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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Proven Vct Plc | LSE:PVN | London | Ordinary Share | GB00B8GH9P84 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 59.50 | 58.00 | 61.00 | 59.50 | 59.50 | 59.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Investors, Nec | -9.88M | -13.83M | -0.0533 | -11.16 | 154.26M |
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ProVen VCT plc
Annual Financial Report
Year ended 28 February 2018
Financial summary
28 February 2018 28 February 2017
Ordinary Shares as at: Pence Pence
Net asset value per share 99.7 106.3
Dividends paid since launch 36.0 26.5
Total return (net asset value plus dividends paid
since launch) 135.7 132.8
Year on year change in:
Net asset value per share (adjusted for dividends
paid in the year) 2.7%
Chairman's Statement
I am pleased to present the Annual Report for ProVen VCT plc (the
"Company") for the year ended 28 February 2018. The Company has
continued to identify a number of attractive investment opportunities,
investing a total of GBP8.0 million in the year. It has also been a
strong year for realisations, with APM Healthcare, Dianomi, MatsSoft and
Third Bridge all being fully realised.
Results for the year
Predominately as a result of the dividends paid in the year, the
Company's net asset value ("NAV") per share fell from 106.3p at 28
February 2017 to 99.7p at 28 February 2018. The 6.6p reduction comprised
dividend payments of 9.5p, offset by 2.9p of uplift arising largely from
positive valuation movements, resulting in an overall increase in
Shareholder total return (NAV per share plus dividends) of 2.7%.
The total return on ordinary activities for the year was GBP2.9 million,
or 3.0p per share (2017: GBP12.2 million, 12.7p per share), comprising a
revenue loss of GBP585,000, or 0.6p per share, (2017: revenue return of
GBP25,000, 0.0p per share) and a capital return of GBP3.5 million, or
3.6p per share (2017: GBP12.2 million, 12.7p per share).
Dividends
During the year ended 28 February 2018, the Company paid a final
dividend of 2.5p per share in respect of the year ended 28 February 2017
on 14 July 2017. A special interim dividend of 7.0p per share was paid
in respect of the year ended 28 February 2018 on 17 November 2017,
following the successful realisations of APM Healthcare, MatsSoft and
Third Bridge.
Your Board is proposing a final dividend for the year ended 28 February
2018 of 2.5p per share to be paid on 20 July 2018 to Shareholders on the
register at 22 June 2018. With total tax-free dividends of 9.5p per
share for the year ended 28 February 2018, your Board is pleased to
report that the Company has been able to deliver a dividend yield of
8.9% on the opening NAV per share, which is comfortably above the target
5% yield.
Portfolio activity and valuation
The Company invested GBP4.2 million in four new portfolio companies and
GBP3.5 million in seven existing portfolio companies during the year. In
addition, shares in Netcall plc with a value of GBP0.3 million were
received as part of the Company's disposal of MatsSoft.
It was a strong year for disposals with the full disposals of APM
Healthcare, MatsSoft and Third Bridge all completed during the year.
Aggregate proceeds of GBP9.3 million were generated from these three
sales, which represented a gain against cost of GBP6.9 million and which
contributed to the Company paying a special interim dividend in November
2017. In addition to these three disposals, the Company realised its
holding in Dianomi in February 2018 at a multiple of over 3.3x cost and
there were also further loan repayments during the year from Monmouth
Holdings, Celoxica, Conversity and Skills Matter.
Overall, the investment portfolio increased in value by GBP2.8 million
(2017: GBP9.4 million), or 2.8p per share (2017: 9.8p per share).
Continued strong performance of Watchfinder, Monica Vinader and
Chargemaster contributed significantly to this uplift but there were
also valuation uplifts for Think, Chess Technologies and My 1st Years.
These gains were partially offset by reductions in valuation for Blis
Media, Disposable Cubicle Curtains and Perfect Channel. In addition,
Maplin was fully written down following the company entering
administration in February 2018.
Fundraising activities
In response to the continuing strong demand for VCT share issues, the
Company launched a top-up offer on 20 October 2017, which raised gross
proceeds of GBP3.8m, all of which were allotted during the year ended 28
February 2018.
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 1,842,278 shares at an average
price of 95.4p per share and for an aggregate consideration (net of
costs) of GBP1,758,290. 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 Fee
The Company's performance incentive arrangements are an important aid
for the Investment Manager in recruiting and retaining talented
investment professionals against competition from other investment
management companies. The performance fee structure is designed to align
the interests of the Investment Manager with those of Shareholders and
encourages capital growth as well as significant payments to
Shareholders by means of tax-free dividends, as determined by the
Directors.
Based on the NAV per share before any performance fee accrual at 28
February 2018 and cumulative dividends paid up to this date, a maximum
performance fee of GBP2.4 million is payable in relation to certain
fundraisings for which the performance hurdles have been achieved.
However, the performance fee structure contains certain restrictions to
ensure that the hurdles continue to be met after the payment of a
performance fee and to encourage the payment of tax-free dividends.
After applying these restrictions, a performance fee of GBP1.1 million
is payable to Beringea LLP at 28 February 2018. An accrual for this
amount has been included within the accounts and is therefore reflected
in the NAV per share.
The payment of a performance fee in future years and the amount thereof,
if any, will be dependent on both the performance of the Company and the
level of dividends paid to Shareholders, as determined by the Directors.
Proposed changes to the investment policy
A number of further changes to the VCT scheme in response to the
consultation paper 'Financing growth in innovative firms' (the "Patient
Capital Review") were announced as part of the Budget on 22 November
2017. These changes are aimed at ensuring that tax-advantaged schemes,
such as VCTs, are focussed on long-term investments in higher risk
companies that intend to grow and develop. The changes include
increasing the proportion of funds raised that a VCT will need to invest
in 'qualifying' companies, reducing the time to invest funds raised and
removing the ability to take security for loans provided by the Company.
Some of these changes came into effect from 15 March 2018, the date of
Royal Assent of the Finance Act 2018, and others will take effect over
the coming years.
Importantly, these changes will not affect the Company's overall
objective of investing predominately in small and medium sized unquoted
companies with excellent growth prospects and so the activities of the
Company should be largely unaffected. However, in order to improve
clarity for Shareholders, a further revision to the Company's investment
policy is being recommended to align the investment policy with the
revised rules. An Ordinary Resolution to change the Company's investment
policy to remove the ability to make secured loans will therefore be
proposed at the forthcoming AGM and your Board is recommending that
Shareholders approve this resolution.
Board
On 10 May 2018, the Company announced my retirement from the Board after
this year's AGM and the intention to appoint Neal Ransome as Chairman. I
am happy to be handing over to Neal at a time when the portfolio is well
placed to deliver future returns to Shareholders. It has always been
stimulating to serve on the Board of the Company and a privilege to work
with my fellow Directors, the Investment Manager and the board of ProVen
Growth and Income VCT, as well as meeting Shareholders.
Neal joined the Board in October 2017 and brings with him a great deal
of knowledge and experience. Neal is a chartered accountant and was a
former Partner at PwC, where he was Chief Operating Officer of PwC's
Advisory business and led its Pharmaceutical and Healthcare Corporate
Finance practice. Neal is also a director of Octopus AIM VCT plc and
Polar Capital Global Healthcare Trust plc.
I, and the Board, believe that Neal's experience makes him the ideal
Chairman to oversee the Company over the coming years.
Annual General Meeting
The next AGM of the Company will be held in the Forest Room at The
Hospital Club, 24 Endell Street, London, WC2H 9HQ at 9.30 a.m. on
Wednesday 11 July 2018.
Six items of special business will be proposed at the AGM. There are
two resolutions giving the Directors authority to allot shares and
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. In addition,
there is also one resolution proposed to cancel the amount standing to the credit of the Company's share premium account and one resolution proposed to cancel the amount standing to the credit of the Company's capital redemption reserve. 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 Tuesday 30 October 2018 at 10.00 a.m. at The Institution 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 Company has been able to take advantage of the strong level of merger and acquisition activity as well as a period of high prices, with the disposals of APM Healthcare, MatsSoft and Third Bridge all achieving valuations which resulted in significant gains for the Company. There are also a number of other companies in the portfolio that are nearing an exit, which could result in further excellent realised gains for the Company in the coming year. The changes to the VCT rules arising from the Patient Capital Review place further restrictions and requirements on the Company, however, as with the previous changes introduced over recent years, I believe the Company is well placed to deal with these effectively. During the year, the Company's portfolio has started to be impacted by negative trends in certain sectors such as retail and ad-tech and there remains a risk of a wider economic downturn in 2018. In addition, the nature of the UK's withdrawal from the EU is still to be finalised and with less than a year until the official departure date, there remains a risk that the final deal agreed with the EU will adversely impact the Company's portfolio companies. Nevertheless, I remain confident in the overall strength of the Company's portfolio, which is well diversified across over 40 portfolio companies in a range of sectors. I therefore feel confident that I leave the Company in a good position and wish the Shareholders, Directors and the Company a profitable future. Andrew Davison Chairman Investment Manager's Review Introduction We have pleasure in presenting our annual review for the year ended 28 February 2018. During the year, a total of GBP4.2 million was invested in four new portfolio companies and GBP3.5 million in seven existing portfolio companies. In addition, shares in Netcall plc with an aggregate value of GBP0.3 million were received as part of the Company's disposal of MatsSoft. The year also saw a number of disposals resulting in aggregate realisation proceeds of GBP12.6 million and realised gains against initial cost of GBP7.1 million. At 28 February 2018, the Company's venture capital portfolio comprised over 40 investments at a cost of GBP59.5 million and a valuation of GBP73.8 million, an overall uplift of 24.0% on cost. The net cash outflow for the year before fund raising was GBP8.2 million. The Company's cash balances were, however, partly replenished by net funds raised of GBP3.6 million. After the significant fundraisings undertaken in recent years, the Company continues to remain well capitalised to take advantage of new investment opportunities. Investment activity New investments We continued to experience a strong level of deal flow, with GBP4.2 million being invested during the year in four new portfolio companies. The largest new investment for the Company was the investment in MPB (GBP1.8 million), which was completed just ahead of the Company's year-end in February 2018. MPB is an online marketplace for second hand cameras and lenses, with a presence in both the UK and US. Shortly after the Company's investment, MPB was named in the Tech City's Future Fifty programme for 2018, which comprises 50 of the fastest growing companies in the technology sector. The Company's initial investment in Smart Assistant (GBP1.0 million), a provider of interactive guided selling software that assists the online buying process, was discussed in the Company's half-yearly report. A further investment of GBP0.3 million, agreed as part of the initial closing, was completed in December 2017. Other new investments were made in Been There Done That, a provider of a tech-enabled platform that develops brand media strategies (GBP553,000), and DeepCrawl, a leading web crawler and search marketing analytics company (GBP488,000). Follow-on investments The Company has also been active in supporting the development of existing portfolio companies, making follow-on investments in seven companies during the year. The largest of the follow-on investments was in Thread (GBP1.2 million), with the investment being used to enable the company to continue its growth in the UK as well as funding an initial expansion to the US. This brings the Company's total investment in Thread to GBP2.6 million. In May 2017, the Company invested GBP1.1 million in POQ. POQ has grown steadily since the Company's initial investment and the further investment is being used to expand the company's sales and marketing team and further develop the company's technology. Further follow-on investments were made in HoneyComb.TV (GBP405,000), InContext (GBP387,000), Disposable Cubicle Curtains (GBP170,000), Perfect Channel (GBP150,000) and ContactEngine (GBP112,000). Investment disposals The Company achieved a number of successful realisations during the year with the full disposals of APM Healthcare, Dianomi, MatsSoft and Third Bridge generating a combined realised gain of GBP7.1 million on the original investment cost. In July 2017, APM Healthcare's UK network of 18 pharmacies was acquired by Day Lewis Group, one of the largest independent pharmacy chains in the UK and Europe. The Company first invested in APM Healthcare in 2011 to support the company's expansion of its pharmacy network. Over the investment holding period, APM Healthcare delivered a total return, including loan stock interest, of 3x the initial investment cost. Third Bridge, initially funded by the Company in 2012, was one of the Company's strongest performing companies over recent years, having been included in the Sunday Times Fast Track 100 in both 2016 and 2017. In August 2017, IK Investment Partners, a pan-European private equity company, acquired a minority stake in Third Bridge, allowing the Company to realise its investment in full at multiple of over 5.7x cost and an annual rate of return of 46%. In August 2017, MatsSoft was acquired by AIM-listed Netcall plc. The Company received cash proceeds of GBP2.2 million as well as shares in Netcall valued at GBP0.3 million. This resulted in a realised gain against cost of GBP1.4 million, or 2.4x cost. There is a potential future earn-out based on Netcall's share price over the next two years. In February 2018, the Company realised its investment in Dianomi at a multiple of over 3.3x cost, as part of a transaction led by the Business Growth Fund. During the year, the Company's remaining debt finance investment, Celoxica, was repaid in full. Over the holding period this investment has generated an attractive income stream in a low interest rate environment. Loan repayments were also received from Monmouth Holdings (GBP2.5 million), Skills Matter (GBP143,000) and Conversity (GBP94,000). Key developments at existing portfolio companies Watchfinder.co.uk continues to perform well, maintaining its strong growth trajectory which has seen the company grow its revenues by at least 40% per annum each year since the Company's initial investment. The valuation of the Company's investment in Watchfinder increased by a further GBP1.9 million over the course of the year and at the year-end represents an unrealised uplift of 3.9x the investment cost. Chargemaster has benefited from the wider growth in the electric vehicle market as the Government announced plans to ban the sale of new diesel and petrol cars by 2040. The company has continued its expansion of the Polar Network, which allows members to charge their electric vehicles at charge points across the UK, and now has over 6,000 public charging points. Over the course of the year, the valuation of the Company's investment increased by GBP2.5 million. Chess Technologies also had a strong year, increasing revenues by over 100% in 2017 predominately as a result of an increasing number of international orders. During the year, the valuation of the Company's investment increased by GBP2.2 million and it is now valued at 4.1x cost. There have been some downward movements in the valuations in the portfolio, with valuation decreases for Blis Media, which was adversely impacted by the declining trend in advertising spend and Perfect Channel, due to a delay in converting a strong prospect pipeline into orders. In addition, impacted by a depreciation in Sterling against the Euro as well as challenging market conditions on the high street, Maplin entered administration in February 2018. Over the course of the year, the valuation of the Company's investment decreased by GBP2.3 million, however, the investment had already been significantly reduced over the course of the year, so the full provision which was made when Maplin entered administration had minimal impact on the most recently announced net asset value of the Company. Overall, the investment portfolio showed an increase in value of GBP2.8 million (2017: GBP9.4 million), or 2.8p per share (2017: 9.8p per share). Post year-end developments
The Company made one new investment and three follow on investments
after the year end totalling GBP7.5 million.
There were further investments in My 1st Years (GBP2.6 million), POQ
Studio (GBP902,000) and Perfect Channel (GBP368,000).
In May 2018, the Company invested GBP3.6 million in Mycs, a Berlin based
online retailer for customisable furniture. The investment will be used
to expand the company's presence in Europe.
The Company realised its investments in Charterhouse Leisure and
Conversity in May 2018. Both of these investments had been substantially
written down at the year-end and the realisations completed at amounts
slightly above their respective carrying values at 28 February 2018.
On 1 June 2018, Richemont Holdings UK Limited, a subsidiary of the Swiss
luxury group Compagnie Financiere Richemont SA, agreed to acquire 100%
of the share capital of Watchfinder. The transaction is subject to legal
and regulatory approval and is expected to close in the summer of 2018.
Outlook
We continue to see a strong flow of interesting new investment
opportunities, however, increased competition for deals means that we
are still seeing inflated valuation expectations. We remain disciplined
in our investment approach and have rejected a number of potential
investments that we considered were overpriced.
The changes in VCT rules announced in November 2017 place further
restrictions and requirements on the Company, however, as with earlier
changes announced in 2015 and 2016, we believe that the Company is as
well placed to deal with these as any of its competitors. We continue to
be an active participant in the VCT Association, which maintains an open
dialogue with HM Treasury in demonstrating the ongoing advantages of the
VCT scheme. We are now hopeful of a period of regulatory stability to
allow us to focus on achieving the Company's core objective of
supporting growing UK companies in achieving their potential.
The existing portfolio continues to perform well, with several of the
more recent investments such as My 1st Years and POQ making strong
progress. There are also a number of new investments in the pipeline
that we hope to complete over the coming months. The indications are
that the strong exit environment from 2017/18 has continued into 2018/19
and there are several companies that could be realised during the year
ending 28 February 2019, providing the opportunity to crystalise the
unrealised valuation appreciation recognised on some of these
investments.
Overall, therefore, we are optimistic about the prospects of the Company
for the coming year.
Beringea LLP
Investment activity
Investment activity during the year is summarised as follows:
Additions Cost GBP'000
MPB Group Limited 1,842
Smart Information Systems GmbH (t/a Smart Assistant) 1,309
Thread, Inc. 1,169
Poq Studio Limited 1,125
Been There Done That Global Limited 553
Written Byte Limted (t/a Deepcrawl) 488
Honeycomb.TV Limited 405
InContext Solutions, Inc. 387
Netcall plc* 287
Disposable Cubicle Curtains Limited 170
Perfect Channel Limited 150
ContactEngine Limited 112
Total 7,997
Realised
Market gain Realised
value at Disposal against gain during
Disposals Cost 01/03/17 proceeds cost the year
GBP'000 GBP000 GBP'000 GBP'000 GBP'000
Third Bridge
Group
Limited 949 3,767 5,459 4,510 1,692
Monmouth
Holdings
Limited**,
*** 2,500 2,500 2,500 - -
MatsSoft
Limited* 1,010 1,474 2,454 1,444 980
APM
Healthcare
Limited 500 986 1,401 901 415
Dianomi
Limited 105 213 352 247 139
Skills Matter
Limited*** 143 143 143 - -
Celoxica
Limited** 118 118 118 - -
Conversity
Limited*** 86 - 94 8 94
MyOptique
Group
Limited - - 34 34 34
Isango!
Limited - - 5 5 5
Total 5,411 9,201 12,560 7,149 3,359
* MatsSoft Limited was disposed of during the period. As part of the
disposal, the Company received shares in Netcall plc valued at
GBP287,000 on the date of the disposal. The Netcall plc shares are shown
as an addition and as a disposal, as part of the MatsSoft Limited
disposal proceeds, in the tables above.
** Loan note repayment
*** Partial disposal
Of the investments above, Isango! Limited and MyOptique Group Limited
were realised in prior periods but proceeds were received in the current
period in excess of the amounts previously accrued.
Investment Portfolio
as at 28 February 2018
The following investments were held at 28 February 2018:
Valuation
movement in % of portfolio
Cost Valuation year by value
GBP'000 GBP'000 GBP'000
Venture capital
investments (by
value)
Watchfinder.co.uk
Limited 2,629 10,228 1,853 10.0%
Chargemaster plc ** 2,421 5,604 2,459 5.5%
Think Limited ** 2,757 5,367 1,628 5.2%
Monica Vinader Limited
** 534 4,689 1,010 4.6%
Poq Studio Limited 2,250 4,500 2,250 4.4%
Chess Technologies
Limited 1,045 4,236 2,197 4.1%
Infinity Reliance
Limited (t/a My 1st
Years) * 2,155 3,974 1,819 3.9%
Rapid Charge Grid
Limited 4,200 3,763 (84) 3.7%
Litchfield Media
Limited * 3,580 3,479 90 3.4%
Thread, Inc. 2,646 2,804 157 2.7%
Whistle Sports, Inc. 2,090 2,324 234 2.3%
Cogora Group Limited 2,643 2,293 (678) 2.2%
InContext Solutions,
Inc. ** 2,363 2,171 244 2.2%
MPB Group Limited 1,842 1,842 - 1.8%
Response Tap Limited
** 1,060 1,577 517 1.5%
Disposable Cubicle
Curtains Limited 2,201 1,576 (1,218) 1.5%
Blis Media Limited ** 841 1,471 (2,073) 1.4%
Donatantonio Group
Limited 1,078 1,406 (520) 1.4%
Smart Information
Systems GmbH (t/a
Smart Assistant) 1,309 1,309 - 1.3%
Monmouth Holdings
Limited *, *** 1,500 1,309 - 1.3%
ContactEngine Limited 562 1,175 613 1.1%
Honeycomb.TV Limited 900 900 - 0.9%
D30 Holdings Ltd ** 956 804 42 0.8%
Firefly Learning
Limited 758 758 - 0.7%
Sealskinz Holdings
Limited ** 834 727 (127) 0.7%
Perfect Channel
Limited 3,159 562 (4,248) 0.5%
Been There Done That
Global Limited 553 553 - 0.5%
SPC International
Limited * 58 530 39 0.5%
Written Byte Ltd (t/a
DeepCrawl) 488 488 - 0.5%
Simplestream Limited
** 191 358 88 0.3%
TVPlayer Limited 230 292 (7) 0.3%
Netcall plc 287 213 (74) 0.2%
Senselogix Limited 986 186 41 0.2%
Inskin Media Limited 365 183 (183) 0.2%
51,471 73,651 6,069 71.8%
Other venture capital
investments 8,051 189 (3,241) 0.2%
Total venture capital
investments 59,522 73,840 2,828 72.0%
Cash at bank and in
hand 28,671 28.0%
Total investments 102,511
Other venture capital investments at 28 February 2018 comprise:
7Digital Group plc**, Buckingham Gate Financial Services Limited,
Charterhouse Leisure Limited**, Conversity Limited, Lantum Limited
(formerly Network Locum Limited ), Macklin Holdings Limited***, MEL
Topco Limited (t/a Maplin Electronics)*, Skills Matter 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 7digital Group plc and Netcall plc which are
quoted on AIM, all venture capital investments are unquoted.
All of the above investments, with the exception of Macklin Holdings
Limited, Monmouth Holdings Limited, SPC International Limited and Think
Limited were also held by ProVen Growth & Income 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 and Smart Information Systems GmbH, which is registered in
Austria.
Strategic Report
The Directors present the Strategic Report for the year ended 28
February 2018. The Board prepared this report in accordance with the
Companies Act 2006 (Strategic Report and Directors' Reports) Regulations
2013.
Principal objectives and strategy
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 2018 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 report, 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 GBP72.2 million of venture capital
investments and ended with GBP73.8 million spread over a portfolio of 45
companies. 37 of these investments with a value of GBP64.8 million were
VCT qualifying (or part qualifying).
The profit on ordinary activities after taxation for the year was GBP2.9
million, comprising a revenue loss of GBP0.6 million and a capital
profit of GBP3.5 million. The Ongoing Charges ratio (excluding
performance fees and recoverable VAT) in respect of the year ended 28
February 2018, based on average net assets during the year, was 2.6%
(2017: 2.5%).
The Company's business review and developments during the year are
reviewed further within the Chairman's Statement and 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 Act 2018.
The text of the proposed wording is shown below. An explanation of the
changes is set out in the Chairman's Statement. The Listing Rules of the
UK Listing Authority require the changes to be approved by Shareholders
and an Ordinary Resolution to approve the changes will be proposed at
the forthcoming Annual General Meeting.
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; 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
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 a regulated market.
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.
Maximum exposures
No investment will constitute more than 15% of the Company's portfolio
by value at the time of investment.
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
announcement. 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 2018 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 shares" 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 Complied
vi. 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
Complied
vii. The Company has not made a prohibited payment
to Shareholders derived from an issue of shares since
6 April 2014
Complied
viii. No investment made by the Company causes an
investee company to receive more than the permitted
investment from State Aid sources (including from
VCTs)
ix. Since 18 November 2015, the Company has not made Complied
an investment in a company which exceeds the maximum Complied
permitted age requirement
x. The funds invested by the Company in another company
since 18 November 2015 have not been used to make
a prohibited acquisition
xi. Since 6 April 2016, the Company has not made a Complied
prohibited non-qualifying investment.
Borrowings
The Company has 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 2018, was equal to GBP101.5 million
(2017: GBP104.7 million). There are no plans to utilise this facility
at the current time.
Investment management and administration fees
Beringea LLP ("Beringea" or the "Investment Manager") 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 GBP3,137,000 (2017: GBP2,420,000), comprising a management fee of GBP2,013,000 (2017: GBP1,994,000) and performance incentive fees as described below of GBP1,124,000 (2017: GBP426,000). At the year end, an amount of GBP1,279,000 (2017: GBP918,000) was outstanding. 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 investment manager remains in the best interests of Shareholders. Throughout the year ended 28 February 2018 Beringea also provided administration services to the Company. In the year, total administration fees amount to GBP59,000 (2017: GBP57,000). An amount of GBP15,000 (2017: GBP14,000) remained outstanding at the year end. The annual running costs (excluding any performance fees payable) of the Company are subject to a cap of 3.25% of the Company's net assets at the end of the year. Any running 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 GBP256,000 (2017: GBP278,000) and monitoring fees of GBP675,000 (2017: GBP700,000). 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 last year's Annual Report, the Company's performance incentive arrangements were amended such that from the year ended 28 February 2017, the performance targets and restrictions approved by Shareholders in 2012 and originally applied to the Ordinary Shares as a whole are now applied to each major fundraising (a "Respective Offer"). Under the performance fee arrangements, the Investment Manager is entitled to receive a performance incentive fee in relation to each Respective Offer if, at the end of a financial year, the relevant Respective Offer Performance Value exceeds the relevant Respective Offer Hurdle. In this event the performance incentive 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 incentive fee per Respective Offer Share already paid in respect of that Respective Offer in relation to previous financial years starting after 29 February 2012 (which shall not include Residual PIF). 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 or Equivalent Ordinary Share for a Respective Offer at that date, (ii) Respective Offer Cumulative Dividends, (iii) all performance fees per Ordinary Share or Equivalent Ordinary Share paid by the shareholders of the Respective Offer in relation to financial years starting after 29 February 2012, and (iv) any Residual PIF Adjustment where relating to that Respective Offer (whether relating to that or any previous financial year). If at the end of a financial year, the relevant Respective Offer Performance Value is less than or equal to the Respective Offer Hurdle, no performance fee will be payable on such Respective Offers in respect of that financial year. The performance fee per Respective Offer Share payable for a financial year will be reduced, if necessary, to ensure that i) the cumulative performance fee per Respective Offer Share payable to the Investment Manager in respect of a Respective Offer does not exceed 20 per cent. of the relevant Respective Offer Cumulative Dividends; and ii) the audited net asset value per Ordinary Share or Equivalent Ordinary Share at the relevant financial year end plus the relevant Respective Offer Cumulative Dividends plus any Residual PIF Adjustment relating to that Respective Offer is at least equal to the relevant Respective Offer Hurdle. Performance fees for the year ended 28 February 2018 amounted to GBP1,124,000 (2017: GBP426,000), of which GBP1,124,000 (2017: GBP426,000) was outstanding at the year-end. Directors and senior management The Company had five non-executive Directors at the year end, four 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 objectives (as shown above). The Board believes the Company's key performance indicators are Net Asset Value total return (NAV plus cumulative dividends paid to date) and dividends per share. 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 in 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, also faces a number of non-financial principal risks. A breach of the VCT Regulations could result in the loss of VCT status, the 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 28 February 2021. It is not considered appropriate or meaningful to look forward for a period of more than three years. 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 consider 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 VCT rules, these factors cannot mitigate the risk that insufficient qualifying investments are identified to ensure ongoing compliance with the VCT rules. 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 28 February 2021, 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 28 February 2021. 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. No changes are being proposed to the Directors' remuneration policy, however, as the policy was last approved at the Annual General Meeting of the Company on 22 July 2015, an ordinary resolution will be proposed at the Company's Annual General Meeting to approve the Directors' remuneration policy. Greenhouse emissions Whilst as a UK quoted company the VCT 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 or with a presence in the United Kingdom, with a view to 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 VCT plc Directors' responsibilities 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 and Accounts
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 requirements of 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
United Kingdom 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 2018
Year ended 28 February 2018 Year ended 28 February 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 528 - 528 949 - 949
Realised gains
on
investments - 3,359 3,359 - 4,715 4,715
Unrealised
gains on
investments - 2,828 2,828 - 9,419 9,419
528 6,187 6,715 949 14,134 15,083
Investment
management
fees (503) (1,510) (2,013) (499) (1,495) (1,994)
Performance
incentive
fees - (1,124) (1,124) - (426) (426)
Other expenses (610) (28) (638) (425) (11) (436)
(Loss)/ return
on ordinary
activities
before tax (585) 3,525 2,940 25 12,202 12,227
Tax on ordinary - - - - - -
activities
(Loss)/ return
attributable (585) 3,525 2,940 25 12,202 12,227
to equity
shareholders
Basic and (0.6p) 3.6p 3.0p 0.0p 12.7p 12.7p
diluted
(loss)/ return
per share
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 2018
Year ended 28 February 2018
Capital
redemption Special Share Revaluation Capital Revenue
Called up share capital reserve reserve Premium reserve Share capital to be 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
2017 9,856 3,653 16,666 48,252 - 16,329 10,406 (423) 104,739
Issue of new
shares 515 - - 4,534 - - - - 5,049
Share buybacks (184) 184 (1,767) - - - - (1,767)
Share issue
costs - - (129) - - - - - (129)
Total
comprehensive
income - - - - - 2,828 697 (585) 2,940
Transfer of
previously
unrealised
gains now
realised - - - - - (3,790) 3,790 - -
Realised
losses on
investments
still held - - - - - 4,310 (4,310) - -
Dividends paid - - (9,301) - - - - - (9,301)
At 28 February
2018 10,187 3,837 5,469 52,786 - 19,677 10,583 (1,008) 101,531
Year ended 28 February 2017
Capital
redemption Special Share Revaluation Capital Revenue
Called up share capital reserve reserve Premium reserve Share capital to be 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 6,547 3,587 24,457 16,985 20,576 7,514 7,019 (153) 86,532
Issue of new
shares 3,375 - - 31,267 (20,576) - - - 14,066
Share buybacks (66) 66 (631) - - - - (631)
Share issue
costs - - (1,063) - - - - - (1,063)
Total
comprehensive
income - - - - - 9,419 2,783 25 12,227
Transfer of
previously
unrealised
gains now
realised - - - - - (604) 604 - -
Dividends paid - - (6,097) - - - - (295) (6,392)
At 28 February
2017 9,856 3,653 16,666 48,252 - 16,329 10,406 (423) 104,739
The special reserve, capital reserve - realised and revenue reserve are
all distributable reserves. Reserves available for distribution
therefore amount to GBP15,044,000 (2017: GBP26,649,000).
During the year the Company repurchased 1,842,278 shares (2017: 664,369)
with a nominal value of GBP184,000 (2017: GBP66,000). 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 2018
28 February 28 February
2018 2017
Total Total
GBP'000 GBP'000
Fixed assets
Investments 73,840 72,216
Current assets
Debtors 574 592
Cash at bank and in hand 28,671 33,210
29,245 33,802
Creditors: amounts falling due within one year (1,554) (1,279)
Net current assets 27,691 32,523
Total assets less current liabilities 101,531 104,739
Capital and reserves
Called up share capital 10,187 9,856
Capital redemption reserve 3,837 3,653
Special reserve 5,469 16,666
Share premium reserve 52,786 48,252
Share capital to be issued - -
Revaluation reserve 19,677 16,329
Capital reserve - realised 10,583 10,406
Revenue reserve (1,008) (423)
Total equity shareholders' funds 101,531 104,739
Basic and diluted net asset value per share 99.7p 106.3p
Statement of Cash Flows
for the year ended 28 February 2018
Year ended 28 February Year ended 28 February
2018 2017
Total Total
GBP'000 GBP'000
Net cash used in
operating activities (2,944) (4,140)
Cash flows from
investing activities
Purchase of investments (7,710) (10,181)
Sale of investments 12,239 13,874
Net cash from investing
activities 4,529 3,693
Cash flows from
financing activities
Proceeds from share
issues 3,757 33,767
Share issue costs (129) (1,063)
Purchase of own shares (1,742) (710)
Share capital to be
issued - (20,576)
Equity dividends paid (8,010) (5,516)
Net cash (used in)/ from
financing (6,124) 5,902
(Decrease)/ increase in
cash and cash
equivalents (4,539) 5,455
'Net cash used in operating activities' includes interest received of
GBP472,000 (2017: GBP579,000) and dividends received of GBP88,000 (2017:
GBPnil). No interest was paid during the period.
Notes to the Announcement
for the year ended 28 February 2018
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
January 2017.
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 (i.e., developed using market data) for the asset or
liability, either directly or indirectly.
Level 3: Inputs are unobservable (i.e., 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.
1. Basic and diluted return per share
Year ended 28 February Year ended 28 February
2018 2017
Revenue (loss)/ return
per share based on:
Net (loss)/ revenue after
taxation (GBP'000) (585) 25
Weighted average number
of shares in issue 99,268,215 96,579,861
Pence per share (0.6) 0.0
Capital return per share
based on:
Net capital gain for the
financial year
(GBP'000) 3,525 12,202
Weighted average number
of shares in issue 99,268,215 96,579,861
Pence per share 3.6 12.7
Total return per share
based on:
Total return for the
financial year
(GBP'000) 2,940 12,227
Weighted average number
of shares in issue 99,268,215 96,579,861
Pence per share 3.0 12.7
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
2018 2017
Net
asset
Shares in Issue Net asset value value
pence pence
per per
2018 2017 share GBP'000 share GBP'000
Ordinary
Shares 101,874,597 98,562,973 99.7p 101,531 106.3 104,739
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 net asset value 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 2018, the AIM-quoted portfolio was valued at GBP234,000
(2017: GBP33,000).
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 2018 2017
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 23 0.0p 3 0.0
At 28 February 2018, the unquoted portfolio was valued at GBP73,606,000
(2017: GBP72,183,000).
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 2018 2017
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 7,361 7.2p 7,218 7.3p
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 2018 2017
interest rate until maturity GBP'000 GBP'000
Fixed rate 6.3% 747 days 13,791 20,867
Floating rate 0.5% 12 days 29,620 34,159
No interest rate 58,120 49,713
101,531 104,739
The Company monitors the level of income received from fixed, floating
and non-interest bearing 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 GBP296,000 (2017: GBP342,000). Given the low level of interest
rates through the year, a further decrease 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, investments in cash deposits and
debtors. Credit risk relating to loan stock investee companies is
considered to be part of market risk.
The Company's exposure to credit risk is summarised as follows:
2018 2017
GBP'000 GBP'000
Investments in loan stocks 14,741 21,815
Cash and cash equivalents 28,671 33,210
Interest, dividends and other receivables 480 534
43,892 55,559
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 certain investee companies. The strength of
this security in each case is dependent on the nature of the investee
company's business and its identifiable assets. The level of security is
a key means of managing credit risk. Similarly, the management of credit
risk associated with interest, dividends and other receivables is
covered within the investment management procedures.
Cash is mainly held by the Royal Bank of Scotland plc, rated BBB- and
BBB+ by both Standard and Poor's and Fitch, respectively, 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 generally maintains a
relatively low level of creditors relative to cash balances (GBP1.6
million relative to cash balances of GBP28.7 million at 28 February
2018) 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
stock, 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) held at 28 February 2018, which is analysed by
expected maturity date, is as follows:
Not
As at 28 February 2018 later Between Between Between More
than 1 1 and 2 2 and 3 3 and 5 than 5
Year Years Years years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fully performing loan
stock 3,789 813 9,115 - - 13,717
Past due loan stock - - - 1,024 - 1,024
3,789 813 9,115 1,024 - 14,741
As at 28 February 2017
Fully performing loan
stock 2,141 2,447 3,835 12,167 - 20,590
Past due loan stock 201 - 1,024 - - 1,225
2,342 2,447 4,859 12,167 - 21,815
Of the loan stock classified as "past due" above, the full amount
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 balance sheet
Investments are valued at fair value as determined using the measurement
policies described in note 1. The carrying value of financial assets and
financial liabilities recorded at amortised cost, which includes short
term debtors and creditors, is considered by the 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.
2018 2017
Level
Level 1 Level 2 Level 3 Total Level 1 Level 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AIM quoted 234 - - 234 33 - - 33
Loan notes - - 14,741 14,741 - - 21,815 21,815
Unquoted
equity - - 49,918 49,918 - - 45,884 45,884
Preference
shares - - 8,947 8,947 - - 4,484 4,484
234 - 73,606 73,840 33 - 72,183 72,216
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 1 March 2017 21,815 50,368 72,183
Movements in the Income Statement:
(Losses)/ gains in the Income
Statement (3,544) 9,817 6,273
Purchases at cost 130 7,580 7,710
Sales proceeds (3,660) (8,900) (12,560)
Balance at 28 February 2018 14,741 58,865 73,606
There is an element of judgment in the choice of assumptions for
unquoted investments and it is possible that, if different assumptions
were used, different valuations could have been attributed to certain of
the VCT's investments.
5. Post balance sheet events
The Company made one new investment and three follow on investments
after the year end totalling GBP7.5 million.
There were further investments in My 1st Years (GBP2.6 million), POQ
Studio (GBP902,000) and Perfect Channel (GBP368,000).
In May 2018, the Company invested GBP3.6 million in Mycs, a Berlin based
online retailer for customisable furniture. The investment will be used
to expand the company's presence in Europe.
The Company realised its investments in Charterhouse Leisure and
Conversity in May 2018. Both of these investments had been substantially
written down at the year-end and the realisations completed at amounts
slightly above their respective carrying values at 28 February 2018.
On 1 June 2018, Richemont Holdings UK Limited, a subsidiary of the Swiss
luxury group Compagnie Financiere Richemont SA, agreed to acquire 100%
of the share capital of Watchfinder. The transaction is subject to legal
and regulatory approval and is expected to close in the summer of 2018.
Based on the expected completion proceeds, less a discount to reflect
the risk of non-completion, the estimated uplift on the net asset value
at 28 February 2018 is expected to be 10.3p per share.
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 2018,
but has been extracted from the statutory financial statements for the
year ended 28 February 2018, which were approved by the Board of
Directors on 5 June 2018 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 28 February 2017 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 2018 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
- End
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 VCT plc via Globenewswire
(END) Dow Jones Newswires
June 06, 2018 05:27 ET (09:27 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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