TIDMNTN
24 NOVEMBER 2021
NORTHERN 3 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 SEPTEMBER 2021
Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by
Mercia Fund Management. 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 30 September
2020 and 31 March 2021)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2021 2020 2021
---------------- ---------------- -----------
Net assets GBP116.8m GBP103.3m GBP117.5m
Net asset value per share 106.1p 93.6p 107.0p
Return per share:
Revenue 0.3p 0.6p 0.5p
Capital 5.8p 17.9p 33.4p
Total 6.1p 18.5p 33.9p
Dividend declared
in respect of the period 2.0p 2.0p 9.0p
Cumulative return to shareholders
since launch:
Net asset value per share 106.1p 93.6p 107.0p
Dividends paid per share* 106.4p 97.4p 99.4p
Net asset value plus dividends paid per share 212.5p 191.0p 206.4p
Mid-market share price at end of period 97.5p 75.5p 91.0p
Share price discount to net asset value 8.1% 19.3% 15.0%
Tax-free dividend yield (based on the net asset value
per share) 4.8% 4.3% 5.8%
Excluding special dividend 9.6% N/A 11.5%
Including special dividend
*Excluding interim dividend not yet paid
**The annualised dividend yield is calculated by dividing the
dividends in respect of the 12 month period ended on each reference
date by the net asset value per share at the start of the
period.
For further information, please contact:
Enquiries:
Simon John/James Bryce, NVM Private Equity -- 0191 244 6000
James Sly/Graham Venables, Mercia Asset Management PLC -- 0330
223 1430
HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS
For the six months ended 30 September 2021
Results and dividend
The unaudited net asset value (NAV) per share at 30 September
2021 was 106.1 pence (31 March 2021 (audited) 107.0 pence). The
September figure is stated after deducting the second interim
(special) dividend of 4.5 pence per share and final dividend of 2.5
pence per share in respect of the year ended 31 March 2021, which
were paid on 27 August 2021 and therefore recognised in the current
half-yearly accounts.
The total return per share for the half year as shown in the
income statement, before deducting the dividends, was 6.1 pence,
compared with a return of 18.5 pence in the six month period ended
30 September 2020. The return for the period was mainly produced
both by successful realisations combined with an increase in the
directors' valuations of unquoted investments, reflecting continued
progress in the performance of some portfolio companies.
The directors have declared an unchanged interim dividend of 2.0
pence per share for the year ending 31 March 2022, which will be
paid on 28 January 2022 to shareholders on the register at the
close of business on 7 January 2022.
Venture capital investment activity
The prior year which was dominated by supporting existing
investments through the impacts of COVID-19, whereas the current
period has seen a return to more normal levels of new investment
activity. Further progress was made on the development of the
portfolio with three new investments completed for an aggregate
consideration of GBP2.8m:
-- Adludio (GBP1,300,000) -- marketing services specialising in mobile
advertising, London
-- Locate Bio (GBP813,000) -- medical (orthobiological) products for use in
surgical procedures, Nottingham
-- Naitive Technologies (GBP721,000) -- Artificial Intelligence enabled
medical diagnostics, London
A significant proportion of our investment activity continues to
provide additional capital to our existing portfolio companies. A
total of GBP3.7m was invested in eight existing portfolio
businesses during the period to support their continued
development.
It was a busy period for realisations, with a number of notable
transactions either completed or in progress as at the balance
sheet date. The highlights during the period were the partial
realisation of the investment in Entertainment Magpie Group, which
was admitted to AIM under its new name musicMagpie plc in April
2021, and the partial realisation of the investment in Oddbox in
August 2021. Both transactions registered excellent returns in
excess of 10x the original investment and we have retained stakes
in both business as they seek to expand further.
Investment portfolio
Our manager has continued to work closely with investee
companies to provide strategic and practical support throughout the
pandemic, and we have received frequent progress reports. As
previously noted, most of the companies in our portfolio have been
able to adapt to the events of the last 18 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. The
portfolio of more mature MBO style investments has continued to
provide a series of successful sales as intended and now represents
40% of the total venture capital portfolio by value. We have also
started to see the first successful sales from the earlier stage
portfolio as it continues to grow and mature.
Share offers and liquidity
Whilst there were significant cash inflows due to the
realisations described above, total cash decreased by GBP2m during
the period due to the investment activity and dividends paid. 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 and to fund our
pipeline of new opportunities. Consequently, we intend to launch a
share offer in January 2022 to be concluded during 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 period 734,657 shares, were purchased for
cancellation at a total cost of GBP738,196.
VCT qualifying status and legislation
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
Autumn Budget statement.
Prospects
Whilst the pandemic continues to affect the economic
environment, we are encouraged by the number of investment
opportunities that our manager has identified and by the continued
progress of 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.
On behalf of the Board
James Ferguson
Chairman
The unaudited half-yearly financial statements for the six
months ended 30 September 2021 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 30 September 2021
Six months ended Six months ended
30 September 2021 30 September 2020
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 1,180 1,180 - 466 466
Movements in
fair value
of
investments - 5,936 5,936 - 19,903 19,903
---------- ---------- ---------- ---------- ---------- ----------
- 7,116 7,116 - 20,369 20,369
Income 898 - 898 1,014 - 1,014
Investment
management
fee (282) (846) (1,128) (206) (617) (823)
Other
expenses (210) - (210) (168) - (168)
---------- ---------- ---------- ---------- ---------- ----------
Return
before tax 406 6,270 6,676 640 19,752 20,392
Tax on
return (27) 27 - - - -
---------- ---------- ---------- ---------- ---------- ----------
Return after
tax 379 6,297 6,676 640 19,752 20,392
---------- ---------- ---------- ---------- ---------- ----------
Return per 0.3p 5.8p 6.1p 0.6p 17.9p 18.5p
share
Year ended 31 March 2021
Revenue Capital Total
GBP000 GBP000 GBP000
Gain on disposal of investments - 8,646 8,646
Movements in fair value of investments - 31,139 31,139
---------- ---------- ----------
- 39,785 39,785
Income 1,500 - 1,500
Investment management fee (462) (3,019) (3,481)
Other expenses (404) - (404)
---------- ---------- ----------
Return before tax 634 36,766 37,400
Tax on return (72) 72 -
---------- ---------- ----------
Return after tax 562 36,838 37,400
---------- ---------- ----------
Return per share 0.5p 33.4p 33.9p
BALANCE SHEET
(unaudited) as at 30 September 2021
30 September 2021 30 September 2020 31 March 2021
GBP000 GBP000 GBP000
Fixed asset investments 95,261 85,689 94,301
---------- ---------- ----------
Current assets:
Debtors 289 583 1,630
Cash and cash equivalents 21,389 17,158 23,397
---------- ---------- ----------
21,678 17,741 25,027
Creditors (amounts
falling due
within one year) (120) (98) (1,785)
---------- ---------- ----------
Net current assets 21,558 17,643 23,242
---------- ---------- ----------
Net assets 116,819 103,332 117,543
---------- ---------- ----------
Capital and reserves:
Called-up equity share
capital 5,504 5,522 5,492
Share premium 20,658 19,500 19,716
Capital redemption
reserve 539 457 502
Capital reserve 62,866 58,106 64,263
Revaluation reserve 25,408 18,204 26,105
Revenue reserve 1,844 1,543 1,465
---------- ---------- ----------
Total equity
shareholders' funds 116,819 103,332 117,543
---------- ---------- ----------
Net asset value per share 106.1p 93.6p 107.0p
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 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
2021 5,492 19,716 502 26,105 64,263 1,465 117,543
Return after
tax - - - (697) 6,994 379 6,676
Dividends
paid - - - - (7,655) - (7,655)
Net proceeds
of share
issues 49 942 - - - - 991
Shares
purchased for
cancellation (37) - 37 - (736) - (736)
---------- ---------- ---------- ---------- ---------- ---------- ---------
At 30
September
2021 5,504 20,658 539 25,408 62,866 1,844 116,819
---------- ---------- ---------- ---------- ---------- ---------- ---------
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 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
2020 4,647 7,428 432 (1,653) 60,786 903 72,543
Return after
tax - - - 19,857 (105) 640 20,392
Dividends
paid - - - - (2,208) - (2,208)
Net proceeds
of share
issues 900 12,072 - - - - 12,972
Shares
purchased for
cancellation (25) - 25 - (367) - (367)
---------- ---------- ---------- ---------- ---------- ---------- ---------
At 30
September
2020 5,522 19,500 457 18,204 58,106 1,543 103,332
---------- ---------- ---------- ---------- ---------- ---------- ---------
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
---------- ---------- ---------- ---------- ---------- ---------- ----------
*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
(unaudited) for the six months ended 30 September 2021
Six months ended Six months ended Year ended
30 September 2021 30 September 2020 31 March 2021
GBP000 GBP000 GBP000
Cash flows from
operating activities:
Return before tax 6,676 20,392 37,400
Adjustments for:
Gain on disposal of
investments (1,180) (466) (8,646)
Movement in fair value
of investments (5,936) (19,903) (31,139)
Decrease/(increase) in
debtors 1,340 (556) (482)
(Decrease)/increase in
creditors (1,665) (38) 1,648
---------- ---------- ----------
Net cash outflow from
operating activities (765) (571) (1,219)
---------- ---------- ----------
Cash flows from
investing activities:
Purchase of investments (7,178) (3,431) (10,033)
Sale/repayment of
investments 13,335 1,886 18,173
---------- ---------- ----------
Net cash
inflow/(outflow) from
investing activities 6,157 (1,545) 8,140
---------- ---------- ----------
Cash flows from
financing activities:
Issue of ordinary
shares 1,000 13,300 13,578
Share issue expenses (7) (327) (375)
Purchase of ordinary
shares for
cancellation (738) (367) (1,192)
Equity dividends paid (7,655) (2,208) (4,411)
---------- ---------- ----------
Net cash
(outflow)/inflow from
financing activities (7,400) 10,398 7,600
---------- ---------- ----------
Net (decrease)/increase
in cash and cash
equivalents (2,008) 8,282 14,521
Cash and cash
equivalents at
beginning of period 23,397 8,876 8,876
---------- ---------- ----------
Cash and cash
equivalents at end of
period 21,389 17,158 23,397
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2021
Cost Valuation % of net assets
GBP000 GBP000 by value
Fifteen largest venture capital
investments:
musicMagpie* 201 6,418 5.5
Lineup Systems 974 5,970 5.1
Currentbody.com 1,843 5,256 4.5
Oddbox 350 3,819 3.3
SHE Software Group 2,168 3,625 3.1
Intelling Group 1,118 3,201 2.7
GRIP-UK (t.a. The Climbing Hangar) 3,174 3,174 2.7
Ideagen 352 3,075 2.6
Idox 530 3,060 2.6
Volumatic Holdings 216 2,796 2.4
Clarilis 1,772 2,294 2.0
Life's Great Group (t.a. Mojo
Mortgages) 1,437 2,225 1.9
Buoyant Holdings 907 2,140 1.8
Newcells Biotech 1,592 1,901 1.6
Tutora (t.a. Tutorful) 1,813 1,802 1.5
---------- ---------- -------
Fifteen largest venture capital
investments 18,447 50,756 43.3
Other venture capital investments 41,207 31,270 26.9
---------- ---------- -------
Total venture capital investments 59,654 82,026 70.2
Listed equity investments 10,199 13,235 11.3
---------- ---------- -------
Total fixed asset investments 69,853 95,261 81.5
----------
Net current assets 21,558 18.5
---------- -------
Net assets 116,819 100.0
---------- -------
*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 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 impact on the future business environment in the
UK is 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. 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.
OTHER MATTERS
The unaudited half-yearly financial statements for the six
months ended 30 September 2021 do not constitute statutory
financial statements within the meaning of Section 434 of the
Companies Act 2006, have not been reviewed or audited by the
company's independent auditor and have not been delivered to the
Registrar of Companies. The comparative figures for the year ended
31 March 2021 have been extracted from the audited financial
statements for that year, which have been delivered to the
Registrar of Companies. The auditor's report on those financial
statements (i) was unqualified, (ii) did not include any reference
to matters to which the auditor drew attention by way of emphasis
without qualifying the report and (iii) did not contain a statement
under Section 498 (2) or (3) of the Companies Act 2006. The
half-yearly financial statements have been prepared on the basis of
the accounting policies set out in the annual financial statements
for the year ended 31 March 2021.
Each of the directors confirms that to the best of his knowledge
the half-yearly financial statements have been prepared in
accordance with the Statement "Half-yearly financial reports"
issued by the UK Accounting Standards Board and the half-yearly
financial report includes a fair review of the information required
by (a) DTR 4.2.7R of the Disclosure Rules and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the year, and (b) DTR 4.2.8R of the Disclosure Rules and
Transparency Rules, being related party transactions that have
taken place in the first six months of the current financial year
and that have materially affected the financial position or
performance of the entity during that period, and any changes in
the related party transactions described in the last annual report
that could do so.
The directors of the company at the date of this statement were
Mr J G D Ferguson (Chairman), Mrs A B Brown, Mr C J Fleetwood, Mr T
R Levett and Mr J M O Waddell.
The calculation of return per share is based on the return after
tax for the six months ended 30 September 2021 and on 109,782,428
(2020: 110,279,045) ordinary shares, being the weighted average
number of shares in issue during the period.
The calculation of the net asset value per share is based on the
net assets at 30 September 2021 divided by the 110,084,493 (2020:
110,445,090) ordinary shares in issue at that date.
The interim dividend of 2.0 pence per share for the year ending
31 March 2022 will be paid on 28 January 2022 to shareholders on
the register at the close of business on 7 January 2022.
A copy of the half-yearly financial report for the six months
ended 30 September 2021 will be available on the Mercia Asset
Management PLC 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
November 24, 2021 11:25 ET (16:25 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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