s financial instruments comprise equity and loan stock investments in unquoted companies, deferred receipts on disposal of fixed asset investments, cash balances, receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate revenue and capital appreciation for the Company’s operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.

The principal risks arising from the Company’s operations are:

• 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 Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised as follows:

Investment risk
As a Venture Capital Trust, it is the Company’s specific nature to evaluate and control the investment risk of its portfolio in unquoted companies, details of which are shown on pages 25 to 28 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company 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 Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.

The maximum investment risk as at the balance sheet date is the value of the fixed asset investment portfolio which is £41,621,000 (2019: £49,943,000). Fixed asset investments form 64 per cent. of the net asset value as at 30 June 2020 (2019: 76 per cent.).

More details regarding the classification of fixed asset investments are shown in note 11.

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. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. The Directors monitor the Manager’s compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.

Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEV Guidelines. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 25 to 28 of the full Annual Report and Financial Statements and in the Strategic report above.

As required under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the extent to which the assets are exposed to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a change of between 10% and 20% based on the current economic climate. The impact of a 10% to 20% change has been selected as this is a range which is considered reasonable given the current level of volatility observed. When considering the appropriate level of sensitivity to be applied, the Board has considered both historic performance and future expectations.

At the lower end of the range, the sensitivity of a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £4,162,000. At the higher end of the range, the sensitivity of a 20% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £8,324,000. Further sensitivity analysis on fixed asset investments is included in note 11.

Interest rate risk
It is the Company’s policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company’s analysis, it is estimated that a rise of half a percentage point in all interest rates would have increased total return before tax for the year by approximately £100,000 (2019: £56,000). Furthermore, it was considered that a material fall in interest rates below current levels during the year would have been unlikely.

The weighted average interest rate applied to the Company’s fixed rate assets during the year was approximately 8.1 per cent. (2019: 9.5 per cent.). The weighted average period to maturity for the fixed rate assets is approximately 2.2 years (2019: 2.7 years).

The Company’s financial assets and liabilities, all denominated in pounds sterling, consist of the following:

	30 June 2020				30 June 2019
	Fixed rate £’000	Floating rate £’000	Non-interest £’000	Total £’000	Fixed rate £’000	Floating rate £’000	Non-interest £’000	Total £’000
Loan stock	11,814	-	776	12,590	13,674	-	354	14,028
Equity	-	-	29,031	29,031	-	-	35,915	35,915
Receivables*	-	-	70	70	-	-	344	344
Payables	-	-	(395)	(395)	-	-	(390)	(390)
Cash	-	23,966	-	23,966	-	16,083	-	16,083
	11,814	23,966	29,482	65,262	13,674	16,083	36,223	65,980

*The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.

Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in loan stock, and cash on deposit with banks.

The Manager evaluates credit risk on loan stock and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. For loan stock investments made prior to 6 April 2018, which account for 87.3 per cent. of loan stock by value, typically loan stock instruments have a fixed or floating charge, which may or may not have been subordinated, over the assets of the portfolio company in order to mitigate the gross credit risk.

The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk.

Bank deposits are held with banks with high credit ratings assigned by international credit rating agencies. The Company has an informal policy of limiting counterparty banking exposure to a maximum of 20 per cent. of net asset value for any one counterparty.

The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.

The Company’s total gross credit risk at 30 June 2020 was limited to £12,590,000 (2019: £14,028,000) of loan stock instruments, £23,966,000 (2019: £16,083,000) of cash deposits with banks and £70,000 (2019: £344,000) of deferred consideration and receivables.

At the balance sheet date, the cash held by the Company was held with Lloyds Bank Plc, Scottish Widows Bank plc (part of Lloyds Banking Group), National Westminster Bank plc and Barclays Bank plc. Credit risk on cash transactions was mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, with high credit ratings assigned by international credit-rating agencies.

The credit profile of loan stock is described under liquidity risk shown below.

Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.

Liquidity risk
Liquid assets are held as cash on current short term deposit accounts. Under the terms of its Articles, the Company has the ability to borrow up to the amount of its adjusted capital and reserves of the latest published audited Balance sheet, which amounts to £59,698,000 (2019: £64,125,000) as at 30 June 2020.

The Company has no committed borrowing facilities as at 30 June 2020 (2019: nil) and had cash balances of £23,966,000 (2019: £16,083,000). The main cash outflows are for new investments, dividends and share buy-backs, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis, as part of its review of management accounts and forecasts.

All of the Company’s financial liabilities are short term in nature and total £395,000 (2019: £390,000) for the year to 30 June 2020.

The carrying value of loan stock investments, analysed by expected maturity dates is as follows:

	30 June 2020					30 June 2019
Redemption date	Fully performing £’000	Past due £’000	Valued below cost £’000	Total £’000	Fully performing £’000		Past due £’000	Valued below cost £’000	Total £’000
Less than one year	6,290	613	443	7,346	5,162		282	770	6,214
1-2 years	452	-	42	494	2,507		-	111	2,618
2-3 years	1,287	738	65	2,090	675		-	42	717
3-5 years	1,120	105	-	1,225	2,360		-	95	2,455
5 + years	1,435	-	-	1,435	1,871		153	-	2,024
Total	10,584	1,456	550	12,590	12,575		435	1,018	14,028

Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. Past due loan stock is not impaired.

The cost of loan stock investments valued below cost is £670,000 (2019: £1,189,000).

In view of the availability of adequate cash balances and the repayment profile of loan stock investments, the Board considers that the Company is subject to low liquidity risk.

Fair values of financial assets and financial liabilities
All the Company’s financial assets and liabilities as at 30 June 2020 are stated at fair value as determined by the Directors, with the exception of receivables and payables and cash which are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables. The Company’s financial liabilities are all non-interest bearing. It is the Directors’ opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.

18. Contingencies and guarantees
As at 30 June 2020, the Company had no financial commitments in respect of investments (2019: £nil).

There are no contingencies or guarantees of the Company as at 30 June 2020 (2019: £nil).

19. Post balance sheet events

Since 30 June 2020 the Company has completed the following investment transactions:

• Investment of £1,359,000 in Quantexa Limited;

• Investment of £828,000 in a new portfolio company, which provides a cloud platform that enables corporates to purchase digital gift cards and to distribute them to employees and customers;

• Investment of £346,000 in uMotif Limited;

• Investment of £261,000 in Phrasee Limited;

• Investment of £112,000 in Oxsensis Limited;

• Investment of £46,000 in ePatient Network Limited (T/A Raremark); and

• Investment of £39,000 in The Evewell (Harley Street) Limited.

20. Related party transactions
Other than transactions with the Manager as disclosed in note 5, there are no other related party transactions or balances requiring disclosure.

21. Other information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 30 June 2020 and 30 June 2019, 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 2020, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.

22. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/CRWN, where the Report can be accessed via a link in the 'Financial Reports and Circulars' section.

Attachment

• Current portfolio sector allocation