REG-Annual Financial Report <Origin Href="QuoteRef">NTHV.L</Origin>
14/11/2017 15:35
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14 NOVEMBER 2017
NORTHERN VENTURE TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2017
Northern Venture Trust PLC is a Venture Capital Trust (VCT) whose investment
adviser is NVM Private Equity LLP. The trust was one of the first VCTs
launched on the London Stock Exchange in 1995. It invests mainly in unquoted
venture capital holdings and aims to provide high long-term tax-free returns
to shareholders through a combination of dividend yield and capital growth.
Financial highlights (comparative figures as at 30 September 2016):
2017 2016
Net assets £76.3m £77.2m
Net asset value per share 72.6p 80.0p
Return per share after tax:
Revenue 1.8p 1.6p
Capital 1.9p 8.5p
Total 3.7p 10.1p
Dividend per share for the year:
First interim dividend 3.0p 3.0p
Second interim (special) dividend 5.0p 7.0p
Proposed final dividend 3.0p 3.0p
Total 11.0p 13.0p
Cumulative return to shareholders since launch:
Net asset value per share 72.6p 80.0p
Dividends paid per share* 159.5p 148.5p
Net asset value plus dividends paid per share 232.1p 228.5p
Mid-market share price at end of year 71.0p 70.0p
Tax-free dividend yield (based on mid-market share price at end of year):
Excluding special dividend Including special dividend 8.5% 8.6%
15.5% 18.6%
*Excluding proposed final dividend payable on 22 December 2017
For further information, please contact:
NVM Private Equity LLP
Alastair Conn/Christopher Mellor 0191 244
6000
Website: www.nvm.co.uk
CHAIRMAN'S STATEMENT
Overview
The past year has been a busy one of consolidation as we continue to adapt to
the new VCT rules, building the pipeline of opportunities in earlier stage
companies. The companies exited during the year had already been marked up
in value in previous years and so the surplus for the year to September 2017
was lower than the preceding year. However the strong inflow of cash enabled
the board once again to declare a special dividend, this time of 5.0 pence per
share paid in June. The pace of investment increased in the second half with
four new VCT-qualifying investments being completed, in addition to the
investment reported in the first half. Two share offers were launched
successfully during the year and filled very quickly so we start the new
financial year in a position of considerable cash strength to support future
investment activities.
Results and dividend
In the year ended 30 September 2017 the company achieved a return after tax of
£3,675,000 (2016: £9,571,000), or 3.7 pence per share (2016: 10.1 pence),
representing a total return of 4.6% over the opening net asset value (NAV) per
share. The NAV per share at 30 September 2017, after deducting dividends paid
during the year of 11.0 pence, was 72.6 pence compared with 80.0 pence as at
30 September 2016 as we continued to return cash to shareholders following the
successful sale of investments.
An interim dividend of 3.0 pence per share was paid in June 2017, together
with a special dividend of 5.0 pence in recognition of profitable investment
realisations. As previously highlighted, the VCT rules allow only a
relatively short six month period for re-investment of such receipts before
they become non-qualifying if retained by the company. The directors propose
a final dividend also of 3.0 pence per share, which will be paid on 22
December 2017 to shareholders on the register on 24 November 2017, taking the
total dividend in respect of the year to 11.0 pence. This is the fourteenth
consecutive year in which a dividend of at least 6.0 pence has been paid. A
6.0 pence dividend represents a tax-free yield of 8.5% on the mid-market share
price of 71.0 pence at 30 September 2017.
Investment income was higher than in the prior year at £3.0 million (2016:
£2.6 million), as a result of positive developments in a number of portfolio
companies, which have enabled them to clear significant arrears of interest.
Notwithstanding this one-off positive impact, we continue to expect a downward
trend in investment income as the profile of the portfolio shifts towards
earlier stage investments in response to the current VCT rules. This change
in the portfolio may also make the flow of realised gains less predictable in
the medium to long term and so future dividends are likely to be subject to
fluctuation.
Investment portfolio
During the past year, five new VCT-qualifying investments have been completed
at a total cost of £3.9 million; this demonstrates a lower average level of
initial investment in portfolio companies than in the past as we expect to
support them through various stages of growth in the future with further
investments. Shareholders may recall that the current VCT rules, which were
enacted two years ago, removed management buyout transactions from the
permitted range of investment activities. Our focus has necessarily shifted
to earlier stage companies requiring capital for the development of new
products and markets. Our investment adviser, NVM, has continued to
supplement its early stage investment capability and the flow of attractive
opportunities meeting our criteria has been encouraging.
The cash proceeds from venture capital investments sold or repaid amounted to
£15.4 million, representing a surplus of £4.0 million over original cost.
The gain recognised during the year relating to the disposals was less
significant at £1.6 million, owing to the progress made in several of these
exit processes before the start of the year and gains therefore recorded in
previous years. The resulting inflow of cash facilitated the declaration of
the special dividend referred to above.
Share issues and buy-backs
In February 2017 we launched a top-up offer of new ordinary shares to raise up
to £4.3 million, in conjunction with similar offers by Northern 2 VCT and
Northern 3 VCT, which became fully subscribed within 48 hours. Having
reviewed the forecast cash requirements for the forthcoming year and beyond,
we also launched a full prospectus offer to raise up to £20.0 million in
September 2017. The demand experienced was again strong and on 16 October
2017 we announced that the latest offer was also fully subscribed. Priority
was given to existing shareholders for a three week period, during which time
all applications received from existing shareholders were satisfied in full.
With approximately 40% of the total gross subscription coming from new
investors, we welcome almost 800 new shareholders to the register and I would
like to record my sincere thanks to all applicants for the strong vote of
confidence received. As a result, we are well positioned both to support
existing early stage investee companies which may require further finance to
thrive and to exploit new investment opportunities which meet our key criteria
of growth potential, strong management and an ability to generate cash in the
medium to long term.
Whilst we have maintained flexibility to buy back shares in the market at a 5%
discount to NAV, the secondary market has met all selling demand in the year
and consequently there were no buy-backs.
In addition to the public offers, 3,175,620 shares were issued during the year
under our dividend investment scheme for consideration of £2.3 million,
representing around one fifth of the total dividend payments during the year.
VCT qualifying status
The company has maintained its approved venture capital trust status with HM
Revenue & Customs. The company's compliance with the VCT qualifying
conditions is closely monitored by the board, who receive regular reports from
NVM and from our VCT taxation advisers, Philip Hare & Associates LLP.
VCT legislation
The past two years have seen unprecedented change in the VCT industry.
However I am encouraged that our investment rate in attractive opportunities
has been maintained with 13 new investments completed under the new VCT rules,
including two investments since the year-end. By way of a reminder, our
portfolio of VCT-qualifying investments acquired before the changes were
enacted is not affected by the new legislation, except to the extent that it
is no longer possible for us to make follow-on investments in many of those
companies.
More change may yet be on the horizon as the Government assesses the findings
of its Patient Capital Review. The review was commissioned with a remit to
identify barriers to access to long-term finance for growing firms in the UK
and to assess what changes in Government policy may be needed to improve the
supply of funding. In conjunction with our investment adviser, we have
welcomed the opportunity to consult on these important topics and to highlight
the considerable support that the VCT industry provides to growing, innovative
businesses.
We look forward to the Chancellor's Budget announcement on 22 November and to
obtaining further clarity on the future legislative environment for our
industry.
Annual general meeting
The 2017 annual general meeting will take place in Edinburgh on Tuesday 19
December 2017. Details of the formal business of the meeting are set out in
a separate circular which is being sent to shareholders with the annual
report. We look forward to meeting shareholders on that occasion.
Outlook
The past year has been another period of adapting as we refine our approach to
investment activities under the current rules and assess the evolving
political and economic landscapes, including Britain's future relationship
with the EU. Whilst making definitive statements about what lies ahead is
inherently difficult, we are confident in the resilience developed to deal
with change and remain positive about the future.
Simon Constantine
Chairman
The audited financial statements for the year ended 30 September 2017 are set
out below.
INCOME STATEMENT
for the year ended 30 September 2017
Year ended 30 September 2017 Year ended 30 September 2016
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 1,651 1,651 - 2,398 2,398
Movements in fair value of investments - 1,072 1,072 - 7,458 7,458
---------- ---------- ---------- ---------- ---------- ----------
- 2,723 2,723 - 9,856 9,856
Income 2,989 - 2,989 2,570 - 2,570
Investment management fee (407) (1,222) (1,629) (404) (2,054) (2,458)
Other expenses (408) - (408) (397) - (397)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities before tax 2,174 1,501 3,675 1,769 7,802 9,571
Tax on return on ordinary activities (373) 373 - (240) 240 -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities after tax 1,801 1,874 3,675 1,529 8,042 9,571
---------- ---------- ---------- ---------- ---------- ----------
Return per share 1.8p 1.9p 3.7p 1.6p 8.5p 10.1p
BALANCE SHEET
as at 30 September 2017
30 September 2017 £000 30 September 2016 £000
Fixed asset investments 65,699 73,572
---------- ----------
Current assets:
Debtors 661 369
Cash and deposits 9,981 4,206
---------- ----------
10,642 4,575
Creditors (amounts falling due within one year) (81) (947)
---------- ----------
Net current assets 10,561 3,628
---------- ----------
Net assets 76,260 77,200
---------- ----------
Capital and reserves
Called-up equity share capital 26,256 24,110
Share premium 6,941 2,599
Capital redemption reserve 544 544
Capital reserve 34,150 40,514
Revaluation reserve 5,972 7,360
Revenue reserve 2,397 2,073
---------- ----------
Total equity shareholders' funds 76,260 77,200
---------- ----------
Net asset value per share 72.6p 80.0p
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2017
---------------Non-distributable reserves--------------- Distributable reserves Total
Share capital Share premium Capital redemption reserve Revaluation reserve Capital reserve Revenue reserve
£000 £000 £000 £000 £000 £000 £000
At 1 October 2016 24,110 2,599 544 7,360 40,514 2,073 77,200
Return on ordinary activities
after tax for the year - - - (1,388) 3,262 1,801 3,675
Net proceeds of share issues 2,146 4,342 - - - - 6,488
Dividends paid - - - - (9,626) (1,477) (11,103)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2017 26,256 6,941 544 5,972 34,150 2,397 76,260
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2016
---------------Non-distributable reserves--------------- Distributable reserves Total
Share capital Share premium Capital redemption reserve Revaluation reserve Capital reserve Revenue reserve
£000 £000 £000 £000 £000 £000 £000
At 1 October 2015 23,775 1,359 228 3,367 47,787 2,432 78,948
Return on ordinary activities
after tax for the year - - - 3,993 4,049 1,529 9,571
Net proceeds of share issues 651 1,240 - - - - 1,891
Shares purchased
for cancellation (316) - 316 - (968) - (968)
Dividends paid - - - - (10,354) (1,888) (12,242)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2016 24,110 2,599 544 7,360 40,514 2,073 77,200
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
for the year ended 30 September 2017
Year ended Year ended
30 September 2017 30 September 2016
£000 £000
Cash flows from operating activities:
Return on ordinary activities before tax 3,675 9,571
Adjustments for:
Gain on disposal of investments (1,651) (2,398)
Movement in fair value of investments (1,072) (7,458)
(Increase)/decrease in debtors (292) (29)
Increase/(decrease) in creditors (866) 495
---------- ----------
Net cash inflow/(outflow) from operating activities (206) 181
---------- ----------
Cash flows from investing activities:
Purchase of investments (6,458) (10,471)
Sale/repayment of investments 17,054 19,397
---------- ----------
Net cash inflow from investing activities 10,596 8,926
---------- ----------
Cash flows from financing activities:
Issue of shares 6,592 1,899
Share issue expenses (104) (8)
Shares purchased for cancellation - (968)
Dividends paid (11,103) (12,242)
---------- ----------
Net cash outflow from financing activities (4,615) (11,319)
---------- ----------
Net increase/(decrease) in cash and cash equivalents 5,775 (2,212)
Cash and cash equivalents at beginning of year 4,206 6,418
---------- ----------
Cash and cash equivalents at end of year 9,981 4,206
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2017
Company Cost £000 Valuation £000 % of net assets by valuation
Fifteen largest venture capital investments:
No 1 Lounges 2,006 3,900 5.1
Entertainment Magpie Group 1,610 3,751 4.9
Buoyant Upholstery 1,674 3,263 4.3
Sorted Holdings 1,808 2,820 3.7
MSQ Partners Group 1,695 2,628 3.4
Lineup Systems 974 2,468 3.2
Biological Preparations Group 2,366 2,067 2.7
IDOX* 238 2,036 2.7
Agilitas IT Holdings 1,662 1,981 2.6
Closerstill Group 1,747 1,902 2.5
Wear Inns 1,640 1,854 2.4
It's All Good 1,205 1,751 2.3
Weldex (International) Offshore Holdings 3,262 1,670 2.2
Love Saving Group 1,204 1,656 2.2
Graza 1,581 1,581 2.1
---------- ---------- -------
24,672 35,328 46.3
Other venture capital investments:
Volumatic Holdings 1,423 1,555 2.0
CGI Group Holdings 3,818 1,521 2.0
Intuitive Holding 1,674 1,500 2.0
Customs Connect Group 1,406 1,406 1.8
Volo Commerce 1,173 1,173 1.5
Knowledgemotion 1,048 1,048 1.4
Intelling Group 1,048 1,048 1.4
Rockar 874 874 1.1
Axial Systems Holdings 1,004 859 1.1
Vectura Group** 599 750 1.0
AVID Technology Group 715 715 1.0
Haystack Dryers 1,661 706 0.9
Lanner Group 523 699 0.9
Channel Mum 662 662 0.9
Nasstar* 323 597 0.8
Arnlea Holdings 1,305 585 0.8
Contego Fraud Solutions 519 519 0.7
Other investments each valued at less than £500,000 5,198 2,559 3.3
---------- ---------- -------
Total venture capital investments 49,645 54,104 70.9
Listed equity investments 5,181 6,681 8.9
Listed interest-bearing investments 4,901 4,914 6.4
---------- ---------- -------
Total fixed asset investments 59,727 65,699 86.2
----------
Net current assets 10,561 13.8
---------- -------
Net assets 76,260 100.0
---------- -------
* Quoted on AIM
**Listed on London Stock Exchange
BUSINESS RISKS
The board carries out a regular and robust review of the risk environment in
which the company operates. The principal 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
their management or 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.
The board reviews the investment portfolio with the investment adviser on a
regular basis.
Financial risk: most of the company's investments involve a medium- to
long-term commitment and many are 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 take advantage of new
unquoted investment opportunities. 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 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.
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 appropriate.
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 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 advisers and the board keeps the portfolio
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 or the State aid rules in the future could have an adverse effect
on the company's ability to achieve satisfactory investment returns whilst
retaining its VCT approval. Mitigation: The board and the investment
adviser monitor political developments and where appropriate seek to make
representations either directly or through relevant trade bodies.
Internal control risk: the company's assets could be at risk in the absence
of an appropriate internal control regime. Mitigation: the board regularly
reviews the system of internal controls, both financial and non-financial,
operated by the company and the investment adviser. These include controls
designed to ensure that the company's assets are safeguarded and that proper
accounting records are maintained.
VCT qualifying status risk: While it is the intention of the directors that
the company will be managed so as to continue to qualify as a VCT, there can
be no guarantee that this status will be maintained. A failure to continue
meeting the qualifying requirements could result in the loss of VCT tax
relief, the company losing its exemption from corporation tax on capital
gains, to shareholders being liable to pay income tax on dividends received
from the company and, in certain circumstances, to shareholders being required
to repay the initial income tax relief on their investment. Mitigation:
the investment adviser keeps the company's VCT qualifying status under
continual review and its reports are reviewed by the board on a quarterly
basis. The board has also retained Philip Hare & Associates LLP to undertake
an independent VCT status monitoring role.
DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual report and 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 the profit or loss of the company 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; and
(iv) prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
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 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 directors' report, strategic 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 United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
DIRECTORS' RESPONSIBILITY STATEMENT IN RELATION TO THE ANNUAL REPORT AND
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
The directors have confirmed that to the best of their knowledge (i) taken as
a whole the financial statements, prepared in accordance with the applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company, and (ii) the strategic
report and directors' 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 financial statements, taken as a
whole, are fair, balanced and understandable and provide 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 S J
Constantine (Chairman), Mr N J Beer, Mr R J Green, Mr T R Levett, Mr D A Mayes
and Mr H P Younger.
OTHER MATTERS
The above summary of results for the year ended 30 September 2017 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 revenue and capital return per share is based on the
return on ordinary activities after tax for the year and on 100,330,704 (2016
95,009,513) ordinary shares, being the weighted average number of shares in
issue during the year.
The calculation of the net asset value per share is based on the net assets at
30 September 2017 divided by the 105,026,156 (30 September 2016 96,440,979)
ordinary shares in issue at that date.
The proposed final dividend of 3.0 pence per share for the year ended 30
September 2017 will, if approved by shareholders, be paid on 22 December 2017
to shareholders on the register at the close of business on 24 November 2017.
The full annual report including financial statements for the year ended 30
September 2017 is expected to be posted to shareholders on 21 November 2017
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 NVM
Private Equity LLP website, www.nvm.co.uk.
Neither the contents of the NVM Private Equity LLP website nor the contents of
any website accessible from hyperlinks on the NVM Private Equity LLP website
(or any other website) is incorporated into, or forms part of, this
announcement.
This announcement is distributed by Nasdaq Corporate Solutions on behalf of
Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for
the content, accuracy and originality of the information contained therein.
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