REG-Proven Growth & Income VCT plc : Annual Financial Report <Origin Href="QuoteRef">PGOO.L</Origin>
07/06/2017 19:10
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PROVEN GROWTH AND INCOME VCT PLC
ANNUAL FINANCIAL REPORT
YEAR ENDED 28 FEBRUARY 2017
Financial summary
Ordinary Shares as at: 28 February 2017 Pence 29 February 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 £9.2 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 £8.1 million, or
8.8p per share (2016: loss of £691,000, 0.8p per share), comprising a revenue
return of £86,000, or 0.1p per share (2016: £376,000, 0.4p per share) and a
capital return of £8.0 million, or 8.7p per share (2016: loss of £1.1
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 £7.3 million in seven new portfolio companies and £1.9
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
£6.6 million and a gain of £2.9 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 £7.5 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 £38.8 million against an initial target of £30 million. Of the
proceeds raised, £7.8 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
£1,255,394. 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 £2.6 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 £7.3 million was invested in seven
new portfolio companies and £1.9 million was invested in seven existing
portfolio companies.
The year also saw a number of disposals resulting in aggregate realisation
proceeds of £14.1 million and realised gains against initial cost of £4.2
million.
At 28 February 2017, the Company's venture capital portfolio comprised 47
investments at a cost of £58.4 million and a valuation of £68.6 million, an
overall uplift of 17.5% on cost.
The net cash outflow for the year before fund raising was £2.2 million. The
Company's cash balances were, however, replenished by net funds raised of
£38.5 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
£7.3 million being invested in seven new portfolio companies.
The Company's investment in Thread (£620,000), 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 £421,000 was invested in Thread in
February 2017 as the company continued to expand its operations.
In December 2016, an investment of £1.8 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 (£1.7 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 (£875,000), Firefly Learning,
a learning platform software provider (£667,000), Honeycomb.TV, a TV and
video advertising management platform (£605,000) and ContactEngine, a
software provider that automates its clients' customer communications
(£550,000).
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
(£461,000), 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 £279,000 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, (£400,000), D3O
Holdings (£295,000), Big Data Partnership (£253,000), Network Locum
(£169,000) and Perfect Channel (£55,000).
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 £6.6 million. This represents a realised gain of £2.9 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
£3.4 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 £4.0 million were received,
predominately from the full repayment of three debt finance investments, SE
Pharma (£2.1 million), Linkdex (£1.2 million) and Peerius (£276,000),
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 £3.7 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 £599,000 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 £1.8 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 £1.0 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 £734,000.
Overall, the investment portfolio showed an increase in value of £7.5
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 £1.5 million, comprising Poq Studio
(£875,000), HoneyComb.TV (£495,000) and ContactEngine (£137,000).
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 £'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
Cost Market value at 01/03/16 ** £ '000 Disposal Proceeds £'000 Realised gain against cost £'000 Realised gain during the year £'000
£'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
Cost Valuation movement in year portfolio by value
£'000 £'000 £'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 £61.8 million of venture capital investments
and ended with £68.6 million spread over a portfolio of 47 companies. 40 of
these investments with a value of £56.2 million were VCT qualifying (or part
qualifying).
The profit on ordinary activities after taxation for the year was £8.1
million comprising a revenue profit of £86,000 and a capital profit of £8.0
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 investments in qualifying companies (as defined by Part 6 of the Income Tax Act 2007) Complied
ii. 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) Complied
iii. At least 10 per cent. of each investment in a qualifying company is held in "eligible shares" (by cost at time of investment) Complied
iv. No investment in a company constitutes more than 15 per cent. of the Company's portfolio (by value at time of investment) Complied
v. The Company's income for each financial year is 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. As requested 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 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) Complied
ix. Since the Finance (No. 2) Act received Royal Assent on 18 November 2015, the Company has not made an investment in a company which exceeds the maximum permitted age requirement Complied
x. The funds invested by the Company in another company since the Finance (No. 2) Act received Royal Assent on 18 November 2015 have not been used to make a prohibited acquisition Complied
xi. As required by the Finance Act 2016, the Company has not made a prohibited non-qualifying investment since 6 April 2016. Complied
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 £112.3 million (2016: £71.9
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 £1,525,000 (2016: £1,496,000) (inclusive of VAT where
applicable), of which £407,000 (2016: £355,000) 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 £51,000 (2016: £33,400). An amount of £13,000 (2016: £13,000)
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 £278,000 (2016:
£590,000) and monitoring fees of £700,000 (2016: £708,000). 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 £2.6 million
(2016: £nil), of which £2.6 million (2016: £nil) 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
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