Unaudited Half-Yearly Financial Report for the Six Months Ended 30 September 2023
23/11/2023 14:00
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23 NOVEMBER 2023
NORTHERN 3 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2023
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 long-term tax-free returns to shareholders through a
combination of dividend yield and capital growth.
Financial highlights (comparative figures as at 30 September 2022 and 31 March
2023)
Six months ended 30 September 2023 Six months ended 30 September 2022 Year ended 31 March 2023
Net assets £116.0m £115.3m £113.0m
Net asset value per share 90.0p 92.0p 91.6p
Return per share
Revenue 0.5p (0.2)p (0.1)p
Capital 0.4p (2.9)p (1.5)p
Total 0.9p (3.1)p (1.6)p
Dividend declared in respect of the period 2.0p 2.0p 4.5p
Cumulative return to shareholders since launch
Net asset value per share 90.0p 92.0p 91.6p
Dividends paid per share* 115.9p 111.4p 113.4p
Net asset value plus dividends paid per share 205.9p 203.4p 205.0p
Mid-market share price at end of period 85.0p 88.5p 84.5p
Share price discount to net asset value 5.6% 3.8% 7.8%
Tax-free dividend yield (based on the net asset value per share)** 4.9% 4.7% 4.6%
*Excluding interim dividend not yet paid
**The annualised dividend yield is calculated by dividing the dividends paid
in respect of the 12 month period ended on each reference date by the net
asset value per share at the start of the 12 month period.
Enquiries:
James Sly, Mercia Asset Management PLC – 0330 223 1430
Website: www.mercia.co.uk/vcts
HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS
for the six months ended 30 September 2023
Over the past six months, the UK economy has faced numerous challenges
including high inflation, stagnant growth and supply-side shocks. Despite this
backdrop, your Company has continued to provide much needed investment into
early stage companies, support for its existing portfolio companies, and
achieve returns through realisations.
Venture capital investment activity and portfolio update
The macroeconomic climate continues to provide challenges to portfolio
companies, with inflation, geopolitical instability, and rising interest rates
all generating significant headwinds for UK economic growth.
Despite this backdrop, we are pleased to report that a number of the
Company’s venture investments have performed well over the period, reflected
by the increase in the Board’s assessment of the valuation of the unquoted
portfolio. Where portfolio companies have struggled or are at risk of failure,
valuations have also been adjusted to reflect the Board’s current
assessment. The listed AIM portfolio has stabilised following a decline in the
previous financial year.
During the period, the Investment Manager sold the Company’s holding in a
recent early stage investment, Evotix, for initial net proceeds of £11.4
million, representing 4.6 times return on the original cost, and one of its
listed holdings, Adept Telecom plc, for net proceeds of £0.3 million,
representing 1.4 times return on cost. The total proceeds of portfolio
investments sold during the period totalled £12.1 million, 4.5 times the
initial cost invested of £2.7 million.
One positive of the increased interest rate environment is the yield that is
achievable on uninvested cash balances; as at 30 September the blended rate
achieved on uninvested cash was 4.5%.
The cash generated from investment disposals, in combination with the proceeds
from the 2022/23 £6.0 million public share offer, has resulted in your
Company being well positioned to pursue new opportunities to support small and
medium businesses and to work with existing portfolio companies to finance
their growth plans. Investment activity has increased versus the same period
in 2022, with £5.1 million invested across seven investee companies.
Results and dividend
The unaudited net asset value (NAV) per share on 30 September 2023 was 90.0
pence (91.6 pence (audited) on 31 March 2023) and is stated after deducting
the final dividend of 2.5 pence per share in respect of the 2022/23 financial
year, which was paid in August 2023. The return per share as shown in the
income statement for the six months ended 30 September 2023 was 0.9 pence,
primarily as a result of an unrealised gain of £0.9 million driven by
commercial traction in several portfolio companies.
Investment income increased to £1,181,000 from £274,000 during the same
period last year, reflecting the increased interest rates and resulting higher
returns on the Company’s cash reserves.
The Board has declared an unchanged interim dividend for the year ending 31
March 2024 of 2.0 pence per share, which will be paid on 17 January 2024 to
shareholders who are on the register on 15 December 2023. It remains the
Board’s objective to pay a dividend at least equivalent to 4.5% of the
opening NAV in each year.
Shareholder issues
As a result of the public share offer launched in January 2023, 6,597,040 new
ordinary shares were issued in April 2023. The Company’s dividend investment
scheme, which enables shareholders to invest their dividends in new ordinary
shares free of dealing costs and with the benefit of the tax reliefs available
on new VCT share subscriptions, continues to operate, with around 12% of total
dividends reinvested by shareholders during the period.
The Company’s Investment Manager continues to experience a sustained demand
for long-term growth capital for smaller companies in the UK. In order to
continue to support the Company’s existing portfolio and invest in new early
stage opportunities, a fundraising process is currently underway in
conjunction with the other Northern VCTs. Full details of how to participate
in the fund raise is available on the Company’s website at
http://www.mercia.co.uk/vcts/.
The Board has maintained its 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 period, a total of 1,431,889
shares were repurchased for cancellation, equivalent to approximately 1.2% of
the opening share capital.
Change of registrar
We are pleased to report that from close of business on 10 November 2023 the
Company changed its registrar to The City Partnership (UK) Limited
(“City”). You will receive a letter confirming this change, and should you
need to contact City, contact details may be found on the Company’s website.
VCT qualifying status and legislation
The Company has continued to meet the stringent qualifying conditions laid
down by HM Revenue & Customs for maintaining its approval as a VCT. The
Investment 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 2025 ‘sunset clause’ was a European state aid requirement that was
introduced when the VCT scheme received state aid approval, which meant that
without small change in legislation investors would not receive upfront tax
relief when investing in VCTs after this date. We were pleased to receive the
news on 22nd November 2023 that the Sunset Clause will be extended by 10 years
to 2035 in the Autumn Finance Bill 2023.
Outlook
While macroeconomic conditions remain challenging, the unquoted venture
portfolio remains resilient and the Company is well capitalised, which will
enable the existing portfolio to be supported as necessary. Your Company is
invested in a diversified portfolio of businesses with prospects in which we
continue to remain confident.
On behalf of the Board
James Ferguson
Chairman
INVESTMENT PORTFOLIO
(Unaudited) as at 30 September 2023
Cost £000 Valuation £000 % of net assets by value
Fifteen largest venture capital investments
Grip-UK (t/a Climbing Hangar) 3,492 3,492 3.0
Volumatic Holdings 216 3,037 2.6
IDOX* 530 2,771 2.4
Tutora (t/a Tutorful) 2,449 2,584 2.2
Gentronix 805 2,528 2.2
Pure Pet Food 1,601 2,457 2.1
Project Glow Topco (t/a Currentbody.com) 1,519 2,372 2.0
Newcells Biotech 2,229 2,364 2.0
Netacea 2,244 2,262 2.0
Rockar 1,660 2,200 1.9
Adludio 1,950 1,950 1.7
Biological Preparations Group 1,915 1,940 1.7
Forensic Analytics 1,869 1,869 1.6
Clarilis 1,772 1,772 1.6
Turbine Simulated Cell Technologies Ltd 1,542 1,744 1.5
Fifteen largest venture capital investments 25,793 35,342 30.5
Other venture capital investments 47,471 33,201 28.6
Total venture capital investments 73,264 68,543 59.1
Listed equity investments 10,365 11,717 10.1
Total fixed asset investments 83,629 80,260 69.2
Net current assets 35,761 30.8
Net assets 116,021 100.0
* Quoted on AIM
Extracts from the unaudited half-yearly financial statements for the six
months ended 30 September 2023 are set out below.
INCOME STATEMENT
(Unaudited) for the six months ended 30 September 2023
Six months ended 30 September 2023 Six months ended 30 September 2022 Year ended 31 March 2023
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Gain on disposal of investments – 544 544 – 503 503 – 1,414 1,414
Movements in fair value of investments – 897 897 – (3,411) (3,411) – (1,540) (1,540)
– 1,441 1,441 – (2,908) (2,908) – (126) (126)
Dividend and interest income 1,181 – 1,181 274 – 274 732 – 732
Investment management fee (266) (797) (1,063) (256) (769) (1,025) (519) (1,558) (2,077)
Other expenses (315) – (315) (226) – (226) (496) – (496)
Return before tax 600 644 1,244 (208) (3,677) (3,885) (283) (1,684) (1,967)
Tax on return 82 (82) – – – – 122 (122) –
Return after tax 682 562 1,244 (208) (3,677) (3,885) (161) (1,806) (1,967)
Return per share 0.5p 0.4p 0.9p (0.2)p (2.9)p (3.1)p (0.1)p (1.5)p (1.6)p
BALANCE SHEET
(Unaudited) as at 30 September 2023
30 September 2023 £000 30 September 2022 £000 31 March 2023 £000
Fixed assets
Investments 80,260 80,284 85,775
Current assets
Debtors 383 73 107
Cash and cash equivalents 35,517 35,026 27,280
35,900 35,099 27,387
Creditors (amounts falling due within one year) (139) (88) (169)
Net current assets 35,761 35,011 27,218
Net assets 116,021 115,295 112,993
Capital and reserves
Called-up equity share capital 6,447 6,258 6,166
Share premium 43,240 37,077 37,344
Capital redemption reserve 843 653 771
Capital reserve 67,581 64,498 63,561
Revaluation reserve (3,369) 6,259 4,554
Revenue reserve 1,279 550 597
Total equity shareholders’ funds 116,021 115,295 112,993
Net asset value per share 90.0p 92.0p 91.6p
STATEMENT OF CHANGES IN EQUITY
(Unaudited) for the six months ended 30 September 2023
Non-distributable reserves Distributable reserves Total £000
Called-up share capital £000 Share premium £000 Capital redemption reserve £000 Revaluation reserve* £000 Capital reserve £000 Revenue reserve £000
At 1 April 2023 6,166 37,344 771 4,554 63,561 597 112,993
Return after tax - - - (7,923) 8,485 682 1,244
Dividends paid - - - - (3,229) - (3,229)
Net proceeds of share issues 353 5,896 - - - - 6,249
Shares purchased for cancellation (72) - 72 - (1,236) - (1,236)
At 30 September 2023 6,447 43,240 843 (3,369) 67,581 1,279 116,021
STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2022
Non-distributable reserves Distributable reserves Total £000
Called-up share capital £000 Share premium £000 Capital redemption reserve £000 Revaluation reserve* £000 Capital reserve £000 Revenue reserve £000
At 1 April 2022 5,456 20,909 602 13,659 64,849 1,385 106,860
Return after tax – – – (7,400) 3,723 (208) (3,885)
Dividends paid – – – – (3,133) (627) (3,760)
Net proceeds of share issues 853 16,168 – – – – 17,021
Shares purchased for cancellation (51) – 51 – (941) – (941)
At 30 September 2022 6,258 37,077 653 6,259 64,498 550 115,295
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2023
Non-distributable reserves Distributable reserves Total £000
Called-up share capital £000 Share premium £000 Capital redemption reserve £000 Revaluation reserve* £000 Capital reserve £000 Revenue reserve £000
At 1 April 2023 5,456 20,909 602 13,659 64,849 1,385 106,860
Return after tax – – – (9,105) 7,299 (161) (1,967)
Dividends paid – – – – (5,614) (627) (6,241)
Net proceeds of share issues 879 16,435 – – – – 17,314
Shares purchased for cancellation (169) – 169 – (2,973) – (2,973)
At 31 March 2023 6,166 37,344 771 4,554 63,561 597 112,993
*The revaluation reserve is generally non-distributable other than that part
of the reserve relating to gains/losses on readily realisable quoted
investments, which are distributable.
STATEMENT OF CASH FLOWS
(Unaudited) for the six months ended 30 September 2023
Six months ended 30 September 2023 £000 Six months ended 30 September 2022 £000 Year ended 31 March 2023 £000
Cash flows from operating activities
Return before tax 1,244 (3,885) (1,967)
Adjustments for:
Gain on disposal of investments (544) (503) (1,414)
Movements in fair value of investments (897) 3,411 1,540
(Increase)/decrease in debtors (276) (13) (47)
(Decrease)/increase in creditors (30) (64) 17
Net cash outflow from operating activities (503) (1,054) (1,871)
Cash flows from investing activities
Purchase of investments (7,099) (5,379) (17,699)
Sale/repayment of investments 14,055 7,456 17,067
Net cash inflow/(outflow) from investing activities 6,956 2,077 (632)
Cash flows from financing activities
Issue of ordinary shares 6,412 17,037 17,815
Share issue expenses (163) (16) (501)
Purchase of ordinary shares for cancellation (1,236) (941) (2,973)
Equity dividends paid (3,229) (3,760) (6,241)
Net cash inflow from financing activities 1,784 12,320 8,100
Net increase in cash and cash equivalents 8,237 13,343 5,597
Cash and cash equivalents at beginning of period 27,280 21,683 21,683
Cash and cash equivalents at end of period 35,517 35,026 27,280
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 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 most recently by
inflationary pressures and interest rate increases.
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 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 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 investment
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 2023 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 2023 have been extracted from the audited financial statements for that
year, which have been delivered to the Registrar of Companies; the independent
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 2023.
Each of the directors confirms that to the best of their 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 2023 and on 129,549,622 (30 September 2022:
125,359,671) ordinary shares, being the weighted average number of shares in
issue during the period.
The calculation of net asset value per share is based on the net assets at 30
September 2023 divided by the 128,947,037 (30 September 2022: 125,305,351)
ordinary shares in issue at that date.
The interim dividend of 2.0 pence per share for the year ending 31 March 2024
will be paid on 17 January 2024 to shareholders on the register on 15 December
2023.
A copy of the half-yearly financial report for the six months ended 30
September 2023 will be available on the Mercia Asset Management PLC website.
Neither the contents of the Mercia Asset Management PLC website, nor the
contents of any website accessible from hyperlinks on Mercia Asset Management
PLC website (or any other website) are incorporated into, or form part of,
this announce