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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Proven Growth & Income Vct Plc | LSE:PGOO | London | Ordinary Share | GB00B5B7YS03 | ORD 1.6187P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 49.15 | 47.80 | 50.50 | 49.15 | 49.15 | 49.15 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | -19.67M | -23.86M | -0.0783 | -6.28 | 149.69M |
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TIDMPGOO
PROVEN GROWTH AND INCOME VCT PLC
ANNUAL FINANCIAL REPORT
YEARED 28 FEBRUARY 2017
Financial summary
28
February
2017 29 February
Ordinary Shares as at: Pence 2016 Pence
Net asset value per Ordinary Share 82.7 80.0
Dividends paid since class launch (originally as 'C'
Shares) 41.6 35.6
Total return (net asset value plus dividends paid
since 'C' Share class launch) 124.3 115.6
Year on year change in:
Net asset value per share (adjusted for dividends
paid in the year) 10.9%
Chairman's Statement
I am pleased to present the Annual Report for ProVen Growth and Income
VCT plc (the "Company") for the year ended 28 February 2017. The Company
has continued to experience strong deal flow, investing a total of
GBP9.2 million in the year, and has achieved a number of significant
realisations, notably Big Data Partnership and MyOptique.
Results for the year
The Company's net asset value ("NAV") per share increased by 8.7p over
the year (after adding back the dividends of 6.0p paid in the year), an
increase of 10.9% on the opening NAV. At 28 February 2017 the NAV per
share stood at 82.7p.
The total return on ordinary activities for the year was GBP8.1 million,
or 8.8p per share (2016: loss of GBP691,000, 0.8p per share), comprising
a revenue return of GBP86,000, or 0.1p per share (2016: GBP376,000, 0.4p
per share) and a capital return of GBP8.0 million, or 8.7p per share
(2016: loss of GBP1.1 million, 1.2p per share).
Dividends
The Company made dividend payments during the year of 6.0p per share.
This comprised two dividends: a final dividend of 4.0p for the year
ended 29 February 2016 paid on 15 July 2016, and an interim dividend of
2.0p for the year ended 28 February 2017 paid on 16 December 2016.
Your Board is proposing a final dividend for the year ended 28 February
2017 of 2.5p per share to be paid on 14 July 2017 to shareholders on the
register at 16 June 2017. With total dividends of 4.5p per share for the
year ended 28 February 2017, your Board is pleased to report that the
Company has been able to maintain its dividend yield of at least 5% per
annum, while maintaining a broadly stable net asset value per share over
the period since the current dividend policy was introduced in 2012.
Portfolio activity and valuation
The Company invested GBP7.3 million in seven new portfolio companies and
GBP1.9 million in seven existing portfolio companies during the year.
The Company made several successful disposals during the year, most
significantly the disposal of MyOptique, which generated aggregate
proceeds of GBP6.6 million and a gain of GBP2.9 million over a holding
period of just over two years. In July 2016, the Company's investment in
Big Data Partnership was sold at a multiple of 1.5x cost.
The Company's debt investments have been very successful in delivering
attractive income returns. Out of the four holdings at the start of the
year, Linkdex, Peerius and SE Pharma were acquired in the year and
repaid their loans in full. Unfortunately, the recent changes to the VCT
rules mean that further activity in this area is unlikely.
Overall, the investment portfolio increased in value by GBP7.5 million,
or 8.1p per share, over the year. Continued strong performance of Third
Bridge Group and Watchfinder contributed significantly to this uplift
but there were also notable valuation uplifts for Blis Media, Chess
Technologies and MatsSoft. There were more modest reductions in value
for some other investments, including Charterhouse Leisure and Inskin
Media.
Fundraising activities
The Company launched an offer for subscription in September 2016, which
effectively closed well ahead of schedule on 31 January 2017 and raised
gross proceeds of GBP38.8 million against an initial target of GBP30
million. Of the proceeds raised, GBP7.8 million was allotted during the
year, with the remainder allotted in March and April 2017. The Company
is, therefore, well positioned to take advantage of new investment
opportunities as they arise.
Share buybacks
The Company has a policy of buying back shares that become available in
the market at a discount of approximately 5% to the latest published net
asset value, subject to the Company having sufficient liquidity. The
Company retains Panmure Gordon to act as its corporate broker.
Shareholders who are considering selling their shares may wish to
contact Panmure Gordon, who will be able to provide details of the price
at which the Company is buying shares.
During the year, the Company purchased 1,673,962 Ordinary Shares at an
average price of 75.0p per share and for an aggregate consideration (net
of costs) of GBP1,255,394. This represented 1.9% of the Company's issued
share capital at the start of the year. All shares were subsequently
cancelled.
A special resolution to allow the Board to continue to purchase shares
for cancellation will be proposed at the forthcoming Annual General
Meeting ("AGM").
Performance incentive arrangements
In 2014, the Company put in place performance incentive arrangements
which reward the Investment Manager for delivering investment
performance above agreed targets. So far, no payments have been made
under these arrangements. During the year, it became apparent that the
arrangements in place do not fully reflect the original intentions of
your Board and the Investment Manager. The sizeable fund raisings which
occurred after these arrangements were introduced, the scale of which
were not anticipated at the time, has had a material impact on the
calculation of the performance fee payable. Your Board has therefore
agreed with the Investment Manager that the previous arrangements will
be varied. From the year ended 28 February 2017, the performance targets
and restrictions approved by Shareholders in 2014 will be applied to
each major fundraising, rather than to the Company as a whole. The
cumulative fee payable under the revised arrangements will never exceed
the cumulative fee payable under the previous arrangements and so
further shareholder approval is not required.
The strong investment performance of the Company means that at 28
February 2017 a performance fee is payable under the revised
arrangements in relation to shares issued prior to August 2014. The
total fee payable is GBP2.6 million, reflecting overall performance
since 29 February 2012 and an accrual for this amount has been included
within the accounts.
Proposed changes to the investment objective and investment policy
The changes to the VCT rules in November 2015 and September 2016 mean
that the Company's investment objective and investment policy make
reference to certain investments which are no longer permitted. While,
under the current investment policy, it is still possible to identify
appropriate qualifying and non-qualifying investments that comply with
the new VCT rules, your Board believes that an alignment of the
investment objective and investment policy with the new rules would
improve clarity for Shareholders.
Your Board does not intend to vary the overall objective of investing
predominately in small and medium sized unquoted companies with
excellent growth prospects, however, the revision of the investment
policy permits investment into new types of non-qualifying securities
for liquidity management purposes, which include, for example, listed
investment trusts. Your Board has agreed with the Investment Manager
that such investments will only be made to the extent that the
Investment Manager has knowledge and experience of investing in these
types of investments or can outsource the management to an experienced
third party manager.
An Ordinary resolution to change the Company's investment objective and
investment policy will be proposed at the forthcoming AGM and your Board
is recommending that Shareholders approve this resolution.
Annual General Meeting
The next AGM of the Company will be held in the Gennaro Room at The
Groucho Club, 45 Dean Street, London, W1D 4QB at 9:30 a.m. on Tuesday 4
July 2017.
Four items of special business will be proposed at the AGM. There are
two resolutions giving the Directors authority to allot shares, to
enable the Company to raise additional funds, if required, one
resolution to amend the Company's investment policy and one resolution
to allow the Company to continue to make share buy-backs as outlined
above.
Shareholder event
The Company's annual shareholder event continues to be well received,
providing Shareholders with an opportunity to meet with the Directors
and members of the Investment Manager's team, as well as other
Shareholders and portfolio companies. For your Board and Investment
Manager it is an important opportunity to understand and discuss the
views of the Company's Shareholders directly.
This year's event will take place on Wednesday 1 November 2017 at 10.30
a.m. at The Institute of Engineering and Technology, 2 Savoy Place,
London, WC2R 0BL.
A formal invitation will be sent in due course and I would very much
encourage Shareholders to attend.
Outlook
The UK's strong entrepreneurial culture, combined with a relatively
benign economic environment, is generating an increasing number of
companies, with ambitious management teams, seeking to raise capital to
accelerate their growth. Following the recent fund raising, the Company
now has capital available to meet the forecast investment requirements for the next two years. It also has an Investment Manager with a strong investment track record, which, over the last two years, has supplemented its long-standing senior management team with some exceptional new additions. The Company has a strongly diversified portfolio of investments, including some companies which have been in the portfolio for several years and which are approaching an exit, and some newer additions which could be the prospective stars of the future. Your Board believes that this portfolio has the potential to contribute positively to the Company's performance over the next few years. As well as its internal resources, the prospects for the Company depend on external factors. In particular, there is still considerable uncertainty about the implications of the decision to leave the EU. The portfolio has generally not been affected since the outcome of the Referendum was announced, but the full impact will only become apparent over the coming years once it is clear whether the Government manages to avoid a hard Brexit. The largest negative impact on portfolio companies is likely to be if it becomes much harder to recruit skilled staff from overseas. The Government is currently undertaking a review of the availability of "Patient Capital", with the objective of ensuring that high growth businesses can access the long-term capital that they need to fund productivity enhancing investment. Among other things, this review will evaluate the existing tax reliefs aimed at encouraging investment and entrepreneurship to make sure that they are effective, well targeted and provide value for money. This will include a review of the VCT scheme. Your Board believes that VCTs are ideally placed to meet the requirement of Patient Capital, given that, unlike some other types of venture capital fund, they do not have any limitations on the period of investment, and will be giving evidence to the Government's review as appropriate. The Company will continue to operate in a dynamic environment and I believe it is well placed to deal with the challenges and opportunities that it will face over the coming year. I therefore look forward to the future with cautious optimism. Marc Vlessing Chairman Investment Manager's Review Introduction We have pleasure in presenting our annual review for the year ended 28 February 2017. During the year, a total of GBP7.3 million was invested in seven new portfolio companies and GBP1.9 million was invested in seven existing portfolio companies. The year also saw a number of disposals resulting in aggregate realisation proceeds of GBP14.1 million and realised gains against initial cost of GBP4.2 million. At 28 February 2017, the Company's venture capital portfolio comprised 47 investments at a cost of GBP58.4 million and a valuation of GBP68.6 million, an overall uplift of 17.5% on cost. The net cash outflow for the year before fund raising was GBP2.2 million. The Company's cash balances were, however, replenished by net funds raised of GBP38.5 million, some of which was allotted after the year end. Investment activity New investments We continued to identify a number of attractive investment opportunities, with GBP7.3 million being invested in seven new portfolio companies. The Company's investment in Thread (GBP620,000), a menswear e-commerce site which recommends styles and items based on an individual's tastes, was completed shortly after the previous year end and was discussed in last year's annual report. A further amount of GBP421,000 was invested in Thread in February 2017 as the company continued to expand its operations. In December 2016, an investment of GBP1.8 million was made in Infinity Reliance, which trades under the brand name of My 1st Years. My 1st Years is an e-commerce site for personalised items for babies and children, with products from their Royal Range having been worn by Prince George. The investment is being used to expand the company's UK operations before launching operations in the US. We are increasingly seeing opportunities to make VCT qualifying investments in strong international companies with a UK presence. The Company's investment in Whistle Sports, a global sports media company (GBP1.7 million), is a good example of this. Our US base in Michigan provides a strong competitive advantage in this area and four portfolio companies, Blis Media, D3O Holdings, Disposable Cubicle Curtains and InContext Solutions have all benefited from financing from our US colleagues. Other new investments were made in Poq Studio, a platform provider for mobile e-commerce apps used by major fashion retailers (GBP875,000), Firefly Learning, a learning platform software provider (GBP667,000), Honeycomb.TV, a TV and video advertising management platform (GBP605,000) and ContactEngine, a software provider that automates its clients' customer communications (GBP550,000). Follow-on investments The Company has been active in supporting the development of existing portfolio companies, making follow-on investments in six companies during the year, as well as supporting the de-merger of one of the Company's existing portfolio companies, Simplestream. The largest of the follow-on investments was in Disposable Cubicle Curtains (GBP461,000), with the investment being used to enable the company to continue its expansion into the US market. In January 2017, following the de-merger of Simplestream's consumer facing business, TVPlayer, the Company invested GBP279,000 directly in TVPlayer as part of a larger fundraising led by major US media company, A+E Networks. The investment will be used to accelerate the growth of TVPlayer as it seeks to increase its subscriber base. Further follow-on investments, primarily to support continued expansion and growth opportunities, were made in InContext Solutions, (GBP400,000), D3O Holdings (GBP295,000), Big Data Partnership (GBP253,000), Network Locum (GBP169,000) and Perfect Channel (GBP55,000). Investment disposals MyOptique showed impressive year on year growth following the Company's initial investment in May 2014 and was included in the British Government's 'Future Fifty' and Deloitte's Technology Fast 500 lists during the Company's holding period. In September 2016, MyOptique was acquired by leading international eyewear brand, Essilor International, generating proceeds for the Company of GBP6.6 million. This represents a realised gain of GBP2.9 million in just over two years. Big Data Partnership also showed impressive growth over a relatively short investment holding period, with revenues and head count more than doubling after the Company's initial investment in April 2014. The company was sold to US listed technology company Teradata in July 2016 generating proceeds of GBP3.4 million for the Company's investment, equivalent to a multiple of 1.5x cost. The disposal of both Big Data Partnership and MyOptique represent successful realisations over a relatively short holding period, with both investments achieving an annual rate of return of more than 30% for the Company. During the year, loan note repayments of GBP4.0 million were received, predominately from the full repayment of three debt finance investments, SE Pharma (GBP2.1 million), Linkdex (GBP1.2 million) and Peerius (GBP276,000), following the sale of these companies. Over the holding period, these investments have provided an attractive revenue stream in a low interest rate environment. All scheduled repayments were also received from the Company's remaining debt finance investment, Celoxica, as well as smaller loan repayments from Donatantonio Group and Conversity. Key developments at existing portfolio companies The Company's largest growth capital investment continues to be Third Bridge Group, which has sustained strong year-on-year revenue growth since the Company's investment in November 2012. The company continues to have a strong international presence with offices in London, New York, Shanghai, Hong Kong and Mumbai. During the year, the company's impressive growth was recognised by its inclusion in the 2016 Sunday Times Virgin Fast Track 100 list. The valuation of the investment increased by a further GBP3.7 million during the year and at the year-end represents an unrealised uplift on cost of 4.0x. Watchfinder.co.uk continues to perform well and has recently opened a new retail outlet in Canary Wharf. Revenues grew by over 55% during 2016, which follows on from average revenue growth of over 50% per annum between 2013 and 2015. The valuation of the Company's investment increased by GBP599,000 over the course of the year. Chess Technologies also had a strong year, with the company's anti-drone technology receiving the highest technical readiness level awarded by the US Department of Defense. Having recently opened its first US office in February, the company is looking to continue its growth during 2017. During the year, the valuation of the Company's investment increased by GBP1.8 million and it is now valued at c. 2.0x cost. There has inevitably been some downward movements in the portfolio, with investments in Charterhouse Leisure and Inskin Media showing valuation decreases during the year. Charterhouse Leisure faced a number of headwinds during the year including increases to the national living wage, rent and business rates. Together with increased competition, performance has been below expectations and, as a result, the valuation of the Company's investment fell by GBP1.0 million. Inskin Media also had a challenging year, with delays to the launch of their programmatic offering adversely impacting revenues. Over the year,
the Company's investment decreased in value by GBP734,000.
Overall, the investment portfolio showed an increase in value of GBP7.5
million, or 8.1p per share.
Post year-end developments
Between 28 February 2017 and the date of this announcement, the Company
made three follow on investments totalling GBP1.5 million, comprising
Poq Studio (GBP875,000), HoneyComb.TV (GBP495,000) and ContactEngine
(GBP137,000).
Outlook
The UK continues to be an attractive place to start and build a company,
with a strong entrepreneurial culture and a vibrant ecosystem for
rapidly growing SMEs. The Government is increasingly focused on the
potential economic benefits of supporting "scale-up" businesses, defined
as an enterprise with average growth exceeding 20% p.a. over a
three-year period, with more than 10 employees at the start of this
period. These are precisely the businesses targeted for investment by
the Company.
With this background, and a relatively benign economic environment, we
expect that we will continue to see a strong flow of new investment
opportunities. At the same time, competition is increasing, which may
lead to inflated valuation expectations. We will continue to be
disciplined in maintaining the quality standards, including pricing,
that we apply to new investments, which may mean that we reject a higher
proportion of deals than we have in the past. We have recently expanded
our investment team to address this challenge and believe that we are
now well placed to continue, and possibly increase, the rate of
investment we achieved in the year to 28 February 2017.
Within the existing portfolio, several of the companies are making
strong progress. There may therefore be further realisations during the
year ending 28 February 2018, following on from the successful sales of
MyOptique and Big Data Partnership. Many of the more recent investments
are also showing early promise and we will continue to nurture and
support these with further rounds of funding if appropriate.
Overall, therefore, we remain cautiously optimistic about the future.
Beringea LLP
Investment activity
Investment activity during the year is summarised as follows:
Additions
Cost
GBP'000
Infinity Reliance Limited (t/a My 1st Years) 1,845
Whistle Sports, Inc. 1,696
Thread Inc. 1,041
Poq Studio Limited 875
Firefly Learning Limited 667
Honeycomb.TV Limited 605
ContactEngine Limited 550
Disposable Cubicle Curtains Limited 461
InContext Solutions, Inc. 400
D3O Holdings Ltd 295
TVPlayer Limited 279
Big Data Partnership Limited 253
Network Locum Limited 169
Perfect Channel Limited 55
Other investments 2
Total 9,193
Disposals
Market value Disposal Realised gain Realised gain
Cost at 01/03/16 ** Proceeds against cost during the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
MyOptique
Group
Limited 3,630 3,630 6,559 2,929 2,929
Big Data
Partnership
Limited 2,298 2,298 3,356 1,058 1,058
Speciality
European
Pharma
Limited* 2,052 2,052 2,052 - -
Linkdex
Limited* 1,244 1,244 1,244 - -
Peerius
Limited* 276 276 276 - -
Celoxica
Limited* 269 269 269 - -
Eagle-i Music
Limited - - 145 145 145
Donatantonio
Group
Limited* 93 93 121 28 28
Conversity
Limited* 34 - 41 7 41
Population
Genetics
Technologies
Limited - 15 15 15 -
Long Eaton
Healthcare
Limited - - 1 1 1
Other
investments 1 1 1 - -
Total 9,897 9,878 14,080 4,183 4,202
* Loan repayments during the year
** Adjusted for purchases during the year
Of the investments above, Eagle-i Music Limited and Long Eaton
Healthcare Limited were realised in prior periods but the Company
received proceeds in the current period in excess of the amounts
previously accrued.
Investment Portfolio
as at 28 February 2017
The following investments were held at 28 February 2017:
Valuation % of
movement in portfolio by
Cost Valuation year value
GBP'000 GBP'000 GBP'000
Venture capital
investments (by value)
Third Bridge Group Limited 2,051 8,142 3,650 7.1%
Rapid Charge Grid Limited* 5,800 5,313 (119) 4.6%
Dryden Holdings
Limited*,*** 5,000 4,736 (264) 4.1%
Blis Media Limited** 1,083 4,560 1,718 4.0%
Disposable Cubicle
Curtains Limited** 2,768 3,577 484 3.1%
Sealskinz Holdings
Limited** 3,116 3,190 74 2.8%
Chess Technologies Limited 1,568 3,058 1,814 2.7%
APM Healthcare Limited 1,731 2,957 384 2.6%
D30 Holdings Ltd** 3,550 2,831 288 2.4%
MEL Topco Limited (t/a
Maplin Electronics)* 2,218 2,253 (212) 2.0%
Infinity Reliance Limited
(t/a My 1st Years) 1,845 1,845 - 1.6%
Donatantonio Group Limited 1,003 1,794 (321) 1.5%
Watchfinder.co.uk Limited 551 1,756 599 1.5%
Whistle Sports, Inc. 1,696 1,696 - 1.5%
MatsSoft Limited** 1,140 1,609 664 1.4%
InContext Solutions, Inc** 1,976 1,532 (581) 1.3%
Cogora Group Limited** 1,320 1,484 (343) 1.3%
Response Tap Limited 1,440 1,440 (83) 1.2%
Inskin Media Limited 1,435 1,435 (734) 1.2%
Monica Vinader Limited** 204 1,405 81 1.2%
Chargemaster plc** 1,079 1,402 322 1.2%
Litchfield Media Limited 1,420 1,344 (76) 1.2%
TVPlayer Limited 830 1,077 246 0.9%
Thread Inc. 1,041 1,041 - 0.9%
Simplestream Limited** 690 977 193 0.8%
Poq Studio Limited 875 875 - 0.8%
Perfect Channel Limited 440 681 227 0.6%
Firefly Learning Limited 667 667 - 0.6%
Abzena plc** 791 652 (228) 0.6%
Skills Matter Limited** 2,116 648 648 0.6%
Honeycomb.TV Limited 605 605 - 0.5%
ContactEngine Limited 550 550 - 0.5%
Dianomi Limited 270 545 400 0.5%
Charterhouse Leisure
Limited** 1,250 336 (1,024) 0.3%
54,119 68,013 7,807 59.1%
Other venture capital
investments 4,276 611 (282) 0.5%
Total venture capital
investments 58,395 68,624 7,525 59.6%
Cash at bank and in hand 46,450 40.4%
Total investments 115,074
Other venture capital investments at 28 February 2017 comprise:
7digital Group plc **, Amura Holdings Limited*, Buckingham Gate
Financial Services Limited, Celoxica Limited*, Conversity Limited,
Deltadot Limited, Duncannon Holdings Limited***, Network Locum Limited,
Omni Dental Sciences Limited, Senselogix Limited, Steribottle Global
Limited*, Utility Exchange Online Limited (t/a SwitchmyBusiness.com) and
Vigilant Applications Limited*.
* Non-qualifying investment
** Partially non-qualifying investment
*** Investee company 100% owned by the Company but not consolidated as
held exclusively for resale as part of an investment portfolio.
With the exception of Abzena plc and 7digital Group plc which are quoted
on AIM, all venture capital investments are unquoted.
All of the above investments, with the exception of Abzena plc, Amura
Holdings Limited, Deltadot Limited, Dryden Holdings Limited, Duncannon
Holdings Limited and Omni Dental Sciences Limited Limited were also held
by ProVen VCT plc, of which Beringea LLP is the Investment Manager.
Blis Media Limited is also held by ProVen Planned Exit VCT plc, of which
Beringea LLP was the Investment Manager until 31 March 2016 when ProVen
Planned Exit VCT plc was placed into Members Voluntary Liquidation. The
liquidator has agreed that Beringea LLP will continue to manage the
investment in Blis Media Limited on behalf of ProVen Planned Exit VCT
plc until it is sold.
All venture capital investments are registered in England and Wales
except for InContext Solutions, Inc., Whistle Sports, Inc. and Thread,
Inc., which are Delaware registered corporations in the United States of
America.
Strategic Report
The Directors present the Strategic Report for the year ended 28
February 2017. The Board prepared this report in accordance with the
Companies Act 2006 (Strategic Report and Directors' Reports) Regulations
2013.
Principal objectives and strategy
The Board is recommending a revised Principal Objectives and Strategy to
shareholders to take account of the new VCT rules introduced by the
Finance (No. 2) Act 2015 and Finance Act 2016. The text of the proposed
wording is shown below. An explanation of the changes is set out in the
Chairman's Statement.
The Company's investment objective is to achieve long-term returns
greater than those available from investing in a portfolio of quoted
companies, by investing in:
-- a portfolio of carefully selected qualifying investments in small and
medium sized unquoted companies with excellent growth prospects; and
-- a portfolio of non-qualifying investments permitted for liquidity
management purposes
within the conditions imposed on all VCTs and to minimise the risk of
each investment and the portfolio as a whole.
The Company has been approved by HM Revenue and Customs ("HMRC") as a
Venture Capital Trust in accordance with Part 6 of the Income Tax Act
2007, and in the opinion of the Directors the Company, has conducted its
affairs so as to enable it to continue to maintain approval. Approval
for the year ended 28 February 2017 is subject to review should there be
any subsequent enquiry under corporation tax self-assessment.
The Directors consider that the Company was not, at any time, up to the
date of this announcement, a close company within the meaning of Section
414 of the Income and Corporation Taxes Act 1988.
Business model
The business acts as an investment company, investing in a portfolio of
carefully selected smaller companies. The Company operates as a Venture
Capital Trust to ensure that its shareholders can benefit from tax
reliefs available and has outsourced the portfolio management and
administration duties.
Business review and developments
The Company began the year with GBP61.8 million of venture capital
investments and ended with GBP68.6 million spread over a portfolio of 47
companies. 40 of these investments with a value of GBP56.2 million were
VCT qualifying (or part qualifying).
The profit on ordinary activities after taxation for the year was GBP8.1
million comprising a revenue profit of GBP86,000 and a capital profit of
GBP8.0 million. The Ongoing Charges ratio (excluding performance fees)
in respect of the year ended 28 February 2017, based on average net
assets during the year, was 2.6% (2016: 2.7%).
The Company's business review and developments during the year are
reviewed further within the Chairman's Statement and the Investment
Manager's Review.
Investment policy
The Board is recommending a revised Investment Policy to shareholders to
take account of the new VCT rules introduced by the Finance (No. 2) Act
2015 and Finance Act 2016. The text of the proposed wording is shown
below. An explanation of the changes is set out in the Chairman's
Statement.
The Company's investment policy covers several areas as follows:
Qualifying investments
The Company seeks to make investments in VCT-qualifying companies with
the following characteristics:
-- a strong, balanced and well-motivated management team with a proven track
record of achievement;
-- a defensible market position;
-- good growth potential;
-- an attractive entry price for the Company;
-- the ability to structure the investment with a proportion of secured loan
notes in order to reduce risk; and
-- a clearly identified route for a profitable realisation within a three to
four year period.
The Company invests in companies at various stages of development,
including those requiring capital for expansion, but not in start-ups or
in management buy-outs or businesses seeking to use funding to acquire
other businesses. Investments are spread across a range of different
sectors.
Other investments
Funds not invested in qualifying investments may be invested in
non-qualifying investments permitted for liquidity management purposes,
which include cash, alternative investment funds ("AIFs") and UCITS
which may be redeemed on no more than 7 days' notice, or ordinary shares
or securities in a company that are acquired on an EU regulated market.
Existing non-qualifying investments made by the Company prior to Royal
Assent of the Finance (No. 2) Act 2015 on 18 November 2015 are not
affected by this change in Investment Policy.
Borrowings
It is not the Company's intention to have any borrowings. The Company
does, however, have the ability to borrow a maximum amount equal to the
nominal capital of the Company and its distributable and undistributable
reserves.
Venture capital trust regulations
In continuing to maintain its VCT status, the Company complies with a
number of regulations as set out in Part 6 of the Income Tax Act 2007.
How the main regulations apply to the Company is summarised as follows:
1. the Company holds at least 70 per cent. of its investments in qualifying
companies (as defined by Part 6 of the Income Tax Act 2007);
2. at least 30 per cent. (70 per cent. in the case of funds raised after 5
April 2011) of the Company's qualifying investments (by value) are held
in "eligible shares" - ("eligible share" generally being ordinary share
capital);
3. at least 10 per cent. of each investment in a qualifying company is held
in "eligible shares" (by cost at time of investment)
4. no investment constitutes more than 15 per cent. of the Company's
portfolio (by value at time of investment);
5. the Company's income for each financial year is derived wholly or mainly
from shares and securities;
6. the Company distributes sufficient revenue dividends to ensure that not
more than 15 per cent. of the income from shares and securities in any
one year is retained;
7. as required by the Finance Act 2014, the Company has not made a
prohibited payment to Shareholders derived from an issue of shares since
6 April 2014;
8. no investment made by the Company causes an investee company to receive
more than the permitted investment from State Aid sources (including from
VCTs);
9. since the Finance (No. 2) Act 2015 received Royal Assent on 18 November
2015, the Company has not made an investment in a company which exceeds
the maximum permitted age requirement;
10. the funds invested by the Company in another company since the Finance
(No. 2) Act 2015 received Royal Assent on 18 November 2015 have not been
used to make a prohibited acquisition; and
11. as required by the Finance Act 2016, the Company has not made a
prohibited non-qualifying investment since 6 April 2016.
Listing Rules
In accordance with the Listing Rules:
1. the Company may not invest more than 10%, in aggregate, of the value of
the total assets of the Company at the time an investment is made in
other listed closed-ended investment funds except listed closed-ended
investment funds which have published investment policies which permit
them to invest no more than 15% of their total assets in other listed
closed-ended investment funds;
2. the Company must not conduct any trading activity which is significant in
the context of the Company; and
3. the Company must, at all times, invest and manage its assets in a way
which is consistent with its objective of spreading investment risk and
in accordance with its published investment policy set out in this
document. This investment policy is in line with Chapter 15 of the
Listing Rules and Part 6 Income Tax Act 2007.
Venture capital trust regulations
The Company has engaged Philip Hare & Associates LLP to advise it on
compliance with VCT requirements, including evaluation of investment
opportunities as appropriate and regular review of the portfolio.
Although Philip Hare & Associates LLP works closely with the Investment
Manager, they report directly to the Board.
Compliance with the main VCT regulations as at 28 February 2017 and for
the year then ended is summarised as follows:
i. The Company holds at least 70 per cent. of its Complied
investments in qualifying companies (as defined by
Part 6 of the Income Tax Act 2007)
ii. At least 30 per cent. (70 per cent. in the case Complied
of funds raised after 5 April 2011) of the Company's
qualifying investments (by value) are held in "eligible
shares" - ("eligible share" generally being ordinary
share capital)
iii. At least 10 per cent. of each investment in a Complied
qualifying company is held in "eligible shares" (by
cost at time of investment)
iv. No investment in a company constitutes more than Complied
15 per cent. of the Company's portfolio (by value
at time of investment)
v. The Company's income for each financial year is Complied
derived wholly or mainly from shares and securities
vi. The Company distributes sufficient revenue dividends Complied
to ensure that not more than 15 per cent. of the income
from shares and securities in any one year is retained
vii. As requested by the Finance Act 2014, the Company Complied
has not made a prohibited payment to Shareholders
derived from an issue of shares since 6 April 2014
viii. No investment made by the Company causes an Complied
investee company to receive more than the permitted
investment from State Aid sources (including from
VCTs)
ix. Since the Finance (No. 2) Act received Royal Assent Complied
on 18 November 2015, the Company has not made an investment
in a company which exceeds the maximum permitted age
requirement
x. The funds invested by the Company in another company Complied
since the Finance (No. 2) Act received Royal Assent
on 18 November 2015 have not been used to make a prohibited
acquisition
xi. As required by the Finance Act 2016, the Company Complied
has not made a prohibited non-qualifying investment
since 6 April 2016.
Borrowings
It is not the Company's intention to have any borrowings. The Company
does, however, have the ability to borrow a maximum amount equal to the
nominal capital of the Company and its distributable and undistributable
reserves, which, at 28 February 2017, was equal to GBP112.3 million
(2016: GBP71.9 million). There are no plans to utilise this facility at
the current time.
Investment management and administration fees
Beringea LLP ("Beringea") provides investment management services to the
Company for an annual fee of 2.0% of the net assets per annum. Beringea
is also entitled to receive performance incentive fees as described
below. The investment management agreement is terminable by either party
at any time by one year's prior written notice. The total fees relating
to this service amounted to GBP1,525,000 (2016: GBP1,496,000) (inclusive
of VAT where applicable), of which GBP407,000 (2016: GBP355,000) was
outstanding at the year end.
The Board is satisfied with Beringea's approach and procedures in
providing investment management services to the Company. The Directors
have therefore concluded that the continuing appointment of Beringea as
the Investment Manager remains in the best interest of Shareholders.
Throughout the year ended 28 February 2017 Beringea also provided
administration services to the Company. In the year, total
administration fees amount to GBP51,000 (2016: GBP33,400). An amount of
GBP13,000 (2016: GBP13,000) remained outstanding at the year end.
The annual running costs (excluding any performance fees payable) of the
Company, are also subject to a cap of 3.6% of the Company's net assets
as at the end of the year. Any costs in excess of this are borne by
Beringea.
Beringea also received arrangement fees in respect of investments made
by the Company and other VCTs managed by Beringea totalling GBP278,000
(2016: GBP590,000) and monitoring fees of GBP700,000 (2016: GBP708,000).
These fees are payable by the investee companies into which the Company
invests and are not a direct liability or expense of the Company.
Performance incentive fees
As reported in the Chairman's Statement, it became apparent during the
year that the performance incentive arrangements in place do not fully
reflect the original intentions of your Board and the Investment
Manager. Your Board has therefore agreed with the Investment Manager
that the performance incentive arrangements will be varied as set out
below. From the year ended 28 February 2017, the performance targets and
restrictions approved by Shareholders in 2014 and originally applied to
the Ordinary Shares as a whole will now be applied to each major
fundraising (a "Respective Offer"). The cumulative fee payable under the
revised arrangements will never exceed the cumulative fee payable under
the previous arrangements and so further shareholder approval is not
required.
Under the revised performance fee arrangements, the Investment Manager
is entitled to receive a performance fee in relation to each Respective
Offer providing that, at the end of a financial year, the relevant
Respective Offer Performance Value exceeds the relevant Respective Offer
Hurdle. In this event the performance fee per Respective Offer Share
will be equal to 20 per cent, of the amount by which each such
Respective Offer Performance Value exceeds the relevant Respective Offer
Initial Net Asset Value per Share, less the aggregate amount of any
performance fee per Respective Offer Share already paid in respect of
that Respective Offer for financial years starting after 29 February
2012.
The Respective Offer Performance Value in respect of the relevant
financial year end is the sum of (i) the audited net asset value per
Ordinary Share for a Respective Offer at that date, (ii) Respective
Offer Cumulative Dividends, and (iii) all performance fees per Ordinary
Share paid by the shareholders of the Respective Offer in relation to
financial years starting after 29 February 2012.
The Respective Offer Hurdle is the greater of (i) 1.25 times the
Respective Offer Initial Net Asset Value per Share and (ii) the
Respective Offer Initial Net Asset Value per Share increased by the Bank
of England base rate plus one per cent, per annum (compound) from:
-- 31 August 2012, in respect of the Original Offer; or
-- the date of the first allotment of Ordinary Shares under each Subsequent
Offer, in respect of all Subsequent Offers.
If at the end of a financial year, the relevant Respective Offer
Performance Value is less than or equal to the relevant Respective Offer
Hurdle, no performance fee will be payable for such Respective Offers
for that financial year.
The performance fee per Respective Offer Share payable in relation to a
Respective Offer for a financial year will be reduced, if necessary, to
ensure that (i) the cumulative performance fee per Respective Offer
Share payable in respect of a Respective Offer does not exceed 20 per
cent, of the relevant Respective Offer Cumulative Dividends, (ii) the
cumulative performance fee per Respective Offer Share payable in respect
of the Respective Offer does not exceed 50 per cent, of the amount by
which the relevant Respective Offer Performance Value exceeds the
relevant Respective Offer Hurdle and (iii) the audited net asset value
per Ordinary Share at the relevant financial year end plus the relevant
Respective Offer Cumulative Dividends is at least equal to the relevant
Respective Offer Hurdle.
All fees paid under the new performance incentive arrangements will be
inclusive of VAT, if applicable.
Performance fees for the year ended 28 February 2017 amounted to GBP2.6
million (2016: GBPnil), of which GBP2.6 million (2016: GBPnil) was
outstanding at the year-end.
Directors and senior management
The Company has four non-executive Directors at the year end, three of
whom are male and one of whom is female. The Company has no employees
and the same was true of the previous year.
Key performance indicators
At each Board meeting, the Directors consider a number of performance
measures to assess the Company's success in meeting its investment
objectives (as shown above). The Board believes the Company's key
performance indicators are NAV total return (NAV plus cumulative
dividends paid to date) and dividends per share.
In addition, the Board considers the Company's performance in relation
to other VCTs taking into account both past and future investment
strategies of the Company and other VCTs.
Principal risks and uncertainties
The principal financial risks faced by the Company, which include market
price risk, interest rate risk, credit risk and liquidity risk (being
minimal), are summarised within note 4 of this announcement.
In addition to these risks, the Company, as a fully listed Company on
the London Stock Exchange and as a venture capital trust, operates in a
complex regulatory environment and therefore faces a number of related
risks. A breach of the VCT Regulations could result in the loss of VCT
status and consequent loss of tax reliefs currently available to
Shareholders and the Company being subject to capital gains tax. Serious
breaches of other regulations, such as the Listing Rules of the
Financial Conduct Authority and the Companies Act 2006, could lead to
suspension from the Stock Exchange and damage to the Company's
reputation.
The Board reviews and agrees policies for managing each of these risks.
The Directors receive reports annually from the Investment Manager on
the compliance of systems to manage these risks, and place reliance on
the Investment Manager to give updates in the intervening periods. These
policies have remained unchanged since the beginning of the financial
year.
Viability statement
The Board has assessed the Company's prospects over the three year
period to 29 February 2020. A three year period has been considered
appropriate as it broadly aligns with the time frame during which the
Investment Manager will be required to invest 70% of the funds from the
most recent offer for subscription in qualifying investments.
In order to support this statement, the Board has carried out a robust
assessment of the principal risks faced by the Company, as detailed
above, and considered the availability of mitigating factors.
The Board considers that the primary risk faced by the Company is
compliance with the VCT rules and although there are a number of
mitigating factors such as a robust deal identification and diligence
process, an experienced investment team and consultation with the
Company's VCT status adviser to ensure that investments made comply with
the new VCT rules, these factors cannot mitigate the risk that
insufficient qualifying investments are identified to ensure ongoing
compliance with the 70% VCT qualification test.
Accordingly, the amount required to invest in qualifying holdings to
maintain compliance with the VCT rules was a major consideration in the
Board's analysis. Together with the expected liabilities of the Company
for the three years to 29 February 2020, the Board considered the
forecast cash requirements against the expected cash position, taking
into account a level of assumed investment realisations and investment
income during the period.
Based on the above considerations, the Board has determined that the
Company will be able to continue in operation, maintain compliance with
the VCT rules and meet its liabilities as they fall due for the three
years to 29 February 2020.
Directors' remuneration
It is a requirement under Companies Act 2006 for shareholders to approve
the Directors' remuneration policy every three years or sooner if the
Company wishes to make changes to the policy.
Greenhouse emissions
Whilst as a UK quoted company the Company is required to report on its
Greenhouse Gas (GHG) Emissions, as it outsources all of its activities
and does not have any physical assets, property, employees or operations,
it is not responsible for any direct emissions.
Environmental, social and human rights policy
The Board seeks to conduct the Company's affairs responsibly. Where
appropriate, the Board and Investment Manager take environmental, social
and human rights factors into consideration.
Future prospects
The Company's future prospects are set out in the Chairman's Statement
and Investment Manager's Review.
The Directors do not foresee any major changes in the activity
undertaken by the Company in the coming year. The Company continues with
its objective to invest in unquoted companies throughout the United
Kingdom with a view to minimising the risks of investment and providing
both capital growth and dividend income to Shareholders over the long
term whilst maintaining VCT qualifying status.
By order of the Board
Beringea LLP
Company Secretary of ProVen Growth & Income VCT plc
Directors' responsibilities statement
The Board considers that the Annual Report and Accounts, taken as a
whole, are fair, balanced and understandable and that they provide the
information necessary for Shareholders to assess the Company's
performance, business model and strategy.
The Directors are responsible for preparing the Directors' Report, the
Directors' Remuneration Report, Strategic Report and the financial
statements in accordance with applicable law and regulations. They are
also responsible for ensuring that the annual report includes
information required by the Listing Rules of the Financial Conduct
Authority.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law, the Directors have elected to
prepare the financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom accounting
standards and applicable law). Under company law, the Directors must not
approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and accounting estimates that are reasonable and prudent;
-- state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
-- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions, to
disclose with reasonable accuracy at any time the financial position of
the Company and to enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
Directors' responsibilities pursuant to the Disclosure and Transparency
Rule 4
Each of the Directors confirms that to the best of each person's
knowledge:
-- the financial statements, which have been prepared in accordance with UK
Generally Accepted Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company; and
-- the Directors' Report, Chairman's Statement, Strategic Report, Investment
Manager's Review and Review of Investments 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 that it faces.
Statement as to disclosure of information to the Auditor
The Directors in office at the date of this announcement have confirmed,
as far as they are aware, that there is no relevant audit information of
which the Auditor is unaware. Each of the Directors have confirmed that
they have taken all the steps that they ought to have taken as Directors
in order to make themselves aware of any relevant audit information and
to establish that it has been communicated to the Auditor. This
confirmation is given and should be interpreted in accordance with the
provisions of section 418 of the Companies Act 2006.
Income Statement
for the year ended 28 February 2017
Year ended 28 February Year ended 29 February
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 900 - 900 1,184 - 1,184
Gains on
investments - 11,834 11,834 - 60 60
900 11,834 12,734 1,184 60 1,244
Investment
management fees (381) (1,144) (1,525) (374) (1,122) (1,496)
Performance
incentive fees - (2,634) (2,634) - - -
Other expenses (433) (15) (448) (434) (5) (439)
Return/(loss) on
ordinary
activities before
tax 86 8,041 8,127 376 (1,067) (691)
Tax on
ordinary
activities - - - - - -
Return/(loss)
attributable to
equity
shareholders 86 8,041 8,127 376 (1,067) (691)
Basic and diluted
return/ (loss) per
share 0.1p 8.7p 8.8p 0.4p (1.2)p (0.8)p
All revenue and capital movements in the year relate to continuing
operations. No operations were acquired or discontinued during the year.
The total column within the Income Statement represents the Income
Statement of the Company, prepared in accordance with the accounting
policies detailed in note 1 to this announcement. The supplementary
revenue and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the
Association of Investment Companies.
A Statement of Comprehensive Income has not been prepared as all gains
and losses are recognised in the Income Statement in the current and
prior year as shown.
Other than revaluation movements arising on investments held at fair
value through profit or loss, there were no differences between the
return as stated above and at historical cost.
Statement of Changes in Equity
for the year ended 28 February 2017
Year ended 28 February 2017
Share
Called up Capital capital
share redemption Special Share to be Revaluation Capital Revenue
capital reserve reserve premium issued reserve reserve- realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 March
2016 1,454 1,121 35,956 25,631 - 3,062 4,821 (174) 71,871
Issue of new
shares 167 - - 8,232 - - - - 8,399
Share buybacks
and
cancellation (27) 27 (1,262) - - - - - (1,262)
Share issue
costs - - (155) - - - - - (155)
Total
comprehensive
income - - - - - 7,543 498 86 8,127
Dividends paid - - (5,188) - - - - (358) (5,546)
Unallotted
share
capital - - - - 30,910 - - - 30,910
At 28 February
2017 1,594 1,148 29,351 33,863 30,910 10,605 5,319 (446) 112,344
Year ended 29 February 2016
Capital
Called up share redemption Special Share Share capital to be Revaluation Capital Revenue
capital reserve reserve premium issued reserve reserve- realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 March
2015 1,173 1,105 41,128 10,089 3,125 5,737 3,213 (327) 65,243
Issue of new
shares 297 - - 15,542 (3,125) - - - 12,714
Share buybacks
and
cancellation (16) 16 (765) - - - - - (765)
Share issue
costs - - (585) - - - - - (585)
Total
comprehensive
income - - - - - (2,675) 1,608 376 (691)
Dividends paid - - (3,822) - - - - (223) (4,045)
At 29 February
2016 1,454 1,121 35,956 25,631 - 3,062 4,821 (174) 71,871
The special reserve, capital reserve - realised and revenue reserve are
all distributable reserves. The distributable reserves are reduced by
losses of GBP372,000 (2016: GBP372,000) which are included in the
revaluation reserve. Reserves available for distribution therefore
amount to GBP33,852,000 (2016: GBP40,231,000).
During the year the Company repurchased 1,673,962 shares (2016: 963,395)
with a nominal value of GBP27,000 (2016: GBP16,000). All shares were
subsequently cancelled.
The composition of each of these reserves is explained below:
Called up share capital - The nominal value of shares issued, increased
for subsequent share issues either via an offer for subscription or the
Company's dividend reinvestment scheme, or reduced due to shares bought
back by the Company for cancellation.
Capital redemption reserve - The nominal value of shares bought back and
cancelled.
Special reserve - A distributable reserve which is used to fund shares
bought back by the Company for cancellation and share issue costs on
shares issued under an offer for subscription. Dividends that are
classified as capital may be paid from this reserve.
Share premium reserve - This reserve contains the excess of gross
proceeds over the nominal value of shares allotted under offers for
subscription and the Company's dividend reinvestment scheme, to the
extent that it has not been cancelled.
Share capital to be issued - This reserve contains the amount that has
been raised under open offers for subscription, but which at the
relevant period end had not been allotted.
Revaluation reserve - Increases and decreases in the valuation of
investments held at the year-end are accounted for in this reserve,
except to the extent that the diminution is deemed permanent.
In accordance with stating all investments at fair value through profit
and loss, all such movements through both revaluation and capital
reserve - realised are shown within the Income Statement for the year.
Capital reserve realised - The following are accounted for in this
reserve:
-- Gains and losses on realisation of investments;
-- Permanent diminution in value of investments;
-- Transaction costs incurred in the acquisition of investments;
-- 75% of the investment manager's fee expense and 100% of any performance
incentive fee payable; and
-- Other capital expenses and charges.
Dividends that are classified as capital may be paid from this reserve.
Revenue reserve - Income and expenses that are revenue in nature are
accounted for in this reserve together with the related tax effect, as
well as dividends paid that are classified as revenue in nature.
Statement of Financial Position
as at 28 February 2017
28 February 2017 29 February 2016
GBP'000 GBP'000
Fixed assets
Investments 68,624 61,784
Current assets
Debtors 553 626
Cash at bank and in hand 46,450 10,110
47,003 10,736
Creditors: amounts
falling due within one
year (3,283) (649)
Net current assets 43,720 10,087
Total assets less
current liabilities 112,344 71,871
Capital and reserves
Called up share capital 1,594 1,454
Capital redemption
reserve 1,148 1,121
Special reserve 29,351 35,956
Share premium 33,863 25,631
Share capital to be
issued 30,910 -
Revaluation reserve 10,605 3,062
Capital reserve -
realised 5,319 4,821
Revenue reserve (446) (174)
Total equity
shareholders' funds 112,344 71,871
Basic and diluted net 82.7p 80.0p
asset value per share
Statement of Cash Flows
for the year ended 28 February 2017
Year ended 28 February Year ended 29 February
2017 2016
GBP'000 GBP'000
Net cash used in
operating activities (1,314) (738)
Cash flows from
investing activities
Purchase of investments (9,166) (24,564)
Sale of investments 14,540 6,121
Net cash from/(used in)
investing activities 5,374 (18,443)
Cash flows from
financing activities
Proceeds from share
issue 7,754 12,287
Share issue costs (155) (585)
Purchase of own shares (1,328) (854)
Share capital to be
issued 30,910 -
Equity dividends paid (4,901) (3,618)
Net cash from financing 32,280 7,230
Increase/(decrease) in
cash and cash
equivalents 36,340 (11,951)
'Net cash used in operating activities' includes interest received of
GBP594,000. No dividends were received during the year and no interest
was paid during the year.
Notes to the Announcement
for the year ended 28 February 2017
1 Accounting policies
Basis of accounting
The Company has prepared its financial statements under Financial
Reporting Standard 102 ("FRS102") and in accordance with the Statement
of Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' (the "SORP") issued by the
Association of Investment Companies ("AIC"), which was revised in
November 2014.
The financial statements are prepared under the historical cost
convention except for the revaluation of certain financial instruments
measured at fair value.
The following accounting policies have been applied consistently
throughout the period.
Going concern
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. Thus they
continue to adopt the going concern basis of accounting in preparing the
financial statements.
Presentation of Income Statement
In order to better reflect the activities of an investment company and,
in accordance with guidance issued by the AIC, supplementary information
which analyses the Income Statement between items of a revenue and
capital nature has been presented alongside the Income Statement. The
revenue return attributable to equity shareholders is the measure the
Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Part 6 of the Income Tax Act 2007.
Investments
Investments, including equity and loan stock, are recognised at their
trade date and measured at "fair value through profit or loss" due to
investments being managed and performance evaluated on a fair value
basis. A financial asset is designated within this category if it is
both acquired and managed, with a view to selling after a period of time,
in accordance with the Company's documented investment policy. The fair
value of an investment upon acquisition is deemed to be cost.
Thereafter investments are measured at fair value in accordance with
International Private Equity and Venture Capital Valuation Guidelines
("IPEV Guidelines") issued in December 2015, together with sections 11
and 12 of FRS102.
Publicly traded investments are measured using bid prices in accordance
with the IPEV Guidelines.
Key judgements and estimates
The valuation methodologies used by the Directors for estimating the
fair value of unquoted investments are as follows:
-- investments are usually retained at cost for twelve months
following investment, except where a company's performance against plan
is significantly below the expectations on which the investment was made
in which case a provision against cost is made as appropriate;
-- where a company is in the early stage of development it will
normally continue to be held at cost as the best estimate of fair value,
reviewed for impairment on the basis described above;
-- where a company is well established after an appropriate
period, the investment may be valued by applying a suitable earnings or
revenue multiple to that company's maintainable earnings or revenue.
The multiple used is based on comparable listed companies or a sector
but discounted to reflect factors such as the different sizes of the
comparable businesses, different growth rates and the lack of
marketability of unquoted shares;
-- where a value is indicated by a material arms-length
transaction by a third party in the shares of the company, the valuation
will normally be based on this, reviewed for impairment as appropriate;
-- where alternative methods of valuation, such as net assets
of the business or the discounted cash flows arising from the business
are more appropriate, then such methods may be used; and
-- where repayment of the equity is not probable, redemption
premiums will be recognised.
The methodology applied takes account of the nature, facts and
circumstances of the individual investment and uses reasonable data,
market inputs, assumptions and estimates in order to ascertain fair
value. Methodologies are applied consistently from year to year except
where a change results in a better estimate of fair value.
Where an investee company has gone into receivership or liquidation, or
the loss in value below cost is considered to be permanent, or there is
little likelihood of a recovery from a company in administration, the
loss on the investment, although not physically disposed of, is treated
as being realised.
All investee companies are held as part of an investment portfolio and
measured at fair value. Therefore, it is not the policy for investee
companies to be consolidated and any gains or losses arising from
changes in fair value are included in the Income Statement for the
period as a capital item.
Gains and losses arising from changes in fair value are included in the
Income Statement for the year as a capital item and transaction costs on
acquisition or disposal of the investment are expensed.
Investments are derecognised when the contractual rights to the cash
flows from the asset expire or the Company transfers the asset and
substantially all the risks and rewards of ownership of the asset to
another entity.
Fair value
Fair value is defined as the amount for which an asset could be
exchanged between knowledgeable, willing parties in an arm's length
transaction. The Company has categorised its financial instruments that
are measured subsequent to initial recognition at fair value, using the
fair value hierarchy as follows:
Level 1: The unadjusted quoted price in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2: Inputs other than quoted prices included within Level 1 that
are observable (ie developed using market data) for the asset or
liability, either directly or indirectly.
Level 3: Inputs are unobservable (ie for which market data is
unavailable) for the asset or liability.
Income
Dividend income from investments is recognised when the shareholders'
rights to receive payment has been established, normally the ex-dividend
date.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable and
only where there is reasonable certainty of collection in the
foreseeable future. Income which is not capable of being received within
a reasonable period of time is reflected in the capital value of the
investments. A provision is made for any fixed income not expected to be
received.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the Income
Statement, all expenses have been presented as revenue items except as
follows:
-- expenses which are incidental to the acquisition of an investment are
deducted from the Capital Account;
-- expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment;
-- expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the
investments held can be demonstrated. Accordingly, the investment
management fee has been allocated 25% to revenue and 75% to capital in
order to reflect the Directors' expected long-term view of the nature of
the investment returns of the Company; and
-- performance incentive fees are treated as a capital item.
Taxation
The tax effects of different items in the Income Statement are allocated
between capital and revenue on the same basis as the particular item to
which they relate using the Company's effective rate of tax for the
accounting period.
Due to the Company's status as a venture capital trust and the continued
intention to meet the conditions required to comply with Part 6 of the
Income Tax Act 2007, no provision for taxation is required in respect of
any realised or unrealised appreciation of the Company's investments.
Deferred taxation, which is not discounted, is provided in full on
timing differences that result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at
rates expected to apply when they crystallise based on current tax rates
and law.
Timing differences arise from the inclusion of items of income and
expenditure in taxation computations in periods different from those in
which they are included in the financial statements. Deferred tax assets
are recognised to the extent that it is regarded as more likely than not
that they will be recovered.
Share issue costs
Expenses in relation to share issues are deducted from the Special
Reserve.
2 Basic and diluted return per share
Year ended Year ended
28 February 29 February
2017 2016
Revenue return per share based on:
Net revenue after taxation (GBP'000) 86 376
Weighted average number of shares in issue 92,376,448 88,426,596
Pence per share 0.1p 0.4p
Capital return/ (loss) per share based on:
Net capital return/ (loss) for the financial year
(GBP'000) 8,041 (1,067)
Weighted average number of shares in issue 92,376,448 88,426,596
Pence per share 8.7p (1.2)p
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per share. The return per
share disclosed therefore represents both basic and diluted return per
share.
3 Basic and diluted net asset value per share
2017 2016
Shares in issue Net asset value Net asset value
Pence Pence
per per
2017 2016 share GBP'000 share GBP'000
Ordinary
Shares 98,501,050 89,876,145 82.7p 81,434 80.0p 71,871
Ordinary
share
capital
to be
issued 30,910 -
112,344 71,871
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on net asset value per share. The
net asset value per share disclosed therefore represents both basic and
diluted return per share.
4 Principal risks and management objectives
The Company's investment activities expose the Company to a number of
risks associated with financial instruments and the sectors in which the
Company invests. The principal financial risks arising from the
Company's operations are:
-- Market risks;
-- Credit risk; and
-- Liquidity risk.
The Board regularly reviews these risks and the policies in place for
managing them. There have been no significant changes to the nature of
the risks that the Company is exposed to over the year and there have
also been no significant changes to the policies for managing those
risks during the year. The risk management policies used by the Company
in respect of the principal financial risks and a review of the
financial instruments held at the year-end are provided below:
Market risks
As a VCT, the Company is exposed to market risks in the form of
potential losses and gains that may arise on the investments it holds.
The management of these market risks is a fundamental part of investment
activities undertaken by the Investment Manager and overseen by the
Board. The Investment Manager monitors investments through regular
contact with the management of investee companies, regular review of
management accounts and other financial information and attendance at
investee company board meetings. This enables the Investment Manager to
manage the investment risk in respect of individual investments. Market
risk is also mitigated by holding a portfolio diversified across several
business sectors and asset classes.
The key market risks to which the Company is exposed are:
-- Market price risk; and
-- Interest rate risk.
Market price risk
Market price risk arises from uncertainty about the future prices and
valuations of financial instruments held in accordance with the
Company's investment objectives. It represents the potential loss that
the Company might suffer through market price movements in respect of
quoted investments and also changes in the fair value of unquoted
investments that it holds.
At 28 February 2017, the AIM-quoted portfolio was valued at GBP665,000
(2016: GBP893,000).
The Company's sensitivity to fluctuations in the share prices of its
AIM-quoted investments is summarised below. A 10% movement in the share
price of all of the AIM-quoted investments held by the Company would
have an effect as follows:
10% movement
in AIM-quoted
investments 2017 2016
Impact on net Impact on NAV Impact on net Impact on NAV
assets per share assets per share
GBP'000 Pence GBP'000 Pence
AIM-quoted
investments 67 0.1p 89 0.1p
At 28 February 2017, the unquoted portfolio was valued at GBP67,959,000
(2016: GBP60,891,000).
As many of the Company's unquoted investments are valued using revenue
or earnings multiples of comparable companies or sectors, a fall in
share prices generally would impact on the valuation of the unquoted
portfolio. A 10% movement in the valuations of all of the unquoted
investments held by the Company would have an effect as follows:
10% movement in unquoted
investment valuations 2017 2016
Impact on net Impact on NAV Impact on net Impact on NAV
assets per share assets per share
GBP'000 Pence GBP'000 Pence
Unquoted
investments 6,796 6.9p 6,089 6.8p
The sensitivity analysis for unquoted valuations above assumes that each
of the sub-categories of financial instruments (ordinary shares,
preference shares and loan stocks) held by the Company produces an
overall movement of 10%. Shareholders should note that equal correlation
between these sub-categories is unlikely to be the case in reality,
particularly in the case of loan stock instruments. Where share prices
are falling, the equity instrument could fall in value before the loan
stock instrument. It is not considered practical to assess the
sensitivity of the loan stock instruments to market price risk in
isolation.
Interest rate risk
The Company is exposed to interest rate risk on floating-rate financial
assets through the effect of changes in prevailing interest rates. The
Company receives interest on its cash deposits at a rate agreed with its
bankers. Investments in loan stock attract interest predominately at
fixed rates. A summary of the interest rate profile of the Company's
financial instruments is shown below.
There are three categories in respect of interest which are attributable
to the financial instruments held by the Company as follows:
-- "Fixed rate" assets represent investments with predetermined yield
targets and comprise certain loan note investments.
-- "Floating rate" assets predominantly bear interest at rates linked to
Bank of England base rate or LIBOR and comprise cash at bank and certain
loan note investments.
-- "No interest rate" assets do not attract interest and comprise equity
investments, certain loan note investments, loans and receivables
(excluding cash at bank) and other financial liabilities.
Average Average period 2017 2016
interest rate until maturity GBP'000 GBP'000
Fixed rate 7.5% 1,045 days 24,718 31,952
Floating rate 0.3% 2 days 46,672 10,333
No interest rate 40,954 29,532
112,344 71,817
The Company monitors the level of income received from fixed, floating
and no interest rate assets and, if appropriate, may make adjustments to
the allocation between the categories, in particular should this be
required to ensure compliance with the VCT regulations.
Based on the assumption that the yield of all floating rate financial
instruments would change by an amount equal to the movement in
prevailing interest rates, it is estimated that an increase of 1% in
interest rates would have increased total return before taxation for the
year by GBP467,000 (2016: GBP103,000). Given the low level of interest
rates through the year, a further decrease in interest rates is not
considered likely.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument is
unable to discharge a commitment to the Company made under that
instrument. The Company is exposed to credit risk through its holdings
of loan stock in investee companies, cash deposits and debtors. Credit
risk relating to loan stock in investee companies is considered to be
part of market risk.
The Company is exposed to credit risk as follows:
2017 2016
GBP'000 GBP'000
Investments in loan stocks 24,940 32,175
Cash and cash equivalents 46,450 10,110
Interest, dividends and other receivables 491 533
71,881 42,818
The Investment Manager manages credit risk in respect of loan stock with
a similar approach as described under Investment risks above. In
addition the credit risk is partially mitigated by registering floating
charges over the assets of the respective investee companies. The
strength of this security in each case is dependent on the nature of the
investee companies' business and its identifiable assets. Similarly, the
management of credit risk associated with interest, dividends and other
receivables is covered within the investment management procedures.
Cash is held by the Royal Bank of Scotland plc, rated BBB+ by Standard
and Poor's and Fitch, and is also ultimately part-owned by the UK
Government. Consequently, the Directors consider that the risk profile
associated with cash deposits is low.
There have been no changes in fair value during the year that are
directly attributable to changes in credit risk.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in
meeting obligations associated with its financial liabilities. Liquidity
risk may also arise from either the inability to sell financial
instruments when required at their fair values or from the inability to
generate cash inflows as required. The Company maintains a relatively
low level of creditors (GBP3,283,000 at 28 February 2017) and has no
borrowings.
The Company always holds sufficient levels of funds as cash in order to
meet expenses and other cash outflows as required. For these reasons,
the Board believes that the Company's exposure to liquidity risk is
minimal.
The Company's liquidity risk is managed by the Investment Manager in
line with guidance agreed with the Board and is reviewed by the Board at
regular intervals.
Although the Company's investments are not held to meet the Company's
liquidity requirements, the table below shows an analysis of the loan
notes, highlighting the length of time that it could take the Company to
realise its loan stock assets if it were required to do so.
The carrying value of loan stock investments (as opposed to the
contractual cash flows) at 28 February 2017 as analysed by expected
maturity date is as follows:
Not later Between Between Between More
than 1 1 and 2 2 and 3 3 and 5 than
years years years years 5 years Total
As at 28 February 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fully performing loan
stock 1,137 3,334 4,467 14,444 - 23,382
Past due loan stock 605 - 953 - - 1,558
1,742 3,334 5,420 14,444 - 24,940
As at 29 February 2016
Fully performing loan
stock 2,604 2,518 6,648 19,331 - 31,101
Past due loan stock - 1,074 - - - 1,074
2,604 3,592 6,648 19,331 - 32,175
Of the loan stock classified as "past due" above, GBP1,558,000 relates
to the principal of loan notes where the principal has passed its
maturity date.
Fair Value of Financial Instruments
Fair value measurements recognised in the Statement of Financial
Position
Investments are valued at fair value as determined using the measurement
policies described in note 1. The carrying value of financial assets and
liabilities recorded at amortised cost, which includes short term
debtors and creditors, is considered by Directors to be equivalent to
their fair value.
The Company has categorised its financial instruments that are measured
subsequent to initial recognition at fair value, using the fair value
hierarchy as follows:
Level 1 Reflects financial instruments quoted in an
active market.
Level 2 Reflects financial instruments that have been
valued using inputs, other than quoted prices, that are observable.
Level 3 Reflects financial instruments that have been
valued using valuation techniques with unobservable inputs.
2017 2016
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AIM quoted 665 - - 665 893 - - 893
Loan notes - - 24,940 24,940 - - 32,175 32,175
Unquoted
equity - - 35,510 35,510 - - 25,268 25,268
Preference
shares - - 7,509 7,509 - - 3,448 3,448
665 - 67,959 68,624 893 - 60,891 61,784
Reconciliation of fair value for Level 3 financial instruments held at
the year end
Loan Notes Unquoted equity Total
GBP'000 GBP'000 GBP'000
Balance at 29 February 2016 32,175 28,716 60,891
Movements in the income statement:
Gains in the income statement 355 11,600 11,955
Purchases at cost 571 8,622 9,193
Conversions (3,467) 3,467 -
Sales proceeds (4,694) (9,386) (14,080)
Balance at 28 February 2017 24,940 43,019 67,959
5 Post balance sheet events
Between 28 February 2017 and the date of this announcement, the Company
issued 38,743,426 Ordinary Shares for aggregate consideration of GBP31.1
million. Share issue costs thereon amounted to GBP0.9m.
The Company made three follow on investments totalling GBP1.5 million,
comprising Poq Studio (GBP875,000), HoneyComb.TV (GBP495,000) and
ContactEngine (GBP137,000).
Announcement based on audited accounts
The financial information set out in this announcement does not
constitute the Company's statutory financial statements in accordance
with section 434 Companies Act 2006 for the year ended 28 February 2017,
but has been extracted from the statutory financial statements for the
year ended 28 February 2017, which were approved by the Board of
Directors on 5 June 2017 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting. The
Independent Auditor's Report on those financial statements was
unqualified and did not contain any emphasis of matter nor statements
under s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 29 February 2016 have been
delivered to the Registrar of Companies and received an Independent
Auditors report which was unqualified and did not contain any emphasis
of matter nor statements under S498(2) and (3) of the Companies Act
2006.
A copy of the full annual report and financial statements for the year
ended 28 February 2017 will be made available to shareholders shortly.
Copies will also be available to the public at the registered office of
the Company at 39 Earlham Street, London, WC2H 9LT and will be available
for download from www.provenvcts.co.uk
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Proven Growth & Income VCT plc via Globenewswire
(END) Dow Jones Newswires
June 07, 2017 14:07 ET (18:07 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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