Annual Financial Report for the Period Ended 31 March 2023
15
JUNE 2023
NORTHERN VENTURE
TRUST PLC
ANNUAL FINANCIAL
REPORT FOR THE PERIOD
ENDED 31 MARCH
2023
Northern Venture Trust PLC is a Venture Capital
Trust (VCT) whose investment adviser is Mercia Fund Management
Limited. The trust was one of the first VCTs launched on the London
Stock Exchange in 1995. 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.
This report covers the eighteen month period to
31 March 2023.
Financial highlights
(comparative figures as at 31 March 2022 and 30 September
2021):
|
|
18m period ended |
Unaudited 12m period ended |
Unaudited 12m period ended |
Year ended |
|
|
31 March |
31 March |
31 March |
30 September |
|
|
2023 |
2023 |
2022 |
2021 |
|
|
|
|
|
|
Net assets |
|
£102.5m |
£102.5m |
£109.9m |
£119.3m |
|
|
|
|
|
|
Net asset value per share |
|
62.1p |
62.1p |
68.4p |
74.1p |
|
|
|
|
|
|
Return per share |
|
|
|
|
|
Revenue |
|
(0.3)p |
(0.3)p |
0.2p |
0.2p |
Capital |
|
(5.7)p |
(2.1)p |
(1.5)p |
13.7p |
Total |
|
(6.0)p |
(2.4)p |
(1.3)p |
13.9p |
|
|
|
|
|
|
Dividend per share declared in respect of the
period |
|
|
|
|
|
Interim dividend |
|
2.0p |
2.0p |
2.0p |
2.0p |
Second interim/special dividend |
|
2.0p |
2.0p |
6.0p |
6.0p |
Proposed final dividend |
|
2.0p |
0.0p |
2.0p |
2.0p |
Total |
|
6.0p |
4.0p |
10.0p |
10.0p |
|
|
|
|
|
|
Cumulative return to shareholders since
launch |
|
|
|
|
|
Net asset value
per share |
|
62.1p |
62.1p |
68.4p |
74.1p |
Dividends paid
per share* |
|
188.5p |
188.5p |
184.5p |
182.5p |
Net asset value plus dividends paid per share |
|
250.6p |
250.6p |
252.9p |
256.6p |
|
|
|
|
|
|
Mid-market share price at end of period |
|
57.5p |
57.5p |
66.0p |
70.25p |
|
|
|
|
|
|
Share price discount to net asset value |
|
7.4% |
7.4% |
3.5% |
5.2% |
|
|
|
|
|
|
Annualised tax-free dividend yield** |
|
|
|
|
|
Excluding
special dividend |
|
5.4% |
5.8% |
5.0% |
5.7% |
Including special dividend |
|
5.4% |
5.8% |
12.5% |
14.1% |
*Excluding proposed final dividend payable on 18 August
2023 ** Based on net asset value per share at the start of the
period
Enquiries:James Sly / Sarah Williams, Mercia
Asset Management PLC – 0330 223 1430Website:
www.mercia.co.uk/vcts/nvt/CHAIR’S
STATEMENT
Overview Following our change of year end from
30 September to 31 March, this report covers the 18 months ended 31
March 2023.
A great deal has changed in the UK’s macroeconomic climate over
the past 18 months. At the start of the period, the impact of
COVID-19 lingered over supply chains, and as the period progressed
the rate of inflation increased rapidly, as did interest rates.
This has not come without its challenges to the portfolio, and
while our investment adviser has spent considerable time working
with management teams, our portfolio valuations in this report
reflect how the financial markets have shifted over this period, in
particular the re-rating of technology-based and consumer-facing
stocks.
Against this backdrop, the portfolio has remained relatively
robust, with few failures, and there have been several strong
realisations in the past 18 months. The Company has also
experienced a record investment period, with £25.0 million deployed
including £17.0 million into new opportunities.
The Company raised £12.0 million before fees in the period from
two separate offers and intends to raise further funds in the
2023/24 tax year to enable us to continue to invest over the next
three years.
Results and dividend In the 18 months ended 31
March 2023 the Company suffered a negative return on ordinary
activities of minus 6.0 pence per share (year ended 30 September
2021: gain of 13.9 pence), representing a total return of minus
8.1% on the opening net asset value (NAV) per share. The majority
of this reduction can be attributed to just two holdings,
musicMagpie and Oddbox, which over the period saw reductions in
their holding values due to poorer than expected trading and the
change in market sentiment towards consumer facing companies. The
NAV per share as at 31 March 2023, after deducting dividends paid
during the period of 6.0 pence, was 62.1 pence, compared with 74.1
pence at 30 September 2021.
Investment income was lower than the prior year at £0.9 million
(2021: £1.4 million), reflecting the move away from income-yielding
investments as the portfolio mix continued to pivot towards earlier
stage ventures. However, after more than a decade of record-low
interest rates, the Company has recently allocated part of its
liquidity to a money market fund to diversify its risk and seek a
higher return compared to that which is available from traditional
banks; this will increase investment income over the coming
financial years for as long as interest rates remain higher.
In 2018 we revised our dividend policy in the light of the new
VCT rules for investment introduced in 2015 and 2017, which we
expected to result in more volatile returns. We introduced an
annualised target dividend yield of 5% of opening NAV, which has
been exceeded in every period since.
After careful consideration, the Board has proposed a final
dividend of 2.0 pence per share, bringing the total dividend for
the period to 6.0 pence per share, which represents an annualised
tax-free yield of 5.4% on the opening net asset value per share of
74.1 pence. The final dividend, if approved, will be paid on 18
August 2023 to shareholders on the register on 21 July 2023.
Our dividend investment scheme, under which dividends can be
re-invested 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 17% participation
during the period. Instructions on how to join the scheme are
included within the dividend section of our website, which can be
found here: mercia.co.uk/vcts/nvt/.
Investment Portfolio
Investment activity has reached record levels over the period,
with £17.0 million of capital provided to fifteen new venture
capital investments and £8.0 million of follow on capital invested
into the existing portfolio. The investments into new portfolio
companies were made across a variety of sectors including
technology and life sciences. We also made strong progress in
realising the Company’s mature portfolio acquired under the
previous VCT rules with the remaining such investments now
representing 22% by value of the total venture capital portfolio
(30 September 2021: 37%).
The value of the portfolio fell by £9.8 million (6.1 pence per
share) in the 18 months, suffering two significant write-downs; the
value of musicMagpie, which is listed on AIM fell by £6.2 million
(3.8 pence per share) and the value of Oddbox was written down by
£4.2 million (2.6 pence per share). The portfolio was further
exposed to the volatility of markets with its listed investments
reducing by £0.9 million (0.5 pence per share). This is clearly a
disappointing result, but it is worth noting that both musicMagpie
and Oddbox generated significant realised returns for the portfolio
in the preceding period, which exceed the write-downs in this
period, through their partial realisations in cash.
In the unquoted portfolio, while we experienced reductions in
the valuations of other consumer-facing portfolio companies, which
represent only 16% of the total, we also experienced strong
performances from others, with Evotix in particular growing rapidly
over the period. In this report we have valued Evotix at the value
realised shortly after the balance sheet date, resulting in a gain
of £8.3 million (5.1 pence per share) in the period and £9.9
million overall, 4.6x our original investment.
It was a busy period for other realisation activity, with
several notable transactions. The highlights during the period
included the sales of Currentbody.com, Intelling Group and Lineup
Systems for lifetime returns of 2.9x, 3.6x and 7.8x respectively.
In total £26.1 million was generated in sales proceeds over the
period, representing a blended 1.9x multiple on cost.
Share offers and liquidity
In the period gross proceeds of £6.0 million were received from
the fully subscribed 2021/2022 share offer. Additionally, following
the public share offer launched in January 2023, 9,741,182 new
ordinary shares were issued just after the period end in April 2023
for gross proceeds of a further £6.0 million.
Following the smaller top-up offers in the 2021/22 and 2022/23
tax years, and taking into account the increased rate of
investment, the Board is pleased to announce that the Company will
launch a prospectus top-up offer in the 2023/24 tax year for £14.0
million, with an over-allotment facility of £6.0 million. This
offer will launch in September 2023, and full details will be
published shortly.
Share buy-backs
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 18 month period
ended 31 March 2023 a total of 7,335,532 (year ended 30 September
2021: 2,620,797) shares were repurchased by the Company for
cancellation at an average price of 61.2 pence (year ended 30
September 2021: 70.2 pence), representing 4.6% (2021: 1.6%) of the
opening issued share capital.
Changes to the performance-related management fee
(‘performance fee’)
Following a review of current arrangements by the Board, a
resolution is included in the Circular for the General Meeting
proposing changes to the investment advisory agreement in relation
to the performance fee with the investment adviser. The changes in
VCT legislation in 2015 required the Company to focus new
investments on earlier stage companies which, by their nature, are
higher risk and therefore likely to deliver more volatile
investment returns. It has become clear in recent years that the
current arrangements no longer work either for the investment
adviser or for the Company.
In order to align future performance fees better with
shareholder returns and harmonise the methodology and fee rates
across the Northern VCTs, a number of changes are proposed. In
particular, the definition and operation of the high-water mark,
the lowering of both the hurdle rate to 5% and the amount earned
above this rate to 14%, will ensure that strong returns delivered
consistently, and not just in a single year, will be rewarded
appropriately.
As part of these changes the Board has agreed with the
investment adviser that 80% of any performance fee generated will
be paid to members of the VCT investment team, thereby aligning the
personal interests of the investment team directly with those of
shareholders. Full details of the changes are set out in the
accompanying Circular for the upcoming General Meeting.
Responsible Investment
The Company is mindful of its Environmental, Social and
Governance (ESG) responsibilities and we have outlined our evolving
approach in the annual report.
Geopolitical and other macroeconomic risks
The Company’s investments may be affected by regional events or
politics. A recent example of this is the high-inflation
environment in the aftermath of COVID-19 and the conflict in
Ukraine. The Board has no control over such macro events, and as
the Company’s investments are domiciled in the UK with only a
limited presence in the rest of the world, risks are primarily
localised to those facing the UK economy. As a result of the
conflict in Ukraine, during the period our investment adviser
undertook a review of the entire portfolio for links to sanctioned
individuals and companies, took appropriate action where required,
and continues to monitor the situation carefully. A review of
portfolio company exposure to Silicon Valley bank was also
performed during the period and appropriate action taken in the
days before the bank’s UK subsidiary was acquired by HSBC.
VCT legislation and qualifying status
The Company has continued to meet the stringent and complex
qualifying conditions laid down by HM Revenue & Customs for
maintaining its approval as a VCT. The investment adviser 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.
The upcoming 2025 ‘sunset clause’ was a European state aid
requirement when the VCT scheme received state aid approval in
2015, which means that without a change in legislation investors
will not receive upfront tax relief when investing in VCTs after
this date. While the government has signalled that it will extend
the scheme, to date no formal legislation has been introduced to
enact this commitment. The Company and the investment adviser will
continue to monitor progress in this area. The Board considers that
the Company, and VCTs more generally, are successfully delivering
in-line with the Government’s mandate, which is to channel money
into higher-risk, early-stage businesses.
Whilst no further amendments to the VCT legislation were
announced by the Chancellor in his 2023 Budget statement, it is
possible that further changes will be made in the future. We will
continue to work closely with our investment adviser to maintain
compliance with the scheme rules at all times. HMRC has recently
clarified the rules relating to the financial health of companies
at the time of any investment, which may limit VCTs’ ability to
make investments in some cases. However a recent review
demonstrated that very few of the Company’s current investments are
likely to be affected in the near term, concluding that our
portfolio is not exposed significantly to this.
Annual General Meeting
The Company’s AGM will be held at 12.30pm on 21 July 2023. The
AGM provides an excellent opportunity for shareholders, Directors
and the investment adviser to meet in person, exchange views and
comment. We will hold the AGM in person at Reed Smith LLP,
Broadgate Tower, 20 Primrose Street, London, EC2A 2RS. Following
positive feedback received from the last three years, we also
intend to offer remote access for shareholders through an online
webinar facility for those who would prefer not to travel. Full
details and formal notice of the AGM are set out in a separate
document. The General Meeting regarding the proposed changes to the
performance-related management fee will be held immediately after
the conclusion of the AGM.
Board Retirement
Tim Levett is retiring from the Board and so will not be
standing for re-election at the AGM in July. Tim founded our
Company almost 30 years ago, having established Northern Venture
Managers as one of the leading regional investors in the eighties.
He has been instrumental in promoting venture capital trusts in
general and the Northern Venture Trusts in particular to government
and financial advisers for decades. He was a founding member and
recent chairman of the Venture Capital Trust Association, which
represents more than 90% of the VCT industry by value. His
contribution to the Board has been immeasurable and we will miss
his deep knowledge and insight. On behalf of the Board and all
shareholders, I would like to thank Tim for his exceptional service
to the Company over so many years and wish him well in his
retirement.
Outlook
The geopolitical and economic conditions for the next twelve
months are likely to continue to be challenging and this provides a
good opportunity to invest for the longer term and support our
existing portfolio companies. Failure rates remain low and despite
some reductions in valuations this year, the Directors remain
encouraged by the resilience of the wider portfolio. We remain
committed to supporting the development of entrepreneurial
early-stage businesses in the UK.
Simon Constantine Chair 15 June 2023
Extracts from the audited financial statements
for the 18 month period ended 31 March 2023 are set out below.
Income
Statement |
|
|
|
|
|
|
|
|
for the
18 month period ended 31 March 2023 |
|
|
|
|
|
|
|
|
|
|
18 month period ended 31 March
2023 |
|
Year ended 30 September 2021 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
Capital |
Total |
|
Revenue |
Capital |
Total |
|
|
£000 |
£000 |
£000 |
|
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
|
Gain/(loss) on
disposal of investments |
|
- |
2,944 |
2,944 |
|
- |
8,380 |
8,380 |
Unrealised fair value gains/(losses) on investments |
|
- |
(9,776) |
(9,776) |
|
- |
17,660 |
17,660 |
|
|
|
|
|
|
|
|
|
|
|
- |
(6,832) |
(6,832) |
|
- |
26,040 |
26,040 |
|
|
|
|
|
|
|
|
|
Dividend and
interest income |
|
948 |
- |
948 |
|
1,372 |
- |
1,372 |
Investment
management fee |
|
(811) |
(2,432) |
(3,243) |
|
(579) |
(4,275) |
(4,854) |
Other expenses |
|
(796) |
- |
(796) |
|
(472) |
- |
(472) |
|
|
|
|
|
|
|
|
|
Return
before tax |
|
(659) |
(9,264) |
(9,923) |
|
321 |
21,765 |
22,086 |
Tax on return |
|
181 |
(181) |
- |
|
(15) |
15 |
- |
|
|
|
|
|
|
|
|
|
Return after tax |
|
(478) |
(9,445) |
(9,923) |
|
306 |
21,780 |
22,086 |
|
|
|
|
|
|
|
|
|
Return per share |
|
(0.3)p |
(5.7)p |
(6.0)p |
|
0.2p |
13.7p |
13.9p |
Balance Sheet |
|
|
|
|
as at
31 March 2023 |
|
|
|
|
|
|
|
|
|
|
|
31 March 2023 |
|
30 September 2021 |
|
|
£000 |
|
£000 |
|
|
|
|
|
Fixed
assets |
|
|
|
|
Investments |
|
88,609 |
|
96,563 |
|
|
|
|
|
Current assets |
|
|
|
|
Debtors |
|
70 |
|
308 |
Cash and deposits |
|
14,001 |
|
25,106 |
|
|
14,071 |
|
25,414 |
|
|
|
|
|
Creditors (amounts falling due within one
year) |
|
(183) |
|
(2,679) |
|
|
|
|
|
Net current assets |
|
13,888 |
|
22,735 |
|
|
|
|
|
Net assets |
|
102,497 |
|
119,298 |
|
|
|
|
|
Capital and reserves |
|
|
|
|
Called-up
equity share capital |
|
41,230 |
|
40,268 |
Share
premium |
|
19,394 |
|
14,608 |
Capital
redemption reserve |
|
5,342 |
|
3,508 |
Capital
reserve |
|
34,433 |
|
38,325 |
Revaluation
reserve |
|
1,698 |
|
21,430 |
Revenue reserve |
|
400 |
|
1,159 |
|
|
|
|
|
Total equity shareholders' funds |
|
102,497 |
|
119,298 |
|
|
|
|
|
Net asset value per share |
|
62.1p |
|
74.1p |
Statement of changes in equity |
for the 18 month period ended 31 March 2023 |
|
|
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 2021 |
|
40,268 |
14,608 |
3,508 |
21,430 |
38,325 |
1,159 |
119,298 |
|
|
|
|
|
|
|
|
|
Return after
tax |
|
- |
- |
- |
(19,732) |
10,287 |
(478) |
(9,923) |
Dividends
paid |
|
- |
- |
- |
- |
(9,609) |
(281) |
(9,890) |
Net proceeds
of share issues |
|
2,796 |
4,786 |
- |
- |
- |
- |
7,582 |
Shares
purchased for cancellation |
|
(1,834) |
- |
1,834 |
- |
(4,570) |
- |
(4,570) |
|
|
|
|
|
|
|
|
|
At 31 March 2023 |
|
41,230 |
19,394 |
5,342 |
1,698 |
34,433 |
400 |
102,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 30 September 2021 |
|
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 2020 |
|
39,905 |
12,745 |
2,853 |
18,086 |
37,872 |
1,330 |
112,791 |
|
|
|
|
|
|
|
|
|
Return after
tax |
|
- |
- |
- |
3,344 |
18,436 |
306 |
22,086 |
Dividends
paid |
|
- |
- |
- |
- |
(16,144) |
(477) |
(16,621) |
Net proceeds
of share issues |
|
1,018 |
1,863 |
- |
- |
- |
- |
2,881 |
Shares
purchased for cancellation |
|
(655) |
- |
655 |
- |
(1,839) |
- |
(1,839) |
|
|
|
|
|
|
|
|
|
At 30 September 2021 |
|
40,268 |
14,608 |
3,508 |
21,430 |
38,325 |
1,159 |
119,298 |
Statement of cash flows |
|
|
|
|
|
for
the 18 month period ended 31 March 2023 |
|
|
Period ended |
|
Year ended |
|
|
|
31 March 2023 |
|
30 September 2021 |
|
|
|
£000 |
|
£000 |
Cash
flows from operating activities |
|
|
|
|
|
Return before
tax |
|
|
(9,923) |
|
22,086 |
Adjustments
for: |
|
|
|
|
|
(Gain)/loss on
disposal of investments |
|
|
(2,944) |
|
(8,380) |
Movements in
fair value of investments |
|
|
9,776 |
|
(17,660) |
Decrease in
debtors |
|
|
238 |
|
366 |
Decrease in
creditors |
|
|
(2,496) |
|
2,251 |
|
|
|
|
|
|
Net cash outflow from operating activities |
|
|
(5,349) |
|
(1,337) |
|
|
|
|
|
|
Cash
flows from investing activities |
|
|
|
|
|
Purchase of
investments |
|
|
(27,450) |
|
(13,506) |
Proceeds on
disposal of investments |
|
|
28,572 |
|
34,835 |
|
|
|
|
|
|
Net cash inflow/(outflow) from investing
activities |
|
|
1,122 |
|
21,329 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
Issue of
ordinary shares |
|
|
7,796 |
|
2,921 |
Share issue
expenses |
|
|
(214) |
|
(40) |
Purchase of
ordinary shares for cancellation |
|
|
(4,570) |
|
(1,839) |
Equity
dividends paid |
|
|
(9,890) |
|
(16,621) |
|
|
|
|
|
|
Net cash (outflow)/inflow from financing
activities |
|
|
(6,878) |
|
(15,579) |
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash
equivalents |
|
|
(11,105) |
|
4,413 |
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
25,106 |
|
20,693 |
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
|
14,001 |
|
25,106 |
INVESTMENT PORTFOLIO SUMMARYas at
31 March
2023
|
|
Cost |
Valuation |
Like for like valuation increase/ (decrease) over period** |
% of net assets |
|
|
£'000 |
£'000 |
% |
by value |
Fifteen largest venture capital investments |
|
|
|
1 |
Evotix
(formerly SHE) |
2,766 |
12,658 |
188.6% |
12.3% |
2 |
Grip-UK (t/a
Climbing Hangar) |
3,530 |
3,530 |
0.0% |
3.4% |
3 |
Volumatic
Holdings |
216 |
3,275 |
17.1% |
3.2% |
4 |
Gentronix |
1,362 |
3,082 |
111.5% |
3.0% |
5 |
Tutora (t/a
Tutorful) |
2,722 |
2,837 |
4.7% |
2.8% |
6 |
Rockar |
1,877 |
2,795 |
36.9% |
2.7% |
7 |
Newcells
Biotech |
2,479 |
2,519 |
(10.8)% |
2.5% |
8 |
Biological
Preparations Group |
2,366 |
2,267 |
(17.7)% |
2.2% |
9 |
Adludio |
2,103 |
2,103 |
0.0% |
2.1% |
10 |
Clarilis |
1,972 |
1,972 |
(22.8)% |
1.9% |
11 |
IDOX* |
238 |
1,970 |
(10.9)% |
1.9% |
12 |
Administrate |
2,374 |
1,901 |
5.6% |
1.9% |
13 |
Buoyant
Upholstery |
1,173 |
1,895 |
(31.6)% |
1.8% |
14 |
Pure Pet
Food |
1,774 |
1,845 |
0.3% |
1.8% |
15 |
Netacea |
1,781 |
1,781 |
0.0% |
1.7% |
Other venture capital investments |
|
|
|
|
16 |
Project Glow
Topco (t/a Currentbody.com) |
1,686 |
1,686 |
0.0% |
1.6% |
17 |
Social Value
Portal |
1,573 |
1,573 |
0.0% |
1.5% |
18 |
Enate |
1,516 |
1,516 |
0.0% |
1.5% |
19 |
Ridge
Pharma |
1,497 |
1,500 |
0.2% |
1.5% |
20 |
Forensic
Analytics |
1,490 |
1,490 |
0.0% |
1.5% |
21 |
Turbine
Simulated Cell Technologies |
1,433 |
1,433 |
0.0% |
1.4% |
22 |
Broker
Insights |
1,395 |
1,395 |
0.0% |
1.4% |
23 |
Optellum |
1,276 |
1,276 |
0.0% |
1.2% |
24 |
Duke &
Dexter |
1,237 |
1,246 |
0.7% |
1.2% |
25 |
VoxPopMe |
1,218 |
1,205 |
(12.6)% |
1.2% |
26 |
Weldex
(International) Offshore Holdings |
3,262 |
1,137 |
(41.0)% |
1.1% |
27 |
musicMagpie* |
238 |
1,111 |
(85.4)% |
1.1% |
28 |
Centuro
Global |
1,038 |
1,038 |
0.0% |
1.0% |
29 |
Pimberly |
1,008 |
1,008 |
0.0% |
1.0% |
30 |
Send
Technology Solutions |
974 |
974 |
0.0% |
1.0% |
31 |
Axis Spine
Technologies |
955 |
955 |
0.0% |
0.9% |
32 |
Wonderush (t/a
Hownow) |
947 |
947 |
0.0% |
0.9% |
33 |
LMC
Software |
929 |
929 |
0.0% |
0.9% |
34 |
Fresh Approach
(UK) Holdings |
965 |
899 |
(0.3)% |
0.9% |
35 |
Locate
Bio |
876 |
876 |
0.0% |
0.9% |
36 |
Moonshot |
874 |
874 |
0.0% |
0.9% |
37 |
Naitive
Technologies |
787 |
787 |
0.0% |
0.8% |
38 |
Oddbox |
1,093 |
753 |
(84.7)% |
0.7% |
39 |
Northrow |
1,427 |
730 |
(45.7)% |
0.7% |
40 |
Atlas
Cloud |
704 |
704 |
1.1% |
0.7% |
41 |
Intuitive
Holding |
1,674 |
686 |
(5.4)% |
0.7% |
42 |
Sen
Corporation |
681 |
681 |
0.0% |
0.7% |
43 |
Medovate |
1,770 |
534 |
(67.5)% |
0.5% |
44 |
Thanksbox (t/a
Mo) |
1,559 |
518 |
(52.3)% |
0.5% |
45 |
Synthesized |
510 |
510 |
0.0% |
0.5% |
46 |
Rego
Technologies (t/a Upp) (formerly Volo) |
2,369 |
470 |
(13.5)% |
0.5% |
47 |
Seahawk
Bidco |
513 |
467 |
(21.3)% |
0.5% |
48 |
Nutshell |
734 |
385 |
(47.6)% |
0.4% |
49 |
Haystack
Dryers |
1,661 |
242 |
42.8% |
0.2% |
50 |
Arnlea
Holdings |
1,305 |
226 |
17.9% |
0.2% |
51 |
Sorted
Holdings |
3,022 |
212 |
(87.5)% |
0.2% |
52 |
Customs
Connect Group |
1,525 |
121 |
57.1% |
0.1% |
53 |
Angle* |
131 |
73 |
(61.0)% |
0.1% |
54 |
RTC
Group* |
436 |
57 |
(64.3)% |
0.0% |
55 |
Velocity
Composites* |
108 |
43 |
(14.9)% |
0.0% |
56 |
Quotevine |
1,311 |
- |
(100.0)% |
0.0% |
57 |
Ablatus
Therapeutics |
612 |
- |
(100.0)% |
0.0% |
Total venture capital investments |
79,052 |
79,697 |
|
77.8% |
Listed equity investments |
7,859 |
8,912 |
|
8.7% |
Total fixed asset investments |
86,911 |
88,609 |
|
86.5% |
Net current assets |
|
13,888 |
|
13.5% |
Net assets |
|
102,497 |
|
100.0% |
* Quoted on AIM**This percentage change in ‘like for like’
valuations is a comparison of the 31 March 2023 valuations with the
30 September 2021 valuations (or where a new investment has been
made in the period, the investment amount), having adjusted for any
partial disposals, loan stock repayments or new and follow-on
investments in the period.
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 investment adviser on a regular basis.
Financial risk: most of the Company’s
investments involve a medium to long-term commitment and many are
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 most
recently by inflationary pressures, interest rate increases, and
supply shortages. 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
investment 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.
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, political activity or global
health crises, 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. Changes to UK legislation
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. 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 the period. In preparing these financial statements,
the Directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable and
prudent;
- state whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- assess the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
- 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 confirm that to the best of their
knowledge:
- 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
- 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
statement were Mr S J Constantine (Chair), Mr R J Green, Ms D N
Hudson, Mr T R Levett, and Mr D A Mayes.
OTHER MATTERS
The above summary of results for the 18 month
period ended 31 March 2023 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 return per share is based on
the loss after tax for the 18 months ended 31 March 2023 of
£9,923,000 (12 months to 30 September 2021: profit of £22,086,000)
and on 165,209,895 (12 months to 30 September 2021: 159,349,187)
ordinary shares, being the weighted average number of shares in
issue during the period.
The calculation of the net asset value per share
as at 31 March 2023 is based on the net assets of £102,497,000 (12
months to 30 September 2021: 119,298,000) divided by the
164,920,166 (12 months to 30 September 2021: 161,070,303) ordinary
shares in issue at that date.
If approved by shareholders, the proposed final
dividend of 2.0 pence per share for the period ended 31 March 2023
will be paid on 18 August 2023 to shareholders on the register at
the close of business on 21 July 2023.
The full annual report including financial
statements for the 18 month period ended 31 March 2023 is expected
to be made available to shareholders on or around 26 June 2023 and
will be available to the public at the registered office of the
company at Forward House, 17 High Street, Henley-in-Arden B95 5AA
and on the company’s website.
Neither the contents of the Mercia Asset
Management PLC website, nor the contents of any website accessible
from hyperlinks on the Mercia Asset Management PLC website (or any
other website), are incorporated into, or form part of, this
announcement.
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