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ProVen VCT plc: Annual Financial Report

ProVen VCT plcAnnual Financial Report
Year ended 29 February 2020
ProVen VCT plc, managed by Beringea LLP, today announces the final results for the year ended 29 February 2020. These results were approved by the Board of Directors on 1 July 2020.Financial summaryChairman’s Statement
I present the Annual Report for Proven VCT plc (the “Company”) for the year ended 29 February 2020. This report focuses primarily on the year to 29 February but as Shareholders are all aware, subsequent to the year end, the Coronavirus pandemic occurred which had a significant impact on the economy as a whole and on the Company. The portfolio has been regularly reviewed in this time and a new NAV was released in March in advance of the share allotments in early April under the Company’s most recent offer for subscription.
Results for the year
Over the year, there was a decrease in Shareholder total return (net asset value (“NAV”) per share plus dividends) of 9.2% which was largely attributable to the decrease in valuation of five companies. The Company’s NAV per share fell from 82.2p at 28 February 2019 to 70.1p at 29 February 2020. This included a reduction of 4.5p in relation to dividend payments.
The total loss on ordinary activities for the year was £12.0 million, or 8.2p per share (2019: profit of £10.3 million, 10.1p per share), comprising a revenue loss of £501,000, or 0.2p per share, (2019: revenue loss of £660,000, 0.6p per share) and a capital loss of £11.5 million, or 8.0p per share (2019: profit of £11.0 million, 10.7p per share). This capital loss was largely caused by an aggregate decrease of £11.2 million in the valuation of five portfolio companies.Dividends
During the year ended 29 February 2020, the Company paid a final dividend of 2.5p per share in respect of the year ended 28 February 2019 on 19 July 2019 and an interim dividend of 2.0p per Ordinary Share was paid in respect of the year ended 29 February 2020 on 6 December 2019.
Your Board is proposing a final dividend for the year ended 29 February 2020 of 2.0p per share to be paid on 28 August 2020 to Shareholders on the register at 7 August 2020. With total tax-free dividends of 4.0p per share for the year ended 29 February 2020, this represents cash returned to Shareholders of 5% on the opening NAV per share at 1 March 2019 after deducting the prior year final dividend of 2.5p per share.
   
Portfolio activity and valuation
Following a period of several years during which a number of profitable disposals generated strong returns for Shareholders, the focus during the year has been on supporting the existing portfolio and adding new investments.
The Company invested a total of £10.9 million during the year. Six new companies were added to the portfolio, at a cost of £6.8 million. As is the nature of early stage investing, there is usually a delay before the benefit of the Company’s investment is reflected in the performance of the portfolio company. We would not, therefore, expect to recognise an increase in valuation of new investments for some time.The Company also provided further investment, totaling £4.1 million, into seven of the companies which the Company has invested in during the last few years. Further details of all these investments are provided in the Investment Manager’s Review. The performance of the companies in the portfolio during the year has been mixed, as is to be expected of a relatively young portfolio of venture capital investments. Some companies saw increases in valuation off the back of strong trading, whereas others declined in value as a result of difficult trading as well as a reduction in comparable company valuation multiples. Overall, the portfolio decreased in value by £12.1 million (2019: increase of £213,000). Further information about key developments at existing portfolio companies is given in the Investment Manager’s Review.It is important to remember that investment in venture capital should be considered as a long-term investment and returns should be measured over the medium term, not a single year.Fundraising activities
As communicated in the interim statement, the combined offer for subscription with Proven Growth and Income VCT plc on 11 January 2019 to raise up to a total of £30 million per company, with an over-allotment facility of £10 million per company, was fully subscribed due to strong investor demand.
The Company launched a further combined offer for subscription with Proven Growth and Income VCT plc on 27 January 2020 to raise up to £10 million per company, with an over-allotment facility of £10 million per company, which the Board utilised in part in the amount of up to £5 million per company. The offer closed to new applications on 10 March 2020 with £14.2 million of gross proceeds for the Company.Share buybacks
The Company has a policy of buying back shares that become available in the market at a discount of approximately 5% to the latest published net asset value, subject to the Company having sufficient liquidity. The Company retains Panmure Gordon to act as its corporate broker. Shareholders who are considering selling their shares may wish to contact Panmure Gordon, who will be able to provide details of the price at which the Company is buying shares.
During the year, the Company purchased 2,573,632 Ordinary Shares at an average price of 73.0p per share and for an aggregate consideration of £1,878,000. This represented 2.45% of the Company’s issued share capital at the start of the year. All shares were subsequently cancelled.A special resolution to allow the Company to continue to make market purchases of its own shares of up to 14.99% of the share capital for cancellation will be proposed at the forthcoming Annual General Meeting (“AGM”).Performance Fee
The Company’s performance incentive arrangements are an important aid for the Investment Manager, Beringea LLP (“Beringea” or the “Investment Manager”), in recruiting and retaining talented investment professionals against competition from other investment management companies. The performance fee structure is designed to align the interests of the Investment Manager with those of Shareholders and encourages capital growth as well as significant payments to Shareholders by means of tax-free dividends, as determined by the Directors.
In consideration of the Investment Manager’s performance in managing the Original Ordinary Share Portfolio (prior to 2012), a performance incentive fee linked to the profit achieved on the disposal of Think Limited is payable, known as the “Residual PIF”. An amount of £31,000 was paid to Beringea LLP in relation to the realised gain achieved on the disposal of Think Limited that completed during the year. There is no more Residual PIF payable by the fund.Based on the NAV per share at 29 February 2020, no performance fee is accrued at the year-end as the performance hurdles had not been met and consequently there is no obligation for a performance fee.The payment of a performance fee in future years and the amount thereof, if any, will be dependent on both the performance of the Company and the level of dividends paid to Shareholders, as determined by the Directors.Annual General Meeting
In planning our AGM we have sought to prioritise the safety and wellbeing of our Shareholders and employees. In light of the current Coronavirus ‘social distancing’ measures in England, and the legislative measures that have been proposed to allow companies to hold general meetings safely, the AGM will be held as a closed AGM and Shareholders will not be able to attend the AGM this year. The meeting will still comply with the minimum legal requirements for an AGM.
The closed AGM will be held at 2.00 p.m. on Monday 10 August 2020 via electronic means. Full details of the business to be conducted at the AGM are given in the formal Notice of Annual General Meeting which will be sent to Shareholders by their preferred method in due course. Resolution 12 proposes a change to the Company’s Articles of Association that will allow Shareholders to participate remotely in future AGMs. A copy of the proposed new articles of association is available on the website at https://www.provenvcts.co.uk/.Shareholders are encouraged to submit their votes by proxy, as they will not be able to do so in person. In addition, we strongly recommend voting electronically at www.signalshares.com as your vote will automatically be counted. Given the current situation, with many people working from home and delays in the postal system, there is a risk that your vote may not be counted if you send a paper proxy.We always welcome questions from our Shareholders at the AGM but this year, given the restrictions in place, please send any questions via email to info@beringea.co.uk by 5:00 pm on Monday 3 August 2020. Answers to the themes in the questions received will be addressed on the website at https://www.provenvcts.co.uk/. In addition the Company’s annual Shareholder event will proceed in the Autumn, albeit in a different format (further details below).Shareholder event
The Company’s annual Shareholder event provides an important opportunity for Shareholders to hear from the Investment Manager, discussing performance and investment activity, as well as receiving insights and updates from our portfolio companies.
For your Board and the Investment Manager, it is also a vital platform for gathering and discussing the views of our Shareholders. It is with this in mind that we are seeking to ensure that we can continue to deliver the Shareholder event in the current environment.Therefore, in order to ensure the safety and wellbeing of our Shareholders, employees and portfolio companies, we will be hosting our first fully-digital Shareholder Day in the Autumn, using an online platform to deliver our usual insights into fund performance and market conditions, as well as providing an opportunity for you to ask questions of our investment team and hear from our portfolio companies.We will soon distribute invitations to this digital event, as well as providing you with further information on the format and logistics for the day and we would encourage you to join us for the session.Outlook
The Company has been able to remain active and productive in spite of a challenging economic, social and political backdrop. while contending with a global pandemic alongside the UK’s departure from the European union, the Company has managed to deliver a successful fundraise, provide important resources to support our portfolio and continue to harness a resilient pipeline of investment opportunities.
The economic and commercial turbulence created by the Coronavirus pandemic subsequent to the year end has inevitably had an impact on the Company. This resulted in a revaluation of the portfolio to take account of the context in which we are now operating and the announcement of a reduced net asset value in March. Nonetheless,I believe that the Company, through its Investment Manager, has effectively helped to guide our portfolio companies through the immediate shock of the outbreak and it is now working alongside these portfolio companies to help them prepare and adapt to a new trading environment. The Directors of the Company will continue to monitor the performance of the portfolio carefully and will announce a new net asset value per share if there is a material movement in valuations.We warmly welcome our new Shareholders who joined the fund as part of the share offer that successfully closed in March. The funds raised provide the Company with additional resources to support our existing portfolio through any prolonged economic disruption, and ensure that it is able to harness a pipeline of investment opportunities that remains resilient. The Investment Manager has continued to do this following a successful transition to operating remotely during the lockdown, with recent additions to the portfolio and follow-on investments completed through an entirely digital process.Despite the current challenging economic and social conditions, the Board remains confident that the Company has resilient long-term prospects.Neal Ransome
Chairman
Investment Manager’s ReviewIntroduction
Following a number of successful realisations in the last couple of years, the focus this year was on investing into new portfolio companies as well as supporting the current portfolio. During the year, a total of £6.8 million was invested in six new portfolio companies and £4.1 million in seven existing portfolio companies.
At 29 February 2020, the Company’s venture capital portfolio comprised 47 investments at a cost of £74.5 million and a valuation of £67.6 million, an overall decrease of 9.3% on cost.Subsequent to the year end the Company issued 20,351,020 Ordinary Shares for on aggregate consideration of £14.2 million under the combined offer for subscription with Proven Growth and Income VCT plc which launched on 27 January 2020. Share issue costs thereon amounted to £500,000. The Company remains well capitalised to take advantage of new investment opportunities and support existing portfolio companies where appropriate.Investment activity
New investments
we continued to experience a strong level of deal flow, with £6.8 million being invested during the year in six new portfolio companies.
The new investments in the year are:
•              Stylescape Limited (t/a EDITED) (£1.50m) – a SaaS provider of pricing and product intelligence for apparel and fashion retailers;
•              Papier Ltd (£1.35m) – an online stationery retailer, specialising in unique curated collections;
•              Our Path Ltd (t/a Second Nature) (£1.2m) – a provider of a digital healthcoaching app, with an evidence-based program for lifestyle change and diabetes prevention/weight loss;
•              Arctic Shores Limited (£1.05m) – a provider of data-driven psychometric tests combining neuroscience, artificial intelligence and game technology for more predictive and less biased employee recruitment;
•              Sannpa Limited (t/a Fnatic) (£1.029m) – an eSports team owner and lifestyle brand, with professional teams in the most popular games such as League of Legends, Dota 2 and Battlefield 4; and
•              Picasso Labs, Inc. (£0.63m) – an automated creative measurement platform that aims to enhance creativity through objectivity. Their technology is used globally by Fortune 500 brands like Unilever, Mondelez, and Heineken to measure creative efficiency, consistency, and impact across all creatives worldwide.
Follow-on investments
The Company has also been active in supporting the development of existing portfolio companies, making follow-on investments in the following seven companies during the year: Mycs (£1.05m), ContactEngine (£0.70m), Thread (£0.6m), Aistemos (£0.6m), POQ (£0.5m), Festicket (£0.38m) and MPB (£0.3m).
Investment disposals
Although the disposal of Think was completed in a prior year, contingent proceeds of £2.1 million were recognised in the current year. As reported in the interim statement, the Company’s shareholding in 7digital Group was sold in the year resulting in a loss against cost of £1.1 million. The loss was recognised in previous years so there was no impact to the NAV during the year.
Monmouth Holdings and Rapid Charge Grid repaid £1.1m and £1.05m of loans to the Company during the year. Skills Matter repaid £32,000 of its loan notes during the year.Key developments at existing portfolio companies
Several companies have seen increases in value at the year end, owing to strong performance.
ContactEngine performed well in the year, securing several large new customer contracts. In November, it won the award for “Best use of IP” at the Sunday Times hiscox Tech Track 100 awards. ContactEngine closed a further funding round of £3.75 million in August 2019, to which the Company contributed £0.7 million. The value of the Company’s investment has increased to £3.0m on a cost of £1.3m.DeepCrawl has grown its revenue significantly in the year. It also closed a $15 million funding round in December 2019, led by specialist US software investor, Five Elms. This has given DeepCrawl significant firepower to invest in accelerating its growth rate, particularly in the USA which already accounts for more than half of its revenue. This has led to an increase in value of the Company’s investment to £3.3m on a cost of £1.9m.A number of portfolio companies have faced difficult trading conditions during the year and in particular five companies have had a combined decrease in valuation of £11.2m.POQ Studio, InContext, SmartAssistant and My 1st Years have faced obstacles over the past twelve months and have struggled to hit their milestones and grow their revenues as originally budgeted. As a result, there has been a combined decrease in valuation of £9.6 million.In addition, Blis has been impacted by the falling comparative multiples for advertising technologies used to value the business as well as slower than anticipated growth in revenues.We continue to work closely with these companies to help them through these challenges.Overall, the investment portfolio held at the year-end showed a decrease in value of £12.1 million (2019: increase of £0.2 million).Post year-end developments
The global Coronavirus pandemic has impacted a wide range of companies. On 23 March this year a revised NAV of 65.1p per share was announced to reflect the immediate valuation impact on the Company’s portfolio. This compares to a NAV of 70.1p per share as at 29 February 2020.
Between 29 February 2020 and the date of this report, the Company issued 20.3 million Ordinary Shares for an aggregate consideration of £14.2 million under the combined offer for subscription with Proven Growth and Income VCT plc which launched on 27 January 2020. Share issue costs thereon amounted to £500,000.
The Company has invested into the following new companies subsequent to the year end:
•              Commonplace (£1.5 million) – a B2B software company that has developed a digital community engagement platform enabling developers, local authorities, transport planners, infrastructure developers and other large project owners to engage with local communities; and
•              Luxury Promise (£1.35 million) – a re-sale platform for luxury women’s handbags and accessories
The Company also made follow on investments into Fnatic (£0.5 million), Thread (£0.42 million) and ContactEngine (£125,000).In May 2020, the Company’s holding in SPC International Limited was sold. The Company received £544,000 in disposal proceeds.Outlook
The short-term outlook for the UK economy will be dominated by the Coronavirus pandemic. We will continue to work closely with our portfolio companies to support them through the challenges this has created, including providing additional investment where this is appropriate. Fortunately, few of the investments in the portfolio are in sectors which have been severely affected by Coronavirus, such as travel, hospitality and traditional retailing. Therefore, despite the recent reductions in the valuations of some portfolio companies, we are cautiously optimistic about the prospects of the portfolio as a whole over the medium term.
Following the recent fundraising, the Company is now well placed to take advantage of new investment opportunities. While some companies have been badly affected by Coronavirus, others have seen minimal impact and certain sectors are likely to benefit from the acceleration of market trends arising from the Coronavirus. We are still seeing a strong flow of investment opportunities and will continue to invest selectively where we believe companies have excellent long-term prospects and the pricing of the investment is appropriate. The economic disruption caused by Coronavirus may result, over the next 12 months, in a softening of the lofty investment valuations we have seen recently. This should help to deliver strong returns from investments made during this period.Despite the turbulent broader economic and political environment, we believe that there will still be opportunities for well-managed, agile, entrepreneurial companies to prosper. we believe the Company is well placed to take advantage of opportunities to invest in these businesses.Beringea LLP
Investment Manager
Investment activity Investment activity during the year is summarised as follows:

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