Annual Financial Report

ProVen Growth and Income VCT plc Final Results for the year ended 28 February 2009 Financial Summary Ordinary Shares 'C' Shares As at 28 February 2009 2008 2009 2008 pence pence pence pence Net asset value per share 57.10 121.60 76.70 94.90 Dividends paid since launch 132.90 81.90 8.25 3.00 Total return (net asset value plus 190.00 203.50 84.95 97.90 dividends paid since launch) Year on year change in: VCT total return -6.6% -13.2% FTSE All Share Index total return -33.0% -33.0% Dividends paid/payable in respect of 45.00 26.00 3.35 4.25 year* *includes second interim dividend payable for the year ended 28 February 2009 of 14.00p per ordinary share and 1.35p per 'C' share declared after the year end Chairman's Statement Introduction I am pleased to present the Annual Report for ProVen Growth and Income VCT plc for the year ended 28 February 2009. I would like to welcome any new shareholders who may have subscribed under the Company's "Linked D Share offer". The dramatic deterioration in economic conditions over the year has naturally had some impact on your Company. Portfolio companies now face greater challenges and the valuation of those businesses has fallen partly as a result of falls in stock market comparables which, in many cases are used as the bases for your Company's investment valuations. Net Asset Value Ordinary Shares At 28 February 2009, the Company's Ordinary Share Net Asset Value ("NAV") stood at 57.1p per share, a decrease of 13.5p or 11.1% since 29 February 2008 after adjusting for the dividends of 51p per share which were paid during the year. By way of comparison, the FTSE All¬Share Index fell by 36.0% over the same period. The Total Return (NAV plus dividends paid to date) to Ordinary Shareholders that invested at the Company's launch now stands at 190.0p. 'C' Shares The NAV of the Company's 'C' Shares stood at 76.7p at 28 February 2009, a decrease of 12.15p or 13.6% since 29 February 2008 after adjusting for the dividends of 5.25p per share which were paid during the year. The Total Return (NAV plus dividends paid to date) to 'C' Shareholders that invested in the 'C' Share fundraising now stands at 84.95p compared to an original investment, net of income tax relief, of 60p per share. Portfolio Activity and Valuation Ordinary Share pool The Ordinary Share pool achieved one major investment exit during the year, being the sale of ILG Digital Limited. This was sold as part of a private equity transaction and produced proceeds of £2.2 million against an original cost of £600,000 in November 2005. The Investment Manager worked closely with the company throughout the period that the investment was held and is to be congratulated for this excellent outcome. The Ordinary share pool made one new investment in the year. An investment of £350,000 was made into Overtis Group Limited, a company specialising in technology security. The Board has reviewed the unquoted investment valuations at the year end. The Ordinary share pool has a large proportion of its value within one investment, Espresso Group. This company has continued to make good progress and is starting to develop its business into other areas. At the year end the Board has valued the investment at £1.6 million, a reduction of £0.5 million over the year, but still valued substantially above original cost. In reviewing the unquoted portfolio at the year end, the Board consider P/E ratios and similar indicators of listed businesses in similar sectors. In some cases, this alone has been the reason for the reduction in the valuation of investments. The Ordinary share pool's small portfolio of AIM investments all lost value in the year. Total unrealised losses on the portfolio for the year stood at £1.2 million. 'C' Share pool The 'C' Share pool continued to be a very active investor during the year. The pool invested £6.8 million into eight new investments and £0.9 million in five follow-on investments. At the year end the pool held a portfolio comprising 20 investments with a cost of £16.1 million. As with the Ordinary share pool, the 'C' Share pool also benefited from the exit from ILG Digital with a profit against original cost of £217,000. A number of businesses within the 'C' Share portfolio have been unable to perform to original plan, primarily due to the challenging climate. As a result, there have been some significant reductions in valuations over the year, with unrealised losses totalling £3.9 million. Full details of the investment activities of both the Ordinary and 'C' Share pools can be found in the Investment Manager's Review. VAT on Management Fees Following a European Court judgement, the Government made changes in the Finance Bill 2008 such that VCTs became exempt from paying VAT on management fees from 1 October 2008. This has the effect of slightly reducing running costs for the Company. In addition, I am pleased to report that Beringea successfully made a claim to recover VAT that had previously been charged on their management fees. In view of the fact that in some years management fees were restricted by the running costs cap and that performance fees are calculated inclusive of VAT, the Board agreed a basis on which the VAT recovered (including interest) should be apportioned between the Company and Beringea. This has resulted in a recovery to the Company of £206,000, which has been recognised in the Income Statement in the year under review. Results and Dividends The total return on ordinary activities for the year was as follows: Revenue Capital Total £'000 £'000 £'000 Ordinary Shares 49 (951) (902) 'C' Shares 539 (3,789) (3,250) 588 (4,740) (4,152) On 31 October 2008, the Company paid interim dividends of 31.0p per Ordinary Share (2008: 6.0p per share) and 2.0p per 'C' Share (2008: 1.0p) In view of the forthcoming 'C' Share conversion described below, the Board believes it is appropriate that all historic undistributed gains are distributed to Shareholders prior to conversion. The Board also believes that it is helpful for dividends to be paid prior to the Tender Offer described below. Therefore the Company will pay the following as second interim dividends in respect of the year ended 28 February 2009: Revenue Capital Total Pence Pence Pence per per per share share share Ordinary Shares 1.00 13.50 14.00 'C' Shares 0.85 0.50 1.35 These dividends will be paid on 3 July 2009 to Shareholders on the register at 19 June 2009. Linked 'D' Share issue In November 2008, the Company launched a Linked 'D' Share offer, in conjunction with ProVen VCT plc. No shares were issued before 28 February 2009 and therefore 'D' Shares are not included in the balance sheet and income statement in this report. Up to the date of this report, the offer had raised a total of £9.3 million of which £4.7 million was allocated to 'D' Shares issued and to be issued by ProVen Growth and Income VCT plc. The offer is scheduled to close on 30 October 2009 (or earlier if fully subscribed) and should provide the Company with a reasonable level of additional funds for further investment. 'C' Share Tender Offer The prospectus issued by the Company in November 2005 in connection with the 'C' Share fundraising stated the Company's intention to return at least 25p per 'C' share to 'C' Shareholders by 30 June 2009. Some outline details of a Tender Offer planned to take place by that date were set out in the prospectus. The Board is pleased to confirm that the Company will fulfil its intention and has released details of the proposed Tender Offer. Full details are set out in the circular that is being sent to 'C' Shareholders. The Tender Offer will be subject to Shareholder approval at the forthcoming Annual General Meeting ("AGM"). 'C' Shareholders who wish to use their Tender Offer proceeds to subscribe for 'D' Shares pursuant to the Linked D Share offer at a 3.5% discount to the normal subscription price should refer to the Tender Offer circular. Chairman's Statement continued C Share Conversion and Share Consolidation Following the 'C' Share Tender Offer described above and as set out in the Company's 'C' Share prospectus, the Company intends to convert the 'C' Shares into Ordinary Shares. The Directors are proposing that the conversion timetable is adjusted slightly to fit into the Company's reporting deadlines. It is proposed that conversion is based on the relative NAVs of the Ordinary Shares and 'C' Shares as at 31 August 2009 and that conversion take places within 45 days of 31 August 2009. Resolution 11 proposing this amendment will be put to Shareholders at the AGM. Following the conversion, it is further proposed that the Ordinary Shares are consolidated into New Ordinary Shares at such a ratio such that the NAV of the New Ordinary Shares will be equal to that of the 'C' Shares before conversion. As the 'C' Share class has significantly more members than the existing Ordinary Share class, the Board feels that this consolidation makes it more straightforward for the majority of Shareholders to follow the value of the investment. After the conversion and consolidation, the Company will have two share classes, New Ordinary Shares and 'D' Shares, which will simplify the investment management and administration of the Company. All Shareholders (except 'D' Shareholders) will receive new share certificates for the New Ordinary Shares following the conversion and consolidation. Share Buybacks In order to ensure liquidity in the market in the Company's shares, the Company has operated a policy of buying in its own shares that become available in the market. During the year, the Company repurchased 52,889 Ordinary Shares at an average price of 87.5p per share and 100,535 'C' Shares at an average price of 76.2p for cancellation. In view of the forthcoming Tender Offer and 'C' Share conversion, the Board does not intend to make any further purchases of 'C' Shares. The Board intends to continue to make purchases of Ordinary Shares (and following conversion, New Ordinary Shares) as and when they become available in the market. It expects to make such purchases at approximately a 10% discount to the latest published NAV, although the Board regularly reviews the discount level and number of shares to be repurchased and may amend this policy if in the interests of the Company. A special resolution to allow the Board to continue to purchase shares for cancellation will be proposed at the forthcoming AGM. Annual General Meeting The AGM of the Company will be held at 39 Earlham Street, London WC2H 9LT at 10:15 am on 7 July 2009. Five items of special business will be proposed at the AGM in respect of share buybacks as mentioned above, two resolutions in connection with authority for the directors to allot shares, a resolution in respect of the 'C' Share conversion and a resolution in respect of the Tender Offer. Outlook Although the Company's NAVs have fallen over the year, the Board remains broadly satisfied with the portfolio companies performance given the difficult conditions. The Board does not expect to see significant increase in value over the coming year, but over the longer term, good quality companies that can adapt to the conditions should be well positioned to deliver rewards to Shareholders when conditions improve. Both the Ordinary share pool and the 'C' Share pool have some funds available for investment. In addition, the 'D' Share pool will start to invest its newly raised funds shortly. Although it remains a risky time for investing, it may now be the time in the economic cycle when opportunities start to arise that can produce excellent returns in due course. Andrew Davison Chairman Investment Manager's Review Introduction Beringea LLP is a specialist venture capital management company which has been established for over 20 years. It currently manages approximately £70 million of venture capital funds and has been the investment manager of Proven Growth and Income VCT plc since inception in 2001. The Company currently has three share classes: ordinary shares, 'C' shares and 'D' shares. The ordinary share pool was established in 2000 with a further fundraising in 2008. The 'C' share pool was established in 2006. Further details of the performance of these pools is provided below. In the current year, the Company announced a linked 'D' Share fundraising with ProVen VCT plc. The offer remains open but has currently raised over £9.3 million, of which the Company has taken £4.7 million which will be primarily used for future investment. At 28 February 2009, no 'D' shares had been issued. Ordinary Share Pool ¬Share Performance & Portfolio We were pleased to be able to generate further capital profits which has enabled the Company to maintain the strong dividend returns to Ordinary shareholders with dividends paid during the year of 31p. The total dividends paid to original shareholders stood at 132.90p at 28 February 2009. A further dividend for the year to 28 February 2009 of 14.00p was declared on 9 June 2009, bringing total dividends paid to 146.9p and an annual tax free average dividend of 18.4p. The portfolio benefited from the successful sale of ILG Digital to the Private Equity firm ECI for £45.5 million. We were pleased to execute a sale of a quality asset at a point which with hindsight was close to the top of market values. The exit delivered a return on capital of 3.3x in under two and a half years. The Ordinary Share portfolio made one new investment, Overtis (rebranded from OpticVision after our investment), during the year. Overtis provides computer security and access control systems and has performed strongly on the back of increasing concerns over both internal and external threats to data security and intellectual property. At 28 February 2009, the Company's unquoted and quoted Ordinary Share portfolio comprised nine investments with a cost of £2.8 million and a valuation of £2.4 million. In addition, the Ordinary Share pool held cash and liquidity funds of £1.5 million. Espresso Group Limited accounts for over 40% of the Ordinary Share NAV, a reflection of the maturity of the portfolio and the disposal of earlier investments. Espresso continues to perform strongly and has established itself as the dominant provider of online educational video content to the UK primary school sector with a market share of over 60% and high contract renewal rates. Following the acquisition in 2007 of 4 Learning, the educational business of Channel 4, Espresso has entered the UK secondary schools market with its Clipbank product and has already established a strong and growing presence. 'C' Share Pool ¬Share Performance & Portfolio The 'C' Share funds were raised in 2006 and approximately 68% of the net funds raised of over £23.5 million have now been invested including £7.7 million in the current financial year: Acquisitions Cost Description £'000 Overtis Group 500 Technology security provider Isango! 650 Travel provider SPC International 625 Repair/refurbishment of electronic equipment Chess Technology 900 Producer of electro-optical devices Fjord 1,000 Digital design/research agency Lazurite 1,000 Intellectual property acquisition vehicle Prelude Media 1,000 Digital media acquisition vehicle Espresso Group 1,101 Develops and delivers multimedia education content for schools Donatantonio 16 Import and distribution of vending machines Optima Data Intelligence 299 Marketing and data intelligence Services services Heritage Partners 100 Image rights ownership, management and distribution Charterhouse Leisure 471 Restaurants Coolabi 25 Character rights management 7,687 The 'C' share pool is relatively young and therefore significant realisations are not to be expected. That said, the pool had a small investment in ILG Digital which it realised during the year for a profit of £217,000. This has helped to contribute to a total dividend return to 'C' shareholders of 8.25p per share as at 28 February 2009. A further dividend of 1.35p per share was declared on 9 June 2009. At 28 February 2009, the 'C' share investment portfolio was valued at £11.5 million against an original investment cost of £16.1 million. In addition, the 'C' share pool held cash and liquidity funds of £7.0 million. The general economic outlook has affected all companies and we have made provisions against a number of investments including Charterhouse Leisure, Donatantonio, Optima Data Intelligence Services and Isango. It is, however, still early in the investments' lifecycle and we are hopeful that we can increase the value of some of these over time. Outlook VCTs were created to provide a source of capital for SMEs (small and medium sized enterprises), a sector of the economy which has historically struggled to access capital for growth. The current economic environment created in part by the collapse of the credit markets has not only exacerbated this condition but at a time when SMEs are suffering from reduced consumer/business spending and the management of effective deflation. We would expect SMEs to experience difficult trading conditions for at least the next 18 months and as such, benefiting from the experience of previous periods of recession, we continue to focus our efforts on the existing companies within the portfolio ensuring their investment plans and cost structures reflect the macro environment. However, historic investment returns have shown us that difficult economic conditions have provided a great opportunity to invest in companies at attractive valuations. We see the opportunity for new investments in areas of economic robustness such as our recent investment in the defence contractor 'Chess Technologies' and areas of established innovation such as the design of mobile media platforms, 'Fjord'. At all times we will invest in market leading companies with exceptional management teams. Beringea LLP Investment Portfolio - Ordinary Share Pool as at 28 February 2009 +---------------------------------------------------------------------------------------------+ | | 28 February 2009 | | 29 February 2008 | |-----------------------------+-----------------------------------+-+-------------------------| | | | |Valuation| | | | | % of| | | | | movement| % of| | | |portfolio| | | Cost|Valuation| in year|portfolio| | Cost|Valuation| by value| | |£'000| £'000| £'000| by value| |£'000| £'000| | |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Venture capital investments | | | | | | | | | |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Espresso Group Limited | 628| 1,595| (541)| 40.9%| | 784| 2,292| 30.3%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Overtis Group Limited | 350| 350| -| 9.0%| | n/a| n/a| n/a| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Campden Media Limited | 488| 207| (279)| 5.3%| | 488| 486| 6.4%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Ashford Colour Press Limited | 413| 157| (230)| 4.0%| | 481| 456| 6.0%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |UBC Media plc* | 400| 63| (55)| 1.6%| | 400| 119| 1.6%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Pilat Media Global plc* | 50| 25| (67)| 0.7%| | 50| 92| 1.2%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Immedia plc* | 170| 9| (7)| 0.2%| | 171| 15| 0.2%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Baby Innovations S.A. t/a | | | | | | | | | |Steribottle | 209| -| -| 0.0%| | 209| -| 0.0%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Sports Holdings Limited | 48| -| -| 0.0%| | 48| -| 0.0%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |ILG Digital Limited | -| -| -| -| | 600| 1,345| 17.8%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| | |2,756| 2,406| (1,179)| 61.7%| |2,631| 3,460| 45.7%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Total venture capital | | | | | |3,231| 4,805| 63.5%| |investments | | | | | | | | | |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Liquidity funds | | 1,470| | 37.7%| | | 2,270| 30.1%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Cash at bank and in hand | | 25| | 0.6%| | | 486| 6.4%| |-----------------------------+-----+---------+---------+---------+-+-----+---------+---------| |Total Ordinary Share | | 3,901| | 100.0%| | | 7,561| 100.0%| |investments | | | | | | | | | +---------------------------------------------------------------------------------------------+ All venture capital investments above are unquoted unless otherwise stated. *Quoted on AIM All venture capital investments above are registered in England and Wales with the exception of Baby Innovations S.A., which is registered in Madeira. Investment Portfolio - C Share Pool as at 28 February 2009 +------------------------------------------------------------------------------------------------+ | | 28 February 2009 | | 29 February 2008 | |-------------------------------+------------------------------------+-+-------------------------| | | | |Valuation| % of| | | | % of| | | | | movement|portfolio| | | |portfolio| | | Cost|Valuation| in year| by value| | Cost|Valuation| by value| | | £'000| £'000| £'000| | |£'000| £'000| | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Top ten venture capital | | | | | | | | | |investments | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Espresso Group Limited | 1,101| 1,100| (1)| 5.9%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Path Group Limited | 1,000| 1,000| -| 5.4%| |1,000| 1,000| 4.2%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Fjord Limited | 1,000| 1,000| -| 5.4%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Lazurite Limited | 1,000| 1,000| -| 5.4%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Prelude Media Limited | 1,000| 1,000| -| 5.4%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Chess Technology Limited | 900| 900| -| 4.9%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Eagle Rock Entertainment Group | 680| 877| (38)| 4.7%| | 680| 915| 3.9%| |Limited | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Charterhouse Leisure Limited | 1,000| 801| (199)| 4.3%| | 529| 529| 2.2%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Saffron Media Group Limited | 670| 670| -| 3.6%| | 670| 670| 2.8%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Donatantonio Limited | 1,366| 651| (715)| 3.5%| |1,350| 1,350| 5.7%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | 9,717| 8,999| (953)| 48.5%| |4,229| 4,464| 18.8%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Other venture capital | | | | | | | | | |investments | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |SPC International Limited | 625| 582| (43)| 3.1%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Optima Data Intelligence | 1,299| 507| (792)| 2.7%| |1,000| 1,000| 4.2%| |Services Limited | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Overtis Group Limited | 500| 500| -| 2.7%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Dianomi Limited | 324| 403| 79| 2.2%| | 324| 324| 1.4%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Heritage Partner Limited | 900| 248| (653)| 1.3%| | 800| 800| 3.4%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Steak Media Limited | 375| 182| (344)| 1.0%| | 375| 526| 2.2%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Coolabi plc* | 450| 115| (362)| 0.6%| | 424| 452| 1.9%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Isango! Limited | 650| -| (650)| 0.0%| | n/a| n/a| n/a| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Breeze Tech Limited | 225| -| (225)| 0.0%| | 225| 225| 0.9%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |The Vending Corporation Limited| 1,012| -| 5| 0.0%| |1,016| -| 0.0%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | 6,360| 2,537| (2,985)| 13.6%| |4,164| 3,327| 14.0%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Investments no longer held | -| -| -| -| | 203| 253| 1.1%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Total venture capital |16,077| 11,536| (3,938)| 62.1%| |8,596| 8,044| 33.9%| |investments | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Liquidity funds | | 6,080| | 32.8%| | | 14,280| 60.1%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Cash at bank and in hand | | 948| | 5.1%| | | 1,423| 6.0%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| |Total 'C' Share investments | | 18,564| | 100.0%| | | 23,747| 100.0%| |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | |-------------------------------+------+---------+---------+---------+-+-----+---------+---------| | | | | | | | | | | +------------------------------------------------------------------------------------------------+ All venture capital investments above are unquoted and are registered in England and Wales. * Quoted on AIM Statement of Directors' Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. United Kingdom 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). The financial statements are required by law to 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 those financial statements, the Directors are required to: * select suitable accounting policies and then apply them consistently; * make judgements and estimates that are reasonable and prudent; and * state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for keeping proper accounting records which 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 1985. 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. The Directors are responsible for ensuring that the Report of the Directors and other information included in the Annual Report is prepared in accordance with company law in the United Kingdom. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority. The Directors are responsible for the maintenance and integrity of the company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions. Statement as to disclosure of information to Auditors The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditors are unaware. Each of the Directors have confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditors. This confirmation is given and should be interpreted in accordance with the provisions of S234ZA of the Companies Act 1985. Income Statement for the year ended 28 February 2009 Company Position Year ended 28 February 2009 Year ended 29 February 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income 1,188 - 1,188 1,374 - 1,374 (Losses)/Gains - (4,055) (4,055) - 306 306 on investments 1,188 (4,055) (2,867) 1,374 306 1,680 Investment (136) (407) (543) (191) (570) (761) management fees Performance (27) (634) (661) (12) (138) (150) incentive fees Recoverable 51 155 206 - - - VAT Other expenses (271) (16) (287) (274) (16) (290) Return on ordinary 805 (4,957) (4,152) 897 (418) 479 activities before tax Tax on (217) 217 - (276) 276 - ordinary activities Return attributable 588 (4,740) (4,152) 621 (142) 479 to equity shareholders Return per 0.7p (14.0p) (13.3p) 0.6p 4.3p 4.9p Ordinary Share Return per 'C' 2.2p (15.2p) (13.0p) 2.4p (1.7p) 0.7p Share Split as: Ordinary Shares Year ended Year 28 Feb ended 29 2009 Feb 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income 188 - 188 201 - 201 (Losses)/Gains on - (284) (284) - 551 551 investments 188 (284) (96) 201 551 752 Investment (31) (92) (123) (52) (155) (207) management fees Performance (27) (634) (661) (12) (138) (150) incentive fees Recoverable VAT 14 42 56 - - - Other expenses (78) - (78) (84) (4) (88) Return on ordinary activities before 66 (968) (902) 53 254 307 tax Tax on ordinary (17) 17 - (18) 18 - activities Return attributable to equity 49 (951) (902) 35 272 307 shareholders 'C' Shares Year Year ended ended 28 Feb 29 Feb 2009 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income 1,000 - 1,000 1,173 - 1,173 (Losses)/Gains on - (3,771) (3771) - (245) (245) investments 1,000 (3,771) (2,771) 1,173 (245) 928 Investment management (105) (315) (420) (139) (415) (554) fees Performance incentive - - - - - - fees Recoverable VAT 37 113 150 - - - Other expenses (193) (16) (209) (190) (12) (202) Return on ordinary activities before tax 739 (3,989) (3,250) 844 (672) 172 Tax on ordinary (200) 200 - (258) 258 - activities Return attributable to equity 539 (3,789) (3,250) 586 (414) 172 shareholders Reconciliation of Movements in Shareholders' Funds for the year ended 28 February 2009 Year ended Year ended 28 February 2009 29 February 2008 Ordinary 'C' Ordinary 'C' Shares Shares Total Shares Shares Total £'000 £'000 £'000 £'000 £'000 £'000 Opening shareholders' funds 7,594 23,691 31,285 8,134 24,288 32,422 Issue of shares 656 - 656 - - - Share issue (36) - (36) - - - costs Purchase of (47) (77) (124) (32) (20) (52) own shares Total (902) (3,250) (4,152) 307 172 479 recognised (losses)/gains for the year Distributions (3,375) (1,309) (4,684) (815) (749) (1,564) Closing 3,890 19,055 22,945 shareholders' funds 7,594 23,691 31,285 Balance Sheet at 28 February 2009 Year Year ended ended 28 Feb 28 Feb 2009 2008 Ordinary 'C' Ordinary 'C' Shares Shares Total Shares Shares Total £'000 £'000 £'000 £'000 £'000 £'000 Fixed assets Investments 2,406 11,537 13,943 4,805 8,044 12,849 Current assets Debtors 945 569 1,514 241 170 411 Current investments 1,470 6,080 7,550 2,270 14,280 16,550 Cash at bank and in 25 948 973 486 1,423 1,909 hand 2,440 7,597 10,037 2,997 15,873 18,870 Creditors: amounts falling due within one year (956) (79) (1,035) (208) (226) (434) Net current assets 1,484 7,518 9,002 2,789 15,647 18,436 Net assets 3,890 19,055 22,945 7,594 23,691 31,285 Capital and reserves Called up share 68 1,243 1,311 62 1,248 1,310 capital Capital redemption 9 6 15 9 1 10 reserve Share premium 641 22,357 22,998 27 22,357 22,384 Special reserve 2,517 - 2,517 3,639 - 3,639 Capital reserve 971 (224) 747 2,161 288 2,449 -realised Capital reserve - (350) (4,541) (4,891) 1,575 (553) 1,022 unrealised Revenue reserve 34 214 248 121 350 471 Equity 3,890 19,055 22,945 7,594 23,691 31,285 shareholders' funds Net asset value per 57.1p 76.7p 121.6p 94.9p share Cash Flow Statement for year ended 28 February 2009 +------------------------------------------------------------------------------------+ | | | Year| | | | Year| | | | | ended| | | | ended| | | | | 28 Feb| | | | 29 Feb| | | | | 2009| | | | 2008| | |--------------------------------+--------+-------+-------+-+--------+-------+-------| | |Ordinary| 'C'| | |Ordinary| 'C'| | | | Shares| Shares| Total| | Shares| Shares| Total| |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | £'000| £'000| £'000| | £'000| £'000| £'000| |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Net cash (outflow)/inflow from | | | | | | | | |operating activities | (752)| (24)| (776)| | (776)| 330| (446)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Capital expenditure | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Purchase of investments | (350)|(7,687)|(8,037)| | (48)|(8,394)|(8,442)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Sale of investments | 2,662| 422| 3,084| | 2,484| 1,313| 3,797| |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Net cash inflow /(outflow) from | | | | | | | | |capital expenditure | 2,312|(7,265)|(4,953)| | 2,436|(7,081)|(4,645)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Equity dividends paid | (3,375)|(1,309)|(4,684)| | (815)| (749)|(1,564)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Management of liquid resources | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Purchase of current investments | | | | | | | | |held as liquidity funds | (1,000)| (300)|(1,300)| | (2,220)|(1,500)|(3,720)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Withdrawal from liquidity funds | 1,800| 8,500| 10,300| | 1,350| 7,820| 9,170| |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Net cash inflow /(outflow) from | 800| 8,200| 9,000| | (870)| 6,320| 5,450| |liquid resources | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Net cash (outflow) /inflow | | | | | | | | |before financing | (1,015)| (398)|(1,413)| | (25)|(1,180)|(1,205)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Financing | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Proceeds from share issue | 637| -| 637| | 16| -| 16| |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Share issue costs | (36)| -| (36)| | -| -| -| |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Purchase of own shares | (47)| (77)| (124)| | (5)| (20)| (25)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| |Net cash inflow/(outflow) from | | | | | | | | |financing | 554| (77)| 477| | 11| (20)| (9)| |--------------------------------+--------+-------+-------+-+--------+-------+-------| | | | | | | | | | |--------------------------------+--------+-------+-------+-+--------+-------+-------| |(Decrease)/ increase in cash | (461)| (475)| (936)| | (14)|(1,200)|(1,214)| +------------------------------------------------------------------------------------+ Notes 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" revised December 2005 ("SORP"). The financial statements are prepared under the historical cost convention except for the revaluation of certain financial instruments. Going concern The accounts have been prepared under a going concern basis in accordance with the assessment made by the Directors as set out in the Statement of Corporate Governance. Presentation of income statement In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies ("AIC"), supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. The net revenue is the measure the directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007. Fixed assets investments All investments are designated as "fair value through profit or loss" assets and are initially measured at cost. Thereafter the investments are measured at subsequent reporting dates at fair value. Listed fixed income investments and investments quoted on AIM are measured using bid prices. In respect of unquoted instruments, fair value is established by using 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. 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 expensed. 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. Current assets investments Current assets investments comprise investments in liquidity funds with AAA rating and are redeemable on call. These investments are marked¬to¬market. 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 receivable 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 an accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items except as follows: * expenses which are incidental to the acquisition of an investment are deducted from the Capital Account; * expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment; and * expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated 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. Taxation The tax effects of different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting period. Due to the Company's status as a venture capital trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arises. 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. Return per share Ordinary Shares 'C' Shares Revenue return per share based on: Net revenue after taxation (£'000) 49 539 Weighted average number of ordinary 6,778,943 24,925,885 shares in issue Capital return per share based on: Net capital (loss) for the financial (951) (3,789) year (£'000) Weighted average number of shares in 6,778,943 24,925,885 issue 3. Net asset value per share 2009 2008 2009 2008 Shares in pence net pence net Issue per asset per asset share v alue share v alue £'000 £'000 Ordinary shares 6,816,160 6,244,631 57.1 3,890 121.6 7,594 'C' shares 24,855,707 24,956,242 76.7 19,055 94.9 23,691 22,945 31,285 4. Principal financial risks As a VCT, the majority of the Company's assets are represented by financial instruments which are held as part of the investment portfolio. In order to ensure continued compliance with relevant VCT regulation and to be in a position to deliver the long term capital growth which is part of the Company's investment objective, the Board is very much aware of the need to manage and mitigate the risks associated with the financial instruments held within the investment portfolio. The management of these risks starts the application of a clear investment policy which has been developed by the Directors who are experienced investment professionals. Furthermore, the Board has appointed an experienced investment manager to whom they have communicated the company's investment objective and whose remuneration is linked to the achievement of that objective. The Investment Manager reports regularly to the Board on performance, and to facilitate the direct Board involvement with key decisions, on whether or not to invest, disinvest and the nature, terms and the security of investments being made. In assessing the risk profile of its investment portfolio, the Board has identified three principal classes of financial instrument. All financial instruments are "fair value through the profit and loss account" and are recognised as such on initial recognition. In addition to its investment portfolio, the VCT maintains a portfolio of liquidity funds and a cash position. The liquidity fund portfolio comprises investments in liquidity funds operated by major institutions and are A-rated. Cash is mainly held by Bank of Scotland plc which is an A rated financial institution. Consequently, the Directors consider that the risk profile associated with cash deposits and liquidity funds is low and thus the carrying value in the financial statements is a close approximation of its fair value. A review of the specific financial risks faced by the Company is presented below. Market price risk Market price risk arises from uncertainty about the future prices of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through holding market positions in the face of market movements. At 28 February 2009, the unrealised loss on AIM quoted portfolios was £858,000 (2008: £367,000). The investments that the Company holds are, in the main, thinly traded and as such the prices are more volatile than those of more widely traded securities. In addition, the ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers. The ability of the Company to purchase or sell investments is also constrained by the requirements set down for Venture Capital Trusts. The Board considers each investment purchase to ensure that an acquisition will enable the Company to continue to have an appropriate spread of market risk and that an appropriate risk reward profile is maintained. It is not the Company's policy to use derivative instruments to mitigate market risk, as the Board believes that the effectiveness of such instruments does not justify the cost involved. As many of the Company's unquoted investments are valued using Price/Earnings ratios of small publicly quoted companies, a fall in share prices generally would impact on the valuation of the unquoted portfolio. A 10% fall in the valuations of all of the unquoted investments held by the Company would have an effect as follows: Interest rate risk The Company receives interest on its cash deposits at a rate agreed with its banker, while investments in loan stock and fixed interest investments attract interest predominately at fixed rates. As the Company must comply with the VCT regulations, increases in interest rates could lead to a potential breach of these regulations. The Company therefore monitors the level of income received from fixed, floating and non interest rate assets to ensure that the regulations are not breached. The Company has reviewed the potential financial impact of the interest rate risk and concluded that a 1.0% change in base rate would cause an 8.2% change in overall income receivable by the Company. 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's financial assets that are exposed to credit risk are summarised as follows: 2008 2007 £'000 £'000 Investments in liquidity funds 7,550 16,550 Investments in loan stocks 7,821 4,743 Cash and cash equivalents 973 1,909 Interest, dividends and other receivables 373 419 16,717 23,621 Credit risk in respect of investments in liquidity funds is minimised by, where possible, investing in AAA-rated funds. Investments in loan stocks comprise a fundamental part of the Company's venture capital investments and are managed within the main investment management procedures. Cash is mainly held by Bank of Scotland plc, which is an A-rated financial institution and, consequently the Directors consider that the risk profile associated with cash deposits is low. Interest, dividends and other receivables are predominantly covered within the investment management procedures. Liquidity risk Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. As the Company only ever has a very low level of creditors and has no borrowings, the Board believes that the Company's exposure to liquidity risk is minimal. 5. Related party transactions Beringea Limited, of which Malcolm Moss is a director, acted as promoter for the Offers for Subscription dated 11 February 2008 and agreed to underwrite the costs of the Offer in return for a fee of 5.5% of the monies raised, which amounted to £36,000 (2008: £35,000). Beringea Limited was also the investment manager during the year. The total fees relating to this service, together with performance incentive fees due in the year under the agreement, amounted to £1,204,000 (2008: £761,000) (all inclusive of VAT), of which £Nil (2008: £194,000) was outstanding at the year end. Beringea Limited (and subsequently, Beringea LLP, of which Malcolm Moss is a partner) also acted as promoter to the "Linked D Share Offer" launched in November 2008. Beringea LLP/Beringea Limited receives 5.5% of the gross proceeds of the offer, out of which it must pay the costs of the Offer including initial commissions. Nicholas Lewis is a director of Downing Management Services Limited, which provides administration services to the Company. During the year £40,000 (2008: £39,000) (inclusive of VAT) was due to Downing Management Services Limited in respect of these services of which £10,000 (2008: £10,000) remained outstanding at the year end. 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 2009, but has been extracted from the statutory financial statements for the year ended 28 February 2009, which were approved by the Board of Directors on 9 June 2009 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006. The statutory accounts for the year ended 29 February 2008 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under S237(2) or (3) of the Companies Act 1985. A copy of the full annual report and financial statements for the year ended 28 February 2009 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.com and www.downing.co.uk . ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.