REG-Proven VCT plc : Annual Financial Report <Origin Href="QuoteRef">PVN.L</Origin>
07/06/2017 19:10
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PROVEN 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 share 106.3 100.7
Dividends paid since launch 26.5 20.0
Total return (net asset value plus dividends paid since launch) 132.8 120.7
Year on year change in:
Net asset value per share (adjusted for dividends paid in the year) 12.0%
Chairman's Statement
I am pleased to present the Annual Report for ProVen VCT plc (the "Company")
for the year ended 28 February 2017. The Company has continued to experience
strong deal flow, investing a total of £10.4 million in the year, and has
achieved a number of significant realisations, notably Big Data Partnership,
MyOptique and SPC International.
Results for the year
The Company's net asset value ("NAV") per share increased by 12.1p over the
year (after adding back the dividends of 6.5p paid in the year), an increase
of 12% on the opening NAV. At 28 February 2017 the NAV per share stood at
106.3p.
The total return on ordinary activities for the year was £12.2 million, or
12.7p per share (2016: £3.2 million, 5.0p per share), comprising a revenue
return of £25,000 (2016: £364,000, 0.6p per share) and a capital return of
£12.2 million, or 12.7p per share (2016: £2.8 million, 4.4p per share).
Dividends
The Company made dividend payments during the year of 6.5p 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 2.5p 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 5.0p 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 £8.6 million in seven new portfolio companies and £1.8
million in seven existing portfolio companies during the year.
The Company made several successful disposals during the year. In February
2017, TVS Rico, a UK logistics company, agreed to acquire the Company's
investment in SPC International. At 28 February 2017, proceeds of £2.8
million had been received for 85% of the Company's investment in SPC. The
remaining 15% will be acquired by TVS Rico within the next three years. Other
significant disposals included MyOptique, which generated aggregate proceeds
of £4.4 million and a gain of £2.0 million, and Big Data Partnership, which
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 £9.4 million, or 9.8p
per share, over the year. Continued strong performance of Third Bridge and
Watchfinder contributed significantly to this uplift but there were also
notable valuation uplifts for Chess Technologies, Perfect Channel and Think.
There were reductions in value for some other investments, including
Charterhouse Leisure, Cogora Group and InContext Solutions.
Fundraising activities
As reported in last year's Annual Report, the Company launched a full offer on
3 December 2015, which closed above its initial target of £30 million,
raising gross proceeds of £33.8 million, all of which was allotted during the
first half of the year ended 28 February 2017.
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 664,369 Ordinary Shares at an average
price of 94.5p per share and for an aggregate consideration (net of costs) of
£628,008. This represented 1.0% 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 2012, the Company put in place performance incentive arrangements which
reward the Investment Manager for delivering investment performance above
agreed targets. 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 2012 will
be applied to each major fund raising, 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 revised arrangements have been used to assess the cumulative fees due up
to 28 February 2017. Based on the cumulative performance incentive fees
payable at 28 February 2017, less the previous payment for the year ended 29
February 2016, an additional accrual of £0.4 million for the current year 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 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 1:30 p.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 widely diversified portfolio of young companies, many of
whom are the leaders in their field. Some companies which have been in the
portfolio for several years are approaching an exit, and some newer additions
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. 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.
Although the Company will continue to operate in a dynamic environment, I
believe it is well placed to deal with the challenges and opportunities that
it will face over the coming year, and I therefore look forward to the future
with cautious optimism.
Andrew Davison
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 £8.6 million was invested in seven
new portfolio companies and £1.8 million in seven existing portfolio
companies.
The year also saw a number of disposals resulting in aggregate realisation
proceeds of £13.7 million and realised gains against initial cost of £5.2
million.
At 28 February 2017, the Company's venture capital portfolio comprised 45
investments at a cost of £56.9 million and a valuation of £72.2 million, an
overall uplift of 26.9% on cost.
The net cash outflow for the year before fund raising was £6.7 million. The
Company's cash balances were, however, replenished by net funds allotted of
£32.7 million.
Investment activity
New investments
We continued to identify a number of attractive investment opportunities, with
£8.6 million being invested in seven new portfolio companies.
The Company's investment in Thread (£880,000), 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 £597,000 was invested in Thread in
February 2017 as the company continued to expand its operations.
In December 2016, an investment of £2.2 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 (£2.1 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 (£1.1 million), Firefly
Learning, a learning platform software provider (£758,000), Honeycomb.TV, a
TV and video advertising management platform (£495,000) and ContactEngine, a
software provider that automates its clients' customer communications
(£450,000).
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 InContext Solutions
(£400,000), with the investment being used to enable the company to continue
to develop their technology.
In January 2017, following the de-merger of Simplestream's consumer facing
business, TVPlayer, the Company invested £77,000 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 Perfect Channel, (£376,000), Network Locum
(£358,000), Disposable Cubicle Curtains (£339,000), Big Data Partnership
(£186,000) and D3O Holdings (£80,000).
Investment disposals
SPC International was first funded by the Company in 2002 and in February 2017
the Company committed to sell its remaining equity investment, with proceeds
of £2.8 million received for 85% of the Company's holding before the year
end. The disposal of the Company's equity investment follows on from the full
repayment of the Company's loan note investments in previous years and takes
the annual rate of return on the Company's overall investment in SPC
International, over its 15 year life, to over 12%.
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 £4.4 million. This represents a realised gain of £2.0 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
£2.5 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 (£277,000),
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
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 £2.9 million
over the course of the year.
Third Bridge 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 £1.7 million during the
year and at the year-end represents an unrealised uplift on cost of 4.0x.
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 £1.2 million and it is
now valued at c. 2.0x cost.
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 £717,000.
Overall, the investment portfolio showed an increase in value of £9.4
million, or 9.8p per share.
Post year-end developments
Between 28 February 2017 and the date of this announcement, the Company made
three follow on investments totalling £1.6 million, comprising Poq Studio
(£1.1 million), HoneyComb.TV (£405,000) and ContactEngine (£112,000).
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 SPC, 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) 2,155
Whistle Sports, Inc. 2,090
Thread Inc. 1,477
Poq Studio Limited 1,125
Firefly Learning Limited 758
Honeycomb.TV Limited 495
ContactEngine Limited 450
InContext Solutions, Inc. 400
Perfect Channel Limited 376
Network Locum Limited 358
Disposable Cubicle Curtains Limited 339
Big Data Partnership Limited 186
D3O Holdings Ltd 80
TVPlayer Limited 77
Other investments 2
Total 10,368
Disposals Cost Market value at 01/03/16 *** Disposal Proceeds Realised gain against cost Realised gain during the year
£'000 £000 £'000 £'000 £'000
MyOptique Group Limited 2,420 2,420 4,380 1,960 1,960
SPC International Limited** 328 1,017 2,753 2,425 1,736
Big Data Partnership Limited 1,692 1,692 2,471 779 779
Speciality European Pharma Limited* 2,052 2,052 2,052 - -
Linkdex Limited* 1,244 1,244 1,244 - -
Peerius Limited* 277 277 277 - -
Celoxica Limited* 269 269 269 - -
Donatantonio Group Limited* 100 100 129 29 29
Conversity Limited* 85 - 102 17 102
Other investments 1 1 1 - -
Total 8,468 9,072 13,678 5,210 4,606
* Loan repayments during the year
** Partial disposal
*** Adjusted for purchases during the year
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)
Watchfinder.co.uk Limited 2,629 8,375 2,857 7.9%
Perfect Channel Limited 3,010 4,660 1,553 4.4%
Rapid Charge Grid Limited (formerly Pulpitum Limited)* 4,200 3,847 (86) 3.6%
Monmouth Holdings Limited*,*** 4,000 3,809 (191) 3.6%
Third Bridge Group Limited 949 3,767 1,689 3.6%
Think Limited** 2,757 3,739 1,124 3.5%
Monica Vinader Limited** 534 3,679 211 3.5%
Blis Media Limited** 841 3,543 1,336 3.4%
Litchfield Media Limited 3,580 3,389 (191) 3.2%
Chargemaster plc** 2,421 3,145 723 3.0%
Cogora Group Limited** 2,643 2,972 (686) 2.8%
Disposable Cubicle Curtains Limited** 2,032 2,624 348 2.5%
MEL Topco Limited (t/a Maplin Electronics)* 2,217 2,253 (212) 2.1%
Infinity Reliance Limited (t/a My 1st Years) 2,155 2,155 - 2.1%
Whistle Sports, Inc. 2,090 2,090 - 2.0%
Chess Technologies Limited 1,045 2,039 1,210 1.9%
Donatantonio Group Limited 1,078 1,927 (344) 1.8%
InContext Solutions, Inc** 1,976 1,539 (573) 1.5%
Thread Inc. 1,477 1,477 - 1.4%
MatsSoft Limited** 1,010 1,474 613 1.4%
Poq Studio Limited 1,125 1,125 - 1.1%
Response Tap Limited 1,060 1,060 (60) 1.0%
APM Healthcare Limited 500 986 128 1.0%
Sealskinz Holdings Limited** 834 854 20 0.8%
D30 Holdings Ltd** 956 762 78 0.7%
Firefly Learning Limited 758 758 - 0.7%
Network Locum Limited 698 698 - 0.7%
Honeycomb.TV Limited 495 495 - 0.5%
SPC International Limited** 58 491 311 0.5%
ContactEngine Limited 450 450 - 0.4%
Inskin Media Limited 365 365 (187) 0.3%
Skills Matter Limited* 984 302 302 0.3%
TVPlayer Limited 230 298 68 0.3%
Simplestream Limited** 191 271 54 0.3%
Charterhouse Leisure Limited** 875 235 (717) 0.2%
52,223 71,653 9,378 68.0%
Other venture capital investments 4,713 563 42 0.5%
Total venture capital investments 56,936 72,216 9,420 68.5%
Cash at bank and in hand 33,210 31.5%
Total investments 105,426
Other venture capital investments at 28 February 2017 comprise:
7Digital Group plc**, Buckingham Gate Financial Services Limited*, Celoxica
Limited*, Conversity Limited, Dianomi Limited, Macklin Holdings 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 7digital Group plc which is 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.
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 £61.5 million of venture capital investments
and ended with £72.2 million spread over a portfolio of 45 companies. 39 of
these investments with a value of £62.2 million were VCT qualifying (or part
qualifying).
The profit on ordinary activities after taxation for the year was £12.2
million, comprising a revenue profit of £25,000 and a capital profit of
£12.2 million. The Ongoing Charges ratio (excluding performance fees and
recoverable VAT) in respect of the year ended 28 February 2017, based on
average net assets during the year, was 2.5% (2016: 2.6%).
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 (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 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 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 Complied
vii. 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 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 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 x. 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 Complied 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 £104.7 million (2016: £86.5
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 £1,994,000 (2016: £1,318,000)
(inclusive of VAT where applicable), of which £492,000 (2016: £322,000) 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 investment manager
remains in the best interests 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 £57,000 (2016: £56,000). An amount of £14,000 (2016: £14,000)
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 £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
2012 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 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.
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 £426,000
(2016: £2,564,000), of which £426,000 (2016: £2,554,000) 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 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.
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, 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
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 VCT plc
Directors' responsibilities statement
The Board considers that the Annual Report and Accounts, taken as a whole, are
fair, balanced and understandable and that they provide the information
necessary for Shareholders to assess the Company's performance, business model
and strategy.
The Directors are responsible for preparing the Directors' Report, the
Directors' Remuneration Report, Strategic Report and the financial statements
in accordance with applicable law and regulations. They are also responsible
for ensuring that the annual report includes information required by the
Listing Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable
law). Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and accounting estimates that are reasonable and prudent;
* state whether applicable UK accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions, to disclose with
reasonable accuracy at any time the financial position of the Company and to
enable them to ensure that the financial statements comply with the
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 2017
Year ended 28 February 2017 Year ended 29 February 2016
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income 949 - 949 1,103 - 1,103
Gains on investments - 14,134 14,134 - 6,419 6,419
949 14,134 15,083 1,103 6,419 7,522
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