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1 Dec 2020 16:15
Annual Financial Report1 DECEMBER 2020
NORTHERN VENTURE TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2020
Northern Venture Trust PLC is a Venture Capital Trust (VCT) whose investment adviser is Mercia Fund Management. The trust was one of the first VCTs launched on the London Stock Exchange in 1995. It invests mainly in UK unquoted companies and aims to provide high long-term tax-free returns to shareholders through a combination of dividend yield and capital growth.
Financial highlights (comparative figures as at 30 September 2019):
| 2020 | 2019 | |
| Net assets | £112.8m | £95.7m |
| Net asset value per share | 70.7p | 68.9p |
| Return per share after tax: | ||
| Revenue | 0.3p | 0.8p |
| Capital | 7.0p | 1.3p |
| Total | 7.3p | 2.1p |
| Dividend per share for the year: | ||
| Interim dividend | 1.5p | 2.0p |
| Proposed final dividend | 2.5p | 2.0p |
| Total | 4.0p | 4.0p |
| Cumulative return to shareholders since launch: | ||
| Net asset value per share | 70.7p | 68.9p |
| Dividends paid per share* | 172.0p | 168.5p |
| Net asset value plus dividends paid per share | 242.7p | 237.4p |
| Mid-market share price at end of year | 56.5p | 64.5p |
| Tax-free dividend yield (based on the net asset value per share at the start of the year) | 5.8% | 5.6% |
*Excluding proposed final dividend payable on 22 January 2021
For further information, please contact:
NVM Private Equity LLPSimon John / James Bryce 0191 244 6000
Website: www.nvm.co.uk
Mercia Asset Management PLCMartin Glanfield 0330 223 1430
HIGHLIGHTS
Return per share for the year of 7.3 pence per share, representing 10.6% of opening NAV NAV per share at year end of 70.7 pence, after paying dividends of 3.5 pence, compares with 68.9 pence at 2019 year end and 58.2p at the half year Successful public share offer raising £12.5 million Five new and 10 follow-on investments in innovative earlier stage companies added to the portfolioCHAIRMAN’S STATEMENT
OverviewThe global economy and financial markets have been significantly impacted over the past year by the evolving coronavirus (COVID-19) pandemic. The necessary responses to COVID-19 have affected the working and personal lives of practically everyone in the UK and have created a challenging business environment for a number of our portfolio companies. Our investment adviser has been providing close support where required and I am pleased to report that the response from our investee management teams has been thorough and resilient. The effects of the pandemic on individual investments vary greatly as the company benefits from holding a diversified portfolio. Whilst there are some cases which are negatively impacted and in one or two cases very considerably so, a significant number of businesses are seeing either neutral or increased trading in the current environment.
It was most certainly a year of two halves. Our 31 March half year end was only one week after the first lockdown was announced and it was appropriate that we adjusted the holding values of more than half of our portfolio companies downwards amidst the deep uncertainty. Most of our businesses have learned to live with this uncertainty, some must wait for it to be lifted and a few have thrived in it, especially those benefitting from the accelerated trend towards online retailing.
Liquidity remains the lifeblood of early stage investment funds and as a result of the successful share offer which concluded in April 2020, your company is well positioned to continue to support and promote its growing portfolio of entrepreneurial businesses.
Results and dividendIn the year ended 30 September 2020 the company achieved a return on ordinary activities of £10,940,000 (2019: £2,848,000) or 7.3 pence per share (2019: 2.1 pence), representing a total return of 10.6% on the opening net asset value (NAV) per share. This reflects major progress in the performance and hence values at some portfolio companies in the second half, most notably Entertainment Magpie and Agilitas IT Holdings (Agilitas), which was sold subsequent to the year end as referred to below. The result for the year has generated a performance fee to our investment adviser for the first time in four years of £284,000. The NAV per share at 30 September 2020, after deducting dividends paid during the year of 3.5 pence, was 70.7 pence compared with 68.9 pence at 30 September 2019 and 58.2 pence at 31 March 2020.
The cumulative total return to shareholders increased to 242.7 pence (2019: 237.4 pence) per share, which marks the fifteenth consecutive year of growth. Investment income was lower than in the prior year at £1.5 million (2019: £2.2 million), reflecting the disposal of some income-yielding investments and the deferral of interest payments to support some investee companies through the pandemic.
The profile of the unquoted portfolio is continuing to evolve as we acquire investments in earlier stage innovative UK companies with high growth potential. As previously indicated, the profile of the new investments will lead to greater volatility in the timing and quantum of returns, and continuing to pay regular dividends whilst increasing the NAV per share in the medium term remains a priority for your board. In 2018 we revised our dividend policy in the light of the new rules for investment introduced in 2015 and 2017, which we expected to result in more volatile returns. We introduced a target dividend yield of 5% of opening NAV, which has been exceeded in each of the last two years. After careful consideration, the board has proposed a final dividend of 2.5 pence per share, bringing the total dividend for the year to 4.0 pence, which represents a tax-free yield of 5.8% on the opening net asset value per share of 68.9 pence. The final dividend, if approved, will be paid on 22 January 2020 to shareholders on the register on 29 December 2020.
Venture capital investment and realisation activitiesFurther progress was made on the development of the portfolio during the period with five new investments acquired for total consideration of £3.7 million, four of which were completed in the six months to 31 March 2020. The investment rate including follow-ons was again relatively strong in the first half of the year at £6.0 million, however it did slow down in the second half at only £2.8 million as our investment adviser focussed on portfolio support rather than new investment activity.
Our AIM-quoted holdings in each of Nasstar plc, Brady plc and Summit Therapeutics plc were all disposed of in full through separate transactions which took these companies private. Inevitably in a portfolio of this type there will be some early losses realised, of which we incurred one during the year with the sale of Primal Food for a nominal sum. We also wrote down our investment in No 1 Lounges to nil.
Just over 50% by value of our portfolio at the year-end comprised investments in more mature businesses acquired under previous VCT rules. We expect that these more mature investments will continue to provide an income yield and a series of profitable exits in the years to come, supporting the overall return of the company whilst the earlier-stage portfolio develops. Whilst the period under review was quiet for investment realisations, I am pleased to report the sale of Agilitas after the year end, returning eight times our original invested capital over the life of the investment, the significant uplift for which was included in these results. Mercia is also actively working towards the sale of several other unquoted investments expected to complete over the next 12 months.
Venture capital portfolio update Following the first reports of COVID-19 during the year, the initial effects in the UK principally impacted businesses with complex supply chains or overseas customers in certain territories. As the spread of the virus led to a global pandemic, the effect on the economy became much more pronounced and measures taken to tackle COVID-19 have had a material impact on almost every business in the UK.
COVID-19 has accelerated certain trends which were already established and is benefitting portfolio companies that employ business strategies such as innovative delivery and distribution and the digitisation of traditional off-line business processes. Your company benefits from holding a diversified portfolio of investments and the areas of the economy which continue to be the most affected, particularly travel, leisure and hospitality, represent less than 10% by cost of the venture capital portfolio. Technology and software sub-sectors have been more resilient during 2020 and investments in these areas represent around 40% by cost of the portfolio. We are also invested in a number of businesses which employ an e-commerce business model and trading in these holdings has generally been extremely strong both during the initial lockdown and subsequently.
We undertake a thorough valuation of the entire portfolio on a quarterly basis and reported significant unrealised reductions as at 31 March 2020 in our interim results. This was at the very start of the first lockdown when the impact of the pandemic was almost impossible to predict. The positive underlying trading trends exhibited by some of our investee companies over the subsequent six months and an increase in publicly available valuation metrics over the same period contributed to a number of unrealised valuation increases during the second half of the year. However, much of the uplift in valuation of the portfolio was in the more mature investments made under the old rules with 20 of the 26 earlier stage investments remaining broadly at the same valuation over the second six months.
Share offers and liquidityIn order to ensure that we had sufficient liquidity to support our portfolio companies, we launched an offer of new ordinary shares in January 2020 which raised gross proceeds of £12.5 million. Commitments were made before COVID-19 took hold but with allotment in the first week of April, we were faced with a very difficult situation in the middle of March. Given the uncertainty and having reference to valuations of quoted shares, which fell dramatically during the month immediately preceding the first lockdown, we revalued our portfolio and issued a supplementary prospectus at what turned out to be the lowest point in the markets, inviting shareholders to reconfirm their interest in the share issue. Around 94% by value proceeded with their applications and on behalf of the board, I would like to thank our shareholders, both existing and new for their support, especially through this difficult time.
Our dividend investment scheme, which enables shareholders to invest their dividends in new ordinary shares free of dealing costs and with the benefit of the tax reliefs available on new VCT share subscriptions, continues to operate with around 18% participation during the year.
Cash and liquid investments represented 28% of net asset value at 30 September 2020. We have reviewed the liquidity dynamics with Mercia in detail, considering the resources currently on hand and the significant progress made over the past six months towards likely investment realisations in 2021. As a result of this review, we have decided not to launch a further share offer in the 2020-21 tax year. We will review the position again for the 2021-22 tax year in light of the realisation and investment rates achieved in 2021.
Share buy-backsWe 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 ended 30 September 2020 a total of 2,988,048 (2019: 4,907,101) shares were repurchased by the company for cancellation at an average price of 58.8 pence (2019: 65.1 pence), representing 2.2% (2019: 3.7%) of the opening issued share capital.
VCT legislation and qualifying statusThe company has maintained its approved venture capital trust status with HM Revenue & Customs. The company’s compliance with the VCT qualifying conditions is closely monitored by the board, who receive regular reports from Mercia and from our VCT taxation advisers, Philip Hare & Associates LLP.
The latest updates to the relevant VCT legislation were announced in November 2017 and the final remaining new measure has applied to the company for the first time in the current financial year. In addition to the 80% minimum proportion of investments required to be held in VCT-qualifying holdings, the company is now required to invest 30% of the proceeds of any share issues within 12 months of the financial year in which the shares are allotted. I am pleased to say that the company has complied fully with this new measure during the year.
The VCT scheme rules have been subject to significant legislative changes over the last five years and whilst there were no further amendments announced in 2020, it is possible that further changes will be made in the future. We will continue to work closely with Mercia to maintain compliance with the scheme rules at all times.
Annual general meetingThe company has historically held its annual general meeting (AGM) in December. Over recent years the production of the annual report and in particular its audit have become more time consuming as the number of investments made has increased and additional requirements have been placed on us and our auditors by regulators. Consequently, the announcement of our results is just over two weeks later than last year and this has caused a delay in the AGM, which will take place on 15 January 2021.
The AGM usually provides an excellent opportunity for shareholders, directors and the investment advisor to meet in person and exchange views and comments. 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 ask questions in advance of as well as at the meeting itself. Details and formal notice of the AGM are provided in the AGM Circular published at the same time as the Annual Report.
Board SuccessionWe regularly review the composition of your board, taking into account the experience, tenure and contribution of each director individually and together. We are conscious of the nine year guidance under the UK Corporate Governance Code, although believe this to be less relevant in a small investment fund that now typically holds its investments for up to 10 years and where longevity of directors’ service has considerable value. Nevertheless, your current directors have served between six and 11 years each and we consider it time to seek fresh input in the near future. Therefore Nigel Beer and Hugh Younger will be retiring from the board at the AGM in 2022 after 12 years’ service, which has seen us through some very significant changes, most notably the change in investing rules in 2015 and more recently the transfer of our management and investment advisory agreement from NVM to Mercia in 2019. Their contributions have been invaluable and I am sure will continue to be so over the next year, during which time we will be seeking a new non-executive director with either operational or investment experience in earlier stage, technology driven businesses.
OutlookFinancial markets have been subject to significant volatility during 2020 as market participants have struggled to assess the impact of the pandemic on various sectors and the economy as a whole. Many financial indices have staged a significant recovery from the lows experienced in March 2020. Whilst making a definitive prediction about the future path of the economy in the current environment would be unwise, we are however encouraged by the resilience exhibited by the portfolio overall thus far and have confidence in its diversity.
Access to capital is one of the most important factors contributing to the success of early stage businesses and your board believes that the company is well placed to provide that vital support with a view to increasing long term shareholder value as we continue to work alongside our existing portfolio companies and increase our focus on finding new exciting businesses to back.
Simon ConstantineChairman
Extracts from the audited financial statements for the year ended 30 September 2020 are set out below.
INCOME STATEMENTfor the year ended 30 September 2020
| Year ended 30 September 2020 | Year ended 30 September 2019 | |||||
| Revenue £000 | Capital £000 | Total £000 | Revenue £000 | Capital £000 | Total £000 | |
| Gain on disposal of investments | - | (3) | (3) | - | 1,244 | 1,244 |
| Movements in fair value of investments | - | 12,043 | 12,043 | - | 1,673 | 1,673 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| - | 12,040 | 12,040 | - | 2,917 | 2,917 | |
| Income | 1,509 | - | 1,509 | 2,166 | - | 2,166 |
| Investment management fee | (462) | (1,672) | (2,134) | (445) | (1,334) | (1,779) |
| Other expenses | (475) | - | (475) | (456) | - | (456) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return on ordinary activities before tax | 572 | 10,368 | 10,940 | 1,265 | 1,583 | 2,848 |
| Tax on return on ordinary activities | (55) | 55 | - | (168) | 168 | - |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return on ordinary activities after tax | 517 | 10,423 | 10,940 | 1,097 | 1,751 | 2,848 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return per share | 0.3p | 7.0p | 7.3p | 0.8p | 1.3p | 2.1p |
BALANCE SHEETas at 30 September 2020
| 30 September 2020 £000 | 30 September 2019 £000 | |
| Fixed assets: Investments | 91,852 | 72,409 |
| ---------- | ---------- | |
| Current assets: | ||
| Debtors | 674 | 1,182 |
| Cash and deposits | 20,693 | 22,160 |
| ---------- | ---------- | |
| 21,367 | 23,342 | |
| Creditors (amounts falling due within one year) | (428) | (93) |
| ---------- | ---------- | |
| Net current assets | 20,939 | 23,249 |
| ---------- | ---------- | |
| Net assets | 112,791 | 95,658 |
| ---------- | ---------- | |
| Capital and reserves | ||
| Called-up equity share capital | 39,905 | 34,693 |
| Share premium | 12,745 | 5,584 |
| Capital redemption reserve | 2,853 | 2,106 |
| Capital reserve | 37,872 | 46,820 |
| Revaluation reserve | 18,086 | 4,948 |
| Revenue reserve | 1,330 | 1,507 |
| ---------- | ---------- | |
| Total equity shareholders’ funds | 112,791 | 95,658 |
| ---------- | ---------- | |
| Net asset value per share | 70.7p | 68.9p |
STATEMENT OF CHANGES IN EQUITYfor the year ended 30 September 2020
| ---------------Non-distributable reserves--------------- | Distributable reserves | Total | |||||
| Called-up share capital | Share premium | Capital redemption reserve | Revaluationreserve* | Capital reserve | Revenue reserve | ||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 October 2019 | 34,693 | 5,584 | 2,106 | 4,948 | 46,820 | 1,507 | 95,658 |
| Return on ordinary activities after tax | - | - | - | 13,138 | (2,715) | 517 | 10,940 |
| Dividends paid | - | - | - | - | (4,477) | (694) | (5,171) |
| Net proceeds of share issues | 5,959 | 7,161 | - | - | - | - | 13,120 |
| Shares purchased for cancellation | (747) | - | 747 | - | (1,756) | - | (1,756) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| At 30 September 2020 | 39,905 | 12,745 | 2,853 | 18,086 | 37,872 | 1,330 | 112,791 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
STATEMENT OF CHANGES IN EQUITYfor the year ended 30 September 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 October 2018 | 33,142 | 817 | 879 | 6,346 | 51,617 | 1,109 | 93,910 | |||
| Return on ordinary activities after tax | - | - | - | (1,398) | 3,149 | 1,097 | 2,848 | |||
| Dividends paid | - | - | - | - | (4,749) | (699) | (5,448) | |||
| Net proceeds of share issues | 2,778 | 4,767 | - | - | - | - | 7,545 | |||
| Shares purchased for cancellation | (1,227) | - | 1,227 | - | (3,197) | - | (3,197) | |||
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ||||
| At 30 September 2019 | 34,693 | 5,584 | 2,106 | 4,948 | 46,820 | 1,507 | 95,658 | |||
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ||||
*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 30 September 2020
| Year ended | Year ended | |
| 30 September 2020 | 30 September 2019 | |
| £000 | £000 | |
| Cash flows from operating activities: | ||
| Return on ordinary activities before tax | 10,940 | 2,848 |
| Adjustments for: | ||
| Gain on disposal of investments | 3 | (1,244) |
| Movement in fair value of investments | (12,043) | (1,673) |
| Decrease/(increase) in debtors | 508 | (1,041) |
| Increase/(decrease) in creditors | 336 | (13) |
| ---------- | ---------- | |
| Net cash outflow from operating activities | (256) | (1,123) |
| ---------- | ---------- | |
| Cash flows from investing activities: | ||
| Purchase of investments | (10,480) | (18,705) |
| Sale/repayment of investments | 3,077 | 18,531 |
| ---------- | ---------- | |
| Net cash outflow from investing activities | (7,403) | (174) |
| ---------- | ---------- | |
| Cash flows from financing activities: | ||
| Issue of ordinary shares | 13,423 | 7,692 |
| Share issue expenses | (304) | (147) |
| Purchase of ordinary shares for cancellation | (1,756) | (3,197) |
| Equity dividends paid | (5,171) | (5,448) |
| ---------- | ---------- | |
| Net cash inflow/(outflow) from financing activities | 6,192 | (1,100) |
| ---------- | ---------- | |
| Decrease in cash and cash equivalents | (1,467) | (2,397) |
| Cash and cash equivalents at beginning of year | 22,160 | 24,557 |
| ---------- | ---------- | |
| Cash and cash equivalents at end of year | 20,693 | 22,160 |
| ---------- | ---------- |
INVESTMENT PORTFOLIO SUMMARYas at 30 September 2020
| Company | Cost£000 | Valuation£000 | % of net assetsby value |
| Fifteen largest venture capital investments: | |||
| Agilitas IT Holdings | 943 | 12,057 | 10.7 |
| Entertainment Magpie Group | 1,611 | 10,415 | 9.2 |
| Lineup Systems | 975 | 5,096 | 4.5 |
| Currentbody.com | 2,050 | 4,662 | 4.1 |
| Sorted Holdings | 3,022 | 3,278 | 2.9 |
| SHE Software Group | 2,412 | 3,147 | 2.8 |
| Clarilis | 1,972 | 2,565 | 2.3 |
| It's All Good | 1,205 | 2,511 | 2.2 |
| Intelling Group | 1,222 | 2,208 | 2.0 |
| Biological Preparations Group | 2,366 | 2,208 | 2.0 |
| Volumatic Holdings | 733 | 2,005 | 1.8 |
| Weldex (International) Offshore Holdings | 3,262 | 1,917 | 1.7 |
| GRIP-UK (t.a. The Climbing Hangar) | 2,118 | 1,674 | 1.5 |
| Knowledgemotion | 1,903 | 1,657 | 1.5 |
| Medovate | 1,593 | 1,593 | 1.3 |
| ---------- | ---------- | ------- | |
| 27,387 | 56,993 | 50.5 | |
| Other venture capital investments: | |||
| Idox* | 238 | 1,436 | 1.3 |
| Oddbox Delivery | 704 | 1,334 | 1.2 |
| Buoyant Upholstery | 1,173 | 1,191 | 1.1 |
| Tutorful | 1,131 | 1,131 | 1.0 |
| Rockar | 1,051 | 1,049 | 0.9 |
| Thanksbox (t.a Mo) | 1,046 | 1,046 | 0.9 |
| Gentronix | 1,104 | 1,043 | 0.9 |
| Contego Solutions (t.a. NorthRow) | 1,151 | 1,042 | 0.9 |
| Intuitive Holding | 1,674 | 1,031 | 0.9 |
| Life's Great Group (t.a. Mojo Mortgages) | 1,326 | 989 | 0.9 |
| Voxpopme | 974 | 974 | 0.9 |
| Administrate | 1,365 | 972 | 0.9 |
| Ridge Pharma | 969 | 969 | 0.9 |
| Newcells Biotech | 531 | 887 | 0.8 |
| Enate | 784 | 784 | 0.7 |
| Other investments each valued at less than £750,000 | 20,734 | 8,773 | 7.6 |
| ---------- | ---------- | ------- | |
| Total venture capital investments | 64,814 | 81,644 | 72.3 |
| Investment funds (listed equity) | 8,950 | 10,208 | 9.1 |
| ---------- | ---------- | ------- | |
| Total fixed asset investments | 73,764 | 91,852 | 81.4 |
| ---------- | |||
| Net current assets | 20,939 | 18.6 | |
| ---------- | ------- | ||
| Net assets | 112,791 | 100.0 | |
| ---------- | ------- | ||
| *Quoted on AIM | |||
| **Listed on London Stock Exchange |
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 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 investment adviser 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 has caused a global recession during 2020. 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 adviser 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 Venture Trust PLC itself, the board and the adviser follow Brexit developments closely with a view to identifying changes which might affect the company’s investment portfolio. The adviser 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 advisers, 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 investment adviser 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 investment adviser. 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 adviser 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 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 are required 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 they are satisfied that they give a true and fair view of the state of affairs of the company and of its profit or loss for that year.
In preparing these 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) use the going concern basis of accounting 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 its 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 complies 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 strategic report and directors' report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.
The directors consider 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 S J Constantine (Chairman), Mr N J Beer, Mr R J Green, Mr T R Levett, Mr D A Mayes and Mr H P Younger.
OTHER MATTERSThe above summary of results for the year ended 30 September 2020 does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006 and has not been delivered to the Registrar of Companies. Statutory financial statements will be filed with the Registrar of Companies in due course; the independent auditor’s report on those financial statements under Section 495 of the Companies Act 2006 is unqualified, does not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report and does not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
The calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the year and on 149,267,332 (2019: 135,869,327) ordinary shares, being the weighted average number of shares in issue during the year.
The calculation of the net asset value per share is based on the net assets at 30 September 2020 divided by the 156,619,990 (30 September 2019: 138,773,612) ordinary shares in issue at that date.
The proposed final dividend of 2.5 pence per share for the year ended 30 September 2020 will, if approved by shareholders, be paid on 22 January 2021 to shareholders on the register at the close of business on 29 December 2020.
The full annual report including financial statements for the year ended 30 September 2020 is expected to be posted to shareholders on 11 December 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.