Half-yearly report

 

 

 

 

 

I am pleased to present the results of Proven Growth & Income VCT plc for the six months ended 31 August 2007

 

At 31 August 2007, the Company's net asset value per Ordinary Share stood at 126.0p, an increase of 3.3p (2.5%) per share since the previous year end (after adjusting for dividends paid in the period).

 

The net asset value per 'C' share at 31 August 2007 stood at 95.7p, a small increase of 0.5p per share since 28 February 2007 (again after adjusting for dividends paid in the period).

 

Two disposals took place from the Ordinary Share pool during the period. Oasis Healthcare plc was the subject of a takeover offer generating a realised gain in the period of £219,000. The remaining holding in AIM-quoted Cardpoint plc was also sold realising a gain against original cost of £44,000.

 

The Board has reviewed the valuations of the investments held at the period end and made several valuation adjustments. The net unrealised movement on the venture capital investments was a gain of £111,000 over the period.

 

The Manager has been very active during the period in building the 'C' Share portfolio. Nine new investments were made at a total cost of £5.5 million.  The 'C' Share pool now comprises eleven investments with a total cost of £6.4 million.

 

In reviewing the valuations at the period end, the Board has agreed two valuation adjustments such that the portfolio shows a small loss of £87,000 over the six months.

 

Further details of the investments and investment management activities are included in the Investment Manager's Report below.

 

The Company holds a proportion of its surplus funds in AAA rated liquidity funds.  At the period end the Company held £18.1 million in six such funds, the majority of which related to the 'C' Share pool. The Board expects to continue to hold these investments until funds are needed for venture capital investments.

 

The return on ordinary activities after taxation for the period was £330,000 (comprising £313,000 revenue return and £17,000 capital return).  Details of how this is analysed between the share pools is shown in note 7.

 

The Company will pay an interim capital dividend of 6.0p per Ordinary Share.

 

A revenue dividend of 1.0p per C Share will also be paid.  Both dividends will be paid on 6 December 2007 to Shareholders on the registers at 16 November 2007.

 

The Company has a policy of purchasing its own shares that become available, at approximately a 10% discount to the latest published NAV, in order to help provide liquidity to those Shareholders that need it.

 

During the period the Company purchased 4,427 Ordinary Shares at an average price of 109.5p per share and 13,420 "C" shares at an average price 86.0p per share. These shares were subsequently cancelled.

 

Under the Disclosure and Transparency Directive, the Board is now required in the Company's half year results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year.

 

The Board has concluded that the key risks facing the Company over the remainder of the financial period are as follows:

 

   investment risk associated with a large proportion of the Company's assets being invested in a small number of investments;

   investment risk associated with investing in small and immature businesses; and

   failure to maintain approval as a VCT.

 

Although having a large proportion of the Company's assets invested in a small number of investments involves additional risks, this situation is not unusual within the venture capital industry and has arisen as a result of strong growth in the value of two investments.  The Board regularly reviews the position to ensure that the potential benefits of continuing to hold these investments outweighs the additional risk.

 

In the case of the other key risks, the Board is also satisfied with the Company's approach.  The Investment Manager follows a rigorous process in vetting and careful structuring of new investments and, after the investment is made, close monitoring of the business.

 

The Company's compliance with the VCT regulations is continually monitored by the Administrator, who regularly report to the Board on the current position.  The Company also retains PricewaterhouseCoopers to provide regular reviews and advice in this area.  The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level.

 

The Investment Manager's main focus now is on new investing activities, particularly in respect of the 'C' Share pool.  At 31 August 2007, approximately 26% of the 'C' Share funds were invested in VCT qualifying businesses.  With the target of 70% to be invested by 28 February 2009, the Board receives regular updates from the Manager to ensure that the satisfactory rate of investments achieved to date is maintained and a good quality, well-diversified portfolio is built in a timely manner.

 

Despite the recent turbulence in stockmarkets, the Board is cautiously optimistic that the Manager can deliver further good results from this portfolio.  Although there have been a number of major, profitable realisations in recent periods, the Ordinary Share portfolio still includes a number of maturing investments with bright prospects. 

 

 

 

This review covers the Company's six month period ended 31 August 2007. The total return attributable to the ordinary shares was 201.9p, more than double the initial subscription price, and an increase of 2.1% over the period. This compares to an increase in the total return on the FTSE All Share Index over the six month period of 4.2%.

 

The 'C' Shares show a total return of 97.7p compared to 94.5p at launch and a small increase of 0.5p over the total return at 28 February 2007.

 

The Company continued to comply with the VCT regulations throughout the period.

 

The period has seen a significant number of new investments from the 'C' Share pool, and two further realisations from the ordinary share pool.

 

During the period the Company made two realisations. Oasis Healthcare, which was one of the VCT's earliest investments back in 2001, was sold after a period of sustained performance generating a total gain of 2.3 times the initial investment. The Company's remaining holding in Cardpoint was finally sold at a small profit to the initial cost.

 

The period saw good progress towards investing the proceeds of the 2005/2006 'C' Share fundraising. In total, nine new investments totalling £5.5 million were made.

 

An agreement has been reached to make further investments in both Heritage Media Partners and Charterhouse Leisure subject to satisfactory performance and the achievement of other targets.

 

At 31 August 2007, the Company's quoted and unquoted Ordinary Share pool comprised 11 investments valued at £6.3 million. The major change for investments held at 28 February 2007 was a further uplift in the value of Espresso Broadband reflecting continued good progress within its core primary school market and the increasing contribution made by its newer, recent acquisitions. Offsetting this gain, in part, have been falls in the valuations of AIM companies Pilat and UBC Media. The Company's investment in Gyro has also fallen slightly as the result of the fall in market comparables although we continue to be pleased with the company's progress.

 

In addition to the venture capital investments, the Ordinary Share pool held over £1.2 million in cash and liquidity funds.

 

At 31 August 2007, the Company's quoted and unquoted 'C' Share pool comprised 11 investments with a total value of £6.6 million. Nine of these investments were valued at cost in accordance with venture capital valuation guidelines, the exceptions being ILG and Gyro which were valued on an earnings multiple basis. In addition, the 'C' Share pool held over £17 million in cash and liquidity funds.

 

Further details of both portfolios are provided below.

 

The Company has made good progress towards investing the proceeds of the C share fundraising and, equally importantly, we continue to take an active role in the management of the existing portfolio. We are excited to be working again with proven entrepreneurs from previous portfolio companies following the Company's investments in Charterhouse Leisure (run by the management team from former portfolio company Ma Potters) and Steak Media (run by senior executives from Espotting) In addition, we are delighted to be backing new management teams with exciting ideas and visions.

 

The stockmarket falls of August 2007 demonstrate the dynamic environment in which we operate. Debt providers now appear to be taking a more cautious approach to funding new investments and this may have an effect on both new investment and possible exit opportunities. We believe, however, that strong, well managed businesses will continue to do well and are broadly pleased with the overall performance and positioning of the portfolios.

 

 

 

 

 

 

 

 

 

 

 

 

All venture capital investments are unquoted unless otherwise stated.

 

* Quoted on AIM

 

 

 

 

 

1. The unaudited interim results cover the six months to 31 August 2007 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 28 February 2007 which were prepared under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised December 2005 ("SORP").

 

2. All revenue and capital items in the Income Statement derive from continuing operations.

 

3. There are no recognised gains or losses other than those disclosed in the Income Statement.

 

4. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

 

5. The comparative figures were in respect of the period ended 31 August 2006 and the year ended 28 February 2007 respectively.

 

6. Net Asset Value per share calculations are based on the following: 

 

7. Return per share calculations are based on the following:

 

 

 

 

The Special Reserve is a distributable reserve that allows the Company to make market purchases of its own shares and to pay distributions. The Ordinary Capital reserve - realised and Revenue Reserves are also distributable reserves.

 

10. 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 2007 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.

 

11. On 4 October 2007, Shareholder approval was granted for a minor amendment to the Performance Incentive Fee Arrangements with the Investment Manager, Beringea Limited.  The amendment replaced a hurdle that was based on net asset value in the original arrangements with an equivalent hurdle based on a performance value calculated by adding net asset value to cumulative dividends paid. The adoption of this amendment helps avoid a possible situation that could arise where the Investment Manager might not have been incentivised to support the payment of a dividend, although has this no material affect on the current financial position of the Company.

 

12. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the "Statement: Half-Yearly Financial Reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by:

 

DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

 

13 Copies of the unaudited interim results will be sent to shareholders shortly. Further copies can be obtained from the Company's Registered Office.