TIDMPGOO
PROVEN GROWTH AND INCOME VCT PLC
ANNUAL FINANCIAL REPORT
YEARED 28 FEBRUARY 2019
Financial summary
28 February 2019 28 February 2018
Ordinary Shares as at: Pence Pence
Net asset value per Ordinary Share 68.4 72.1
Dividends paid since class launch (originally as 'C'
Shares) 60.9 54.4
Total return (net asset value plus dividends paid
since 'C' Share class launch) 129.3 126.5
Year on year change in:
Net asset value per share (adjusted for dividends
paid in the year) 3.9% 2.7%
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 2019. The Company
has continued to identify a number of attractive investment
opportunities, investing a total of GBP9.9 million in the year. It has
also been an excellent year for realisations, with Chargemaster, Chess
and Watchfinder all being fully realised in the year.
Results for the year
Over the year, there was an increase in Shareholder total return (Net
Asset Value ("NAV") per share plus dividends) of 3.9%. However,
predominately as a result of the dividends paid in the year, the
Company's NAV per share fell from 72.1p at 28 February 2018 to 68.4p at
28 February 2019. The 3.7p reduction comprised dividend payments of 6.5p,
offset by 2.8p of uplift arising largely from positive valuation
movements.
The total return on ordinary activities for the year was GBP3.8 million,
or 2.7p per share (2018: GBP5.0 million, 3.6p per share), comprising a
revenue loss of GBP736,000, or 0.5p per share, (2018: revenue loss of
GBP590,000, 0.4p per share) and a capital return of GBP4.6 million, or
3.2p per share (2018: GBP5.6 million, 4.0p per share).
Dividends
During the year ended 28 February 2019, the Company paid a final
dividend of 2.5p per share in respect of the year ended 28 February 2018
on 20 July 2018. A special interim dividend of 4.5p per share was paid
in respect of the year ended 28 February 2019 on 30 November 2018.
Your Board is proposing a final dividend for the year ended 28 February
2019 of 2.0p per share to be paid on 19 July 2019 to Shareholders on the
register at 21 June 2019. With total tax-free dividends of 6.5p per
share for the year ended 28 February 2019, this represents a cash return
of 9.0% on the opening NAV per share at 1 March 2018, which largely
reflects the substantial profits crystallised on the realisations of
Chargemaster and Watchfinder during the first half of the year.
Portfolio activity and valuation
The Company invested GBP5.5 million in five new portfolio companies and
GBP4.4 million in ten existing portfolio companies during the year.
It was a strong year for disposals with the full disposals of
Chargemaster, Chess and Watchfinder all completed during the year.
Aggregate proceeds of GBP13.8 million were generated from these three
sales, resulting in a gain against cost of GBP10.6 million.
In addition to these disposals, the Company realised its holdings in
Charterhouse Leisure and Conversity at an uplift on the carrying value
at the previous year end but a loss against cost. The Company's holding
in Perfect Channel was sold at a significant loss against cost after an
extended period of underperformance.
Overall, the investment portfolio held at the year end increased in
value by GBP3.4 million (2018: GBP1.5 million), or 2.4p per share (2018:
1.1p per share). Continued strong performance of Zoovu (formerly
SmartAssistant), Deepcrawl and Contact Engine contributed significantly
to the net uplift, but there were also valuation uplifts for Blis and
Sealskinz. These gains were offset by reductions in valuation for
WhistleSports, Cogora and Monica Vinader.
Further details of investment activity and investments held are provided
in the Investment Manager's Review.
Fundraising activities
The Company launched a combined offer for subscription with ProVen VCT
plc on 11 January 2019 to raise up to a total of GBP30 million per
company, with an over-allotment facility of GBP10 million per VCT. At
the date of this report gross applications totalling GBP25.9 million had
been received and allotted by the Company under the combined offer.
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 1,929,510 shares at an average
price of 68.1p per share and for an aggregate consideration of
GBP1,320,829. This represented 1.3% of the Company's issued share
capital at the start of the year. All shares were subsequently
cancelled.
A special resolution to allow the Board to continue to purchase shares
for cancellation will be proposed at the forthcoming Annual General
Meeting ("AGM").
Performance Fee
The Company's performance incentive arrangements are an important aid
for the Investment Manager in recruiting and retaining talented
investment professionals against competition from other investment
management companies. The performance fee structure is designed to align
the interests of the Investment Manager with those of Shareholders and
encourages capital growth as well as significant payments to
Shareholders by means of tax-free dividends, as determined by the
Directors. These arrangements are set out in more detail in the
Strategic Report.
The Company's performance during the year means that the performance
hurdles continue to be met for certain earlier fundraisings and the
significant dividends paid in the year have resulted in a fee payable at
28 February 2019 of GBP331,000. A provision for this fee has been
included in the accounts and is reflected in the NAV per share.
The payment of a performance fee in future years and the amount thereof,
if any, will be dependent on both the performance of the Company and the
level of dividends paid to Shareholders, as determined by the Directors.
Annual General Meeting
The next AGM of the Company will be held in the Forest Room at The
Hospital Club, 24 Endell Street, London, WC2H 9HQ at 9.30 a.m. on
Wednesday 3 July 2019.
Three 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, 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 13 November 2019 at 10.00
a.m. at the Institution of Engineering and Technology, 2 Savoy Place,
London, WC2R 0BL.
A formal invitation will be sent in due course and I would very much
encourage Shareholders to attend.
Outlook
The Company has been able to achieve a number of significant
realisations as merger and acquisition activity has remained strong
throughout the year. The Company also has a diversified portfolio of
investments, many of which have the potential to grow significantly as a
result of the Company's support.
After a number of changes to the VCT rules in recent years, it is
encouraging that there have been few additional changes in the last 12
months. However, the previous change to the minimum level of qualifying
investments from 70% to 80%, which becomes effective for the Company on
29 February 2020, is a challenge throughout the industry and the
Investment Manager continues to work hard on identifying potential
investment opportunities to ensure that this threshold will be achieved
for the Company.
The ongoing delays to the UK's withdrawal from the EU and the continued
uncertainty over the nature of Brexit means there remains a largely
unquantifiable risk over whether the final outcome agreed with the EU
will adversely impact the Company's portfolio companies.
Despite the uncertainty over Brexit and the economic and political
climate more generally, the Company is well placed with a
well-diversified portfolio of over 40 companies. Together with
significant funds raised after the year end to expand this portfolio,
your Directors remain confident about the prospects of the Company going
forward.
Marc Vlessing OBE
Chairman
Investment Manager's Review
Introduction
We have pleasure in presenting our annual review for the year ended 28
February 2019. During the year, a total of GBP5.5 million was invested
in five new portfolio companies and GBP4.4 million in ten existing
portfolio companies.
The year also saw a strong level of realisations, with aggregate
realisation proceeds of GBP14.6 million and an aggregate realised gain
against initial cost of GBP9.6 million.
At 28 February 2019, the Company's venture capital portfolio comprised
42 investments at a cost of GBP61.8 million and a valuation of GBP62.8
million, an overall uplift of 1.6% on cost.
The net cash outflow for the year was GBP7.7 million. After the year end,
the Company allotted GBP25.9 million of gross applications under the
combined offer for subscription with ProVen VCT plc which launched on 11
January 2019 meaning that the Company remains well capitalised to take
advantage of new investment opportunities.
Investment activity
New investments
We continued to experience a strong level of deal flow, with GBP5.5
million being invested during the year in five new portfolio companies.
The largest new investment for the Company was the investment in Access
Systems Inc. (t/a AccessPay) (GBP1.5 million) as part of one of the
largest ever investments in a fintech company in the North of England.
AccessPay provides software to automate payments and cash management
solutions for corporate clients. The investment is being used to expand
the company's sales and marketing reach in the UK and internationally as
well as to further improve functionality of the company's software.
The Company invested GBP1.4 million in Festicket in October 2018.
Festicket is an online platform that packages together festival tickets
with travel, accommodation and add-ons to provide complete festival
experiences that can be booked in one place. The Company's investment
was part of a larger $10.5 million investment round that will be used to
expand into North America and Asia as the company focuses on becoming
the number one global live events platform.
The Company's investment in Mycs (GBP1.3 million), a Berlin based online
retailer for customisable furniture, was completed in May 2018 and was
discussed in the Company's previous annual report. Other new investments
were made in Exonar (GBP1.1 million), a leading data discovery and
management software firm and Aistemos (GBP277,000), a software company
that uses artificial intelligence for intellectual property analytics.
Follow-on investments
The Company has also been active in supporting the development of
existing portfolio companies, making follow-on investments in ten
companies during the year.
The largest of the follow-on investments was in Poq Studio (GBP1.1
million) with the investment being used for product development and to
expand the company's sales and marketing team. This brings the Company's
total investment in Poq to GBP2.8 million.
In November 2018, the Company invested GBP933,000 in Zoovu (formerly
Smart Assistant). Zoovu has shown impressive growth since the Company's
initial investment and the further investment is being used to expand
the company's sales and marketing team.
Other follow-on investments were made in My 1st Years (GBP924,000),
Deepcrawl (GBP600,000), Disposable Cubicle Curtains (t/a Hygenica)
(GBP287,000), Firefly (GBP190,000), Perfect Channel (GBP132,000), MPB
(GBP131,000), InContext (GBP46,000) and Thread (GBP45,000).
Investment disposals
The Company achieved a number of successful realisations during the year
with the full disposals of Chargemaster, Chess and Watchfinder
generating a combined realised gain of GBP10.6 million on the original
investment cost.
Chess has been a portfolio company for over 10 years and the Company has
supported the company's expansion in both the UK and internationally
over a number of funding rounds. In December 2018, AIM listed Cohort plc
acquired Chess to expand its range of services and products. The
disposal generated total proceeds of GBP5.4 million for the Company,
equivalent to a gain of 3.5x the initial investment cost.
Watchfinder, initially funded by the Company in 2014, has grown
significantly during the Company's holding period and on 1 June 2018,
Richemont Holdings UK Limited, a subsidiary of the Swiss luxury group
Compagnie Financière Richemont SA, agreed to acquire 100% of the
share capital of Watchfinder. The realised gain of GBP4.4 million
represents an annual rate of return on the Company's investment of over
75%.
Chargemaster has also grown significantly over recent years, driven by
the increase in electric vehicle usage. In July 2018, the Company
realised its investment in Chargemaster in full as part of an
acquisition of Chargemaster by BP plc. Total proceeds of GBP3.4 million
were generated from the disposal, representing a gain against cost of
GBP2.3 million.
In March 2018, the Company sold its investment in Omni Dental Sciences
for GBP242,000. Omni Dental was acquired at no cost as part of the
Company's merger with ProVen Health VCT in 2013 and so the realisation
proceeds represent a 100% realised gain for the Company.
While the year has seen a number of significant realised gains for the
Company, the disposal of Perfect Channel at a significant loss against
cost is a reminder that investing in smaller, unquoted companies carries
a certain level of risk. Perfect Channel's delay in converting a
pipeline of prospects into orders put pressure on the company's cash and
the Company decided to accept an offer and sold its holding in full for
a loss against cost of GBP518,000.
Other disposals included the disposals of Charterhouse Leisure and
Conversity, which were fully realised at a loss against cost but a
slight uplift against the carrying value at the previous year end. An
interim distribution in respect of the administration of Maplin of
GBP335,000 was also received during the year.
Key developments at existing portfolio companies
Zoovu has grown significantly since the Company first invested in 2017,
supported by a number of follow on funding rounds. The money raised has
supported the company's successful expansion into the US, with the
company now servicing a number of larger clients in the Americas. Over
the course of the year the valuation of the Company's investment has
increased by GBP2.4 million.
Blis has continued to perform well despite competition from other online
advertisers and trading for the current year has been ahead of budget.
This has resulted in an increase in valuation of GBP1.8 million and the
Company's investment is now valued at 3.4x cost.
There have been some downward movements in the valuations in the
portfolio, with valuation decreases for Cogora, due to a delay in
closing orders for a number of larger projects, and Monica Vinader, due
to slower than expected trading during the festive period.
Whistle Sports has expanded rapidly over recent years with a number of
fundraising rounds, however, trading has not kept pace with the
fundraising activity and increased competition from Facebook and Google
in the online advertising space has put increasing pressure on revenues,
resulting in a full write down of the Company's investment at the year
end.
Overall, the investment portfolio held at the year end showed an
increase in value of GBP3.4 million (2018: GBP1.5 million), or 2.4p per
share (2018: 1.1p per share). Further detail on the investments is
provided in the Investment Portfolio.
Post year-end developments
Between 28 February 2019 and the date of this report, the Company issued
36,598,021 Ordinary Shares for an aggregate consideration of GBP25.9
million under the combined offer for subscription with Proven VCT plc
which launched on 11 January 2019. Share issue costs thereon amounted to
GBP923,000.
In April 2019, the Company invested GBP2.8 million in Fnatic, an eSports
team owner and lifestyle brand, with professional teams in the most
popular online games such as League of Legends, Dota 2 and Battlefield
4. The money is being used to fund research and development into
products and equipment as well as expand the company's team
internationally.
Outlook
The year has seen a strong flow of both new investment prospects as well
as opportunities to continue to support the development of existing
portfolio companies. Competition for investments remains high, but we
remain disciplined and will not invest in opportunities that we consider
to be overpriced.
The disposals achieved in the year have driven the strong performance of
the Company and follows on from the past few years where the exit
environment has been supported by a high level of merger and acquisition
activity. This trend is unlikely to continue forever, however, and we
will continue to nurture the existing portfolio as well as find exciting
new companies to fund using the money raised after the year end. The
opening of a Beringea office in Manchester during the year has extended
the reach of Beringea's investment team, opening up additional
investment opportunities across the whole of the UK.
The ongoing uncertainty over Brexit continues to be a risk for the
portfolio and the high valuations currently being observed in the market
have the potential to adversely affect future performance. Nevertheless,
we believe that the current portfolio is well diversified and we
therefore remain optimistic about the prospects of the Company for the
coming year.
Beringea LLP
Investment activity
Investment activity during the year is summarised as follows:
Additions
Cost GBP'000
Access Systems, Inc. 1,500
Festicket Ltd 1,392
Mycs GmbH 1,275
POQ Studio Limited 1,098
Exonar Limited 1,070
Zoovu Ltd (formerly Smart Assistant) 933
Infinitiy Reliance Limited (t/a My First Years) 924
Written Byte Limited (t/a Deepcrawl) 600
Disposable Cubicle Curtains Limited (t/a Hygenica) 287
Aistemos Limited 277
Firefly Learning Limited 190
Perfect Channel Limited 132
MPB Group Limited 131
InContext Solutions, Inc. 46
Thread, Inc. 45
Total 9,900
------------
Disposals
Realised
gain/ Realised
Market (loss) (loss)/gain
value at Disposal against during the
Cost** 01/03/18** proceeds cost year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Chess
Technologies
Limited 1,568 6,354 5,408 3,840 (946)
Watchfinder.
co.uk
Limited 551 2,145 4,961 4,410 2,816
Chargemaster
plc 1,079 2,499 3,394 2,315 895
MEL Topco
Limited
(t/aMaplin) - - 335 335 335
Omni Dental
Sciences
Limited - 242 242 242 -
Charterhouse
Leisure
Limited 1,250 13 129 (1,121) 116
Perfect
Channel
Limited 594 214 76 (518) (138)
Skills Matter
Limited* 34 34 34 - -
Conversity
Limited 12 - 2 (10) 2
MatsSoft
Limited - - 65 65 65
Total 5,088 11,501 14,646 9,558 3,145
----------- ----------- ----------- ---------- ------------
* Loan note repayment
** Adjusted for additions in the year
Of the disposals above, MatsSoft Limited was realised in the prior year
but proceeds were recognised in the current period in excess of the
amounts previously accrued.
The proceeds received in respect of MEL Topco Limited (t/a Maplin)
reflected an interim distribution in respect of the company's
administration.
In addition to the above disposals, Steribottle Global Limited, which
had a cost of GBP209,000 and a market value of GBPnil at 1 March 2018
was dissolved in August 2018. No proceeds were received as part of the
dissolution, however, the loss of GBP209,000 had already been recognised
as realised in the prior period.
Investment Portfolio
The following investments were held at 28 February 2019:
Valuation % of
Cost Valuation movement in year portfolio by value
GBP'000 GBP'000 GBP'000
Venture capital
investments (by
value)
Zoovu Limited
(formerly Smart
Assistant) 3,652 6,099 2,446 6.2%
Dryden Holdings
Limited*,*** 5,000 4,761 (1) 4.8%
Poq Studio Limited 2,848 4,598 - 4.6%
Sealskinz Holdings
Limited** 3,116 4,431 1,716 4.5%
Infinity Reliance
Limited (t/a My
1st Years) 2,769 4,045 (282) 4.1%
Blis Media
Limited** 1,083 3,677 1,784 3.7%
D30 Holdings Ltd** 3,550 3,357 371 3.4%
InContext
Solutions, Inc. 2,409 2,515 298 2.5%
Response Tap
Limited 1,440 2,474 332 2.5%
Disposable Cubicle
Curtains
Limited** 3,286 2,357 (77) 2.4%
Written Byte Ltd
(t/a DeepCrawl) 1,612 2,194 582 2.2%
ContactEngine
Limited 687 2,032 596 2.0%
Thread, Inc. 1,909 1,933 (87) 1.9%
Rapid Charge Grid
Limited* 1,888 1,826 134 1.8%
Litchfield Media
Limited* 1,420 1,665 286 1.7%
Donatantonio Group
Limited 1,003 1,634 325 1.6%
Access Systems,
Inc. 1,500 1,500 - 1.5%
Been There Done
That Global
Limited 1,448 1,448 - 1.5%
Festicket Limited 1,392 1,392 - 1.4%
Mycs GmbH 1,275 1,275 - 1.3%
Monica Vinader
Limited** 204 1,266 (524) 1.3%
Exonar Limited 1,070 1,070 - 1.1%
Honeycomb.TV
Limited 1,100 1,066 (34) 1.1%
Firefly Learning
Limited 857 879 22 0.9%
MPB Group Limited 789 789 - 0.8%
Inskin Media
Limited 1,435 729 12 0.8%
Simplestream
Limited** 690 709 (584) 0.7%
Cogora Group
Limited** 1,320 516 (629) 0.5%
Aistemos Limited 277 277 - 0.3%
Netcall plc 324 142 (98) 0.1%
Senselogix Limited 376 67 (4) 0.1%
51,729 62,723 6,584 63.3%
Other venture
capital
investments 10,047 46 (3,209) 0.0%
------- --------- ----------------- ------------------
Total venture
capital
investments 61,776 62,769 3,375 63.3%
Cash at bank and in
hand 36,380 36.7%
Total investments 99,149 100.0%
---------
Valuation movement in the year excludes the cost of investments made in
the year.
Other venture capital investments at 28 February 2019 comprise:
7digital Group plc **, Buckingham Gate Financial Services Limited,
Deltadot Limited, Duncannon Holdings Limited*,***, Lantum Limited, MEL
Topco Limited (t/a Maplin Electronics)*, Skills Matter Limited**,
Utility Exchange Online Limited (t/a SwitchmyBusiness.com), Whistle
Sports, Inc., TVPlayer Limited and Vigilant Applications Limited*.
* Non-qualifying investment
** Partially non-qualifying investment
*** Investee company 100% owned by the Company but not consolidated as
held exclusively for resale as part of an investment portfolio.
With the exception of 7digital Group plc and Netcall plc which are
quoted on AIM, all venture capital investments are unquoted.
All of the above investments, with the exception of Deltadot Limited,
Dryden Holdings Limited and Duncannon Holdings Limited were also held by
ProVen VCT plc, of which Beringea LLP is the Investment Manager.
All venture capital investments are registered in England and Wales
except for InContext Solutions, Inc., Whistle Sports, Inc. and Thread,
Inc., which are Delaware registered corporations in the United States of
America and Mycs GmbH, which is registered in Germany.
Strategic Report
The Directors present the Strategic Report for the year ended 28
February 2019. The Board prepared this report in accordance with the
Companies Act 2006 (Strategic Report and Directors' Reports) Regulations
2013.
Principal objectives and strategy
The Company's investment objective is to achieve long-term returns
greater than those available from investing in a portfolio of quoted
companies, by investing in:
-- a portfolio of carefully selected qualifying investments in small and
medium sized unquoted companies with excellent growth prospects; and
-- a portfolio of non-qualifying investments permitted for liquidity
management purposes
within the conditions imposed on all VCTs and to minimise the risk of
each investment and the portfolio as a whole.
The Company has been approved by HM Revenue and Customs ("HMRC") as a
Venture Capital Trust in accordance with Part 6 of the Income Tax Act
2007, and in the opinion of the Directors the Company, has conducted its
affairs so as to enable it to continue to maintain approval. Approval
for the year ended 28 February 2019 is subject to review should there be
any subsequent enquiry under corporation tax self-assessment.
The Directors consider that the Company was not, at any time, up to the
date of this report, a close company within the meaning of Section 414
of the Income and Corporation Taxes Act 1988.
Business model
The business acts as an investment company, investing in a portfolio of
carefully selected smaller companies. The Company operates as a Venture
Capital Trust to ensure that its shareholders can benefit from tax
reliefs available and has outsourced the portfolio management and
administration duties.
Business review and developments
The Company began the year with GBP61.0 million of venture capital
investments and ended with GBP62.8 million spread over a portfolio of 42
companies. 36 of these investments with a value of GBP54.5 million were
VCT qualifying (or part qualifying).
The profit on ordinary activities after taxation for the year was GBP3.8
million comprising a revenue loss of GBP736,000 and a capital profit of
GBP4.6 million. The Ongoing Charges ratio (excluding performance fees)
as calculated in line with AIC methodology is an Alternative Performance
Measurement used by the Board to monitor expenses. The Ongoing Charges
ratio for the year ended 28 February 2019 was 2.8% (2018: 2.6%).
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 Company's investment policy covers several areas as follows:
Qualifying investments
The Company seeks to make investments in VCT-qualifying companies with
the following characteristics:
-- a strong, balanced and well-motivated management team with a proven track
record of achievement;
-- a defensible market position;
-- good growth potential;
-- an attractive entry price for the Company; and
-- a clearly identified route for a profitable realisation within a 3 to 4
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 a regulated market.
Borrowings
It is not the Company's intention to have any borrowings. The Company
does, however, have the ability to borrow a maximum amount equal to the
nominal capital of the Company and its distributable and undistributable
reserves.
Maximum exposures
No investment will constitute more than 15% of the Company's portfolio
by value at the time of investment.
Listing Rules
In accordance with the Listing Rules:
1. the Company may not invest more than 10%, in aggregate, of the value of
the total assets of the Company at the time an investment is made in
other listed closed-ended investment funds except listed closed-ended
investment funds which have published investment policies which permit
them to invest no more than 15% of their total assets in other listed
closed-ended investment funds;
2. the Company must not conduct any trading activity which is significant in
the context of the Company; and
3. the Company must, at all times, invest and manage its assets in a way
which is consistent with its objective of spreading investment risk and
in accordance with its published investment policy set out in this
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 2019 and for
the year then ended is summarised as follows:
i. The Company holds at least 70 per cent. of its Complied
investments in qualifying companies (as defined by
Part 6 of the Income Tax Act 2007)
ii. At least 70 per cent. in the case of funds raised Complied
after 5 April 2011 of the Company's qualifying investments
(by value) are held in "eligible shares" -- ("eligible
shares" generally being ordinary share capital)
iii. At least 10 per cent. of each investment in a Complied
qualifying company is held in "eligible shares" (by
cost at time of investment)
iv. No investment in a company constitutes more than Complied
15 per cent. of the Company's portfolio (by value
at time of investment)
v. The Company's income for each financial year is Complied
derived wholly or mainly from shares and securities
vi. The Company distributes sufficient revenue dividends Complied
to ensure that not more than 15 per cent. of the income
from shares and securities in any one year is retained
vii. The Company has not made a prohibited payment Complied
to Shareholders derived from an issue of shares since
6 April 2014
viii. No investment made by the Company causes an Complied
investee company to receive more than the permitted
investment from State Aid sources (including from
VCTs)
ix. Since 18 November 2015, the Company has not made Complied
an investment in a company which exceeds the maximum
permitted age requirement
x. The funds invested by the Company in another company Complied
since 18 November 2015 have not been used to make
a prohibited acquisition
xi. Since 6 April 2016, the Company has not made a Complied
prohibited non-qualifying investment.
Borrowings
The Company has the ability to borrow a maximum amount equal to the
nominal capital of the Company and its distributable and undistributable
reserves, which, at 28 February 2019, was equal to GBP98.5 million
(2018: GBP103.9 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 GBP2,414,000 (2018: GBP3,262,000),
comprising a management fee of GBP2,083,000 (2018: GBP2,124,000) and
performance incentive fees as described below of GBP331,000 (2018:
GBP1,138,000). At the year-end, an amount of GBP488,000 (2018:
GBP1,301,000) was outstanding.
The Board is satisfied with Beringea's approach and procedures in
providing investment management services to the Company. The Directors
have therefore concluded that the continuing appointment of Beringea as
the Investment Manager remains in the best interest of Shareholders.
Throughout the year ended 28 February 2019 Beringea also provided
administration services to the Company. In the year, total
administration fees amount to GBP54,000 (2018: GBP52,000). An amount of
GBP14,000 (2018: GBP13,000) remained outstanding at the year end.
The annual running costs (excluding any performance fees payable) of the
Company, are also subject to a cap of 3.6% of the Company's net assets
as at the end of the year. Any costs in excess of this are borne by
Beringea.
Beringea also received arrangement fees in respect of investments made
by the Company and other VCTs managed by Beringea totalling GBP361,000
(2018: GBP256,000) and monitoring fees of GBP506,000 (2018: GBP637,000)
during the year ended 28 February 2019. 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
Under the performance fee arrangements, the Investment Manager is
entitled to receive a performance fee in relation to each major
fundraising (a "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 relevant 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.
Performance fees for the year ended 28 February 2019 amounted to
GBP331,000 (2018: GBP1.1 million), of which GBP331,000 (2018: GBP1.1
million) 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.
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, also faces a number of
non-financial principal 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 Company invests in small and immature businesses and there is a risk
that the performance of these individual businesses negatively impacts
the performance of the Company. The Investment Manager follows a
rigorous process in vetting and careful structuring of new investments
and, after an investment is made, close monitoring of the businesses.
The Board reviews and agrees policies for managing each of these risks.
The Directors receive reports annually from the Investment Manager on
the compliance of systems to manage these risks, and place reliance on
the Investment Manager to give updates in the intervening periods. These
policies have remained unchanged since the beginning of the financial
year.
Viability statement
The Board has assessed the Company's prospects over the three year
period to 28 February 2022. 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 80% 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 consider that the primary risk faced by the Company is
compliance with the VCT rules and although there are a number of
mitigating factors such as a robust deal identification and diligence
process, an experienced investment team and consultation with the
Company's VCT status adviser to ensure that investments made comply with
the VCT rules, these factors cannot mitigate the risk that insufficient
qualifying investments are identified to ensure ongoing compliance with
the VCT rules.
Accordingly, the amount required to invest in qualifying holdings to
maintain compliance with the VCT rules was a major consideration in the
Board's analysis. Together with the expected liabilities of the Company
for the three years to 28 February 2022, the Board considered the
forecast cash requirements against the expected cash position, taking
into account a level of assumed investment realisations and investment
income during the period.
Based on the above considerations, the Board has determined that the
Company will be able to continue in operation, maintain compliance with
the VCT rules and meet its liabilities as they fall due for the three
years to 28 February 2022.
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 VCT is required to report on its
Greenhouse Gas (GHG) Emissions, as it outsources all of its activities
and does not have any physical assets, property, employees or operations,
it is not responsible for any direct emissions.
Environmental, social and human rights policy
The Board seeks to conduct the Company's affairs responsibly. Where
appropriate, the Board and Investment Manager take environmental, social
and human rights factors into consideration when selecting new
investments.
Future prospects
The Company's future prospects are set out in the Chairman's Statement
and Investment Manager's Review.
The Directors do not foresee any major changes in the activity
undertaken by the Company in the coming year. The Company continues with
its objective to invest in unquoted companies throughout the United
Kingdom or with a presence in the United Kingdom, with a view to
providing both capital growth and dividend income to Shareholders over
the long term whilst maintaining VCT qualifying status.
Beringea LLP
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 and Accounts
includes information required by the Listing Rules of the Financial
Conduct Authority.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law, the Directors have elected to
prepare the financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom accounting
standards and applicable law). Under company law, the Directors must not
approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and accounting estimates that are reasonable and prudent;
-- state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
-- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions, to
disclose with reasonable accuracy at any time the financial position of
the Company and to enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
Directors' responsibilities pursuant to the Disclosure and Transparency
Rule 4
Each of the Directors confirms that to the best of each person's
knowledge:
-- the financial statements, which have been prepared in accordance with UK
Generally Accepted Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company; and
-- the Directors' Report, Chairman's Statement, Strategic Report, Investment
Manager's Review and Review of Investments include a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
Statement as to disclosure of information to the Auditor
The Directors in office at the date of this announcement have confirmed,
as far as they are aware, that there is no relevant audit information of
which the Auditor is unaware. Each of the Directors have confirmed that
they have taken all the steps that they ought to have taken as Directors
in order to make themselves aware of any relevant audit information and
to establish that it has been communicated to the Auditor. This
confirmation is given and should be interpreted in accordance with the
provisions of section 418 of the Companies Act 2006.
Income Statement
for the year ended 28 February 2019
Year ended 28 February Year ended 28 February
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 355 - 355 531 - 531
Realised gains on
investments - 3,145 3,145 - 6,880 6,880
Unrealised gains
on investments - 3,375 3,375 - 1,481 1,481
355 6,520 6,875 531 8,361 8,892
Investment
management fees (521) (1,562) (2,083) (531) (1,593) (2,124)
Performance
incentive fees - (331) (331) - (1,138) (1,138)
Other expenses (570) (57) (627) (590) (31) (621)
Return/ (loss) on
ordinary
activities before
tax (736) 4,570 3,834 (590) 5,599 5,009
Tax on
ordinary
activities - - - - - -
Return/ (loss)
attributable to
equity
shareholders (736) 4,570 3,834 (590) 5,599 5,009
------- ------- -------- ------- ------- --------
Basic and diluted
return/ (loss)
per share (0.5p) 3.2p 2.7p (0.4p) 4.0p 3.6p
All revenue and capital movements in the year relate to continuing
operations. No operations were acquired or discontinued during the year.
The total column within the Income Statement represents the Income
Statement of the Company, prepared in accordance with the accounting
policies detailed in note 1 of this announcement. The supplementary
revenue and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the
Association of Investment Companies.
A Statement of Comprehensive Income has not been prepared as all gains
and losses are recognised in the Income Statement in the current and
prior year as shown.
Other than revaluation movements arising on investments held at fair
value through profit or loss, there were no differences between the
return as stated above and at historical cost.
Statement of Changes in Equity
for the year ended 28 February 2019
Year ended 28 February 2019
Capital
redemption Special Share Revaluation Capital Revenue
Called up share capital reserve reserve Premium Share capital to be issued reserve reserve- realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------- -------- -------- -------------------------- ----------- ------------------ -------- ---------
At 1 March
2018 2,330 1,168 9,970 69,935 - 10,080 11,443 (1,036) 103,890
------------------------- ----------- -------- -------- -------------------------- ----------- ------------------ -------- ---------
Issue of new
shares 32 - - 1,356 - - - - 1,388
Share buybacks
and
cancellation (31) 31 (1,321) - - - - - (1,321)
Total
comprehensive
income - - - - - 3,375 1,195 (736) 3,834
Transfer of
previously
unrealised
gains now
realised - - - - - (6,412) 6,412 - -
Cancellation
of share
premium
account - - 70,345 (70,345) - - - - -
Cancellation
of capital
redemption
reserve - (1,180) 1,180 - - - - - -
Dividends paid - - (9,318) - - - - - (9,318)
At 28 February
2019 2,331 19 70,856 946 - 7,043 19,050 (1,772) 98,473
------------------------- ----------- -------- -------- -------------------------- ----------- ------------------ -------- ---------
Year ended 28 February 2018
Capital
redemption Special Share Revaluation Capital Revenue
Called up share capital reserve reserve Premium Share capital to be issued reserve reserve- realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------- -------- -------- -------------------------- ----------- ------------------ -------- ---------
At 1 March
2017 1,594 1,148 29,351 33,863 30,910 10,605 5,319 (446) 112,344
------------------------- ----------- -------- -------- -------------------------- ----------- ------------------ -------- ---------
Issue of new
shares 756 - - 36,072 (30,910) - - - 5,918
Share buybacks
and
cancellation (20) 20 (885) - - - - - (885)
Share issue
costs - - (1,019) - - - - - (1,019)
Total
comprehensive
income - - - - - 1,481 4,118 (590) 5,009
Transfer of
previously
unrealised
gains now
realised - - - - - (7,887) 7,887 - -
Realised
losses on
investments
still held - - - - - 5,881 (5,881) - -
Dividends paid - - (17,477) - - - - - (17,477)
At 28 February
2018 2,330 1,168 9,970 69,935 - 10,080 11,443 (1,036) 103,890
------------------------- ----------- -------- -------- -------------------------- ----------- ------------------ -------- ---------
The special reserve, capital reserve -- realised and revenue reserve are
all distributable reserves. Reserves available for distribution
therefore amount to GBP88,134,000 (2018: GBP20,377,000).
During the year the Company repurchased 1,929,510 shares (2018:
1,215,963) with a nominal value of GBP31,000 (2018: GBP20,000). All
shares were subsequently cancelled.
The composition of each of these reserves is explained below:
Called up share capital - The nominal value of shares issued, increased
for subsequent share issues either via an offer for subscription or the
Company's dividend reinvestment scheme, or reduced due to shares bought
back by the Company for cancellation.
Capital redemption reserve - The nominal value of shares bought back and
cancelled.
Special reserve -- A distributable reserve which is used to fund shares
bought back by the Company for cancellation and share issue costs on
shares issued under an offer for subscription. Dividends that are
classified as capital may be paid from this reserve.
Share premium reserve - This reserve contains the excess of gross
proceeds over the nominal value of shares allotted under offers for
subscription and the Company's dividend reinvestment scheme, to the
extent that it has not been cancelled.
Share capital to be issued -- This reserve contains the amount that has
been raised under open offers for subscription, but which at the
relevant period end had not been allotted.
Revaluation reserve - Increases and decreases in the valuation of
investments held at the year-end are accounted for in this reserve,
except to the extent that the diminution is deemed permanent.
In accordance with stating all investments at fair value through profit
and loss, all such movements through both revaluation and capital
reserve -- realised are shown within the Income Statement for the year.
Capital reserve realised - The following are accounted for in this
reserve:
-- Gains and losses on realisation of investments;
-- Permanent diminution in value of investments;
-- Transaction costs incurred in the acquisition of investments;
-- 75% of the investment manager's fee expense and 100% of any performance
incentive fee payable; and
-- Other capital expenses and charges.
Revenue reserve - Income and expenses that are revenue in nature are
accounted for in this reserve together with the related tax effect, as
well as dividends paid that are classified as revenue in nature.
Statement of Financial Position
as at 28 February 2019
28 February 2019 28 February 2018
Fixed assets GBP'000 GBP'000
Investments 62,769 60,995
Current assets
Debtors 481 508
Cash at bank and in hand 36,380 44,062
---------------- ----------------
36,861 44,570
Creditors: amounts falling due
within one year (1,157) (1,675)
Net current assets 35,704 42,895
Total assets less current
liabilities 98,473 103,890
---------------- ----------------
Capital and reserves
Called up share capital 2,331 2,330
Capital redemption reserve 19 1,168
Special reserve 70,856 9,970
Share premium 946 69,935
Revaluation reserve 7,043 10,080
Capital reserve -- realised 19,050 11,443
Revenue reserve (1,772) (1,036)
Total equity shareholders' funds 98,473 103,890
---------------- ----------------
Basic and diluted net asset value 68.4p 72.1p
per share
Statement of Cash Flows
for the year ended 28 February 2019
Year ended 28 February Year ended 28 February
2019 2018
GBP'000 GBP'000
Net cash used in
operating activities (3,536) (4,889)
Cash flows from
investing activities
Purchase of investments (9,900) (8,808)
Sale of investments 14,741 24,736
---------------------- ----------------------
Net cash from investing
activities 4,841 15,928
Cash flows from
financing activities
Proceeds from share
issue - 34,509
Share issue costs - (1,018)
Purchase of own shares (1,057) (850)
Share capital to be
issued - (30,910)
Equity dividends paid (7,930) (15,158)
---------------------- ----------------------
Net cash used in
financing (8,987) (13,427)
Decrease in cash and
cash equivalents (7,682) (2,388)
---------------------- ----------------------
'Net cash used in operating activities' includes interest received of
GBP284,000 (2018: GBP462,000) and dividends received of GBP nil (2018:
GBP186,000). No interest was paid during the year.
Notes to the Announcement
for the year ended 28 February 2019
1 Accounting policies
Basis of preparation
The Company has prepared its financial statements under Financial
Reporting Standard 102 ("FRS102") and in accordance with the Statement
of Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' (the "SORP") issued by the
Association of Investment Companies ("AIC"), which was revised in
February 2018.
The financial statements are prepared under the historical cost
convention except for the revaluation of certain financial instruments
measured at fair value.
The following accounting policies have been applied consistently
throughout the period.
Going concern
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. Thus they
continue to adopt the going concern basis of accounting in preparing the
financial statements.
Presentation of Income Statement
In order to better reflect the activities of an investment company and,
in accordance with guidance issued by the AIC, supplementary information
which analyses the Income Statement between items of a revenue and
capital nature has been presented alongside the Income Statement. The
revenue return attributable to equity shareholders is the measure the
Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Part 6 of the Income Tax Act 2007.
Investments
Investments, including equity and loan stock, are recognised at their
trade date and measured at "fair value through profit or loss" due to
investments being managed and performance evaluated on a fair value
basis. A financial asset is designated within this category if it is
both acquired and managed, with a view to selling after a period of time,
in accordance with the Company's documented investment policy. The fair
value of an investment upon acquisition is deemed to be cost.
Thereafter investments are measured at fair value in accordance with
International Private Equity and Venture Capital Valuation Guidelines
("IPEV Guidelines") issued in December 2015, together with sections 11
and 12 of FRS102.
Publicly traded investments are measured using bid prices in accordance
with the IPEV Guidelines.
Key judgements and estimates
The valuation methodologies used by the Directors for estimating the
fair value of unquoted investments are as follows:
-- investments are usually retained at cost for twelve months
following investment, except where a company's performance against plan
is significantly below the expectations on which the investment was made
in which case a provision against cost is made as appropriate;
-- where a company is in the early stage of development it
will normally continue to be held at cost as the best estimate of fair
value, reviewed for impairment on the basis described above;
-- where a company is well established after an appropriate
period, the investment may be valued by applying a suitable earnings or
revenue multiple to that company's maintainable earnings or revenue.
The multiple used is based on comparable listed companies or a sector
but discounted to reflect factors such as the different sizes of the
comparable businesses, different growth rates and the lack of
marketability of unquoted shares;
-- where a value is indicated by a material arms-length
transaction by a third party in the shares of the company, the valuation
will normally be based on this, reviewed for impairment as appropriate;
-- where alternative methods of valuation, such as net assets
of the business or the discounted cash flows arising from the business
are more appropriate, then such methods may be used; and
-- where repayment of the equity is not probable, redemption
premiums will be recognised.
The methodology applied takes account of the nature, facts and
circumstances of the individual investment and uses reasonable data,
market inputs, assumptions and estimates in order to ascertain fair
value. Methodologies are applied consistently from year to year except
where a change results in a better estimate of fair value.
Where an investee company has gone into receivership or liquidation, or
the loss in value below cost is considered to be permanent, or there is
little likelihood of a recovery from a company in administration, the
loss on the investment, although not physically disposed of, is treated
as being realised.
All investee companies are held as part of an investment portfolio and
measured at fair value. Therefore, it is not the policy for investee
companies to be consolidated and any gains or losses arising from
changes in fair value are included in the Income Statement for the
period as a capital item.
Gains and losses arising from changes in fair value are included in the
Income Statement for the year as a capital item and transaction costs on
acquisition or disposal of the investment are expensed.
Investments are derecognised when the contractual rights to the cash
flows from the asset expire or the Company transfers the asset and
substantially all the risks and rewards of ownership of the asset to
another entity.
Fair value
Fair value is defined as the amount for which an asset could be
exchanged between knowledgeable, willing parties in an arm's length
transaction. The Company has categorised its financial instruments that
are measured subsequent to initial recognition at fair value, using the
fair value hierarchy as follows:
Level 1: The unadjusted quoted price in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2: Inputs other than quoted prices included within Level 1 that
are observable (i.e., developed using market data) for the asset or
liability, either directly or indirectly.
Level 3: Inputs are unobservable (i.e., for which market data is
unavailable) for the asset or liability.
Income
Dividend income from investments is recognised when the shareholders'
rights to receive payment has been established, normally the ex-dividend
date.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable and
only where there is reasonable certainty of collection in the
foreseeable future. Income which is not capable of being received within
a reasonable period of time is reflected in the capital value of the
investments. A provision is made for any fixed income not expected to be
received.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the Income
Statement, all expenses have been presented as revenue items except as
follows:
-- expenses which are incidental to the acquisition of an investment are
deducted from the Capital Account;
-- expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment;
-- expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the
investments held can be demonstrated. Accordingly, the investment
management fee has been allocated 25% to revenue and 75% to capital in
order to reflect the Directors' expected long-term view of the nature of
the investment returns of the Company; and
-- performance incentive fees are treated as a capital item.
Taxation
The tax effects of different items in the Income Statement are allocated
between capital and revenue on the same basis as the particular item to
which they relate using the Company's effective rate of tax for the
accounting period.
Due to the Company's status as a venture capital trust and the continued
intention to meet the conditions required to comply with Part 6 of the
Income Tax Act 2007, no provision for taxation is required in respect of
any realised or unrealised appreciation of the Company's investments.
Deferred taxation, which is not discounted, is provided in full on
timing differences that result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at
rates expected to apply when they crystallise based on current tax rates
and law.
Timing differences arise from the inclusion of items of income and
expenditure in taxation computations in periods different from those in
which they are included in the financial statements. Deferred tax assets
are recognised to the extent that it is regarded as more likely than not
that they will be recovered.
Share issue costs
Expenses in relation to share issues are deducted from the Special
Reserve.
2 Basic and diluted return per share
Year ended 28 February Year ended 28 February
2019 2018
Revenue (loss)/ return
per share based on:
Net revenue loss after
taxation (GBP'000) (736) (590)
Weighted average number
of shares in issue 143,594,091 138,441,901
Pence per share (0.5p) (0.4p)
Capital return per share
based on:
Net capital return for
the financial year
(GBP'000) 4,570 5,599
Weighted average number
of shares in issue 143,594,091 138,441,901
Pence per share 3.2p 4.0p
Total return per share
based on:
Total return for the
financial year
(GBP'000) 3,834 5,009
Weighted average number
of shares in issue 143,594,091 138,441,901
Pence per share 2.7p 3.6p
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per share. The return per
share disclosed therefore represents both basic and diluted return per
share.
3 Basic and diluted net asset value per share
2019 2018
Shares in issue Net asset value Net asset value
Pence Pence
per per
2019 2018 share GBP'000 share GBP'000
Ordinary
Shares 144,047,261 144,004,855 68.4p 98,473 72.1p 103,890
98,473 103,890
-------- --------
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on net asset value per share. The
net asset value per share disclosed therefore represents both basic and
diluted net asset value per share.
4 Principal risks and management objectives
The Company's investment activities expose the Company to a number of
risks associated with financial instruments and the sectors in which the
Company invests. The principal financial risks arising from the
Company's operations are:
-- Market risks;
-- Credit risk; and
-- Liquidity risk.
The Board regularly reviews these risks and the policies in place for
managing them. There have been no significant changes to the nature of
the risks that the Company is exposed to over the year and there have
also been no significant changes to the policies for managing those
risks during the year.
The risk management policies used by the Company in respect of the
principal financial risks and a review of the financial instruments held
at the year-end are provided below:
Market risks
As a VCT, the Company is exposed to market risks in the form of
potential losses and gains that may arise on the investments it holds.
The management of these market risks is a fundamental part of investment
activities undertaken by the Investment Manager and overseen by the
Board. The Investment Manager monitors investments through regular
contact with the management of investee companies, regular review of
management accounts and other financial information and attendance at
investee company board meetings. This enables the Investment Manager to
manage the investment risk in respect of individual investments. Market
risk is also mitigated by holding a portfolio diversified across several
business sectors and asset classes.
The key market risks to which the Company is exposed are:
-- Market price risk; and
-- Interest rate risk.
Market price risk
Market price risk arises from uncertainty about the future prices and
valuations of financial instruments held in accordance with the
Company's investment objectives. It represents the potential loss that
the Company might suffer through market price movements in respect of
quoted investments and also changes in the fair value of unquoted
investments that it holds.
At 28 February 2019, the AIM-quoted portfolio was valued at GBP143,000
(2018: GBP248,000).
The Company's sensitivity to fluctuations in the share prices of its
AIM-quoted investments is summarised below. A 10% movement in the share
price of all of the AIM-quoted investments held by the Company would
have an effect as follows:
10% movement
in AIM-quoted
investments 2019 2018
Impact on net Impact on NAV Impact on net Impact on NAV
assets per share assets per share
GBP'000 Pence GBP'000 Pence
AIM-quoted
investments 14 0.0p 25 0.0p
At 28 February 2019, the unquoted portfolio was valued at GBP62,626,000
(2018: GBP60,747,000).
As many of the Company's unquoted investments are valued using revenue
or earnings multiples of comparable companies or sectors, a fall in
share prices generally would impact on the valuation of the unquoted
portfolio. A 10% movement in the valuations of all of the unquoted
investments held by the Company would have an effect as follows:
10% movement in unquoted
investment valuations 2019 2018
Impact on net Impact on NAV Impact on net Impact on NAV
assets per share assets per share
GBP'000 Pence GBP'000 Pence
Unquoted
investments 6,263 4.3p 6,075 4.2p
The sensitivity analysis for unquoted valuations above assumes that each
of the sub-categories of financial instruments (ordinary shares,
preference shares and loan stocks) held by the Company produces an
overall movement of 10%. Shareholders should note that equal correlation
between these sub-categories is unlikely to be the case in reality,
particularly in the case of loan stock instruments. Where share prices
are falling, the equity instrument could fall in value before the loan
stock instrument. It is not considered practical to assess the
sensitivity of the loan stock instruments to market price risk in
isolation.
Interest rate risk
The Company is exposed to interest rate risk on floating-rate financial
assets through the effect of changes in prevailing interest rates. The
Company receives interest on its cash deposits at a rate agreed with its
bankers. Investments in loan stock attract interest predominantly at
fixed rates. A summary of the interest rate profile of the Company's
financial instruments is shown below.
There are three categories in respect of interest which are attributable
to the financial instruments held by the Company as follows:
-- "Fixed rate" assets represent investments with predetermined yield
targets and comprise certain loan note investments.
-- "Floating rate" assets predominantly bear interest at rates linked to
Bank of England base rate or LIBOR and comprise cash at bank and certain
loan note investments.
-- "No interest rate" assets do not attract interest and comprise equity
investments, certain loan note investments, loans and receivables
(excluding cash at bank) and other financial liabilities.
Average Average period 2019 2018
interest rate until maturity GBP'000 GBP'000
Fixed rate 9.6% 593 days 15,333 15,475
Floating rate 0.3% 0 days 36,498 44,284
No interest rate 46,642 44,131
------- -------
98,473 103,890
------- -------
The Company monitors the level of income received from fixed, floating
and non-interest bearing assets and, if appropriate, may make
adjustments to the allocation between the categories, in particular
should this be required to ensure compliance with the VCT regulations.
Based on the assumption that the yield of all floating rate financial
instruments would change by an amount equal to the movement in
prevailing interest rates, it is estimated that an increase of 1% in
interest rates would have increased total return before taxation for the
year by GBP365,000 (2018: GBP443,000). Given the low level of interest
rates through the year, a further decrease in interest rates is not
considered likely.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument is
unable to discharge a commitment to the Company made under that
instrument. The Company is exposed to credit risk through its
investments in cash deposits and debtors. Credit risk relating to loan
stock investee companies is considered to be part of market risk.
The Company is exposed to credit risk as follows:
2019 2018
GBP'000 GBP'000
Cash and cash equivalents 36,380 44,062
Interest, dividends and other receivables 423 352
------- -------
36,803 44,414
------- -------
The management of credit risk associated with interest, dividends and
other receivables is covered within the investment management
procedures.
Cash is held by the Royal Bank of Scotland plc, rated BBB- and A by
Standard and Poor's and Fitch respectively, and is also ultimately
part-owned by the UK Government. Consequently, the Directors consider
that the risk profile associated with cash deposits is low.
There have been no changes in fair value during the year that are
directly attributable to changes in credit risk.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in
meeting obligations associated with its financial liabilities. Liquidity
risk may also arise from either the inability to sell financial
instruments when required at their fair values or from the inability to
generate cash inflows as required. The Company maintains a relatively
low level of creditors (GBP1,157,000 at 28 February 2019) and has no
borrowings.
The Company always holds sufficient levels of funds as cash in order to
meet expenses and other cash outflows as required. For these reasons,
the Board believes that the Company's exposure to liquidity risk is
minimal.
The Company's liquidity risk is managed by the Investment Manager in
line with guidance agreed with the Board and is reviewed by the Board at
regular intervals.
Although the Company's investments are not held to meet the Company's
liquidity requirements, the table below shows an analysis of the loan
notes, highlighting the length of time that it could take the Company to
realise its loan stock assets if it were required to do so.
The carrying value of loan stock investments (as opposed to the
contractual cash flows) at 28 February 2019 as analysed by expected
maturity date is as follows:
Not later Between Between Between More
than 1 1 and 2 2 and 3 3 and 5 than Total
years years years years 5 years Total
As at 28 February 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fully performing loan
stock 1,113 13,094 - 291 - 14,498
Past due loan stock - - - 953 - 953
--------- ------- ------- ------- ------- -------
1,113 13,094 - 1,244 - 15,451
--------- ------- ------- ------- ------- -------
As at 28 February 2018
Fully performing loan
stock 2,016 1,107 11,621 - - 14,744
Past due loan stock - - - 953 - 953
--------- ------- ------- ------- ------- -------
2,016 1,107 11,621 953 - 15,697
--------- ------- ------- ------- ------- -------
Of the loan stock classified as "past due" above, GBP953,000 relates to
the principal of loan notes where the principal has passed its maturity
date.
Fair Value of Financial Instruments
Fair value measurements recognised in the balance sheet
Investments are valued at fair value as determined using the measurement
policies described in note 1. The carrying value of financial assets and
liabilities recorded at amortised cost, which includes short term
debtors and creditors, is considered by Directors to be equivalent to
their fair value.
The Company has categorised its financial instruments that are measured
subsequent to initial recognition at fair value, using the fair value
hierarchy as follows:
Level 1 Reflects financial instruments quoted in an
active market.
Level 2 Reflects financial instruments that have
been valued using inputs, other than quoted prices, that are observable.
Level 3 Reflects financial instruments that have
been valued using valuation techniques with unobservable inputs.
2019 2018
Level
Level 1 Level 2 Level 3 Total Level 1 Level 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AIM quoted 143 - - 143 248 - - 248
Loan notes - - 15,451 15,451 - - 15,697 15,697
Unquoted
equity - - 27,715 27,715 - - 30,784 30,784
Preference
shares - - 19,460 19,460 - - 14,266 14,266
------- ------- ------- ------- ------- ------- ------ -------
143 - 62,626 62,769 248 - 60,747 60,995
------- ------- ------- ------- ------- ------- ------ -------
Reconciliation of fair value for Level 3 financial instruments held at
the year end
Loan Notes Unquoted equity Total
GBP'000 GBP'000 GBP'000
Balance at 1 March 2018 15,697 45,050 60,747
---------- --------------- --------
Movements in the income statement:
Gains in the income statement 969 5,656 6,625
---------- --------------- --------
Purchases at cost 221 9,679 9,990
Sales proceeds (1,436) (13,210) (14,646)
Balance at 28 February 2019 15,451 47,175 62,626
---------- --------------- --------
Valuations are subject to the fluctuations in market conditions.
5 Post balance sheet events
Between 28 February 2019 and the date of this report, the Company issued
36,598,021 Ordinary Shares for an aggregate consideration of GBP25.9
million under the combined offer for subscription with ProVen VCT plc
which launched on 11 January 2019. Share issue costs thereon amounted to
GBP923,000.
In April 2019, the Company invested GBP2.8 million in Fnatic, an eSports
team owner and lifestyle brand, with professional teams in the most
popular online games such as League of Legends, Dota 2 and Battlefield
4. The money is being used to fund research and development into
products and equipment as well as expand the company's team
internationally.
Announcement based on audited accounts
The financial information set out in this announcement does not
constitute the Company's statutory financial statements in accordance
with section 434 Companies Act 2006 for the year ended 28 February 2019,
but has been extracted from the statutory financial statements for the
year ended 28 February 2019, which were approved by the Board of
Directors on 30 May 2019 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting. The
Independent Auditor's Report on those financial statements was
unqualified and did not contain any emphasis of matter nor statements
under s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 28 February 2018 have been
delivered to the Registrar of Companies and received an Independent
Auditors report which was unqualified and did not contain any emphasis
of matter nor statements under S498(2) and (3) of the Companies Act
2006.
A copy of the full annual report and financial statements for the year
ended 28 February 2019 will be made available to shareholders shortly.
Copies will also be available to the public at the registered office of
the Company at 39 Earlham Street, London, WC2H 9LT and will be available
for download from www.provenvcts.co.uk
- END
(END) Dow Jones Newswires
May 31, 2019 04:55 ET (08:55 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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