Proven Growth & Income VCT plc : Final Results

PROVEN GROWTH & INCOME VCT PLC

FINAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2014

FINANCIAL SUMMARY

As at 28 February	2014 Pence	2013 Pence
Net asset value per share	85.2	87.7
Dividends paid since class launch (originally as 'C' Shares)	27.1	18.6
Total return (net asset value plus dividends paid since 'C' Share class launch)	112.3	106.3
Year on year change in:
Net asset value per share (adjusted for dividends paid)	6.8%

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 2014.  It has been a busy year for the Company, which completed the merger with ProVen Health VCT plc in August 2013 and also achieved a number of profitable exits which resulted in the further growth in total return to Shareholders.

Net asset value
At 28 February 2014, the Company's net asset value ("NAV") stood at 85.2p per share. This represents an increase of 6.0p or 6.8% over the year (after adding back dividends paid in the year).

Total return (NAV plus cumulative dividends paid) for Shareholders who invested in the Company's C Share offer in 2005/2006 now stands at 112.3p for an investment of £1. For Shareholders who invested at the Company's outset in 2000/2001, total return stands at 210.2p. Both values are stated before taking account of any initial income tax relief or making an adjustment for the tax free nature of dividend returns.

Merger with ProVen Health VCT plc
As reported previously, the merger with ProVen Health VCT plc completed on 6 August 2013. The merger increased the size of the Company by the addition of some £6.2 million of net assets, which has helped to reduce the burden of fixed running costs for all Shareholders and has increased portfolio diversity.

At the same time as the merger, Shareholder approval was also obtained to expand the scope of the Investment Policy to allow non-qualifying investments in debt and debt related securities of growth companies and to adjust the cap on the aggregate fees and expenses of the Company's Directors in the Articles of Association. Both resolutions were approved by Shareholders at a general meeting on 30 July 2013.

Following the merger, Frank Harding joined the Board as a new non-executive Director. Frank was previously a director of ProVen Health VCT plc and has made a much valued contribution to the Company since his appointment.

Under the Company's Articles of Association, Frank retires from office at the Company's forthcoming Annual General Meeting ("AGM") and, with the successful integration of the ProVen Health VCT portfolio now complete, Frank will not be standing for re-election as a Director. On behalf of the Board, I would like to thank Frank for his contribution to the Company and wish him all the very best for the future.

Portfolio activity and valuation
As mentioned above, the year was notable for a number of significant profitable realisations.  At the start of the year, the investments in Fjordnet and Tossed were realised, producing combined gains against original cost of £4.4 million and £162,000 respectively (gains of 180% and 26% respectively). In November, the Company disposed of another major investment, Espresso Group, for £0.9 million in excess of original cost (gain of 56%). There were also further earnout proceeds of £2.1 million in respect of Steak Media, which was realised in the year ended 29 February 2012. Total gains against original cost amounted to £7.6 million. Although a fair proportion of these gains had already been recognised by previous valuation uplifts, there was still a further realised gain for the year of £2.8 million.

Whilst the recovering economy and generally increased levels of corporate activity have, been helpful, the Investment Manager has consistently demonstrated the ability to identify young businesses with scope for strong growth and to work with them to deliver successful exits.

The Company also continued to be an active investor during the year.  Two new investments in Pulpitum Limited and Disposable Cubicle Curtains Limited were completed at a cost of £4.6 million, while there were also eight follow on investments totalling £1.9 million.

Within the existing portfolio, there were a number of valuation movements, the majority of which were positive. The most notable was the jewellery brand, Monica Vinader, which continues to make excellent progress and which attracted a further investment of £415,000 from the Company. The valuation was increased by £790,000.  Total net unrealised valuation gains for the year were £2.2 million.

Further details of investment activity and investments held are provided in the Investment Manager's Review and the Review of Investments.

Results and dividends
The total return on ordinary activities for the year was £4.2 million, comprising a £59,000 revenue return and a £4.1 million capital return.

The Board is proposing a final dividend of 2.0p per share to be paid on 25 July 2014 to Shareholders on the register at 27 June 2014. This follows the interim dividend of 2.0p per share paid in November 2013 and the special interim dividend of 2.5p per share paid in February 2014. Dividends in respect of the year ended 28 February 2014 will total 6.5p, which equates to 7.4% based on the opening net asset value. This is in line with the Company's stated dividend policy of seeking to pay a target yield of 5% and further dividends when major gains on realisations are achieved.

Fundraising activities
The Company launched an offer for subscription in January 2013, which closed in January 2014, having raised gross proceeds of £11.2 million.

The Company allotted 376,810 shares under the Company's Dividend Reinvestment Scheme ("DRIS") in respect of the dividends paid during the year .  The shares were issued at an average of 83.0p per share and I would encourage more Shareholders to make use of this facility in future. The Company also offered an Enhanced Buyback Facility in April 2013, which was well received by Shareholders.

Share buybacks
The Company has a policy of buying in shares that become available in the market at a discount of approximately 5% to the latest published net asset value.  The Company retains Panmure Gordon as its corporate broker. Shareholders who are considering selling their shares may wish to contact Panmure Gordon prior to any sales, who will be able to provide details of the price at which the Company is buying shares.

Excluding the Enhanced Buyback Facility transactions, the Company purchased 1,216,194 shares during the year at an average price of 76.6p per share and for an aggregate consideration of £932,000. This represents 2.8% of the shares in issue at the start of the year. All the 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").

Amendment to the Articles of Association
The Company is an evergreen VCT which seeks to provide long-term tax free income to its Shareholders and with no planned wind-up date. The Company regularly undertakes fundraisings, providing new and existing investors with the opportunity to benefit from the upfront VCT tax reliefs as long as they continue to hold their investment for at least five years.

In order to ensure that there is reasonable certainty that new investors will be able to hold their shares for the minimum period necessary to retain the upfront income tax reliefs, the Board is proposing to remove the requirement in the Company's Articles of Association for Shareholders to regularly vote on a resolution for the Company to continue as a venture capital trust.  The Directors do not believe that this change will have any significant negative impact on the way the Company is run and  it does not prevent the Directors from proposing such a resolution if, at any time in the future, they believe this to be in the best interests of Shareholders. Resolution 12 in the Notice of the AGM proposes this amendment.

Annual General Meeting
The next AGM of the Company will be held in The Forest Room at The Hospital Club, 24 Endell Street, Covent Garden, London WC2H 9HQ at 9.30 a.m. on 22 July 2014.

Four items of special business will be proposed at the AGM as follows:
*two resolutions in connection with the authority for the Directors to allot shares;
*one resolution in respect of share buybacks; and
*one resolution to amend the Articles of Association.

In order to give the Board flexibility in considering fundraising options over the next year without necessarily having to incur the costs of preparing an additional Shareholder Circular, the Board is seeking authority to issue and allot up to approximately £25 million worth of new shares.

Performance fee circular
Shareholders will be aware that the existing performance incentive fee arrangements with the Investment Manager, Beringea LLP, have become quite complicated because they have to be amended each time the Company launches a new fundraising. The Board has reviewed the arrangements with Beringea and reached agreement for a simplified version. As the proposed amendments to the arrangements represent a related party transaction, the Company will be issuing a Shareholder circular setting out full details. A General Meeting to consider the proposals will take place at 10.00 a.m. on 22 July 2014, shortly after the AGM. Notice of the General Meeting is included in the Circular.

Shareholder event
Following the success in recent years of the Investment Manager's Annual Shareholder event, another event is being arranged for 2014. This year it will take place on Wednesday 29 October 2014 at 10.30 a.m. at the British Library, 96 Euston Road, London NW1 2DB.

The event will include presentations by several portfolio companies and gives Shareholders the opportunity to meet with the Directors and members of the investment management team. 

A formal invitation is being sent to all Shareholders. I recommend that Shareholders who wish to attend respond promptly as there is limited capacity.

Outlook
Following the successful fundraising and the realisations that have taken place over the last year or so, the Company is now has substantial funds available to make further investments, and the Investment Manager has
recruited additional investment executives to its team to manage this growth. Over the next year, new investment activity will be a priority.  The Investment Manager reports a strong flow of potential investment opportunities, albeit against competitive background, and we expect to see a number of these become new portfolio companies over the next 12 months.

Although several of the more mature investments have now been sold, the portfolio still includes a number of investments that offer the prospect of further profitable exits opportunities in the coming years, particularly with the general improvement in the economy that we are now seeing.

Through a combination of working with existing portfolio companies and securing quality new investments, the Board is confident that the Investment Manager can continue to deliver solid returns for Shareholders well into the future.

Marc Vlessing
Chairman

INVESTMENT MANAGER'S REVIEW

 

Introduction
We have pleasure in presenting our annual review for the year ended 28 February 2014.

Review of the year
The year has been marked by notable exits from Fjordnet, Tossed and Espresso Group and the receipt of further significant proceeds in respect of former portfolio company, Steak Media, as part of the earnout agreed on disposal. The realisation of Fjordnet, which generated a four times return on the Company's equity investment, was subsequently awarded "VCT Exit of the Year" at the unquote British Private Equity Awards in October. There were two new investments totalling £4.6 million and eight further investments in existing portfolio companies totalling £1.9 million.

The merger with ProVen Health VCT plc in August resulted in the Company increasing the level of its investment in six existing portfolio companies by a total of £2.2 million, as well as the addition of two new portfolio companies at a total value of £1.3 million and cash of £2.7 million. Four other investments were added at zero value.  At the year end, the venture capital portfolio comprised 34 companies at a cost of £24.9 million and a valuation of £28.1 million. In addition, there was cash available for investment of £22.8 million, including funds raised from the Company's recent offer which closed in January 2014.

Portfolio activity and valuation
Portfolio realisations, including an estimate of the expected value of proceeds receivable in the future, totalled £13.8 million or 33.5% of the opening net asset value of the Company. The realisations of Fjordnet and Tossed were mentioned in last year's Annual Report having occurred shortly after the February 2013 year end. In November, we were pleased to conclude the sale of Espresso Group to US-based Discovery Education, part of the media giant, Discovery Inc. Espresso's strong market presence as a provider of digital education content to UK primary and secondary schools made it an ideal strategic fit with Discovery Education's US and international operations and generated a return for the Company of £2.5 million. This represented a multiple of three times the cost of the Company's equity investment in Espresso.  There were a number of other capital repayments, mainly loan note redemptions and repayments, including Sports Holdings, Cogora Group (formerly Campden Media), SPC International and Cross Solar PV.

The merger of the Company with ProVen Health VCT resulted in additional exposure to a number of investments already in the portfolio - APM Healthcare, Cognolink, Inskin Media, Utility Exchange Online, Skills Matter and Long Eaton Healthcare - at a combined transfer valuation of £2.2 million. The remainder of the transfer valuation was in Polytherics (£1.0 million) and Altacor (£256,000). Polytherics is a biotechnology company that applies precision chemistry to develop protein and peptide based drugs. These technologies can extend the duration of action of these drugs so that patients require fewer injections, and can create more efficacious products. In July, Polytherics merged with Antitope, a company which is able to "humanise" antibodies in order to decrease the potential risk of generating unwanted immune responses to drugs. ProVen Growth and Income VCT plc provided further funding of £260,000 in September in support of this merger.  Altacor is an ophthalmology pharmaceutical company which develops and markets products directed to the needs of both ophthalmologists and patients. The other ProVen Health VCT plc investments were all transferred at zero value.

Significant new investments were made in Pulpitum (£2.9 million) and Disposable Cubicle Curtains ("DCC") (£1.7 million). Pulpitum is a company established to take advantage of opportunities within the digital sector which has long been a fruitful area of investment for the Company. ProVen VCT, also managed by Beringea, invested an additional £2.1 million. DCC trades under the brand name "All in One Medical" and provides an expanding range of patented, biocide impregnated disposable curtains and blinds for use in hospitals and clinics to help reduce the incidence of hospital acquired infections. The Company's investment, alongside funding of £1.3 million from ProVen VCT, will enable continued growth and development of the business, including investment in the UK based manufacturing operation and an increasing level of exports.

There were further investments in a number of companies including Utility Exchange Online (£613,000) and Monica Vinader (£415,000). There continues to be good progress across a number of the portfolio companies. Cognolink, which provides expert network services to a range of financial institutions, is the largest investment with a valuation of £3.5 million and accounts for 6.7% of the Company's net asset value. The valuations of BlisMedia (£1.7 million) and Monica Vinader £1.6 million) show a significant uplift to cost at 2.7 times and 2.9 times respectively, reflecting continued good progress and further investment from new investors. A number of the smaller holdings in the portfolio are also showing good growth potential.

Post year end developments
Since the year end the Company has completed further investments totalling £5.4 million including three new VCT qualifying investments, one further investment of £250,000 into Charterhouse Leisure and the Company's first non-qualifying debt investment. One AIM investment was exited in full and the Company received further earnout proceeds from Steak Media.

In May the Company concluded investments of £2.4 million in MyOptique Group, £1.44 million in Response Tap and £720,000 in Big Data Partnership.

MyOptique is Europe's leading online eyewear retailer in a market estimated to be worth €25 billion and includes the brands "Glasses Direct" and "Sunglasses Shop". With significant venture capital funding prior to this investment, MyOptique has proven the viability of the online market and, with further funds from the ProVen VCTs and other investors, is well positioned to continue its development.

Response Tap ("RT") is a cloud-based call analytics solution for companies that seek to improve their conversion of online traffic via telephone sales. Clients use the RT product to improve the effectiveness of their online advertising; in the future, the RT product will also be used to automatically direct customers to the most relevant sales people, thereby further increasing conversion rates.

Big Data Partnership ("BDP") is a professional services / consultancy firm specialising in providing independent advice to corporates in the area of big data analytics. BDP is addressing an attractive, fast growing market sector. Expenditure on information technology products and services in the big data area is predicted to reach $16.1 billion in 2014, growing to $23.8 billion by 2016.

In April, the Company completed its first non-qualifying debt investment, a £600,000 investment in technology company Peerius, as part of a total investment of £1.2 million from Beringea-managed VCTs. Peerius's suite of SMART products allows its retail clients to treat each visitor to their websites as a unique individual.  Complex algorithmic software ensures that each customer is offered exactly what they want.  This provides a better user experience for the customer and increased sales for Peerius's clients.  Clients include leading retailers Arcadia Group, Charles Tyrwhitt, Tommy Hilfiger, notonthehightstreet.com, AO.com, Wickes and Superdry.

In April, the shareholders of AIM quoted Pilat Media Global approved the company's acquisition by Sintec Media, an Israeli company. The offer price of 95.0p per share, together with previous disposals generated a realised profit of £187,000 on the Company's year end shareholding and an overall return of 3.9 times the Company's total investment.

In May, we received further earnout proceeds of £2.1 million from the previous realisation of Steak Media. This takes the total return from Steak Media to 5.5 times the initial cost of investment.

Outlook
VCTs continue to play an important role in the development of UK small and medium sized companies. The improvement in the UK economy and wider international markets has provided exit opportunities for a number of portfolio companies and has improved confidence amongst entrepreneurs and business managers looking for funding to develop their businesses. As demonstrated by the recent disposals of Fjordnet and Espresso Group, and previous disposals such as Steak Media, the Company is investing in businesses that are attractive to international buyers.

Following the Company's recent successful fundraising, the Company is well placed to provide funding for both existing and new businesses and has a strong pipeline of new deals. In addition, as a mature and established VCT, we expect the existing portfolio to continue to develop and provide further exit opportunities.

Beringea LLP

INVESTMENT ACTIVITY

Investment activity during the year is summarised as follows:

Additions

	Cost £'000
Pulpitum Limited	2,900
Disposable Cubicle Curtains Limited	1,730
Utility Exchange Online Limited	613
Monica Vinader Limited	415
Skills Matter Limited	273
Polytherics Limited	260
Cogora Group Limited (previously Campden Media)	166
APM Healthcare Limited	75
Senselogix Limited	61
Speed-Trap Holdings Limited	58
Total	6,551
Acquired as a result of the merger with ProVen Health VCT plc
APM Healthcare Limited	1,231
Polytherics Limited	1,018
Inskin Media Limited	320
Cognolink Limited	319
Altacor Limited	256
Utility Exchange Online Limited	200
Skills Matter Limited	159
Total	3,503
Grand Total	10,054

Disposals

	Cost £'000	Market  value at  01/03/13  ~ £'000	Disposal proceeds £'000	Profit/ (loss)  against cost £'000	Total  realised  gain during  the year £'000
Fjordnet Limited	2,226	6,227	6,674	4,448	447
Espresso Group Limited	1,583	2,312	2,466	883	154
SPC International Limited	625	625	625	-	-
Tossed Limited	624	786	786	162	-
Cross Solar PV Limited	574	574	574	-	-
Cogora Group Limited (previously Campden Media)	324	324	324	-	-
Immedia Group plc	171	14	34	(137)	20
Donatantonio Limited	66	66	86	20	20
Speed-Trap Holdings Limited	58	58	58	-	-
Sports Holdings Limited	2	2	2	-	-
Isango! Limited	-	-	1	1	1
Steak Media Limited	-	-	2,135	2,135	2,135
Saffron Media Limited	-	-	48	48	48
	6,253	10,988	13,813	7,560	2,825

~ Adjusted for purchases during the year

Of the investments above, Steak Media Limited, Saffron Media Limited and Isango! Limited were realised in prior periods but received proceeds in the current period in excess of the amounts previously accrued.

INVESTMENT PORTFOLIO

The following investments were held at 28 February 2014:

	Cost £'000	Valuation £'000	Valuation movement  in year £'000	% of  portfolio by value
Top ten venture capital investments (by value)
Cognolink Limited	2,051	3,500	1,449	6.9%
Pulpitum Limited	2,900	2,900	-	5.7%
APM Healthcare Limited	1,731	2,162	430	4.2%
Inskin Media Limited	1,435	2,018	583	4.0%
Utility Exchange Online Limited	2,090	2,002	(88)	3.9%
Charterhouse House Leisure Limited	1,000	1,735	558	3.4%
Disposable Cubicle Curtains Limited	1,730	1,730	-	3.4%
Blis Media Limited	621	1,682	243	3.3%
Monica Vinader Limited	553	1,585	790	3.1%
Donatantonio Limited	1,300	1,398	(829)	2.7%
	15,411	20,712	3,136	40.6%
Other venture capital investments	9,514	7,426	(957)	14.6%
Total venture capital investments	24,925	28,138	2,179	55.2%
Cash at bank and in hand		22,806		44.8%
Total investments		50,944		100.0%

Other venture capital investments as at 28 February 2014 comprise:
Altacor Limited*, Amura Holdings Limited*, Campden Wealth Limited**, Chess Technologies Limited, Cinergy International Limited, Cogora Group Limited, Cross Solar PV Limited, Deltadot Limited, Dianomi Limited, Eagle-i Music Limited, Eagle Rock Entertainment Group Limited*, Long Eaton Healthcare Limited*, Matssoft Limited*, Omni Dental Sciences Limited, Pilat Media Global plc*, Polytherics Limited*, Population Genetics Technologies Limited, Senselogix Limited, Skills Matter Limited*, Speed-Trap Holdings Limited, Sports Holdings Limited**, UBC Media Group plc*, Vigilant Applications Limited** and Steribottle Global Limited**.

* Partially non-qualifying investment
** Non-qualifying investment

With the exception of Pilat Media Global plc and UBC Media Group plc which are quoted on AIM, all venture capital investments are unquoted.

All of the above investments, and those included in the disposals, with the exclusion of Altacor Limited, Amura Holdings Limited, Deltadot Limited, Eagle-i Music Limited, Omni Dental Sciences Limited, Polytherics Limited and Population Genetics Technologies Limited were also held by ProVen VCT plc, of which Beringea LLP is the investment manager.

Blis Media Limited, Cogora Group Limited, Cross Solar PV Limited, Donatantonio Limited, Long Eaton Healthcare Limited, SPC International Limited and Eagle-i Music Limited were also held by ProVen Planned Exit VCT plc, of which Beringea LLP is the investment manager.

All venture capital investments above are registered in England and Wales.

Directors' responsibilities statement

The Directors are responsible for preparing the Directors' Report, the Directors' Remuneration Report, the Strategic Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:
*Select suitable accounting policies and then apply them consistently;
*make judgments and accounting estimates that are reasonable and prudent;
*state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
*prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the 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.

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 has 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

	Year ended 28 February 2014						Year ended 28 February 2013
	Revenue		Capital		Total		Revenue		Capital		Total
	£'000		£'000		£'000		£'000		£'000		£'000
Income:
Continuing operations	856		-		856		1,301		-		1,301
Acquisitions	44		-		44		-		-		-
	900		-		900		1,301		-		1,301
Gains on investments:
Continuing operations	-		4,544		4,544		-		4,137		4,137
Acquisitions	-		460		460		-		-		-
	-		5,004		5,004		-		4,137		4,137
Total Income	900		5,004		5,904		1,301		4,137		5,438
Investment management fees	(258)		(773)		(1,031)		(172)		(516)		(688)
Performance incentive fees	-		(79)		(79)
Other expenses	(583)		(8)		(591)		(377)		(8)		(385)
Return on ordinary activities before tax	59		4,144		4,203		752		3,613		4,365
Tax on ordinary activities	-		-		-		-		-		-
Return attributable to equity shareholders	59		4,144		4,203		752		3,613		4,365
Basic and diluted return per share:	0.1p		7.4p		7.5p		1.9p		9.2p		11.1p

The total column within the Income Statement represents the profit and loss account of the Company. 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 Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement in the current and prior year.

Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return as stated above and at historical cost.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

	Year ended 28 February  2014		Year ended 28 February  2013
	£'000		£'000
Opening Shareholders' funds	38,339		35,384
Issue of shares	21,655		40
Share issue costs	(362)		-
Movement in share capital to be issued	(781)		781
Purchase of own shares	(4,838)		(711)
Distributions	(4,877)		(1,520)
Total recognised gains for the year	4,203		4,365
Closing Shareholders' funds	53,339		38,339

BALANCE SHEET

	28 February  2014		28 February  2013
Fixed assets	£'000		£'000
Investments	28,138		26,893
Current assets
Debtors	2,832		268
Cash at bank and in hand	22,806		11,496
	25,638		11,764
Creditors: amounts falling due within one year	(437)		(318)
Net current assets	25,201		11,446
Total assets less current liabilities	53,339		38,339
Capital and reserves
Called up share capital	1,014		693
Capital redemption reserve	1,080		982
Special reserve	43,283		11,272
Share premium	674		17,727
Shares to be issued	-		781
Revaluation reserve	3,585		6,142
Capital reserve - realised	4,312		723
Revenue reserve	(609)		19
Total equity shareholders' funds	53,339		38,339
Basic and diluted net asset value per share	85.2p		87.7p

CASH FLOW STATEMENT

	Year ended 28 February 2014		Year ended 28 February 2013
	£'000		£'000
Net cash (outflow)/inflow from operating activities	(597)		42
Capital expenditure
Purchase of investments	(6,551)		(5,136)
Sale of investments	11,131		1,098
Net cash inflow/(outflow) from capital expenditure	4,580		(4,038)
Acquisitions
Cash acquired	2,746		-
Net cash inflow from acquisitions	2,746		-
Equity dividends paid	(4,877)		(1,520)
Management of liquid resources
Withdrawal from liquidity funds	-		2,500
Net cash inflow from liquid resources	-		2,500
Net cash inflow/(outflow) before financing	1,852		(3,016)
Financing
Proceeds from share issue	15,426		40
Share issue costs	(362)		-
Purchase of own shares	(4,825)		(711)
Unallotted share capital	(781)		781
Net cash inflow from financing	9,458		110
Increase/(decrease) in cash	11,310		(2,906)

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED 28 FEBRUARY 2014

1 Accounting policies

Basis of accounting

The Company has prepared its financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009 ("SORP").  

The financial statements are prepared under the historical cost convention except for certain financial instruments measured at fair value.

The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when required.

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 Association of Investment Companies ("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 in connection with income retention set out in Part 6 of the Income Tax Act 2007.

Fixed asset investments

Investments are designated as "fair value through profit or loss" assets due to the 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 the International Private Equity and Venture Capital Valuation Guidelines ("IPEV Guidelines") together with FRS 26 - Financial Instruments: Recognition and Measurement. 

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

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

*Price of recent investment;
*Multiples;
*Net assets;
*Discounted cash flows or earnings (of underlying business);
*Discounted cash flows (from the investment); and
*Industry valuation benchmarks.

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. 

Fixed asset investments are derecognised when the contractual rights to the cashflows 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.

Where an investee company has gone into receivership or liquidation, there is little likelihood of a recovery from a company in administration, or the loss in value below cost is considered to be permanent,  the loss on the investment, although not physically disposed of, is treated as being realised.

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.

In accordance with exemptions under FRS 9, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method.

 

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.  Income which is not capable of being received within a reasonable period of time is reflected in the capital value of the investments.

 

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 arising from the disposal of investments 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 VCT 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. Deferred tax assets and liabilities are not discounted.

 

Other debtors and other creditors

Other debtors (including accrued income), other creditors and loan notes (other than those held as part of the investment portfolio) are included within the accounts at amortised cost.

Share issue costs

Expenses in relation to share issues are deducted from the Share Premium Account upon allotment of shares or charged against distributable reserves.

 

2 Basic and diluted return per share

	Year ended 28 February 2014		Year ended 28 February 2013
Revenue return per share based on:
Net revenue after taxation (£'000)	59		752
Pence per share	0.1p		1.9p
Capital return per share based on:
Net capital gain for the financial year (£'000)	4,144		3,613
Pence per share	7.4p		9.2p
Weighted average number of shares in issue	56,302,306		39,094,427

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

			2014						2013
	Shares in issue			Net asset value					Net asset value
	2014		2013	pence per share			£'000		pence per share			£'000
Ordinary Shares	62,631,290		42,829,594		85.2p		53,339			87.7p		37,558
Share capital to be issued							-					781
							53,339					38,339

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.  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.

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 and fixed interest investments attract interest predominately at fixed rates.  A summary of the interest rate profile of the Company's financial instruments is shown below.

There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows: 
*"Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments and Preference Shares.
*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.

The Company monitors the level of income received from fixed, floating and no interest rate 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 £230,000.  As the Bank of England base rate stood at 0.5% per annum throughout the year, it is believed that a reduction from this level is unlikely.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors.  Credit risk relating to loan stock investee companies is considered to be part of market risk.

The Investment Manager manages credit risk in respect of loan stock with a similar approach as described under market risks above. In addition the credit risk is partially mitigated by registering floating charges over the assets of the respective investee companies. The strength of this security in each case is dependent on the nature of the investee companies' business and its identifiable assets. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both 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 (£437,000 at 28 February 2014) 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 this reason, 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 document, highlighting the length of time that it could take the Company to realise its assets if it were required to do so based on the carrying value and maturity of loan stock investments held at 28 February 2014.

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 2014, but has been extracted from the statutory financial statements for the year ended 28 February 2014, which were approved by the Board of Directors on 19 June 2014 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 s498(2) and (3) of the Companies Act 2006.

The statutory accounts for the year ended 28 February 2013 have been delivered to the Registrar of Companies and received an Independent Auditor's 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 2014 will be printed and posted 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 and www.downing.co.uk.

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Proven Growth & Income VCT plc via Globenewswire

HUG#1796976