Interim / Quarterly Report • Jul 31, 2011
Interim / Quarterly Report
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ProVen Health VCT plc Half-Yearly Report For the Six Months Ended 31 July 2011
Managed by Beringea LLP
ProVen Health VCT plc aims to provide investors with an attractive return by maximising the stream of tax free dividend distributions from the capital gains and income generated from a diversified portfolio of investments in the healthcare sector.
The Investment Manager believes that there are a number of trends which make an attractive case for investment in the healthcare sector. These include:
The portfolio has historically been weighted towards early and mid-stage investments. The Fund is now targeting investments in later stage businesses that will benefit from the trends outlined above. Specifically, the Fund will look to provide capital for businesses which display some or all of the following characteristics:
| 31 July | 31 July | 31 January | |
|---|---|---|---|
| 2011 | 2010 | 2011 | |
| Net asset value per share ("NAV") | 45.3p | 46.9p | 48.0p |
| Dividends paid since launch | 17.5p | 15.5p | 16.5p |
| Total return (NAV plus dividends paid since launch) | 62.8p | 62.4p | 64.5p |
| Mid market share price | 41.3p | 48.0p | 42.0p |
The first part of the Company's financial year to 31 January 2012 has continued in the same vein as last year with economic uncertainty and volatility in global stock markets. If anything the situation is slightly worse with signs of slowing growth across many countries even before key austerity programmes are implemented and with the problems in the Eurozone still to be resolved.
Against this backdrop, the Company's investment portfolio has seen a lot of activity with two new investments, three full disposals, one partial disposal, two portfolio companies merging and a significant acquisition by a further portfolio company, in the period up to the date of this statement.
As at 31 July 2011, the Company's net asset value per share ("NAV") stood at 45.3p. After adjusting for the dividend of 1p per share paid on 17 June 2011, this represents a decrease of 3.5% over the NAV at 31 January 2011. The FTSE All Share Index was broadly flat over the same period and the FTSE All Share Total Return Index, which includes dividends reinvested, increased by a modest 1%. This, of course, excludes the impact of the wider stock market falls which were experienced in August and September.
The total return (NAV plus cumulative dividends paid) to ordinary shareholders who invested at the outset of the Company was 62.8p per share at 31 July 2011 (31 January 2011: 64.5p per share).
At 31 July 2011, the Company's investment portfolio comprised holdings in 9 companies, of which 7 were unquoted and 2 were quoted, at a valuation of £5.1 million and original acquisition cost of £7.4 million. In addition, the Company held £3.7 million in cash and liquidity funds.
The two new additions, Community Pharmacy Limited and PolyTherics Limited, the realisation of Onyx Scientific Limited and the partial disposal of Vectura Group plc, occurred after the period end and are therefore not reflected in these figures. They did not, however, have a material impact on the reported net asset value.
Further detail on all investment activity is provided in the Investment Manager's Report on the following pages.
The Income Statement shows a loss on ordinary activities after taxation for the Company for the period of £345,000 (comprising a revenue loss of £62,000 and a capital loss of £283,000). The Company is not, at this time, proposing an interim dividend for the year ending 31 January 2012.
Between 5 April 2011 and 26 May 2011, the Company issued 480,096 shares for consideration at an average price of approximately 49.7p per share, under a 10% top up offer dated 24 January 2011. The offer closes on 15 December 2011 or earlier at the directors' discretion or if fully subscribed. Share issue costs thereon amounted to £8,000. Under the Company's dividend reinvestment scheme, 75,495 shares were issued on 24 June 2011 following the final dividend payment on 17 June 2011. At the date of this report the total number of shares in issue was 19,380,664, including 85,000 shares purchased for cancellation which had not settled at 31 July 2011.
Alongside good corporate governance and ensuring that the Company continues to qualify as a VCT, the focus of the board is on delivering strong returns to investors, through dividends and/or increases in net asset value. Since the new investment manager took over on 1 February 2009, the investment portfolio has delivered a net realised/unrealised gain. However, the effect of the expenses of the fund (albeit capped at 3.6%), share buybacks and dividends, partially offset by small top up fundraisings, have resulted in an overall reduction in net assets from £9.95 million at 1 February 2009 to £8.78 million at 31 July 2011. This reduction necessarily reduces the funds available for investment in unquoted companies.
The Board and the Investment Manager have therefore been looking at ways of increasing the size of the Company and are seeking shareholder input into the process by way of a short survey which is being sent with the half year report. Your responses to this survey would be greatly appreciated and so I would encourage you to take a few minutes to answer the questions and return them to the Company. In view of this survey, the Board has decided that it would be appropriate to defer a decision on future dividend payments to shareholders and a possible enhanced share buyback scheme until after the results of the survey are known. The process will be completed by the end of November and I will be informing shareholders of the outcome of the survey and the Board's discussions in due course.
The Investment Manager will be holding its annual VCT shareholder presentation on Wednesday 2 November 2011 at RIBA, 66 Portland Place, London W1B 4AD. This event provides shareholders with the opportunity to meet the Investment Manager, Board directors and other shareholders, and to hear directly from some of the portfolio companies. Shareholders should have received an invitation but if you have not and would like to attend, then please contact the Investment Manager at 39 Earlham Street, London WC2H 9LT or by telephone on 020 7845 7820.
Under the Disclosure and Transparency Directive, your Board is required in the Company's halfyearly results, to report on the principal risks and uncertainties facing the Company over the remainder of the financial year.
Your Board has concluded that the key risks facing the Company over the remainder of the financial year are as follows:
In the case of (i), your Board is satisfied with the Company's approach. The Investment Manager follows a rigorous process in vetting and structuring new investments and, after an investment is made, close monitoring of the business. In respect of (ii), the Company seeks to hold a diversified
investment portfolio, albeit concentrated in the healthcare sector. Your Board is confident that the Investment Manager's investment policy should help to limit this risk whilst remaining within the constraints of the VCT regulations.
As far as (iii) is concerned, the Company's compliance with the VCT regulations is continually monitored by the Investment Manager, who reports regularly to your Board on the current and forecast position. The Company also retains PricewaterhouseCoopers to provide regular reviews and advice in this area. Your Board considers that this approach reduces the risk of a breach of the VCT regulations to an acceptable level.
The economic environment continues to provide challenges for consumers and businesses of all sizes. Whilst the healthcare sector's defensive qualities are well justified, companies in the sector face similar challenges to those firms outside it. Quality, well-run companies should, however, perform well over the economic cycle and there remains an external market for them, as the recent sale of Onyx Scientific demonstrates. In addition to the continued development of the existing portfolio, one of the key challenges facing the Company is how to increase its size to take advantage of further investment opportunities. I look forward to reporting to shareholders further in this regard following the results of the shareholder survey and the Board's subsequent deliberations.
Charles Pinney Chairman 30 September 2011
We have pleasure in presenting our half yearly report to 31 July 2011 for ProVen Health VCT plc. Whilst the broader economic backdrop remains little changed from that described in our full year report to 31 January 2011, with trading conditions continuing to be challenging for both UK smaller companies and UK consumers, the period up to the date of this report has seen a high level of activity for the Company.
At 31 July 2011, the Company's investment portfolio comprised holdings in 9 companies, of which 7 were unquoted and 2 were quoted, at a valuation of £5.1 million and original acquisition cost of £7.4 million. In addition, the Company held £3.7 million in cash and liquidity funds. The two new additions, Community Pharmacy Limited and PolyTherics Limited, the realisation of Onyx Scientific Limited and the partial disposal of Vectura Group plc, occurred after the period end and are therefore not reflected in these figures.
The disposals of Biovex Group Inc and Chromogenex Limited occurred in early March and were disclosed in the 2011 Annual Report. The Company made a small loss on the original investment in Biovex but there is an opportunity to generate up to a further \$2.1 million, and therefore a significant overall profit, dependent on the achievement of future commercialisation and sales milestones. As the acquirer Amgen Inc is listed on NASDAQ, we are restricted to publicly available information and at present have no visibility over the likelihood and/or potential timing of any of the additional payments. Chromogenex concluded a financial restructuring which led to the Company's ordinary shareholding being acquired by a new investor and proceeds of £31,000 being received (the holding was previously fully provided against).
In May, the Company's investment holdings were further reduced when two portfolio companies, Sinclair Pharma plc and IS Pharma plc, merged. IS Pharma shareholders received 2.6868 Sinclair Pharma shares for each IS Pharma share held. The newly merged company was renamed Sinclair IS Pharma plc and transferred its stock market listing to AIM in June. The merger has created an international specialty pharmaceutical company with a market capitalisation of over £100 million and a strong portfolio of products to treat wounds, dermatological and oral diseases in both developed and emerging markets. The increased size should make it more attractive to potential investors and acquirers.
Excluding the impact of disposals, the overall investment portfolio showed a decrease in value of £234,000. This was principally due to further provisions being made against the valuations of Population Genetics Technologies and Omni Dental Sciences. These were partially mitigated by increases in value for Digital Healthcare and Vectura Group. Digital Healthcare's recent acquisition of Orion Imaging, a leading provider of management software to the UK's diabetic retinopathy screening programmes, consolidates its position in the sector and as such we felt able to recommend to the Board an uplift to the company's valuation. Vectura's share price made further good progress over the period, increasing to over £1 a share at 31 July 2011. We took the opportunity to sell just over one third of the Company's shareholding after the period end at over £1 per share thereby crystallising a profit.
Shortly after the period end, we completed a further three transactions: two new acquisitions and the disposal of Onyx Scientific.
The first of the new investments was a £375,000 investment into Community Pharmacy Limited (CPL) in August, alongside ProVen VCT plc and ProVen Growth and Income VCT plc. CPL is seeking to establish a new chain of pharmacies and will particularly focus on GP centre-based pharmacies, a fast growing segment in the industry. The team is led by a very experienced founder and manager of pharmacy chains. Further funding by ProVen Health VCT of up to £275,000 has been committed to implement the rollout plan and will be drawn down against agreed milestones.
In September, an investment of £750,000 was made into PolyTherics Limited. PolyTherics is a biotechnology company that applies precision chemistry to develop protein and peptide-based drugs. PolyTheric's technologies can extend the duration of action of these classes of drugs so patients require fewer injections, and can create more efficacious products. This reduces the cost of treatment and improves patient compliance. The company was formed in 2002 with technology that originated at the London School of Pharmacy and Imperial College London.
In August, we concluded the sale of Onyx Scientific to Ipca Laboratories from Mumbai. Onyx provides a range of chemical services to the life science industry, in particular scaling up the synthesis of new chemical compounds for use by pharmaceutical companies. The sale generated a capital gain of £140,000 on an initial investment of £850,000.
The high level of portfolio activity experienced in the period up to the date of this report has happened against the background of considerable market uncertainty and volatility. With wider economic imbalances still to be resolved, we expect this uncertainty to continue. However, we remain optimistic about the potential returns from the unquoted healthcare sector, based on recent portfolio activity and observations of the wider market, both in the UK and the dominant US market where we have an investment presence.
Beringea LLP 30 September 2011
| Unrealised | ||||
|---|---|---|---|---|
| gain/(loss) in | % of | |||
| Cost | Valuation | the period | portfolio | |
| £'000 | £'000 | £'000 | by value | |
| Top venture capital investments | ||||
| Altacor Limited | 1,020 | 1,241 | – | 14.0% |
| Onyx Scientific Limited | 850 | 990 | (7) | 11.2% |
| Population Genetics Technologies Limited | 1,079 | 811 | (219) | 9.2% |
| Vectura Group plc* | 482 | 771 | 151 | 8.7% |
| Digital Healthcare Limited | 1,010 | 518 | 137 | 5.9% |
| Sinclair IS Pharma plc** *** | 585 | 440 | (56) | 5.0% |
| Omni Dental Sciences Limited | 750 | 339 | (240) | 3.8% |
| 5,776 | 5,110 | (234) | 57.8% | |
| Other venture capital investments | 1,646 | – | – | 0.0% |
| 7,422 | 5,110 | (234) | 57.8% | |
| Current asset investments – liquidity funds | 1,806 | 20.4% | ||
| Cash at bank and in hand | 1,931 | 21.8% | ||
| Total investments | 8,847 | 100.0% |
All venture capital investments are unquoted unless otherwise stated.
* Quoted on the Main Market
** Quoted on AIM
*** Sinclair IS Pharma plc was created from the merger of IS Pharma plc and Sinclair Pharma plc in May 2011.
| £'000 | |
|---|---|
| IS Pharma plc | (366) |
| Sinclair Pharma plc | 366 |
| – |
| Market | Realised | ||||
|---|---|---|---|---|---|
| value at | gain/ | ||||
| 1 February | Disposal | Gain/(loss) | (loss) in | ||
| Cost | 2011 | proceeds | against cost | period | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Biovex Group Inc | 848 | 678 | 661 | (187) | (17) |
| Chromogenex Limited | 253 | – | 31 | (222) | 31 |
| 1,101 | 678 | 692 | (409) | 14 |
| 31 July | 31 July | 31 Jan | |
|---|---|---|---|
| 2011 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Fixed assets | |||
| Investments | 5,110 | 4,938 | 6,022 |
| Current assets | |||
| Debtors | 15 | 48 | 21 |
| Current investments | 1,806 | 1,795 | 1,800 |
| Cash at bank and in hand | 1,931 | 2,340 | 1,446 |
| 3,752 | 4,183 | 3,267 | |
| Creditors: amounts falling due within one year |
(82) | (52) | (90) |
| Net current assets | 3,670 | 4,131 | 3,177 |
| Net assets | 8,780 | 9,069 | 9,199 |
| Capital and reserves | |||
| Called up share capital | 194 | 193 | 192 |
| Capital redemption reserve | 401 | 396 | 398 |
| Share premium account | 7,428 | 7,147 | 7,170 |
| Special distributable reserve | 7,445 | 7,871 | 7,586 |
| Capital reserve – realised | (3,581) | (2,561) | (2,914) |
| Capital reserve – unrealised | (2,312) | (3,329) | (2,500) |
| Revenue reserve | (795) | (648) | (733) |
| Total equity shareholders' funds | 8,780 | 9,069 | 9,199 |
| Basic and diluted net asset value per share | 45.3p | 46.9p | 48.0p |
for the six months ended 31 July 2011
| Year ended | |||||||
|---|---|---|---|---|---|---|---|
| Six months ended | Six months ended | 31 January | |||||
| 31 July 2011 –––––––––––––––––––––––– |
31 July 2010 ––––––––––––––––––––––– |
2011 ––––––– |
|||||
| Revenue | Capital | Total Revenue | Capital | Total | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Income | 32 | – | 32 | 21 | – | 21 | 44 |
| Losses on investments | – | (220) | (220) | – | (675) | (675) | (136) |
| 32 | (220) | (188) | 21 | (675) | (654) | (92) | |
| Investment | |||||||
| management fee | (21) | (63) | (84) | (20) | (59) | (79) | (163) |
| Other expenses | (73) | – | (73) | (86) | – | (86) | (173) |
| Loss on ordinary activities before taxation |
(62) | (283) | (345) | (85) | (734) | (819) | (428) |
| Tax on ordinary activities | – | – | – | – | – | – | – |
| Loss attributable to | |||||||
| equity shareholders | (62) | (283) | (345) | (85) | (734) | (819) | (428) |
| Basic and diluted | |||||||
| loss per share | (0.3p) | (1.5p) | (1.8p) | (0.4p) | (3.8p) | (4.2p) | (2.2p) |
| 31 July | 31 July | 31 January | |
|---|---|---|---|
| 2011 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Opening shareholders' funds | 9,199 | 10,018 | 10,018 |
| Proceeds from share issues | 271 | 200 | 233 |
| Share issue costs | (8) | (9) | (18) |
| Purchase of own shares | (141) | (126) | (219) |
| Total recognised loss for the period | (345) | (819) | (428) |
| Dividends paid | (196) | (195) | (387) |
| Closing shareholders' funds | 8,780 | 9,069 | 9,199 |
for the six months ended 31 July 2011
| Six months | Six months | Year ended | ||
|---|---|---|---|---|
| ended | ended | 31 January | ||
| 31 July 2011 | 31 July 2010 | 2011 | ||
| Note | £'000 | £'000 | £'000 | |
| Net cash outflow from operating activities | A | (167) | (199) | (292) |
| Capital expenditure | ||||
| Purchase of investments | – | (143) | (688) | |
| Disposal of investments | 692 | 1,463 | 1,463 | |
| Net cash inflow from capital expenditure | 692 | 1,320 | 775 | |
| Equity dividends paid | (163) | (161) | (321) | |
| Net cash inflow before financing | 362 | 960 | 162 | |
| Financing | ||||
| Proceeds from share issues | 238 | 166 | 166 | |
| Share issue costs | (8) | (15) | (18) | |
| Purchase of own shares | (107) | (129) | (222) | |
| Net cash inflow/(outflow) from financing | 123 | 22 | (74) | |
| Increase in cash | B | 485 | 982 | 88 |
| Notes to the cash flow statement: | ||||
| A Net cash flow from operating activities |
||||
| Loss on ordinary activities before taxation | (345) | (819) | (428) | |
| Losses on investments | 220 | 675 | 136 | |
| Re-invested liquidity funds | (6) | (4) | (9) | |
| Decrease/(increase) in debtors | 6 | (39) | (11) | |
| (Decrease)/increase in creditors | (42) | (12) | 20 | |
| Net cash outflow from operating activities | (167) | (199) | (292) | |
| B Analysis of net funds |
||||
| Beginning of period | 3,246 | 3,149 | 3,149 | |
| Net cash inflow | 485 | 982 | 88 | |
| Other non cash changes | 6 | 4 | 9 | |
| End of period | 3,737 | 4,135 | 3,246 | |
| Net funds split as: | ||||
| Beginning of period: | ||||
| Cash at bank and in hand | 1,446 | 1,358 | 1,358 | |
| Liquidity funds | 1,800 | 1,791 | 1,791 | |
| Total funds at beginning of period | 3,246 | 3,149 | 3,149 | |
| End of period: | ||||
| Cash at bank and in hand | 1,931 | 2,340 | 1,446 | |
| Liquidity funds | 1,806 | 1,795 | 1,800 | |
| Total funds at end of period | 3,737 | 4,135 | 3,246 |
| Pence | 31 July 2011 | 31 January 2011 | |
|---|---|---|---|
| per share | £'000 | £'000 | |
| Paid in the period | |||
| 2011 final dividend paid on 17 June 2011 | 1.0 | 196 | – |
| 2011 interim dividend paid on 26 November 2010 | 1.0 | – | 192 |
| 2010 final dividend paid on 11 June 2010 | 1.0 | – | 195 |
| 196 | 387 | ||
| Split as: | |||
| Paid directly to shareholders | 163 | 321 | |
| Shares issued under dividend re-investment scheme | 33 | 66 | |
| 196 | 387 |
| Capital | Share | Capital | Capital | |||
|---|---|---|---|---|---|---|
| redemption | premium | Special | reserve – | reserve – | Revenue | |
| reserve | account | reserve | realised | unrealised | reserve | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 February 2011 | 398 | 7,170 | 7,586 | (2,914) | (2,500) | (733) |
| Issue of new shares | – | 267 | – | – | – | – |
| Share issue costs | – | (9) | – | – | – | – |
| Purchase of own shares | 3 | – | (141) | – | – | – |
| Expenses capitalised | – | – | – | (63) | – | – |
| Gains/(losses) on | ||||||
| investments | – | – | – | 14 | (234) | – |
| Realisation of revaluations from | ||||||
| previous years | – | – | – | (422) | 422 | – |
| Transfer between reserves | – | – | – | – | – | – |
| Retained net loss | – | – | – | – | – | (62) |
| Dividends paid in the period | – | – | – | (196) | – | – |
| At 31 July 2011 | 401 | 7,428 | 7,445 | (3,581) | (2,312) | (795) |
Distributable reserves comprise the special reserve, capital reserve – realised and revenue reserve. At the period end there were £757,000 (31 Jan 2011: £1,439,000) of reserves available for distribution after deducting the capital reserve – unrealised of £2,312,000 (31 Jan 2011: £2,500,000).
The Company's Ordinary Share price can be found on various financial websites, including the London Stock Exchange (www.londonstockexchange.com) with the TIDM/EPIC code PHV. A link to the share price is also available on Beringea's dedicated VCT website (www.provenvcts.co.uk).
Latest mid market share price (29 September 2011): 34.75p per share
Dividends are paid by the registrar on behalf of the Company. Shareholders who wish to have dividends paid directly into their bank account rather than by cheque to their registered address can complete a mandate form for this purpose. Queries relating to dividends and requests for mandate forms should therefore be directed to the Company's registrar, Computershare Investor Services plc, on 0870 707 1657 (calls charged at national rate), or by writing to them at The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ.
The Company's shares can be bought and sold in the same way as those of any other company listed on the London Stock Exchange using a stockbroker. Shareholders are advised to seek advice from their tax adviser before selling shares, particularly if they deferred the payment of capital gains tax in respect of shares acquired prior to 6 April 2004 or purchased shares within the last five years.
The Company currently operates a policy of buying its own shares for cancellation as they become available. Any shareholder wishing to sell their shares should contact Beringea LLP, the Company Secretary, on 020 7845 7820.
We are aware of cases of shareholders in other VCTs having received unsolicited phone calls, e-mails or correspondence concerning investment matters. Please note that it is very unlikely that either the Company, Beringea, or the Company Registrar, Computershare Investor Services plc, would make unsolicited telephone calls, or send e-mails, to shareholders. Shareholders can, however, expect official documentation in connection with the Company and may receive details of investment activity and new VCT offers from the Investment Manager. Furthermore, please be assured that Beringea and the Company do not release shareholder details to any third parties. If you receive either an unexpected phone call or correspondence about which you have concerns, please contact Beringea LLP, the Company Secretary, on 020 7845 7820.
Communications with shareholders are mailed to the registered address held on the share register. In the event of a change of address or other amendment this should be notified to the Company's registrar, Computershare Investor Services plc, under the signature of the registered holder.
Latest financial information, including information on recent investment transactions, newsletters and electronic copies of Annual Reports, Half-Yearly Reports and Interim Management Statements can be found on the Investment Manager's website: www.provenvcts.co.uk. Shareholders can also check details of their shareholdings using Computershare Investor Services plc's website www.investorcentre.co.uk. Please note that to access this facility investors will need to quote the reference number shown on their share/dividend certificate.
Charles Pinney (Chairman) Peter Arthur Frank Harding Diane James
Beringea LLP 39 Earlham Street London WC2H 9LT Registered No. 04131354 Tel: 020 7845 7820
Beringea LLP 39 Earlham Street London WC2H 9LT www.provenvcts.co.uk Tel: 020 7845 7820
Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Tel: 0870 707 1657 (calls charged at national rate)
sterling 151853
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