Annual Financial Report

RNS Number : 6808I

Maven Income & Growth VCT PLC

17 June 2011

 



Maven Income and Growth VCT PLC

 

Final results for the year ended 28 February 2011

The Directors are pleased to report the Company's financial results for the year ended 28 February 2011.

Chairman's statement

The year under review saw a further advance in Shareholder return in tandem with a continued expansion and increased diversification of the portfolio, with a strategic focus on later stage companies with strong yield characteristics. The Board is pleased to note that this performance has been achieved despite a background of continuing economic uncertainty that has impacted adversely on the trading environment for many smaller UK private companies.

In line with the strategy of establishing a broadly based portfolio of income producing private company holdings, five new investments in attractive private companies were completed during the year. These businesses have little or no bank or other external debt and are forecast to generate substantial levels of income to your Company from the outset.

The structured exit from the AIM/PLUS portfolio has continued during the year and a number of holdings were disposed of, realising an aggregate profit and releasing further cash to fund the steady expansion of the private company portfolio.

Overall your Board is encouraged by the progress being made by your Company, and considers that recent performance validates the core investment strategy being pursued on behalf of Shareholders.

The major features of the year under review are:

·      NAV total return of 104.4p per share (2010: 97.4p) at year end, up 7.2% over the year;

·      NAV of 65.3p per share (2010: 62.3p);

·      five new later stage private company investments were completed during the year; and

·      final dividend proposed of 3.5p per share, comprising 1.0p revenue and 2.5p capital, to make a total of 4.5p per share for the year.

Performance

The NAV total return per share at 28 February 2011 was 104.4p, an increase of 7.2% over the equivalent figure at February 2010. The most important measure for a VCT is the NAV total return, being the long term record of dividend payments out of income and capital gains combined with the current NAV. In the short term, the NAV in isolation is a less important measure of performance as the underlying investments are long-term in nature and not readily realisable. At 28 February 2011, the NAV per share was 65.3p.

VCT qualifying status

The Company is required to meet a range of VCT qualifying criteria on a continuous basis. The Directors regularly review the status of the qualifying criteria that have to be satisfied in order for the Company to qualify as a VCT and are pleased to confirm that all tests have continued to be met.

 

Dividends

The Board is proposing a final dividend of 3.5p per share, comprising 1.0p of revenue and 2.5p of capital, to be paid on 22 July 2011 to Shareholders on the register at close of business on 24 June 2011. Including the interim dividend paid in December 2010, and based on the share price of 48.0p at 28 February 2011, the total tax-free yield to a higher-rate tax payer is equivalent to 12.5% from a taxable UK equity investment. The effect of paying the proposed final dividend of 3.5p per share will be to reduce the NAV per share to 61.8p.

 

Investment strategy

Your Company's investment strategy is to build a large and diversified portfolio of holdings in profitable and income producing later stage private companies. The Manager's regionally based deal teams are introduced to a regular flow of potential opportunities across the key UK corporate finance territories, providing access, at attractive entry multiples, to a wide spectrum of well managed mature businesses in a range of sectors. Investments are typically constituted mainly as secured loan stock, in transactions designed to generate an immediate yield.

Whilst the portfolio continues to contain some AIM or PLUS quoted assets, the Board and Manager have concluded that the potential returns available from such investments are too uncertain, with many stocks subject to poor liquidity and generating little or no dividend yield in comparison with the strong income characteristics associated with structured private company investments. The Manager is therefore continuing to selectively realise the AIM/PLUS portfolio for value, redeploying the proceeds in additional later stage private company investments.

It is a requirement of the Listing Rules for the Board to ensure that the Annual Report includes information on the investment policy, including a description of the asset mix, the spread of risk and maximum exposures. This information is contained in the Directors' Report and in the various tabular analyses of the portfolio.

Principal risks and uncertainties

The Board has reviewed the principal risks and uncertainties facing the Company for the financial year. In order to minimise the exposure to investment risk, the Company has invested in a broadly-based portfolio of investments in private and AIM/PLUS quoted companies in the United Kingdom.

Valuation process

Investments held by Maven Income and Growth VCT in unquoted companies are valued in accordance with the International Private Equity And Venture Capital Valuation Guidelines.

Investments quoted or traded on a recognised stock exchange, including the Alternative Investment Market (AIM), are valued at their bid prices.

 

Portfolio developments

There were five new investments and seven follow-on investments completed during the financial year. The Manager has also invested in one new private company which has been established to acquire targets in a specific industrial sector.

The existing private company portfolio is generally performing well, with most companies trading acceptably or, in certain cases, better than plan. Encouragingly, the increasing maturity of a number of holdings is leading to the emergence of M&A interest and the Manager is currently working on the potential sale of several existing portfolio companies, although there can be no certainty that these will ultimately lead to a profitable exit.

Details of investments and disposals during the course of the year are shown in the Investment Manager's Review in the Annual Report.

Share buy-backs

The Company has bought back a total of 211,467 shares for cancellation throughout the year. Buying these shares in the market created some liquidity and the discount has narrowed to 26.5% at the year end. At the forthcoming AGM the Company will again seek the authority of Shareholders to buy shares in the market.

 

Recovery of VAT

As reported last year, the Company is entitled to recover VAT paid on management fees for the period from inception until October 2008, when a European Court ruling dictated that such fees were exempt from VAT. This repayment is due from Aberdeen Asset Management Group (Aberdeen), which is still finalising its extended VAT position with HM Revenue & Customs (HMRC). During the year under review, the Company received and accepted an offer to refund £256,926 representing all of the VAT charged on investment management fees for the period from 1 October 2005 to 31 August 2008, and this was recognised within the Financial Statements for the year ended 28 February 2010 and allocated to revenue and capital in accordance with the underlying accounting policy. No account has been taken of any interest due on the above amount or claims for periods prior to 2005 that have still to be agreed with HMRC. It is still expected that a further amount may, therefore, become receivable and again this will be allocated to revenue and capital in accordance with the underlying accounting policy once the amount has been agreed. The Company will continue in its endeavours to work with the Manager, Aberdeen and HMRC to recover further VAT where possible for the period prior to October 2005.

Co-investment scheme of the Manager

The co-investment scheme, which allows executive members of the Manager to invest alongside the Company, continued to operate during the year. The scheme operates through a nominee company which invests in each and every transaction made by the Company, including any follow-on investments. The scheme closely aligns the interests of the executives and the Company's Shareholders, while providing an incentive to enable the Manager to retain the existing skills and capacity of the investment team in what is a competitive recruitment market.

 

Constitution of the Board

As highlighted in the Interim Report for the six months ended 31 August 2010, I assumed the role of Chairman of the Company after the conclusion of AGM on 8 July 2010, replacing Fiona Wollocombe who I am pleased to report, in a change to her previously disclosed intentions, has agreed to remain as a Director of the Company.

 

Linked top-up fundraising

Between January and April 2010, the Company participated in a successful linked offer in conjunction with the other three Maven Income and Growth VCTs. In November 2010 the Board decided to raise further funds through a similar linked offer across the same four VCTs. The second Maven Linked VCT Offer allows the Company to raise new funds, without incurring the higher costs associated with a full prospectus, which can be used to make further new private company investments and take advantage of the significant levels of deal flow being seen across the UK by the Manager. The increased funds will also enable the Company to spread its costs over a larger asset base to the benefit of all Shareholders. Investors will benefit from up to 30% income tax relief on their subscriptions, for one or both of the tax years 2010/11 and 2011/12.

On 1 February 2011, the Company made an initial allotment of 442,242 New Ordinary Shares pursuant to the second Linked Offer and, subsequent to the year end, a further 1,511,929 shares were allotted, all at a subscription price of 63.4p per share.

 

Outlook

Following emergence from the difficult period associated with the 'credit crunch' in 2008, Maven Income and Growth VCT has continued to produce steady increases in total return for its Shareholders, including healthy levels of regular tax-free dividends. This is possible due to a highly focused investment strategy being pursued and executed by a Manager with significant resource and presence across the UK market.

Your Board expects the general economic environment to remain uncertain and challenging for the small business sector in the face of widespread constraints on the availability of bank finance available to growth businesses. However, in these conditions smaller companies that remain nimble can take market share and, in due course, become attractive to larger trade or private equity buyers. In this respect there has been significant interest from trade and private equity buyers for several portfolio companies, which may in due course lead to successful exits and realised gains for investors.

In summary, your Board believes that your Company is well placed to continue to offer attractive long term tax-free returns, and looks forward with optimism to another year of progress in building an attractive portfolio of private company assets which can deliver such an outcome.

John Pocock

Chairman

17 June 2011

Maven Income and Growth VCT PLC
Income Statement
For the year ended 28 February 2011
	Year ended 28 February 2011			Year ended 28 February 2010
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income and deposit interest	864	-	864	1,047	-	1,047
Investment management fees	(92)	(367)	(459)	(11)	(42)	(53)
Other expenses	(345)	-	(345)	(287)	-	(287)
Gains on investments	-	2,599	2,599	-	114	114
Net return on ordinary activities before taxation	427	2,232	2,659	749	72	821
Tax on ordinary activities	(76)	76	-	(186)	11	(175)
Return attributable to Equity Shareholders	351	2,308	2,659	563	83	646
Earnings per share (pence)	0.9	6.1	7.0	1.6	0.2	1.8

A Statement of Total Recognised Gains and Losses has not been prepared, as all gains and losses are recognised in the Income Statement.

The total column of this statement is the Profit and Loss Account of the Company.

Reconciliation of Movements in Shareholders' Funds
For the year ended 28 February 2011
	Year ended 28 February 2011		Year ended 28 February 2010
	£'000		£'000
Opening Shareholders' funds	21,797		22,371
Net return for year	2,659		646
Proceeds of 2010 share issue	1,864		-
Proceeds of 2011 share issue	267		-
Repurchase and cancellation of shares	(104)		(160)
Dividends paid - revenue	(228)		(1,060)
Dividends paid - capital	(1,291)		-
Closing Shareholders' funds	24,964		21,797

Maven Income and Growth VCT PLC
Balance Sheet
As at 28 February 2011
	28 February 2011		28 February 2010
	£'000	£'000	£'000	£'000
Investments at fair value through profit or loss		21,395		18,564
Current assets
Debtors	590		765
Cash and overnight deposits	3,166		2,775
	3,756		3,540
Creditors
Amounts falling due within one year	187		307
Net current assets		3,569		3,233
Net assets		24,964		21,797
Capital and reserves
Called up share capital		3,825		3,497
Share premium account		381		17,235
Capital reserve - realised		(4,733)		(1,835)
Capital reserve - unrealised		(2,568)		(6,483)
Special distributable reserve		27,697		8,777
Capital redemption reserve		21		388
Revenue reserve		341		218
Net assets attributable to Equity Shareholders		24,964		21,797
Net asset value per Ordinary Share (pence)		65.3		62.3

Maven Income and Growth VCT PLC
Cash Flow Statement
For the year ended 28 February 2011
	28 February 2011		28 February 2010
	£'000	£'000	£'000	£'000
Operating activities
Investment income received	773		1,347
Deposit interest received	14		25
Investment management fees paid	(65)		(390)
Secretarial fees paid	(59)		(72)
Directors' expenses paid	(61)		(60)
Other cash payments	(214)		(178)
Net cash inflow from operating activities		388		672
Taxation
Corporation tax paid	(174)		(232)
		(174)		(232)
Financial investment
Purchase of investments	(3,662)		(3,288)
Sale of investments	3,331		5,733
Net cash (outflow)/inflow from financial investment		(331)		2,445
Equity dividends paid		(1,519)		(1,060)
Net cash (outflow)/inflow before financing		(1,636)		1,825
Financing
Issue of Ordinary Shares	2,131		-
Repurchase of Ordinary Shares	(104)		(160)
Net cash inflow/(outflow) from financing		2,027		(160)
Increase in cash		391		1,665

Notes

Accounting Policies - UK Generally Accepted Accounting Practice

(a)        Basis of preparation

The Financial Statements have been prepared under the historical cost convention, modified to include the revaluation

of investments, and in accordance with the Statement of Recommended Practice 'Financial Statements of Investment

Trust Companies and Venture Capital Trusts' (the SORP) issued in January 2009. The disclosures on going concern in the Directors' Report form part of these Financial Statements.

(b)        Income

Dividends receivable on equity shares and unit trusts are treated as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the period. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares.

Provision is made for any fixed income not expected to be received. Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year.

(c)        Expenses

All expenses are accounted for on an accruals basis and charged to the income statement. Expenses are charged through the revenue account except as follows:

·      expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and

·      expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee has been allocated 20% to revenue and 80% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.

(d)        Taxation

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods.

Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period.

(e)        Investments

In valuing unlisted investments the Directors follow the criteria set out below. These procedures comply with the revised

International Private Equity and Venture Capital Valuation Guidelines (IPEVCV) for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are designated by the Directors as fair value through profit and loss. At subsequent reporting dates, investments are valued at fair value, which represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future.

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

1.         For Investments completed within the 12 months prior to the reporting date and those at an early stage in their development, fair value is determined using the Price of Recent Investment Method, except that adjustments are made when there has been a material change in the trading circumstances of the company or a substantial movement in the relevant sector of the stock market.

            2.         Whenever practical, recent investments will be valued by reference to a material arm's length             transaction or a quoted price.

            3.         Mature companies are valued by applying a multiple to their fully taxed prospective earnings to                                determine the enterprise value of the company.

                        3.1        To obtain a valuation of the total ordinary share capital held by management and the                                               institutional investors, the value of third party debt, institutional loan stock, debentures and                                     preference share capital is deducted from the enterprise value. The effect of any performance                                     related mechanisms is taken into account when determining the value of the ordinary share                                     capital.

                        3.2        Preference shares, debentures and loan stock are valued using the Price of Recent Investment                                     Method. When a redemption premium has accrued, this will only be valued if there is a                                            reasonable prospect of it being paid. Preference shares which carry a right to convert into                                        ordinary share capital are valued at the higher of the Price of Recent Investment Method basis                                     and the price/earnings basis, both described above.

            4.         Where there is evidence of impairment, a provision may be taken against the previous valuation of the                         investment.

            5.         In the absence of evidence of a deterioration, or strong defensible evidence of an increase in value, the                         fair value is determined to be that reported at the previous balance sheet date.

            6.         All unlisted investments are valued individually by the portfolio management team of Maven Capital                           Partners UK LLP. The resultant valuations are subject to detailed scrutiny and approval by the Directors                         of the Company.

            7.         In accordance with normal market practice, investments listed on AIM or a recognised stock exchange                         are valued at their bid market price.

(f)         Fair value measurement

            Fair value is defined as the price that the Company would receive upon selling an investment in a timely             transaction to an independent buyer in the principal or the most advantageous market of the investment. A   three-tier hierarchy has been established to maximise the use of observable market data and minimise the use     of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs           refer broadly to the assumptions that market participants would use in pricing the asset or liability, including        assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair      value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may    be observable or unobservable.

            Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or             liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on best information available in the circumstances.

            The three-tier hierarchy of inputs is summarised in the three broad levels listed below:

·      Level 1 - quoted prices in active markets for identical investments;

·      Level 2 - other significant observable inputs (included quoted prices for similar investments, interest rates, prepayment speeds, credit risk etc); and

·      Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments).

(g)        Gains and losses on investments

            When the Company sells or revalues its investments during the year, any gains or losses arising are             credited/charged to the Income Statement.

Movement in reserves

	Share premium account	Capital reserve - realised	Capital reserve - unrealised	Special distributable reserve	Capital redemption reserve	Revenue reserve
	£'000	£'000	£'000	£000	£000	£'000
At 1 March 2010	17,235	(1,835)	(6,483)	8,777	388	218
Losses on sales of investments	-	(1,316)	-	-	-	-
Net increase in value of investments	-	-	3,915	-	-	-
Investment management fees	-	(367)	-	-	-	-
Dividends paid	-	(1,291)	-	-	-	(228)
Tax effect of capital items	-	76	-	-	-	-
Repurchase and cancellation of shares	-	-	-	(104)	21	-
Share issue - 1 April 2010	1,154	-	-	-	-	-
Share issue - 5 April 2010	247	-	-	-	-	-
Cancellation of share premium account	(18,636)	-	-	18,636	-	-
Cancellation of capital redemption reserve	-	-	-	388	(388)	-
Share issue - 30 April 2010	159	-	-	-	-	-
Share issue - 1 February 2011	222	-	-	-	-	-
Net return on ordinary activities after taxation	-	-	-	-	-	351
At 28 February 2011	381	(4,733)	(2,568)	27,697	21	341

Earnings per share

The returns per share are based on the following figures:

	Year ended	Year ended
	28 February 2011	28 February 2010
	£'000	£'000
Weighted average number of Ordinary Shares in issue	37,682,987	35,008,842
Revenue return	£351,000	£563,000
Capital return	£2,308,000	£83,000
Total return	£2,659,000	£646,000

Net asset value per Ordinary Share

Net asset value per Ordinary Share as at 28 February 2011 has been calculated using the number of Ordinary Shares in issue at that date of 38,249,033 (2010: 34,976,983).

Principal risks and uncertainties

The principal risks facing the Company relate to its investment activities and include market price, interest rate and liquidity risk. An explanation of these risks and how they are managed is contained in Note 18 to the Financial Statements. Additional risks faced by the Company, and the mitigation approach adopted by the Board, are as follows:

·      investment objective: the Board's aim is to maximise absolute returns to Shareholders while managing risk by ensuring an appropriate diversification of investments;

·      investment policy: inappropriate stock selection leading to underperformance in absolute and relative terms is a risk which the Manager mitigates by operating within investment guidelines and regularly monitoring performance against the peer group. The regulations affecting Venture Capital Trusts are central to the Company's investment policy;

·      discount volatility: due to the lack of liquidity in the secondary market, venture capital trust shares tend to trade at discounts to net asset values; and

·      regulatory risk: the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 274 of the Income Tax Act 2007 could result in the Company being subject to capital gains tax on the sale of its investments. A breach of the VCT Regulations could result in the loss of VCT status and consequent loss of tax reliefs currently available to Shareholders. A serious breach of other regulations, such as the UKLA Listing Rules or the Companies Act, would lead to suspension of its shares from the Stock Exchange, loss of VCT status and reputational damage. The Board receives quarterly reports from the Manager in order to monitor compliance with regulations.

At least twice each year the Board considers all of the above risks and the measures in place to manage them.

Other information

The Annual General Meeting will be held on 20 July 2011, commencing at 12.00 noon.

This Announcement has been prepared on the same basis as the Annual Report and Financial Statements for the year ended 28 February 2010. The Annual Report and Financial Statements for the year ended 28 February 2011 will be filed with the Registrar of Companies and issued to Shareholders in due course.

The financial information contained within this Announcement does not constitute the Company's statutory Financial Statements as defined in the Companies Act 2006. The statutory Financial Statements for the year ended 28 February 2010 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under Sections 237(2) or (3) of the Companies Act 1985.

Copies of this announcement, and of the Annual Report and Financial Statements Annual Report and Financial Statements for the year ended 28 February 2011, will be available to the public at the office of Maven Capital Partners UK LLP, 149 St Vincent Street, Glasgow G2 5NW; at the registered office of the Company, 9-13 St Andrew Street, London EC4A 3AF and on the Company's website at www.mavencp.com/migvct.

Directors' responsibility statement

The Directors confirm that, to the best of their knowledge:

·      the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities and financial position of the Company as at 28 February 2011 and for the year to that date; and

·      the Directors' Report includes a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that it faces.

By Order of the Board

Maven Capital Partners UK LLP

Secretary

17 June 2011

 

END

 

 

FR SFAFLWFFSELM