Unaudited Half-Yearly Financial Report for the Six Months Ended 30
September 2023
23 NOVEMBER 2023
NORTHERN 3 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL
REPORTFOR 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 ended30
September2023 |
Six months ended30 September2022 |
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
1430Website: www.mercia.co.uk/vcts
HALF-YEARLY MANAGEMENT REPORT TO
SHAREHOLDERSfor 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
updateThe 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 dividendThe 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 registrarWe 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 legislationThe
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.
OutlookWhile 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 FergusonChairman INVESTMENT
PORTFOLIO(Unaudited) as at 30 September
2023
|
Cost£000 |
Valuation£000 |
% of net assetsby 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-upshare
capital£000 |
Sharepremium£000 |
Capitalredemptionreserve£000 |
Revaluationreserve*£000 |
|
Capitalreserve£000 |
Revenuereserve£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-upshare
capital£000 |
Sharepremium£000 |
Capitalredemptionreserve£000 |
Revaluationreserve*£000 |
|
Capitalreserve£000 |
Revenuereserve£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-upshare
capital£000 |
Sharepremium£000 |
Capitalredemptionreserve£000 |
Revaluationreserve*£000 |
|
Capitalreserve£000 |
Revenuereserve£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 ended30
September2023£000 |
Six months ended30 September2022£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
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