Proven VCT plc : Annual Financial Report

PROVEN VCT PLC

ANNUAL FINANCIAL REPORT
YEAR ENDED 28 FEBRUARY 2017

Financial summary

Ordinary Shares as at:	28 February 2017 Pence	29 February 2016 Pence
Net asset value per share	106.3	100.7
Dividends paid since launch	26.5	20.0
Total return (net asset value plus dividends paid since launch)	132.8	120.7
Year on year change in:
Net asset value per share (adjusted for dividends paid in the year)	12.0%

Chairman's Statement

I am pleased to present the Annual Report for ProVen VCT plc (the "Company") for the year ended 28 February 2017. The Company has continued to experience strong deal flow, investing a total of £10.4 million in the year, and has achieved a number of significant realisations, notably Big Data Partnership, MyOptique and SPC International.

Results for the year

The Company's net asset value ("NAV") per share increased by 12.1p over the year (after adding back the dividends of 6.5p paid in the year), an increase of 12% on the opening NAV. At 28 February 2017 the NAV per share stood at 106.3p.

The total return on ordinary activities for the year was £12.2 million, or 12.7p per share (2016: £3.2 million, 5.0p per share), comprising a revenue return of £25,000 (2016: £364,000, 0.6p per share) and a capital return of £12.2 million, or 12.7p per share (2016: £2.8 million, 4.4p per share).

Dividends

The Company made dividend payments during the year of 6.5p per share. This comprised two dividends: a final dividend of 4.0p for the year ended 29 February 2016 paid on 15 July 2016, and an interim dividend of 2.5p for the year ended 28 February 2017 paid on 16 December 2016.

Your Board is proposing a final dividend for the year ended 28 February 2017 of 2.5p per share to be paid on 14 July 2017 to shareholders on the register at 16 June 2017. With total dividends of 5.0p per share for the year ended 28 February 2017, your Board is pleased to report that the Company has been able to maintain its dividend yield of at least 5% per annum, while maintaining a broadly stable net asset value per share over the period since the current dividend policy was introduced in 2012.

Portfolio activity and valuation

The Company invested £8.6 million in seven new portfolio companies and £1.8 million in seven existing portfolio companies during the year.

The Company made several successful disposals during the year. In February 2017, TVS Rico, a UK logistics company, agreed to acquire the Company's investment in SPC International. At 28 February 2017, proceeds of £2.8 million had been received for 85% of the Company's investment in SPC. The remaining 15% will be acquired by TVS Rico within the next three years. Other significant disposals included MyOptique, which generated aggregate proceeds of £4.4 million and a gain of £2.0 million, and Big Data Partnership, which was sold at a multiple of 1.5x cost.

The Company's debt investments have been very successful in delivering attractive income returns. Out of the four holdings at the start of the year, Linkdex, Peerius and SE Pharma were acquired in the year and repaid their loans in full. Unfortunately, the recent changes to the VCT rules mean that further activity in this area is unlikely.

Overall, the investment portfolio increased in value by £9.4 million, or 9.8p per share, over the year. Continued strong performance of Third Bridge and Watchfinder contributed significantly to this uplift but there were also notable valuation uplifts for Chess Technologies, Perfect Channel and Think. There were reductions in value for some other investments, including Charterhouse Leisure, Cogora Group and InContext Solutions.

Fundraising activities

As reported in last year's Annual Report, the Company launched a full offer on 3 December 2015, which closed above its initial target of £30 million, raising gross proceeds of £33.8 million, all of which was allotted during the first half of the year ended 28 February 2017.

Share buybacks

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

During the year, the Company purchased 664,369 Ordinary Shares at an average price of 94.5p per share and for an aggregate consideration (net of costs) of £628,008. This represented 1.0% of the Company's issued share capital at the start of the year. All shares were subsequently cancelled.

A special resolution to allow the Board to continue to purchase shares for cancellation will be proposed at the forthcoming Annual General Meeting ("AGM").

Performance Incentive Arrangements

In 2012, the Company put in place performance incentive arrangements which reward the Investment Manager for delivering investment performance above agreed targets. During the year, it became apparent that the arrangements in place do not fully reflect the original intentions of your Board and the Investment Manager. The sizeable fund raisings which occurred after these arrangements were introduced, the scale of which were not anticipated at the time, has had a material impact on the calculation of the performance fee payable. Your Board has therefore agreed with the Investment Manager that the previous arrangements will be varied. From the year ended 28 February 2017, the performance targets and restrictions approved by Shareholders in 2012 will be applied to each major fund raising, rather than to the Company as a whole. The cumulative fee payable under the revised arrangements will never exceed the cumulative fee payable under the previous arrangements and so further shareholder approval is not required.

The revised arrangements have been used to assess the cumulative fees due up to 28 February 2017. Based on the cumulative performance incentive fees payable at 28 February 2017, less the previous payment for the year ended 29 February 2016, an additional accrual of £0.4 million for the current year has been included within the accounts.

Proposed changes to the investment objective and investment policy

The changes to the VCT rules in November 2015 and September 2016 mean that the Company's investment objective and investment policy make reference to certain investments which are no longer permitted. While, under the current investment policy, it is still possible to identify appropriate qualifying and non-qualifying investments that comply with the new VCT rules, your Board believes that an alignment of the investment objective and investment policy with the new rules would improve clarity for Shareholders.

Your Board does not intend to vary the overall objective of investing predominately in small and medium sized unquoted companies with excellent growth prospects, however the revision of the investment policy permits investment into new types of non-qualifying securities for liquidity management purposes, which include, for example, listed investment trusts. Your Board has agreed with the Investment Manager that such investments will only be made to the extent that the Investment Manager has knowledge and experience of investing in these investments or can outsource the management to an experienced third party manager.

An ordinary resolution to change the Company's investment objective and investment policy will be proposed at the forthcoming AGM and your Board is recommending that Shareholders approve this resolution.

Annual General Meeting

The next AGM of the Company will be held in the Gennaro Room at The Groucho Club, 45 Dean Street, London, W1D 4QB at 1:30 p.m. on Tuesday 4 July 2017.

Four items of special business will be proposed at the AGM. There are two resolutions giving the Directors authority to allot shares, to enable the Company to raise additional funds, if required, one resolution to amend the Company's investment policy and one resolution to allow the Company to continue to make share buy-backs as outlined above.

Shareholder event

The Company's annual shareholder event continues to be well received, providing Shareholders with an opportunity to meet with the Directors and members of the Investment Manager's team, as well as other Shareholders and portfolio companies. For your Board and Investment Manager it is an important opportunity to understand and discuss the views of the Company's Shareholders directly.

This year's event will take place on Wednesday 1 November 2017 at 10.30 a.m. at The Institute of Engineering and Technology, 2 Savoy Place, London, WC2R 0BL.

A formal invitation will be sent in due course and I would very much encourage Shareholders to attend.

Outlook

The UK's strong entrepreneurial culture, combined with a relatively benign economic environment, is generating an increasing number of companies, with ambitious management teams, seeking to raise capital to accelerate their growth. Following the recent fund raising, the Company now has capital available to meet the forecast investment requirements for the next two years. It also has an Investment Manager with a strong investment track record, which, over the last two years, has supplemented its long-standing senior management team with some exceptional new additions.

The Company has a widely diversified portfolio of young companies, many of whom are the leaders in their field. Some companies which have been in the portfolio for several years are approaching an exit, and some newer additions could be the prospective stars of the future. Your Board believes that this portfolio has the potential to contribute positively to the Company's performance over the next few years.

As well as its internal resources, the prospects for the Company depend on external factors. In particular, there is still considerable uncertainty about the implications of the decision to leave the EU. The portfolio has generally not been affected since the outcome of the Referendum was announced but the full impact will only become apparent over the coming years. The largest negative impact on portfolio companies is likely to be if it becomes much harder to recruit skilled staff from overseas.

The Government is currently undertaking a review of the availability of "Patient Capital", with the objective of ensuring that high growth businesses can access the long-term capital that they need to fund productivity enhancing investment. Among other things, this review will evaluate the existing tax reliefs aimed at encouraging investment and entrepreneurship to make sure that they are effective, well targeted and provide value for money. This will include a review of the VCT scheme. Your Board believes that VCTs are ideally placed to meet the requirement of Patient Capital, given that, unlike some other types of venture capital fund, they do not have any limitations on the period of investment.

Although the Company will continue to operate in a dynamic environment, I believe it is well placed to deal with the challenges and opportunities that it will face over the coming year, and I therefore look forward to the future with cautious optimism.

Andrew Davison

Chairman

Investment Manager's Review

Introduction

We have pleasure in presenting our annual review for the year ended 28 February 2017. During the year, a total of £8.6 million was invested in seven new portfolio companies and £1.8 million in seven existing portfolio companies.

The year also saw a number of disposals resulting in aggregate realisation proceeds of £13.7 million and realised gains against initial cost of £5.2 million.

At 28 February 2017, the Company's venture capital portfolio comprised 45 investments at a cost of £56.9 million and a valuation of £72.2 million, an overall uplift of 26.9% on cost.

The net cash outflow for the year before fund raising was £6.7 million. The Company's cash balances were, however, replenished by net funds allotted of £32.7 million.

Investment activity

New investments

We continued to identify a number of attractive investment opportunities, with £8.6 million being invested in seven new portfolio companies.

The Company's investment in Thread (£880,000), a menswear e-commerce site which recommends styles and items based on an individual's tastes, was completed shortly after the previous year end and was discussed in last year's annual report. A further amount of £597,000 was invested in Thread in February 2017 as the company continued to expand its operations.

In December 2016, an investment of £2.2 million was made in Infinity Reliance, which trades under the brand name of My 1st Years. My 1st Years is an e-commerce site for personalised items for babies and children, with products from their Royal Range having been worn by Prince George. The investment is being used to expand the company's UK operations before launching operations in the US.

We are increasingly seeing opportunities to make VCT qualifying investments in strong international companies with a UK presence. The Company's investment in Whistle Sports, a global sports media company (£2.1 million), is a good example of this. Our US base in Michigan provides a strong competitive advantage in this area and four portfolio companies, Blis Media, D3O Holdings, Disposable Cubicle Curtains and InContext Solutions have all benefited from financing from our US colleagues.

Other new investments were made in Poq Studio, a platform provider for mobile e-commerce apps used by major fashion retailers (£1.1 million), Firefly Learning, a learning platform software provider (£758,000), Honeycomb.TV, a TV and video advertising management platform (£495,000) and ContactEngine, a software provider that automates its clients' customer communications (£450,000).

Follow-on investments

The Company has been active in supporting the development of existing portfolio companies, making follow-on investments in six companies during the year, as well as supporting the de-merger of one of the Company's existing portfolio companies, Simplestream.

The largest of the follow-on investments was in InContext Solutions (£400,000), with the investment being used to enable the company to continue to develop their technology.

In January 2017, following the de-merger of Simplestream's consumer facing business, TVPlayer, the Company invested £77,000 directly in TVPlayer as part of a larger fundraising led by major US media company, A+E Networks. The investment will be used to accelerate the growth of TVPlayer as it seeks to increase its subscriber base.

Further follow-on investments, primarily to support continued expansion and growth opportunities, were made in Perfect Channel, (£376,000), Network Locum (£358,000), Disposable Cubicle Curtains (£339,000), Big Data Partnership (£186,000) and D3O Holdings (£80,000).

Investment disposals

SPC International was first funded by the Company in 2002 and in February 2017 the Company committed to sell its remaining equity investment, with proceeds of £2.8 million received for 85% of the Company's holding before the year end. The disposal of the Company's equity investment follows on from the full repayment of the Company's loan note investments in previous years and takes the annual rate of return on the Company's overall investment in SPC International, over its 15 year life, to over 12%.

MyOptique showed impressive year on year growth following the Company's initial investment in May 2014 and was included in the British Government's 'Future Fifty' and Deloitte's Technology Fast 500 lists during the Company's holding period. In September 2016, MyOptique was acquired by leading international eyewear brand Essilor International, generating proceeds for the Company of £4.4 million. This represents a realised gain of £2.0 million in just over two years.

Big Data Partnership also showed impressive growth over a relatively short investment holding period, with revenues and head count more than doubling after the Company's initial investment in April 2014. The company was sold to US listed technology company Teradata in July 2016 generating proceeds of £2.5 million for the Company's investment, equivalent to a multiple of 1.5x cost.

The disposal of both Big Data Partnership and MyOptique represent successful realisations over a relatively short holding period, with both investments achieving an annual rate of return of more than 30% for the Company.

During the year, loan note repayments of £4.0 million were received, predominately from the full repayment of three debt finance investments, SE Pharma (£2.1 million), Linkdex (£1.2 million) and Peerius (£277,000), following the sale of these companies. Over the holding period, these investments have provided an attractive revenue stream in a low interest rate environment. All scheduled repayments were also received from the Company's remaining debt finance investment, Celoxica, as well as smaller loan repayments from Donatantonio Group and Conversity.

Key developments at existing portfolio companies

Watchfinder.co.uk continues to perform well and has recently opened a new retail outlet in Canary Wharf. Revenues grew by over 55% during 2016, which follows on from average revenue growth of over 50% per annum between 2013 and 2015. The valuation of the Company's investment increased by £2.9 million over the course of the year.

Third Bridge has sustained strong year-on-year revenue growth since the Company's investment in November 2012. The company continues to have a strong international presence with offices in London, New York, Shanghai, Hong Kong and Mumbai. During the year, the company's impressive growth was recognised by its inclusion in the 2016 Sunday Times Virgin Fast Track 100 list. The valuation of the investment increased by a further £1.7 million during the year and at the year-end represents an unrealised uplift on cost of 4.0x.

Chess Technologies also had a strong year, with the company's anti-drone technology receiving the highest technical readiness level awarded by the US Department of Defense. Having recently opened its first US office in February, the company is looking to continue its growth during 2017. During the year, the valuation of the Company's investment increased by £1.2 million and it is now valued at c. 2.0x cost.

Charterhouse Leisure faced a number of headwinds during the year including increases to the national living wage, rent and business rates. Together with increased competition, performance has been below expectations and, as a result, the valuation of the Company's investment fell by £717,000.

Overall, the investment portfolio showed an increase in value of £9.4 million, or 9.8p per share.

Post year-end developments

Between 28 February 2017 and the date of this announcement, the Company made three follow on investments totalling £1.6 million, comprising Poq Studio (£1.1 million), HoneyComb.TV (£405,000) and ContactEngine (£112,000).

Outlook

The UK continues to be an attractive place to start and build a company, with a strong entrepreneurial culture and a vibrant ecosystem for rapidly growing SMEs. The Government is increasingly focused on the potential economic benefits of supporting "scale-up" businesses, defined as an enterprise with average growth exceeding 20% p.a. over a three-year period, with more than 10 employees at the start of this period. These are precisely the businesses targeted for investment by the Company.

With this background, and a relatively benign economic environment, we expect that we will continue to see a strong flow of new investment opportunities. At the same time, competition is increasing, which may lead to inflated valuation expectations. We will continue to be disciplined in maintaining the quality standards, including pricing, that we apply to new investments, which may mean that we reject a higher proportion of deals than we have in the past. We have recently expanded our investment team to address this challenge and believe that we are now well placed to continue, and possibly increase, the rate of investment we achieved in the year to 28 February 2017.

Within the existing portfolio, several of the companies are making strong progress. There may therefore be further realisations during the year ending 28 February 2018, following on from the successful sales of SPC, MyOptique and Big Data Partnership. Many of the more recent investments are also showing early promise and we will continue to nurture and support these with further rounds of funding if appropriate.

Overall, therefore, we remain cautiously optimistic about the future.

Beringea LLP

Investment activity

Investment activity during the year is summarised as follows:

Additions	Cost £'000

Infinity Reliance Limited (t/a My 1st Years)	2,155
Whistle Sports, Inc.	2,090
Thread Inc.	1,477
Poq Studio Limited	1,125
Firefly Learning Limited	758
Honeycomb.TV Limited	495
ContactEngine Limited	450
InContext Solutions, Inc.	400
Perfect Channel Limited	376
Network Locum Limited	358
Disposable Cubicle Curtains Limited	339
Big Data Partnership Limited	186
D3O Holdings Ltd	80
TVPlayer Limited	77
Other investments	2
Total	10,368

Disposals	Cost	Market value at 01/03/16 ***	Disposal Proceeds	Realised gain against cost	Realised gain during the year
	£'000	£000	£'000	£'000	£'000
MyOptique Group Limited	2,420	2,420	4,380	1,960	1,960
SPC International Limited**	328	1,017	2,753	2,425	1,736
Big Data Partnership Limited	1,692	1,692	2,471	779	779
Speciality European Pharma Limited*	2,052	2,052	2,052	-	-
Linkdex Limited*	1,244	1,244	1,244	-	-
Peerius Limited*	277	277	277	-	-
Celoxica Limited*	269	269	269	-	-
Donatantonio Group Limited*	100	100	129	29	29
Conversity Limited*	85	-	102	17	102
Other investments	1	1	1	-	-
Total	8,468	9,072	13,678	5,210	4,606

* Loan repayments during the year

** Partial disposal

*** Adjusted for purchases during the year

Investment Portfolio

as at 28 February 2017

The following investments were held at 28 February 2017:


			Valuation	% of
	Cost	Valuation	movement in year	portfolio by value
	£'000	£'000	£'000
Venture capital investments (by value)
Watchfinder.co.uk Limited	2,629	8,375	2,857	7.9%
Perfect Channel Limited	3,010	4,660	1,553	4.4%
Rapid Charge Grid Limited (formerly Pulpitum Limited)*	4,200	3,847	(86)	3.6%
Monmouth Holdings Limited,**	4,000	3,809	(191)	3.6%
Third Bridge Group Limited	949	3,767	1,689	3.6%
Think Limited**	2,757	3,739	1,124	3.5%
Monica Vinader Limited**	534	3,679	211	3.5%
Blis Media Limited**	841	3,543	1,336	3.4%
Litchfield Media Limited	3,580	3,389	(191)	3.2%
Chargemaster plc**	2,421	3,145	723	3.0%
Cogora Group Limited**	2,643	2,972	(686)	2.8%
Disposable Cubicle Curtains Limited**	2,032	2,624	348	2.5%
MEL Topco Limited (t/a Maplin Electronics)*	2,217	2,253	(212)	2.1%
Infinity Reliance Limited (t/a My 1st Years)	2,155	2,155	-	2.1%
Whistle Sports, Inc.	2,090	2,090	-	2.0%
Chess Technologies Limited	1,045	2,039	1,210	1.9%
Donatantonio Group Limited	1,078	1,927	(344)	1.8%
InContext Solutions, Inc**	1,976	1,539	(573)	1.5%
Thread Inc.	1,477	1,477	-	1.4%
MatsSoft Limited**	1,010	1,474	613	1.4%
Poq Studio Limited	1,125	1,125	-	1.1%
Response Tap Limited	1,060	1,060	(60)	1.0%
APM Healthcare Limited	500	986	128	1.0%
Sealskinz Holdings Limited**	834	854	20	0.8%
D30 Holdings Ltd**	956	762	78	0.7%
Firefly Learning Limited	758	758	-	0.7%
Network Locum Limited	698	698	-	0.7%
Honeycomb.TV Limited	495	495	-	0.5%
SPC International Limited**	58	491	311	0.5%
ContactEngine Limited	450	450	-	0.4%
Inskin Media Limited	365	365	(187)	0.3%
Skills Matter Limited*	984	302	302	0.3%
TVPlayer Limited	230	298	68	0.3%
Simplestream Limited**	191	271	54	0.3%
Charterhouse Leisure Limited**	875	235	(717)	0.2%
	52,223	71,653	9,378	68.0%
Other venture capital investments	4,713	563	42	0.5%
Total venture capital investments	56,936	72,216	9,420	68.5%
Cash at bank and in hand		33,210		31.5%
Total investments		105,426

Other venture capital investments at 28 February 2017 comprise:

7Digital Group plc**, Buckingham Gate Financial Services Limited*, Celoxica Limited*, Conversity Limited, Dianomi Limited, Macklin Holdings Limited, Senselogix Limited, Steribottle Global Limited*, Utility Exchange Online Limited (t/a SwitchmyBusiness.com)and Vigilant Applications Limited*.

* Non qualifying investment

** Partially non qualifying investment

*** Investee company 100% owned by the Company but not consolidated as held exclusively for resale as part of an investment portfolio.

With the exception of 7digital Group plc which is quoted on AIM, all venture capital investments are unquoted.

All of the above investments, with the exception of Macklin Holdings Limited, Monmouth Holdings Limited, SPC International Limited and Think Limited were also held by ProVen Growth & Income VCT plc, of which Beringea LLP is the Investment Manager.

Blis Media Limited is also held by ProVen Planned Exit VCT plc, of which Beringea LLP was the Investment Manager until 31 March 2016 when ProVen Planned Exit VCT plc was placed into Members Voluntary Liquidation. The liquidator has agreed that Beringea LLP will continue to manage the investment in Blis Media Limited on behalf of ProVen Planned Exit VCT plc until it is sold.

All venture capital investments are registered in England and Wales except for InContext Solutions, Inc., Whistle Sports, Inc. and Thread, Inc., which are Delaware registered corporations in the United States of America.

Strategic Report

The Directors present the Strategic Report for the year ended 28 February 2017. The Board prepared this report in accordance with the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

Principal objectives and strategy

The Board is recommending a revised Principal Objectives and Strategy to shareholders to take account of the new VCT rules introduced by the Finance (No. 2) Act 2015 and Finance Act 2016. The text of the proposed wording is shown below. An explanation of the changes is set out in the Chairman's Statement.

The Company's investment objective is to achieve long-term returns greater than those available from investing

in a portfolio of quoted companies, by investing in:

a portfolio of carefully selected qualifying investments in small and medium sized unquoted companies with excellent growth prospects; and

a portfolio of non-qualifying investments permitted for liquidity management purposes

within the conditions imposed on all VCTs and to minimise the risk of each investment and the portfolio as a whole.

The Company has been approved by HM Revenue and Customs ("HMRC") as a Venture Capital Trust in accordance with Part 6 of the Income Tax Act 2007, and in the opinion of the Directors the Company has conducted its affairs so as to enable it to continue to maintain approval. Approval for the year ended 28 February 2017 is subject to review should there be any subsequent enquiry under corporation tax self-assessment.

The Directors consider that the Company was not, at any time, up to the date of this announcement, a close company within the meaning of Section 414 of the Income and Corporation Taxes Act 1988.

Business model

The business acts as an investment company, investing in a portfolio of carefully selected smaller companies. The Company operates as a Venture Capital Trust to ensure that its shareholders can benefit from tax reliefs available and has outsourced the portfolio management and administration duties.

Business review and developments

The Company began the year with £61.5 million of venture capital investments and ended with £72.2 million spread over a portfolio of 45 companies. 39 of these investments with a value of £62.2 million were VCT qualifying (or part qualifying).

The profit on ordinary activities after taxation for the year was £12.2 million, comprising a revenue profit of £25,000 and a capital profit of £12.2 million. The Ongoing Charges ratio (excluding performance fees and recoverable VAT) in respect of the year ended 28 February 2017, based on average net assets during the year, was 2.5% (2016: 2.6%).

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

Investment policy

The Board is recommending a revised Investment Policy to shareholders to take account of the new VCT rules introduced by the Finance (No. 2) Act 2015 and Finance Act 2016. The text of the proposed wording is shown below. An explanation of the changes is set out in the Chairman's Statement.

The Company's investment policy covers several areas as follows:

Qualifying investments

The Company seeks to make investments in VCT Qualifying companies with the following characteristics:

a strong, balanced and well-motivated management team with a proven track record of achievement;
a defensible market position;
good growth potential;
an attractive entry price for the Company;
the ability to structure the investment with a proportion of secured loan notes in order to reduce risk; and
a clearly identified route for a profitable realisation within a three to four year period.

The Company invests in companies at various stages of development, including those requiring capital for expansion, but not in start-ups or management buy-outs or businesses seeking to use funding to acquire other businesses. Investments are spread across a range of different sectors.

Other investments

Funds not invested in qualifying investments may be invested in non-qualifying investments permitted for liquidity management purposes, which include cash, alternative investment funds ("AIFs") and UCITS which may be redeemed on no more than 7 days' notice, or ordinary shares or securities in a company that are acquired on an EU regulated market.

Existing non-qualifying investments made by the Company prior to Royal Assent of the Finance (No. 2) Act 2015 on 18 November 2015 are not affected by this change in Investment Policy.

Borrowings

Venture capital trust regulations

In continuing to maintain its VCT status, the Company complies with a number of regulations as set out in Part 6 of the Income Tax Act 2007. How the main regulations apply to the Company is summarised as follows:

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);
at least 30 per cent. (70 per cent. in the case of funds raised after 5 April 2011) of the Company's qualifying investments (by value) are held in "eligible shares" - ("eligible share" generally being ordinary share capital);
at least 10 per cent. of each investment in a qualifying company is held in "eligible shares" (by cost at time of investment);
no investment constitutes more than 15 per cent. of the Company's portfolio (by value at time of investment);
the Company's income for each financial year is derived wholly or mainly from shares and securities;
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;
as required by the Finance Act 2014, the Company has not made a prohibited payment to Shareholders derived from an issue of shares since 6 April 2014;
no investment made by the Company causes an investee company to receive more than the permitted investment from State Aid sources (including from VCTs);
since the Finance (No. 2) Act 2015 received Royal Assent on 18 November 2015, the Company has not made an investment in a company which exceeds the maximum permitted age requirement;
the funds invested by the Company in another company since the Finance (No. 2) Act 2015 received Royal Assent on 18 November 2015 have not been used to make a prohibited acquisition; and
as required by the Finance Act 2016, the Company has not made a prohibited non-qualifying investment since 6 April 2016.

Listing Rules

In accordance with the Listing Rules:

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 28 February 2017 and for the year then ended is summarised as follows:

i. The Company holds at least 70 per cent. of its investments in qualifying companies (as defined by Part 6 of the Income Tax Act 2007)	Complied
ii. At least 30 per cent. (70 per cent. in the case of funds raised after 5 April 2011) of the Company's qualifying investments (by value) are held in "eligible shares" - ("eligible share" generally being ordinary share capital)		Complied
iii. At least 10 per cent. of each investment in a qualifying company is held in "eligible shares" (by cost at time of investment)		Complied
iv. No investment in a company constitutes more than 15 per cent. of the Company's portfolio (by value at time of investment)		Complied
v. The Company's income for each financial year is derived wholly or mainly from shares and securities vi. The Company distributes sufficient revenue dividends to ensure that not more than 15 per cent. of the income from shares and securities in any one year is retained	Complied Complied
vii. As required by the Finance Act 2014, the Company has not made a prohibited payment to Shareholders derived from an issue of shares since 6 April 2014		Complied
viii. No investment made by the Company causes an investee company to receive more than the permitted investment from State Aid sources (including from VCTs)		Complied
ix. Since the Finance (No. 2) Act 2015 received Royal Assent on 18 November 2015, the Company has not made an investment in a company which exceeds the maximum permitted age requirement x. The funds invested by the Company in another company since the Finance (No. 2) Act 2015 received Royal Assent on 18 November 2015 have not been used to make a prohibited acquisition		Complied Complied
xi. As required by the Finance Act 2016, the Company has not made a prohibited non-qualifying investment since 6 April 2016.		Complied

Borrowings

It is not the Company's intention to have any borrowings. The Company does, however, have the ability to borrow a maximum amount equal to the nominal capital of the Company and its distributable and undistributable reserves, which, at 28 February 2017, was equal to £104.7 million (2016: £86.5 million). There are no plans to utilise this facility at the current time.

Investment management and administration fees

Beringea LLP ("Beringea" or the "Investment Manager") provides investment management services to the Company for an annual fee of 2.0% of the net assets per annum. Beringea is also entitled to receive performance incentive fees as described below. The investment management agreement is terminable by either party at any time by one year's prior written notice. The total fees relating to this service amounted to £1,994,000 (2016: £1,318,000) (inclusive of VAT where applicable), of which £492,000 (2016: £322,000) was outstanding at the year-end.

The Board is satisfied with Beringea's approach and procedures in providing investment management services to the Company. The Directors have therefore concluded that the continuing appointment of Beringea as investment manager remains in the best interests of Shareholders.

Throughout the year ended 28 February 2017 Beringea also provided administration services to the Company. In the year, total administration fees amount to £57,000 (2016: £56,000). An amount of £14,000 (2016: £14,000) remained outstanding at the year end.

The annual running costs (excluding any performance fees payable) of the Company are subject to a cap of 3.25% of the Company's net assets at the end of the year. Any running costs in excess of this are borne by Beringea.

Beringea also received arrangement fees in respect of investments made by the Company and other VCTs managed by Beringea totalling £278,000 (2016: £590,000) and monitoring fees of £700,000 (2016: £708,000). These fees are payable by the investee companies into which the Company invests and are not a direct liability or expense of the Company.

Performance incentive fees

As reported in the Chairman's Statement, it became apparent during the year that the performance incentive arrangements in place do not fully reflect the original intentions of your Board and the Investment Manager. Your Board has therefore agreed with the Investment Manager that the performance incentive arrangements will be varied as set out below. From the year ended 28 February 2017, the performance targets and restrictions approved by Shareholders in 2012 and originally applied to the Ordinary Shares as a whole will now be applied to each major fundraising (a "Respective Offer"). The cumulative fee payable under the revised arrangements will never exceed the cumulative fee payable under the previous arrangements and so further shareholder approval is not required.

Under the revised performance fee arrangements, the Investment Manager is entitled to receive a performance incentive fee in relation to each Respective Offer if, at the end of a financial year, the relevant Respective Offer Performance Value exceeds the relevant Respective Offer Hurdle. In this event the performance incentive fee per Respective Offer Share will be equal to 20 per cent of the amount by which each such Respective Offer Performance Value exceeds the relevant Respective Offer Initial Net Asset Value per Share, less the aggregate amount of any performance incentive fee per Respective Offer Share already paid in respect of that Respective Offer in relation to previous financial years starting after 29 February 2012 (which shall not include Residual PIF).

The Respective Offer Performance Value in respect of the relevant financial year end is the sum of (i) the audited net asset value per Ordinary Share or Equivalent Ordinary Share for a Respective Offer at that date, (ii) Respective Offer Cumulative Dividends, (iii) all performance fees per Ordinary Share or Equivalent Ordinary Share paid by the shareholders of the Respective Offer in relation to financial years starting after 29 February 2012, and (iv) any Residual PIF Adjustment where relating to that Respective Offer (whether relating to that or any previous financial year).

If at the end of a financial year, the relevant Respective Offer Performance Value is less than or equal to the Respective Offer Hurdle, no performance fee will be payable on such Respective Offers in respect of that financial year.

The performance fee per Respective Offer Share payable for a financial year will be reduced, if necessary, to ensure that i) the cumulative performance fee per Respective Offer Share payable to the Investment Manager in respect of a Respective Offer does not exceed 20 per cent. of the relevant Respective Offer Cumulative Dividends; and ii) the audited net asset value per Ordinary Share or Equivalent Ordinary Share at the relevant financial year end plus the relevant Respective Offer Cumulative Dividends plus any Residual PIF Adjustment relating to that Respective Offer is at least equal to the relevant Respective Offer Hurdle.

All fees paid under the new performance incentive arrangements will be inclusive of VAT, if applicable.

Performance fees for the year ended 28 February 2017 amounted to £426,000 (2016: £2,564,000), of which £426,000 (2016: £2,554,000) was outstanding at the year-end.

Directors and senior management

The Company has four non-executive Directors at the year end, three of whom are male and one of whom is female. The Company has no employees and the same was true of the previous year.

Key performance indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in meeting its objectives (as shown above). The Board believes the Company's key performance indicators are Net Asset Value total return (NAV plus cumulative dividends paid to date) and dividends per share.

In addition, the Board considers the Company's performance in relation to other VCTs taking into account both past and future investment strategies of the Company and other VCTs.

Principal risks and uncertainties

The principal financial risks faced by the Company, which include market price risk, interest rate risk, credit risk and liquidity risk (being minimal), are summarised within note 4 of this announcement.

In addition to these risks, the Company, as a fully listed Company on the London Stock Exchange and as a Venture Capital Trust, operates in a complex regulatory environment and, therefore, faces a number of related risks. A breach of the VCT Regulations could result in the loss of VCT status, the loss of tax reliefs currently available to Shareholders and the Company being subject to capital gains tax. Serious breaches of other regulations, such as the Listing Rules of the Financial Conduct Authority and the Companies Act 2006, could lead to suspension from the Stock Exchange and damage to the Company's reputation.

The Board reviews and agrees policies for managing each of these risks. The Directors receive reports annually from the Investment Manager on the compliance of systems to manage these risks, and place reliance on the Investment Manager to give updates in the intervening periods. These policies have remained unchanged since the beginning of the financial year.

Viability statement

The Board has assessed the Company's prospects over the three year period to 29 February 2020. A three year period has been considered appropriate as it broadly aligns with the time frame during which the Investment Manager will be required to invest 70% of the funds from the most recent offer for subscription in qualifying investments.

In order to support this statement, the Board has carried out a robust assessment of the principal risks faced by the Company, as detailed above, and considered the availability of mitigating factors.

The Board considers that the primary risk faced by the Company is compliance with the VCT rules and although there are a number of mitigating factors such as a robust deal identification and diligence process, an experienced investment team and consultation with the Company's VCT status adviser to ensure that investments made comply with the new VCT rules, these factors cannot mitigate the risk that insufficient qualifying investments are identified to ensure ongoing compliance with the 70% VCT qualification test.

Accordingly, the amount required to invest in qualifying holdings to maintain compliance with the VCT rules was a major consideration in the Board's analysis. Together with the expected liabilities of the Company for the three years to 29 February 2020, the Board considered the forecast cash requirements against the expected cash position, taking into account a level of assumed investment realisations and investment income during the period.

Based on the above considerations, the Board has determined that the Company will be able to continue in operation, maintain compliance with the VCT rules and meet its liabilities as they fall due for the three years to 29 February 2020.

Directors' remuneration

It is a requirement under Companies Act 2006 for shareholders to approve the Directors' remuneration policy every three years, or sooner if the Company wishes to make changes to the policy.

Greenhouse emissions

Whilst as a UK quoted company the Company is required to report on its Greenhouse Gas (GHG) Emissions, as it outsources all of its activities and does not have any physical assets, property, employees or operations, it is not responsible for any direct emissions.

Environmental, social and human rights policy

The Board seeks to conduct the Company's affairs responsibly. Where appropriate, the Board and Investment Manager take environmental, social and human rights factors into consideration.

Future prospects

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

The Directors do not foresee any major changes in the activity undertaken by the Company in the coming year. The Company continues with its objective to invest in unquoted companies throughout the United Kingdom with a view to minimising the risks of investment and providing both capital growth and dividend income to Shareholders over the long term whilst maintaining VCT qualifying status.

By order of the Board

Beringea LLP

Company Secretary of ProVen VCT plc

Directors' responsibilities statement

The Board considers that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and that they provide the information necessary for Shareholders to assess the Company's performance, business model and strategy.

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

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

In preparing these financial statements, the Directors are required to:

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors' responsibilities pursuant to the Disclosure and Transparency Rule 4

Each of the Directors confirms that to the best of each person's knowledge:

the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
the Directors' Report, Chairman's Statement, Strategic Report, Investment Manager's Review and Review of Investments include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

Statement as to disclosure of information to the Auditor

The Directors in office at the date of this announcement have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors have confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

Income Statement

for the year ended 28 February 2017

	Year ended 28 February 2017			Year ended 29 February 2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Income	949	-	949	1,103	-	1,103
Gains on investments	-	14,134	14,134	-	6,419	6,419
	949	14,134	15,083	1,103	6,419	7,522

Investment management fees	(499)	(1,495)	(1,994)	(329)	(989)	(1,318)
Performance incentive fees	-	(426)	(426)	-	(2,564)	(2,564)
Other expenses	(425)	(11)	(436)	(410)	(5)	(415)

Return on ordinary activities before tax	25	12,202	12,227	364	2,861	3,225

Tax on ordinary activities	-	-	-	-	-	-
Return attributable to equity shareholders	25	12,202	12,227	364	2,861	3,225


Basic and diluted return per share	0.0p	12.7p	12.7p	0.6p	4.4p	5.0p

All revenue and capital movements in the year relate to continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the Income Statement of the Company, prepared in accordance with the accounting policies detailed in note 1 of the announcement. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies.

A Statement of Comprehensive Income has not been prepared as all gains and losses are recognised in the Income Statement in the current and prior year as shown.

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

Statement of Changes in Equity

for the year ended 28 February 2017

Year ended 28 February 2017

	Called up share capital £'000	Capital redemption reserve £'000	Special reserve £'000	Share premium £'000	Share capital to be issued £'000	Revaluation reserve £'000	Capital reserve- realised £'000	Revenue reserve £'000	Total £'000
At 1 March 2016	6,547	3,587	24,457	16,985	20,576	7,514	7,019	(153)	86,532
Issue of new shares	3,375	-	-	31,267	(20,576)	-	-	-	14,066
Share buybacks and cancellation	(66)	66	(631)	-	-	-	-	-	(631)
Share issue costs	-	-	(1,063)	-	-	-	-	-	(1,063)
Total comprehensive income	-	-	-	-	-	8,815	3,387	25	12,227
Dividends paid	-	-	(6,097)	-	-	-	-	(295)	(6,392)
At 28 February 2017	9,856	3,653	16,666	48,252	-	16,329	10,406	(423)	104,739

Year ended 29 February 2016

	Called up share capital £'000	Capital redemption reserve £'000	Special reserve £'000	Share premium £'000	Share capital to be issued £'000	Revaluation reserve £'000	Capital reserve- realised £'000	Revenue reserve £'000	Total £'000
At 1 March 2015	6,249	3,502	28,286	13,536	-	7,261	4,411	(189)	63,056
Issue of new shares	383	-	-	3,449	-	-	-	-	3,832
Share buybacks and cancellation	(85)	85	(812)	-	-	-	-	-	(812)
Share issue costs	-	-	(72)	-	-	-	-	-	(72)
Total comprehensive income	-	-	-	-	-	253	2,608	364	3,225
Dividends paid	-	-	(2,945)	-	-	-	-	(328)	(3,273)
Unallotted share capital	-	-	-	-	20,576	-	-	-	20,576
At 29 February 2016	6,547	3,587	24,457	16,985	20,576	7,514	7,019	(153)	86,532

The special reserve, capital reserve - realised and revenue reserve are all distributable reserves. The distributable reserves are reduced by losses of £1,042,000 (2016: £1,042,000) which are included in the revaluation reserve. Reserves available for distribution therefore amount to £25,607,000 (2016: £30,281,000).

During the year the Company repurchased 664,369 shares (2016: 849,635) with a nominal value of £66,000 (2016: £85,000). 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.

Dividends that are classified as capital may be paid from this reserve.

Revenue reserve - Income and expenses that are revenue in nature are accounted for in this reserve together with the related tax effect, as well as dividends paid that are classified as revenue in nature.

Statement of Financial Position

as at 28 February 2017

	28 February 2017	29 February 2016
	Total	Total
	£'000	£'000
Fixed assets
Investments	72,216	61,500

Current assets
Debtors	592	440
Cash at bank and in hand	33,210	27,755
	33,802	28,195
Creditors: amounts falling due within one year	(1,279)	(3,163)
Net current assets	32,523	25,032
Total assets less current liabilities	104,739	86,532

Capital and reserves
Called up share capital	9,856	6,547
Capital redemption reserve	3,653	3,587
Special reserve	16,666	24,457
Share premium	48,252	16,985
Share capital to be issued	-	20,576
Revaluation reserve	16,329	7,514
Capital reserve - realised	10,406	7,019
Revenue reserve	(423)	(153)
Total equity shareholders' funds	104,739	86,532
Basic and diluted net asset value per share	106.3p	100.7p

Statement of Cash Flows

for the year ended 28 February 2017

	Year ended 28 February 2017	Year ended 29 February 2016
	Total	Total
	£'000	£'000
Net cash used in operating activities	(4,140)	(818)

Cash flows from investing activities
Purchase of investments	(10,181)	(21,604)
Sale of investments	13,874	10,152
Net cash from/ (used in) investing activities	3,693	(11,452)

Cash flows from financing activities
Proceeds from share issues	33,767	3,433
Share issue costs	(1,063)	(72)
Purchase of own shares	(710)	(824)
Share capital to be issued	(20,576)	20,576
Equity dividends paid	(5,516)	(2,875)
Net cash from financing	5,902	20,238
Increase in cash and cash equivalents	5,455	7,968

'Net cash used in operating activities' includes interest received of £579,000. No dividends were received in the year and no interest was paid during the period.

Notes to the Announcement

for the year ended 28 February 2017

1Accounting policies

Basis of accounting

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 November 2014.

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

The following accounting policies have been applied consistently throughout the period.

Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

Presentation of Income Statement

In order to better reflect the activities of an investment company and, in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue return attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.

Investments

Investments, including equity and loan stock, are recognised at their trade date and measured at "fair value through profit or loss" due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with International Private Equity and Venture Capital Valuation Guidelines ("IPEV Guidelines") issued in December 2015, together with sections 11 and 12 of FRS102.

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

Key judgements and estimates

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

· investments are usually retained at cost for twelve months following investment, except where a company's performance against plan is significantly below the expectations on which the investment was made in which case a provision against cost is made as appropriate;

· where a company is in the early stage of development it will normally continue to be held at cost as the best estimate of fair value, reviewed for impairment on the basis described above;

· where a company is well established after an appropriate period, the investment may be valued by applying a suitable earnings or revenue multiple to that company's maintainable earnings or revenue. The multiple used is based on comparable listed companies or a sector but discounted to reflect factors such as the different sizes of the comparable businesses, different growth rates and the lack of marketability of unquoted shares;

· where a value is indicated by a material arms-length transaction by a third party in the shares of the company, the valuation will normally be based on this, reviewed for impairment as appropriate;

· where alternative methods of valuation, such as net assets of the business or the discounted cash flows arising from the business are more appropriate, then such methods may be used; and

· where repayment of the equity is not probable, redemption premiums will be recognised.

The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value. Methodologies are applied consistently from year to year except where a change results in a better estimate of fair value.

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

All investee companies are held as part of an investment portfolio and measured at fair value. Therefore, it is not the policy for investee companies to be consolidated and any gains or losses arising from changes in fair value are included in the Income Statement for the period as a capital item.

Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment are expensed.

Investments are derecognised when the contractual rights to the cash flows from the asset expire or the Company transfers the asset and substantially all the risks and rewards of ownership of the asset to another entity.

Fair value

Fair value is defined as the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. The Company has categorised its financial instruments that are measured subsequent to initial recognition at fair value, using the fair value hierarchy as follows:

Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

Level 3: Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

Income

Dividend income from investments is recognised when the shareholders' rights to receive payment has been established, normally the ex-dividend date.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection in the foreseeable future. Income which is not capable of being received within a reasonable period of time is reflected in the capital value of the investments. A provision is made for any fixed income not expected to be received.

Expenses

All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:

expenses which are incidental to the acquisition of an investment are deducted from the Capital Account;
expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment;
expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly, the investment management fee has been allocated 25% to revenue and 75% to capital in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company; and
performance incentive fees are treated as a capital item.

Taxation

The tax effects of different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting period.

Due to the Company's status as a venture capital trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments.

Deferred taxation, which is not discounted, is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law.

Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.

Share issue costs

Expenses in relation to share issues are deducted from the Special Reserve.

2 Basic and diluted return per share

	Year ended 28 February 2017	Year ended 29 February 2016
Revenue return per share based on:
Net revenue after taxation (£'000)	25	364

Weighted average number of shares in issue	96,579,861	65,338,271

Pence per share	0.0	0.6

Capital return per share based on:
Net capital return for the financial year (£'000)	12,202	2,861

Weighted average number of shares in issue	96,579,861	65,338,271

Pence per share	12.7	4.4

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

			2017			2016
	Shares in Issue		Net asset value			Net asset value
	2017	2016		pence per share	£'000		pence per share	£'000
Ordinary Shares	98,562,973	65,473,795		106.3	104,739		100.7	65,956
Ordinary share capital to be issued					-			20,576
					104,739			86,532

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.

At 28 February 2017, the AIM-quoted portfolio was valued at £33,000 (2016: £32,000).

The Company's sensitivity to fluctuations in the share prices of its AIM-quoted investments is summarised below. A 10% movement in the share price of all of the AIM-quoted investments held by the Company would have an effect as follows:

10% movement in AIM-quoted investments		2017		2016
	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	3	0.0p	3	0.0p

At 28 February 2017, the unquoted portfolio was valued at £72,183,000 (2016: £61,468,000).

As many of the Company's unquoted investments are valued using revenue or earnings multiples of comparable companies or sectors, a fall in share prices generally would impact on the valuation of the unquoted portfolio. A 10% movement in the valuations of all of the unquoted investments held by the Company would have an effect as follows:

10% movement in unquoted investment valuations		2017		2016
	Impact on net assets	Impact on NAV per share	Impact on net assets	Impact on NAV per share
	£'000	Pence	£'000	Pence
Unquoted investments	7,218	7.3p	6,147	9.4p

The sensitivity analysis for unquoted valuations above assumes that each of the sub-categories of financial instruments (ordinary shares, preference shares and loan stocks) held by the Company produces an overall movement of 10%. Shareholders should note that equal correlation between these sub-categories is unlikely to be the case in reality, particularly in the case of loan stock instruments. Where share prices are falling, the equity instrument could fall in value before the loan stock instrument. It is not considered practical to assess the sensitivity of the loan stock instruments to market price risk in isolation.

Interest rate risk

The Company is exposed to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest 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.
"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	2017	2016
	interest rate	until maturity	£'000	£'000
Fixed rate	7.0%	1,037 days	20,867	27,847
Floating rate	0.4%	8 days	34,159	28,604
No interest rate			49,713	30,197
			104,739	86,648

The Company monitors the level of income received from fixed, floating and non 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 £342,000 (2016: £286,000). Given the low level of interest rates through the year, a further decrease 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 holdings of loan stock in investee companies, cash deposits and debtors. Credit risk relating to loan stock in investee companies is considered to be part of market risk.

The Company's exposure to credit risk is summarised as follows:

	2017	2016
	£'000	£'000
Investments in loan stocks	21,815	28,696
Cash and cash equivalents	33,210	27,755
Interest, dividends and other receivables	534	299
	55,559	56,750

The Investment Manager manages credit risk in respect of loan stock with a similar approach as described under Investment risks above. In addition the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. The level of security is a key means of managing credit risk. 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 the Royal Bank of Scotland plc, rated BBB+ by both Standard and Poor's and Fitch, 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 generally maintains a relatively low level of creditors relative to cash balances (£1.3 million relative to cash balances of £33.2 million at 28 February 2017) 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 stock, 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) held at 28 February 2017, which is analysed by expected maturity date, is as follows:

As at 28 February 2017	Not later	Between	Between	Between	More
	than 1	1 and 2	2 and 3	3 and 5	than 5
	Year	Years	years	years	years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Fully performing loan stock	2,141	2,447	3,835	12,167	-	20,590
Past due loan stock	201	-	1,024	-	-	1,225
	2,342	2,447	4,859	12,167	-	21,815

As at 29 February 2016
Fully performing loan stock	2,418	2,346	5,450	17,329	-	27,543
Past due loan stock	-	1,153	-	-	-	1,153
	2,418	3,499	5,450	17,329	-	28,696

Of the loan stock classified as "past due" above, the full amount 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 Statement of Financial Position

Investments are valued at fair value as determined using the measurement policies described in note 1. The carrying value of financial assets and financial liabilities recorded at amortised cost, which includes short term debtors and creditors, is considered by the 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.

				2017						2016
	Level 1		Level 2		Level 3	Total	Level 1	Level 2	Level 3		Total
		£'000	£'000		£'000	£'000	£'000	£'000	£'000		£'000
AIM quoted		33	-		-	33	32	-	-		32
Loan notes		-	-		21,815	21,815	-	-	28,696		28,696
Unquoted equity		-	-		45,884	45,884	-	-	31,561		31,561
Preference shares		-	-		4,484	4,484	-	-	1,211		1,211
		33	-		72,183	72,216	32	-	61,468		61,500

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

	Loan Notes	Unquoted Equity	Total
	£'000	£'000	£'000
Balance at 29 February 2016	28,696	32,772	61,468
Movements in the Income Statement:
(Losses)/ gains in the Income Statement	(231)	14,256	14,025

Purchases at cost	526	9,842	10,368
Conversions	(2,594)	2,594	-
Sales proceeds	(4,582)	(9,096)	(13,678)
Balance at 28 February 2017	21,815	50,368	72,183

There is an element of judgment in the choice of assumptions for unquoted investments and it is possible that, if different assumptions were used, different valuations could have been attributed to certain of the VCT's investments.

5 Post balance sheet events

Between 28 February 2017 and the date of this announcement, the Company made three follow on investments totalling £1.6 million, comprising Poq Studio (£1.1m), HoneyComb.TV (£405,000) and ContactEngine (£112,000).

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 2017, but has been extracted from the statutory financial statements for the year ended 28 February 2017, which were approved by the Board of Directors on 5 June 2017 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 29 February 2016 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under S498(2) and (3) of the Companies Act 2006.

A copy of the full annual report and financial statements for the year ended 28 February 2017 will be made available to shareholders shortly. Copies will also be available to the public at the registered office of the Company at 39 Earlham Street, London, WC2H 9LT and will be available for download from www.provenvcts.co.uk

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq 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 VCT plc via Globenewswire

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Proven VCT plc : Annual Financial Report

Disposals

£'000

£000

£'000

£'000

£'000

as at 28 February 2017

Income Statement

for the year ended 28 February 2017

Year ended 28 February 2017

Year ended 29 February 2016

Revenue

Capital

Total

Revenue

Capital

Total

£'000

£'000

£'000

£'000

£'000

£'000

Statement of Changes in Equity

for the year ended 28 February 2017

Called up

share capital

£'000

Capital

redemption

reserve

£'000

Special

reserve

£'000

Share

premium

£'000

Share capital

to be issued

£'000

Revaluation

reserve

£'000

Capital

reserve- realised

£'000

Revenue

reserve

£'000

Called up

Capital

redemption

reserve

£'000

Special

reserve

£'000

Share

premium

£'000

Share capital

to be issued

£'000

Revaluation

reserve

£'000

Capital

reserve- realised

£'000

Revenue

reserve

£'000

28 February

2017

29 February

2016

Total

Total