Proven Growth & Income VCT plc : Annual Financi...

PROVEN GROWTH AND INCOME VCT PLC

ANNUAL FINANCIAL REPORT
YEAR ENDED 28 FEBRUARY 2015

Financial summary

As at 28 February	2015 Pence	2014 Pence
Net asset value per Ordinary Share	85.7	85.2
Dividends paid since class launch (originally as 'C' Shares)	31.1	27.1
Total return (net asset value plus dividends paid since 'C' Share class launch)	116.8	112.3
Year on year change in:
Net asset value per share (adjusted for dividends paid)	5.3%

Chairman's Statement

 

I am pleased to present the Annual Report for ProVen Growth and Income VCT plc (the "Company") for the year ended 28 February 2015.  This year has been very busy with over £15 million of new and follow-on investments added to your portfolio, as well as a number of successful realisations and continued progress for existing portfolio companies.

Results for the year
The Company's net asset value ("NAV") per share increased by 4.5p over the year (after adding back the dividends of 4.0p paid in the year), an increase of 5.3% on the opening NAV.  At 28 February 2015 the NAV stood at 85.7p per share.

The total return on ordinary activities for the year was £3.1 million, or 4.8p per share (2014: £4.2 million, 7.5p per share), comprising a revenue return of £282,000, or 0.4p per share (2014: £59,000, 0.1p per share) and capital return of £2.8 million, or 4.4p per share (2014: £4.1 million, 7.4p per share).

Dividends
The Company made total dividend payments during the year of 4.0p per share.  This comprised two dividends each of 2.0p per share: a final dividend for the year ended 28 February 2014 paid on 25 July 2014, and an interim dividend for the year ended 28 February 2015 paid on 21 November 2014.

The Board is proposing a final dividend for the year to 28 February 2015 of 2.5p per share to be paid on 31 July 2015 to shareholders on the register at 3 July 2015. The total dividend of 4.5p per share for the year ended 28 February 2015 is in line with the Company's stated dividend target of a 5% dividend yield on NAV.
   
Portfolio activity and valuation
The Company had a very active year in terms of investment, with over £15 million invested in total.  The Company made twelve new investments and seven follow-on investments during the year.  The new investments comprised eight which were wholly or partly VCT qualifying, one which was a non-qualifying equity investment and three debt-only investments.  These were the first debt-only investments made in line with the Company's amended investment policy adopted in July 2013, of investing part of the non-qualifying portion of the portfolio in debt and debt-related securities in growth companies.  This policy has the objective of generating a higher return from the non-qualifying portion of the fund than could be achieved by investing it primarily in cash and liquid funds.

The Company made full disposals of four investments during the year.  Eagle Rock Entertainment Group, Altacor and Pilat Media Global were both sold to trade buyers, with the Company receiving 100% of its sale proceeds in cash.  Speed-Trap Holdings was acquired by AIM-listed IS Solutions plc in January 2015. The Company received its full investment cost, together with all outstanding loan note interest, in cash, as well as shares in IS Solutions which at the year-end were valued at £465,000.  All four of these investments were sold at a premium to the previous carrying value.  Additionally, the Company received a number of loan note repayments.

The investment portfolio increased in value by £2.1 million, or 3.3p per share. There were notable uplifts in value for Polytherics (following its successful flotation as Abzena plc), Monica Vinader, MatsSoft and Cognolink, reflecting their continued positive development. There were reductions in value for some other investments, including Charterhouse Leisure, although it continues to be valued above cost. There was also a reduction in value for Skills Matter and this is now valued below cost.
   
The investment activity, together with other cash flows, resulted in the Company's cash balance reducing from c.43% of net assets at the start of the year to just under 34% at 28 February 2015. The Investment Manager has deployed a significant amount of cash in a range of investments at a time when competition for new, quality investments remains high.

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

Fundraising activities
The Company launched an offer for subscription in October 2014 for the tax years 2014-15 and 2015-16 for up to £25 million. I am pleased to report that, following strong demand from investors, the offer closed before the end of the 2014-15 tax year having been fully subscribed and raising gross proceeds of £24.8 million, with the majority of the subscriptions being allotted after the year end.

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 1,566,991 shares at an average price of 79.5p per share and for an aggregate consideration of £1,245,000 (net of costs).  This represents 2.5% of the shares in issue at the start of the year.  All the shares were subsequently cancelled.

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

Annual General Meeting
The next AGM of the Company will be held in The Forest Room at The Hospital Club, 24 Endell Street, Covent Garden, London WC2H 9HQ at 9.30 a.m. on Wednesday 22 July 2015. 

Three 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, and there is one resolution to allow the Company to continue to make share buy-backs.

Shareholder event
Following the success in recent years of the Company's annual shareholder event, another event is being arranged for 2015. This year it will take place on Thursday 29 October 2015 at 10.30 a.m. at the British Library, 96 Euston Rd, London NW1 2DB.

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

A formal invitation will be sent in due course. However, I would very much encourage shareholders to attend and recommend that those who are interested should respond promptly, as there is limited capacity.

VCT regulations
In the March 2015 Budget the Chancellor announced a number of proposed changes to the VCT regulations, which were intended to help secure the renewal of the European Commission's endorsement of the VCT scheme as approved State Aid.  The main changes proposed are, broadly, that an investment will not be qualifying for VCT purposes if:

• The total amount of VCT or other approved State Aid funding that a company has received over its life exceeds £15 million.
• The first VCT or other approved State Aid investment is made more than 12 years after the company makes its first commercial sale.

There are exceptions and variations to these proposed new rules in certain circumstances.

It is unlikely that this legislation will be enacted until the negotiations with the European Commission have been concluded, which is expected to be later this year.  The final details of any rule changes will not be known until that point.  In the meantime, there will be a period in which the qualification status of some new investments may be uncertain.  The Investment Manager will take full account of this when considering new investment opportunities.

The Board does not consider that the VCT rule changes as currently proposed will have a material impact on the Company's ability to find and complete attractive investments or to maintain its VCT qualification status.

Outlook
The broadly positive outlook for the economy is currently providing strong support for small and medium sized businesses aiming to achieve rapid growth.  This is good news both for the Company's existing portfolio companies and for generating a strong flow of new opportunities for the Company to invest in.  Since the start of the Company's current financial year it has invested a total of £6.8 million and it has several other potential investments in the pipeline.

Increasing confidence in the economy is also driving an active M&A market, with larger companies looking to grow by acquiring small and medium sized businesses.  The Company made three profitable disposals to trade buyers in the year to February 2015 and further exits are possible in the current financial year.

The Directors believe that the Company has a well-diversified portfolio with good prospects of continuing to deliver attractive returns to shareholders.  It is important, however, that we and the Investment Manager remain alert to the consequences of any potential deterioration in the current benign economic conditions.  With this caveat, we remain optimistic about the Company's future prospects.       

Marc Vlessing
Chairman

Investment Manager's Review

 

Introduction
We have pleasure in presenting our annual review for the year ended 28 February 2015.  The Company saw its busiest year ever in terms of investment, with over £15 million invested in twelve new investments and seven follow-on investments.  These investments included the completion of the first three debt-only investments made in line with the objective of generating a higher return from the non-qualifying portion of the fund.  Additionally the Company completed its first investment alongside funds managed by Beringea's US office, with a second joint US/UK investment completing after the year-end.

It was also an active year for disposals, with four companies sold during the year.  Additional proceeds were also received from investments sold in previous years, most notably in relation to Steak Media, where "earn-out" proceeds of £2.1 million were received, although £1.9 million of this was recognised in last year's accounts. Total cash realisation proceeds in the year were £6.1 million.  This was a reduction from £11.1 million in the prior year, when the sale of two investments, Fjordnet Limited and Espresso Group Limited, generated aggregate proceeds of £8.4 million.

At 28 February 2015, the Company's venture capital portfolio comprised 42 investments at a cost of £38.2 million and a valuation of £43.6 million, an overall uplift of 14.1% on cost.

The net cash outflow for the year before fund raising was £13.1 million.  The Company's cash balances were, however, replenished by net funds raised during the year of £9.3 million.  At the year end the Company held £22.1 million of cash, ensuring that it has sufficient funds to take advantage of new investment opportunities.

Investment activity
New investments
The Company made eight new qualifying equity investments, all of which were growth capital investments into companies which we believe have excellent potential for rapid growth. The largest investment (£2.4 million) was in MyOptique Group, a leading European eyewear retailer.  The company required funding to further consolidate its leading position by entering additional international markets and supporting investment in marketing. The second largest qualifying equity investment (£1.4 million) was in Response Tap, a marketing technology company.

Other qualifying equity investments were made in Chargemaster (£1.1 million), the UK's leading provider of electric vehicle charging points; Simplestream (£806,000), a leading provider of video streaming services; Big Data Partnership (£720,000), a "big data" consultancy; InContext Solutions (£653,000), which provides retail store visualisation software; Watchfinder.co.uk (£551,000) a retailer of certified pre-owned fine watches; and Perfect Channel (£255,000), an on-line auction company.

InContext Solutions was the first investment the Company has completed alongside funds managed by our US office.  Our US presence provides a key differentiating factor in attracting and developing new and existing investments.  It allows us to access investments that might not be available to more UK-centric investment managers and also helps us to win deals, particularly with companies operating, or planning to operate, in both the UK and North America.  For existing portfolio companies, the US resources can assist with accessing customers, suppliers and possible funding sources in the US market.  The US market is still, by some way, the key private equity market in the world, and we believe that our joint UK/US presence will improve the chances of the portfolio generating strong returns for Shareholders.

The Company made one non-qualifying equity investment, of £2.5 million, in the management buy-out of Maplin, the well-known retailer of consumer electronics.  The Company was one of a syndicate of investors which provided finance for the transaction. The funding provides an opportunity to develop the brand and in particular the company's online offering.

The new equity investments are largely valued at cost, given their recent addition to the portfolio, but we are excited about their potential and hope to see valuation uplifts as they mature.

The Company made three non-qualifying debt-only investments during the year.  These were into Speciality European Pharma (£2.4 million), a specialist pharmaceutical company; Celoxica (£750,000), a provider of accelerated market data for trading firms; and Peerius (£600,000), a website optimisation company.

Follow-on investments
The company made follow-on investments in seven companies.  The largest of these (£683,000) was in Skills Matter.  The investment is being used for the establishment of larger operating facilities.  The second largest (£250,000) was in Charterhouse Leisure.  All other follow-on investments were for less than £250,000.

Key developments at existing portfolio companies
Cognolink, a provider of primary research services for institutional investors, saw revenues increase by 60% in 2013 and the company's rapid growth continued in 2014.  The value of the Company's investment increased by £679,000 during the year.

Another company growing very quickly and making good progress is Monica Vinader, the award-winning high-end fashion jewellery business. It opened a new flagship store in Chelsea and two international stores in Hong Kong and Dubai.  It was also listed in the 2014 Sunday Times Virgin Fast Track 100 report, which ranks Britain's 100 private companies with the fastest growing sales over their latest three years, at number 41. The valuation of the Company's investment increased by £483,000 over the course of the year. MatsSoft, a provider of business process management software, delivered a significant improvement in profit during the year, following the development of a new version of its MATS platform. The valuation of the Company's investment in MatsSoft increased by £987,000 during the year.

The Company's investment in Skills Matter had a reduction in value, by £1.3 million, following a delay to the opening of its new training facility, as a consequence of a highly competitive London commercial property market.  The facility, which will allow the company to expand the number and range of courses offered, is expected to be open in August 2015.   Charterhouse Leisure, which operates a chain of casual dining restaurants trading under the brand Coal Grill and Bar, took on further debt in order to open a further three restaurants, bringing the total number of sites to ten.  This increased borrowing has resulted in a reduction in value of the Company's equity and debt in the business of £501,000.  However, we believe that the valuation will start to increase again once the expected profits from the new restaurants start to contribute to the company's profits.   

Overall, the investment portfolio showed an uplift of £2.1 million, or 3.3p per share.

Investment disposals
The largest disposal during the year was of the Company's holdings in Eagle Rock Entertainment Group, a producer and distributor of music programming. Eagle Rock was sold to a trade buyer at a profit to the previous carrying value, realising total proceeds of £896,000.

The Company also disposed of Speed-Trap Holdings, a big data analytics software company, which was acquired by AIM-listed IS Solutions plc in January 2015. As a result, the Company received its full investment cost, together with all outstanding loan note interest, in cash, as well as shares in IS Solutions which at the year end were valued at £465,000. We continue to hold these shares as IS Solutions looks to build upon the technology and intellectual property of Speed-Trap Holdings.

Altacor, a specialty ophthalmology company, and Pilat Media Global, a provider of media business management software, were both sold to a trade buyers at a profit to the previous carrying value, realising total proceeds of £516,000 and £236,000, respectively.

The disposal in May 2011 of Steak Media, a digital marketing agency to Dentsu, a major international advertising group, entitled the Company to an "earn-out" payment based on Steak's profits in the three years following the acquisition.  As a result of very strong performance by Steak, the Company received an earn-out payment of £2.1 million in May 2014.  The majority of this was accounted for in the prior year accounts but £187,000 has been included in the current year.  This payment brought the total proceeds from the investment in Steak to £3.4 million, a multiple of 5.5 times the original cost. Further proceeds were also received from Biovex Inc.

The Company also received a number of loan note repayments during the year, including all the scheduled repayments from the debt-only investments and the final loan repayment for Sports Holdings in April 2014.

Post year-end developments
The Company has made several new and follow-on investments totalling £6.8 million in the current financial year ending February 2016, with further deals in the pipeline. In March 2015, the Company made a new investment of £3.0 million into D3O Holdings, an impact protection solutions company which licenses a range of unique patented smart materials. This market changing technology is used to produce a shock absorbing material which can be found in a range of products across the motorcycle, sport, footwear, electronics, military and work wear sectors. This is the Company's second investment made alongside funds managed by our US office. 

In April 2015, the Company invested £2.1 million into Sealskinz, which provides a range of waterproof and breathable outdoor accessories. The products are sold in leading outdoor retailers in the UK and abroad. A further investment of £675,000 into InContext Solutions was made in April 2015, as well as further amounts into Disposable Cubicle Curtains, Big Data Partnership, Chess Technologies and Senselogix.

In May 2015, the Company realised its investment in Long Eaton Healthcare Limited for slightly above its carrying value at the year end. In the same month, the Company realised its investment in Eagle-i Music Limited.

Outlook
Twelve new companies were added to the investment portfolio in the year to February 2015.  We are very pleased with the overall initial indications from this vintage and believe that it has the potential to deliver attractive returns for the Company.  In addition, many of the companies that were in the portfolio at the start of the year are developing well. 

We continue to seek investment opportunities for the Company which we believe have the potential to grow rapidly.  The current financial year has seen a reasonable start. There is, however, greater competition for new investments, which in some cases results in entry valuations increasing to levels we are not prepared to agree to.  Consequently, the rate of investment in the current year may not match that in the year to February 2015.

In general, the current benign economic conditions in the UK are providing an attractive environment in which to find, nurture and exit from entrepreneurial, rapidly growing small and medium sized companies and therefore deliver good returns to the Company's shareholders.  While these conditions continue, we remain optimistic about the future performance of the Company's investments and the returns to Shareholders.

Beringea LLP

Investment  activity

 

Investment activity during the year is summarised as follows:

Additions

	Cost £'000
MEL Topco Limited (t/a Maplin)	2,500
MyOptique Group Limited	2,400
Speciality European Pharma Limited	2,375
Response Tap Limited	1,440
Chargemaster plc	1,079
Simplestream Limited	806
Celoxica Limited	750
Big Data Partnership Limited	720
Skills Matter Limited	683
InContext Solutions, Inc	653
Peerius Limited	600
Watchfinder.co.uk Limited	551
Perfect Channel Limited	255
Charterhouse Leisure Limited	250
IS Solutions plc*	189
Speed-Trap Holdings Limited	111
Senselogix Limited	52
Eagle-i Music Limited	47
Chess Technologies Limited	41
Monica Vinader Limited	30
Total	15,532

*Speed-Trap Holdings Limited was disposed of during the year. As part of the disposal, the Company received shares valued at £189,000, on the disposal date, in IS Solutions plc. This transaction has been included in the table above.

Disposals

		Cost £'000		Market value at 01/03/14** £'000		Disposal Proceeds £'000	Profit/(loss) against cost £'000			Total realised gain during the year £'000
Eagle Rock Entertainment Group Limited	680		726		896			216	170
Speed-Trap Holdings Limited	638		291		823			185	532
Altacor Limited	256		258		516			260	258
Donatantonio Group Limited*	204		265		265			61	-
Peerius Limited*	173		173		173			-	-
Celoxica Limited*	114		114		114			-	-
Blis Media Limited*	101		101		101			-	-
Pilat Media Global plc	50		231		236			186	5
Sports Holding Limited*	12		11		11			(1)	-
Speciality European Pharma Limited*	13		13		13			-	-
MEL Topco Limited (t/a Maplin)	4		4		4			-	-
Biovex Inc.	-		-		270			270	270
Steak Media Limited	-		-		187			187	187
Fjordnet Limited	-		-		59			59	59
Saffron Media Limited	-		-		21			21	21
Espresso Group Limited	-		-		18			18	18
Isango! Limited	-		-		1			1	1
Total	2,245		2,187		3,708			1,463	1,521

*    Loan repayments during the year
**   Adjusted for purchases during the year

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

Investment Portfolio

as at 28 February 2015

The following investments were held at 28 February 2015:

	Cost £'000	Valuation £'000	Valuation movement in year £'000	% of portfolio by value
Venture capital investments (by value)
Cognolink Limited	2,051	4,180	679	6.4%
Pulpitum Limited	2,900	2,738	(162)	4.2%
MEL Topco Limited (t/a Maplin Electronics)*	2,496	2,496	-	3.8%
MyOptique Group Limited	2,400	2,400	-	3.7%
Speciality European Pharma Limited*	2,362	2,362	-	3.6%
APM Healthcare Limited	1,731	2,348	186	3.6%
Abzena plc**	1,278	2,339	1,055	3.6%
Utility Exchange Online Limited (t/a SwitchmyBusiness.com)	2,090	2,250	248	3.4%
Inskin Media Limited	1,435	2,181	163	3.3%
Monica Vinader Limited**	583	2,097	483	3.2%
Blis Media Limited**	520	1,776	195	2.7%
Disposable Cubicle Curtains Limited	1,730	1,730	-	2.6%
Charterhouse Leisure Limited**	1,250	1,484	(501)	2.3%
Response Tap Limited	1,440	1,440	-	2.2%
MatsSoft Limited**	1,140	1,279	987	1.9%
Donatantonio Group Limited	1,096	1,258	128	1.9%
Chargemaster plc	1,079	1,079	-	1.6%
Cogora Group Limited	487	914	211	1.4%
Simplestream Limited	806	819	13	1.2%
Big Data Partnership Limited	720	720	-	1.1%
Chess Technologies Limited	941	716	(169)	1.1%
Skills Matter Limited**	1,981	683	(1,298)	1.0%
InContext Solutions, Inc	653	647	(5)	1.0%
Celoxica Limited*	636	636	-	1.0%
Watchfinder.co.uk Limited	551	551	-	0.8%
Eagle-i Music Limited**	851	509	(287)	0.8%
IS Solutions plc	189	465	276	0.7%
Cross Solar PV Limited	329	457	104	0.7%
Peerius Limited*	427	427	-	0.7%
Perfect Channel	255	255	-	0.4%
Dianomi Limited	270	145	-	0.2%
Campden Wealth Limited*	113	113	-	0.2%
Senselogix Limited	315	38	(74)	0.1%
7digital Group plc (formerly UBC Media Group plc)**	401	23	(50)	-
Long Eaton Healthcare Limited**	1	16	10	-
	37,507	43,571	2,192	66.4%
Other venture capital investments	705	-	(104)	-
Total venture capital investments	38,212	43,571	2,088	66.4%
Cash at bank and in hand		22,061		33.6%
Total investments		65,632		100.0%

Other venture capital investments at 28 February 2015 comprise:
Amura Holdings Limited*, Cinergy International Limited, Deltadot Limited, Omni Dental Sciences Limited, Population Genetics Technologies Limited, Steribottle Global Limited* and Vigilant Applications Limited*.

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

With the exception of Abzena plc, 7digital Group plc (formerly UBC Media Group plc) and IS Solutions plc which are quoted on AIM, all venture capital investments are unquoted.

All of the above investments, h the exception of Abzena plc, Altacor Limited, Amura Holdings Limited, Deltadot Limited, Omni Dental Sciences Limited and Population Genetics Technologies Limited were also held by ProVen VCT plc, of which Beringea LLP is the Investment Manager.

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

All venture capital investments are registered in England and Wales except for InContext Solutions, Inc., a Delaware registered corporation in the United States of America

Strategic Report

The Directors present the Strategic Report for the year ended 28 February 2015. The Board prepared this report in accordance with the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

 

Principal objectives and strategy

The Company's investment objective is to achieve long-term returns greater than those available from investing in a portfolio of quoted companies, by investing in:

• a portfolio of carefully selected qualifying investments in small and medium sized unquoted companies with excellent growth prospects; and
• a portfolio of non-qualifying investments including cash, liquidity funds, fixed interest securities, debt and debt-related securities in growth companies and non-qualifying venture capital investments,

within the conditions imposed on all VCTs and to minimise the risk of each investment and the portfolio as a whole. The Board believe the Company is performing well against this objective. The Company was ranked the first out of thirty-two VCTs based on Net Asset Value Total Return over a ten year period (www.aicstats.co.uk, at 31 May 2015).

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 2015 is subject to review should there be any subsequent enquiry under corporation tax self-assessment.

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

Business model

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

Business review and developments

The fund began the year with £28.1 million of investments and ended with £43.6 million spread over a portfolio of 42 companies.  34 of these investments with a value of £36.7 million were VCT qualifying (or part qualifying).

The profit on ordinary activities after taxation for the year was £3,051,000, comprising a revenue profit of £282,000 and a capital profit of £2,769,000. The Ongoing Charges ratio (excluding performance fees and recoverable VAT) in respect of the year ended 28 February 2015, based on average net assets during the year, was 2.6% (2014: 2.7%).

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

 

Investment policy

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

 

Qualifying investments

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

• a strong, balanced and well-motivated management team with a proven track record of achievement;
• a defensible market position;
• good growth potential;
• an attractive entry price for the Company;
• 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 3 to 4 year period.

The Company invests in companies at various stages of development, including those requiring capital for expansion and in management buy-outs, but not in start-ups. Investments are spread across a range of different sectors.

Other investments

Funds not invested in qualifying investments may be held in cash, fixed interest securities of A-rating or better, investments originated in line with the Company's qualifying VCT policy but which do not qualify under the VCT rules for technical reasons and debt and debt-related securities in growth companies.

Listing Rules

In accordance with the Listing Rules:

1. 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;
2. the Company must not conduct any trading activity which is significant in the context of the Company; and
3. 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 Robertson Hare LLP to advise it on compliance with VCT requirements, including evaluation of investment opportunities as appropriate and regular review of the portfolio.  Although Robertson Hare LLP works closely with the Investment Manager, they report directly to the Board.

Compliance with the main VCT regulations as at 28 February 2015 and for the year then ended is summarised as follows:

At least 70% by value of the Company's investments  has been represented by qualifying holdings	Complied
At least 10% of each qualifying investment is held in "eligible shares"		Complied
No investment has at any time during the period, represented more than 15% by value of the Company's investments, at the time of the investment		Complied
The Company's income is derived wholly or mainly from shares and securities		Complied
At least 30% of the Company's qualifying investments in "eligible shares" for funds raised before 6 April 2011   At least 70% of the Company's qualifying investments in "eligible shares" for funds raised on or after 6 April 2011	Complied     Complied
No more than 15% of the income from shares and securities is retained		Complied
The Company has not made an investment in a company which causes a breach of the £5 million investment limit conditions		Complied
The Company's ordinary share capital has throughout the period been listed on a regulated European market   The Company has not made a prohibited payment to Shareholders derived from an issue of shares since 6 April 2014		Complied     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 2015, was equal to £65.2 million (2014: £53.3 million).  There are no plans to utilise this facility at the current time.

Investment management and administration fees

Beringea LLP ("Beringea") provides investment management services to the Company for an annual fee of 2.0% of the net assets per annum. Beringea is also entitled to receive performance incentive fees as described below. The investment management agreement is terminable by either party at any time by one year's prior written notice. The total fees relating to this service amounted to £1,088,000 (2014: £1,031,000) (all inclusive of VAT), of which £302,000 (2014: £239,000) 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 the Investment Manager remains in the best interest of Shareholders.

Downing LLP provided administration services to the Company up to 13 January 2015, at which point Beringea was appointed the Company's Administration Manager. In the year, Downing LLP's administration fees amounted to £50,000 (2014: £51,000) of which £12,000 was outstanding at the year-end. There were no fees paid or accrued in the year for Beringea's administration services.

The annual running costs (excluding any performance fees payable) of the Company, are also subject to a cap of 3.6% of the Company's net assets as at the end of the year. Any costs in excess of this are borne by Beringea.

Beringea also received arrangement fees in respect of investments made by the Company and other VCTs managed by Beringea totalling £575,000 and monitoring fees of £714,000.

 

Performance incentive fees

In line with normal VCT practice, the Company has performance incentive fee arrangements with Beringea, whereby the Investment Manager is entitled to receive a performance related fee in relation to the Ordinary Shares, in order to align the interests of the Investment Manager as closely as possible with those of the Shareholders and to encourage and reward exceptional investment performance.

The performance related fee structure is designed to encourage significant payments to Shareholders by means of tax-free dividends, as well as capital growth.

The current performance fee arrangements, which apply to financial years of the Company starting on or after 1 March 2014, were approved at a General Meeting of the Company held on 21 August 2014.  Under these arrangements the Manager is entitled to a performance fee which will only be payable if, at the end of a financial year, the Performance Value exceeds the Hurdle.  In this event the performance fee will be equal to 20%. of the amount by which the Performance Value exceeds the Initial Net Asset Value, multiplied by the average number of Ordinary Shares in issue during the relevant financial year, less the aggregate amount of any performance fee already paid in relation to financial years starting after 29 February 2012.

The Performance Value in respect of the relevant financial year end is the sum of (i) the audited net asset value per Ordinary Share at that date, (ii) Cumulative Dividends, and (iii) all performance fees per Ordinary Share paid by the Company to Beringea in relation to financial years starting after 29 February 2012.  The Hurdle is the greater of (i) 1.25 times the Initial Net Asset Value and (ii) the Initial Net Asset Value increased, as from 31 August 2012, by the Bank of England base rate plus 1% per annum (compound).  

If the Performance Value is less than or equal to the Hurdle in any financial year, no performance fee will be payable in respect of that financial year.

The performance fee per Ordinary Share payable in relation to a financial year will be reduced, if necessary, to ensure that (i) the cumulative performance fee per Ordinary Share payable in relation to financial years starting after 29 February 2012 does not exceed 20% of Cumulative Dividends, (ii) the cumulative performance fee per Ordinary Share payable in relation to financial years starting after 29 February 2012 does not exceed 50% of the amount by which the Performance Value exceeds the Hurdle and (iii) the audited net asset value per Ordinary Share at the relevant financial year end plus the Cumulative Dividends is at least equal to the Hurdle.

As at the 28 February 2015, the Performance Value was 98.3p, comprising an NAV of 85.7p and Cumulative Dividends of 12.5p and a Performance Fee of 0.1p. 

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

Performance fees amounted to £nil (2014: £79,000), of which £nil (2014: £4,000) 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.  Frank Harding retired from the Board, after not standing for re-election as a Director at the Company's AGM on 22 July 2014. 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 investment objectives (as shown below). The Board believes the Company's key performance indicators are NAV total return (NAV plus cumulative dividends paid to date) and dividends per share. The position of the Company's Net Asset Value Total Return at 28 February 2015 is at the start of this announcement.

In addition, the Board considers the Company's performance in relation to other VCTs. As reported at www.aicstats.co.uk, at 31 May 2015 (the latest published rankings by the AIC), the Company was ranked the first out of thirty-two VCTs based on Net Asset Value Total Return over a ten year period.

 

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 below. 

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 and consequent loss of tax reliefs currently available to Shareholders and the Company being subject to capital gains tax. Serious breaches of other regulations, such as the Listing Rules of the Financial Conduct Authority and the Companies Act 2006, could lead to suspension from the Stock Exchange and damage to the Company's reputation.

The 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.

 

Directors' remuneration

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

Greenhouse emissions

Whilst as a UK quoted company the VCT 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 Report.

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 Growth & Income 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 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' statement pursuant to the Disclosure and Transparency Rules

Each of the Directors confirms that, to the best of his or her 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 as at 28 February 2015 and profit of the Company for the year ended 28 February 2015; and
• the management report contained in the Chairman's Statement, Investment Manager's Review and  Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

 

Statement as to disclosure of information to the Auditor

The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors 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 2015

Company

			Year ended 28 February 2015						Year ended 28 February 2014
			Revenue		Capital		Total		Revenue		Capital		Total
			£'000		£'000		£'000		£'000		£'000		£'000
Income
Continuing operations			920				920		856		-		856
Acquisitions			-		-		-		44		-		44
			920		-		920		900		-		900
Gains on investments
Continuing operations			-		3,614		3,614		-		4,544		4,544
Acquisitions			-		-		-		-		460		460
			-		3,614		3,614		-		5,004		5,004
Total Income			920		3,614		4,534		900		5,004		5,904
Investment management fees			(272)		(816)		(1,088)		(258)		(773)		(1,031)
Performance incentive fees			-		-		-		-		(79)		(79)
Other expenses			(366)		(29)		(395)		(583)		(8)		(591)
Return on ordinary activities before tax			282		2,769		3,051		59		4,144		4,203
Tax on ordinary activities			-		-		-		-		-		-
Return attributable to equity shareholders			282		2,769		3,051		59		4,144		4,203
Basic and diluted return per share			0.4p		4.4p		4.8p		0.1p		7.4p		7.5p

The total column within the Income Statement represents the profit and loss account of the Company, prepared in accordance with the accounting policies detailed in note 1 of this 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 Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement in the current and prior year.

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

Reconciliation of Movements in Shareholders' Funds

for the year ended 28 February 2015

 

			Year ended 28 February 2015		Year ended 28 February 2014
			£'000		£'000
Opening Shareholders' funds			53,339		38,339
Issue of shares			9,599		21,655
Share issue costs			(142)		(362)
Purchase of own shares			(1,251)		(4,838)
Movement in share capital to be issued			3,125		(781)
Total recognised gains for the year			3,051		4,203
Dividends paid			(2,478)		(4,877)
Closing Shareholders' funds			65,243		53,339

Balance Sheet

as at 28 February 2015

  

			28 February 2015		28 February 2014
Fixed assets			£'000		£'000
Investments			43,571		28,138
Current assets
Debtors			243		2,832
Cash at bank and in hand			22,061		22,806
			22,304		25,638
Creditors: amounts falling due within one year			(632)		(437)
Net current assets			21,672		25,201
Total assets less current liabilities			65,243		53,339
Capital and reserves
Called up share capital			1,173		1,014
Capital redemption reserve			1,105		1,080
Special reserve			41,128		43,283
Share premium			10,089		674
Shares to be issued			3,125		-
Revaluation reserve			5,737		3,585
Capital reserve - realised			3,213		4,312
Revenue reserve			(327)		(609)
Total equity shareholders' funds			65,243		53,339
Basic and diluted net asset value per share			85.7p		85.2p

Cash Flow Statement

for the year ended 28 February 2015

			Year ended 28 February 2015		Year ended 28 February 2014
			£'000		£'000
Net cash outflow from operating activities			(514)		(597)
Capital expenditure
Purchase of investments			(15,343)		(6,551)
Sale of investments			6,102		11,131
Net cash (outflow)/inflow from capital expenditure			(9,241)		4,580
Acquisitions
Cash acquired			-		2,746
Net cash inflow from acquisitions			-		2,746
Equity dividends paid			(2,293)		(4,877)
Net cash (outflow)/inflow before financing			(12,048)		1,852
Financing
Proceeds from share issue			9,415		15,426
Share issue costs			(142)		(362)
Purchase of own shares			(1,095)		(4,825)
Unallotted share capital			3,125		(781)
Net cash inflow from financing			11,303		9,458
(Decrease)/increase in cash			(745)		11,310

Notes to the Accounts

for the year ended 28 February 2015

1          Accounting policies

Basis of accounting

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

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

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

Going concern

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

 

Presentation of Income Statement

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

Fixed assets investments

Venture capital investments are designated as "fair value through profit or loss" assets due to investments being managed and their performance evaluated on a fair value basis.   A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company's documented investment policy.  The fair value of an investment upon acquisition is deemed to be cost.  Thereafter, investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV Guidelines") together with FRS26 - Financial Instruments: Recognition and Measurements.

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

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

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

       The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value. 

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

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.

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

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

 

Income

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

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection 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.

 

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; and
• 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.
• performance incentive fees arising from the disposal of investments are treated as a capital item.

 

Taxation

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

Due to the Company's status as a 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.

 

1          Accounting policies (continued)

Other debtors and other creditors

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

Share issue costs

Expenses in relation to share issues up to the 6 April 2014 are deducted from the Share Premium Account upon allotment of shares. Expenses in relation to share issues on or after 6 April 2014 are deducted from the Special Reserve.

2       Basic and diluted return per share

	Year ended 28 February 2015		Year ended 28 February 2014
Revenue return per share based on:
Net revenue after taxation (£'000)	282		59
Weighted average number of shares in issue	62,940,407		56,302,306
Pence per share	0.4p		0.1p
Capital return per share based on:
Net capital gain for the financial year (£'000)	2,769		4,144
Weighted average number of shares in issue	62,940,407		56,302,306
Pence per share	4.4p		7.4p

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 netasset value per share

			2015						2014
	Shares in issue			Net asset value					Net asset value
	2015		2014	Pence per share			£'000		Pence per share			£'000
Ordinary Shares	72,475,003		62,631,290		85.7p		62,118			85.2p		53,339
Ordinary share capital to be issued							3,125					-
							65,243					53,339

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

4       Principal financial risks and management objectives 

The Company's financial instruments comprise investments held at fair value through the profit and loss, being equity and loan stock investments in quoted companies and unquoted companies and liquidity funds; loans and receivables (being cash deposits and short term debtors); and financial liabilities (being creditors arising from its operations).  The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short-term creditors and does not use any derivatives.

The fair value of investments is determined using the detailed accounting policy as shown in note 1 of this announcement.

The fair value of cash deposits and short term debtors and creditors equates to their carrying value in the Balance Sheet.

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 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 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 2015, the AIM-quoted portfolio was valued at £2,827,000 (2014: £304,000).

The Company's sensitivity to fluctuations in the share prices of its AIM-quoted investments is summarised below.  A 25% movement in the share price of all of the AIM-quoted stocks held by the Company would have an effect as follows:

25% movement in AIM-quoted stocks			2015			2014
	Impact on net assets		Impact on NAV per share	Impact on net assets		Impact on NAV per share
	£'000		Pence	£'000		Pence
Ordinary Shares	707		1.0p	76		0.1p

At 28 February 2015, the unquoted portfolio was valued at £40,744,000 (2014: £27,834,000).

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			2015			2014
	Impact on net assets		Impact on NAV per share	Impact on net assets		Impact on NAV per share
	£'000		Pence	£'000		Pence
Ordinary Shares	4,074		5.6p	2,783		4.4p

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 and on liquidity funds at rates based on the underlying investments. Investments in loan stock and fixed interest investments attract interest predominately at fixed rates.  A summary of the interest rate profile of the Company's financial instruments is shown below.

There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows: 

• "Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments and Preference Shares.
• "Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments 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		2015		2014
	interest rate		until maturity		£'000		£'000
Fixed rate	7.5%		1,122 days		16,829		10,319
Floating rate	1.0%		3 days		22,283		23,028
No interest rate					26,117		19,985
					65,229		53,332

The Company monitors the level of income received from fixed, floating and no interest rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular should this be required to ensure compliance with the VCT regulations.

Based on the assumption that the yield of all floating rate financial instruments would change by an amount equal to the movement in prevailing interest rates, it is estimated that an increase of 1% in interest rates would have increased total return before taxation for the year by £223,000.  As the Bank of England base rate stood at 0.5% per annum throughout the year, it is believed that a reduction from this level is unlikely.

Credit risk

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

The Company is exposed to credit risk as follows:

		2015		2014
		£'000		£'000
Investments in loan stocks		17,051		10,541
Cash and cash equivalents		22,061		22,806
Interest, dividends and other receivables		216		2,794
		39,328		36,141

The 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 the respective investee companies. The strength of this security in each case is dependent on the nature of the investee companies' business and its identifiable assets. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.

Cash is held by Bank of Scotland plc, rated A by both Standard and Poor's and Fitch and the Royal Bank of Scotland plc, rated A- and A by Standard and Poor's and Fitch respectively. These financial institutions are both also ultimately part-owned by the UK Government.  Consequently, the Directors consider that the risk profile associated with cash deposits is low. 

There have been no changes in fair value during the year that are directly attributable to changes in credit risk.

 

Liquidity risk

Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. The Company maintains a relatively low level of creditors (£632,000 at 28 February 2015) and has no borrowings. Also, liquidity funds and some quoted investments held by the Company are considered to be readily realisable. 

The Company always holds sufficient levels of funds as cash and readily realisable investments in order to meet expenses and other cash outflows as required.  For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.

The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.

Although the Company's investments are not held to meet the Company's liquidity requirements, the table below shows an analysis of the loan notes, highlighting the length of time that it could take the Company to realise its assets if it were required to do so.

The carrying value of loan stock investments at 28 February 2015 as analysed by expected maturity date is as follows:

	Not later	Between	Between	Between	More
	than 1	1 and 2	2 and 3	3 and 5	than
	years	years	years	years	5 years	Total
As at 28 February 2015	£'000	£'000	£'000	£'000	£'000	£'000
Fully performing loan stock	2,570	1,492	2,095	7,775	1,821	15,753
Past due loan stock	836	462	-	-	-	1,298
	3,406	1,954	2,095	7,775	1,821	17,051
As at 28 February 2014
Fully performing loan stock	1,353	1,826	506	3,268	1,776	8,729
Past due loan stock	1,063	-	749	-	-	1,812
	2,416	1,826	1,255	3,268	1,776	10,541

 

Of the loan stock classified as "past due" above, £836,000 relates to the principal of loan notes where the principal has passed its maturity date. As at the balance sheet date, the extent to which the principal is past its maturity date giving rise to the classification of the loan notes as past due falls within the banding of no later than one year past due.

Of the loan stock classified as "past due" above, £462,000 relates to the principal of loan notes where, although the principal remains within term, the investee company is not fully servicing the interest obligations under the loan note and is thus in arrears. The interest is in arrears by less than two years. Notwithstanding the arrears of interest, the Directors do not consider that the loan note itself has been impaired or the maturity of the principal has altered.

 

Fair Value of Financial Instruments

Fair value measurements recognised in the balance sheet

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

The Company has categorised its financial instruments that are measured subsequent to initial recognition at fair value using the fair value hierarchy as follows:

Level 1   Reflects financial instruments quoted in an active market (liquidity fund investments, investments listed on the Main Market and investments quoted on AIM);
Level 2   Reflects financial instruments that have prices that are observable either directly or indirectly (no such investments currently held); and
Level 3   Reflects financial instruments that have prices that are not based on observable market data (unquoted equity investments and loan note investments).

	2015					2014
	Level 1	Level 2	Level 3	Total		Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000		£'000	£'000	£'000	£'000
AIM quoted	2,827	-	-	2,827		304	-	-	304
Loan notes	-	-	17,051	17,051		-	-	10,541	10,541
Preference shares	-	-	3,222	3,222		-	-	4,851	4,851
Unquoted equity	-	-	20,471	20,471		-	-	12,442	12,442
	2,827	-	40,744	43,571		304	-	27,834	28,138

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

	Loan Notes		Unquoted equity		Total
	£'000		£'000		£'000
Balance at 28 February 2014	10,541		17,293		27,834
Movements in the income statement:
Gains in the income statement	668		1,655		2,323
	11,209		18,948		30,157
Purchases at cost	7,330		8,013		15,343
Sales proceeds	(1,488)		(1,984)		(3,472)
Transfers out of Level 3*	-		(1,284)		(1,284)
Balance at 28 February 2015	17,051		23,693		40,744

 

*Speed-Trap Holdings Limited was disposed of during the year. As part of the disposal, the Company received shares valued at £189,000, on the disposal date, in IS Solutions plc an AIM listed company. This transaction has been recorded as a transfer in the table above.

FRS 29 requires disclosure to be made if changing one or more of the assumptions used in valuing investments would result in a significant change in the fair value of the investments. The portfolio has been reviewed and both downside and upside alternative assumptions identified. These result in an overall increase of £1,320,000 to the value of the unquoted investments for an upside scenario and an overall decrease of £423,000 to the value of the unquoted investments for a downside scenario.

Valuations are subject to the fluctuations in market conditions and the sensitivity of the Company to such changes is shown above in this note.

5       Post balance sheet events

Between 28 February 2015 and the date of this report, the Company issued 17,848,141 Ordinary Shares for an aggregate consideration of £15.4 million. Share issue costs thereon amounted to £585,000.

The Company made two new investments and five follow-on investments after the year end totalling £6.8 million.

In March 2015, the Company made a new investment of £3.0 million into D3O Holdings, an impact protection solutions company and in April 2015, the Company invested £2.1 million into Sealskinz, which provides a range of waterproof and breathable outdoor accessories.

There were further investments in InContext Solutions (£675,000), Big Data Partnership (£432,000), Disposable Cubicle Curtains (£288,000), Chess Technologies (£259,000) and Senselogix (£18,000).

In May 2015, the Company realised its investment in Long Eaton Healthcare Limited for slightly above its carrying value at the year end. In the same month, the Company realised its investment in Eagle-i Music Limited.

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 2015, but has been extracted from the statutory financial statements for the year ended 28 February 2015, which were approved by the Board of Directors on 18 June 2015 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.  The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

The statutory accounts for the year ended 28 February 2014 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 2015 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.

-End-

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

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