Annual Report • Jan 31, 2011
Annual Report
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ProVen Health VCT plc Annual Report and Accounts For the year ended 31 January 2011
Managed by Beringea LLP
| Page | |
|---|---|
| Fund Overview | 1 |
| Chairman's Statement | 2 |
| Investment Manager's Review | 4 |
| Investment Portfolio | 6 |
| Review of Investments | 7 |
| Directors | 12 |
| Report of the Directors | 13 |
| Corporate Governance Statement | 21 |
| Directors' Remuneration Report | 27 |
| Independent Auditor's Report | 29 |
| Income Statement | 31 |
| Reconciliation of Movements in Shareholders' Funds | 31 |
| Balance Sheet | 32 |
| Cash Flow Statement | 33 |
| Notes to the Accounts | 34 |
| Shareholder Information | 46 |
| Company Information | 47 |
| Notice of Annual General Meeting | 48 |
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 health sector.
The Investment Manager believes that there are a number of trends which make an attractive case for investment in the health sector. These include the following:
The portfolio is currently 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 and which will complement the existing portfolio as it continues to mature. Specifically, the Fund will look to provide capital for businesses which display some or all of the following characteristics:
| 31 January 2011 | 31 January 2010 | |
|---|---|---|
| Net asset value per share ("NAV") | 48.0p | 52.1p |
| Dividends paid since launch | 16.5p | 14.5p |
| Total return (NAV plus dividends paid since launch) | 64.5p | 66.6p |
| Mid market share price | 42.0p | 49.0p |
| Year end (including | pence | Year end (including | pence |
|---|---|---|---|
| interim dividends) | per share | interim dividends) | per share |
| 2002 | - | 2007 | 2.0 |
| 2003 | 1.0 | 2008 | 6.5 |
| 2004 | 2.0 | 2009 | - |
| 2005 | - | 2010 | 1.0 |
| 2006 | 2.0 | 2011 | 2.0 |
| Cumulative dividends paid to date | 16.5 | ||
| Proposed dividend (payable 17 June 2011) | 1.0 |
The year to 31 January 2011 was dominated in the UK by the election and the formation of a coalition government which immediately instigated an austerity programme to improve the UK's debt position. Whilst this was well received by the markets, opinions vary as to whether the regime will stifle the growth which had begun to be seen and indeed the fourth quarter of 2010 showed a decline of 0.5% in GDP. The situation is further complicated by the unrest in the Middle East and North Africa with rising oil prices and concerns over inflation.
Against this uncertain background, however, the long term fundamentals for healthcare investment and the Company's returns remain attractive with governments needing to provide ever increasing healthcare services to progressively demanding populations, particularly the elderly, with reduced resources.
At the year end, the Company's net asset value per share ("NAV") stood at 48.0p, a decrease of 2.1p per share or 4.0% over the year after adjusting for the two dividends of 1.0p per share which were paid during the year.
The total return (NAV plus cumulative dividends paid) to ordinary shareholders who invested at the outset of the Company was 64.5p per share at 31 January 2011.
At 31 January 2011, the Company's investment portfolio consisted of 9 unquoted investments and 3 quoted investments at a total valuation of £6.0 million. In addition, the Company had cash and liquidity fund investments of £3.2 million.
During the year the work on the restructuring of the portfolio continued. Plum Baby, a later stage investment bought in 2007, was realised during the year at a profit of £0.7 million and Biovex, an early stage company which had been held for several years and whose value had been substantially written down, received an offer from US NASDAQ quoted Amgen just before the year end which resulted in an initial payment to the VCT of \$1.1 million and a right to further payments, depending on the achievement of commercialisation and sales milestones, of up to a further \$2.0 million. Whilst the initial payment alone reflects a loss against cost of £170,000, it is well above the figure at which the holding was reflected in last year's accounts and in accordance with accepted accounting practice no allowance has been made in the accounts for the potential future payments which could turn it into a substantial profit.
Two investments, Optasia Medical Limited and 1st Dental Laboratories plc, entered administration crystallising a loss against cost of £1.0 million, although much of this had already been reflected in the valuations at the end of last year. More details of the portfolio activity are contained in the Investment Manager's Review on the following pages.
The Investment Manager continues to look for later stage investment opportunities and we were very disappointed that two attractive prospects failed to complete at the very final stages of negotiation. The realisations made since the change of manager have left us with the finance available to take advantage of opportunities as they arise and I look forward to having more to report in this respect.
The loss on activities after taxation for the year was £428,000 (2010: profit £305,000), comprising a revenue loss of £170,000 and a capital loss of £258,000.
The Company paid two dividends during the year: a final dividend for the year to 31 January 2010 of 1.0p per share on 11 June 2010 and an interim dividend for the year to 31 January 2011 of 1.0 p per share on 26 November 2010. The Board is proposing a final dividend of 1.0p per share. Subject to shareholder approval at the forthcoming Annual General Meeting ("AGM"), this dividend will be paid on 17 June 2011 to shareholders on the register at 20 May 2011.
The Company maintained a share buyback policy during the year. Shares are repurchased at a discount which is currently set at 10% to the last published NAV as adjusted for any dividends paid since publication. The share buyback policy is subject to annual shareholder approval and to continuous review by the Board.
During the year the Company purchased 491,217 shares for cancellation for an aggregate consideration of £219,000 at an average price of 44.3p per share (approximately equal to a 10% discount to the most recently published NAV at the time of purchase) and representing 2.6% of the issued share capital held at 1 February 2010.
A special resolution to allow the Board to continue to purchase shares for cancellation will be proposed at the forthcoming AGM.
Between 1 April 2010 and 28 May 2010, 311,188 shares were issued at an average price of 53.4p. The aggregate consideration for the shares was £166,000 with related share issue costs thereon amounting to £9,000.
Under the Company's dividend reinvestment scheme, 135,950 shares were issued during the year following the payment of the two dividends. The aggregate consideration for these shares was £67,000 with related share issue costs thereon amounting to £9,000.
On 5 April 2011, a further 400,074 shares were issued at a price of approximately 50.8p per share. The aggregate consideration for the shares was £199,000 with related share issue costs thereon amounting to £7,000.
At the date of this report the total number of shares in issue was 19,580,870.
On 1 March 2011, Diane James was appointed to the Board of the Company. Diane has a wealth of healthcare experience in the both the public and private sectors including founding and selling a successful healthcare communications business. She will, I am sure, be a valuable addition to the Board and I am glad to take this opportunity to welcome her formally. Ann Hacker stepped down from the Board on 19 April 2011 after eight years of service as a director. The Board and I would like to thank Ann for her service and wise counsel to the Company over the years and we wish her well in the future.
The AGM of the Company will be held at 39 Earlham Street, London WC2H 9LT at 10.00 am on 9 June 2011. Notice of the meeting is at the end of this document. Resolutions 1 to 9 will be proposed as ordinary resolutions and resolutions 10 to 12 will be proposed as special resolutions. Further details of the resolutions are provided in the Report of the Directors on page 14.
I would also draw your attention to the Investment Manager's annual shareholder presentation which is expected to held in central London in November. This provides shareholders with an opportunity to meet the Investment Manager and, additionally, to hear directly from some of the portfolio companies and to meet other VCT shareholders. Further details of the event will be communicated to shareholders in the Autumn. The corresponding event in 2010 was very successful and I look forward to welcoming you to this year's event.
Whilst there are interesting opportunities within the existing portfolio, including the potential for further gains relating to the sale of Biovex, the key focus in the coming year will be the introduction of new later stage investments into the portfolio. The Board is also looking at the possibility of offering an opportunity for shareholders to sell their shares back to the company and reinvest the proceeds in new shares, through an enhanced share buyback scheme. Whilst there would be a modest cost involved, shareholders would, if eligible, be able to claim the 30% income tax relief on the new investment provided the shares are held for five years. Further details will be provided as appropriate.
Charles Pinney Chairman 19 April 2011
We are pleased to present our investment management review for the year to 31 January 2011, the second anniversary of taking over the management of the Company's investment portfolio.
The Company's total return fell slightly over the year. Quoted stockmarkets in the UK (and elsewhere) continued to respond to improved market sentiment and the impact of government intervention in financial markets. The increase in the FTSE All Share Total Return Index was 18% over the same period. As we mentioned in last year's report, the comparison of a largely unquoted venture capital trust investment portfolio to any quoted stockmarket index needs to be viewed with care. The Company's performance has, however, again been impacted by the significant proportion of its net assets held in cash and liquidity funds during a continued phase of low interest rates. Additionally, the early stage nature of many of the Company's investments and the development time for their products, together with some specific disappointments, has impacted Company returns.
At 31 January 2011, the Company's investment portfolio comprised holdings in 12 companies, of which 9 were unquoted and 3 quoted, at a valuation of £6.0 million and original acquisition cost of £8.5 million. In addition, the Company had cash and liquidity funds of £3.2 million.
During the year, £688,000 was invested into four existing portfolio companies. One investment, Plum Baby, was sold generating a profit on the original cost of £678,000. Two investments went into administration and have been treated as realised resulting in a loss of £1.0 million against cost. The tables below summarise the transactions during the year:
| Additions | Cost | Description |
|---|---|---|
| £'000 | ||
| Altacor Limited | 300 | Follow on investment |
| Biovex Group Inc | 54 | Follow on investment |
| Optasia Medical Limited | 122 | Follow on investment |
| Population Genetics Technologies Limited | 212 | Follow on investment |
| 688 | ||
| Market | |||||
|---|---|---|---|---|---|
| value at | Realised | Gain/ (loss) | |||
| Cost | 31/01/10 | Proceeds | gain/(loss) | against cost | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| 1st Dental Laboratories plc | 289 | 31 | - | (31) | (289) |
| Inforsense Limited | - | - | 19 | 19 | 19 |
| Optasia Medical Limited | 782 | 217* | 17 | (200) | (765) |
| Plum Baby Limited | 749 | 1,067 | 1,427 | 360 | 678 |
| 1,820 | 1,315 | 1,463 | 148 | (357) |
* includes investments of £122,000 made in the year to 31 January 2011
We commented on the sale of Plum Baby in our half year report to 31 July 2010 but it is worth mentioning again as it illustrates the businesses we are targeting for future investment by the Company. Strong brand awareness, a quality management team and increasing revenues, achieved in part during difficult economic times, proved very attractive to a number of potential buyers and ultimately translated into a sale to a private equity buyer and a strong financial return to shareholders.
In contrast it was disappointing that both Optasia Medical and 1st Dental Laboratories were placed into administration in August and September respectively. Optasia was reliant on its institutional investors (including ProVen Health VCT) to provide continued funding in order to further develop its product. On balance it was decided that the risks of losing further investment outweighed the chances of success and the administrator was appointed.
With 1st Dental we had no chance to influence strategy given its quoted status and our small shareholding, and trading was limited.
On a more positive note, Biovex reached agreement for its acquisition by NASDAQ quoted Amgen Inc in late January 2011. This was completed in March 2011. The acquisition values Biovex at up to \$1.0 billion and the Company's interest at up to \$3.1 million dependent on the achievement of future commercialisation and sales milestones. The year end valuation is based on the initial sales proceeds, received by the Company in March 2011, of \$1.1 million; future proceeds, if appropriate, may take a number of months to materialise but provide a potential significant upside to the Company. There was also good progress with regard to a number of other companies, notably Vectura and IS Pharma, which were both valued above their initial investment cost at the year end. Altacor and Population Genetics Technologies both continue to adapt well in their respective markets.
The investment portfolio showed a decrease in value of £284,000, taking into account the combined effect of additions and disposals. The key contributors to this change were the provisions against Amura Holdings and Digital Healthcare which were partially offset by upwards revaluations including Biovex and Onyx Scientific.
In April 2011, Sinclair Pharma and IS Pharma reached agreement for a merger though the acquisition of the entire share capital of IS Pharma by Sinclair. The transaction will, subject to various approvals, complete in May.
We had anticipated the completion of at least two new investments in the second half of the financial year but these failed to complete at the very final stages of negotiation. Both provided attractive growth opportunities which were unfortunately recognised by other acquirers. We continue, however, to believe in the opportunities afforded by the healthcare sector and are well positioned with significant cash reserves to identify and complete new investments.
Beringea LLP 19 April 2011
The following investments were held at 31 January 2011:
| Valuation | ||||
|---|---|---|---|---|
| movement | % of | |||
| Cost | Valuation | in year | portfolio | |
| £'000 | £'000 | £'000 | by value | |
| Top venture capital investments | ||||
| Altacor Limited | 1,020 | 1,241 | - | 13.4% |
| Population Genetics Technologies Limited | 1,079 | 1,030 | (49) | 11.1% |
| Onyx Scientific Limited | 850 | 997 | 147 | 10.7% |
| Biovex Group, Inc | 848 | 678 | 568 | 7.3% |
| Vectura Group plc * | 482 | 619 | 97 | 6.8% |
| Omni Dental Sciences Limited | 750 | 580 | (148) | 6.3% |
| IS Pharma plc ** | 366 | 428 | 70 | 4.6% |
| Digital Healthcare Limited | 1,010 | 381 | (255) | 4.1% |
| Sinclair Pharma plc * | 219 | 68 | 11 | 0.7% |
| 6,624 | 6,022 | 441 | 65.0% | |
| Other venture capital investments | 1,898 | - | (725) | 0.0% |
| Total venture capital investments | 8,522 | 6,022 | (284) | 65.0% |
| Standard Life Investments Liquidity Fund | 1,800 | 19.4% | ||
| Cash at bank and in hand | 1,446 | 15.6% | ||
| Total investments | 9,268 | 100.0% |
All venture capital investments are unquoted unless otherwise stated.
* Quoted on the Main Market
** Quoted on AIM
Other venture capital investments at 31 January 2011 comprise Amura Holdings Limited, Chromogenex Limited and DeltaDOT Limited.
All venture capital investments held at the year end are registered in England and Wales, with the exception of Biovex Group Inc which was registered in the US.
as at 31 January 2011
| Altacor Limited | Cost: | £1,020,000 | Valuation at 31/01/11: | £1,241,000 | |||
|---|---|---|---|---|---|---|---|
| Investment comprises: | Valuation at 31/01/10: | £941,000 | |||||
| Equity shares: | £1,020,000 | Valuation method: | Price of recent | ||||
| investment | |||||||
| Audited abbreviated | |||||||
| accounts: | 31/12/09 | 31/12/08 | Dividend income: | £Nil | |||
| Turnover: | Unpublished information | ||||||
| Profit before tax: | Unpublished information | Proportion of equity held: | 15.6% | ||||
| Net assets/ | |||||||
| (liabilities): | £0.4 m | (£0.6 m) | Diluted equity: | 14.4% | |||
| Altacor is an ophthalmology specialty pharmaceutical company which develops | |||||||
| and markets products directed to the needs of both ophthalmologists and | |||||||
| patients. Altacor uses its drug development skills and in depth market knowledge | |||||||
| to build a portfolio of high quality, differentiated prescription medicines that set | |||||||
| new standards in the sector. Altacor's pipeline consists of development and in | |||||||
| licensed products which address ocular surface disease, ocular infection and | |||||||
| www.altacor-pharma.com | glaucoma. | ||||||
| Population Genetics | Cost: | £1,079,000 | Valuation at 31/01/11: | £1,030,000 | |||
| Technologies Limited | Investment comprises: | Valuation at 31/01/10: | £867,000 | ||||
| Equity shares: | £867,000 | Valuation method: | Price of recent | ||||
| 2.5% Conv.Loan note: | £212,000 | investment | |||||
| Audited abbreviated | |||||||
| accounts: | 31/08/10 | 31/08/09 | Dividend income: | £Nil | |||
| Turnover: | Unpublished information | ||||||
| Profit before tax: | Unpublished information | Proportion of equity held: | 13.7% | ||||
| Net assets: | £1.4m | £2.9 m | Diluted equity: | 11.9% | |||
| Population Genetics Technologies is creating new paradigms for performing | |||||||
| large-scale population genetics studies. This novel technology, conceived by | |||||||
| Nobel laureate Professor Sydney Brenner, samples large populations to identify | |||||||
| www.populationgeneticstechnologies.com | the genetic variation responsible for human disease and drug response. | ||||||
| Onyx Scientific Limited | Cost: | £850,000 | Valuation at 31/01/11: | £997,000 | |||
| Investment comprises: | Valuation at 31/01/10: | £850,000 | |||||
| Equity shares: | £500,000 | Valuation method: | Revenue multiple | ||||
| Preference shares: | £350,000 | ||||||
| Audited abbreviated | |||||||
| accounts: | 31/03/10 | 31/03/09 | Dividend income: | £26,000 | |||
| Turnover: | Unpublished information | ||||||
| Profit before tax: | Unpublished information | Proportion of equity held: | 12.5% | ||||
| Net assets: | £1.9 m | £1.8 m | Diluted equity: | 12.5% | |||
| Onyx provides a wide range of chemical services to the life sciences and | |||||||
| pharmaceutical industries. Its key focus is scaling up the synthesis of new | |||||||
| chemical entities for drug development. Onyx has more than 40 expert scientists | |||||||
| specialising in drug development from medicinal chemistry to early stage Good |
www.onyx-scientific.com
Manufacturing Practice production.
| Biovex Inc | Cost: | £848,000 | Valuation at 31/01/11: | £678,000 | |
|---|---|---|---|---|---|
| Investment comprises: | Valuation at 31/01/10: | £56,000 | |||
| Equity shares: | £848,000 | Valuation method: | Offer | ||
| Audited accounts: | Unpublished information | Dividend income: | £Nil | ||
| Turnover: Loss before tax: |
Unpublished information Unpublished information |
Proportion of equity held: | 0.3% | ||
| Net assets: | Unpublished information | Diluted equity: | 0.3% | ||
| Biovex offers a new approach to cancer treatment based on oncolytic virus | |||||
| technology from the University of Oxford. At the time of establishment, the | |||||
| company had provisional data showing that the technology was effective and | |||||
| this has now been demonstrated in the recently concluded clinical studies, | |||||
| particularly in melanoma. The company was sold to NASDAQ quoted Amgen Inc | |||||
| www.biovex.com | in March 2011. | ||||
| Vectura Group plc | Cost: | £482,000 | Valuation at 31/01/11: | £619,000 | |
| Investment comprises: | Valuation at 31/01/10: | £523,000 | |||
| Equity shares: | £482,000 | Valuation method: | Bid price | ||
| Audited accounts: | 31/03/10 | 31/03/09 | Dividend income: | £Nil | |
| Turnover: | £40 m | £31 m | |||
| Loss before tax: | (£14 m) | (£20 m) | Proportion of equity held: | 0.2% | |
| Net assets: | £147 m | £155 m | Diluted equity: | 0.2% | |
| www.vectura.com | Vectura develops products to treat respiratory diseases such as asthma, chronic obstructive pulmonary disease and cystic fibrosis. The company also develops products for non-respiratory diseases, where optimised delivery via the lungs could provide significant benefits, such as a rapid onset of action, improved efficacy and improved tolerability compared with current therapies. |
||||
| Omni Dental Sciences Limited | Cost: | £750,000 | Valuation at 31/01/11: | £580,000 | |
| Investment comprises: | Valuation at 31/01/10: | £728,000 | |||
| Equity shares: | £500,000 | Valuation method: | Disc. cash flow | ||
| 6% loan note: | £250,000 | ||||
| Abbreviated unaudited | |||||
| accounts: | 31/03/10 | 31/03/09 | Dividend income: | £Nil | |
| Turnover: | Unpublished information | Loan note income: | £Nil | ||
| Profit before tax: | Unpublished information | Proportion of equity held: | 38.0% | ||
| Net assets: | £1.0 m | £0.5 m | Diluted equity: | 38.0% | |
| Omni Dental Sciences is the holding company for two trading companies – | |||||
| Oraldent Limited which develops and sells oral care products and Professional | |||||
| Dental Supplies Limited which sells cross infection products. The core business is | |||||
| www.oraldent.co.uk | scientific support for the products. | to provide high added value dental products where there is a proven market and |
| IS Pharma plc | Cost: | £366,000 | Valuation at 31/01/11: | £428,000 | |
|---|---|---|---|---|---|
| Investment comprises: | Valuation at 31/01/10: | £357,000 | |||
| Equity shares: | £366,000 | Valuation method: | Bid price | ||
| Audited accounts: | 31/03/10 | 31/03/09 | Dividend income: | £Nil | |
| Turnover: | £14 m | £12 m | |||
| Profit before tax: | £2.6 m | £2.0 m | Proportion of equity held: | 1.0% | |
| Net assets: | £30 m | £29 m | Diluted equity: | 0.9% | |
| INTERNATIONAL SPECIALITY PHARMACEUTICALS |
IS Pharma (International Speciality Pharmaceuticals) develops, acquires and commercialises late-stage pharmaceuticals and medical devices, focusing in critical care, oncology and neurology. Based in the UK, IS Pharma commercialises its portfolio in the UK directly and internationally through a strong network of distributors. In April 2011, the company announced a merger with Sinclair Pharma plc, which, subject to regulatory and shareholder approvals, will |
||||
| www.ispharma.plc.uk | complete in May 2011. | ||||
| Digital Healthcare Limited | Cost: | £1,010,000 | Valuation at 31/01/11: | £381,000 | |
| Investment comprises: | Valuation at 31/01/10: | £636,000 | |||
| Equity shares: | £1,010,000 | Valuation method: | Cost less provision | ||
| Abbreviated unaudited | |||||
| accounts: | 30/09/09 | 30/09/08 | Dividend income: | £Nil | |
| Turnover: | Unpublished information | ||||
| Profit before tax: | Unpublished information | Proportion of equity held: | 12.6% | ||
| Net assets: | £4.9 m | £2.3 m | Diluted equity: | 9.5% | |
| Digital Healthcare delivers software solutions that address some of the world's | |||||
| fastest growing healthcare issues. Founded to provide image management and | |||||
| storage solutions for the ophthalmology sector, the company has extended its | |||||
| product range based on its core competencies in clinical information and patient | |||||
| www.oraldent.co.uk | care management. | ||||
| Sinclair Pharma plc | Cost: | £219,000 | Valuation at 31/01/11: | £68,000 | |
| Investment comprises: | Valuation at 31/01/10: | £58,000 | |||
| Equity shares: | £219,000 | Valuation method: | Bid price | ||
| Audited accounts: | 30/06/10 | 30/06/09 | Dividend income: | £Nil | |
| Turnover: | £28 m | £30 m | |||
| Loss before tax: | (£18 m) | (£4 m) | Proportion of equity held: | 0.1% | |
| Net liabilities: | £66 m | £67 m | Diluted equity: | 0.1% | |
| Sinclair Pharma plc is an international specialty pharmaceutical company providing solutions to treat wounds, dermatological and oral diseases through advanced surface technology and innovative delivery systems. In April 2011, the company announced a merger with IS Pharma plc, which, subject to regulatory |
|||||
| www.sinclairpharma.com | and shareholder approvals, will complete in May 2011. |
The proportion of equity held by each investment also represents the level of voting rights held by the Company in respect of the investment. Portfolio company financial information is based on publicly available information filed at Companies House in the UK (or equivalent locations in overseas jurisdictions). Certain information may not be required to be filed, dependent, for example, on the company's size, and, in the interests of portfolio company confidentiality, is not disclosed here.
• Biovex Group (11%)
The split of the venture capital investment portfolio by commercial sector (by cost and by value at 31 January 2011) is as follows:
The following chart summarises the Company's investment portfolio by the nature of instrument held (by value at 31 January 2011):
At 31 January 2011, the Company assets employed were broadly in line with the targets within the investment policy. These are summarised as follows:
| according to HMRC regulations) | Actual | Target |
|---|---|---|
| Minimum | ||
| VCT qualifying investments | 71.8%* | 70% |
| Other investments, including | ||
| cash at bank and in hand and | Maximum | |
| liquidity funds | 28.1% | 30% |
| Total | 100.0% |
* For share issues to be included in the HMRC investment tests from 1 February 2011
Charles Pinney is a director of Baronsmead VCT 5 plc and Amati VCT plc. He was, from 1994 to 2003, a director of Barclays Private Bank Limited, with overall responsibility for the operations of the investment department, and was managing director of BZW Portfolio Management Limited. From 2003 to 2009 he was a consultant to Rathbones Investment Management. He is a fellow of both the Association of Chartered Certified Accountants and the Chartered Institute for Securities & Investment. He is a former director of APCIMS (the Association of Private Client Investment Managers & Stockbrokers).
Peter Arthur is chairman of Aberdeen Asian Income Fund Ltd, a non-executive director of Longbow Growth and Income VCT plc, a Board member of the Association of Investment Companies (AIC) and also a non-executive director of a number of private companies. He was previously a managing director of ISIS Asset Management plc (now F&C Asset Management), where he was responsible for the institutional and investment trust businesses, and formerly chairman of Artemis AiM VCT 2 plc. He had previously worked for Franklin Templeton Inc and Edinburgh Fund Managers plc. Peter is a solicitor and a fellow of the Chartered Institute of Secretaries and Administrators.
Frank Harding is chairman of KLM Cityhopper UK Limited and until February 2006 was chairman of Provalis plc (a listed healthcare company). He is a chartered accountant with over 40 years experience at KPMG as an audit/general practice partner, latterly specialising in advising UK companies with subsidiaries outside the UK and non UK companies with subsidiaries in Europe. Frank was president of the International Federation of Accountants from 1997 to 2000.
Diane James is an independent adviser to a number of healthcare organisations involving healthcare innovation in the UK and Europe. She chairs the Surrey & Sussex CLRN (Comprehensive Local Research Network), part of the National Institute for Health Research which was established by the UK Department of Health in 2006, to support clinical innovation research in the UK. She has a wide range of healthcare experience at senior management level in both the public and private sectors and has founded, developed and sold a specialist healthcare communications business.
Ann Hacker (resigned 19 April 2011) is a non-executive director of Frimley Park NHS Foundation Trust Hospital, Karus Therapeutics Ltd and Isis Innovation Ltd and is a trustee of the William Harvey Research Foundation and of The Leonardo Trust. Ann has worked in the healthcare industry for over 35 years and has held senior management positions with Lilly and Glaxo Pharmaceuticals, now GSK, as well as having been CEO of three venture capital backed life science companies, Biocompatibles International Plc, Deltex Medical Limited and Metris Therapeutics Limited. In addition, she has held directorships in a number of private and public healthcare companies and health related government organisations.
None of the Directors are, or have been, employed by the Investment Manager, and all are considered to be independent of the Investment Manager.
| At date of this Report | |||
|---|---|---|---|
| Director | Appointment date | Length of service | Age |
| Charles Pinney | 27/06/07 | 3.8 years | 63 |
| Peter Arthur | 22/04/08 | 3.0 years | 54 |
| Frank Harding | 12/02/01 | 10.2 years | 73 |
| Diane James | 01/03/11 | 0.1 years | 51 |
| Ann Hacker (resigned 19 April 2011) | 25/03/03 | 8.1 years | 59 |
The Directors present the Annual Report and Financial Statements of the Company for the year ended 31 January 2011.
The Directors initially obtained provisional approval for the Company to act as a venture capital trust from HM Revenue & Customs at formation. The Directors consider that the Company has conducted its affairs in a manner to enable it to continue to comply with Part 6 of the Income Tax Act 2007.
The investment portfolio showed a fall in value over the 12 months to 31 January 2011 of £0.3 million. The movements underlying this change are set out in the investment portfolio on page 6.
The total running costs of the Company exceeded revenue arising from the investments held (including cash at bank and liquidity funds) by £292,000. This takes into account the reduction in the Investment Manager's fee by £87,000, as a result of the operation of the 3.6% cap on annual expenses (excluding trail commission). The total expense ratio at the year end compared to net assets, taking into account the expense cap, was 3.6% (2010: 3.7%).
The Company's business and developments during the year are reviewed further in the Chairman's Statement, the Investment Manager's Review and the Review of Investments.
Between 1 April 2010 and 28 May 2010, 311,188 shares were issued at an average price of 53.4p. The aggregate consideration for the shares was £166,000 with related share issue costs thereon amounting to £9,000.
On 11 June 2010, 65,437 shares were issued at 51.5p per share under the Company's dividend re-investment scheme. The aggregate consideration for the shares was £34,000 with related share issue costs thereon amounting to £2,000. On 26 November 2010, 70,513 shares were issued at 46.5p per share under the Company's dividend reinvestment scheme. The aggregate consideration for the shares was £33,000 with related share issue costs thereon amounting to £7,000.
During the year the Company purchased 491,217 shares for cancellation for an aggregate consideration of £219,000 at an average price of 44.3p per share (approximately equal to a 10% discount to the most recently published NAV at the time of purchase) and representing 2.6% of the issued share capital held at 1 February 2010.
The total authorised share capital at 31 January 2011 was 245,000,000 ordinary shares of 1p each, with 19,180,796 such shares in issue. There are no other share classes in issue.
On 5 April 2011, the Company issued 400,074 shares for consideration at approximately 50.8p per share, under a 10% top up offer for subscription dated 24 January 2011. The aggregate consideration for the shares was £199,000 and share issue costs thereon amounted to £7,000. At the date of this report the total number of shares in issue was 19,580,870.
| 2011 | 2010 | ||||
|---|---|---|---|---|---|
| Pence | Pence | ||||
| £'000 | per share | £'000 per share | |||
| (Loss)/return for the year | (428) | (2.2p) | 305 | 1.6p | |
| Dividends paid | |||||
| 11 June 2010 | 195 | 1.0p | - | - | |
| 26 November 2010 | 192 | 1.0p | - | - | |
| 4 December 2009 | - | - | 192 | 1.0p |
Subject to shareholder approval at the forthcoming AGM, it is proposed to pay a final dividend of 1p per share on 17 June 2011 to shareholders on the register at 20 May 2011.
The AGM of the Company will be held at 39 Earlham Street, London WC2H 9LT at 10.00 am on 9 June 2011. Notice of the meeting is at the end of this document. Resolutions 1 to 9 will be proposed as ordinary resolutions, meaning that for each resolution to be passed, more than half of the votes cast at the meeting must be in favour of the resolution. Resolutions 10 to 12 will be proposed as special resolutions, meaning that for each resolution to be passed, at least 75% of the votes cast at the meeting must be in favour of the resolution.
Resolutions 9 and 10 are seeking to renew the Directors' general authority to allot shares up to a maximum nominal amount of £195,808 (representing 100% of the current issued share capital) and the Directors' authority to issue shares for cash without applying the statutory pre-emption rights. These authorities will lapse on the conclusion of the Company's next annual general meeting or 9 September 2012, whichever is the later. The Board may utilise these authorities in connection with the Company's dividend re-investment scheme and any offer or enhanced buyback facility (referred to below) which may be implemented by the Company.
Resolution 11 is seeking approval to renew the Company's existing authority to make market purchases of the Company's own shares. The authority will lapse on the conclusion of the Company's next annual general meeting or 9 September 2012, whichever is the later. The Board intends to utilise this authority in the same manner as previous years. Purchases will only be made on the London Stock Exchange and this authority will only be exercised in circumstances where the Board believes that it is in the best interests of the shareholders generally. The maximum to be paid for a share will be the higher of (i) an amount not more than 5% above the average of the middle market quotations for shares of the Company as derived from The London Stock Exchange Daily Official List for the five business days immediately preceding the date of each purchase and (ii) the price stipulated by Article 5(1) of the Buyback and Stabilisation Regulation (EC No. 2273/2003).
Resolution 12 is seeking a similar authority to Resolution 11, namely to obtain authority for the Company to make market purchases of its own shares, but in this case, specifically in connection with an enhanced buyback facility. The Board is currently considering the implementation of an enhanced buyback facility; however, any implementation will be subject not only to approval of Resolution 12 but also to a further decision of the Board. There is consequently no guarantee that any such facility will be implemented. The amount that would be paid pursuant to the exercise of such authority would be a sum equal to the last published net asset value of the Company per share on the date of purchase (such amount being both the maximum and minimum amount that may be paid for a share). The authority will lapse on the conclusion of the Company's next annual general meeting or 9 September 2012, whichever is the earlier.
An enhanced buyback facility, if implemented, would enable participating shareholders' existing shares to be repurchased by the Company with the net proceeds from the buyback being wholly re-invested in new shares. Among the potential benefits to qualifying shareholders of an enhanced buyback facility would be the ability to obtain the income tax relief available on the purchase of new shares.
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 health sector.
The Company's investment policy covers several aspects as follows:
The Company's policy is to create a balanced portfolio of growth companies in the health sector. Investments are made selectively across a range of health sub-sectors in companies that have:
The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities, warrants and fixed interest securities as well as cash and liquidity funds. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks, while AIM investments are in ordinary shares. The Investment Manager targets companies with high growth prospects and bases its selection of investments on:
Investments are usually made in UK companies, although these may trade outside of the UK. At least 70% of funds invested in companies as of the time of the initial investment will be invested in unquoted companies.
Investment is made primarily in VCT Qualifying Investments in the health sector. Any funds awaiting investment are generally held in cash and liquidity funds so that they are readily available for follow-on investments, buybacks or to meet the running costs of the fund although investments may be made in other investments as deemed appropriate by the Board.
The Company invests in a variety of businesses within health industry sub-sectors using a mixture of securities to diversify risk. Health sub-sectors include, but are not limited to, services to patients and health professionals, diagnostics, information and data analysis, medical devices, drug delivery, and drug development companies, particularly where such companies are focussed on distinct niche opportunities or speciality pharmaceuticals where smaller companies can be more effective. In many cases the companies will have proprietary technology or knowhow or some other barrier to entry. The maximum amount invested in any one company is limited to £1 million in a tax year and generally no more than £1.5 million, at cost, is invested in the same company.
Investments are selected through the application of stringent criteria. Where possible, the Investment Manager is represented at board level on unquoted investments in order to be able to monitor closely the companies' progress.
In continuing to maintain its VCT status, the Company complies with a number of regulations as set out in Part 6 of the Income Tax Act 2007. How the main regulations apply to the Company is summarised as follows:
The Company currently does not have any borrowings; however, the Company's Articles do permit borrowing to give a degree of flexibility. Any such borrowing would need to be approved by the Board.
At 31 January 2011, the maximum amount of borrowings allowed, without the previous sanction at a General Meeting, stood at £1.0 million. There are no plans to utilise this borrowing limit at the current time.
The Board seeks to conduct the Company's affairs responsibly and considers relevant social and environmental matters where appropriate.
On 1 February 2009 Beringea LLP ("Beringea") replaced Noble Fund Managers Limited ("Noble") as the Company's Investment Manager. Beringea provides investment management services to the Company under a Discretionary Investment Management Agreement dated 12 February 2001 ("the Investment Management Agreement") and a Deed of Novation and Variation dated 23 December 2008. The Investment Management Agreement was for an initial period of four years from 26 March 2001 and continues thereafter unless terminated by either party giving not less than 12 months notice. Beringea is entitled to receive management fees of 2.5% per annum of the net assets of the Company calculated on a quarterly basis.
Under the terms of an Incentive Agreement dated 12 February 2001, the Investment Manager and the promoter of the original fundraising in 2001, Matrix-Securities Limited ("Matrix"), are entitled to 20% of the amount by which the actual compound annual growth in the net asset value of the Company, as adjusted to take account of cumulative dividends paid and proposed, exceeds a return of 2% over the NatWest bank base rate applied to the initial net value of the Company over the same period. No payment will be made pursuant to this agreement until the net asset value per share plus cumulative dividends per share paid and proposed have exceeded 174p, of which at least 50p per share must have been paid to shareholders in cash. Under the terms of the termination of Matrix's position as promoter of the VCT dated 5 July 2004, Matrix is not entitled to any incentive payments in respect of funds raised following the date of termination.
The Board considers that the continuing appointment of Beringea as the Investment Manager is in the interests of the Company's shareholders as a whole given Beringea's experience and track record in VCT fund management.
On 1 February 2009 Beringea replaced Noble as the provider of Administration and Company Secretarial Services to the Company, under a Deed of Novation and Variation dated 23 December 2008. The agreement is terminable upon the cessation of the Investment Management Agreement. Beringea receives fees thereon of £30,000 plus VAT per annum.
The Company's annual running costs (which exclude trail commission) are capped at 3.6% of the net assets at the year end. Any excess will be paid by Beringea by reducing their fees payable. As previously stated, Beringea's fee was capped for the year under review, with the total fee due being reduced by £87,000. As Beringea had taken a lower fee during the year (to account for the cap), at the year end £1,000 was due from Beringea in respect of overpaid management fees.
The Directors of the Company during the year and their beneficial interests in the issued shares of 1p each, in the Company at each year end, and the date of this report, were as follows:
| At the date | |||
|---|---|---|---|
| Director | of this report | 31 Jan 2011 | 31 Jan 2010 |
| Charles Pinney | 9,103 | 9,103 | 9,103 |
| Peter Arthur | 19,507 | 19,507 | 19,507 |
| Ann Hacker (resigned 19 April 2011) | - | - | - |
| Frank Harding | 23,038 | 23,038 | 22,124 |
| Diane James (appointed 1 March 2011) | - | n/a | n/a |
Directors' retirement and re-election are subject to the Articles of Association and the AIC Code of Corporate Governance.
Frank Harding retires by rotation at the forthcoming AGM and, having served as a Director for over nine years and in accordance with best practice as set out in the AIC Code of Corporate Governance, is now subject to annual reelection by shareholders. The remainder of the Board believe he continues to make a valuable contribution to the VCT and remains highly committed to his role. Frank Harding is considered to be independent of the Investment Manager as he has had no previous dealings with them in either a professional or personal capacity. The Board therefore recommends shareholders to re-elect Frank Harding at the forthcoming AGM. Charles Pinney and Peter Arthur retire by rotation at the forthcoming AGM and, being eligible, offer themselves for re-election. Diane James was appointed as a director on 1 March 2011 and, it being the first AGM since her appointment, retires and offers herself for re-election.
Each of the Directors has signed a service contract and Frank Harding also has, additionally, signed a consultancy agreement with the Company. The Directors' appointments are on a continuous basis unless otherwise terminated at the discretion of either party upon three months written notice. Consultancy agreements shall terminate at the same time as the directorships are terminated. Each Director is required to devote such time to the affairs of the Company as the Board reasonably requires and their powers are bound by the Company's Articles of Association. Appointments of new Directors to the Board are considered by the Nomination Committee as, and when, it is deemed appropriate.
The Company provides Directors' and Officers' liability insurance, giving appropriate cover for legal action brought against its Directors, and has also agreed to indemnify Directors in circumstances where they are not considered to be culpable. The indemnity, which is a qualifying third party indemnity provision for the purpose of the Companies Act, is for the benefit of all of the Company's current Directors.
The Company retains PricewaterhouseCoopers LLP ("PwC") to advise it on compliance with VCT requirements, including evaluation of investment opportunities, as appropriate, and regular review of the portfolio.
A summary of the VCT Regulations is included in the Company's Investment Policy as shown on page 15.
Compliance with the main VCT regulations as at 31 January 2011 and for the year then ended, is summarised as follows:
| • | 70% of its investments in qualifying companies | 71.8%* |
|---|---|---|
| • | At least 30% of the Company's qualifying investments in "eligible shares" | 70.0%* |
| • | At least 10% of each investment held in "eligible shares" | Complied |
| • | No investment constitutes more than 15% of the Company's portfolio | Complied |
| • | Income is derived wholly or mainly from shares and securities; | 81.1% |
| • | No more than 15% of the income from shares and securities is retained; | Complied |
| • | A maximum unit size of £1 million in each VCT qualifying investment (per tax year). | Complied |
* For share issues to be included in the HMRC investment tests from 1 February 2011
The Company's policy is to pay all suppliers' invoices in accordance with agreed terms. Trade creditors and creditor days as at 31 January 2011 were £22,000 and 24 days (2009: £16,000 and 5 days).
The Board considers the main key performance indicators for the Company to be the following:
In comparison to similar VCTs:
In relation to the Company:
These are monitored by the Board at each Board meeting, and are also kept under review by the Investment Manager.
The principal financial risks faced by the Company, which include market risks, credit risks and liquidity risks are disclosed within note 19 to the financial statements.
In addition to these risks the Board considers the following to be risks to the Company:
This is the risk of investment in poor quality assets which reduce the capital and income returns to shareholders and negatively impact on the Company's reputation. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes are more fragile than larger, long-established businesses.
To reduce the risk, the Board places reliance upon the skills and expertise of the Investment Manager and its track record. In addition, the Investment Manager operates a formal and structured investment process, which includes a formal investment committee. Investments are actively and regularly monitored by the Investment Manager and the Board receives detailed reports on each investment as part of the Investment Manager's report at regular Board meetings.
As a venture capital trust, and a fully listed company on the London Stock Exchange, the Company operates in a complex regulatory environment and, therefore, faces a number of related risks. A breach of the VCT regulations could result in the loss of VCT status and consequent loss of tax reliefs currently available to shareholders and the Company being subject to capital gains tax. Serious breaches of other regulations, such as the UKLA Listing Rules and the Companies Act 2006, could lead to suspension from the London Stock Exchange and damage to the Company's reputation.
The Company's compliance with the VCT regulations is continually monitored by the Investment Manager, who reports regularly to the Board on the current position. The Company also retains PricewaterhouseCoopers to provide regular reviews and advice in this area. The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level. Board members have considerable experience of operating at senior levels within quoted and unquoted businesses. The Company employs Beringea LLP as Company Secretary to ensure that compliance with UK Listing Rules is maintained and seeks legal and regulatory advice from appropriate third-party experts when required.
The Board reviews and agrees policies for managing each of these risks. It receives quarterly reports from the Investment Manager, which monitor the compliance of these risks, and places reliance on the Investment Manager to give updates in the intervening period. These policies have remained unchanged since the beginning of the period.
As at 31 January 2011 and at the date of this report, the Company was not aware of any individual shareholdings exceeding 3 per cent of the issued share capital.
A resolution to re-appoint PKF (UK) LLP as the Company's Auditor will be proposed at the forthcoming AGM.
The Directors are responsible for preparing the Report of the Directors, the Directors' Remuneration Report, and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements, and the Directors' Remuneration Report, comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information relating to the Company included on the Investment Manager's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 17 confirms that, to the best of his or her knowledge:
The financial statements are published on www.provenvcts.co.uk (maintained by the Investment Manager).
The Company's compliance with The AIC Code of Corporate Governance (www.aic.co.uk) is shown on pages 21 to 26.
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 has 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 Auditor.
By Order of the Board
Secretary of ProVen Health VCT plc Company number: 04131354 Registered Office: 39 Earlham Street London WC2H 9LT
19 April 2011
The Board of ProVen Health VCT plc has considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to ProVen Health VCT plc.
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the Combined Code), will provide better information to shareholders.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the Combined Code, except as set out below.
The Combined Code includes provisions relating to:
For the reasons set out in the AIC Guide, and in the preamble to the Combined Code, the Board considers these provisions are not relevant to the position of ProVen Health VCT plc, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions.
At the date of this report, the Company had a Board of five directors (including Ann Hacker who resigned as a director following the approval of the report) . As a whole the Board comprises an appropriate balance of skills, experience and tenure. It also believes that each non-executive director is independent in character and judgement and that there are no relationships or circumstances which are likely to affect the judgement of any directors. Biographical details of all Board members are shown on page 12. The Company has no staff other than the Directors and Officers and does not have a chief executive officer. Frank Harding is the approved Senior Independent Director.
Directors are not appointed for specified terms but are subject to re-election by shareholders at the first opportunity after their appointment and to further re-election thereafter at three year intervals. Directors who have been on the Board for more than nine years will be subject to annual re-election provided that the Board is satisfied as to their continued independence. Frank Harding was re-elected during the year and, having served on the Board for more than nine years, is subject to re-election at the forthcoming AGM. The Board is satisfied of Mr Harding's continuing independence, as prior to the appointment of Beringea as Investment Manager, he had no previous dealings with them in either a professional or personal capacity. Charles Pinney and Peter Arthur retire by rotation and, being eligible, offer themselves for re-election. Diane James, having been appointed to the Board on 1 March 2011, is subject to re-election by shareholders at the AGM.
All non-executive directors have signed contracts and one has a signed consultancy agreement. Directors' contracts and agreements are available for inspection by shareholders immediately before and after the Company's Annual General Meeting.
Directors are provided with key information on the Company's activities including regulatory and statutory requirements and internal controls by the Investment Manager. The Investment Manager, in the absence of explicit instructions from the Board, is empowered to exercise discretion in the use of the Company's voting rights. Shareholdings are generally voted at the Investment Manager's discretion, with the objective of seeking to maximise shareholder value by constructive use of votes at company meetings and by endeavouring to use its influence as an investor with a principled approach to corporate governance. The Board has direct access to company secretarial advice through the Company Secretary, which is responsible for ensuring that Board procedures are followed.
All Directors are able to take independent professional advice in furtherance of their duties if necessary. In accordance with the Code, the Company has in place Directors' and Officers' liability insurance. On appointment any new Director will be given a comprehensive introduction to the Company's business including meeting the Company's key advisers where appropriate.
The Board is responsible to shareholders for the proper management of the Company and meets at least quarterly. The Code states that the Board should have a formal schedule of matters specifically reserved to it for decision, to ensure that it has firm direction and control of the Company. This is achieved by a management agreement between the Company and the Investment Manager, which sets out the matters over which the Investment Manager has authority and the limits above which Board approval must be sought. All other matters including strategy, investment and dividend policies, gearing and corporate governance proceedings are reserved for the approval of the Board of Directors.
The Chairman, together with the Company Secretary, establishes the agenda for each Board meeting. The necessary papers for each meeting are distributed well in advance of each meeting.
The Board has authority to make market purchases of the Company's own shares. This authority for up to 14.9% of the Company's issued share capital was granted at the last AGM. A resolution will be put to shareholders at the forthcoming AGM to renew this authority.
The Board also has authority to issue new shares up to 10.0% of the current issued share capital. This authority was granted at the last AGM and a resolution will be put to shareholders at the forthcoming AGM to renew this authority.
The Company's capital structure is disclosed on page 13.
The Company has an Audit Committee, Nomination Committee and Remuneration Committee, all of which have defined terms of reference and duties, which are available from the Company Secretary and on the Investment Manager's website, www.provenvcts.co.uk. A Management Engagement Committee has not been constituted with matters thereon being dealt with by the Board as a whole.
A fully constituted committee of the Board of Directors, established to perform the duties set out below and to report on those matters to the Board.
The Audit Committee comprises Frank Harding (chairman), Charles Pinney, Peter Arthur and Diane James. Ann Hacker resigned as a member of the Audit Committee on 19 April 2011. The Board has deemed it appropriate that all directors sit on the Audit Committee due to their experience in such matters.
The Audit Committee reviews the performance and continued suitability of the Company's auditors on an annual basis. In advance of each audit, PKF (UK) LLP ("PKF") provide an audit strategy plan for consideration by the Committee, including confirmation of PKF's compliance with the Ethical Standards of the Auditing Practices Board and of the audit and non-audit fees chargeable to the Company. PKF liaise directly with the Investment Manager during the audit process and attend the Audit Committee meeting at which the Annual Report is considered. PKF provide a detailed Audit Committee Report outlining their audit process and setting out their findings. The Audit Committee and Investment Manager are able to assess the quality of PKF's work and of PKF's understanding of the business. Based on these procedures, the Audit Committee has obtained sufficient assurance as to PKF's independence and performance and it therefore recommends to shareholders that PKF be re-appointed as Auditor for the forthcoming year.
A fully constituted committee of the Board of Directors, established to perform the duties set out below and to report on those matters to the Board.
The Nomination Committee comprises Peter Arthur (chairman), Frank Harding and Diane James. Ann Hacker resigned as chairman and as a member of the Nomination Committee on 19 April 2011.
The Nomination Committee recommended the appointment of Diane James to the board of the Company shortly after the year end. This recommendation was approved by the Board and Ms James was appointed as a director on 1 March 2011. The Nomination Committee did not use an external consultancy nor open advertising to recruit for this position, instead utilising the experience gained from a previous external search in 2008 and the directors' own extensive network of contacts and business associates.
A fully constituted committee of the Board of Directors, established to perform the duties set out below and to report on those matters to the Board.
The Remuneration Committee comprises Peter Arthur (chairman), Frank Harding and Diane James. Ann Hacker resigned as chairman and as a member of the Remuneration Committee on 19 April 2011. The Committee's annual report can be found on pages 27 and 28 of this report.
The following table sets out the Directors' attendance at full Board and Committee meetings held during the year ended 31 January 2011.
| Board meetings | Audit Committee meetings |
Nomination Committee meetings |
Remuneration Committee meetings |
|||||
|---|---|---|---|---|---|---|---|---|
| Director | held attended | held | attended | held | attended | held | attended | |
| Charles Pinney | 5 | 5 | 2 | 2 | N/A | N/A | N/A | N/A |
| Peter Arthur | 5 | 5 | 2 | 2 | 1 | 1 | 1 | 1 |
| Ann Hacker | 5 | 3 | 2 | 1 | 1 | 1 | 1 | 1 |
| Frank Harding | 5 | 5 | 2 | 2 | 1 | 1 | 1 | 1 |
The Board is in regular contact with the Investment Manager between Board meetings.
The Board has considered the Code's recommendations in respect of arrangements by which staff of the Investment Manager may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. It has concluded that adequate arrangements are in place for proportionate and independent investigation of such matters, and where necessary, for appropriate follow up action to be taken within their respective organisations.
During the year, the performance of the Board and individual directors was evaluated through an assessment process led by the Chairman. The Directors, led by the Senior Independent Director, were responsible for performance evaluation of the Chairman.
The Directors' statement of responsibilities for preparing the accounts is set out in the Directors' Report on page 19, and a statement by the Auditor about their reporting responsibilities is set out in the Auditor's Report on page 29.
The Company welcomes the views of shareholders and places great importance on communication with its shareholders. Shareholders have the opportunity to meet the Board and representatives of the management team at the Annual General Meeting. All shareholders are welcome to attend the meeting and to ask questions of the Directors. The Investment Manager also holds an annual investor day for the VCTs it manages and shareholders are welcome to attend. The Board is also happy to respond to any written queries made by shareholders during the course of the year. All communication from shareholders is recorded and reviewed by the Board to ensure that shareholder enquiries are promptly and adequately resolved.
The Company's Senior Independent Director, Frank Harding, is available to shareholders who have concerns that other channels have failed to allay and can be contacted through the registered office. As disclosed in the Report of the Directors on page 19, at the year end there were no shareholders holding a substantial interest in the Company.
Separate resolutions are proposed at the AGM on each substantially separate issue. Proxy votes are collated and the results (together with the proxy forms) are forwarded to the Company Secretary immediately prior to the AGM.
In order to comply with the Combined Code, proxy votes are announced at the AGM, following each vote on a show of hands, except in the event of a poll being called, and are published immediately following the AGM. The notice of the next AGM and proxy form can be found at the end of these financial statements.
The Company also communicates with shareholders through annual and half yearly reports. The Board as a whole approves the terms of the Chairman's Statement and the Investment Manager's Review which form part of these reports in order to ensure that they present a balanced and understandable assessment of the Company's position. The Company also releases quarterly interim management statements, and other information as required, to the London Stock Exchange.
The Board acknowledges that it is responsible for the Company's internal control systems and for reviewing their effectiveness. In accordance with Principle C2 of the Combined Code, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. Internal controls are designed to manage the particular needs of the Company and the risks to which it is exposed. The internal control systems aim to ensure the maintenance of proper accounting records, the reliability of the financial information upon which business decisions are made and which is used for publication, and that the assets of the Company are safeguarded. They can by their nature only provide reasonable and not absolute assurance against material misstatement or loss. The controls operated by the Board include the authorisation of the investment strategy and regular reviews of the results and investment performance.
Although the Board is ultimately responsible for safeguarding the assets of the Company, the Board has delegated, through written agreements, the day-to-day operation of the Company, i.e. investment management, administration functions (including the financial reporting process) and cash management to Beringea. This contract was entered into after full and proper consideration by the Board of the quality and cost of services offered. The Board receives and considers regular reports from the Investment Manager. Ad hoc reports and information are supplied to the Board as required. It remains the role of the Board to keep under review the terms of the management agreement with the Investment Manager and to evaluate the performance of the Investment Manager.
An annual review of the control systems is carried out which covers consideration of the key risks in a number of areas. Each risk is considered with regard to the likelihood that the risk may occur, the impact of the risk on the performance and reputation of the Company should it occur, and the controls exercised over that risk. The Investment Manager reports to the Board on the operation of the controls; in addition the external auditor may report on control weaknesses identified during the course of the audit as part of its Audit Committee Report. The main aspects of the internal controls that were in place during the financial year to 31 January 2011 were:
The Board has identified no significant problems with the Company's internal controls that warrant disclosure in the annual report.
The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman's Statement on page 2, the Investment Manager's Review on page 4 and the Report of the Directors on page 13. The financial position of the Company, its cash flows and liquidity position are shown in the Cash Flow Statement on page 33 and the Report of the Directors on page 16. In addition, notes 18 to 20 to the financial statements include the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.
In accordance with "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009", issued by the Financial Reporting Council, the Board has assessed the Company's operation as a going concern. The Company has considerable financial resources both at the year end and at the date of this report, and holds a number of different venture capital investments. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
The Directors consider that the Company has complied throughout the year ended 31 January 2011, and continues to comply at the date of this report, with all the relevant provisions set out in the AIC Code of Corporate Governance, subject to the exceptions noted above.
By order of the Board
Beringea LLP Secretary 39 Earlham Street London WC2H 9LT
19 April 2011
The Board has prepared this report, in accordance with the requirements of Section 420 of the Companies Act 2006. A resolution to approve this report will be put to the members at the AGM to be held on 9 June 2011.
Under the requirements of Section 497, the Company's Auditors are required to audit certain disclosures contained within the report. These disclosures have been highlighted and the audit opinion thereon is contained within the Auditors' Report on page 29.
The membership of the Remuneration Committee comprises three non-executive directors. The current members are Peter Arthur (chairman), Frank Harding and Diane James. Ann Hacker resigned as chairman and as a member of the Committee on 19 April 2011. The secretary to the Committee is Beringea LLP which is also the secretary to the Company.
The Remuneration Committee, which is a committee of the Board, meets at least annually, to consider the Directors' remuneration and to make recommendations thereon to the Board. The secretary provides a comparison of the Directors' remuneration with that of venture capital trusts of similar size. This comparison, together with the consideration of any alteration in Directors' responsibilities, is used to consider whether any change in remuneration is necessary.
The Board's policy is that the remuneration of directors should be fair and comparable with that of other venture capital trusts of similar size. The level of remuneration should be sufficient to attract and retain the directors required to oversee effectively the Company.
In addition, it should reflect the specific circumstances of the Company, the duties and responsibilities of the Directors and the value and amount of time committed to the Company's affairs. It is intended that this policy will continue in force.
The fees for the Directors are determined within the limits set out in the Company's articles of association. The present aggregate limit for directors' remuneration is £100,000 per annum and the approval of shareholders at a general meeting would be required to change this limit.
Frank Harding, Charles Pinney, Peter Arthur and Diane James have each signed a service contract and Frank Harding also has a consultancy agreement with the Company. The Directors' appointments are on a continuous basis unless otherwise terminated at the discretion of either party upon three months written notice. Consultancy agreements shall terminate at the same time as the directorships are terminated.
| 2011 | 2010 | |
|---|---|---|
| Director | £ | £ |
| Charles Pinney | 16,000 | 16,000 |
| Peter Arthur | 12,000 | 12,000 |
| Ann Hacker (resigned 19 April 2011) | 12,000 | 12,000 |
| Frank Harding | 12,000 | 12,000 |
| 52,000 | 52,000 |
No other emoluments, pension contributions or life assurance contributions were paid by the Company to, or on behalf of, any Director. The Company does not have any share options in place and no performance incentive fees are due to the Directors.
Following a recent review, the Remuneration Committee agreed the following revised remuneration levels effective from 1 February 2011:
| Annual rate | |
|---|---|
| Director | £ |
| Charles Pinney | 20,000 |
| Peter Arthur | 15,000 |
| Ann Hacker (resigned 19 April 2011) | 15,000 |
| Frank Harding | 15,000 |
| Diane James (appointed 1 March 2011) | 15,000 |
The graph below compares the change in the Company's net asset value total return and share price total return with that of the FTSE All Share Total Return Index since 31 July 2001. The Company's net asset value total return is calculated as the net asset value with dividends reinvested at the net asset value prevailing on the date the dividends were paid. The Company's share price total return is calculated as mid market share price with dividends reinvested at the mid market price prevailing on the date the dividends were paid. The graph does not take into account the initial tax benefits on subscription received by shareholders. There are no options, issued or exercisable, in the Company which would distort the graphical representation below.
Secretary 39 Earlham Street London WC2H 9LT
19 April 2011
We have audited the financial statements of ProVen Health VCT plc for the year ended 31 January 2011 which comprise the Income Statement, the Reconciliation of Movements in Shareholders' Funds, the Balance Sheet, the Cash Flow Statement, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company's Members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's Members those matters we are required to state to them in an Auditor's Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's Members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report
In our opinion the financial statements:
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
Rosemary Clarke Senior Statutory Auditor For and on behalf of PKF (UK) LLP Statutory Auditor London UK
19 April 2011
for the year ended 31 January 2011
| 2011 | 2010 | ||||||
|---|---|---|---|---|---|---|---|
| Note | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Income | 2 | 44 | - | 44 | 41 | - | 41 |
| (Losses)/gains on investments | 9 | - | (136) | (136) | - | 631 | 631 |
| 44 | (136) | (92) | 41 | 631 | 672 | ||
| Investment management fees | 3 | (41) | (122) | (163) | (51) | (152) | (203) |
| Other expenses | 4 | (173) | - | (173) | (164) | - | (164) |
| (Loss)/return on ordinary activities before tax |
(170) | (258) | (428) | (174) | 479 | 305 | |
| Tax on ordinary activities | 6 | - | - | - | - | - | - |
| (Loss)/return attributable to equity shareholders |
(170) | (258) | (428) | (174) | 479 | 305 | |
| Basic and diluted (loss)/return | |||||||
| per share | 8 | (0.9p) | (1.3p) | (2.2p) | (0.9p) | 2.5p | 1.6p |
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement as shown above.
Other than revaluation movements arising on investments held at fair value through the Income Statement, there were no differences between the result as stated above and at historical cost.
| Note | 2011 £'000 |
2010 £'000 |
|
|---|---|---|---|
| Opening shareholders' funds | 10,018 | 9,950 | |
| Proceeds from share issues | 233 | 36 | |
| Share issue costs | (18) | (7) | |
| Purchase of own shares | (219) | (74) | |
| Total recognised (loss)/gain for the period | (428) | 305 | |
| Dividends paid | 7 | (387) | (192) |
| Closing shareholders' funds | 9,199 | 10,018 |
The accompanying notes are an integral part of this statement.
as at 31 January 2011
| Note | 2011 | 2010 | |
|---|---|---|---|
| £'000 | £'000 | ||
| Fixed assets | |||
| Investments | 9 | 6,022 | 6,933 |
| Current assets | |||
| Debtors | 10 | 21 | 9 |
| Current investments | 11 | 1,800 | 1,791 |
| Cash at bank and in hand | 1,446 | 1,358 | |
| 3,267 | 3,158 | ||
| Creditors: amounts falling due within one year | 12 | (90) | (73) |
| Net current assets | 3,177 | 3,085 | |
| Net assets | 9,199 | 10,018 | |
| Capital and reserves | |||
| Called up share capital | 13 | 192 | 192 |
| Capital redemption reserve | 14 | 398 | 393 |
| Share premium account | 14 | 7,170 | 6,960 |
| Special distributable reserve | 14 | 7,586 | 8,192 |
| Capital reserve - realised | 14 | (2,914) | (2,444) |
| Capital reserve - unrealised | 14 | (2,500) | (2,712) |
| Revenue reserve | 14 | (733) | (563) |
| Total equity shareholder's funds | 9,199 | 10,018 | |
| Basic and diluted net asset value per share | 15 | 48.0p | 52.1p |
The financial statements on pages 31 to 45 were approved and authorised for issue by the Board of Directors on 19 April 2011 and were signed on its behalf by:
Charles Pinney Chairman
The accompanying notes are an integral part of these financial statements.
for the year ended 31 January 2011
| Note | 2011 | 2010 |
|---|---|---|
| £'000 | £'000 | |
| 16 | (292) | (77) |
| (688) | (710) | |
| 1,463 | 1,427 | |
| 775 | 717 | |
| (155) | ||
| 162 | 485 | |
| - | ||
| (18) | (2) | |
| (222) | (70) | |
| (74) | (72) | |
| 413 | ||
| 17 | (321) 166 88 |
The accompanying notes are an integral part of these financial statements.
for the year ended 31 January 2011
The Company has prepared its financial statements under UK Generally Accepted Accounting Practice and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" January 2009 ("SORP").
The financial statements are prepared under the historical cost convention except for certain financial instruments measured at fair value.
The Company implements new Financial Reporting Standards ("FRS") issued by the Accounting Standards Board when required.
In order to better reflect the activities of a venture capital trust and in accordance with the SORP, 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.
Investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with International Private Equity and Venture Capital Valuation Guidelines ("IPEVCVG") issued in September 2009 together with FRS26.
Publicly traded investments are measured using bid prices.
The valuation methodologies used by the Directors for assessing the fair value of unquoted investments are as follows:
The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value. Methodologies are applied consistently from year to year except where a change results in a better estimate of fair value.
Where an investee company has gone into receivership or liquidation, or there is little likelihood of a recovery from a company in administration, the loss on the investment, although not physically disposed of, is treated as being realised.
Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item.
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 Income Statement except to the extent of any dividends or interest accrued. This is in accordance with the SORP that does not require portfolio investments to be accounted for using the equity method of accounting.
Current assets investments comprise investments in liquidity funds with AAA rating and are redeemable on call. These investments are valued at bid price.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established, normally the ex dividend date or, where no dividend date is established, when the Company's right to receive payment is established.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection. Income which is not capable of being received within a reasonable period of time is reflected in the capital value of the investments.
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:
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.
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 and is not discounted. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost, equivalent to the fair value of the expected balance receivable/payable by the Company.
Expenses in relation to share issues are deducted from the Share Premium Account.
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Income from investments | ||
| Loan stock interest | - | 9 |
| Dividend income | 26 | 17 |
| Income from global liquidity funds | 10 | 13 |
| 36 | 39 | |
| Other income | ||
| Deposit interest | 8 | 2 |
| 44 | 41 |
| Investment management fee | 163 | 203 |
|---|---|---|
| £'000 | £'000 | |
| 2011 | 2010 |
Investment management fees are payable to Beringea, under a Discretionary Investment Management Agreement dated 12 February 2001 and Deed of Novation dated 23 December 2008, and are 2.5% per annum of the net assets of the Company, calculated on a quarterly basis. These fees are not subject to VAT.
The annual running costs of the Company for the year are subject to an expenses cap of 3.6% of the Company's net assets, based on the balance sheet date. Annual running costs exceeding the cap are borne by the Investment Manager and their investment management fee is reduced accordingly. The net position, after accounting for the annual running costs cap is therefore disclosed in the table above.
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Administration services | 36 | 36 |
| Directors' fees | 52 | 52 |
| Social security costs | 3 | 3 |
| Auditor's remuneration for - audit | 20 | 20 |
| - taxation services | 2 | 2 |
| Trail commission | 5 | 10 |
| Legal and professional | - | 1 |
| Other | 55 | 40 |
| 173 | 164 |
Details of remuneration (excluding VAT and employers' NIC) are given in the Directors' Remuneration Report on page 27. The Company had no employees other than the Directors during either year. No other emoluments or pension contributions were paid by the Company to, or on behalf of, any Directors.
| 2011 | 2010 | ||
|---|---|---|---|
| £'000 | £'000 | ||
| (a) | Tax charge for year | ||
| Current year | |||
| UK corporation tax (charged to the Revenue Account) | - | - | |
| Tax credited to Capital Account | - | - | |
| Charge for year | - | - | |
| (b) | Factors affecting tax charge for the year | ||
| (Loss)/return on ordinary activities before taxation | (428) | 305 | |
| Tax charge calculated on (loss)/return on ordinary activities before | |||
| taxation at the applicable rate of 21.0% (2010: 21.0%) | (90) | 64 | |
| Effects of: | |||
| (Gains)/losses on investments | 29 | (132) | |
| UK dividend income | (7) | (6) | |
| Expenses disallowed for taxation purposes | 1 | 2 | |
| Excess management fees carried forward | 67 | 72 | |
| Charge for year | - | - |
(c) A deferred tax asset has not been recognised in respect of timing difference relating to excess management expenses carried forward as there is insufficient evidence that the asset will be recovered. The amount of the asset not recognised is £407,000 (2010: £340,000) and would only be recovered were the Company to make sufficient taxable profits in the future.
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Paid in year: | ||
| Final dividend of 1.0p per share paid on 11 June 2010 | 195 | - |
| Interim dividend of 1.0p per share paid on 26 November 2010 | 192 | - |
| Interim dividend of 1.0p per share paid on 4 December 2009 | - | 192 |
| 387 | 192 | |
| Split as: | ||
| Paid directly to shareholders | 321 | 155 |
| Shares issued under dividend re-investment scheme | 66 | 37 |
| 387 | 192 | |
| Proposed final dividend: | ||
| 1.0p per share payable on 17 June 2011 | 196 | - |
| 1.0p per share payable on 11 June 2010 | - | 195 |
| Weighted average number of shares in issue |
Revenue loss per share (pence) |
Revenue loss £'000 |
Capital gain/(loss) per share (pence) |
Capital gain/ (loss) £'000 |
|
|---|---|---|---|---|---|
| Year ended 31 January 2011 | 19,296,351 | (0.9p) | (170) | (1.3)p | (258) |
| Year ended 31 January 2010 | 19,298,309 | (0.9p) | (174) | 2.5p | 479 |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed therefore represents both basic and diluted return per share.
for the year ended 31 January 2011
"Fair value through profit or loss" assets
| Investments | ||||
|---|---|---|---|---|
| quoted Investments | ||||
| on Main | quoted | Unquoted | ||
| Market | on AIM investments | Total | ||
| £'000 | £'000 | £'000 | £'000 | |
| Opening cost at 1 February 2010 | 701 | 655 | 8,289 | 9,645 |
| Unrealised losses at 1 February 2010 | (121) | (267) | (2,324) | (2,712) |
| Opening fair value at 1 February 2010 | 580 | 388 | 5,965 | 6,933 |
| Movement in year | ||
|---|---|---|
| - | - | 688 | 688 |
|---|---|---|---|
| - | - | (1,463) | (1,463) |
| - | (30) | 178 | 148 |
| 107 | 70 | (461) | (284) |
| 687 | 428 | 4,907 | 6,022 |
| 701 | 366 | 7,455 | 8,522 |
| (14) | 62 | (2,548) | (2,500) |
| 687 | 428 | 4,907 | 6,022 |
A schedule disclosing the material additions and disposals during the year is disclosed in the Investment Manager's Review on page 4. There was a material writedown in the valuation of Amura Holdings Limited compared to the prior year.
The basis of valuation was changed, and gave rise to a material difference in valuation relative to the previous year, as highlighted on page 6, for Biovex Group Inc. The valuation of Biovex Group (31 January 2011 valuation £678,000) was changed from a price of recent investment basis to an offer valuation basis following an agreement for NASDAQ quoted Amgen to acquire Biovex Group. The transaction completed in March 2011 and proceeds were received. Further proceeds of up to \$2.0 million may be received dependent on the achievement of commercialisation and sales milestones.
FRS 29 requires disclosure to be made if changing one or more of the inputs to reasonably possible alternative assumptions would result in a significant change in the fair value of the investments. The portfolio has been reviewed and both downside and upside alternative assumptions identified. These reflect discounts applied to multiples, cost impairments and discounted cash flow assumptions and result in an increase of £444,000 to the value of the unquoted investments, for an upside scenario and a decrease of £119,000 to the value of the unquoted investments, for a downside scenario.
for the year ended 31 January 2011
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Other debtors | - | 2 |
| Prepayments and accrued Income | 21 | 7 |
| 21 | 9 | |
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Liquidity fund | 1,800 | 1,791 |
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Trade creditors | 22 | 16 |
| Other social security costs | 5 | 5 |
| Other creditors | 17 | 12 |
| Accruals and deferred income | 46 | 40 |
| 90 | 73 |
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Authorised: | ||
| 245,000,000 (2010: 245,000,000) ordinary shares of 1p each | 2,450 | 2,450 |
| Issued, allotted, called up and fully-paid: | ||
| 19,180,796 (2009: 19,224,875) ordinary shares of 1p each | 192 | 192 |
Between 1 April 2010 and 28 May 2010, 311,188 shares were issued at an average price of 53.4p. The aggregate consideration for the shares was £166,000 with related share issue costs thereon amounting to £9,000.
On 11 June 2010, 65,437 shares were issued at 51.5p per share under the Company's dividend re-investment scheme. The aggregate consideration for the shares was £34,000 with related share issue costs thereon amounting to £2,000.
On 26 November 2010, 70,513 shares were issued at 46.5p per share under the Company's dividend reinvestment scheme. The aggregate consideration for the shares was £33,000 with related share issue costs thereon amounting to £7,000.
During the year the Company purchased 491,217 shares for cancellation for an aggregate consideration of £219,000 at an average price of 44.3p per share (approximately equal to a 10% discount to the most recently published NAV at the time of purchase) and representing 2.6% of the issued share capital held at 1 February 2010.
for the year ended 31 January 2011
| Capital | Capital | Capital | ||||
|---|---|---|---|---|---|---|
| redemption | Share | Special | reserve - | reserve - | Revenue | |
| reserve | premium | reserve | realised | unrealised | reserve | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 February 2010 | 393 | 6,960 | 8,192 | (2,444) | (2,712) | (563) |
| Issue of new shares | - | 228 | - | - | - | - |
| Share issue costs | - | (18) | - | - | - | - |
| Purchase of own shares | 5 | - | (219) | - | - | - |
| Expenses capitalised | - | - | - | (122) | - | - |
| Gains/(losses) on investments | - | - | - | 148 | (284) | - |
| Realisation of revaluations from | ||||||
| previous years | - | - | - | (496) | 496 | - |
| Dividends paid | - | - | (387) | - | - | - |
| Retained net loss | - | - | - | - | - | (170) |
| At 31 January 2011 | 398 | 7,170 | 7,586 | (2,914) | (2,500) | (733) |
The special reserve is a distributable reserve that allows the Company to make market purchases of its own shares and to pay dividends.
Distributable reserves comprise the special reserve, capital reserve – realised and revenue reserve. At the year end there were £1,439,000 (2010: £2,473,000) of reserves available for distribution after deducting the capital reserve – unrealised of £2,500,000 (2010: £2,712,000).
| 2011 | 2010 | |||||
|---|---|---|---|---|---|---|
| Shares in issue | Net asset value | Net asset value | ||||
| Pence | Pence | |||||
| 2011 | 2010 | per share | £'000 | per share | £'000 | |
| Ordinary shares | 19,180,796 | 19,224,875 | 48.0p | 9,199 | 52.1p | 10,018 |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on net asset per share. The net asset value per share disclosed therefore represents both basic and diluted net asset value per share.
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| (Loss)/return on ordinary activities before tax | (428) | 305 |
| Losses/(gains) on investments | 136 | (631) |
| Re-invested liquidity fund dividends | (9) | (13) |
| (Increase)/decrease in debtors | (11) | 266 |
| Increase/(decrease) in creditors | 20 | (4) |
| Net cash outflow from operating activities | (292) | (77) |
| Net funds at | Other non | Net funds at | ||
|---|---|---|---|---|
| 1 February | cash | 31 January | ||
| 2010 | Cash flows | changes | 2011 | |
| £'000 | £'000 | £'000 | £'000 | |
| Cash at bank and in hand | 1,358 | 88 | - | 1,446 |
| Liquidity fund | 1,791 | - | 9 | 1,800 |
| 3,149 | 88 | 9 | 3,246 |
The Company's financial instruments comprise investments in quoted companies, unquoted companies, liquidity funds, loans and receivables (including cash at bank and debtors) and other financial liabilities. Investments are designated as "fair value through profit or loss" assets. The main purpose of these investments is to generate revenue and capital appreciation for the Company's operations. The fair value of investments is determined using the accounting policies as shown in note 1.
Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.
The Company has not entered into any derivative transactions.
The Company has categorised its financial instruments at fair value through profit and loss using the fair value hierarchy as follows:
| 2011 –––––––––––––––––––––––––––––––––– |
2010 ––––––––––––––––––––––––––––––––––– |
|||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Quoted on the Main Market | 687 | - | - | 687 | 580 | - | - | 580 |
| AIM quoted | 428 | - | - | 428 | 388 | - | - | 388 |
| Loan notes | - | - | 476 | 476 | - | - | 707 | 707 |
| Unquoted | - | - | 4,431 | 4,431 | - | - | 5,258 | 5,258 |
| Liquidity fund | 1,800 | - | - | 1,800 | 1,791 | - | - | 1,791 |
| 2,915 | - | 4,907 | 7,822 | 2,759 | - | 5,965 | 8,724 |
for the year ended 31 January 2011
Reconciliation of fair value for Level 3 financial instruments held at the year end:
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Balance at the beginning of the financial year | 5,965 | 5,104 |
| Transfer from Level 1 following delisting of investment | - | 6 |
| Movements in the income statement: | ||
| Unrealised (losses)/gains in the income statement | (461) | 524 |
| Realised gains/(losses) in the income statement | 178 | (53) |
| (283) | 471 | |
| Purchases at cost | 688 | 710 |
| Sales proceeds | (1,463) | (326) |
| Balance at the end of the financial year | 4,907 | 5,965 |
| Average | Average period | 2011 | 2010 | |
|---|---|---|---|---|
| interest rate | until maturity | £'000 | £'000 | |
| Fixed rate | 6.0% | 180 days | 264 | 96 |
| Floating rate | 0.5% | - | 3,458 | 3,149 |
| Variable floating rate | - | - | - | 263 |
| Libor rate | 7.3% | 1,065 days | 497 | 388 |
| No interest rate | 365 days | 4,980 | 6,122 | |
| 9,199 | 10,018 |
The Company has no financial liabilities or guarantees, other than the creditors disclosed within the Balance Sheet (2010: none).
As at 31 January 2011, the Company had one American investment valued at £678,000, (2010: one American investment valued at £56,000).
The Company has no committed borrowing facilities as at 31 January 2011 (2010: None).
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 regulations 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 aware of the need to manage and mitigate the risks associated with these financial instruments.
The management of these risks starts with the application of a clear investment policy which has been developed by the Board who are experienced investment professionals. Furthermore, the Board has appointed an experienced investment manager to whom they have communicated the Company's investment objectives and whose remuneration is linked to the achievement of those objectives. The Investment Manager reports regularly to the Board on performance.
Further information about the VCT's investment policy is set out in the Report of the Directors on pages 14 to 16.
In assessing the risk profile of its investment portfolio, the Board has identified three principal classes of financial instrument which are analysed within note 9. Additionally, unquoted (level 3) investments may be further analysed between equity and non-equity investments.
In addition to its investment portfolio, the VCT maintains a portfolio of liquidity funds and cash balances with two of the main UK banks. The Directors consider that the risk profile associated with cash deposits and liquidity fund investments is low and thus the carrying value in the financial statements is a close approximation of the fair value.
The Board has reviewed the Company's financial risk profile and is of the opinion that the exposure to financial risk has not changed significantly since the previous year.
A review of the specific financial risks faced by the Company is presented below.
The key market risk to which the Company is exposed is market price risk. The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation. The impact of a reasonable sensitivity in interest rates is not considered to be significant on either the return or net assets of the VCT. The level of interest rates does impact more generally on the business environment in which the portfolio companies operate and on the supply and demand for their goods and services. It is, however, not considered practical to quantify accurately the impact of various interest rate scenarios either on the portfolio overall or on individual companies.
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 31 January 2011, the unrealised gain on quoted investments was £48,000 (2010: loss £388,000).
The investments the Company holds are, in the main, thinly traded (due to the underlying nature of the investments) and, as such, the prices are more volatile than those of more widely traded, full list, 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 VCTs.
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.
The sensitivity analysis below assumes that each of the sub categories of financial instruments (ordinary shares, preference shares, loan stocks and liquidity funds) held by the Company produces an overall movement of 20%. Shareholders should note that equal correlation between these sub categories is unlikely to be the case in reality, particularly in the case of loan stock instruments. This is because the loan stock instruments would not share in the impact of any increase in share prices to the same extent as the equity instruments, as the returns are set by reference to interest rates and premiums agreed at the time of the initial investment. Similarly, where share prices are falling, the equity instrument could fall in value before the loan stock instrument. It is not considered practical to assess the sensitivity of the loan stock instruments to market price risk in isolation.
| 2011 | 2010 | |||||
|---|---|---|---|---|---|---|
| Sensitivity | ––––––––––––––––––––––––––––––––– 20% fall |
––––––––––––––––––––––––––––––––– 20% fall |
||||
| Impact | Impact on | Impact | Impact on | |||
| Risk | on net | NAV per | Risk | on net | NAV per | |
| exposure | assets | share | exposure | assets | share | |
| £'000 | £'000 | Pence | £'000 | £'000 | Pence | |
| Venture capital investments | 6,022 | (1,204) | (6.3p) | 6,933 | (1,387) | (7.2p) |
| Liquidity fund | 1,800 | (360) | (1.9p) | 1,791 | (358) | (1.9p) |
| 7,822 | (1,564) | (8.2p) | 8,724 | (1,745) | (9.1p) |
The range in equity prices is considered reasonable given the historic changes that have been observed. In each case, the impact of such changes on the return for the year would be the same as that on net assets and NAV per share.
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:
| 2011 | 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Fair value through profit or loss assets | ||
| Investments in loan stocks | 476 | 707 |
| Loans and receivables | ||
| Investments in liquidity funds | 1,800 | 1,791 |
| Cash and cash equivalents | 1,446 | 1,358 |
| Interest, dividends and other receivables | 21 | 3 |
| 3,743 | 3,859 |
Investments in loan stocks comprise a fundamental part of the Company's venture capital investments and are managed within the main investment management procedures. At 31 January 2011, loan stock valued at £293,000, including interest of £43,000, was past due for payment, due to interest not being paid, but had not been impaired. £14,000 of interest was past due by less than 12 months; £19,000 of interest was past due between 12 and 24 months and £10,000 of interest was past due between 24 and 36 months.
Credit risk in respect of investments in liquidity funds is minimised by, where possible, investing in AAA-rated funds.
Cash is held at Bank of Scotland plc and Natwest Bank plc, and, consequently, the Directors consider that the risk profile associated with cash deposits is low. There have been no changes in fair value that are directly attributable to changes in credit risk.
Interest, dividends and other receivables are predominantly covered within the investment management procedures. There have been no changes in fair value that are directly attributable to changes in credit risk.
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company only ever has a very low level of creditors (2011: £90,000, 2010: £73,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is minimal.
The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to continue to provide returns for shareholders and to provide an adequate return to shareholders by allocating its capital to assets commensurately with the level of risk.
By its nature, the Company has an amount of capital, at least 70% (as measured under tax legislation) of which must be invested, and retained, in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. The Company accordingly has limited scope to manage its Company's capital structure in the light of changes in economic conditions and the risk characteristics of the underlying assets. Subject to this overall constraint upon the changing capital structure, the Company may adjust the amount of dividends paid to shareholders, purchase its own shares, issue new shares or sell assets if so required to maintain a level of liquidity to remain a going concern. Although, the Company is permitted to borrow to give a degree of flexibility, there are no current plans to do so.
As the Company has a low level of liabilities, the Board considers the Company's net assets to be its capital. The Company does not have any externally imposed capital requirements. There has been no change in the objectives, policies or processes for managing capital from the previous year.
In March 2011, the sale of Biovex to Amgen Inc was concluded and proceeds of approximately \$1.1 million were received. Additionally, 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. In April 2011, Sinclair Pharma plc and IS Pharma plc agreed to a merger which, subject to regulatory and shareholder approvals, will complete in May.
On 5 April 2011, the Company issued 400,074 shares for consideration at approximately 50.8p per share. The aggregate consideration for the shares was £199,000 and share issue costs thereon amounted to £7,000.
The Company's 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 (18 April 2011): 38p 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 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 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 the Company limits access to its share register to the maximum extent permissible under the Companies Act 2006. 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.
Peter Arthur The Pavilions Frank Harding Bridgwater Road Diane James Bristol all of: BS99 6ZZ 39 Earlham Street Tel: 0870 707 1657 London (calls charged at national rate) WC2H 9LT
London London WC2H 9LT WC2N 6RH Tel: 020 7845 7820
Beringea LLP Martineau 39 Earlham Street No 1 Colmore Square London Birmingham WC2H 9LT B4 6AA Tel: 020 7845 7820 www.provenvcts.co.uk
20 Farringdon Road 7th Floor London 280 Bishopsgate EC1M 3AP London
Charles Pinney (Chairman) Computershare Investor Services PLC
Beringea LLP PricewaterhouseCoopers LLP 39 Earlham Street 1 Embankment Place
PKF (UK) LLP National Westminster Bank Plc Farringdon Place Financial Institutions Group EC2M 4RB
Edinburgh Royal Mile 300 Lawnmarket Edinburgh EH1 2PH
NOTICE IS HEREBY GIVEN that the Annual General Meeting of ProVen Health VCT plc ("the Company") will be held at 39 Earlham Street, London WC2H 9LT at 10.00 am on 9 June 2011 for the transaction of the following business:
As Ordinary Business, to consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:
of ProVen Health VCT plc (continued)
and this power, unless previously varied, revoked or renewed, shall come to an end at the conclusion of the Annual General Meeting of the Company next following the passing of this resolution or, if earlier, on the expiry of 15 months from the passing of this resolution.
and this power, unless previously varied, revoked or renewed, shall come to an end at the conclusion of the Annual General Meeting of the Company next following the passing of this resolution or, if earlier, on the expiry of 15 months from the passing of this resolution.
By order of the Board
Beringea LLP Secretary Registered Office: 39 Earlham Street London WC2H 9LT
19 April 2011
Information regarding the Annual General Meeting, including the information required by section 311A of the Companies Act 2006 (the "Act"), is available from www.provenvcts.co.uk.
of ProVen Health VCT plc (continued)
of ProVen Health VCT plc (continued)
| For use at the Annual General Meeting of the above-named Company to be held on 9 June 2011 at 39 Earlham Street, London WC2H 9LT at 10.00 am | |
|---|---|
| I/We* (in BLOCK CAPITALS please) | |
| of ………………………………………………………………………………………………………………………………………………………………………… |
being the holder(s)* of shares of 1p each in the above-named Company, hereby appoint the Chairman of the meeting (see notes 1 and 2)
or ......................................................…………………………………………………………………………………………………………………………………………………………………………… of ......................................................……………………………………………………………………………………………………………………………………………………………………………
as my/our* proxy to attend for me/us* on my/our* behalf at the Annual General Meeting of the Company to be held at 39 Earlham Street, London WC2H 9LT on 9 June 2011 at 10.00 am or at any adjournment thereof.
I/We* desire to vote on the resolutions as indicated in the appropriate column below. Please indicate with an "X" how you wish your vote to be cast. Details of the resolutions are set out in the Notice of the Annual General Meeting.
| ORDINARY BUSINESS | FOR | AGAINST | WITHHELD | |
|---|---|---|---|---|
| 1. | To receive and adopt the Directors' Report and Accounts. | |||
| 2. | To approve the Directors' Remuneration Report. | |||
| 3. | To approve the payment of a final dividend. | |||
| 4. | To re-appoint the Auditors and authorise the Directors to determine their remuneration. |
|||
| 5. | To re-elect Charles Pinney as a Director. | |||
| 6. | To re-elect Peter Arthur as a Director. | |||
| 7. | To re-elect Frank Harding as a Director. | |||
| 8. | To re-elect Diane James as a Director. | |||
| SPECIAL BUSINESS | ||||
| 9. | To authorise the Directors to allot shares. | |||
| 10. | To authorise the Directors to dis-apply pre-emption rights. | |||
| 11. | To authorise the Company to make market purchases of its shares. | |||
| 12. | To authorise the Company to make market purchases of its shares in connection with any enhanced buyback facility. |
|||
| Dated this day of 2011 |
Notes:
Signature(s)* ............................................................./ .............................................................................................
* Delete as appropriate
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