TIDMNTN
23 June 2021
NORTHERN 3 VCT PLC
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 MARCH 2021
Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by
Mercia Fund Management Limited. It invests mainly in unquoted
venture capital holdings and aims to provide high long-term
tax-free returns to shareholders through a combination of dividend
yield and capital growth.
Financial highlights (comparative figures as at 31 March
2020):
2021 2020
---------------- -----------------
Net assets GBP117.5m GBP72.5m
Net asset value per share 107.0p 78.1p
Return per share:
Revenue 0.5p 0.3p
Capital 33.4p (12.1)p
Total 33.9p (11.8)p
Dividend per share for the year:
Interim dividend 2.0p 2.0p
Second interim (special) dividend 4.5p --
Proposed final dividend 2.5p 2.0p
Total 9.0p 4.0p
Cumulative return to shareholders since launch:
Net asset value per share 107.0p 78.1p
Dividends paid per share* 99.4p 95.4p
Net asset value plus dividends paid per share 206.4p 173.5p
Mid-market share price at end of year 91.00p 70.00p
Share price discount to net asset value 15.0% 10.4%
Tax-free dividend yield (based on net asset value
per share at the start of the year) 5.8% 4.2%
Excluding special dividend 11.5% N/A
Including special dividend
*Excluding second interim and proposed final dividend payable on
27 August 2021.
Enquiries:
Simon John/James Bryce, NVM Private Equity LLP - 0191 244
6000
Martin Glanfield, Chief Financial Officer, Mercia Asset
Management PLC -- 0330 223 1430
Website:
https://www.globenewswire.com/Tracker?data=BOKOBoaKHMIHcApz1Ugbv3-Qv22DLz81V0q4GBJD9m8nTgDSX881b6j41IANSCBOAZbwYSqEDvneZHzmAu_-QuSzHQhhOMKIyq-ququl0qg=
www.mercia.co.uk/vcts
CHAIRMAN'S STATEMENT
Results and dividend
The net asset value (NAV) per share at 31 March 2021, after
deducting dividends totalling 4.0 pence paid during the year, was
107.0 pence compared with 78.1 pence as at 31 March 2020. The total
return per share for the year as shown in the income statement was
33.9 pence (2020: minus 11.8 pence), equivalent to 43.3% of the
opening NAV. Whilst two investments in particular made a major
contribution to these results, it is pleasing to note a largely
creditable performance across the investment portfolio. The return
for the year includes not only net realised gains of GBP8.7 million
on investment sales but also an overall uplift of GBP31.1 million
in the directors' valuation of the continuing portfolio. The
company's NAV total return over five years is comfortably ahead of
the broad UK equity market total return index which we use as a
comparator.
The excellent results for the year have triggered a
performance-related investment management fee of GBP1.6 million
under the terms of the management agreement. Following the fall in
NAV during the preceding financial, the agreement requires a
recovery in the NAV to a prescribed level before a performance fee
is capable of being paid. This is the first time in four years that
a performance-related fee has been payable.
Three years ago we set an objective of paying an annual dividend
representing a yield of at least 4% of the opening NAV per share in
each year. Having already declared an interim dividend of 2.0 pence
per share which was paid in January 2021, your directors now
propose an increased final dividend of 2.5 pence per share. These
payments totalling 4.5 pence per share are equivalent to 5.8% of
the opening NAV of 78.1 pence per share. We have also decided to
recognise the healthy inflow of sales proceeds during the year by
declaring a special dividend of 4.5 pence per share, which takes
the total payable in respect of the year to 9.0 pence per share.
The special dividend will be designated as a second interim
dividend for the year ended 31 March 2021, and will be paid on 27
August 2021 to shareholders on the register on 13 August 2021. The
proposed final dividend will also, subject to approval by
shareholders at the annual general meeting, be paid on 27 August
2021, so that the total dividend payment on that date will be 7.0
pence per share.
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. Instructions on how to join
the scheme are included within the dividend section of our website,
which can be found here:
https://www.globenewswire.com/Tracker?data=rY98_yGqZHfddA9u2juqrwlhXr03JUce-JXoRtsA5lLv2MRnmBVGSFoDLtKG9Ylp5keJdLTsSqmjHHJqU2zfW5t5WKpKSEYqfWC6pAyH_whi2KuwiQ1AEJOmO_nRnY70
mercia.co.uk/vcts/n3vct/.
Investment portfolio
Measures intended to reduce the spread of COVID-19 in the UK,
including the temporary closure of certain businesses and
restrictions on the movement of people, were announced in March
2020. Throughout the subsequent period, our manager has been
working closely with investee companies to provide strategic and
practical support, and your directors have received frequent
progress reports. We are pleased to note that most of the companies
in our portfolio have been able to adapt to the events of the last
12 months and there are very few which continue to be impacted
severely. Northern 3 VCT benefits from holding a diversified
portfolio of investments, both in terms of sector exposure and
stage of business maturity.
Venture capital investment activity
Notwithstanding the challenging conditions experienced since the
onset of the pandemic, further progress has been made on the
development of the portfolio with two new venture capital
investments being added during the year and three more completed in
the period since 31 March 2021. We also continue to experience an
encouraging level of follow-on investment activity across the
earlier stage portfolio. GBP5.1 million of capital was provided to
13 investee companies to support further growth, representing
around 77% by value of investment activity during the year. The
total of GBP6.6 million invested during the year (2020: GBP9.9
million) is lower than we have experienced in recent years and
reflects the conditions which prevailed during the year.
It was a busy year for realisations, with a number of notable
transactions either completed or in progress as at the balance
sheet date. The highlights during the year were the sale of
Agilitas IT Holdings, generating a return of 8.1 times the original
cost of the investment, and the sale of It's All Good which
registered a return of 3.2 times. In April 2021, subsequent to the
year end, Entertainment Magpie Group was admitted to trading on AIM
under its new name musicMagpie plc. Our original 2015 investment of
GBP1.4 million has produced cash proceeds to date of GBP8.5 million
and we have retained ordinary shares in musicMagpie valued at
GBP7.2 million based on the flotation price. The resulting uplift
contributed significantly to the increase in the overall portfolio
valuation as at 31 March 2021.
During the period, four additional executives were recruited
into the VCT Team at Mercia to bring the total number working
directly on our portfolio to 12. They represent a most welcome
additional resource as we expect activity to pick up across the
board.
Share offers and liquidity
Whilst liquidity increased during the period due to the
realisations described above, the VCT scheme rules allow a grace
period of only 12 months before the proceeds are included within
the 80% qualifying assets test for core assets. The dividends
declared or proposed above will require a cash outflow of GBP7.7
million and will reduce liquidity accordingly.
In conjunction with Mercia we have considered the progress
achieved by the portfolio to date and the likely further capital
required both to enable our investee companies to develop as well
as to fund our pipeline of new opportunities. Consequently, we
intend to launch a share offer in the 2021-22 tax year. Further
details will be announced in due course.
Share buy-backs
We have maintained our policy of buying back our shares in the
market, where necessary to maintain market liquidity, at a discount
of 5% to NAV. During the year 1,396,228 shares, equivalent to
approximately 1.5% of the opening share capital, were purchased for
cancellation.
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. Mercia monitors the position
closely and reports regularly to the board.
No further amendments to the VCT legislation were announced by
the Chancellor in his 2021 Spring Budget statement. We will
continue to work closely with Mercia to maintain compliance with
the scheme rules at all times.
Independent auditor
The audit committee regularly reviews the requirements and
deadlines for mandatory audit tendering and rotation. As previously
reported, the audit committee conducted a tender process in
November 2020, as a result of which Mazars LLP, an international
firm of chartered accountants, was appointed as independent auditor
of the company for the year ended 31 March 2021. A resolution for
its re-appointment will be proposed at the forthcoming AGM.
Outlook
Whilst the pandemic continues to affect the economic
environment, we are encouraged by the progress made within the
portfolio as a whole. We remain committed to supporting the
development of entrepreneurial early stage businesses in the UK and
believe that your company remains well placed to do so.
James Ferguson
Chairman
23 June 2021
Extracts from the audited financial statements for the year
ended 31 March 2021 are set out below
INCOME STATEMENT
for the year ended 31 March 2021
Year ended 31 March 2021 Year ended 31 March 2020
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain/(loss)
on disposal
of
investments - 8,646 8,646 - (168) (168)
Movements in
fair value
of
investments - 31,139 31,139 - (9,943) (9,943)
---------- ---------- ---------- ---------- ---------- ----------
- 39,785 39,785 - (10,111) (10,111)
Income 1,500 - 1,500 1,126 - 1,126
Investment
management
fee (462) (3,019) (3,481) (435) (1,304) (1,739)
Other
expenses (404) - (404) (363) - (363)
---------- ---------- ---------- ---------- ---------- ----------
Return
before tax 634 36,766 37,400 328 (11,415) (11,087)
Tax on
return (72) 72 - - - -
---------- ---------- ---------- ---------- ---------- ----------
Return after
tax 562 36,838 37,400 328 (11,415) (11,087)
---------- ---------- ---------- ---------- ---------- ----------
Return per
share 0.5p 33.4p 33.9p 0.3p (12.1)p (11.8)p
The dividends paid or proposed in respect of the year are 9.0p
(2020: 4.0p)
BALANCE SHEET
as at 31 March 2021
31 March 2021 31 March 2020
GBP000 GBP000
Fixed assets:
Investments 94,301 63,776
---------- ----------
Current assets:
Debtors 1,630 28
Cash and cash equivalents 23,397 8,876
---------- ----------
25,027 8,904
Creditors (amounts falling due within one year) (1,785) (137)
---------- ----------
Net current assets 23,242 8,767
---------- ----------
Net assets 117,543 72,543
---------- ----------
Capital and reserves:
Called-up equity share capital 5,492 4,647
Share premium 19,716 7,428
Capital redemption reserve 502 432
Capital reserve 64,263 60,786
Revaluation reserve 26,105 (1,653)
Revenue reserve 1,465 903
---------- ----------
Total equity shareholders' funds 117,543 72,543
---------- ----------
Net asset value per share 107.0p 78.1p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2021
---------------Non-distributable reserves--------------- Distributable reserves Total
Capital
Called up share Share redemption Revaluation Capital Revenue
capital premium reserve reserve* reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2020 4,647 7,428 432 (1,653) 60,786 903 72,543
Return after
tax - - - 27,758 9,080 562 37,400
Dividends
paid - - - - (4,411) - (4,411)
Net proceeds
of share
issues 915 12,288 - - - - 13,203
Shares
purchased for
cancellation (70) - 70 - (1,192) - (1,192)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2021 5,492 19,716 502 26,105 64,263 1,465 117,543
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2020
---------------Non-distributable reserves--------------- Distributable reserves Total
Capital
Called up share Share redemption Revaluation Capital Revenue
capital premium reserve reserve* reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2019 4,393 840 299 9,166 65,665 2,368 82,731
Return after
tax - - - (10,819) (596) 328 (11,087)
Dividends
paid - - - - (1,967) (1,793) (3,760)
Net proceeds
of share
issues 387 6,588 - - - - 6,975
Shares
purchased for
cancellation (133) - 133 - (2,316) - (2,316)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2020 4,647 7,428 432 (1,653) 60,786 903 72,543
---------- ---------- ---------- ---------- ---------- ---------- ----------
*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 FLOWS
for the year ended 31 March 2021
Year ended Year ended
31 March 2021 31 March 2020
GBP000 GBP000
Cash flows from operating activities:
Return before tax 37,400 (11,087)
Adjustments for:
(Gain)/loss on disposal of investments (8,646) 168
Movement in fair value of investments (31,139) 9,943
(Increase)/decrease in debtors (482) 183
Increase/(decrease) in creditors 1,648 (65)
---------- ----------
Net cash outflow from operating activities (1,219) (858)
---------- ----------
Cash flows from investing activities:
Purchase of investments (10,033) (12,772)
Sale/repayment of investments 18,173 8,696
---------- ----------
Net cash inflow/(outflow) from investing
activities 8,140 (4,076)
---------- ----------
Cash flows from financing activities:
Issue of ordinary shares 13,578 7,109
Share issue expenses (375) (135)
Share subscriptions held pending allotment - (6,493)
Purchase of ordinary shares for cancellation (1,192) (2,316)
Equity dividends paid (4,411) (3,760)
---------- ----------
Net cash inflow/(outflow) from financing
activities 7,600 (5,595)
---------- ----------
Increase/(decrease) in cash and cash
equivalents 14,521 (10,529)
Cash and cash equivalents at beginning of
year 8,876 19,405
---------- ----------
Cash and cash equivalents at end of year 23,397 8,876
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2021
% of
Cost Valuation net assets
GBP000 GBP000 by value
Fifteen largest venture capital
investments:
Entertainment Magpie Group 1,360 15,484 13.2
Lineup Systems 974 5,441 4.6
Currentbody.com 1,843 4,114 3.5
SHE Software Group 2,168 3,584 3.0
Intelling Group 1,118 3,343 2.8
Oddbox 638 3,110 2.6
Sorted Holdings 2,542 2,850 2.4
Idox* 530 2,710 2.3
Ideagen* 352 2,655 2.3
Clarilis 1,772 2,301 2.0
Volumatic Holdings 216 2,228 1.9
Buoyant Upholstery 907 2,145 1.8
Newcells Biotech 1,592 1,893 1.6
Knowledgemotion 1,740 1,743 1.5
Biological Preparations Group 1,915 1,732 1.5
---------- ---------- --------
Fifteen largest venture capital
investments 19,667 55,333 47.0
Other venture capital investments 38,023 26,830 22.9
---------- ---------- --------
Total venture capital investments 57,690 82,163 69.9
Listed equity investments 10,506 12,138 10.3
---------- ---------- --------
Total fixed asset investments 68,196 94,301 80.2
----------
Net current assets 23,242 19.8
---------- --------
Net assets 117,543 100.0
---------- --------
*Quoted on AIM
RISK MANAGEMENT
The board carries out a regular and robust assessment of the
risk environment in which the company operates and seeks to
identify new risks as they emerge. The principal and emerging risks
and uncertainties identified by the board which might affect the
company's business model and future performance, and the steps
taken with a view to their mitigation, are as follows:
Investment and liquidity risk: investment in smaller and
unquoted companies, such as those in which the company invests,
involves a higher degree of risk than investment in larger listed
companies because they generally have limited product lines,
markets and financial resources and may be more dependent on key
individuals. The securities of smaller companies in which the
company invests are typically unlisted, making them illiquid, and
this may cause difficulties in valuing and disposing of the
securities. The company may invest in businesses whose shares are
quoted on AIM -- the fact that a share is quoted on AIM does not
mean that it can be readily traded and the spread between the
buying and selling prices of such shares may be wide. Mitigation:
the directors aim to limit the risk attaching to the portfolio as a
whole by careful selection, close monitoring and timely realisation
of investments, by carrying out rigorous due diligence procedures
and maintaining a wide spread of holdings in terms of financing
stage and industry sector, within the rules of the VCT scheme. The
board reviews the investment portfolio with the manager on a
regular basis.
Financial risk: most of the company's investments involve a
medium to long-term commitment and many are relatively illiquid.
Mitigation: the directors consider that it is inappropriate to
finance the company's activities through borrowing except on an
occasional short-term basis. Accordingly they seek to maintain a
proportion of the company's assets in cash or cash equivalents in
order to be in a position to pursue new unquoted investment
opportunities and to make follow-on investments in existing
portfolio companies. The company has very little direct exposure to
foreign currency risk and does not enter into derivative
transactions.
Economic risk: events such as economic recession or general
fluctuation in stock markets, exchange rates and interest rates may
affect the valuation of investee companies and their ability to
access adequate financial resources, as well as affecting the
company's own share price and discount to net asset value. The
level of economic risk has been elevated by the COVID-19 pandemic
which 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
manager typically provides an investment executive to actively
support the board of each unquoted investee company. At all times,
and particularly during periods of heightened economic uncertainty,
the investment executives share best practice from across the
portfolio with investee management teams in order to mitigate
economic risk.
Brexit risk: the UK withdrew from the European Union (EU) on 31
January 2020. The process of negotiating longer term trading
arrangements between the UK and the EU is ongoing. 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 3 VCT itself,
the board and the manager follow Brexit developments closely with a
view to identifying changes which might affect the company's
investment portfolio. The manager works closely with investee
companies in order to plan for a range of possible outcomes.
Stock market risk: some of the company's investments are quoted
on the London Stock Exchange or AIM and will be subject to market
fluctuations upwards and downwards. External factors such as
terrorist activity or global health crises, such as the COVID-19
pandemic, can negatively impact stock markets worldwide. In times
of adverse sentiment there may be very little, if any, market
demand for shares in smaller companies quoted on AIM. Mitigation:
the company's quoted investments are actively managed by specialist
managers, including Mercia in the case of the AIM-quoted
investments, and the board keeps the portfolio and the actions
taken under ongoing review.
Credit risk: the company holds a number of financial instruments
and cash deposits and is dependent on the counterparties
discharging their commitment. Mitigation: the directors review the
creditworthiness of the counterparties to these instruments and
cash deposits and seek to ensure there is no undue concentration of
credit risk with any one party.
Legislative and regulatory risk: in order to maintain its
approval as a VCT, the company is required to comply with current
VCT legislation in the UK, which reflects the European Commission's
State-aid rules. Changes to the UK legislation in the future could
have an adverse effect on the company's ability to achieve
satisfactory investment returns whilst retaining its VCT approval.
Mitigation: the board and the manager monitor political
developments and where appropriate seek to make representations
either directly or through relevant trade bodies.
Internal control risk: the company's assets could be at risk in
the absence of an appropriate internal control regime which is able
to operate effectively even during times of disruption, such as
that caused by COVID-19. Mitigation: the board regularly reviews
the system of internal controls, both financial and non-financial,
operated by the company and the manager. These include controls
designed to ensure that the company's assets are safeguarded and
that proper accounting records are maintained.
VCT qualifying status risk: while it is the intention of the
directors that the company will be managed so as to continue to
qualify as a VCT, there can be no guarantee that this status will
be maintained. A failure to continue meeting the qualifying
requirements could result in the loss of VCT tax relief, the
company losing its exemption from corporation tax on capital gains,
to shareholders being liable to pay income tax on dividends
received from the company and, in certain circumstances, to
shareholders being required to repay the initial income tax relief
on their investment. Mitigation: the investment manager keeps the
company's VCT qualifying status under continual review and its
reports are reviewed by the board on a quarterly basis. The board
has also retained Philip Hare & Associates LLP to undertake an
independent VCT status monitoring role.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with UK
Accounting Standards, including FRS 102 "The Financial Reporting
Standard applicable in the UK and Republic of Ireland".
Under company law the directors must not approve the financial
statements unless 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 the financial statements, the directors are
required to (i) select suitable accounting policies and then apply
them consistently; (ii) make judgements and estimates that are
reasonable and prudent; (iii) state whether applicable UK
Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
(iv) assess the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
(v) prepare the financial statements on the going concern basis
unless they either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a strategic report, directors' report,
directors' remuneration report and corporate governance statement
that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
The directors have confirmed that to the best of their knowledge
(i) the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company; and (ii) the directors' report and strategic report
include a fair review of the development and performance of the
business and the position of the company, together with a
description of the principal risks and uncertainties that they
face.
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the company's
position and performance, business model and strategy.
The directors of the company at the date of this announcement
were Mr J G D Ferguson (Chairman), Mr C J Fleetwood, Mr T R Levett,
Mrs A B Brown and Mr J M O Waddell.
OTHER MATTERS
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 March 2021 or
2020 but is derived from those accounts. Statutory accounts for
2019 have been delivered to the registrar of companies, and those
for 2020 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified; (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report; and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
The calculation of the return per share is based on the profit
after tax for the year of GBP37,400,000 (2020: profit of
GBP11,087,000) and on 110,299,514 (2020: 94,141,026) shares, being
the weighted average number of shares in issue during the year.
The calculation of the net asset value per share as at 31 March
2021 is based on net assets of GBP117,543,000 (2020: GBP72,543,000)
divided by the 109,840,118 (2020: 92,939,827) ordinary shares in
issue at that date.
If approved by shareholders, the proposed final dividend of 2.5
pence per share and the second interim dividend of 4.5 pence per
share for the year ended 31 March 2021 will be paid on 27 August
2021 to shareholders on the register at the close of business on 13
August 2021.
The full annual report including financial statements for the
year ended 31 March 2021 is expected to be posted to shareholders
on or around 20 July 2021 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) is incorporated
into, or forms part of, this announcement.
(END) Dow Jones Newswires
June 23, 2021 10:00 ET (14:00 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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