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8 Jul 2020 16:25
Annual Financial Report8 July 2020
NORTHERN 2 VCT PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2020
Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by Mercia Fund Management Limited. It invests mainly in unquoted venture capital holdings and aims to provide high long-term tax-free returns to shareholders through a combination of dividend yield and capital growth.
Financial Summary (comparative figures as at 31 March 2019):
| 2020 | 2019 | |
| Net assets | £74.4m | £84.1m |
| Net asset value per share | 53.5p | 64.7p |
| Return per share: | ||
| Revenue | 0.2p | 1.2p |
| Capital | (7.2)p | 2.0p |
| Total | (7.0)p | 3.2p |
| Dividend per share for the year: | ||
| Interim dividend | 2.0p | 2.0p |
| Proposed final dividend | 1.5p | 2.0p |
| Total | 3.5p | 4.0p |
| Cumulative return to shareholders since launch: | ||
| Net asset value per share | 53.5p | 64.7p |
| Dividends paid per share* | 121.4p | 117.4p |
| Net asset value plus dividends paid per share | 174.9p | 182.1p |
| Mid-market share price at end of year | 47.50p | 59.00p |
| Share price discount to net asset value | 11.2% | 8.8% |
| Tax-free dividend yield (based on net asset value per share at the start of year) | 5.4% | 6.0% |
*Excluding proposed final dividend payable on 4 September 2020
Enquiries:Simon John/James Bryce, NVM Private Equity LLP - 0191 244 6000Website: www.nvm.co.uk
Martin Glanfield, Chief Financial Officer, Mercia Asset Management PLC – 0330 223 1430
KEY POINTS
Seven new and 16 follow-on investments completed in innovative earlier stage companies Successful public share offer launched raising £12.5 million of gross proceeds Return per share for the year of minus 7.0 pence resulting primarily from an unrealised reduction in investment valuations
CHAIRMAN’S STATEMENT
It has been another extremely busy year for the company, the latter part of which has been dominated by the urgent responses necessary as a consequence of the coronavirus (COVID-19) pandemic. This has caused significant disruption to businesses and the working life of people in the UK. I wish to emphasise to shareholders that since the emergence of COVID-19 our investment manager has been working very closely with portfolio companies to support them through the unprecedented challenges which many have been facing whilst observing government guidelines. However, as a result of its healthy cash reserves and a successful share offer which concluded shortly after the year end, your company is well positioned to continue to support and promote its growing portfolio of entrepreneurial businesses.
Results and dividendIn the year ended 31 March 2020 the company recorded a return on ordinary activities of minus 7.0 pence per share (2019: positive return of 3.2 pence), equivalent to 10.8% of the opening net asset value (NAV) per share. Your company’s NAV per share as at 31 March 2020, after deducting dividends paid during the year of 4.0 pence, was 53.5 pence compared with 64.7 pence as at 31 March 2019. This negative total return was primarily driven by a decrease in the directors’ valuations of unquoted investments following a realistic assessment of the valuations of some investee companies resulting from their varying exposure to the effects of COVID-19. Whilst the cumulative return to shareholders decreased to 174.9 pence per share (2019: 182.1 pence), the 17.7% increase in the company’s NAV total return over the past five years is ahead of the 2.9% increase in the broad UK equity market index which we use as a comparator.
We announced in September 2018 that our aim in the medium term is to generate a return on ordinary activities sufficient to support an annual dividend yield of 5% of opening NAV. Whilst the unrealised reduction in the value of the investments held has contributed to a negative return for the current year, the board continues to carefully assess the potential of the investment portfolio to increase shareholder value in the future. Your directors are aware of the importance to shareholders of receiving regular dividend payments and after very careful deliberations are proposing a final dividend of 1.5 pence per share in respect of the year ended 31 March 2020. If approved at the annual general meeting, the final dividend will be paid on 4 September 2020 to shareholders on the register on 14 August 2020. Taken with the interim dividend of 2.0 pence per share paid in January 2020, this makes a total annual dividend of 3.5 pence per share, equivalent to a tax-free yield of 5.4% per share by reference to the opening NAV.
The target dividend yield will remain subject to regular review and the level of future dividend distributions will have regard to the level of returns generated by the company in the medium term, the timing of investment realisations, the availability of distributable reserves and continuing compliance with the VCT scheme rules.
Investment manager updateIn December 2019, your directors consented to the novation of the company’s investment management agreement with NVM Private Equity LLP (NVM) to Mercia Fund Management Limited (Mercia) which became effective on 23 December 2019. After lengthy consideration and commissioning professional due diligence, your directors concluded that the change in manager is a positive development for your company and that it comes at the right time in the continuing evolution of the VCT sector. In reaching this conclusion your directors identified a number of potential benefits to the company including increased deal flow from Mercia’s extensive network of early stage funds, an enhanced regional presence and access to further value-adding resources provided by the wider Mercia group. In order to ensure continuity of service, the NVM VCT team, led by partners Tim Levett and Charlie Winward, transferred to Mercia and now constitutes the new autonomous VCT division within the Mercia group. We believe that the combination of the former NVM investment team with Mercia’s venture credentials will create one of the UK’s leading regionally based venture fund management groups. No material changes were made to the terms of the investment management agreement. Investment portfolio Following the first reports of COVID-19 at the end of 2019, the virus spread rapidly during the first quarter of 2020 and was characterised as a global pandemic by the World Health Organisation on 11 March 2020. The evolving situation has presented our portfolio companies with significant challenges that are likely to persist for some time. Our venture capital portfolio is diversified, with no particular concentration on any one end-market sector and as such the impact on individual investments varies considerably.
Measures intended to reduce the spread of the virus in the UK including the temporary closure of certain businesses and restrictions on the movement of people were announced at the end of March 2020. Whilst a number of portfolio businesses faced the prospect of an immediate and significant drop in revenues as a result of the ‘lockdown’, a number of our companies observed an increase in activity, particularly those such as Oddbox, CurrentBody and Entertainment Magpie which deploy an ecommerce business model. A full review of the portfolio was undertaken to identify key risks and to prioritise various mitigating actions. Our manager typically provides support in the form of an investment executive to the board of each unquoted portfolio company. In all cases the executives have been working closely with investee management teams to make plans either to preserve cash until the immediate disruption subsides or to find ways of increasing working capital to support current levels of trading.
We continue to follow the International Private Equity and Venture Capital Valuation (IPEV) guidelines, being the industry accepted best practice, when determining the fair value of our investments. Although the vast majority of our portfolio is represented by unquoted investments, the IPEV guidelines require that all investment valuations reflect the market conditions prevailing as at the valuation date. Taking relevant quoted markets as a benchmark, the valuation data for many of the sectors in which we invest indicated a reduction during the first quarter of 2020. Having most recently undertaken a full valuation of the portfolio as at 24 March 2020 to support the NAV which the company announced as at that date, we have considered all relevant information that could have been known as at 31 March 2020 in order to assess the valuations as at the financial year end. We have also taken account of supplementary IPEV guidance relating to the COVID-19 pandemic, issued on 31 March 2020. The passage of time since the last NAV announcement has enabled the directors to receive more up to date trading information for investee companies as at 31 March 2020 and to refine our estimates. The net result of this detailed process is an unrealised reduction in the value of the unquoted portfolio contributing to a reduced NAV per share of 53.5 pence. The reduction, whilst substantial, is slightly less severe than the movement deduced for the purpose of calculating the NAV as at 24 March 2020 of 50.0 pence.
Venture capital investment activityDuring the year, further progress has been made in the development of the venture capital portfolio. We are still actively seeking to make new investments particularly as periods of recovery from recession have in the past often proven to be a good time to invest. Following our rigorous investment process, seven new VCT-qualifying investments were completed in the year prior to the ‘lockdown’ at a total cost of £4.3 million. A number of our investee businesses are pursuing strategies that may be accelerated in the current environment, such as innovative delivery and distribution, the digitisation of traditional off-line business processes and the development of advanced medical technologies. Many are examples of businesses which are not only meeting the changing demands of consumers and clients but are also responding to evolving social and environmental challenges. As previously highlighted, the businesses in the earlier stage portfolio are likely to require multiple rounds of funding as they scale up. Follow-on investments totalling £5.8 million were made in 16 existing portfolio companies during the year to support their continued development. The total investment rate of £10.1 million is encouraging and maintains the momentum established over the past two years (2019: £10.3 million and 2018: £10.1 million). Inevitably in a portfolio of this type there will be some early losses of which we incurred one in the year with the sale of Primal Food for a nominal sum.
Share offer and liquidityHaving reviewed the medium-term investment pipeline with NVM in September 2019, your board proposed a prospectus share offer which was launched in January 2020. We were very pleased that strong demand was experienced for this offer, with gross proceeds of £12.5 million being raised and new shares allotted shortly after the year end. Your directors would like to express their appreciation of the support from the existing shareholders who participated in the offer and the nearly 600 new shareholders whom we welcome to the share register.
Gross proceeds of £1.0 million were received during the year through the issue of new shares under our dividend investment scheme. This scheme enables shareholders to re-invest some or all of their dividends in new shares attracting income tax relief and remains open to new participants.
We have maintained our policy of being willing to buy back the company’s shares in the market, when necessary in order to maintain liquidity, at a 5% discount to NAV. During the year, a total of 3,048,000 shares were repurchased for cancellation, equivalent to approximately 2.3% of the opening share capital.
Annual general meetingThe company’s annual general meeting (AGM) will take place in August 2020. The AGM usually provides an excellent opportunity for shareholders, directors and the manager to meet in person and exchange views and comment. However, the health and wellbeing of both shareholders and colleagues is of upmost importance to the board and therefore in the light of the changeable situation regarding guidance on non-essential travel and social distancing, we have concluded that the AGM should not be open to physical attendance by shareholders. Detailed arrangements are however being made to enable virtual attendance and shareholders will be invited to submit proxy votes and questions in advance of the meeting. Full details and formal notice of the AGM will be provided shortly.
Board of directorsAll the directors will be seeking re-election at the AGM in accordance with the AIC Code of Corporate Governance.
VCT legislation and regulationFollowing the significant amendments to the relevant legislation announced in both 2015 and 2017, the past two years have seen a welcome period of regulatory stability. The final change which has been phased into practice is the increase in the minimum proportion of investments required to be held by a VCT in VCT-qualifying holdings, from 70% to 80%. This first applied to the company with effect from 1 April 2020 and I am pleased to report that the target was met in advance of the deadline.
VCT qualifying statusThe company has continued to meet the stringent and evolving qualifying conditions laid down by HM Revenue & Customs for maintaining its approval as a VCT. Mercia monitors the position closely and reports regularly to the board. Philip Hare & Associates LLP has continued to act as independent adviser to the company on VCT taxation matters.
OutlookWhilst the COVID-19 pandemic, and the measures necessary to respond to it, present unprecedented economic challenges for businesses operating in the UK and globally, the board has been reassured by the manager’s swift and proactive response and the level of support which has been provided to investee companies. Making definitive statements about the future trajectory of the economy is not possible in times of such heightened uncertainty. Nonetheless we remain committed to supporting the development and prosperity of entrepreneurial early stage businesses. Access to capital is one of the most important factors contributing to the success of such businesses and your board believes that the company is well placed to provide that vital support with a view to enhancing shareholder value in the long term.
David GravellsChairman 8 July 2020
Extracts from the audited financial statements for the year ended 31 March 2020 are set out below.
INCOME STATEMENTfor the year ended 31 March 2020
| Year ended 31 March 2020 | Year ended 31 March 2019 | |||||
| Revenue £000 | Capital £000 | Total £000 | Revenue £000 | Capital £000 | Total £000 | |
| (Loss)/gain on disposal of investments | - | (728) | (728) | - | 2,827 | 2,827 |
| Movements in fair value of investments | - | (8,050) | (8,050) | - | 762 | 762 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| - | (8,778) | (8,778) | - | 3,589 | 3,589 | |
| Income | 1,052 | - | 1,052 | 2,638 | - | 2,638 |
| Investment management fee | (431) | (1,293) | (1,724) | (399) | (1,198) | (1,597) |
| Other expenses | (369) | - | (369) | (393) | - | (393) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return on ordinary activities before tax | 252 | (10,071) | (9,819) | 1,846 | 2,391 | 4,237 |
| Tax on return on ordinary activities | - | - | - | (275) | 275 | - |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return on ordinary activities after tax | 252 | (10,071) | (9,819) | 1,571 | 2,666 | 4,237 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return per share | 0.2p | (7.2)p | (7.0)p | 1.2p | 2.0p | 3.2p |
BALANCE SHEETas at 31 March 2020
| 31 March 2020 £000 | 31 March 2019 £000 | |
| Fixed assets: | ||
| Investments | 59,191 | 64,125 |
| ---------- | ---------- | |
| Current assets: | ||
| Debtors | 79 | 221 |
| Cash and cash equivalents | 15,203 | 26,431 |
| ---------- | ---------- | |
| 15,282 | 26,652 | |
| Creditors (amounts falling due within one year) | (117) | (6,668) |
| ---------- | ---------- | |
| Net current assets | 15,165 | 19,984 |
| ---------- | ---------- | |
| Net assets | 74,356 | 84,109 |
| ---------- | ---------- | |
| Capital and reserves: | ||
| Called-up equity share capital | 6,945 | 6,502 |
| Share premium | 8,401 | 1,555 |
| Capital redemption reserve | 367 | 215 |
| Capital reserve | 61,247 | 67,341 |
| Revaluation reserve | (2,993) | 6,679 |
| Revenue reserve | 389 | 1,817 |
| ---------- | ---------- | |
| Total equity shareholders’ funds | 74,356 | 84,109 |
| ---------- | ---------- | |
| Net asset value per share | 53.5p | 64.7p |
STATEMENT OF CHANGES IN EQUITYfor the year ended 31 March 2020
| ---------------Non-distributable reserves--------------- | Distributable reserves | Total | |||||||||
| Called up share capital | Share premium | Capital redemption reserve | Revaluation reserve* | Capital reserve | Revenue reserve | ||||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||
| At 1 April 2019 | 6,502 | 1,555 | 215 | 6,679 | 67,341 | 1,817 | 84,109 | ||||
| Return on ordinary activities | |||||||||||
| after tax | - | - | - | (9,672) | (399) | 252 | (9,819) | ||||
| Dividends paid | - | - | - | - | (3,904) | (1,680) | (5,584) | ||||
| Net proceeds of share issues | 595 | 6,846 | - | - | - | - | 7,441 | ||||
| Shares purchased for cancellation | (152) | - | 152 | - | (1,791) | - | (1,791) | ||||
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |||||
| At 31 March 2020 | 6,945 | 8,401 | 367 | (2,993) | 61,247 | 389 | 74,356 | ||||
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |||||
STATEMENT OF CHANGES IN EQUITYfor the year ended 31 March 2019
| ---------------Non-distributable reserves--------------- | Distributable reserves | Total | |||||
| Called up share capital | Share premium | Capital redemption reserve | Revaluation reserve* | Capital reserve | Revenue reserve | ||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 April 2018 | 6,505 | 392 | 110 | 7,836 | 71,629 | 571 | 87,043 |
| Return on ordinary activities | |||||||
| after tax | - | - | - | (1,157) | 3,823 | 1,571 | 4,237 |
| Dividends paid | - | - | - | - | (6,831) | (325) | (7,156) |
| Net proceeds of share issues | 102 | 1,163 | - | - | - | - | 1,265 |
| Shares purchased for cancellation | (105) | - | 105 | - | (1,280) | - | (1,280) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| At 31 March 2019 | 6,502 | 1,555 | 215 | 6,679 | 67,341 | 1,817 | 84,109 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
*the revaluation reserve is generally non-distributable other than that part of the reserve relating to gains/losses on readily realisable quoted investments, which is distributable.
STATEMENT OF CASH FLOWSfor the year ended 31 March 2020
| Year ended | Year ended | ||||
| 31 March 2020 | 31 March 2019 | ||||
| £000 | £000 | ||||
| Cash flows from operating activities: | |||||
| Return on ordinary activities before tax | (9,819) | 4,237 | |||
| Adjustments for: | |||||
| Loss/(gain) on disposal of investments | 728 | (2,827) | |||
| Movements in fair value of investments | 8,050 | (762) | |||
| Decrease/(increase) in debtors | 142 | (16) | |||
| (Decrease)/increase in creditors | (83) | 66 | |||
| ---------- | ---------- | ||||
| Net cash (outflow)/inflow from operating activities | (982) | 698 | |||
| ---------- | ---------- | ||||
| Cash flows from investing activities: | |||||
| Purchase of investments | (11,850) | (17,730) | |||
| Sale/repayment of investments | 8,006 | 18,626 | |||
| ---------- | ---------- | ||||
| Net cash (outflow)/inflow from investing activities | (3,844) | 896 | |||
| ---------- | ---------- | ||||
| Cash flows from financing activities: | |||||
| Issue of ordinary shares | 7,568 | 1,304 | |||
| Share issue expenses | (127) | (39) | |||
| Share subscriptions held pending allotment | (6,468) | 6,468 | |||
| Purchase of ordinary shares for cancellation | (1,791) | (1,280) | |||
| Equity dividends paid | (5,584) | (7,156) | |||
| ---------- | ---------- | ||||
| Net cash outflow from financing activities | (6,402) | (703) | |||
| ---------- | ---------- | ||||
| (Decrease)/increase in cash and cash equivalents | (11,228) | 891 | |||
| Cash and cash equivalents at beginning of year | 26,431 | 25,540 | |||
| ---------- | ---------- | ||||
| Cash and cash equivalents at end of year | 15,203 | 26,431 | |||
| ---------- | ---------- | ||||
INVESTMENT PORTFOLIO SUMMARYas at 31 March 2020
| Cost£000 | Valuation£000 | % ofnet assetsby value | ||
| Fifteen largest venture capital investments: | ||||
| Agilitas IT Holdings | 930 | 5,215 | 7.0 | |
| Lineup Systems | 975 | 4,137 | 5.6 | |
| Currentbody.com | 1,771 | 3,073 | 4.1 | |
| Sorted Holdings | 2,715 | 2,958 | 4.0 | |
| Entertainment Magpie Group | 1,503 | 2,853 | 3.8 | |
| SHE Software Group | 2,195 | 2,720 | 3.7 | |
| Volumatic Holdings | 906 | 1,898 | 2.6 | |
| It’s All Good | 1,145 | 1,698 | 2.3 | |
| Biological Preparations Group | 2,166 | 1,605 | 2.2 | |
| Knowledgemotion | 1,778 | 1,559 | 2.1 | |
| GRIP-UK t.a. Climbing Hangar | 1,928 | 1,522 | 2.0 | |
| Medovate | 1,450 | 1,450 | 2.0 | |
| Soda Software t.a. Hello Soda | 1,499 | 1,391 | 1.9 | |
| Clarilis | 1,012 | 1,206 | 1.6 | |
| Intelling Group | 1,142 | 1,056 | 1.4 | |
| ---------- | ---------- | -------- | ||
| 23,115 | 34,341 | 46.3 | ||
| Other venture capital investments | 31,440 | 17,883 | 23.9 | |
| ---------- | ---------- | -------- | ||
| Total venture capital investments | 54,555 | 52,224 | 70.2 | |
| Listed equity investments | 6,381 | 5,691 | 7.7 | |
| Listed interest-bearing investments | 1,248 | 1,276 | 1.7 | |
| ---------- | ---------- | -------- | ||
| Total fixed asset investments | 62,184 | 59,191 | 79.6 | |
| ---------- | ||||
| Net current assets | 15,165 | 20.4 | ||
| ---------- | -------- | |||
| Net assets | 74,356 | 100.0 | ||
| ---------- | -------- | |||
RISK MANAGEMENT
The board carries out a regular and robust assessment of the risk environment in which the company operates and seeks to identify new risks as they emerge. The principal and emerging risks and uncertainties identified by the board which might affect the company’s business model and future performance, and the steps taken with a view to their mitigation, are as follows:
Investment and liquidity risk: investment in smaller and unquoted companies, such as those in which the company invests, involves a higher degree of risk than investment in larger listed companies because they generally have limited product lines, markets and financial resources and may be more dependent on key individuals. The securities of smaller companies in which the company invests are typically unlisted, making them illiquid, and this may cause difficulties in valuing and disposing of the securities. The company may invest in businesses whose shares are quoted on AIM – the fact that a share is quoted on AIM does not mean that it can be readily traded and the spread between the buying and selling prices of such shares may be wide. Mitigation: the directors aim to limit the risk attaching to the portfolio as a whole by careful selection, close monitoring and timely realisation of investments, by carrying out rigorous due diligence procedures and maintaining a wide spread of holdings in terms of financing stage and industry sector, within the rules of the VCT scheme. The board reviews the investment portfolio with the manager on a regular basis.
Financial risk: most of the company’s investments involve a medium to long-term commitment and many are relatively illiquid. Mitigation: the directors consider that it is inappropriate to finance the company’s activities through borrowing except on an occasional short-term basis. Accordingly they seek to maintain a proportion of the company’s assets in cash or cash equivalents in order to be in a position to pursue new unquoted investment opportunities and to make follow-on investments in existing portfolio companies. The company has very little direct exposure to foreign currency risk and does not enter into derivative transactions.
Economic risk: events such as economic recession or general fluctuation in stock markets, exchange rates and interest rates may affect the valuation of investee companies and their ability to access adequate financial resources, as well as affecting the company’s own share price and discount to net asset value. The level of economic risk has been elevated by the COVID-19 pandemic which is widely predicted to cause a global recession after the balance sheet date. Mitigation: the company invests in a diversified portfolio of investments spanning various industry sectors, and maintains sufficient cash reserves to be able to provide additional funding to investee companies where it is appropriate and in the interests of the company to do so. The manager typically provides an investment executive to actively support the board of each unquoted investee company. At all times, and particularly during periods of heightened economic uncertainty, the investment executives share best practice from across the portfolio with investee management teams in order to mitigate economic risk.
Brexit risk: the implementation of the decision for the UK to withdraw from the European Union (EU) is a process which involves significant uncertainty. The impact on the future business environment in the UK is therefore difficult to predict. Mitigation: whilst we do not expect that Brexit will have a significant impact on the operations of Northern 2 VCT itself, the board and the manager follow Brexit developments closely with a view to identifying changes which might affect the company’s investment portfolio. The manager works closely with investee companies in order to plan for a range of possible outcomes.
Stock market risk: some of the company’s investments are quoted on the London Stock Exchange or AIM and will be subject to market fluctuations upwards and downwards. External factors such as terrorist activity or global health crises, such as the COVID-19 pandemic, can negatively impact stock markets worldwide. In times of adverse sentiment there may be very little, if any, market demand for shares in smaller companies quoted on AIM. Mitigation: the company’s quoted investments are actively managed by specialist managers, including Mercia in the case of the AIM-quoted investments, and the board keeps the portfolio and the actions taken under ongoing review.
Credit risk: the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment. Mitigation: the directors review the creditworthiness of the counterparties to these instruments and cash deposits and seek to ensure there is no undue concentration of credit risk with any one party.
Legislative and regulatory risk: in order to maintain its approval as a VCT, the company is required to comply with current VCT legislation in the UK, which reflects the European Commission’s State-aid rules. Changes to the UK legislation or the State-aid rules in the future could have an adverse effect on the company’s ability to achieve satisfactory investment returns whilst retaining its VCT approval. Mitigation: the board and the manager monitor political developments and where appropriate seek to make representations either directly or through relevant trade bodies.
Internal control risk: the company’s assets could be at risk in the absence of an appropriate internal control regime which is able to operate effectively even during times of disruption, such as that caused by COVID-19. Mitigation: the board regularly reviews the system of internal controls, both financial and non-financial, operated by the company and the manager. These include controls designed to ensure that the company’s assets are safeguarded and that proper accounting records are maintained.
VCT qualifying status risk: while it is the intention of the directors that the company will be managed so as to continue to qualify as a VCT, there can be no guarantee that this status will be maintained. A failure to continue meeting the qualifying requirements could result in the loss of VCT tax relief, the company losing its exemption from corporation tax on capital gains, to shareholders being liable to pay income tax on dividends received from the company and, in certain circumstances, to shareholders being required to repay the initial income tax relief on their investment. Mitigation: the investment manager keeps the company’s VCT qualifying status under continual review and its reports are reviewed by the board on a quarterly basis. The board has also retained Philip Hare & Associates LLP to undertake an independent VCT status monitoring role.
DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.
Under company law the directors must not approve the financial statements unless theyare satisfied that they give a true and fair view of the state of affairs of the company and ofits profit or loss for the year.
In preparing the financial statements, the directors are required to (i) select suitable accounting policies and then apply them consistently; (ii) make judgements and estimates that are reasonable and prudent; (iii) state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; (iv) assess the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and (v) prepare the financial statements on the going concern basis unless they either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
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 enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors’ report, directors’ remuneration report and corporate governance statement that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors have confirmed that to the best of their knowledge (i) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company; and (ii) the directors’ report and strategic report include a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that they face.
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s position and performance, business model and strategy.
The directors of the company at the date of this announcement were Mr D P A Gravells (Chairman), Mr A M Conn, Mr S P Devonshire, Miss C A McAnulty and Mr F L G Neale.
OTHER MATTERS
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the registrar of companies, and those for 2020 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified; (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The calculation of the return per share is based on the loss on ordinary activities after tax for the year of £9,819,000 (2019: £4,237,000) and on 139,793,223 (2019: 130,606,159) shares, being the weighted average number of shares in issue during the year.
The calculation of the net asset value per share as at 31 March 2020 is based on the net assets of £74,356,000 (2019: £84,109,000) divided by the 138,886,797 (2019: 130,044,260) ordinary shares in issue at that date.
If approved by shareholders, the proposed final dividend of 1.5p per share for the year ended 31 March 2020 will be paid on 4 September 2020 to shareholders on the register at the close of business on 14 August 2020.
The full annual report including financial statements for the year ended 31 March 2020 is expected to be posted to shareholders on or around 27 July 2020 and will be available to the public at the registered office of the company at Time Central, 32 Gallowgate, Newcastle upon Tyne NE1 4SN and on the company’s website.
Neither the contents of the NVM Private Equity LLP or the Mercia Asset Management PLC website, nor the contents of any website accessible from hyperlinks on the NVM Private Equity LLP or Mercia Asset Management PLC website (or any other website), are incorporated into, or forms part of, this announcement.