Annual Financial Report for the Year Ended 31 March 2023
15 June
2023
NORTHERN 2 VCT PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH
2023
Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by
Mercia Fund Management Limited. It invests mainly in unquoted
venture capital holdings in growing UK companies and aims to
provide long-term tax-free returns to shareholders through a
combination of dividend yield and capital growth.
Financial highlights (comparative figures as at 31 March
2022):
|
|
Year ended |
Year ended |
|
|
31 March |
31 March |
|
|
2023 |
2022 |
|
|
|
|
Net
assets |
|
£109.6m |
£104.9m |
|
|
|
|
Net asset
value per share |
59.0p |
64.4p |
|
|
|
|
Return per
share |
|
|
|
Revenue |
|
(0.2)p |
0.2p |
Capital |
|
(1.7)p |
0.4p |
Total |
|
(1.9)p |
0.6p |
|
|
|
|
Dividend
per share declared in respect of the period |
|
|
Interim dividend |
|
2.0p |
2.0p |
Proposed final dividend |
1.3p |
1.6p |
Total |
|
3.3p |
3.6p |
|
|
|
|
Cumulative
return to shareholders since launch |
|
|
Net asset value
per share |
59.0p |
64.4p |
Dividends paid per
share* |
136.0p |
132.4p |
Net asset value
plus dividends paid per share |
195.0p |
196.8p |
|
|
|
|
Mid-market
share price at end of period |
54.5p |
61.5p |
|
|
|
|
Share
price discount to net asset value |
7.6% |
4.5% |
|
|
|
|
Annualised
tax-free dividend yield (based on net asset value per
share) |
5.1% |
5.0% |
*Excluding proposed final dividend payable on 18 August 2023
Enquiries:
James Sly / Sarah Williams, Mercia Asset
Management PLC – 0330 223 1430Website:
www.mercia.co.uk/vcts/n2vct/
CHAIR’S STATEMENT
Uncertainty in the economic landscape persisted over the past
year. Inflationary pressures resulted in interest rate increases
and volatility in the financial markets which presented challenges.
While consumer facing companies have been particularly impacted by
the high-inflation environment, many quoted equity indices
experienced large declines and company valuations across most
sectors fell from previous highs.
Against this challenging backdrop, it is pleasing to report that
the valuation of our unquoted portfolio increased in the year,
supported by a number of excellent exits both in the year and
immediately post year end. Realisation of our unquoted investments
in the year generated proceeds of £12.1 million, delivering a £6.2
million return on initial cost of £5.9 million. Investment activity
has remained high, with £16.0 million invested in 27 promising
early stage businesses.
Despite declining business confidence generally, our public
share offer of £6 million was fully subscribed and I would like to
thank existing shareholders for their continued support and warmly
welcome new investors. Proceeds from the share offer together with
sales proceeds from investments mean that the Company is well
positioned both to pursue new opportunities to support small and
medium businesses and to work with existing portfolio companies to
realise their growth plans.
Results and dividend
In the year ended 31 March 2023 the Company delivered a return
of minus 1.9 pence per share (2022: 0.6 pence), equivalent to minus
3.0% of the opening net asset value (NAV) per share. Gains in the
unquoted portfolio were offset by declines in our listed
investments, particularly musicMagpie, a legacy AIM investment that
was impacted both by challenging trading conditions and the
repricing of AIM shares generally. The NAV per share as at 31 March
2023, after deducting dividends paid during the year totalling 3.6
pence, was 59.0 pence compared with 64.4 pence as at 31 March
2022.
Several investment realisations were completed during the year,
with a number of notable transactions either completed or in
progress as at the balance sheet date. One particular highlight
after the balance sheet date was the sale of Evotix, sold in May
2023, for proceeds of £11.5 million compared to an original cost of
£2.5 million, a 4.6x return, which is particularly welcome as it
was an early-stage investment made since the VCT rule changes in
2015; the realised value has been represented in the Directors’
unquoted valuations as at the balance sheet date. Other highlights
were the sales of Lineup Systems and Knowledgemotion that
registered returns of 7.8 times and 1.7 times cost respectively
over their lifetimes (inclusive of loan interest received). These
gains contributed to an overall increase of £0.6 million in the
Directors’ valuation of the unquoted portfolio.
The unquoted valuations were also impacted by a number of
write-downs including the failure of Channel Mum, which was
unfortunately put into liquidation after facing challenging trading
conditions. In addition, the Company’s investment in Axial was sold
at a loss following its loss of several large contracts.
In 2018 we set an objective of paying an annual dividend
representing a yield of at least 5% of the opening NAV per share in
each year whilst endeavouring to protect the NAV from erosion over
the medium term. Over the three years since 31 March 2020 the NAV
per share has increased by 10% from 53.5 pence to 59.0 pence, after
taking account of dividend payments totalling 14.6 pence over the
same period. We have therefore broadly continued to meet our
objective.
Having already declared an interim dividend of 2.0 pence per
share which was paid in January 2023, your Directors now propose a
final dividend of 1.3 pence per share. The total of 3.3 pence per
share is equivalent to 5.1% of the opening NAV of 64.4 pence per
share. The proposed final dividend will be paid on 18 August 2023,
subject to approval by shareholders at the Annual General
Meeting.
The target dividend yield will remain subject to regular review
and the level of future dividend distributions will continue to
reflect 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 portfolio
The Company continues to be a generalist investor, with large
allocations in the software, healthcare/bio-technology and consumer
sectors. The older investments made under the ‘pre 2015’ rules
continue to be realised, and comprised 19% by value of the
Company’s investments as of the balance sheet date. This mature
portfolio will continue to reduce as a percentage of overall
capital invested as we realise our holdings in these investments,
and we expect that it will continue to provide a series of
profitable exits in the years to come, supporting the overall
return of the Company.
Over the year the Company saw reductions in the valuations of
its listed investments, notably the continued fall in value of AIM
listed musicMagpie and the listed portfolio of investments, in line
with the decline in investment markets generally. Overall, the
value of the Company’s listed investments declined by £1.9 million
of which £1.0 million was MusicMagpie. Despite the marked-to-market
losses of the listed portfolio that is held to generate a yield on
cash pending investment, the portfolio has generated annualised
total returns of 3.1% since investment in 2018 and has therefore
provided a positive contribution to NAV in what has been a very low
interest rate environment. Your Directors always consider the state
of the investment markets and how these might impact the valuations
of the unquoted venture portfolio and have updated valuations to
reflect current market conditions where appropriate.
Investment levels have remained high and exceeded the previous
year’s record breaking deployment level, with £10.0 million of
capital provided to 9 new venture capital investments and £6.0
million of follow on capital invested into 19 existing portfolio
investments, including a second tranche of investment into one
company that was new in the year (previous year: £14.7 million
combined).
Share offer and liquidity
As a result of the public share offer launched in January 2023,
10,290,184 new ordinary shares were issued in April 2023 for gross
proceeds of £6.0 million.
Following the smaller non-prospectus top-up offer in 2022/23,
and taking into account the increased rate of investment that has
now been sustained for a second successive year, the Board is
pleased to announce that the Company will launch a prospectus 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.
Our dividend investment scheme continues to operate. This
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. During the year
around 15% of total dividends were reinvested by shareholders.
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
4,673,456 shares were repurchased for cancellation, equivalent to
approximately 2.5% of the opening share capital.
Changes to the performance-related management fee
(‘performance fees’)
Following a review of current arrangements by the Board,
included in the Circular for the upcoming General Meeting is a
resolution proposing changes to the Management Agreement in
relation to the performance-related management fee with the
Manager. If approved by shareholders, these changes will be
implemented by a deed of variation to the Company’s existing
Management Agreement.
The changes in VCT legislation in 2015 required the Company to
focus new investment on earlier stage companies which, by their
nature, are higher risk and therefore likely to deliver more
volatile investment returns. A number of changes are proposed in
order to better align future performance fees with shareholder
returns as well as to bring the performance fee methodology more in
line with other market participants and to harmonise its
application across the Northern VCTs. The changes are designed to
ensure strong returns above a hurdle are delivered consistently,
not just in a single year, with a requirement that any decline in
shareholder NAV must be made wholly good before a performance fee
is payable to the Manager. Full details of the changes are set out
in the accompanying Circular for the General Meeting, which will be
held immediately after the Annual General Meeting on 29 July
2023.
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.
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 Manager 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, which
means that without a change in legislation investors will not
receive upfront tax relief when investing in VCTs from 6 April
2025. 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 Manager will continue to
monitor progress in this area. The Board considers that the
Company, and VCTs more generally, are successfully delivering
against the Government’s mandate, which is to channel money into
higher-risk, early-stage businesses.
Another issue facing VCTs and similar schemes such as the
Enterprise Investment Scheme is the ‘Financial Health Test’ that
has been enforced more narrowly over the past twelve months. This
test states that where a company is investing outside of its
initial investing period, if more than half of an investee
company’s subscribed share capital has disappeared as a result of
accumulated losses, then no further capital may be invested. In
reality a number of early stage businesses need to be funded for
longer than that initial period, making losses originally to fund
growth. The Manager has performed a detailed review of the
portfolio, and while the Company’s portfolio is relatively
unaffected at the current time, your Board will continue to monitor
the situation carefully.
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 the Manager to maintain compliance
with the scheme rules at all times.
Board of directors
Your board recognises the need to consider succession planning
and with due regard to developing its diversity. We are determined
to only ever appoint when we have found high quality, value adding
and experienced people who will contribute to the Board in the
interests of shareholders. As previously announced, Ranjan Ramparia
joined as a director in the year.
As part of the process of refreshing itself, which your board
has been undertaking over the last few years, senior non-executive
director, Frank Neale is not seeking re-election and retires at the
AGM. As he stands down I want to thank him for his extraordinary
contribution to the success of the Company over many years. It
would be difficult to overstate the knowledge and expertise Frank
Neale had brought to the board’s deliberations, for which we are
very appreciative. His wisdom and guidance will be much missed.
As reported in previous years, the Board goes through a rigorous
appraisal process both collectively and individually during which
it considers the independence of each director in the light of
their performance at, and between, board meetings and when engaging
with the Manager. Shareholders can be assured that with the benefit
of their wide experience and expertise your directors act of behalf
of shareholders in challenging the Manager in respect of the
strategic direction of the Company, the investment portfolio, the
valuation of unquoted assets, performance-related management fees,
fund raising and any other matter likely to impact the development
of the Company.
All of the Directors who served throughout the year, with the
exception of Frank Neale who is retiring from the Board, will be
seeking re-election at the 2023 AGM in accordance with the AIC Code
of Corporate Governance.
Annual
General
Meeting
The Company’s Annual General Meeting (AGM) will take place on 28
July 2023. The AGM usually provides an excellent opportunity for
shareholders, directors and the Manager to meet in person, exchange
views and comment. We intend to hold the 2023 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.
Please note that shareholders attending remotely must register
their votes ahead of time, as it will not be possible to count
votes from online participants at the AGM. 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 AGM.
Outlook
Despite a challenging macroeconomic outlook with high inflation
and rising interest rates, we will continue to provide patient
capital to support innovative early stage businesses in the UK.
Your board is encouraged by the continued strong deployment rates,
and will continue to invest throughout the economic cycle.
Your board has confidence in the overall diversity of the
portfolio and believes that it will continue to generate long term
shareholder value.
We thank our investors for their continuing support.
David Gravells
Chair 15
June 2023
Extracts from the audited financial statements for the year
ended 31 March 2023 are set out below.
Income statement
|
Year ended 31 March 2023 |
|
Year ended 31 March 2022 |
|
Revenue |
Capital |
Total |
|
Revenue |
Capital |
Total |
|
£000 |
£000 |
£000 |
|
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Gain/(loss) on disposal of
investments |
- |
(219) |
(219) |
|
- |
4,491 |
4,491 |
Unrealised fair value gains/(losses) on investments |
- |
(1,302) |
(1,302) |
|
- |
(2,265) |
(2,265) |
|
- |
(1,521) |
(1,521) |
|
- |
2,226 |
2,226 |
|
|
|
|
|
|
|
|
Dividend and interest
income |
598 |
- |
598 |
|
1,314 |
- |
1,314 |
Investment management fee |
(505) |
(1,514) |
(2,019) |
|
(541) |
(1,621) |
(2,162) |
Other
expenses |
(522) |
- |
(522) |
|
(455) |
- |
(455) |
|
|
|
|
|
|
|
|
Return before
tax |
(429) |
(3,035) |
(3,464) |
|
318 |
605 |
923 |
Tax on
return |
109 |
(109) |
- |
|
(3) |
3 |
- |
Return after tax |
(320) |
(3,144) |
(3,464) |
|
315 |
608 |
923 |
|
|
|
|
|
|
|
|
Return per share |
(0.2)p |
(1.7)p |
(1.9)p |
|
0.2p |
0.4p |
0.6p |
Balance sheet
|
|
|
31 March 2023 |
31 March 2022 |
|
|
|
£000 |
£000 |
|
|
|
|
|
Fixed
assets |
|
|
|
|
Investments |
|
|
80,314 |
77,878 |
|
|
|
|
|
Current
assets |
|
|
|
|
Debtors |
|
|
118 |
43 |
Cash and cash equivalents |
|
|
29,318 |
27,086 |
|
|
|
|
|
|
|
|
29,436 |
27,129 |
|
|
|
|
|
Creditors (amounts
falling due within one year) |
|
|
(174) |
(153) |
|
|
|
|
|
Net current
assets |
|
|
29,262 |
26,976 |
|
|
|
|
|
Net
assets |
|
|
109,576 |
104,854 |
|
|
|
|
|
Capital and
reserves |
|
|
|
|
Called-up equity share
capital |
|
|
9,282 |
8,145 |
Share premium |
|
|
38,165 |
21,952 |
Capital redemption
reserve |
|
|
849 |
615 |
Capital reserve |
|
|
59,176 |
63,642 |
Revaluation reserve |
|
|
2,015 |
9,765 |
Revenue reserve |
|
|
89 |
735 |
|
|
|
|
|
Total equity
shareholders' funds |
|
|
109,576 |
104,854 |
|
|
|
|
|
Net asset value per
share |
|
|
59.0p |
64.4p |
Statement
of changes in equity |
for the year ended 31
March 2023 |
|
|
|
|
|
|
|
|
--------- |
Non
Distributable reserves |
------------ |
Distributable Reserves |
|
|
Called up share capital |
Share premium |
Capital redemption reserve |
Revaluation reserve* |
Capital reserve |
Revenue reserve |
Total |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
At 1
April 2022 |
8,145 |
21,952 |
615 |
9,765 |
63,642 |
735 |
104,854 |
Return after tax |
- |
- |
- |
(7,750) |
4,606 |
(320) |
(3,464) |
Dividends paid |
- |
- |
- |
- |
(6,408) |
(326) |
(6,734) |
Net proceeds of share
issues |
1,371 |
16,213 |
- |
- |
- |
- |
17,584 |
Shares purchased for
cancellation |
(234) |
- |
234 |
- |
(2,664) |
- |
(2,664) |
At 31
March 2023 |
9,282 |
38,165 |
849 |
2,015 |
59,176 |
89 |
109,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 March
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1
April 2021 |
8,102 |
20,175 |
511 |
22,343 |
63,547 |
822 |
115,500 |
Return after tax |
- |
- |
- |
(12,578) |
13,186 |
315 |
923 |
Dividends paid |
- |
- |
- |
- |
(11,703) |
(402) |
(12,105) |
Net proceeds of share
issues |
147 |
1,837 |
- |
- |
- |
- |
1,984 |
Shares purchased for
cancellation |
(104) |
(60) |
104 |
- |
(1,388) |
- |
(1,448) |
At 31
March 2022 |
8,145 |
21,952 |
615 |
9,765 |
63,642 |
735 |
104,854 |
Statement of cash
flows |
|
|
|
for the year ended 31
March 2023 |
|
|
|
|
Year ended |
|
Year ended |
|
31 March 2023 |
|
31 March 2022 |
|
£000 |
|
£000 |
Cash flows from
operating activities |
|
|
|
Return before tax |
(3,464) |
|
923 |
Adjustments for: |
|
|
|
(Gain)/loss on disposal of
investments |
219 |
|
(4,491) |
Movements in fair value of
investments |
1,302 |
|
2,265 |
(Increase)/decrease in
debtors |
(75) |
|
1,619 |
Increase/(decrease) in
creditors |
21 |
|
(1,654) |
|
|
|
|
Net cash outflow from operating activities |
(1,997) |
|
(1,338) |
|
|
|
|
Cash flows from
investing activities |
|
|
|
Purchase of investments |
(17,600) |
|
(16,414) |
Sale/repayment of
investments |
13,643 |
|
27,840 |
|
|
|
|
Net cash inflow/(outflow) from investing
activities |
(3,957) |
|
11,426 |
|
|
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
Issue of ordinary shares |
18,075 |
|
1,984 |
Share issue expenses |
(491) |
|
(60) |
Purchase of ordinary shares
for cancellation |
(2,664) |
|
(1,388) |
Equity dividends paid |
(6,734) |
|
(12,105) |
|
|
|
|
Net cash inflow/(outflow) from financing
activities |
8,186 |
|
(11,569) |
|
|
|
|
Increase/(decrease) in
cash and cash equivalents |
2,232 |
|
(1,481) |
|
|
|
|
Cash
and cash equivalents at beginning of year |
27,086 |
|
28,567 |
|
|
|
|
Cash and cash equivalents at end of year |
29,318 |
|
27,086 |
Investment portfolio
|
|
Cost |
Valuation |
Like for like valuation increase/ (decrease) over year** |
% of net assets |
|
|
£'000 |
£'000 |
% |
by value |
Fifteen largest venture capital investments |
|
|
|
1 |
Evotix (formerly SHE) |
2,518 |
11,529 |
113.7% |
10.5% |
2 |
Volumatic Holdings |
216 |
3,275 |
(1.9)% |
3.0% |
3 |
Grip-UK (t/a Climbing
Hangar) |
3,213 |
3,213 |
0.0% |
2.9% |
4 |
Gentronix |
1,164 |
2,630 |
109.9% |
2.4% |
5 |
Rockar |
1,766 |
2,630 |
34.7% |
2.4% |
6 |
Tutora (t/a Tutorful) |
2,490 |
2,595 |
7.6% |
2.4% |
7 |
Newcells Biotech |
2,257 |
2,293 |
(10.9)% |
2.1% |
8 |
Biological Preparations
Group |
2,166 |
2,069 |
(15.2)% |
1.9% |
9 |
Adludio |
1,916 |
1,916 |
0.0% |
1.7% |
10 |
Clarilis |
1,828 |
1,828 |
(4.4)% |
1.7% |
11 |
Administrate |
2,148 |
1,720 |
7.0% |
1.6% |
12 |
Buoyant Upholstery |
1,057 |
1,707 |
(36.7)% |
1.6% |
13 |
Netacea |
1,683 |
1,683 |
0.0% |
1.5% |
14 |
Social Value Portal |
1,680 |
1,680 |
0.0% |
1.5% |
15 |
Pure Pet Food |
1,605 |
1,669 |
0.3% |
1.5% |
Other venture capital investments |
|
|
|
|
16 |
Project Glow Topco (t/a
Currentbody.com) |
1,544 |
1,544 |
0.0% |
1.4% |
17 |
Turbine Simulated Cell
Technologies |
1,503 |
1,503 |
0.0% |
1.4% |
18 |
Enate |
1,394 |
1,394 |
0.0% |
1.3% |
19 |
Ridge Pharma |
1,387 |
1,390 |
0.2% |
1.3% |
20 |
Forensic Analytics |
1,357 |
1,357 |
0.0% |
1.2% |
21 |
Broker Insights |
1,318 |
1,318 |
0.0% |
1.2% |
22 |
Optellum |
1,206 |
1,206 |
0.0% |
1.1% |
23 |
Duke & Dexter |
1,132 |
1,140 |
0.7% |
1.0% |
24 |
Centuro Global |
1,109 |
1,109 |
0.0% |
1.0% |
25 |
VoxPopMe |
1,114 |
1,102 |
(11.3)% |
1.0% |
26 |
musicMagpie* |
222 |
1,037 |
(50.0)% |
0.9% |
27 |
Send Technology Solutions |
1,023 |
1,023 |
0.0% |
0.9% |
28 |
Wonderush Ltd (t/a
Hownow) |
1,009 |
1,009 |
0.0% |
0.9% |
29 |
Axis Spine Technologies |
1,002 |
1,002 |
0.0% |
0.9% |
30 |
Pimberly |
918 |
918 |
0.0% |
0.8% |
31 |
Fresh Approach (UK)
Holdings |
951 |
886 |
3.5% |
0.8% |
32 |
LMC Software |
877 |
877 |
0.0% |
0.8% |
33 |
Moonshot |
812 |
812 |
0.0% |
0.7% |
34 |
Locate Bio |
798 |
798 |
0.0% |
0.7% |
35 |
Naitive Technologies |
731 |
731 |
0.0% |
0.7% |
36 |
Oddbox |
1,002 |
689 |
(81.6)% |
0.6% |
37 |
Northrow |
1,342 |
686 |
(46.0)% |
0.6% |
38 |
Atlas Cloud |
648 |
648 |
1.0% |
0.6% |
39 |
Sen Corporation |
643 |
643 |
0.0% |
0.6% |
40 |
Intuitive Holding |
1,508 |
618 |
5.1% |
0.6% |
41 |
Medovate |
1,611 |
486 |
(67.5)% |
0.4% |
42 |
Synthesized |
482 |
482 |
0.0% |
0.4% |
43 |
Thanksbox (t/a Mo) |
1,411 |
469 |
(42.5)% |
0.4% |
44 |
Rego Technologies (t/a Upp)
(formerly Volo) |
2,223 |
440 |
(19.0)% |
0.4% |
45 |
Seahawk Bidco |
479 |
436 |
(15.9)% |
0.5% |
46 |
Nutshell |
675 |
354 |
(32.5)% |
0.3% |
47 |
Adept Telecom* |
235 |
332 |
22.2% |
0.3% |
48 |
Arnlea Holdings |
1,287 |
223 |
9.4% |
0.3% |
49 |
Haystack Dryers |
1,497 |
218 |
59.3% |
0.2% |
50 |
Sorted Holdings |
2,716 |
190 |
7.4% |
0.2% |
51 |
Customs Connect Group |
1,433 |
113 |
4.5% |
0.2% |
52 |
Angle* |
134 |
75 |
(61.0)% |
0.1% |
53 |
Velocity Composites* |
96 |
39 |
(15.0)% |
0.1% |
54 |
Quotevine |
1,186 |
- |
(100.0)% |
0.0% |
55 |
Ablatus Therapeutics |
559 |
- |
(100.0)% |
0.0% |
Total venture capital investments |
70,281 |
71,734 |
|
65.5% |
Listed equity investments |
8,019 |
8,580 |
|
7.8% |
Total fixed asset investments |
78,300 |
80,314 |
|
73.3% |
Net current assets |
|
29,262 |
|
26.7% |
Net assets |
|
109,576 |
|
100.0% |
*Listed on AIM **This percentage change in ‘like for like’
valuations is a comparison of the 31 March 2023 valuations with the
31 March 2022 valuations (or where a new investment has been made
in the year, the investment amount), having adjusted for any
partial disposals, loan stock repayments or new and follow-on
investments in the year.
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, active management of portfolio issues, 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
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 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
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.
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 the 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 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.
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 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 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 year.
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 have confirmed 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
announcement were Mr D P A Gravells (Chair), Mr S P Devonshire,
Miss C A McAnulty, Mr F L G Neale and Miss R K Ramparia.
OTHER MATTERS
The above summary of results for the year 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 the return per share is based
on the loss after tax for the year of £3,464,000 (2022: profit of
£923,000) and on 187,331,778 (2022: 162,327,282) shares, being the
weighted average number of shares in issue during the year.
The calculation of net asset value per share as at 31 March 2023
is based on net assets of £109,576,000 (2022: £104,854,000) divided
by the 185,640,724 (2022: 162,907,914) ordinary shares in issue at
that date.
If approved by shareholders, the proposed final dividend of 1.3
pence per share for the year 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
year 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.
The contents of the Mercia Asset Management PLC website and the
contents of any website accessible from hyperlinks on the Mercia
Asset Management PLC website (or any other website) are not
incorporated into, nor form part of, this announcement.
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