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Proven VCT plc : Final Results(dpa-AFX International Compact Via Acquire Media NewsEdge) ProVen VCT plc Final results for the year ended 28 February 2014 Financial summary As at 28 February 2014 2013 Pence Pence Net asset value per share 103.6 103.3 Dividends paid since share consolidation * 7.5 - Total return (net asset value plus dividends paid*) 111.1 103.3 Year on year change in: Net asset value per share (adjusted for dividends) 7.6% *Dividends paid represent dividends paid since the consolidation of 5p Ordinary Shares into 10p Ordinary Shares on 30 October 2012. Prior to this date, the Company paid dividends totalling 113.95p on the 5p Ordinary Shares. Chairman's Statement I am pleased to present the Annual Report for ProVen VCT plc ("the Company") for the year ended 28 February 2014. During the year, the Company achieved a number of profitable exits which have provided the foundation for further growth in total return to Shareholders. Net asset value At 28 February 2014, the Company's net asset value ("NAV") stood at 103.6p per share. This represents an increase of 7.8p or 7.6% over the year (after adding back the dividends paid in the year). Total return (NAV plus cumulative dividends paid) for Shareholders who invested in the Company's original Ordinary Share offer in 2000 now stands at 170.8p for an investment of £1. This is before taking account of any initial income tax relief or making any adjustment for the tax free nature of dividend returns. Portfolio activity and valuation As mentioned above, the year was notable for a number of significant profitable realisations. At the start of the year, the investments in Fjordnet and Tossed were realised, producing gains against original cost of £3.6 million and £320,000 respectively (gains of 213% and 26% respectively). In November, the Company disposed of another major investment, Espresso Group, for £2.3 million in excess of original cost (gain of 177%). There were also further earnout proceeds of £1.6 million in respect of Steak Media, which was realised in the year ended 29 February 2012. Totals gains against original cost amounted to £7.9 million. Although a fair proportion of these gains had already been recognised by previous valuation uplifts, there was still a further realised gain for the year of £2.4 million. Whilst the recovering economy and generally increased levels of corporate activity have, of course, been helpful, the Investment Manager has consistently demonstrated the ability to identify young businesses with scope for strong growth, and worked with them to deliver successful exits. The Company also continued to be an active investor during the year. Two new investments were completed at a cost of £3.4 million, while there were seven follow on investments totalling £2.3 million. Within the existing portfolio, there were a number of valuation movements, the majority of which were positive. The most notable was the jewellery brand, Monica Vinader, which continues to make excellent progress and attracted a further investment of £1.1 million from the Company. The valuation was increased by £2.1 million. Total net unrealised valuation gains for the year were £2.2 million. Further details of investment activity and investments held are provided in the Investment Manager's Review and the Review of Investments. Results and dividends The total return on ordinary activities for the year was £3.6 million, comprising a £277,000 revenue return and a £3.4 million capital return. The Board is proposing a final dividend of 2.5p per share to be paid on 25 July 2014 to Shareholders on the register at 27 June 2014. This follows the interim dividend of 2.5p per share paid in November 2013 and the special interim dividend of 2.5p per share paid in March 2014. Dividends in respect of the year ended 28 February 2014 will total 7.5p, which equates to a yield of 7.3% based on the opening net asset value. This is in line with the Company's stated dividend policy of seeking to pay a target yield of 5% and further dividends when major gains on realisations are achieved. Board appointment Shareholders will be aware from the half-yearly report, that, in view of the increasing size of the Company, the Directors decided it was an appropriate time to strengthen the Board by the appointment of a fourth non-executive director. After an exercise to find a suitable candidate, we were pleased to welcome Lorna Tilbian to the Board in July 2013. Lorna is an Executive Director and Head of the Media Sector at Numis Corporation plc, where she has worked since 2001. She has previously had roles at Sheppards, SG Warburg and WestLB Panmure. Lorna's media industry experience is proving to be a significant enhancement to the Board. Fundraising activities The Company launched an offer for subscription in October 2013 seeking to raise up to £20 million. To date the offer has raised gross proceeds of approximately £14.8 million and is currently scheduled to close on 30 September 2014. Earlier in the year, the Company closed a small, non-prospectus offer for subscription which was launched in November 2012. The offer raised gross proceeds of £3.7 million. The Company also offered an Enhanced Buyback Facility in April 2013, which was well received by Shareholders. Share buybacks The Company has a policy of buying in shares that become available in the market at a discount of approximately 5% to the latest published net asset value. The Company retains Panmure Gordon as its corporate broker. Shareholders who are considering selling their shares may wish to contact Panmure Gordon prior to any sales, who will be able to provide details of the price at which the Company is buying shares. Excluding the Enhanced Buyback Facility transaction, the company purchased 1,195,760 shares during the year at an average price of 91.6p per share and for an aggregate consideration of £1.1 million. This represents 2.6% of the shares in issue at the start of the year. All the above 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"). Shareholder circulars In June 2013, the Company issued a circular seeking Shareholder approval for a modification of the Investment Policy to allow non-qualifying investments in debt and debt related securities of growth companies. The circular also sought approval to correct a drafting error in the performance fee arrangements. Both resolutions were approved by Shareholders at a general meeting on 30 July 2013. The Company also published a circular in April 2014 in respect of some minor changes to the performance incentive arrangements. Downing LLP, the promoter of the Company's original fundraising in 2000, had agreed to give up its historic 9% share of the performance fees. Under the proposals, this proportion of performance fees in future, if any are payable, will be paid to the Investment Manager. Shareholders approved the related party transaction at a general meeting on 8 May 2014. Amendment to the Articles of Association The Company is an evergreen VCT which seeks to provide long-term tax free income to its Shareholders, with no planned wind-up date. The Company regularly undertakes fundraisings, providing new and existing investors with the opportunity to benefit from the upfront VCT tax reliefs as long as they continue to hold their investment for at least five years. In order to ensure that there is reasonable certainty that new investors will be able to hold their shares for the minimum period, the Board is proposing to remove the requirement in the Company's Articles of Association for Shareholders to regularly vote on a resolution for the Company to continue as a venture capital trust. The Directors do not believe that this change will have any significant negative impact on the way the Company is run and it does not prevent the Directors from proposing such a resolution if, at any time in the future, they believe this to be in the best interests of Shareholders. Resolution 12 in the Notice of the AGM proposes this amendment. 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 12.30 p.m. on 22 July 2014. Four items of special business will be proposed at the AGM as follows: * two resolutions in connection with the authority for the Directors to allot shares; * one resolution in respect of share buybacks; and * one resolution to amend the Articles of Association. In order to give the Board flexibility in considering fundraising options over the next year without necessarily having to incur the costs of preparing an additional Shareholder circular, the Board is seeking authority to issue and allot up to approximately £25 million worth of new shares. Notice of the AGM is at the end of this document. Shareholder event Following the success in recent years of the Investment Manager's annual shareholder event, another event is being arranged for 2014. This year it will take place on Wednesday 29 October 2014 at 10.30 a.m. at the British Library, 96 Euston Road, 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 is being sent to all Shareholders. I recommend that Shareholders who wish to attend respond promptly as there is limited capacity. Outlook Following the realisations that have taken place over the last year or so, along with the new funds raised from another successful fundraising, the Company now has substantial capital available to make further investments. Over the next year, new investment activity will be a priority. The Investment Manager reports a strong flow of potential investment opportunities, albeit against a competitive background, and we expect to see a number of these become new portfolio companies over the next 12 months. Although several of the more mature investments have now been sold, the portfolio still includes a number of investments offering the prospect of further profitable exits in the coming years, particularly with the general improvements in the economy that we are now seeing. Through a combination of working with existing portfolio companies and securing quality new investments, the Board is confident that the Investment Manager can continue to deliver solid returns for Shareholders well into the future. The VCT industry continues to be an important part of the Government's strategy of encouraging investment in small companies and it seems unlikely to stop. Indeed, VCTs are increasingly viewed as an alternative to pensions. However, there continues to be a stream of changes, many of which are initiated from Brussels, and as a result, our strategy may have to be amended from time to time. Andrew Davison Chairman Investment Manager's Review Introduction We have pleasure in presenting our annual review for the year ended 28 February 2014. Review of the year The year has been marked by notable exits from Fjordnet, Tossed and Espresso Group and the receipt of further significant proceeds in respect of former portfolio company, Steak Media, as part of the earnout agreed on disposal. The realisation of Fjordnet, which generated a four times return on ProVen VCT's equity investment, was awarded "VCT Exit of the Year" at the Unquote British Private Equity Awards in October. There were two new investments totalling £3.4 million and seven further investments in existing portfolio companies totalling £2.3 million. At the year end, the venture capital portfolio comprised 29 companies at a cost of £22.8 million and a valuation of £26.9 million. In addition, there was cash available for investment of £27.2 million, including funds raised from the Company's current offer for subscription. Portfolio activity and valuation Investment activity across the portfolio is summarised below. Portfolio realisations, including an estimate of the expected value of proceeds receivable in the future, totalled £14.4 million or 29% of the opening net asset value of the Company. The realisations of Fjordnet and Tossed were mentioned in last year's Annual Report having occurred shortly after the February 2013 year end. In November, we were pleased to conclude the sale of Espresso Group to US- based Discovery Education, part of the media giant, Discovery Inc. Espresso's strong market presence as a provider of digital education content to UK primary and secondary schools made it an ideal strategic fit with Discovery Education's US and international operations and generated a return for the Company of £3.6 million. This represented a multiple of three times the cost of ProVen VCT's equity investment in Espresso. There were a number of other capital repayments, mainly loan note redemptions and repayments, including Sports Holdings, Cogora Group (formerly Campden Media), SPC International and Cross Solar PV. Significant new investments were made in Pulpitum (£2.1 million) and Disposable Cubicle Curtains ("DCC") (£1.3 million). Pulpitum is a company established to take advantage of opportunities within the digital sector which has long been a fruitful area of investment for the Company. ProVen Growth and Income VCT plc, also managed by Beringea, invested an additional £2.9 million. DCC trades under the brand name "All in One Medical" and provides an expanding range of patented, biocide impregnated disposable curtains and blinds for use in hospitals and clinics to help reduce the incidence of hospital acquired infections. The Company's investment, alongside funding of £1.7 million from ProVen Growth and Income VCT, will enable continued growth and development of the business, including investment in the UK based manufacturing operation and an increasing level of exports. A further significant investment of £1.1 million was made in Monica Vinader, the jewellery designer and retailer, to enable the company to open several more Monica Vinader branded stores and to invest in its website in order to generate more online sales. The company continues to progress with annual sales increasing by 58% in the year to July 2013. Following this strong performance and the new investment, Monica Vinader is now the largest investment in the ProVen VCT portfolio, accounting for 7.7% of the Company's investment portfolio. There continues to be good progress across a number of the portfolio companies. The ten largest investments by value are all valued above, or at, cost and a number of the smaller holdings are also showing good growth potential. Post year end developments Since the year end the Company has completed further investments totalling £4.0 million including three new VCT qualifying investments, one further investment of £175,000 into Charterhouse Leisure and the Company's first non-qualifying debt investment. One AIM investment was exited in full and the Company received further earnout proceeds from Steak Media. In May the Company concluded investments of £1.6 million in MyOptique Group, £1.1 million in Response Tap and £530,000 in Big Data Partnership. MyOptique is Europe's leading online eyewear retailer in a market estimated to be worth €25 billion and includes the brands "Glasses Direct" and "Sunglasses Shop". With significant venture capital funding prior to this investment, MyOptique has proven the viability of the online market and, with further funds from the ProVen VCTs and other investors, is well positioned to continue its development. Response Tap ("RT") is a cloud-based call analytics solution for companies that seek to improve their conversion of online traffic via telephone sales. Clients use the RT product to improve the effectiveness of their online advertising; in the future, the RT product will also be used to automatically direct customers to the most relevant sales people, thereby further increasing conversion rates. Big Data Partnership ("BDP") is a professional services / consultancy firm specialising in providing independent advice to corporates in the area of big data analytics. BDP is addressing an attractive, fast growing market sector. Expenditure on information technology products and services in the big data area is predicted to reach $16.1 billion in 2014, growing to $23.8 billion by 2016. In April, the Company completed its first non-qualifying debt investment, a £600,000 investment in technology company Peerius, as part of a total investment of £1.2 million from Beringea-managed VCTs. Peerius's suite of SMART products allows its retail clients to treat each visitor to their websites as a unique individual. Complex algorithmic software ensures that each customer is offered exactly what they want. This provides a better user experience for the customer and increased sales for Peerius's clients. Clients include leading retailers Arcadia Group, Charles Tyrwhitt, Tommy Hilfiger, notonthehightstreet.com, AO.com, Wickes and Superdry. In April, the shareholders of AIM quoted Pilat Media Global approved the company's acquisition by Sintec Media, an Israeli company. The offer price of 95.0p per share generated a realised profit of £648,000 on the Company's year end shareholding, and, together with previous disposals, an overall return of 3.9 times the Company's total investment. In May, we received further earnout proceeds of £1.5 million from the previous realisation of Steak Media. This takes the total return from Steak Media to 5.5 times the initial cost of investment. Outlook VCTs continue to play an important role in the development of UK small and medium sized companies. The improvement in the UK economy and wider international markets has provided exit opportunities for a number of portfolio companies and has improved confidence amongst entrepreneurs and business managers looking for funding to develop their businesses. As demonstrated by the recent disposals of Fjordnet and Espresso Group, and previous disposals such as Steak Media, the Company is investing in businesses that are attractive to international buyers. Following a successful share offer during the 2013/14 and 2014/15 tax years, the Company is well placed to provide funding for both existing and new businesses and has a strong pipeline of new deals. In addition, as a mature and established VCT, we expect the existing portfolio to continue to develop and provide further exit opportunities. Beringea LLP Investment Activity Investment activity during the year is summarised as follows: Additions Cost £'000 Pulpitum Limited 2,100 Disposable Cubicle Curtains Limited 1,270 Monica Vinader Limited 1,085 Utility Exchange Online Limited 350 Cogora Group Limited (previously Campden Media Limited) 334 Senselogix Limited 159 Speed-Trap Holdings Limited 142 Skills Matter Limited 127 APM Healthcare Limited 75 -------- Total 5,642 -------- Total Market Gain realised value at Disposal against gain Cost 01/03/13 * proceeds cost during Disposals the year £'000 £000 £'000 £'000 £'000 Fjordnet Limited 1,675 4,939 5,258 3,583 319 Espresso Group Limited 1,316 3,239 3,650 2,334 411 Tossed Limited 1,226 1,546 1,546 320 - SPC International Limited 875 875 875 - - Cogora Group Limited 647 647 647 - - Cross Solar PV Limited 598 598 598 - - Speed-Trap Holdings Limited 142 142 142 - - Donatantonio Limited 71 71 92 21 21 Sports Holdings Limited 4 4 4 - - Saffron Media Limited - - 35 35 35 Steak Media Limited - - 1,565 1,565 1,565 Isango! Limited - - 2 2 2 --------------------------------------------- Total 6,554 12,061 14,414 7,860 2,353 --------------------------------------------- * Adjusted for purchases during the year Of the investments above, Steak Media Limited, Saffron Media 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 2014 The following investments were held at 28 February 2014: Valuation movement % of Cost Valuation in year portfolio £'000 £'000 £'000 by value Top ten venture capital investments (by value) Monica Vinader Limited* 1,447 4,151 2,069 7.7% Think Limited* 1,606 2,971 (426) 5.5% Pulpitum Limited 2,100 2,100 - 3.9% SPC International Limited* 1,146 1,910 376 3.6% Cognolink Limited 949 1,620 671 3.0% Donatantonio Limited* 1,396 1,502 (890) 2.8% Cogora Group Limited (formerly Campden Media Limited) 975 1,407 272 2.6% Blis Media Limited* 482 1,308 189 2.4% Disposable Cubicle Curtains Limited 1,270 1,270 - 2.3% Charterhouse Leisure Limited 700 1,214 390 2.2% ------------------------------------- 12,071 19,453 2,651 36.0% Other venture capital investments 10,757 7,453 (429) 13.8% ------------------------------------- Total venture capital investments 22,828 26,906 2,222 49.8% Cash at bank and in hand 27,174 50.2% ----------- ---------- Total investments 54,080 100.0% ----------- ---------- * Partially non qualifying investment ** Non qualifying investment Other venture capital investments at 28 February 2014 comprise: Eagle Rock Entertainment Group Limited*, Matssoft Limited*, Cross Solar PV Limited, Campden Wealth Limited**, Utility Exchange Online Limited, Chess Technologies Limited, Skills Matter Limited, Speed-Trap Holdings Limited, APM Healthcare Limited, Inskin Media Limited, Cinergy International Limited, Pilat Media Global plc*, Senselogix Limited, UBC Media Group plc*, Dianomi Limited, Sports Holdings Limited**, Long Eaton Healthcare Limited**, Steribottle Global Limited**, and Vigilant Applications Limited**. With the exception of Pilat Media Global plc and UBC Media Group plc, which are quoted on AIM, all venture capital investments are unquoted. All of the above investments, with the exclusion of Think Limited and SPC International Limited, were also held by ProVen Growth and Income VCT plc of which Beringea LLP is the investment manager. Donatantonio Limited, SPC International Limited, Long Eaton Healthcare Limited, Cogora Group Limited (formerly Campden Media), Blis Media Limited and Cross Solar PV 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. Statement of Directors' responsibilities The Directors are responsible for preparing the Directors' Report, 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 requirements of 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. Income Statement for the year ended 28 February 2014 Year ended Year ended 28 February 2014 28 February 2013 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income 1,022 - 1,022 1,554 - 1,554 Gains on investments - 4,575 4,575 - 2,508 2,508 -------------------------------------------- 1,022 4,575 5,597 1,554 2,508 4,062 Investment management fees (244) (733) (977) (230) (690) (920) Performance incentive fees - (466) (466) - - - Other expenses (501) (11) (512) (376) (19) (395) -------------------------------------------- Return on ordinary activities before 277 3,365 3,642 948 1,799 2,747 tax Tax on ordinary activities - - - - - - -------------------------------------------- Return attributable to equity shareholders 277 3,365 3,642 948 1,799 2,747 -------------------------------------------- Basic and diluted return per share: 0.6p 7.1p 7.7p 2.1p 4.1p 6.2p All revenue and capital movements in the year relate to continuing operations. No operations were acquired or discontinued during the year. 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 below. 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 as shown. 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 2014 Year ended Year ended 28 February 28 February 2014 2013 Total Total £'000 £'000 Opening Shareholders' funds 47,807 36,434 Issue of shares 8,804 13,924 Share issue costs (77) (766) Purchase of own shares (5,489) (1,923) Movement in share capital to be issued 4,953 (2,609) Total recognised gains for the year 3,642 2,747 Dividends paid (3,566) - ----------------------------- Closing Shareholders' funds 56,074 47,807 ----------------------------- Balance Sheet as at 28 February 2014 28 February 28 February 2014 2013 Total Total £'000 £'000 Fixed assets Investments 26,906 31,103 ---------------------------- Current assets Debtors 2,591 283 Cash at bank and in hand 27,174 16,777 ---------------------------- 29,765 17,060 Creditors: amounts falling due within one year (597) (356) ---------------------------- Net current assets 29,168 16,704 ---------------------------- Total assets 56,074 47,807 ---------------------------- Capital and reserves Called up share capital 4,876 4,572 Capital redemption reserve 3,399 2,795 Special reserve 30,398 8,127 Share premium 70 21,570 Shares to be issued 5,550 597 Revaluation reserve 5,120 8,405 Capital reserve - realised 6,940 1,303 Revenue reserve (279) 438 ---------------------------- Equity Shareholders' funds 56,074 47,807 ---------------------------- Basic and diluted net asset value per share 103.6p 103.3p Cash Flow Statement for the year ended 28 February 2014 Year ended Year ended 28 February 28 February 2014 2013 Total Total £'000 £'000 Net cash outflow from operating activities (587) (43) Capital expenditure Purchase of investments (5,642) (4,309) Sale of investments 12,001 1,270 ------------------------Net cash inflow/(outflow) from capital expenditure 6,359 (3,039) ------------------------ Equity dividends paid (3,566) - Management of liquid resources Withdrawal from liquidity funds - 6,200 ------------------------ Net cash inflow from liquid resources - 6,200 ------------------------ Net cash inflow before financing 2,206 3,118 ------------------------ Financing Proceeds from share issues 8,804 10,718 Share issue costs (77) (766) Purchase of own shares (5,489) (1,923) Unallotted share capital 4,953 597 Disposal proceeds received on behalf of a co-investor - (909) ------------------------ Net cash inflow from financing 8,191 7,717 ------------------------ Increase in cash 10,397 10,835 ------------------------ Notes for the year ended 28 February 2014 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 the revaluation of 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. Further detail is contained in the Statement of Corporate Governance. 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. 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 asset investments Investments are designated as "fair value through profit or loss" assets due to investments being managed and 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 FRS 26 - 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, there is little likelihood of a recovery from a company in administration, or the loss in value below cost is considered to be permanent, 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 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; * 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; and * 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 VCT 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. Deferred tax assets and liabilities are not discounted. 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 as set out in note 10) are included within the accounts at amortised cost. Share issue costs Expenses in relation to share issues are deducted from the Share Premium Account upon allotment of shares, or charged against distributable reserves. 2 Basic and diluted return per share Year ended Year ended 28 February 28 February 2014 2013 Revenue return per share based on: Net revenue after taxation (£'000) 277 948 Pence per share 0.6 2.1 Capital return per share based on: Net capital gain for the financial year (£'000) 3,365 1,799 Pence per share 7.1 4.1 Weighted average number of shares in issue 47,663,042 44,205,557 3 Basic and diluted net asset value per share 2014 2013 Shares in Issue Net asset value Net asset value pence per pence per 2014 2013 share £'000 share £'000 Ordinary 48,757,653 45,718,436 103.6p 50,524 103.3p 47,210 Shares Share capital 5,550 597 to be issued -------- ------- 56,074 47,807 -------- ------- As the Company has not issued any convertible securities or share options, there is no dilutive effect on net asset value per share. The net asset value per share disclosed therefore represents both basic and diluted return per share. 4 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 Investment 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 Investment 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. 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. 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 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. The Company monitors the level of income received from fixed, floating and non 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 £280,000 (2013: £180,000). 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, cash deposits and debtors. Credit risk relating to loan stock investee companies is considered to be part of market risk. The Investment Manager manages credit risk in respect of loan stock with a similar approach as described under market risks above. In addition the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures. Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A- rated financial institutions and 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 generally maintains a relatively low level of creditors (£597,000 at 28 February 2014) and has no borrowings. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as required. For this reason, 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. 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 2014, but has been extracted from the statutory financial statements for the year ended 28 February 2014, which were approved by the Board of Directors on 19 June 2014 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 s498(2) and (3) of the Companies Act 2006. The statutory accounts for the year ended 28 February 2013 have been delivered to the Registrar of Companies and received an Independent Auditor's 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 2014 will be printed and posted 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 and www.downing.co.uk . This announcement is distributed by GlobeNewswire on behalf of GlobeNewswire clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Proven VCT plc via GlobeNewswire [HUG#1796891] B8GH9P8R441 Copyright RTT News/dpa-AFX |