Annual Financial Report

RNS Number : 1824G

Maven Income & Growth VCT PLC

03 June 2013

 



Maven Income and Growth VCT PLC

 

Final results for the year ended 28 February 2013

The Directors are pleased to report the Company's financial results for the year ended 28 February 2013.

Chairman's Statement

This has been another good year for your Company with a further improvement in NAV total return, up 7.3% for the twelve months to 28 February 2013.

It is my pleasure to report that we have been able again to increase the total dividend this year, to 5.5p per share, which represents a tax free yield of 8.3% based on the year end closing share price of 66.25p. Subject to the performance of the underlying portfolio, it is the Board's intention to see the dividend rise, in absolute terms, year on year. The Manager's investment strategy of building a diversified portfolio of later-stage private companies with strong balance sheets and proven business models has continued to be successful, with growing revenues from the expanded asset base which has allowed your Board to declare increased levels of tax-free dividends.

Despite the ongoing economic uncertainty, the portfolio has performed well and has generated interest from a number of UK and overseas buyers resulting in several profitable disposals during the year and the release of cash to fund further acquisitions. Overall the Board is encouraged by the progress being made by your Company, which it believes validates the Manager's investment approach.

In the year under review there has been a wide range of independent industry recognition of the success of your Manager's investment approach and ability to deliver consistent levels of Shareholder returns. Maven was announced as the winner in the UK Small Buyout House of the Year category for the ACQ Finance Magazine Global Awards 2012 and was also named as winner of VCT Exit of the Year at the 2012 unquote" British Private Equity Awards as well as being a finalist in the VCT House of the Year category. These awards acknowledge innovation and excellence in the private equity and venture capital sectors.

 

Highlights

·      NAV total return of 120.2p per share (2012: 112.0p) at the year end, up 7.3% from the prior year;

·      NAV at period end of 70.6p per share (2012: 67.9p);

·      Seven new investments added to the portfolio during the year;

·      Four significant exits from ATR Holdings, TPL (Midlands), Nessco Group Holdings and Oliver Kay Holdings, for total returns of 2.4x, 2.0x, 2.7x and 2.4x cost respectively; and

·      Final dividend proposed of 3.5p per share (2012: 3.5p), making a total annual dividend of 5.5p per share (2012: 5.0p).

The most important measure of performance for a VCT is the NAV total return, which is the long term record of dividend payments out of income and capital gains combined with the current NAV.

 

Dividends

The Board is recommending a final dividend of 3.5p per share, comprising 1.0p of revenue and 2.5p of capital, to be paid on 19 July 2013 to Shareholders on the register on 21 June 2013. The total dividends for the year, including the proposed final dividend, are 5.5p per share to Ordinary Shareholders, which is a yield of 6.9% on an effective initial investment of 80.0p (after tax relief) to investors who subscribed at launch.

Since the Company's launch, and after receipt of the proposed final dividend, Shareholders will have received 53.1p per share in tax-free dividends.

 

Principal risks and uncertainties

The Board has reviewed the principal risks and uncertainties facing the Company, which are set out on page 28 and are the risks involved in investment in small and unquoted companies. In order to reduce the exposure to investment risk the Company has invested in a broadly-based portfolio of mature companies in the United Kingdom.

The VCT qualifying status of the Company is reviewed regularly by your Board and monitored on a continuous basis by the Manager in order to ensure that all of the criteria for VCT qualifying status are met. The Board can confirm that all tests were met throughout the year.

 

Investment strategy

The Manager's investment strategy is to build a large and diversified portfolio of income producing, later-stage private companies across a range of sectors and industries. The principal domicile of these companies will generally be in the UK, although many have an export dimension or overseas operations.

The Board and the Manager have previously concluded that the potential returns available from AIM and ISDX quoted investments are too uncertain, with limited liquidity in many stocks and poor dividend yield in comparison with private equity investments. The Manager has therefore continued to selectively realise the quoted portfolio for value over the past 12 months, and redeploy the proceeds into investments in established, income-producing private companies.

Shareholder value is created through a combination of generating revenue from loan stock holdings and capital proceeds arising from profitable realisations, normally via an eventual trade sale of the business. To achieve this goal, new transactions are typically structured with 70% to 90% in secured, yielding loan stock, in companies where an equity stake can also be acquired at a reasonable entry price, and where the Manager perceives an opportunity to arbitrage a capital profit when the business achieves greater scale and maturity.

The revised Listing Rules require your Board to ensure that this and subsequent reports carry additional information on investment policy, in particular statements concerning asset mix, the spread of risk and maximum exposures. This information is contained in the Directors' Report and in the tabular analyses of the portfolio.

 

Valuation process

Investments held by Maven Income and Growth VCT PLC 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 AIM, are valued at their bid prices.

 

Portfolio developments

During the year your Company participated in a number of new private company transactions, as well as follow-on investments supporting the development of existing investee companies. Most of the private equity assets held are trading acceptably or ahead of plan and, as the private company portfolio has matured, there has been significant interest from trade and private equity buyers and four significant exits were achieved during the year generating a total capital gain of £3.3 million.

The investment in ATR Holdings was sold to NBGI Private Equity on 1 March 2012 at an overall return of 2.4 times the cost of investment and on 1 June 2012 the holding in TPL (Midlands) was sold to German trade buyer Vossloh Kiepe. On 5 July 2012 Nessco Group Holdings was sold to RigNet, a NASDAQ quoted US Telecoms business, generating a 2.7 times return on cost of investment, and finally, on 12 November 2012, Oliver Kay Holdings was sold to Bidfresh Limited, part of the international trading and distribution group Bidvest. This sale completed for a 2.4 times return on cost.

There has also been recent acquisition interest in several portfolio companies and the Manager is currently working on the potential sale of a number of holdings, although there is no certainty that these discussions will result in successful exits.

In line with the strategy of reducing the exposure to AIM, a number of further disposals were made during the period and the portfolio is now almost exclusively invested in private companies, with AIM securities representing 2.0% of the asset base. The Manager will continue its policy of disposing of quoted holdings for best possible value in cases where the investments are underperforming or to take the opportunity to lock in profits. The proceeds of those disposals are then available for investment in the further growth of the private equity portfolio. Your Company continues to co-invest in each transaction with other Maven client funds, which allows the Manager to invest in a greater range and size of transaction on behalf of VCT clients than would otherwise be the case.

 

Co-investment scheme of the Manager

The co-investment scheme, which allows executive members of the Manager to invest alongside the Company, continued in operation during the year. The scheme operates through a nominee company which invests alongside the Company in each and every transaction made, including any follow-on investments. The scheme more 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 Manager's investment team in a competitive market.

 

Share buy-back policy

Shareholders have given the Board authority to buy back Shares for cancellation when it is in the interests of the Shareholders and the Company as a whole and, during the period under review, 427,000 Shares were bought back at a cost of £276,365. A Resolution to give the Board the necessary authority to continue the share buy-back programme, in appropriate circumstances, is included in the Notice of Annual General Meeting.

Shareholders should be aware that the Board's primary objective is for the Company to retain sufficient liquid assets for making investments in line with its stated policy and for the continued payment of dividends. However, the Directors also acknowledge the need to maintain an orderly market in the Company's shares and have delegated authority to the Manager to buy back shares in the market for cancellation, subject always to such transactions being in the best interest of all Shareholders. It is intended that, subject to market conditions, available liquidity and the maintenance of the Company's VCT status, shares will be bought back at prices representing a discount of between 5% and 10% to the prevailing NAV per share.

 

VCT regulation

The Board was pleased to note the approval by the European Commission of proposed increases to the size of companies which can receive VCT funding, and of the amount which can be invested in a qualifying business. This was welcome news for investors and reaffirms the attraction of generalist VCTs as a tax-efficient route to investment in high growth smaller companies.

The AIC has worked closely with the FSA on Consultation Paper 12-19 (restrictions on the retail distribution of unregulated collective investment schemes and close substitutes) and its applicability to venture capital trusts. VCTs are listed investment companies, each overseen by an independent board and regulated by the listing rules and company law, in the same way that investment trusts are. The Board has supported the AIC in calling on the FSA to exclude VCTs from the proposals in the same way that investment trusts have been and the FSA (now replaced by the FCA) has recently announced that it will be reconsidering its recommendations.

The Manager monitors all potential regulatory changes that are under consideration and keeps the Board informed of any implications for the Company.

 

VCT offers and fund raising

An Offer for Subscription was made in December 2011 in parallel with similar Offers by Maven Income and Growth VCT 2, Maven Income and Growth VCT 3 and Maven Income and Growth VCT 4. The Offer was fully subscribed by 29 February 2012 and consequently closed early, resulting in the issue of 1,900,367 Ordinary Shares at an issue price of 65.71p, raising an additional £1.25 million of capital before expenses.

In January 2013 your Board announced a further opportunity to acquire new Ordinary Shares in the Company through an Offer for Subscription aiming to raise £1.5 million before expenses, which is within the maximum permitted under the Prospectus Rules and avoids the higher costs associated with publishing a full prospectus. The Company made its Offer in parallel with Maven Income and Growth VCT 2 and Maven Income and Growth VCT 3, each also aiming to raise £1.5 million; and Maven Income and Growth VCT 5 aiming to raise £1 million.

I am pleased to confirm that the Offer closed, fully subscribed, on 8 February 2013, resulting in the issue of 389,779 new Ordinary Shares on 4 March 2013. A further 1,738,617 new Ordinary Shares were issued during April 2013; 1,394,963 on 5 April and 343,654 on 26 April. All of the new Ordinary Shares were issued at 70.47p, which represented the latest NAV per share at the date of publication of the Offers Document, adjusted to cover the cost of the Offer so that existing Shareholders would not suffer any dilution.

The Company may use the money raised under the Offer to pay dividends and general running costs, thereby preserving for investment purposes an equivalent sum of more valuable 'old money' which operates under more advantageous VCT regulations. The proceeds of the Offer will provide additional liquidity for the Company to make further later-stage investments, and enable it to spread its costs over a larger asset base to the benefit of all Shareholders.

 

Outlook

With economic conditions predicted to remain uncertain and the availability of bank debt to enable smaller businesses to finance growth constrained, your Board believes there will continue to be a steady flow of later-stage businesses seeking private equity funding which will present opportunities for your Company to further develop its portfolio of investments.

The Manager has been successful in identifying profitable UK companies with sustainable revenue streams and strong growth potential and managing them to profitable exits. Maven's strategy of investing at sensible entry prices, and structuring transactions defensively with a high income element from the outset, has produced ongoing improvements in Shareholder returns, and your Board believes this approach will continue to prove successful and support the objective of generating capital growth and maintainable levels of tax-free income for Shareholders.

John Pocock

Chairman

3 June 2013

Maven Income and Growth VCT PLC
Income Statement
For the year ended 28 February 2013
	Year ended 28 February 2013			Year ended 29 February 2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income and deposit interest	1,639	-	1,639	1,478	-	1,478
Investment management fees	(231)	(926)	(1,157)	(163)	(653)	(816)
Other expenses	(247)	-	(247)	(213)	-	(213)
Gains on investments	-	3,219	3,219	-	2,636	2,636
Net return on ordinary activities before taxation	1,161	2,293	3,454	1,102	1,983	3,085
Tax on ordinary activities	(171)	165	(6)	(234)	159	(75)
Return attributable to Equity Shareholders	990	2,458	3,448	868	2,142	3,010
Earnings per share (pence)	2.4	6.0	8.4	2.2	5.4	7.6

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 2013
	Year ended 28 February 2013		Year ended 29 February 2012
	£'000		£'000
Opening Shareholders' funds	26,662		24,964
Net return for year	3,448		3,010
Proceeds of share issue 2011	-		912
Proceeds of share issue 2012	1,188		-
Repurchase and cancellation of shares	(277)		(242)
Dividends paid - revenue	(701)		(792)
Dividends paid - capital	(1,565)		(1,190)
Closing Shareholders' funds	28,755		26,662

Maven Income and Growth VCT PLC
Balance Sheet
As at 28 February 2013
	28 February 2013		29 February 2012
	£'000	£'000	£'000	£'000
Investments at fair value through profit or loss	27,190			25,328
Current assets
Debtors	734		923
Cash and overnight deposits	1,070		1,074
	1,804		1,997
Creditors
Amounts falling due within one year	239		663
Net current assets		1,565		1,334
Net assets		28,755		26,662
Capital and reserves
Called up share capital		4,074		3,927
Share premium account		2,140		1,142
Capital reserve - realised		(7,781)		(7,657)
Capital reserve - unrealised		2,325		1,308
Special distributable reserve		27,178		27,455
Capital redemption reserve		113		70
Revenue reserve		706		417
Net assets attributable to Shareholders		28,755		26,662
Net asset value per Ordinary Share (pence)		70.6		67.9

Maven Income and Growth VCT PLC
Cash Flow Statement
For the year ended 28 February 2013
	28 February 2013		29 February 2012
	£'000	£'000	£'000	£'000
Operating activities
Investment income received	1,830		1,141
Deposit interest received	5		12
Investment management fees paid	(1,519)		(397)
Secretarial fees paid	(60)		(60)
Directors' expenses paid	(61)		(61)
Other cash payments	(116)		(108)
Net cash inflow from operating activities		79		527
Taxation
Corporation tax paid	(78)		(3)
		(78)		(3)
Financial investment
Purchase of investments	(15,134)		(4,243)
Sale of investments	16,484		2,939
Net cash inflow/(outflow) from financial investment		1,350		(1,304)
Equity dividends paid		(2,266)		(1,982)
Net cash outflow before financing		(915)		(2,762)
Financing
Issue of Ordinary Shares	1,188		912
Repurchase of Ordinary Shares	(277)		(242)
Net cash inflow from financing		911		670
Decrease in cash		(4)		(2,092)

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 Annual 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 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.

UK corporation tax is provided at amounts expected to be paid/recovered using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

(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 and 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 the Alternative Investment Market 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, 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 2012	1,142	(7,657)	1,308	27,455	70	417
Gains on sales of investments	-	2,202	-	-	-	-
Net increase in value of investments	-	-	1,017	-	-	-
Investment management fees	-	(926)	-	-	-	-
Dividends paid	-	(1,565)	-	-	-	(701)
Tax effect of capital items	-	165	-	-	-	-
Repurchase and cancellation of shares	-	-	-	(277)	43	-
Share issue - 1 March 2012	626	-	-	-	-	-
Share issue - 5 April 2012	286	-	-	-	-	-
Share issue - 18 April 2012	86	-	-	-	-	-
Net return on ordinary activities after taxation	-	-	-	-	-	990
At 28 February 2013	2,140	(7,781)	2,325	27,178	113	706

Earnings per share

The returns per share are based on the following figures:

	Year ended	Year ended
	28 February 2013	29 February 2012
	£'000	£'000
Weighted average number of Ordinary Shares in issue	41,012,835	39,408,099
Revenue return	£990,000	£868,000
Capital return	£2,458,000	£2,142,000
Total return	£3,448,000	£3,010,000

Net asset value per Ordinary Share

Net asset value per Ordinary Share as at 28 February 2013 has been calculated using the number of Ordinary Shares in issue at that date of 40,739,329 (2012: 39,265,962).

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 3 July 2013, 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 2013. The Annual Report and Financial Statements for the year ended 28 February 2013 will be submitted to the National Storage Mechanism and be available for inspection at: www.Hemscott.com/nsm.do, and will also 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 29 February 2012 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under S498(2) or S498(3) of the Companies Act 2006.

Copies of this announcement, and of the Annual Report and Financial Statements Annual Report and Financial Statements for the year ended 28 February 2013, will be available to the public at the office of Maven Capital Partners UK LLP, Kintyre House, 205 West George Street, Glasgow G2 2LW; at the registered office of the Company and on the Company's website at www.mavencp.com/migvct.

Neither the content of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

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 2013 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

3 June 2013

 

END

 

 

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