Interim Results
Proven VCT PLC
17 October 2006
ProVen VCT plc
Interim Statement for the six months ended 31 August 2006
RECENT PERFORMANCE SUMMARY
31 Aug 28 Feb 31 Aug
2006 2006 2005
pence pence pence
Net asset value per Ordinary share 133.9 111.3 109.3
Cumulative distributions per Ordinary share 22.2 18.7 15.7
Total return per Ordinary share 156.1 130.0 125.0
CHAIRMAN'S STATEMENT
Introduction
It is very pleasing to report to you the results of ProVen VCT plc for the six
months ended 31 August 2006. The sale of Mergermarket Limited, which was agreed
in August and completed in September, has given rise to a substantial increase
in the Company's net asset value and now places it comfortably in the top ten
best performing VCTs (based on total return since launch).
Net Asset Value
As at 31 August 2006, the Company's net asset value per share ('NAV') stood at
133.9p and the total return (NAV plus cumulative dividends) stood at 156.1p, an
increase of 26.1p (23.5%) since the last year end of 28 February 2006 (after
adding back the 3.5p per share dividend paid in the period).
Venture Capital Investments
Following the agreement with Pearson Plc, owner of the Financial Times Group, to
acquire Mergermarket Limited, the Company's investment was revalued upwards from
£4.7 million to £10.7 million, equivalent to an increase of 25.2p in the NAV.
This is a very satisfactory result for an initial investment of £780,000 and the
Board congratulates the Investment Manager on the active role it has played in
delivering this excellent outcome. The transaction completed in September and
most of the cash proceeds were received at the same time. Further details are
included in the Investment Manager's Report.
In addition to the above, there has been other positive news from the portfolio,
including gains by some of the Company's AIM investments and encouraging
developments from some of the unquoted companies. As is to be expected with a
venture capital portfolio of this type, some investments have underperformed and
provisions against their valuations have been necessary. However, over the
period, the investment portfolio showed total net unrealised gains of £6.3
million.
Liquidity Fund Investments
The Company holds a proportion of its surplus funds in AAA rated liquidity
funds. At the period end the Company held £4.7 million in three such funds.
The Board expects to continue to hold these investments until funds are needed
for venture capital investments.
Results
The return on ordinary activities after taxation for the period was £6.2 million
(£110,000 revenue return and £6.1 million capital return).
Dividend
As a result of the successful completion of the Mergermarket sale, the Board is
pleased to announce the payment of a special dividend of 31p per share. This
dividend will be paid on 7 December 2006 to shareholders on the Register at 3
November 2006. This will bring total dividends paid since launch to 53.2p. The
total return, on the basis of the 31 August 2006 results but after payment of
the dividend and accruing for the related performance incentive fee, will be
150.1p.
Repurchase of Shares
The Directors are conscious that the market in the Company's shares is
relatively illiquid as a result of there being no upfront income tax relief for
investors purchasing second-hand shares in the market. The Company, therefore,
has a policy of purchasing its own shares to help provide liquidity to those
shareholders that need it.
During the period the Company purchased 283,957 shares at an average price of
104.2p per share. These shares were subsequently cancelled.
Outlook
A review of the portfolio following the sale of Mergermarket reveals that a
number of the other investments are developing well. In particular, Espresso
Broadband continues to grow rapidly and is currently valued at approximately 2.5
times the cost. ILG Digital, a company operating in the high-growth on-line
advertising sector, has already doubled in value less than one year from the
date of our investment. Given the proven expertise of the Investment Manager in
extracting value form the portfolio, the Board continues to have confidence
regarding the Company's future performance.
Andrew Davison
Chairman
INVESTMENT MANAGER'S REPORT
Introduction
This review covers the Company's six month period ended 31 August 2006. It is
very pleasing to be able to report a 20.1% increase in the total return,
following the agreement to dispose of the Company's investment in Mergermarket
for more than twice the previous valuation. The rest of the portfolio continued
to make satisfactory overall progress and the Company continued to comply with
the VCT regulations throughout the period.
Portfolio Activity
On 8 August 2006, the Financial Times Group signed a conditional agreement to
purchase Mergermarket for over £110 million. This valued the Company's
investment in Mergermarket at £10.7 million, an increase of 130% compared to 28
February 2006. The valuation represents a return on investment of almost 14
times the cost of the Company's investment, which dates originally from 2001.
The sale was completed on 29 September 2006. This outstanding result is the
culmination of several years' exceptional performance by the Mergermarket
management team and staff, with board level support from our investment
management team.
In March, we arranged a further investment of £681,000 in Espresso Broadband.
This investment was to support the acquisition of Netmedia, a complementary
business in the education sector. The number of UK primary schools subscribing
to Espresso's video-rich educational content continues to grow rapidly and now
stands at around 8,500 schools, representing c. 45% of the total market. We are
working actively with the company to help it maximise other opportunities to
increase shareholder value.
In the quoted portfolio, we took the opportunity to rationalise the portfolio by
realising the remaining holdings in VI Group and Miva, both at losses to the
original purchase cost.
Portfolio Valuation
At 31 August 2006, the Company's unquoted and quoted portfolio comprised 18
investments with a cost of £14.7 million and a valuation of £24.5 million.
Further details are shown on page 9.
Espresso Broadband, which after the sale of Mergermarket is the largest
investment by value in the portfolio, continues to perform in line with
expectations and we remain confident about the potential for a successful exit.
One of the most recent investments, ILG Digital (formerly i-Level), a digital
media agency, has performed exceptionally well and the valuation has been
increased from £1 million to £2.1 million. A number of other investments in the
portfolio are also making good progress.
We are, however, disappointed to report that both Linguaphone and Zenith Group
are in administration despite the best efforts of both the management teams and
ourselves to generate value for the businesses. We do not expect any return from
either of these investments. This does not have any effect on the net asset
value in the current period as both investments were fully provided against in
February 2006.
Additionally, we have prudently written down the investments in JVTV (to £nil)
and Steribottle (to £114,000) given our concern over the development of the
businesses. We nevertheless remain committed to maximising value from these
investments.
Outlook
The sale of Mergermarket demonstrates the scale of the returns that can
potentially be generated from venture capital investing. In this case an
exceptionally talented and focussed management team, backed by supportive
investors, executed a well thought out business plan. Supported by favourable
market conditions, the company has delivered excellent returns for its
shareholders. Clearly not all companies will be as successful as Mergermarket
and, in some cases, businesses will fail despite the best efforts of those
involved. However, by taking a portfolio approach, opportunities exist for
experienced and skilful venture capital investment managers to generate
attractive overall returns.
We continue to work closely with the other companies in the Company's investment
portfolio and given favourable economic conditions we remain optimistic about
the future performance of the Company and the ability to deliver strong returns
to its shareholders.
Beringea Limited
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 August 2006
31 Aug 2006 31 Aug 2005 28 Feb 2006
(restated)
£'000 £'000 £'000
Investments 24,472 18,955 17,653
Net current assets 7,323 7,743 9,080
Net assets 31,795 26,698 26,733
Capital and reserves
Called up share capital 1,187 1,221 1,201
Capital redemption reserve 110 76 96
Special reserve 13,780 15,846 15,468
Share premium account 3,759 3,759 3,759
Capital reserve - realised 2,918 1,689 2,287
Capital reserve - unrealised 9,806 3,970 3,319
Revenue reserve 235 137 603
Equity shareholders' funds 31,795 26,698 26,733
Net asset value per Ordinary share 133.9p 109.3p 111.3p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 Aug 2006 31 Aug 2005 28 Feb 2006
£'000 £'000 £'000
Opening shareholders' funds 26,733 24,785 24,785
Issue of shares - 2,961 2,961
Repurchase of own shares (297) (899) (1,276)
Total recognised gains for the period 6,196 638 1,782
Distributions paid in period (837) (787) (1,519)
Closing shareholders' funds 31,795 26,698 26,733
INCOME STATEMENT
for the six months ended 31 August 2006
Six months ended
31 Aug 2006
Revenue Capital Total
£'000 £'000 £'000
Income 303 - 303
Gains on investments - 6,282 6,282
303 6,282 6,585
Investment management fees (74) (221) (295)
Other expenses (94) - (94)
Return on ordinary activities 135 6,061 6,196
Taxation (26) 26 -
Return attributable to equity shareholders 109 6,087 6,196
Return per Ordinary share 0.5p 25.1p 25.6p
Six months ended Year ended
31 Aug 2005 28 Feb 2006
(restated)
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Income 286 - 286 1,030
Gains on investments - 827 827 1,694
286 827 1,113 2,724
Investment management fees (95) (286) (381) (765)
Other expenses (94) - (94) (177)
Return on ordinary activities 97 541 638 1,782
Taxation (14) 14 - -
Return attributable to equity shareholders 83 555 638 1,782
Return per Ordinary share 0.3p 2.3p 2.6p 7.4p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 31 August 2006
Six months ended
31 August 2006
Revenue Capital Total
£'000 £'000 £'000
Return attributable to equity shareholders 109 6,087 6,196
Total recognised gains since last report 109 6,087 6,196
Six months ended Year ended
31 Aug 2005 28 Feb 2006
Revenue Capital Total Total
£'000 £'000 £'000 £'000
Return attributable to equity shareholders 83 555 638 1,782
Total recognised gains since last report 83 555 638 1,782
UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 August 2006
Six months Six months
ended ended Year ended
31 Aug 2006 31 Aug 2005 28 Feb 2006
Note £'000 £'000 £'000
Cash (outflow)/inflow from operating activities
and returns on investments 1 (270) (36) 170
Capital expenditure
Purchase of investments (681) - (2,483)
Sale of investments 114 3,076 8,202
Net cash inflow from capital expenditure (567) 3,076 5,719
Equity distributions paid (841) (787) (1,519)
Management of liquid resources
Purchase of current investments held as - - (3,900)
liquidity funds
Withdrawal from liquid funds 950 - 900
Net cash (outflow)/inflow before financing (728) - 1,370
Financing
Proceeds from share issue - 3,097 3,097
Share issue costs - (136) (136)
Purchase of own shares (225) (944) (1,276)
Net cash outflow from financing (225) 2,017 1,685
(Decrease)/increase in cash 2 (953) 4,270 3,055
Notes to the cash flow statement:
1 Cash flow from operating activities and
returns on investments
Revenue return on ordinary activities before 135 97 662
taxation
Expenses charged to capital (221) (286) (574)
(Increase)/decrease in prepayments and accrued (64) 146 72
income
(Decrease)/increase in accruals and deferred (120) 7 10
income
Net cash (outflow)/inflow from operating (270) (36) 170
activities
2 Analysis of net funds
Beginning of period 3,484 429 429
Net cash (outflow)/inflow (953) 4,270 3,055
End of period 2,531 4,699 3,484
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 August 2006
Cost Valuation % of Movement
portfolio in the
period
£'000 £'000 by £'000
value
Top ten venture capital
investments
Mergermarket Limited 780 10,711 29.3% 6,048
Espresso Broadband Limited 2,048 4,583 12.5% 63
ILG Digital Limited (formerly 1,000 2,052 5.6% 1,052
i-Level Limited)
SPC International Limited 1,146 1,397 3.8% 158
Campden Media Limited 975 975 2.7% -
Ma Potter's Limited 700 974 2.7% (338)
Ashford Colour Press Limited 1,000 867 2.4% (147)
UBC Media plc* 1,100 709 1.9% (37)
Oasis Healthcare plc* 670 679 1.9% 384
Pilot Medial Global plc* 250 672 1.9% 199
9,669 23,619 64.7% 7,382
Other venture capital investments 4,996 853 2.3% (1,073)
Total investments 14,665 24,472 67.0% 6,309
Net current assets (including cash and 7,323 33.0%
liquidity funds)
Total 31,795 100.0%
All venture capital investments are unquoted unless otherwise stated.
* Quoted on AIM
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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.
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 a venture capital trust 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.
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 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. All revenue and capital items in the Income Statement derive from continuing
operations.
3. The Company has only one class of business and derives its income from
investments made in shares, securities and bank deposits.
4. The comparative figures were in respect of the period ended 31 August 2005
and the year ended 28 February 2006 respectively.
5. Return per share for the period has been calculated on 24,223,532 shares,
being the weighted average number of shares in issue during the period.
6. Dividends
31 August 2006 31 August 2005 28 Feb
2006
Revenue Capital Total Revenue Capital Total Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Paid in year
2006 Second interim 478 359 837 - - - -
2006 First interim - - - - - - 732
2005 Final - - - 281 506 787 787
478 359 837 281 506 787 1,519
Proposed
2007 First interim 7,361 7,361 - - - -
2006 Second interim - - - - - - 837
2006 First interim - - - - 732 732 -
- 7,361 7,361 - 732 732 837
7. Reserves
Capital Special Share Capital Capital Revenue Total
redemption reserve reserve - reserve - reserve
reserve premium realised unrealised
account
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 March 2006 96 15,468 3,759 2,287 3,319 603 25,532
Shares repurchased 14 (297) - - - - (283)
Expenses charged to capital - - - (196) - - (196)
Realised losses in year - - - (27) - - (27)
Increase in unrealised appreciation - - - - 6,309 - 6,309
Realisation of revaluations from previous years - - - (178) 178 - -
Distributions paid - - - (359) - (478) (837)
Transfer between reserves - (1,391) - 1,391 - - -
Retained net revenue - - - - - 110 110
At 31 August 2006 110 13,780 3,759 2,918 9,806 235 30,608
The Special Reserve, Capital Reserve - realised and Revenue Reserve are all
distributable reserves.
8. The unaudited financial statements set out herein do not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985
and have not been delivered to the Registrar of Companies. The figures for the
year ended 28 February 2006 have been extracted from the financial statements
for that year, which have been delivered to the Registrar of Companies; the
auditors' report on those financial statements was unqualified.
9. Copies of the unaudited interim results will be sent to shareholders
shortly. Further copies can be obtained from the Company's Registered Office.
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