Crown Place VCT (CRWN): AGM 2019

[Gostevie]

This year’s Crown Place VCT AGM was held on Wednesday 27th November 2019 at 12:00 at The Charterhouse – http://www.thecharterhouse.org – close to Farringdon rail and tube station, Barbican tube station and Albion’s office in Benjamin Street. I would estimate that there were around 40 to 50 private investors present.

The Annual Report and Accounts for year ending 30th June 2019 can be found here:

https://www.albion.capital/sites/defaul ... ARCRWN.pdf

The Interim Management Statement to 30th September 2019 was also released in the morning just before the AGM and reported NAV at 35.82p per share on 30th September, which was an increase of 0.53p per share (1.5%) since 30th June. After accounting for a dividend of 1.00p per share to be paid on 29th November, the NAV will be 34.82p per share.

https://www.albion.capital/sites/defaul ... 9.19_0.pdf

Introduction

The meeting was opened by Chairman Richard Huntingford. All Directors were present including Pam Garside who was attending her first Crown Place VCT AGM having been appointed to the board on 1st March 2019, replacing Karen Brade who resigned on 30th September 2019. The Chairman then introduced Albion Partner Emil Gigov who gave the Manager’s presentation, which summarised the highlights of the year.

Manager’s Presentation

The Total Return for the year was 3.75p, or 11.2%, and the intention is for the total dividend to be maintained at 2.0p for 2019/20. Over the past five years the annual IRR has been 9.2%, mostly due to capital appreciation rather than income. In addition to the dividends paid, the NAV has been slowly rising and the management are looking for continued growth in the longer term. The income received more or less offsets the costs of running the company.

There has been growth across all investee sectors, with most of the income coming from the asset backed ones. As the proportion of asset backed investments shrinks by percentage as new growth companies are added to the portfolio, volatility could be expected to increase. There is a current emphasis on scale-up companies with 50+ employees. Exits during the year were a relatively modest £3.4m, producing realised gains of £0.5m.

Post year end, proceeds of £5.0m have been received from the sale of ELE Advanced Technologies, £4.1m from the disposal of the Radnor House school in Twickenham (the Sevenoaks one is still held), and £1.4m from the sale of Process Systems Enterprise.

The intention is to maintain the 2.0p per year dividend, the top-up offer is proceeding well, with the early bird offer now closed, and it was again stressed that the gradual shift from asset based to growth based investments means that we can expect more volatility in the future.

Q&A

(These are paraphrased from my scribbled notes, not a word-for-word account, except for words or phrases in “inverted commas” which are direct quotes.)

Q. Climate change: What is the fund doing in this area and what are the opportunities?
A. We currently have wind, hydro and solar investments in the renewable energy area, and although we can no longer add to them we intend to keep them as they generate income. We are interested in investing in technologies in this space although there is nothing specific at present. We try to exert influence on all our investee companies to consider their environmental impact.

Q. How do you value your investee companies? Could there be more hidden gems in there like Grapeshot and Process Systems Enterprise?
A. We audit our valuations every six months and our asset backed investments are independently valued. Valuations of our growth investments “tend to be on the conservative side”.

Q. You have a large amount of cash on your balance sheet. Are you happy with that? Should it be higher or lower?
A. We need the cash for dividends, share buybacks and support for our investee companies. In the current fundraise we are only seeking £4m, which is less than some of the other Albion VCTs, reflecting our healthy cash balance. We feel that 20% cash is about right long-term.

Q. Radnor House: You have disposed of the Twickenham school but still hold the Sevenoaks one. Are you worried about the political risk to private education if Labour gets into power?
A. Let’s wait and see what happens. There is still a demand for private education and we have no current plans to exit.

Q. What is the time limit for reinvesting the proceeds of your recent disposals?
A. 12 months. We are confident that we can find new opportunities to invest these funds but if we can’t we could consider a special dividend, although this is unlikely.

Q. Care homes: Are they new build or existing?
A. New build. Two of them are mature, one is nearing maturity. All are doing well.

Formal AGM

All resolutions at the formal AGM were passed comfortably on the show of hands, but Resolution 7, “Increase in Directors’ aggregate remuneration: That the aggregate amount of the ordinary remuneration of the Directors under Article 74 of the Articles of Association of the Company be increased to an amount not exceeding £150,000 per annum” [from £100,000 per annum] was opposed by 23.26% of proxy voters, and this being over 20% causes the Board, under UK Corporate Governance, to reflect on this result and engage in a consultation process with shareholders.

[Comment: Before the show of hands, the Chairman explained that this was merely a contingency for any handover period in the event of any Directors giving notice and needing to be replaced, not because of any plans for substantial increases in general Director Remuneration. Why was this not explained in the Notice of Annual General Meeting in which the Resolution was announced, as it might well have reduced the opposition to below the 20% that triggered the distracting consultation? I put this question to Richard Huntingford afterwards and he agreed that with hindsight this would have been a good idea.]

Presentation: “Blockchain Enabled Digital Assets”

In place of the more usual closing presentation from an investee company, Albion Partner Jay Wilson gave us a presentation on blockchain and the opportunities it might present for future investments.

He began by comparing the early reaction to blockchain to the early reaction to the internet, i.e. largely one of scepticism and concern. The language of blockchain is still being developed but it can already process more transactions per second than PayPal. Blockchain currencies and tokens should be considered as “mediums of exchange” and “stores of value”, so not wildly different to bank accounts or cash in that respect.

Digital Asset Principles: Transparency and trust / Open to everyone / Strong cryptography / Possible to analyse flow, but identity not a given

Digital Asset Promises: Lower transaction and settlement costs / New models of payments / Fast and global

The blockchain market is fast growing and already maturing, with key institutions such as Nasdaq and Goldman Sachs already participating. For VCTs like Crown Place, blockchain presents “attractive, actionable investment opportunities”.

Q: Is there a danger of overpaying for crypto companies because of the ‘buzz’ surrounding them?
A: Yes, but Albion “retains a healthy scepticism” and there are exciting possibilities.

Lunch and Conclusion

At around 13:15 the meeting was brought to a close, and a very enjoyable buffet lunch with wine and soft drinks was served. As always, it was a convivial end to proceedings with ample opportunity to speak with the company Directors, Albion partners and staff, and fellow investors. This was the final of the six Albion VCT 2019 AGMs, all of which I have had the pleasure to attend, so thank you in particular to the back office staff who organise them. Perhaps my overarching takeaways from them all are:

+ Expect more volatility in returns in the future as the portfolios become more growth-oriented, but the manager has recruited new staff over the past 18 months to meet the new challenges

+ Albion is no hurry and under no pressure to dispose of its legacy asset backed investments, especially its renewable energy holdings

+ The managers are open to engagement with shareholders and will discuss any concerns we might have

I am happy to hold the Albion VCTs and look forward to next year’s AGMs. Hope to see you there.

[127tolmers]

https://www.investegate.co.uk/crown-pla ... 2657H5996/

7. Increase in Directors’ aggregate remuneration
That the aggregate amount of the ordinary remuneration of the Directors under Article 74 of the Articles of Association of the Company be increased to an amount not exceeding £150,000 per annum.

The table below sets out the proxy votes which were cast in advance of the Meeting for the ordinary resolution passed on a show of hands.

Resolution 7 For Against Withheld
Votes % Votes cast Votes % Votes cast Votes
Increase In directors’ aggregate remuneration 7,098,152 76.74% 2,151,765 23.26% 490,556

The Board note that 76.74% of the votes cast were in favour of the ordinary resolution. However, 23.26% of shareholders voted against the resolution. In accordance with UK Corporate Governance, the Board will reflect carefully on feedback from shareholders to understand more fully the reasons for the opposition to this resolution.

An update on the review process will be made in accordance with the UK Corporate Governance Code within six months of the Meeting.

[UncleEbenezer]

Thanks for the report.

Presentation: “Blockchain Enabled Digital Assets”

Ouch.

He began by comparing the early reaction to blockchain to the early reaction to the internet, i.e. largely one of scepticism and concern.

WTF? This is someone truly clueless. What is he thinking of as "early reaction to the internet"? Indeed, what is the early internet in his mind? I don't recollect any real reaction until about the second half of the 1990s.

[Gostevie]

Thanks for the report.

Presentation: “Blockchain Enabled Digital Assets”

Ouch.

He began by comparing the early reaction to blockchain to the early reaction to the internet, i.e. largely one of scepticism and concern.

WTF? This is someone truly clueless. What is he thinking of as "early reaction to the internet"? Indeed, what is the early internet in his mind? I don't recollect any real reaction until about the second half of the 1990s.

Hi UncleEbenezer

Jay almost certainly explained what he meant by that much more clearly than how I related it in my brief report of his presentation, which is based on the rough notes that I scribbled down at the time, so the failing is mine in that respect, not his. I (hopefully!) took more care with the rest of the proceedings as I felt they would be more relevant to shareholders but was flagging somewhat by the time Jay took to the stage.

Gostevie

[BusyBumbleBee]

Thank you, Steve - very useful report.

Sorry I couldn't make it and even sorrier, Steve, Barry & Robin that I didn't prime you with these two questions.

~~ ONE ~~ They gave the votes on 7. Increase in Directors’ aggregate remuneration as

76.74% of the votes cast were in favour of the ordinary resolution. However, 23.26% of shareholders voted against the resolution.

which of course adds up to 100% as votes withheld are not votes at all.

However, it is almost certainly not the truth because: with a high degree of probability, a number - perhaps a substantial number - of voting shareholders will have asked the chairman of the meeting to vote for them.

Note : it is the chairman of the meeting who votes these shares, He may well be the chairman of the board as well but during the meeting he is wearing the hat of chairman of the meeting and should be governed by what goes on in the meeting and not by what the board has already agreed away from the public eye.

I have long considered in close votes of this kind the chairman should make it clear in the meeting how and why he is voting these shares in the way he does. And firmly believe when it is this close, he should not vote those shares.

The Board should release the full figures and explain why they did not give the full figures at the AGM and in the RNS - together with a explanation of why the chairman cast those votes the way he did.

~~ TWO ~~ The whole business of the Radnor House School is very confusing - and as you have said, Barry, does not gel at all with their 'conservative valuation policy'

-- This had a value of £6.770 million in the end of year report and they had 9% of the voting rights.
-- but a carrying value of £7,084 million at the end of September where it made up 10.6% of the whole portfolio. (This value will reflect the offer they were considering but compare it with the valuation of £5.589 million at the 2016/2017 year end £6.055 at the end of 2017/2018 year and £6.770 at the end of the 2018/2019 year.
-- They seem to have acquired this in 2011 or 2012 but not totally clear
~~ Following a reorganisation of Radnor House School (Holdings) Limited, Radnor House Twickenham was sold
generating proceeds of £4.1 million; leaving about £3 million covering the value of the Sevenoaks School
~~ The actual school seems to have had an initial cost of £1.564 million see https://www.albion.capital/sites/defaul ... 202012.pdf

If you want to look at the school see https://www.radnor-twickenham.org/
and the Sevenoaks one can be seen here https://www.radnor-sevenoaks.org/

It seems to me that as this is such an important part of the CRWN portfolio (it owns more of it than AAVC for example) shareholders deserve much more information than is being given. For example isn't the Sevenoaks School much bigger than the Twickenham School?

[barchid]

Steve/Uncle/BBB
I think Steve's account of Jay's presentation was very accurate as to what was said at the AGM.
I am not a techy person which is why I outsource my tech exposure to Allianz Tech Trust and assorted vct's, but I found the blockchain presentation less than convincing. All I wanted to hear from Jay was how he proposed to make money from blockchain, we were given 2 questions to ask after he completed the monologue and I was about to ask "can we please now have lunch" for the second question but the Chairman beat me to it, I got the impression he was fed up with it & the new lady recruit for the board looked totally at sea, as were people near to me.
Never has an Albion lunch been as welcome...
As John points out much more precisely than I, the carry figures probably are pretty full and perhaps not as conservative as I would like to see

[Gostevie]

The Board should release the full figures...

Hi BBB,

They are here:

https://www.albion.capital/sites/defaul ... Q42019.pdf

Gostevie

[BusyBumbleBee]

The Board should release the full figures...

Hi BBB, They are here:
https://www.albion.capital/sites/defaul ... Q42019.pdf
Gostevie

Hi Steve - they are NOT the full results because they do not list the 'discretionary' votes separately - they have most probably just been added into the 'For' total which is wrong.

[Gostevie]

The Board should release the full figures...

Hi BBB, They are here:
https://www.albion.capital/sites/defaul ... Q42019.pdf
Gostevie

Hi Steve - they are NOT the full results because they do not list the 'discretionary' votes separately - they have most probably just been added into the 'For' total which is wrong.

Hi BBB,

My reading of the Resolution 7 vote is:

For: 6,459,564 votes - 69.83%
Discretion: 638,588 votes - 6.90%
Against: 2,151,765 votes - 23.26%
Withheld: 490,556 votes - N/A%

For + Discretion: 7,098,152 - 76.74%

Gostevie

[BusyBumbleBee]

So Sorry Steve - didn't read your post properly - rushing as usual.

My simple point is that discretionary votes are taken by the board as 'in favour' and that is wrong. They are for the chairman of the shareholders meeting to vote. Although the chairman of the board usually chairs the Annual Meeting he is supposed to listen to the discussion and then cast those votes wearing the hat of chairman of a shareholder meeting and not the hat of Chairman of the board.

It is fundamentally wrong for the board to vote these shares before the AGM

If the are excluded by the way the vote is

For 6,459,564 ~~ 75.012%

Against: 2,151,765 ~~ 24.988%

with kind regards - John

[Karellan]

I have had a letter from the chairman asking me for feedback as I voted against the proposed change. (Item 7 increase in Directors aggregate remuneration limit)