ProVen Growth and Income VCT plc: Annual Financ...

ProVen Growth and Income VCT plc: Annual Financial Report

PROVEN GROWTH AND INCOME VCT PLC
ANNUAL FINANCIAL REPORT
YEAR ENDED 29 FEBRUARY 2020
ProVen Growth and Income VCT plc, managed by Beringea LLP, today announces the final results for the year ended 29 February 2020. These results were approved by the Board of Directors on 1 July 2020.

You may, in due course, view the Annual Financial Report in full at www.provenvcts.co.uk. All other statutory information can also be found there.

Financial summary

Ordinary Shares as at:	29 February 2020 Pence	28 February 2019 Pence
Net asset value per Ordinary Share	58.6	68.4
Dividends paid since class launch (originally as ‘C’ Shares)	64.4	60.9
Total return (net asset value plus dividends paid since ‘C’ Share class launch)	123.0	129.3
Year on year change in:
Net asset value per share (adjusted for dividends paid in the year)	(9.2%)	3.9%

Chairman’s Statement
I present the Annual Report for ProVen Growth and Income VCT plc (the “Company”) for the year ended 29 February 2020. This report focuses primarily on the year to 29 February but as Shareholders are all aware, subsequent to the year end, the Coronavirus pandemic occurred which had a signiﬁcant impact on the economy as a whole and on the Company. The portfolio has been regularly reviewed in this time and a new NAV was released in March in advance of the share allotments in early April under the Company’s most recent oﬀer for subscription.

Results for the year
Over the year, there was a decrease in Shareholder total return (net asset value (“NAV”) per share plus dividends) of 9.2% which was largely attributable to the decrease in valuation of four companies. The Company’s NAV per share fell from 68.4p at 28 February 2019 to 58.6p at 29 February 2020. This included a reduction of 3.5p in relation to dividend payments.

The total loss on ordinary activities for the year was £12.3 million (2019: proﬁt of £3.8 million), comprising a revenue loss of £758,000, or 0.4p per share, (2019: revenue loss of £736,000, 0.5p per share) and a capital loss of £11.6 million, or 6.2p per share (2019: proﬁt of £4.6 million, 3.2p per share). This capital loss was largely caused by an aggregate decrease of £10.2 million in the valuation of four portfolio companies.

Dividends
During the year ended 29 February 2020, the Company paid a ﬁnal dividend of 2.0p per share in respect of the year ended 28 February 2019 on 19 July 2019 and an interim dividend of 1.5p per share was paid in respect of the year ended 29 February 2020 on 6 December 2019.

Your Board is proposing a ﬁnal dividend for the year ended 29 February 2020 of 1.75p per share to be paid on 28 August 2020 to Shareholders on the register at 7 August 2020. With total tax-free dividends of 3.25p per share for the year ended 29 February 2020, this represents cash returned to Shareholders of 5.0% on the opening NAV per share at 1 March 2019 after deducting the prior year ﬁnal dividend of 2.0p per share.

Portfolio activity and valuation
Following a period of several years during which a number of proﬁtable disposals generated strong returns for Shareholders, the focus during the year has been on supporting the existing portfolio and adding new investments.

The Company invested a total of £25.6 million during the year. Six new companies were added to the portfolio, at a cost of £17.3 million. As is the nature of early stage investing, there is usually a delay before the beneﬁt of the Company’s investment is reﬂected in the performance of the portfolio company. We would not, therefore, expect to recognise an increase in valuation of new investments for some time.

The Company also provided further investment, totalling £8.3m, to seven of the companies which the Company has invested in during the last few years. Further details of all these investments are provided in the Investment Manager’s Review.

The performance of the companies in the portfolio during this year in particular has been mixed. This is to be expected given the Company has a relatively young portfolio of venture capital investments which can take time to bed down and generate returns. Some companies saw increases in valuation oﬀ the back of strong trading, whereas others declined in value as a result of diﬃcult trading as well as reduced multiples. The portfolio had an overall decrease in value of £10.1 million in the year (2019: increase of £3.4m). It is important to remember that investment in venture capital should be considered as a long-term investment and returns should be measured over the medium term, not a single year.

Further information about key developments at existing portfolio companies is given in the Investment Manager’s Review.

Fundraising activities
As communicated in the interim statement, the combined oﬀer for subscription with ProVen VCT plc launched on 11 January 2019 to raise up to a total of £30 million per company, with an over-allotment facility of £10 million per company, was fully subscribed due to strong investor demand.

The Company launched a further combined oﬀer for subscription with ProVen VCT plc on 27 January 2020 to raise up to £10 million per company, with an over-allotment facility of £10 million per company, which the Board utilised in part in the amount of up to £5 million per company. The oﬀer closed to new applications on 19 March 2020 with
£14.2 million of gross proceeds for the Company.

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 2,422,467 Ordinary Shares at an average price of 60.1p per share and for an aggregate consideration of £1,456,000. This represented 1.7% of the Company’s issued share capital at the start of the year. All shares were subsequently cancelled.

A special resolution to allow the Company to continue to make market purchases of its own shares of up to 14.99% of the share capital 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, Beringea LLP (“Beringea” or 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.

Based on the NAV per share at 29 February 2020, no performance fee is accrued at the year-end as the performance hurdles were not met and as such no present obligation exists and therefore no liability has been recognised.

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.

Board
As the Company recently announced James Stewart will resign as a Director following this year’s AGM. James has served as a director of the Company since February 2001, and his sound stewardship and commercial judgement have played a signiﬁcant part in the Company’s success. The Board would like to thank James for his valuable contribution over the years, we will miss him as a friend as well as a colleague. We are delighted that Anna Kuriakose will replace James as the Audit Committee Chairman.

Apart from James’s resignation and the appointment of Anna as mentioned in the interim report and accounts, there have been no other changes to the Board.

Annual General Meeting
In planning our AGM we have sought to prioritise the safety and wellbeing of our Shareholders and employees. In light of the current Coronavirus ‘social distancing’ measures in England, and the legislative measures that have been proposed to allow companies to hold general meetings safely, the AGM will be held as a closed AGM and Shareholders will not be able to attend the AGM this year. The meeting will still comply with the minimum legal requirements for an AGM.

The closed AGM will be held at 1.30 p.m. on Monday 10 August 2020 via electronic means. Full details of the business to be conducted at the AGM are given in the formal Notice of Annual General Meeting which will be sent to Shareholders by their preferred method in due course. Resolution 12 proposes a change to the Company’s Articles of Association that will allow Shareholders to participate remotely in future AGMs. A copy of the proposed new articles of association is available on the website at https://www.provenvcts.co.uk/.

Shareholders are encouraged to submit their votes by proxy, as they will not be able to do so in person. In addition, we strongly recommend voting electronically at www.signalshares.com as your vote will automatically be counted. Given the current situation, with many people working from home and delays in the postal system, there is a risk that your vote may not be counted if you send a paper proxy.

We always welcome questions from our Shareholders at the AGM but this year, given the restrictions in place, please send any questions via email to info@beringea.co.uk by 5:00 pm on Monday 3 August 2020. Answers to the themes in the questions received will be addressed on the website at https://www.provenvcts.co.uk/. In addition, the Company’s annual Shareholder event will proceed in the Autumn, albeit in a diﬀerent format (further details below).

Shareholder event
The Company’s annual Shareholder event provides an important opportunity for Shareholders to hear from the Investment Manager, discussing performance and investment activity, as well as receiving insights and updates from our portfolio companies.

For your Board and the Investment Manager, it is also a vital platform for gathering and discussing the views of our Shareholders. It is with this in mind that we are seeking to ensure that we can continue to deliver the Shareholder event in the current environment.

Therefore, in order to ensure the safety and wellbeing of our Shareholders, employees and portfolio companies, we will be hosting our ﬁrst fully-digital Shareholder Day in the Autumn, using an online platform to deliver our usual insights into fund performance and market conditions, as well as providing an opportunity for you to ask questions of our investment team and hear from our portfolio companies.

We will soon distribute invitations to this digital event, as well as providing you with further information on the format and logistics for the day and we would encourage you to join us for the session.

Outlook
The combination of Brexit and COVID 19 has provided an unprecedented economic, social and political backdrop for the market as a whole. Despite this, the Company has been able to remain active and productive and managed to deliver a successful fundraise, provide important resources to support our portfolio and continue to harness a resilient pipeline of investment opportunities.

Subsequent to the year-end, the economic and commercial turbulence created by the Coronavirus pandemic has resulted in a revaluation of the portfolio to take account of the context in which we are now operating and the announcement of a reduced net asset value in March of 54.6p per share.

The Company has been pleased to see how the Investment Manager has guided the portfolio companies through the immediate shock of the outbreak and it is now working alongside these portfolio companies to help them prepare and adapt to the trading environment. The Directors of the Company will continue to monitor the performance of the portfolio carefully and will announce a new net asset value per share if there is a material movement in valuations.

We warmly welcome our new Shareholders who joined the fund as part of the share oﬀer that successfully closed in March. The funds raised provide the Company with additional resources to support our existing portfolio through any prolonged economic disruption, and ensure that it is able to harness a pipeline of investment opportunities that remains resilient. The Investment Manager has continued to do this following a successful transition to operating remotely during the lockdown, with recent additions to the portfolio and follow-on investments completed through an entirely digital process.

Despite the current challenging economic and social conditions, the Board remains conﬁdent that the Company has resilient long-term prospects.

Marc Vlessing OBE
Chairman

Investment Manager’s Review

Introduction
Following a number of successful realisations in the last couple of years, the focus this year was on investing into new portfolio companies as well as supporting the current portfolio. During the year, a total of £17.3 million was invested in six new portfolio companies and £8.3 million in seven existing portfolio companies.

At 29 February 2020, the Company’s venture capital portfolio comprised 46 investments at a cost of £84.2 million and a valuation of £77.8 million, an overall decrease of 7.7% on cost.

Subsequent to the year end the Company issued 24,518,370 Ordinary Shares for an aggregate consideration of £14.2 million under the combined oﬀer for subscription with ProVen VCT plc which launched on 27 January 2020. Share issue costs thereon amounted to £577,000. The Company remains well capitalised to take advantage of new investment opportunities and support existing portfolio companies where appropriate.

Investment activity

New investments
We continued to experience a strong level of deal ﬂow, with £17.3 million being invested during the year in six new portfolio companies.

The new investments in the year are:
•              Sannpa Limited (t/a Fnatic) (£5.9m) – an eSports team owner and lifestyle brand, with professional teams in the most popular games such as League of Legends, Dota 2 and Battleﬁeld 4;
•              Papier Ltd (£3.15m) – an online stationery retailer, specialising in unique curated collections;
•              Our Path Ltd (t/a Second Nature) (£2.8m) – a provider of a digital healthcoaching app, with an evidence-based program for lifestyle change and diabetes prevention/weight loss;
•              Arctic Shores Limited (£2.45m) – a provider of data-driven psychometric tests combining neuroscience, artiﬁcial intelligence and game technology for more predictive and less biased employee recruitment;
•              Stylescape Limited (t/a EDITED) (£1.50m) – a SaaS provider of pricing and product intelligence for apparel and fashion retailers; and
•              Picasso Labs, Inc. (£1.47m) - an automated creative measurement platform that aims to enhance creativity through objectivity. Their technology is used globally by Fortune 500 brands like Unilever, Mondelez, and Heineken to measure creative eﬃciency, consistency, and impact across all creatives worldwide.

Follow-on investments
The Company has also been active in supporting the development of existing portfolio companies, making follow-on investments in the following seven companies during the year: Mycs (£1.8m), ContactEngine (£1.6m), Aistemos (£1.4m), Thread (£1.4m), Festicket (£0.9m), MPB (£0.7m) and POQ (£0.5m).

Investment disposals
As reported in the interim statement, the Company’s shareholding in 7digital Group was sold in the year resulting in a loss against cost of £0.4 million. The loss was recognised in previous years so there was no impact to the NAV during the year.

Rapid Charge Grid repaid £472,000 of loans to the Company during the year.

Skills Matter repaid £68,000 of its loan notes during the year.

Key developments at existing portfolio companies
Several companies have seen increases in value at the year end, owing to strong performance.

ContactEngine performed well in the year, securing several large new customer contracts. In November, it won the award for “Best use of IP” at the Sunday Times Hiscox Tech Track 100 awards. ContactEngine closed a further funding round of £3.75 million in August 2019, to which the Company contributed £1.6 million. The value of the Company’s investment has increased to £5.09m on a cost of £2.33m.

DeepCrawl has grown its revenue signiﬁcantly in the year. It also closed a $15 million funding round in December 2019, led by specialist US software investor, Five Elms. This has given DeepCrawl signiﬁcant ﬁrepower to invest in accelerating its growth rate, particularly in the USA which already accounts for more than half of its revenue. This has led to an increase in value of the Company’s investment to £3.2 million on a cost of £1.6 million.

A number of portfolio companies have faced diﬃcult trading conditions during the year. In particular four companies gave rise to an overall decrease in valuation of £10.2 million.

POQ studio, InContext and SmartAssistant have faced obstacles over the past twelve months and have struggled to hit their milestones and grow their revenues as originally budgeted. As a result, there has been a combined decrease in valuation of £8.1 million.

Blis has been impacted by the falling comparative multiples for advertising technologies used to value the business as well as slower than anticipated growth in revenues. This has led to a reduction in value of £2.1 million.

We continue to work closely with these companies to help them through these challenges.

Overall, the investment portfolio held at the year-end showed a decrease in value of £10.1 million (2019: increase of £3.4 million).

Post year-end developments
The global Coronavirus pandemic has impacted a wide range of companies. On 23 March this year a revised NAV of 54.6p per share was announced to reﬂect the immediate valuation impact on the Company’s portfolio. This compares to a NAV of 58.6p per share as at 29 February 2020.

Between 29 February 2020 and the date of this report, the Company issued 24,518,370 Ordinary Shares for an aggregate consideration of £14.2 million under the combined oﬀer for subscription with ProVen VCT plc which launched on 27 January 2020. Share issue costs thereon amounted to £577,000.

The Company has invested into the following new companies subsequent to the year end:
• Commonplace (£1.5 million) - a B2B software company that has developed a digital community engagement platform enabling developers, local authorities, transport planners, infrastructure developers and other large project owners to engage with local communities; and
• Luxury Promise (£1.35 million) a re-sale platform for luxury women’s handbags and accessories

The Company also made follow on investments into Fnatic (£0.5 million), Thread (£0.42 million) and ContactEngine (£125,000).

Outlook
The short-term outlook for the UK economy will be dominated by the Coronavirus pandemic. We will continue to work closely with our portfolio companies to support them through the challenges this has created, including providing additional investment where this is appropriate. Fortunately, few of the investments in the portfolio are in sectors which have been severely aﬀected by Coronavirus, such as travel, hospitality and traditional retailing. Therefore, despite the recent reductions in the valuations of some portfolio companies, we are cautiously optimistic about the prospects of the portfolio as a whole over the medium term.

Following the recent fundraising, the Company is now well placed to take advantage of new investment opportunities. While some companies have been badly aﬀected by Coronavirus, others have seen minimal impact and certain sectors are likely to beneﬁt from the acceleration of market trends arising from the Coronavirus. We are still seeing a strong ﬂow of investment opportunities and will continue to invest selectively where we believe companies have excellent
long-term prospects and the pricing of the investment is appropriate. The economic disruption caused by Coronavirus may result, over the next 12 months, in a softening of the lofty investment valuations we have seen recently. This should help to deliver strong returns from investments made during this period.

Despite the turbulent broader economic and political environment, we believe that there will still be opportunities for well-managed, agile, entrepreneurial companies to prosper. We believe the Company is well placed to take advantage of opportunities to invest in these businesses.

Beringea LLP
Investment Manager

Investment activity

Investment activity during the year is summarised as follows:

Additions

	Cost £’000

Sannpa Limited (t/a Fnatic)	5,946
Papier Ltd	3,150
Our Path Ltd (t/a Second Nature)	2,800
Arctic Shores Limited	2,450
Mycs GmbH	1,756
ContactEngine Limited	1,642
Stylescape Limited (t/a EDITED)	1,500
Picasso Labs, Inc.	1,470
Aistemos Limited	1,405
Thread, Inc.	1,400
Festicket Ltd	897
MPB Group Limited	700
POQ Studio Ltd	500

Total	25,616

Disposals

	Cost£’000	Market value at 01/03/19 £ ’000	Disposalproceeds £’000	Realised gain/ (loss) against cost£’000	Realised (loss)/gain during the year £’000

Rapid Charge Grid Limited*	472	472	472	–	–
MatsSoft Limted	–	–	227	227	227
MEL Topco Limited (t/a Maplin)	2,218	–	98	(2,120)	98
Skills Matter Limited*	68	–	68	–	68
Senselogix Limited	–	67	–	–	(67)
7digital Group plc	400	1	–	(400)	(1)

Total	3,158	540	865	(2,293)	325

* Loan note repayment

Of the disposals above, MatsSoft Limited was realised in a 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) reﬂect a further interim distribution in respect of the company’s administration. In addition, MEL Topco Limited (t/a Maplin), which had a cost of £2,218,000 and a market value of nil at 1 March 2019 was dissolved in December 2019. However, the loss of £2,218,000 had already been recognised as realised in a prior period.

Investment Portfolio
The following investments were held at 29 February 2020:


			Valuation	% of
	Cost	Valuation	movement in year	portfolio by value
	£’000	£’000	£’000
Venture capital investments (by value)
Sannpa Limited (t/a Fnatic)	5,946	5,946	–	5.1%
ContactEngine Limited	2,330	5,093	1,419	4.3%
Dryden Holdings Limited	5,000	4,761	–	4.1%
Mycs GmbH	3,031	4,103	1,072	3.5%
Zoovu Limited (formerly Smart Assistant)	3,653	3,566	(2,533)	3.0%
D30 Holdings Ltd**	3,550	3,439	82	2.9%
Thread, Inc.	3,309	3,302	(32)	2.8%
Written Byte Ltd (t/a DeepCrawl)	1,612	3,177	983	2.7%
Papier Ltd	3,150	3,150	–	2.7%
Inﬁnity Reliance Limited (t/a My 1st Years)	2,769	3,126	(919)	2.7%
Sealskinz Holdings Limited**	3,116	3,116	(1,315)	2.7%
Our Path Ltd (t/a Second Nature)	2,800	2,800	–	2.4%
Response Tap Limited	1,440	2,597	123	2.2%
Arctic Shores Limited	2,450	2,450	–	2.1%
Festicket Ltd	2,289	2,289	–	1.9%
Poq Studio Ltd	3,348	2,084	(3,014)	1.8%
Been There Done That Global Limited	1,448	2,044	596	1.7%
MPB Group Limited	1,489	1,849	360	1.6%
Lupa Foods Limited (formerly Donatantonio Group Limited)	1,003	1,801	167	1.5%
Aistemos Limited	1,681	1,679	(2)	1.4%
Litchﬁeld Media Limited	1,420	1,614	(52)	1.4%
Blis Media Limited**	1,083	1,547	(2,130)	1.3%
Access Systems. Inc.	1,500	1,500	–	1.3%
Stylescape Limited (t/a EDITED)	1,500	1,500	–	1.3%
Picasso Labs. Inc.	1,470	1,470	–	1.3%
Monica Vinader Limited**	204	1,456	190	1.2%
Rapid Charge Grid Limited**	1,416	1,213	(140)	1.0%
Disposable Cubicle Curtains Limited (t/a Hygenica)**	3,286	1,200	(1,157)	1.0%
Honeycomb.TV Limited	1,100	1,073	6	0.9%
Exonar Limited	1,070	931	(139)	0.8%
Simplestream Limited**	690	815	106	0.7%
Fireﬂy Learning Limited	857	630	(249)	0.5%

	71,010	77,321	(6,578)	65.8%
Other venture capital investments	13,208	443	(3,504)	0.4%
Total venture capital investments	84,218	77,764	(10,082)	66.2%
Cash at bank and in hand		39,789		33.8%
Total investments		117,553		100.0%

Valuation movement in the year excludes the cost of investments made in the year. Other venture capital investments at 29 February 2020 comprise:

Buckingham Gate Financial Services Limited, Cogora Group Limited, Duncannon Holdings Limited*†, InContext Solutions Limited, Inskin Media Limited, Lantum Limited, Netcall, Senselogix Limited, 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 Netcall plc which is quoted on AIM, all venture capital investments are unquoted.

All venture capital investments are registered in England and Wales except for InContext Solutions, Inc., Picasso Labs Inc., Whistle Sports, Inc., Access Systems, Inc., Deepcrawl Holdings, 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 29 February 2020. 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 29 February 2020 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 £62.8 million of venture capital investments and ended with £77.8 million spread over a portfolio of 46 companies. 41 of these investments with a value of £70.2 million were VCT qualifying (or part qualifying).

The loss on ordinary activities after taxation for the year was £12.3 million comprising a revenue loss of £758,000 and a capital loss of £11.6 million. The Ongoing Charges ratio (excluding performance fees) as calculated in line with the AIC methodology is an Alternative Performance Measurement used by the Board to monitor expenses. The Ongoing Charges ratio for the year ended 29 February 2020 was 2.4% (2019: 2.8%).

The Company’s business review and developments during the year are reviewed further within the Chairman’s Statement, the Investment Manager’s Review and Review of Investments.

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 (which, as at 29 February 2020, was equal to £117 million (2019: £98.5 million)). There are no plans for the Company to borrow at the current time.

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:

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;
the Company must not conduct any trading activity which is significant in the context of the Company; and
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 29 February 2020 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 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 shares” generally being ordinary share capital)	Complied
(iii) At least 10 per cent. of each investment in a qualifying company is held in “eligible shares” (by cost at time of investment)	Complied
(iv) No investment in a company constitutes more than 15 per cent. of the Company’s portfolio (by value at time of investment)	Complied
(v) The Company’s income for each financial year is derived wholly or mainly from shares and securities	Complied
(vi) The Company distributes sufficient revenue dividends to ensure that not more than 15 per cent. of the income from shares and securities in any one year is retained	Complied
(vii) 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 18 November 2015, the Company has not made an investment in a company which exceeds the maximum permitted age requirement	Complied
(x) The funds invested by the Company in another company since 18 November 2015 have not been used to make a prohibited acquisition	Complied
(xi) Since 6 April 2016, the Company has not made a prohibited non-qualifying investment.	Complied

Investment management and administration fees
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 £2,430,000 (2019: £2,414,000), comprising a management fee of £2,430,000 (2019: £2,083,000) and performance incentive fees as described below of £nil (2019: £331,000). At the year-end, an amount of £194,000 (2019: £488,000) 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 29 February 2020 Beringea also provided administration services to the Company. In the year, total administration fees amount to £54,000 (2019: £54,000 ). An amount of £14,000 (2019: £14,000) 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 £348,000 (2019: £361,000) and monitoring fees of £364,000 (2019: £506,000) during the year ended 29 February 2020. 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 29 February 2020 amounted to £nil (2019: £331,000), of which £nil (2019: £331,000) was outstanding at the year-end.

Key performance indicators
At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in meeting its objective of delivering long term returns. The key performance indicators for the Company are compared against the results published by the Association of Investment Companies (“AIC”). The Board believes the Company’s key performance indicators are:
•              Total return (net asset value plus dividends paid since launch);
•              Dividends paid and the dividend yield; and
•              Net asset value per share (adjusted for dividends paid in the year).

The total return is calculated by the net asset value per share plus the cumulative dividends paid to date. This is a performance measure of the fund and used to evaluate the total value generated for Shareholders.

The following table shows the total return, annual return shown as the net asset value per share, dividends paid per annum and the dividend yield.

	29/02/2016	28/02/2017	28/02/2018	28/02/2019	29/02/2020
Total return	115.6	124.3	126.5	129.3	123
Net asset value per share (adjusted for dividends paid in the year)*	(1.4%)	10.9%	2.7%	3.9%	(9.2%)
Dividends paid per share	4.5	6	12.8	6.5	3.5
Dividend yield**	5.3%	7.5%	15.5%	9.0%	5.1%

* Calculated as the change in total return in the year divided by the opening net asset value.
** Calculated as the total dividends paid in the year divided by the opening net asset value.

The net asset value per share is deﬁned as an Alternative Performance Measure and the Board considers it to be the primary measure of shareholder value.

The key performance indicators are discussed further in the Chairman’s Statement and the Investment Manager’s Review.

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 the notes to the ﬁnancial statements.

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.

Save for the impact of the Coronavirus pandemic, particularly on performance and valuation of portfolio companies as well as potential risks such as future fundraising, the risks faced by the Company 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 2023. 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 and emerging risks faced by the Company, as detailed above, including those risks associated with the Coronavirus pandemic and Brexit, 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 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 2023, 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. The Board considered scenario analysis with stress tests on the cash ﬂow forecasts.

Based on the assessment of the above considerations on the cash ﬂow forecasts, 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 2023.

Section 172 Statement
Section 172 of the Companies Act 2006 requires the Directors of the Company to act in a way that they consider, in good faith, will most likely promote the success of the Company for the beneﬁt of the members as a whole. In doing so, the Directors should have regard (amongst other matters) to:

•              the likely consequences of any decision in the long term;
•              the interests of the Company’s employees;
•              the need to foster the Company’s business relationships with suppliers, customers and others;
•              the impact of the Company’s operations on the community and the environment;
•              the desirability of the Company maintaining a reputation for high standards of business conduct; and
•              the need to act fairly as between members of the Company.

The Board considers its signiﬁcant stakeholder groups to be its Shareholders, its suppliers (including the Investment Manager to whom most executive functions are delegated) and its portfolio companies. The Company is an externally managed investment company with no employees and no customers in the traditional sense and, therefore, there is nothing to report in relation to these relationships. The Company takes a number of steps to understand the views of its key stakeholders and considers these, along with the matters set out above, in Board discussions and decision making.

Shareholders
The Company’s Shareholders are key to the success of the Company and the Board engages and communicates with Shareholders by various means. The Company encourages all Shareholders to attend its annual Shareholder Day, which last year was held on 13 November 2019 and attended by around 250 Shareholders, and gives Shareholders the opportunity to ask questions of the Board and the Investment Manager and also hear from some of our portfolio companies. Given the Coronavirus pandemic, the Company is putting in place arrangements for the 2020 Shareholder Day to be held virtually so that our Shareholders will still be given the opportunity to engage with the Board and Investment Manager and hear from some of our new portfolio companies.

The Board also encourages all Shareholders to vote on the resolutions at the Annual General Meeting. The Company’s Annual General Meeting, this year on 10 August 2020, is typically used as another opportunity to communicate with Shareholders. However, as detailed in the Chairman’s statement, in light of the current Coronavirus ‘social distancing’ measures in England, the AGM will be run as a closed meeting and Shareholders will not be able to attend this year. However, Shareholders are still strongly encouraged to submit their votes by proxy. Shareholders will also be able to submit questions via email to info@beringea.co.uk by 5:00 pm on Monday 3 August 2020. Answers to the themes in the questions received will be addressed on the website at https://www.provenvcts.co.uk/.

As a result of the Shareholder events, together with other communications with Shareholders and advisors, the Company has received useful feedback which allows the Board to better understand the nature of stakeholder concerns. The Board works very closely with the Investment Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s aﬀairs. Ultimately, the Directors’ decisions are intended to achieve the Company’s principle objective to achieve long term returns for Shareholders greater than those available from investing in a portfolio of quoted companies. In addition, the Board has continued to maintain the existing arrangements for payments of dividends, dividend re-investment and buy-backs in order to give predictable income returns and liquidity to Shareholders when requested.

Suppliers
The Company’s suppliers, and in particular Beringea as Investment Manager, are the cornerstone of the Company’s business. There is regular contact with the Investment Manager and members of the Investment Manager’s senior management team attend all of the Company’s Board meetings. Since the outbreak of the Coronavirus pandemic, the Board has been in more frequent communication with the Investment Manager to ensure an appropriate and transparent response.

Portfolio Companies
The Investment Manager provides updates to the Board on the entire portfolio at least quarterly and this has happened more regularly with the outbreak of the Coronavirus pandemic. In addition to the Investment Manager’s usual monitoring of portfolio companies, in the weeks immediately following the start of the outbreak in Europe, the Investment Manager worked closely with the leadership teams of portfolio companies to ensure that they were prepared for the disruption caused by a global pandemic. The Investment Manager continues to work closely with management teams to ensure that they continue to evaluate and react accordingly to the evolving situation.

Environmental, social, human rights policy and greenhouse emissions
The Board seeks to conduct the Company’s aﬀairs responsibly and maintain high standards in respect of ethical, environmental, governance and social issues. The Board recognises the requirement under section 414C of the Companies Act 2006 to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and eﬀectiveness of these policies. As an externally managed investment company with no employees, the Company has no formal policies in these matters and as such these requirements do not apply.

On a general note, the Board considers that the Company’s investment operations create employment, aid economic growth, generate tax revenues and produce wealth, thus beneﬁting the community and the economy more generally. Where appropriate, the investment proposals considered by the Investment Manager and the Board also include any relevant information on any social, employee, ethical or environmental matters relevant to that investment.

Whilst as a UK quoted company the VCT is required to report on its Greenhouse Gas (GHG) Emissions for any direct 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.

Directors and senior management
The Company had ﬁve non-executive Directors at the year end, three of whom are male and two of whom are female (and following James Stewart’s retirement after the AGM in August 2020, the Board will consist of an equal number of male and female directors). The Company has no employees and the same was true of the previous year.

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. The Directors’ remuneration policy was approved at the AGM of the Company on 11 July 2018 and no changes are proposed for the forthcoming year.

Future prospects
The Company’s future prospects are set out in the Chairman’s Statement and Investment Manager’s Review.

Despite the economic and social disruption caused by the Coronavirus pandemic, the Directors do not foresee any major changes in the activity undertaken by the Company in the coming year. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom or with a presence in the United Kingdom, with a view to providing both capital growth and dividend income to Shareholders over the long term whilst maintaining VCT qualifying status.

By order of the Board
Beringea LLP

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 Annual 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 the 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;
•              prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
•              prepare a directors’ report, a strategic report and directors remuneration report which comply with the Companies Act 2006.

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.

Website publication
The Directors are responsible for ensuring that the Annual Report and Accounts are made available on a website. Financial statements are published on the ProVen VCTs’ website (www.provenvcts.co.uk), in accordance with legislation in the United Kingdom governing the preparation and dissemination of ﬁnancial statements, which may vary from legislation in other jurisdictions. The Directors’ responsibility also extends to the ongoing integrity of the ﬁnancial statements contained therein. The maintenance and integrity of the Company’s website is also the responsibility of the Directors.

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 the report 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 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.

The Directors’ report, which has been approved by the Board, includes all relevant information required to be disclosed under LR9.8.4R.

Income Statement

for the year ended 29 February 2020

	Year ended 29 February 2020			Year ended 28 February 2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000


Income	430	-	430	355	-	355
Realised gains on investments	-	325	325	-	3,145	3,145
Unrealised (losses) / gains on investments	-	(10,082)	(10,082)	-	3,375	3,375
	430	(9,757)	(9,327)	355	6,520	6,875

Investment management fees	(608)	(1,822)	(2,430)	(521)	(1,562)	(2,083)
Performance incentive fees	-	-	-	-	(331)	(331)
Other expenses	(580)	(7)	(587)	(570)	(57)	(627)
FX Translation	-	30	30

(Loss) / return on ordinary activities before tax	(758)	(11,556)	(12,314)	(736)	4,570	3,834

Tax on ordinary activities	-	-	-	-	-	-

(Loss) / return attributable to equity shareholders	(758)	(11,556)	(12,314)	(736)	4,570	3,834

Basic and diluted (loss) / return per share	(0.4p)	(6.2p)	(6.6p)	(0.5p)	3.2p	2.7p

All revenue and capital movements in the year relate to continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the Income Statement of the Company, prepared in accordance with the accounting policies detailed in note 1 to the ﬁnancial statements. 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.

The accompanying notes are an integral part of these ﬁnancial statements.

Statement of Changes in Equity

for the year ended 29 February 2020

Year ended 29 February 2020

	Called up share capital £'000	Capital redemption reserve £'000	Special reserve £ '000	Share Premium reserve £'000	Revaluation reserve £'000	Capital reserve- realised £'000	Revenue reserve £ '000	Total £'000
At 1 March 2019	2,331	19	70,856	946	7,043	19,050	(1,772)	98,473
Comprehensive Income for the year:
Management fees allocated as capital expenditure	–	–	–	–	–	(1,822)	–	(1,822)
Legal fees allocated as capital expense	–	–	–	–	–	(7)	–	(7)
Realised gain on investments	–	–	–	–	–	325	–	325
Unrealised loss on investments	–	–	–	–	(10,082)	–	–	(10,082)
Loss after tax	–	–	–	–	–	–	(758)	(758)
Performance fee	–	–	–	–	–	–	–	–
Total comprehensive loss	–	–	–	–	(10,082)	(1,504)	(758)	(12,344)

Contributions by and distributions to owners:
Issue of new shares	947	–	(1,539)	39,820	–	–	–	39,228
Share buybacks	(39)	39	(1,464)	–	–	–	–	(1,464)
Dividends paid (includes DRIS)	–	–	(6,689)	–	–	–	–	(6,689)
Total contributions by and distributions to owners	908	39	(9,692)	39,820	–	–	–	31,075
Other movements:
Transfer of previously unrealised gains now realised	–	–	–	–	1,879	(1,879)	–	–
FX translation	–	–	–	–	–	–	30	30
Total other movements	–	–	–	–	1,879	(1,879)	30	30
At 29 February 2020	3,239	58	61,164	40,766	(1,160)	15,667	(2,500)	117,234

Year ended 28 February 2019

	Called up share capital £'000	Capital redemption reserve £'000	Special reserve £ '000	Share Premium reserve £'000	Revaluation reserve £'000	Capital reserve- realised £'000	Revenue reserve £ '000	Total £'000
At 1 March 2018	2,330	1,168	9,970	69,935	10,080	11,443	(1,036)	103,890
Comprehensive Income for the year:
Management fees allocated as capital expenditure	–	–	–	–	–	(1,562)	–	(1,562)
Legal fees allocated as capital expense	–	–	–	–	–	(57)	–	(57)
Realised gain on investments	–	–	–	–	–	3,145	–	3,145
Unrealised gain on investments	–	–	–	–	3,375	–	–	3,375
Loss after tax	–	–	–	–	–	–	(736)	(736)
Performance fee	–	–	–	–	–	(331)	–	(331)
Total comprehensive profit	–	–	–	–	3,375	1,195	(736)	3,834

Contributions by and distributions to owners:
Issue of new shares	32	–	–	1,356	–	–	–	1,388
Share buybacks	(31)	31	(1,321)	–	–	–	–	(1,321)
Dividends paid (includes DRIS)	–	–	(9,318)	–	–	–	–	(9,318)
Total contributions by and distributions to owners	1	31	(10,639)	1,356	–	–	–	(9,251)
Other movements:
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	–	–	–	–	–
Total other movements	–	(1,180)	71,525	(70,345)	(6,412)	6,412	–	–
At 28 February 2019	2,331	19	70,856	946	7,043	19,050	(1,772)	98,473

The special reserve, capital reserve – realised and revenue reserve are all distributable reserves. Reserves available for distribution therefore amount to £74,331,000 (2019: £88,134,000).

During the year the Company repurchased 2,442,467 shares (2019: 1,929,510) with a nominal value of £39,213 (2019: £31,000). 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 29 February 2020

	29 February 2020	28 February 2019
Fixed assets	£’000	£’000
Investments	77,763	62,769

Current assets
Debtors	829	481
Cash at bank and in hand	39,789	36,380
	40,618	36,861
Creditors: amounts falling due within one year	(1,147)	(1,157)

Net current assets	39,471	35,704

Total assets less current liabilities	117,234	98,473

Capital and reserves
Called up share capital	3,239	2,331
Capital redemption reserve	58	19
Special reserve	61,164	70,856
Share premium	40,766	946
Revaluation reserve	(1,160)	7,043
Capital reserve – realised	15,667	19,050
Revenue reserve	(2,500)	(1,772)

Total equity shareholders’ funds	117,234	98,473
Basic and diluted net asset value per share	58.6p	68.4p

Statement of Cash Flows

for the year ended 29 February 2020

	Year ended 29 February 2020	Year ended 28 February 2019
	Total	Total
	£’000	£’000
(Loss)/return on ordinary activities before taxation	(12,314)	3,834
Loss/(Gain) on investments	9,757	(6,520)
Increase in prepayments, accrued income and other debtors	(318)	(68)
Decrease in accruals and other creditors	(240)	(782)
Net cash used in operating activities	(3,115)	(3,536)

Cash flows from investing activities
Purchase of investments	(25,616)	(9,900)
Sale of investments	835	14,741
Net cash from investing activities	(24,781)	4,841

Cash flows from financing activities
Proceeds from share issues	39,735	–
Share issue costs	(1,539)	–
Purchase of own shares	(1,230)	(1,057)
Equity dividends paid	(5,661)	(7,930)
Net cash used in financing	31,305	(8,987)

Increase/(decrease) in cash and cash equivalents	3,409	(7,682)
Cash at beginning of year	36,380	44,062
Cash at end of year	39,789	36,380

‘Net cash used in operating activities’ includes interest received of £273,000, (2019: £284,000) and dividends received of £ 4,000 (2019: £nil). No interest was paid during the year.

Notes to the Announcement

for the year ended 29 February 2020

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 December 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 2018, together with sections 11 and 12 of FRS102.

Publicly traded investments are measured using bid prices in accordance with the IPEV Guidelines.

Key judgements

The valuation methodologies used by the Directors for estimating the fair value of unquoted investments are as follows:

• where a company is in the early stage of development, the estimate of fair value is based on market data and assumptions as to the potential outcomes, benchmarked against alternative valuation methodologies during this time;

• 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 arm’s-length transaction by a third party in the shares of the company the valuation will normally be based on this;

• where alternative methods of valuation, such as net assets of 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.

Key estimates
The key estimates involved in determining the fair value of a company can include:
•     identifying a relevant basket of market comparables;
•     deducing the discount to take on those market comparables;
•     determining reoccurring revenue;
•     determining reoccurring earnings; or
•     identifying surplus cash.

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.

Cash

Cash comprises cash on hand and demand deposits.

Debtors

Short term debtors are initially measured at transaction price. Subsequent remeasurement deducts any impairment from the transaction price.

Creditors

Short term trade creditors are initially and subsequently measured at the transaction price.

2 Basic and diluted return per share

	Year ended 29 February 2020	Year ended 28 February 2019
Revenue (loss)/ return per share based on:
Net revenue loss after taxation (£’000)	(758)	(736)

Weighted average number of shares in issue	187,733,719	143,594,091

Pence per share	(0.4p)	(0.5p)

Capital return per share based on:
Net capital return for the financial year (£‘000)	(11,556)	4,570

Weighted average number of shares in issue	187,733,719	143,594,091

Pence per share	(6.2p)	3.2p

Total return per share based on:
Total return for the financial year (£‘000)	(12,314)	3,834

Weighted average number of shares in issue	187,733,719	143,594,091

Pence per share	(6.6p)	2.7p

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

		2020				2019
	Shares in issue		Net asset value			Net asset value
	2020	2019	Pence per share		£’000	Pence per share		£’000
Ordinary Shares	200,137,231	144,047,261		58.6	117,234		68.4p	98,473
					117,234			98,473

As the Company has not issued any convertible securities or share options, there is no dilutive eﬀect on net asset value per share. The net asset value per share disclosed therefore represents both basic and diluted return per share.

4 Principal risks and management objectives

The Company’s investment activities expose the Company to a number of risks associated with ﬁnancial instruments and the sectors in which the Company invests. The principal ﬁnancial risks arising from the Company’s operations are:
•    Market risks;
•    Credit risk; and
•    Liquidity risk.

The Board regularly reviews these risks and the policies in place for managing them. Save for the economic and social impact of the Coronavirus pandemic, 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 29 February 2020, the AIM-quoted portfolio was valued at £193,000 (2019: £143,000).

The Company’s sensitivity to ﬂuctuations in the share prices of its AIM-quoted investments is summarised below. A 20% movement in the share price of all of the AIM-quoted investments held by the Company would have an eﬀect as follows:

20% movement in AIM-quoted investments		2020		2019
	Impact on net assets	Impact on NAV per share	Impact on net assets	Impact on NAV per share
	£’000	Pence	£’000	Pence
AIM-quoted investments	38	0.0p	28	0.0p

At 29 February 2020, the unquoted portfolio was valued at £77,570,000 (2019: £60,626,000).

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 20% movement in the valuations of all of the unquoted investments held by the Company would have an eﬀect as follows:

20% movement in unquoted investment valuations		2020		2019
	Impact on net assets	Impact on NAV per share	Impact on net assets	Impact on NAV per share
	£’000	Pence	£’000	Pence
Unquoted investments	15,514	7.8p	12,526	8.6p

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 20%. 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	2020	2019
	interest rate	until maturity	£’000	£’000
Fixed rate	7.1%	352 days	16,237	15,333
Floating rate	0.3%	0 days	39,847	36,498
No interest rate			61,150	46,642
			117,234	98,473

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 £399,000 (2019: £365,000). 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:

	2020	2019
	£’000	£’000
Cash and cash equivalents	39,789	36,380
Interest, dividends and other receivables	524	423
	40,313	36,803

The management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held by the Royal Bank of Scotland plc, rated BBB+ and 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 (£1,147,000 at 29 February 2020) 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 29 February 2020 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 29 February 2020	£’000	£’000	£’000	£’000	£’000	£’000
Fully performing loan stock	10,909	–	–	314	4,004	15,227
Past due loan stock	–	–	–	–	1,068	1,068
	10,909	–	–	314	5,072	16,295

As at 28 February 2019
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

Of the loan stock classiﬁed as “past due” above, £1,068,000 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.

2020

2019

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

£’000

AIM quoted

193

–

193

143

–

143

Loan notes

–

16,295

–

15,451

Unquoted investments

–

61,275

–

47,175

193

–

77,570

77,763

143

–

62,626

62,769

There have been no movements between levels during the financial year to 29 February 2020.

Reconciliation of fair value for Level 3 financial instruments held at the year end

	Loan Notes	Unquoted equity	Total
	£’000	£’000	£’000
Balance at 1 March 2019	15,451	47,175	62,626
Movements in the income statement:
Gains in the income statement	(2,688)	(7,118)	(9,806)

Purchases at cost	4,004	21,611	25,615
Sales proceeds	(472)	(393)	(865)

Balance at 29 February 2020	16,295	61,275	77,570

There is an element of judgment in the choice of assumptions for unquoted investments. If diﬀerent assumptions were used, diﬀerent valuations could have been attributed to certain of the VCT’s investments.

5 Post balance sheet events
Between 29 February 2020 and the date of this report, the Company issued 24,518,370 Ordinary Shares for an aggregate consideration of £14.2 million under the combined oﬀer for subscription with ProVen VCT plc which launched on 27 January 2020. Share issue costs thereon amounted to £577,000.

In March 2020, the Company invested in two pre-existing portfolio companies. £772,000 was invested in Fnatic and £421,000 in Thread. In the same month, an investment was also made in Commonplace (£1.5m), an online community consultation platform. Subsequent to this, £1.35m was invested in April in Luxury Promise, the leading marketplace to buy, sell and swap pre loved luxury goods. In June 2020, the Company invested £125,000 in ContactEngine, a pre-existing portfolio company.

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 29 February 2020, but has been extracted from the statutory financial statements for the year ended 29 February 2020, which were approved by the Board of Directors on 1 July 2020 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 2019 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 29 February 2020 will be made available to Shareholders shortly. Copies will also be available for download from www.provenvcts.co.uk

End

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ProVen Growth & Income VCT (PGOO)

Friday, 22nd November 2024

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