Final Results
Proven VCT PLC
25 May 2006
ProVen VCT plc
Unaudited Preliminary Announcement of Results for the Year Ended 28 February 2006
FINANCIAL HIGHLIGHTS
2006 2005
pence pence
(restated)
Net asset value (per share) 111.3 110.2
Cumulative gross distributions paid (from launch to 28 Feb 2006) 18.7 12.2
Total return (net asset value plus paid cumulative distributions paid and declared) 130.0 122.4
First Interim distribution (per share) - paid 4 November 2005 3.0 3.0
Second Interim distribution (per share) - to be paid 14 July 2006 3.5 3.5
6.5 6.5
The Statement to Shareholders by the Chairman, Andrew Davison, includes the
following:
Introduction
I have pleasure in presenting the Annual Report for Proven VCT plc for the year
ended 28 February 2006, a year in which your Company has produced another solid
performance.
Net Asset Value
At the year end the Company's net asset value per share ('NAV') stood at 111.3p,
an increase of 7.6p per share (6.9%) over the year after adjusting for the
dividends of 6.5p per share paid during the year. Total return (NAV plus
cumulative dividends paid) to shareholders who invested at the outset of the
Company now stands at 130.0p per share, compared to an original investment net
of income tax relief of 80p per share.
Share issue
During the year the Company took the opportunity of the 40% income tax relief
that was available on new VCT investments to undertake a small fundraising.
Between 1 March 2005 and 30 June 2005, the Company issued 2,863,080 shares,
generating net proceeds (after fundraising costs) of £2,960,539. The proceeds
have given the Company extra funds available for new investments and further
spread the burden of the running costs over a larger asset base.
Format of Accounts
For this accounting period, your Company is required to adopt FRS 21, under
which dividends have to be accounted for in the period in which they are liable
to be paid rather than the period in respect of which they are declared. As a
result comparative figures presented in this statement have been restated. It
should be noted that this change does not alter the current or historic values
for Total Return. Under FRS 26, the Company is now also required to value
quoted investments at bid prices instead of mid-market prices that were used
previously. This has resulted in a small reduction in the level of these
valuations.
The Company has also adopted the new Statement of Recommended Practice for
Investment Trusts ('SORP'), which came into effect in December 2005 and other UK
Financial Reporting Standards which have been introduced as part of the
convergence programme of the UK towards International Accounting Standards. The
main noticeable change arising is that the 'Statement of Total Return' has been
renamed as the 'Income Statement' and our investments are now categorised as '
Fair value through profit or loss' assets.
Venture Capital Investments
During the year the Company invested £2 million in qualifying investments and
£226,000 in non-qualifying investments.
The Company also achieved a number of profitable exits producing proceeds of
£7.9 million and realised gains in the year of £810,000 against 28 February 2005
valuation or £3.1 million against original cost.
In reviewing the investment valuations at the year end the Board has agreed a
number of valuation increases and decreases. Overall the unrealised valuation
movement on the portfolio has been an increase of £884,000 over the year.
Results and dividend
Gross revenue for the year was £1,030,000 (2005: £866,000) and the revenue
return after taxation was £548,000 (2005: £434,000).
On 4 November 2005 an interim capital distribution of realised gains of 3.0p per
share (2005: 3.0p per share) was paid to shareholders. The Board is pleased to
announce the payment of a further capital distribution of 1.5p per share
together with a revenue dividend of 2.0p per share for the year ended 28
February 2006, on 14 July 2006 to Shareholders on the register at 16 June 2006.
These payments will be made as a second interim dividend rather than a final
dividend for the year to 28 February 2006 in order that their payment does not
need to be delayed until after the Company's next AGM. This will bring total
dividends paid since launch to 22.2p per share.
Directorate
Ernest Sharp has been a director of the Company since its launch in 2000. Now,
albeit still very active, he is 75 and has decided to retire as at the next AGM
in September. On behalf of the Board, I would like to thank Ernest for his
continuing and very positive valuable contribution and wish him a very happy
retirement, which he richly deserves.
The Board has agreed that it is appropriate to find a replacement for Ernest and
is delighted to report that Barry Dean has now accepted an invitation to join
the Board. Barry has a vast amount of experience in the venture capital
industry and, we believe, will be an excellent recruitment.
Repurchase of Shares
The Directors are conscious that the Company's share price is affected by the
illiquidity of its shares in the market resulting from the fact that investors
purchasing 'second-hand' shares do not benefit from income tax relief on their
investment.
The Directors continue to monitor the market in the Company's shares and will
make share purchases when appropriate. During the period the Company
repurchased 1,324,117 Ordinary Shares of 5p each, at an average price of 95.9p
per share, for cancellation. Generally share buybacks are undertaken at a 10%
discount to the latest NAV published by the Company. A Special Resolution to
allow the Board to continue to purchase shares for cancellation will be proposed
at the forthcoming AGM.
Proposed amendment to Articles of Association
When the Company launched in 2000, it was planned that a resolution would be put
to Shareholders at the AGM to take place in 2007 as to whether the Company
should continue as a VCT.
As a result of the small fundraising described above, some Shareholders are now
required to hold their shares until June 2008 to ensure they are able to retain
the income tax relief they received on their investment. The Directors are
therefore proposing to amend the Articles of Association such that the
resolution for continuation as a VCT is delayed until the AGM in 2008. The
Directors believe that this minor amendment is clearly in the best interests of
Shareholders and therefore recommend that Shareholders vote in favour of
Resolution 7 at the forthcoming AGM.
Annual General Meeting
The Annual General Meeting of the Company will be held at 39 Earlham Street,
London WC2H 9LT at 12:15 pm on 21 September 2006.
Outlook
The Board is very pleased with the performance of the Investment Manager in
continuing to deliver such positive results for your Company to date. Following
the high number of realisations achieved during the year, your Company now has a
significant level of funds available for new investment. The Board is
encouraged by the quality and number of new investment opportunities that the
Investment Manager is able to generate.
Market conditions over the forthcoming year might not allow your Company to
achieve as many profitable realisations as it has in the last, however a strong
focus will continue on the existing portfolio even though the Manager will be
also more active in making new investments. I look forward to updating
Shareholders with the interim results to 31 August 2006.
This preliminary announcement was approved by the Board of Directors on 25 May
2006.
UNAUDITED INCOME STATEMENT
for the year ended 28 February 2006
Year ended 28 February 2006 Year ended 28 February 2005
(as restated)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income 1,030 - 1,030 866 - 866
Gains on 'fair value through profit or loss'
assets - 1,694 1,694 - 3,248 3,248
1,030 1,694 2,724 866 3,248 4,114
Investment management fees (191) (574) (765) (152) (456) (608)
Other expenses (177) - (177) (188) - (188)
Return on ordinary activities
before tax 662 1,120 1,782 526 2,792 3,318
Tax on ordinary activities (114) 114 - (92) 92 -
Return attributable to equity shareholders 548 1,234 1,782 434 2,884 3,318
Return per share 2.3p 5.1p 7.4p 1.9p 12.7p 14.6p
All Revenue and Capital items in the above statement derive from continuing
operations.
UNAUDITED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 28 February 2006 Year ended 28 February 2005
(as restated)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return attributable to equity shareholders 548 1,234 1,782 434 2,884 3,318
Total recognised gains for the year 548 1,234 1,782 434 2,884 3,318
UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 28 February 2006
Year ended Year ended
28 February 2006 28 February 2005
(as restated)
£'000 £'000
Opening shareholders' funds 24,785 21,521
Adjustment for distribution provided for in 2004 - 762
Issue of shares 2,961 997
Purchase of own shares (1,276) (374)
Total recognised gains for the year 1,782 3,318
Distributions paid (1,519) (1,439)
Closing shareholders' funds 26,733 24,785
The prior year restatement is described within note 2.
UNAUDITED BALANCE SHEET
as at 28 February 2006
2006 2005
(as restated)
£'000 £'000 £'000 £'000
Fixed Assets
'Fair value through profit or loss' assets 17,653 21,673
Current assets
Debtors 180 256
Current investments 5,700 2,700
Cash at bank and in hand 3,484 429
9,364 3,385
Creditors: amounts falling due within one year (284) (273)
Net current assets 9,080 3,112
Net assets 26,733 24,785
Capital and reserves
Called up share capital 1,201 1,125
Capital redemption reserve 96 29
Special reserve 15,468 16,744
Share premium account 3,759 941
Capital reserve - realised 2,287 858
Capital reserve - unrealised 3,319 4,752
Revenue reserve 603 336
Total equity shareholders' funds 26,733 24,785
Net asset value per Ordinary share 111.3p 110.2p
UNAUDITED CASH FLOW STATEMENT
for the year ended 28 February 2006
Year ended Year ended
28 February 2006 28 February 2005
£'000 £'000 £'000 £'000
Net cash inflow/(outflow) from operating
activities 170 (225)
Capital expenditure
Purchase of investments (2,483) (787)
Sale of investments 8,202 2,809
Net cash inflow from capital expenditure 5,719 2,022
Equity distributions paid (1,519) (1,439)
Management of liquid resources
Purchase of current investments held as
liquidity funds (3,900) (2,700)
Withdrawal from liquid funds 900 -
(3,000) (2,700)
Net cash inflow/(outflow) before financing 1,370 (2,342)
Financing
Proceeds from share issue 3,097 1,054
Share issue costs (136) (58)
Purchase of own shares (1,276) (328)
Net cash inflow from financing 1,685 668
Increase/(decrease) in cash 3,055 (1,674)
NOTES
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted
Accounting Practice ('UK GAAP'). Where presentation guidance set out in the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies' revised December 2005 ('SORP') is inconsistent with the requirements
of UK GAAP, the Directors have sought to prepare the financial statements on a
basis compliant with the recommendations of the SORP. Except as stated in note
2, consistent accounting policies have been applied this year and in the prior
year.
The financial statements are prepared under the historical cost convention
except for the revaluation of certain financial instruments.
Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AITC, supplementary information which
analyses the income statement between items of a revenue and capital nature has
been presented alongside the income statement. The net revenue is the measure
the directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Section 842 Income and Corporation Taxes Act
1988.
Investments
Listed fixed income investments and investments quoted on the Alternative
Investment Market ('AIM') are designated as 'fair value through profit or loss'
assets and are initially measured at cost, in accordance with Financial
Reporting Standard 26 'Financial Instruments: Measurement'. Thereafter the
investments are measured at subsequent reporting dates at fair value, which is
the bid price with illiquidity discounts applied where deemed appropriate. The
Company previously valued the investments using middle market price. The
financial effect of the change in valuation policy is that the investments are
valued at £380,000 less that if they were valued at mid-price.
In respect of unquoted instruments, fair value is established by using the
International Private Equity and Venture Capital Valuation Guidelines. Where no
reliable fair value can be estimated for such unquoted equity investments they
are carried at cost, subject to any provision for impairment. Where an investee
company has gone into receivership or liquidation 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 acquisitions
or disposals of investments are charged to capital reserves as a deduction from
proceeds or an addition to costs.
It is not the Company's policy to exercise either significant or controlling
influence over investee companies. Therefore the results of these companies are
not incorporated into the revenue account except to the extent of any income
accrued.
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 timely basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount, and only where there
is reasonable certainty of collection.
Expenses
All expenses are accounted for on 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 disposal of an investment are
deducted from the disposal proceeds of the investment.
• Expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the investments
held can be demonstrated and accordingly the investment management fee and
finance costs have 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.
Deferred taxation
Deferred taxation 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.
2. Changes in accounting policies
The Company is required to comply with a number of new UK Financial Reporting
Standards (FRS), which now represent UK Generally Accepted Accounting Practice
(UK GAAP), in preparing its financial statements for the year ended 28 February
2006. These Standards have been introduced as part of the process of aligning UK
accounting principles with International Accounting Standards.
As required by FRS 21 'Events after the Balance Sheet Date', dividends to
shareholders are accounted for in the period in which the Company is liable to
pay them rather than in the period in respect of which they are declared. The
comparative figures for the year have been re-stated accordingly. The effect of
the adoption of FRS 21 on the reported net assets of the company is as follows:
2005
Net assets £'000
As previously reported 23,998
Add: proposed dividends not accounted for until paid 787
As restated 24,785
FRS 26 'Financial Instruments: Measurement' has also been adopted and the
effects of this are disclosed in note 1.
Announcement based on draft accounts (unqualified audit report)
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 28 February 2006 or 28 February
2005. The statutory accounts for the year ended 28 February 2006 (not yet
signed by the auditors) will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting.
The financial information for the year ended 28 February 2005 is derived from
the statutory accounts for that year which have been delivered to the Registrar
of Companies. The auditors reported on those accounts; this report was
unqualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
A copy of the full annual report and financial statements for the year ended 28
February 2006 will be printed and posted to shareholders. Copies will also be
available to the public at the registered office of the Company at 39 Earlham
Street, London WC2H 9LT.
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