The Lemon Fool

CRWN have just published their final results

Marginal increase in NAV and dividend maintained at 1 penny (for the half year) payable on 29th November

However what is really interesting is this statement

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 (2018: nil). As at 30 June 2019 the cumulative shortfall of the target return was 0.60 pence per share (2018: 2.68 pence per share) and this amount needs to be made up in the next accounting period(s) before an incentive fee becomes payable.

and I can't find any reference to a change in the incentive fee - have they learnt from the AAVC fiasco or is the board just doing the job it should do?

The Company's Annual General Meeting will be held at The Charterhouse, Charterhouse Square, London, EC1M 6AN on 27 November 2019 at noon.

See you there, I hope.

TR +11.2% - a happy story.

Thanks for digging up the detail on performance incentive. A rather low hurdle (though I guess RBS base rate wasn't always approx. zero), but not one to get too worked up about, and they're having to work towards it. I'd say the fact that it's now in sight is probably a very good reason they haven't messed with it - if that was indeed in question.

I notice that Maven have announced a sale of ELE, of which they held 11.3% valued in last accounts of MIG 1 at £1.629mill, at a 4X price (which as their cost was £192K) I assume that 4x is to their valuation. Buyer was LDC private equity Interestingly in Crowns latest, 2019, accounts they appear to have 41.9% (held only in Crown, not other Albion VCT's), at a value of £4.453mill, which is a lower valuation than Maven 1 had.
If my reading of the accounts is correct this would be a significant profit for CRWN, whether they have participated in the sale or as a marked up valuation as it appears to be their 2nd largest holding.

Barchid,

I just did a quick review and may have missed something, but as far as I could see Crown already valued ELE at 4.34 their own original cost as at December 2018.

Also when MIG1 refer to a 4.4 return, I would be pretty sure that is on original cost and not the last valuation.

Clearly the returns on MIG1 and Crown can also differ on when and how much they paid for their original tranches and there appears to have been more than 1 class of share in ELE.

So although I am a holder in Crown, I don’t think there will be any great excess profit if any at all, other than that already recognised in the valuation already carried in the balance sheet.

It should of course generate a significant chunk of cash and interesting to see if any of that is returned as a one off special dividend.

I don’t hold MIG1 and have not looked at their accounts, but again on first glance a return of 4.4 on cost of £192k would actually be quite a bit below your quoted carrying valuation of £1.629 million.

The cost of ELE in MIG1 was £192 with the current valuation of £1629, so it seems odd that they would emphasise 4X if taken at cost as that is a 50% loss to valuation.
I agree completely that the figures are not clear, which is why I drew attention to them

barchid wrote:The cost of ELE in MIG1 was £192 with the current valuation of £1629, so it seems odd that they would emphasise 4X if taken at cost as that is a 50% loss to valuation.
I agree completely that the figures are not clear, which is why I drew attention to them

And to add to the confusion, if you look at the Maven valuation of ELE at 28th February, it states:-
Cost £192k
Valuation £1629k
Income Received £544k
So if you take 4.4 times 192k you get 844k, and if you subtract the Income received, you get 300k - which should be the sale proceeds - about 17.7% of the Valuation. There is clearly something I don't understand about these figures.
On the LDC (who purchased ELE) web site it states "The deal marks an exit for Albion Capital and Maven Capital Partners" - but no financial detail is provided. In a report by Private Equity News it states "Financial details of the deal were not disclosed"
So we can only guess - and possibly wait for the VCT annual reports.

You can retire as a chartered accountant, but that financial diligence curiosity still embers away....

I did some digging off their websites, though not complete as no one will pay me to do this anymore.....

The investments in ELE were both originally undertaken in Murray 3 and Murray 4 before they changed hands and became Maven Income and Growth and Crown.

The Maven one appeared to be an initial investment of equity and loan stock all held as investments in the balance sheet.

The loan stock was repaid in the mid 2000s and reduced the investment down to £192k from as high, I think from memory, as £500k.

The Crown one only appeared to inject further capital around the same period so the two different VCTs were investing different amounts at different times and with different structures.

The Crown one looks fairly easy to follow and just looks like a series of normal non loan stock investments to take it up to cost of around £1m and disposal of around £4m to make sense of its stated 4 times return, all already baked in its latest balance sheet - I am just rounding figures.

The Maven one is less simple to follow, but I suspect that the stated return of 4.4 by the Maven release will be a total return based on cost including the initial loan stock of £300k ish as well.

So very broadly and without absolute knowledge of the figures they may have calculated a return on a cost of £500k, being loan stock £300k (repaid in mid 2000s) and remaining equity £192k.

Their stated 4.4 times might include any interest or fee paid as part of the loan stock redemption.

So it does look possible that 4.4 could be derived depending is a mixture of say an 8 fold return on the £192k Equity to give the current valuation of £1.6M, plus say a 600k return being interest and redemption fee on the initial loan stock.

It is a possible explanation, although it could all have been made simpler had they stated on their briefing note how they had derived their 4.4 calculation to make it clearer, given the apparent anomaly between the current balance sheet cost and valuation.

These are broad brush explanations and there may be differences caused by the Maven balance sheet valuation not being the same as the sale value achieved and the exact breakdown of historical loan stock costs and redemption amounts

Barns
Many thanks for your shedding light on these numbers, and there was me expecting a nice fat divi from Crown.
Next year perhaps ?

The Company's Annual General Meeting will be held at The Charterhouse, Charterhouse Square, London, EC1M 6AN on 27 November 2019 at noon.

See you there, I hope.

I shall be there BBB. Will be good to see you again if grandfatherly duties permit.

I plan to have a pre-AGM... ahem... breakfast at the Sir John Oldcastle (a few minutes walk away) from about 10:30 if any fellow Fools fancy joining me.

Gostevie

Gostevie wrote:

The Company's Annual General Meeting will be held at The Charterhouse, Charterhouse Square, London, EC1M 6AN on 27 November 2019 at noon.

See you there, I hope.

I shall be there BBB. Will be good to see you again if grandfatherly duties permit.

I plan to have a pre-AGM... ahem... breakfast at the Sir John Oldcastle (a few minutes walk away) from about 10:30 if any fellow Fools fancy joining me.Gostevie

Sad to say Steve - I have a conference that day and can't come - sorry but I am sure you will all do a good job! with kind regards - BBB