Northern
Venture
Trust PLC
Annual Report and Financial Statements
31 March 2023
Contents
03
Financial summary
08
Chair’s Statement
12
Directors and advisers
14
Shareholder Information
16
Strategic Report
23
Investment Portfolio
26
Fiſteen largest venture capital investments
34
Responsible Investment
40
Directors’ Report
44
Directors’ Remuneration Report
46
Corporate Governance
51
Directors’ Responsibilities Statement
52
Independent Auditor’s Report
57
Income Statement
58
Balance Sheet
59
Statement of changes in equity
60
Statement of cash flows
61
Notes to the financial statements
80
Glossary of terms
Northern Venture Trust PLC is a Venture
Capital Trust (VCT) whose investment adviser
is Mercia Fund Management Limited.
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.
This report covers the eighteen month period to
31 March 2023.
Welcome
Northern Venture Trust PLC
Annual Report and Financial Statements
02
summary
18m period ended
31 March
2023
Unaudited
12m period ended
31 March
2023
Unaudited
12m period ended
31 March
2022
Year ended
30 September
2021
Net assets
£102.5m
£102.5m
£109.9m
£119.3m
Net asset value per share
62.1p
62.1p
68.4p
74.1p
Return per share
Revenue
(0.3)p
(0.3)p
0.2p
0.2p
Capital
(5.7)p
(2.1)p
(1.5)p
13.7p
Total
(6.0)p
(2.4)p
(1.3)p
13.9p
Dividend per share declared in respect of the period
Interim dividend
2.0p
2.0p
2.0p
2.0p
Second interim/special dividend
2.0p
2.0p
6.0p
6.0p
Proposed final dividend
2.0p
0.0p
2.0p
2.0p
Total
6.0p
4.0p
10.0p
10.0p
Cumulative return to shareholders since launch
Net asset value per share
62.1p
62.1p
68.4p
74.1p
Dividends paid per share*
188.5p
188.5p
184.5p
182.5p
Net asset value plus dividends paid per share
250.6p
250.6p
252.9p
256.6p
Mid-market share price at end of period
57.5p
57.5p
66.0p
70.25p
Share price discount to net asset value
7.4%
7.4%
3.5%
5.2%
Annualised tax-free dividend yield**
Excluding special dividend
5.4%
5.8%
5.0%
5.7%
Including special dividend
5.4%
5.8%
12.5%
14.1%
*
Excluding proposed final dividend payable on 18 August 2023
** Based on net asset value per share at the start of the period
Definitions of the terms and alternative performance measures used in this report can be found in the Glossary of terms on page 80.
Financial
Northern Venture Trust PLC
Annual Report and Financial Statements
03
Key dates during 2023
Results announced
15 June
Shares quoted ex dividend
20 July
Record date for final dividend
21 July
Annual General Meeting*
21 July 12:30pm
Final dividend paid
18 August
For additional
information
visit our investor
area online
* To be convened at the offices of Reed Smith LLP,
Broadgate Tower, 20 Primrose Street, London EC2A 2RS
with remote access for shareholders through an online webinar facility
Northern Venture Trust PLC
Annual Report and Financial Statements
04
57
Portfolio
companies
5.5
years
Average age
of
investment
£79.7m
Portfolio valuations at
31 March 2023
£26.1m
Proceeds from all
realisations in period
£79.1m
Cost of investments
11
Number of full
realisations this period
£1.4m
Average current value
of investment
£1.4m
Average cost
of investment
portfolio summary
capital
Venture
Northern Venture Trust PLC
Annual Report and Financial Statements
05
Asset allocation
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
31 March 2023
Cash and short-term deposits
Listed equity
Venture capital - quoted
Venture capital - unquoted
13.5%
8.7%
3.2%
74.6%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
30 September 2021
19.0%
8.7%
10.0%
62.3%
;
+
,
+
#
+
6
+
4
+
E
N
+
*
+
+
E
`
+
+
E
1
+
0
+
+
9
+
5
+
+
E
Venture capital portfolio summary
continued
Age of investment
Up to 1 year
27%
1-3 years
12%
3-5 years
35%
5-7 years
6%
7+ years
20%
Industry sector
Soſtware/electronics
49%
Consumer
16%
Industrial/manufacturing
4%
Services
9%
Healthcare/biotechnology
21%
Other
1%
Financing stage
Growth capital
– post November 2015
78%
Growth capital
– pre November 2015
9%
Management buyout
– pre November 2015
13%
Quotation
Unquoted
96%
AIM
4%
Note: these charts are calculated by value of investments.
Northern Venture Trust PLC
Annual Report and Financial Statements
06
5
Scotland
3
North East
3
Yorkshire/
Humberside
2
East Midlands
2
Anglia
15
London
9
South East
12
North West
1
Wales
3
West Midlands
2
South West
57
Total
venture
capital
holdings
Investment
Reach
Tees Valley
London
Bristol
Henley-in-Arden
Birmingham
Newcastle
Sheffield
Leeds
Hull
Manchester
Preston
Investment adviser
office locations
Northern Venture Trust PLC
Annual Report and Financial Statements
07
Simon Constantine MA ACA
Chair
“
Investment activity has reached record
levels over the period, with £17.0 million
of capital provided to fifteen new venture
capital investments and £8.0 million of
follow on capital invested into the existing
portfolio”
over this period, in particular the
re-rating of technology-based and
consumer-facing stocks.
Against this backdrop, the portfolio
has remained relatively robust, with
few failures, and there have been
several strong realisations in the past
18 months. The Company has also
experienced a record investment
period, with £25.0 million deployed
including £17.0 million into new
opportunities.
The Company raised £12.0 million
before fees in the period from two
separate offers and intends to raise
further funds in the 2023/24 tax year
to enable us to continue to invest over
the next three years.
Results and dividend
In the 18 months ended 31 March
2023 the Company suffered a negative
return on ordinary activities of minus
6.0 pence per share (year ended
30 September 2021: gain of +13.9
pence), representing a total return of
minus 8.1% on the opening net asset
value (NAV) per share. The majority
of this reduction can be attributed to
just two holdings, musicMagpie and
Oddbox, which over the period saw
reductions in their holding values
due to poorer than expected trading
Chair’s
Statement
and the change in market sentiment
towards consumer facing companies.
The NAV per share as at 31 March
2023, aſter deducting dividends paid
during the period of 6.0 pence, was
62.1 pence, compared with 74.1 pence
at 30 September 2021.
Investment income was lower
than the prior year at £0.9 million
(2021: £1.4 million), reflecting the
move away from income-yielding
investments as the portfolio mix
continued to pivot towards earlier
stage ventures. However, aſter more
than a decade of record-low interest
rates, the Company has recently
allocated part of its liquidity to a
money market fund to diversify its risk
and seek a higher return compared
to that which is available from
traditional banks; this will increase
investment income over the coming
financial years for as long as interest
rates remain higher.
In 2018 we revised our dividend policy
in the light of the new VCT rules for
investment introduced in 2015 and
2017, which we expected to result in
more volatile returns.
We introduced
an annualised target dividend yield of
5% of opening NAV, which has been
exceeded in every period since.
Aſter careful consideration, the Board
has proposed a final dividend of 2.0
pence per share, bringing the total
dividend for the period to 6.0 pence
per share, which represents an
annualised tax-free yield of 5.4% on
the opening net asset value per share
of 74.1 pence. The final dividend, if
approved, will be paid on 18 August
2023 to shareholders on the register
on 21 July 2023.
Our dividend investment scheme,
under which dividends can be
re-invested in new ordinary shares
free of dealing costs and with the
benefit of the tax reliefs available
on new VCT share subscriptions,
continues to operate with around
17% participation during the period.
Instructions on how to join the
scheme are included within the
dividend section of our website, which
can be found here:
mercia.co.uk/vcts/nvt/.
Investment portfolio
Investment activity has reached
record levels over the period, with
£17.0 million of capital provided
to fiſteen new venture capital
investments and £8.0 million of follow
on capital invested into the existing
portfolio. The investments into new
portfolio companies were made
across a variety of sectors including
technology and life sciences. We also
made strong progress in realising the
Company’s mature portfolio acquired
under the previous VCT rules with
the remaining such investments now
representing 22% by value of the total
venture capital portfolio
(30 September 2021: 37%).
Overview
Following our change of year end from
30 September to 31 March, this report
covers the 18 months ended
31 March 2023.
A great deal has changed in the
UK’s macroeconomic climate over
the past 18 months. At the start of
the period, the impact of COVID-19
lingered over supply chains, and as
the period progressed the rate of
inflation increased rapidly, as did
interest rates. This has not come
without its challenges to the portfolio,
and while our investment adviser has
spent considerable time working with
management teams, our portfolio
valuations in this report reflect how
the financial markets have shiſted
Northern Venture Trust PLC
Annual Report and Financial Statements
08
The value of the portfolio fell by
£9.8 million (6.1 pence per share)
in the 18 months, suffering two
significant write-downs; the value
of musicMagpie, which is listed
on AIM fell by £6.2 million (3.8
pence per share) and the value of
Oddbox was written down by £4.2
million (2.6 pence per share).
The
portfolio was further exposed to the
volatility of markets with its listed
investments reducing by £0.9 million
(0.5 pence per share). This is clearly
a disappointing result, but it is
worth noting that both musicMagpie
and Oddbox generated significant
realised returns for the portfolio in the
preceding period, which exceed the
write-downs in this period, through
their partial realisations in cash.
In the unquoted portfolio, while
we experienced reductions in the
valuations of other consumer-facing
portfolio companies, which represent
only 16% of the total, we also
experienced strong performances
from others, with Evotix in particular
growing rapidly over the period. In
this report we have valued Evotix at
the value realised shortly aſter the
balance sheet date, resulting in a gain
of £8.3 million (5.1 pence per share)
in the period and £9.9 million overall,
4.6x our original investment.
It was a busy period for other
realisation activity, with several
notable transactions. The highlights
during the period included the
sales of Currentbody.com, Intelling
Group and Lineup Systems for
lifetime returns of 2.9x, 3.6x and 7.8x
respectively. In total £26.1 million was
generated in sales proceeds over the
period, representing a blended 1.9x
multiple on cost.
Share offers and liquidity
In the period gross proceeds of
£6.0 million were received from
the fully subscribed 2021/2022
share offer. Additionally, following
the public share offer launched in
January 2023, 9,741,182 new ordinary
shares were issued just aſter the
period end in April 2023 for gross
proceeds of a further £6.0 million.
Following the smaller top-up offers
in the 2021/22 and 2022/23 tax years,
and taking into account the increased
rate of investment, the Board is
pleased to announce that the
Company will launch a prospectus
top-up offer in the 2023/24 tax year
for £14.0 million, with an over-
allotment facility of £6.0 million. This
offer will launch in September 2023,
and full details will be published
shortly.
Share buy-backs
We have maintained our 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 ended 31 March
2023 a total of 7,335,532 (year ended
30 September 2021: 2,620,797) shares
were repurchased by the Company
for cancellation at an average price of
61.2 pence (year ended 30 September
2021: 70.2 pence), representing 4.6%
(2021:
1.6%) of the opening issued
share capital.
Changes to the performance-
related management fee
(‘performance fees’)
Following a review of current
arrangements by the Board,
a resolution is included in the
Circular for the General Meeting
proposing changes to the investment
advisory agreement in relation
to the performance fee with the
investment adviser. The changes in
VCT legislation in 2015 required the
Company to focus new investments
on earlier stage companies which,
by their nature, are higher risk and
therefore likely to deliver more
volatile investment returns. It has
become clear in recent years that the
current arrangements no longer work
either for the investment adviser or
for the Company.
In order to align future performance
fees better with shareholder returns
and harmonise the methodology and
fee rates across the Northern VCTs,
a number of changes are proposed.
In particular, the definition and
operation of the high-water mark,
the lowering of both the hurdle rate
to 5% and the amount earned above
this rate to 14%, will ensure that
strong returns delivered consistently,
and not just in a single year, will be
rewarded appropriately.
As part of these changes the Board
has agreed with the investment
adviser that 80% of any performance
fee generated will be paid to
members of the VCT investment
team, thereby aligning the personal
interests of the investment team
directly with those of shareholders.
Full details of the changes are set out
in the accompanying Circular for the
upcoming General Meeting.
Responsible Investment
The Company is mindful of
its Environmental, Social and
Governance (ESG) responsibilities
and we have outlined our evolving
approach on pages 34 to 39.
Geopolitical and other
macroeconomic risks
The Company’s investments may
be affected by regional events or
politics. A recent example of this
is the high-inflation environment
in the aſtermath of COVID-19 and
the conflict in Ukraine. The Board
has no control over such macro
events, and as the Company’s
investments are domiciled in the
UK with only a limited presence
in the rest of the world, risks are
primarily localised to those facing
the UK economy. As a result of the
conflict in Ukraine, during the period
our investment adviser undertook
a review of the entire portfolio for
links to sanctioned individuals and
companies, took appropriate action
where required, and continues to
monitor the situation carefully.
A review of portfolio company
exposure to Silicon Valley bank was
also performed during the period
and appropriate action taken in the
days before the bank’s UK subsidiary
was acquired by HSBC.
VCT legislation and
qualifying status
The Company has continued to
meet the stringent and complex
qualifying conditions laid down by HM
Revenue & Customs for maintaining
its approval as a VCT. The investment
adviser 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 upcoming 2025 ‘sunset clause’
was a European state aid requirement
when the VCT scheme received state
aid approval in 2015, which means
that without a change in legislation
investors will not receive upfront tax
relief when investing in VCTs aſter
this date. While the government
has signalled that it will extend the
scheme, to date no formal legislation
has been introduced to enact this
commitment. The Company and the
investment adviser will continue to
monitor progress in this area. The
Board considers that the Company,
and VCTs more generally, are
successfully delivering in-line with the
Government’s mandate, which is to
channel money into higher-risk, early-
stage businesses.
Whilst no further amendments to
the VCT legislation were announced
by the Chancellor in his 2023 Budget
statement, it is possible that further
changes will be made in the future.
We will continue to work closely with
our investment adviser to maintain
compliance with the scheme rules at
Northern Venture Trust PLC
Annual Report and Financial Statements
09
01
all times.
HMRC has recently clarified
the rules relating to the financial
health of companies at the time of
any investment, which may limit
VCTs’ ability to make investments in
some cases.
However a recent review
demonstrated that very few of the
Company’s current investments are
likely to be affected in the near term,
concluding that our portfolio is not
exposed significantly to this.
Annual General Meeting
The Company’s AGM will be held at
12.30pm on 21 July 2023. The AGM
provides an excellent opportunity
for shareholders, Directors and
the investment adviser to meet
in person, exchange views and
comment. We will hold the AGM in
person at Reed Smith LLP, Broadgate
Tower, 20 Primrose Street, London,
EC2A 2RS.
Following positive
feedback received from the last three
years, we also intend to offer remote
access for shareholders through
an online webinar facility for those
who would prefer not to travel.
Full
details and formal notice of the AGM
are set out in a separate document.
The General Meeting regarding
the proposed changes to the
performance-related management
fee will be held immediately aſter the
conclusion of the AGM.
Board Retirement
Tim Levett is retiring from the
Board and so will not be standing
for re-election at the AGM in July.
Tim founded our Company almost
30 years ago, having established
Northern Venture Managers as one of
the leading regional investors in the
eighties.
He has been instrumental
in promoting venture capital trusts
in general and the Northern Venture
Trusts in particular to government
and financial advisers for decades.
He
was a founding member and recent
chairman of the Venture Capital
Trust Association, which represents
more than 90% of the VCT industry
by value.
His contribution to the
Board has been immeasurable and
we will miss his deep knowledge and
insight.
On behalf of the Board and
all shareholders, I would like to thank
Tim for his exceptional service to the
Company over so many years and
wish him well in his retirement.
Chair’s Statement
continued
Outlook
The geopolitical and economic
conditions for the next twelve
months are likely to continue to
be challenging and this provides
a good opportunity to invest for
the longer term and support our
existing portfolio companies. Failure
rates remain low and despite some
reductions in valuations this year,
the Directors remain encouraged by
the resilience of the wider portfolio.
We remain committed to supporting
the development of entrepreneurial
early-stage businesses in the UK.
Simon Constantine
Chair
15 June 2023
Northern Venture Trust PLC
Annual Report and Financial Statements
10
“
Following the smaller top-
up offers in the 2021/22 and
2022/23 tax years, and taking
into account the increased
rate of investment, the Board
are pleased to announce that
the Company will launch
a prospectus top-up offer
in the 2023/24 tax year
for £14.0 million, with an
overallotment facility of
£6.0 million.
Northern Venture Trust PLC
Annual Report and Financial Statements
11
Directors
and advisers
Simon Constantine MA ACA
(Chair)
has extensive business management
experience at board level, particularly in
the healthcare and life sciences sectors,
and co-led the management buy-in and
subsequent trade sale of Life Sciences
International plc. He has served as a
non-executive director of a number
of venture capital and private equity-
backed businesses and is currently chair
of Capstone Foster Care Limited and
a non-executive director of SourceBio
International plc. He was appointed to the
Board in 2012 and became chair in 2014.
Richard Green BA FCA CF
(Chair of Audit Committee)
joined Kleinwort Benson Development
Capital in 1988 and was a founder in 2001
of the spin-out business which became
August Equity LLP, where he was managing
partner until 2009 and then chair until
his retirement in 2014. He is a past chair
of the British Private Equity & Venture
Capital Association and is a member of
the North East Fund Advisory Panel, the
non-executive chair of Technology Venture
Partners LLP and a non-executive director
of BGH Capital Offshore GP I Limited and
BGH Capital Offshore GP II Limited. He was
appointed to the Board in 2014.
Deborah Hudson
MBA MEng MIET
is a founding director of Shackleton
Ventures, which specialises in secondary
venture and development capital
investments and has served on the boards
of a number of their investments and
other earlier stage companies. She was
appointed to the Northern Venture Trust
Board on 1 January 2022.
Tim Levett MBA
is the non-executive chair of NVM Private
Equity LLP, whose business he co-founded
in 1988. He is a non-executive director of
Northern 3 VCT PLC and several unquoted
companies and is a member of the AIC’s
VCT Forum and the British Private Equity
& Venture Capital Association’s Venture
Capital Committee. He was appointed to
the Board in 2013.
Northern Venture Trust PLC
Annual Report and Financial Statements
12
David Mayes
is an experienced investment professional
and investor with a long-standing
involvement in financial markets. He
previously managed an emerging
markets investment team for Credit
Suisse Securities (Europe) Limited. He
was formerly a trustee director of a
major pension fund and vice chair of its
investment committee, and a member
of the Salvation Army International Trust
Investment Board. He was appointed to
the Board in 2014.
i
Secretary and registered office
Mercia Company Secretarial
Services Limited
Forward House
17 High Street
Henley-in-Arden B95 5AA
Registered number
03090163
Investment adviser
Mercia Fund Management Limited
Forward House
17 High Street
Henley-in-Arden B95 5AA
Listed investment adviser
Brewin Dolphin Limited
Time Central
32 Gallowgate
Newcastle upon Tyne NE1 4SR
Independent Auditor
Mazars LLP
The Pinnacle
160 Midsummer Boulevard
Milton Keynes MK9 1FF
Taxation adviser
Philip Hare & Associates LLP
6 Snow Hill
London EC1A 2AY
Solicitors
Reed Smith LLP
Broadgate Tower
20 Primrose Street
London EC2A 2RS
Stockbrokers
Panmure Gordon (UK) Limited
One New Change
London EC4M 9AF
Bankers
Barclays Bank PLC
1 Churchill Place
London E14 5HP
Bank of Scotland PLC
Head Office
The Mound
Edinburgh EH1 1YZ
Santander UK PLC
2 Triton Square
Regent’s Place
London NW1 3AN
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing BN99 6DA
Shareholder helpline: 0800 028 2349
Northern Venture Trust PLC
Annual Report and Financial Statements
13
Shareholder
Information
The Company
Company) is a Venture Capital Trust
(VCT) which has been listed on the
London Stock Exchange since 1995.
The Company invests mainly in
unquoted venture capital holdings,
with its remaining assets invested
in a portfolio of equity investments,
quoted investment funds and bank
deposits.
Northern Venture Trust PLC is advised
by Mercia Fund Management Limited
(Mercia), a wholly owned subsidiary
of Mercia Asset Management PLC
(MAM). MAM is a specialist alternative
asset manager with over 15 years’
experience of providing capital to
high-growth UK SMEs, meeting a
large, growing and under-served need
for long-term investment capital.
Mercia offers high-growth UK SMEs a
complete capital solution including
private equity, debt, seed and venture
capital (the latter category accounting
for the majority of its investment
activity). In being advised by Mercia,
the VCTs have the opportunity to co-
invest alongside Mercia’s own funds
that are able to provide replacement
capital and invest without the
restrictions of the VCT Rules.
Mercia also acts as investment
manager of Northern 2 VCT PLC and
Northern 3 VCT PLC, in addition to
various other investment funds.
The
Company, Northern 2 VCT PLC and
Northern 3 VCT PLC are generally
known in the market as the Northern
VCTs and are the only VCTs which
Mercia manages or advises.
Mercia Asset Management PLC is
quoted on AIM (Alternative Investment
Market).
Northern Venture Trust PLC is
a member of the Association of
Investment Companies (AIC).
Venture Capital Trusts
Venture Capital Trusts (VCTs) were
introduced by the Chancellor of the
Exchequer in the November 1994
Budget, the relevant legislation now
being contained in the Income Tax Act
2007. VCTs are intended to provide a
means whereby private individuals
can invest in small unquoted trading
companies in the UK, with an
incentive in the form of a range of
tax benefits. With effect from 6 April
2006, the benefits to eligible investors
include:
•
income tax relief at up to 30%
on new subscriptions of up to
£200,000 per tax year, provided
the shares are held for at least five
years;
•
exemption from income tax on
dividends paid by VCTs (such
dividends may include the VCT’s
capital gains as well as its income);
and
•
exemption from capital gains tax
on disposals of shares in VCTs.
Subscribers for shares in VCTs
between 6 April 2004 and 5 April 2006
were entitled to income tax relief at
40% rather than 30% and the shares
had to be held for at least three
years rather than five years. Prior to
6 April 2004, subscribers for shares
in VCTs were entitled to income tax
relief at 20% and could also obtain
capital gains deferral relief. Capital
gains deferred by pre-6 April 2004
subscriptions are not affected by the
subsequent changes in VCT tax reliefs.
In order to maintain approved status,
a VCT must comply on a continuing
basis with the provisions of Section
274 of the Income Tax Act 2007; in
particular, a VCT is required at all
times to hold at least 80% by value of
its investments in qualifying holdings,
of which at least 70% must comprise
eligible shares. For this purpose a
‘qualifying holding’ is an investment
in new shares or securities of an
unquoted company (which may
however be quoted on AIM) which has
a permanent establishment in the UK,
is carrying on a qualifying trade, and
whose gross assets and number of
employees at the time of investment
do not exceed prescribed limits.
The definition of ‘qualifying
trade’ excludes certain activities
such as property investment and
development, financial services and
asset leasing. The Finance
(No 2) Act 2015 contained a number
of significant changes to the VCT
rules for investments completed aſter
its introduction, designed to secure
approval of the VCT scheme by the
European Commission. A company
whose trade is more than seven
years old (ten years for ‘knowledge
intensive’ companies) will generally
only qualify for VCT investment if it
has previously received State-aided
risk finance before the end of the
initial investing period or the new
investment exceeds 10% of the total
turnover for the past five years and
the funds are used for new products
and/or geographical markets; there is
a lifetime limit of £12 million
(£20 million for ‘knowledge intensive’
companies) on the amount of
State-aid funding receivable by a
company; and VCT funds may not
be used by a company to acquire
shares in another company or to
acquire a business. A breach of the
requirements may lead to a loss of
VCT status.
The Finance Act 2018 contained
further changes to the conditions for
a VCT to maintain its approved status.
The changes were designed to increase
the level of qualifying investments
made by VCTs.
A non-exhaustive list of
the main points is as follows:
•
investments made from
15 March 2018 are only qualifying
if they meet the risk-to-capital
condition.
This principles based
condition broadly requires the
investee company to be an early
stage, higher risk, entrepreneurial
company which has the potential
to grow in the long term;
Northern Venture Trust PLC
Annual Report and Financial Statements
14
•
debt finance provided by VCTs
must be made on an unsecured
basis;
•
a VCT must invest at least 30% of
any funds raised in an accounting
period commencing on or aſter
6 April 2018 in qualifying holdings
within 12 months of the period
end; and
•
investments made from 6 April
2019 in qualifying holdings must
comprise, in aggregate, at least
70% of eligible shares, regardless
of when the money used to fund
the investment was raised.
Share price
The Company’s share price is carried
daily in the Financial Times and the
Daily Telegraph. The Company’s FTSE
Actuaries classification is ‘Investment
Companies – VCTs’.
A range of shareholder information
is provided on the internet at
www.shareview.co.uk by the
Company’s registrars, Equiniti
Limited, including details of
shareholdings, indicative share
prices and information on recent
dividends (see page 13 for contact
details for Equiniti Limited).
Share price information can also be
obtained via the Company’s website.
Dividend investment scheme
The Company operates a dividend
investment scheme, giving
shareholders the option of investing
their dividends in new ordinary
shares in the Company with the
benefit of the tax reliefs currently
available to VCT subscribers.
Information about the dividend
investment scheme can be obtained
from the Company Secretary (see
page 16 for contact details).
Electronic communications
The Company continues to provide
the option to shareholders to
receive communications from the
Company electronically rather
than by paper copy. A letter is
attached alongside this report for all
shareholders currently receiving their
annual report in print, requesting
confirmation of their preferences.
Shareholders who wish to change
their preferences should visit
www.shareview.co.uk (operated by
the Company’s registrars, Equiniti
Limited), register for a Shareview
portfolio and select their preferred
method of delivery of company
communications.
Financial calendar
Subject to regular review by the Directors, the Company’s financial calendar for the
year ending 31 March 2024 is as follows:
November 2023
Half-yearly financial report for the six months ending
30 September 2023 announced
January 2024
Interim dividend paid
June 2024
Final dividend and results for year ending 31 March 2024 announced
July 2024
Annual report and financial statements published
August 2024
AGM; final dividend paid
Northern Venture Trust PLC
Annual Report and Financial Statements
15
This report has been prepared by
the Directors in accordance with
the requirements of Section 414
of the Companies Act 2006.
The
Company’s independent auditor
is required by law to report on
whether the information given in
the strategic report and directors’
report is consistent with the financial
statements.
The auditor’s report is
set out on pages 52 to 56.
Corporate objective
The Company’s objective is to
provide high long-term tax-free
returns to investors through a
combination of dividend yield and
capital growth, by following its
strategy of investing primarily in
unquoted UK manufacturing, service
and technology businesses which
meet the investment adviser’s key
criteria of good growth potential,
strong management and ability to
generate cash in the medium to long
term.
Investment policy
The Company’s investment policy
has been designed to enable the
Company to achieve its objective
whilst complying with the qualifying
conditions set out in the VCT rules, as
amended by HM Government from
time to time.
The Directors intend that the long-
term disposition of the Company’s
assets will be approximately 80% in a
portfolio of VCT-qualifying unquoted
and AIM-quoted investments,
and 20% in other investments
selected with a view to producing
an enhanced return while avoiding
undue capital volatility, to provide
a reserve of liquidity which will
maximise the Company’s flexibility
as to the timing of investment
acquisitions and disposals, dividend
payments and share buy-backs.
Within the VCT-qualifying portfolio,
investments will be structured using
various investment instruments,
including ordinary and preference
shares, loan stocks and convertible
securities, to achieve an appropriate
balance of income and capital
growth. The selection of new
investments will necessarily have
regard to the VCT rules, which are
designed to focus investment on
earlier stage development capital
opportunities. The portfolio will
be diversified by investing in a
broad range of VCT-qualifying
industry sectors and by holding
investments in companies at
different stages of maturity in the
corporate development cycle. The
normal investment holding period
is expected to be in the range from
three to ten years.
No single investment will normally
represent in excess of 3% of the
Company’s total assets at the time
of initial investment. As investments
are held with a view to long-term
capital growth as well as income, it
is possible that individual holdings
may grow in value to the point where
they represent a significantly higher
proportion of total assets prior to
a realisation opportunity being
available.
Investments will normally be
made using the Company’s equity
shareholders’ funds and it is not
intended that the Company will take
on any long-term borrowings.
Co-investment arrangements
The Company operates within a
co-investment and allocation policy
that applies to all funds managed
by Mercia. Under the terms of
this policy, where an investment
opportunity is VCT qualifying and
the funding requirement is in excess
of £2 million, the Company and the
other VCTs managed by Mercia are
the preferred lead investors. For
these opportunities the Company is
entitled to participate pro rata to net
assets alongside the other VCT funds
managed by Mercia; save where the
investment opportunity is located
in Yorkshire, Humberside, Teesside
or the North East, where minimum
syndication requirements mean
that certain other funds managed by
Mercia can participate in the funding
round alongside the Northern VCTs;
with an allocation of up to (but not
exceeding) 20% (10% in the North
East). Where the funding round for a
new opportunity is under £2 million
the VCTs will not be the lead investors;
but if any such deal is in excess of
£1.5 million, the Northern VCT funds
have the right to participate at a de
minimis level of £500,000.
In relation to follow-on rounds of
investment where the Company and
other Northern VCTs are existing
investors, the Company, alongside the
other Northern VCT funds, shall have
priority to determine how much they
wish to invest, with no requirement to
offer such investment opportunities to
the other funds managed or advised
by Mercia.
Under a co-investment scheme,
members of the VCT investment
team and certain key Mercia
executives are required to invest
personally alongside the funds in
each VCT-qualifying investment on a
predetermined basis.
Investment management
Mercia Fund Management Limited
(Mercia) acts as the investment
adviser and has done so since the
Company consented to the novation
of its existing investment advisory
agreement from NVM Private Equity
LLP (NVM) effective on 23 December
2019.
The Board’s Management
Engagement Committee reviews the
terms of Mercia’s appointment as
investment adviser on a regular basis.
Further information about the terms
of the management agreement with
Mercia and the remuneration payable
to Mercia is set out in the directors’
report on page 42 and in Note 3 to the
financial statements.
Strategic
Report
Northern Venture Trust PLC
Annual Report and Financial Statements
16
Overview of the period
During the 18 month period under
review Northern Venture Trust
PLC suffered a total return, before
dividends, of minus 6.0 pence per
share, equivalent to minus 8.1% of
the opening net asset value per share
of 74.1 pence.
The movement in
total net assets and net asset value
per share is summarised in Table 2.
The negative return was driven by
an unrealised net decrease in the
valuation of the investment portfolio,
in particular the listed investments.
This trend has been partially offset
by realised gains from the disposal of
several investments.
Total income from investments during
the period decreased to £0.9 million
(year ended 30 September 2021: £1.4
million).
As the proportion of earlier
stage investments in the unquoted
portfolio increases as intended, it is
expected that investment income
will continue to decrease as the
potential returns targeted become
more focused on capital growth rather
than income generation. The basic
investment management fee payable
to the investment adviser was £3.2
million (year ended 30 September
2021: £2.3 million). There was no
performance-related management
fee payable in respect of the current
period (year ended 30 September
2021: £2.5 million).
Table 1: Venture capital portfolio cash flow
New
investment
£000
Disposal
proceeds
£000
Net cash
inflow/
(outflow)
£000
Year ended 30 September 2018
12,353
10,781
(1,572)
Year ended 30 September 2019
10,877
10,268
(609)
Year ended 30 September 2020
8,813
1,635
(7,178)
Year ended 30 September 2021
11,707
31,118
19,411
18 month period ended
31 March 2023
25,049
26,095
1,046
Total
68,799
79,897
11,098
Table 2: Movements in net assets and net asset value per share
£000
Pence per
ordinary share
Net asset value at 1 October 2021
119,298
74.1
Net revenue (investment income less revenue
expenses and tax)
(478)
(0.3)
Capital surplus arising on investments:
Realised net gains on disposals
2,944
1.8
Movements in fair value of investments
(9,776)
(5.9)
Management expenses allocated to capital
account (net of tax)
(2,613)
(1.6)
Total return for the period as shown in the
income statement
(9,923)
(6.0)
Proceeds of issues of new shares
(net of expenses)
7,582
–
Shares re-purchased for cancellation
(4,570)
–
Net movement for the period before
dividends
(6,911)
(6.0)
Net asset value at 31 March 2023 before
dividends recognised
112,387
68.1
Dividends recognised in the financial
statements for the period
(9,890)
(6.0)
Net asset value at 31 March 2023
102,497
62.1
The net cash inflow from the venture
capital portfolio during the period was
£1.05 million, comprising disposal
proceeds of £26.10 million less
investments of £25.0 million. Portfolio
cash flow over the past five years is
summarised in Table 1.
Aſter taking account of other cash
flows, including dividend payments of
£9.9 million, the Company’s total cash
balances decreased over the period
by £11.1 million to £14.0 million.
In addition the Company holds
quoted equity investments valued at
£8.9 million.
Dividends
The Directors have declared or
proposed dividends totalling
6.0 pence per share in respect of
the period, comprising a 0.2 pence
revenue dividend and a 5.8 pence
capital dividend.
Venture capital investment
portfolio
The last eighteen months have been
impacted by the lingering impact
of COVID-19 measures, supply side
shortages, inflationary pressures,
rising interest rates and a global
economic slowdown. During this
period our investment adviser has
worked with portfolio management
teams to navigate the fast-evolving
landscape. In all cases, Mercia has
been working very closely with
investee management teams to
support them to overcome liquidity or
operational challenges.
Venture capital investment
activity
During the eighteen months ended
31 March 2023, fiſteen new venture
capital investments were completed
at a cost of £17.0 million and
additional funding totalling £8.0
million was invested in 22 existing
portfolio companies, by way of follow-
on funding rounds. The proportion of
follow on investments is increasing
in line with the shiſt in focus to
earlier stage companies, which oſten
require multiple rounds of growth
finance to realise their potential.
The
portfolio at 31 March 2023 comprised
57 holdings with an aggregate value
of £79.7 million.
21.7% by value
of this portfolio is represented by
management buy-out and growth
capital investments acquired prior to
November 2015 when the VCT rules
were amended to promote earlier
stage investment.
A summary of the venture capital
holdings at 31 March 2023 is given
on page 23, with information on the
fiſteen largest investments on pages
26 to 33.
Northern Venture Trust PLC
Annual Report and Financial Statements
17
Strategic report
continued
New investments
Intechnica (including Netacea) (£1,701,000)
Cyber security consultancy
Project Glow Topco (t/a Currentbody.com) (£1,686,000)
Online retailer for home use beauty products
Social Value Portal (£1.573,000)
Platform to enable corporate and public sector organisations to measure,
report and enhance the social value they create
Turbine Simulated Cell Technologies (£1,433,000)
Simulation of cell reaction to the treatment of complex disease
Broker Insights (£1,395,000)
Platform connecting insurers and brokers
Optellum (£1,276,000)
AI platform to diagnose and treat early-stage lung cancer
Centuro Global (£1,038,000)
Technology platform to enable companies’ international expansion plans
Pimberly (£1,008,000)
Product information management soſtware
Send Technology Solutions (£974,000)
Platform for insurers, reinsurers and managing general agents
Forensic Analytics (£964,000)
Call data communications analytics soſtware for police forces
Axis Spine Technologies (£955,000)
Developer of next generation spinal implants
Wonderush (t/a HowNow) (£948,000)
Platform for workplace learning
LMC Soſtware (£868,000)
Provider of social care management soſtware for care homes for the
elderly or disabled
Sen Corporation (£681,000)
Live streaming of high quality video from space
Synthesized (£510,000)
Data product enterprise soſtware
Investment realisations
Details of investment disposals
during the period are given in Note
9 on page 69.
The most significant
disposals (original cost or sales
proceeds in excess of £1.0 million) are
summarised in Table 3.
Lineup Systems
is a multi channel
advertising and media company. The
Company exited its investment in
March 2023 for proceeds of
£7.3 million, representing a return of
7.8x including interest received during
the life of the investment.
Currentbody
is an online retailer
for home-use beauty products.
In November 2021, the Company
realised part of its investment for cash
proceeds of £3.9 million and retained
an investment of £1.7 million in the
new owner’s holding vehicle. Including
loan interest received over the life of
this investment, this represented a 2.9x
lifetime return.
Intelling
,a communications specialist
providing customer support solutions,
secured a significant contract which
evolved into part of the COVID-19
Track and Trace initiative. In October
2021 the Company realised its
investment for proceeds of £3.6
million. Including loan interest
income received over the life of this
investment, this represented a 3.6x
lifetime return.
Knowledgemotion Ltd (t/a Boclips)
is an online educational video and
podcast platform. In June 2022 the
Company realised its investment for
an initial £3.3 million, representing a
return of 1.7x.
Mojo Mortgages
is an online
mortgage broker. The Company exited
its investment in November 2021 for
proceeds of £2.5 million, representing
a return of 1.6x.
Vectura Group
is a pharmaceutical
company. The Company exited its
long-held investment in October
2021 for proceeds of £1.1 million,
representing a return of 1.8x.
Intechnica
is a cyber security
consultancy which demerged into two
entities in May 2022 – Intechnica, and
Netacea, a provider of cyber security
through AI-powered consultancy.
In January 2023, Intechnica was
acquired by Crosslake Technologies.
The initial proceeds received by the
Company of £0.6 million represented
an initial return of 2.3x.
Table 3: Significant investment realisations
Company
Date of
original
investment
Original
cost
£000
Sales
proceeds
£000
Realised
surplus/
(deficit)
£000
Lineup Systems
2011
975
7,288
6,313
Currentbody
2018
2,050
5,630
3,580
Intelling Group
2017
1,222
3,616
2,394
Knowledgemotion
2017
1,903
3,284
1,381
Mojo Mortgages
2019
1,592
2,480
888
Vectura Group
2001
599
1,074
475
Axial Systems Holdings
2008
1,004
41
(963)
Channel Mum
2016
1,343
–
(1,343)
No. 1 Lounges
2014
2,006
–
(2,006)
Ideagen
is a provider of quality,
audit and risk management soſtware
solutions. The AIM-listed business
experienced considerable growth over
the investment lifetime and in July
2022 was acquired by private equity
firm HG Pooled Management. The
Company realised their investment
for proceeds of £0.4 million, which
represented a 10.2x return on cost.
Axial Systems
is a provider of security
and data solutions. The Company
originally invested in 2008 and exited
this period for a return, including
interest received during the life of the
investment, of 0.7x.
Channel Mum
was a parenting
focused video website which entered
liquidation during the period.
No. 1 Lounges
was a provider of
airport lounges which as a result of
Covid-19 airport closures, entered
liquidation during the period.
Northern Venture Trust PLC
Annual Report and Financial Statements
18
Table 4: Venture capital investment valuation by category
Number of
investments
Valuation
£000
% of portfolio
by value
Unquoted investments at directors’ valuation
Revenue/earnings multiple
17
22,657
28%
Price of a recent investment
subsequently calibrated as
appropriate
35
53,787
68%
Quoted investments at bid price
Quoted on AIM
5
3,253
4%
Total
57
79,697
100%
Valuation policy
Unquoted investments are valued
in accordance with the accounting
policy set out on page 62, which
follows the International Private
Equity and Venture Capital Valuation
(IPEV) guidelines, being the industry
accepted best practice.
Where valuations are based on
company earnings, audited historic
results will be taken into account
along with more recent unaudited
information and projections where
these are considered sufficiently
reliable. For investments in earlier
stage businesses, where a material
arm’s length transaction has recently
been concluded, this is usually taken
as the starting point for fair value, and
subsequently tested and recalibrated
to reflect changes in market
conditions or company specific
performance. Performance is typically
considered using a range of metrics
such as annual recurring revenue,
EBITDA, milestones achieved,
customer wins, cash runway and
budget accuracy. Provision against
cost is made where an investment is
under-performing significantly.
As at 31 March 2023 the number of
venture capital investments falling
into each valuation category was as
shown in Table 4.
Northern Venture Trust PLC
Annual Report and Financial Statements
19
236.9
228.7
254.3
252.9
250.6
Key performance indicators
The Directors regard the following as
the key indicators pertaining to the
Company’s performance:
Net asset value and total return to
shareholders:
the chart opposite
shows the movement in net asset
value and total return (net asset value
plus cumulative dividends) per share
over the past five financial years.
Dividend distributions:
the chart
opposite shows the dividends
(including proposed final dividend)
declared in respect of each of the
past five financial years and on a
cumulative basis since inception.
Ongoing charges:
the charts opposite
show total annual running expenses
as a percentage of the average net
assets attributable to shareholders for
each of the past five financial years.
Declared dividends per share (pence)*
2019
2020
2021
2022
2023
*includes dividends proposed but not yet paid
**special dividend
Net asset value plus cumulative
dividends paid per share* (pence)
2019
2020
2021
2022
2023
2.35%
2.50%
3.87%
3.27%
2.37%
2019
2020
2021
2022
2023
2.35%
2.35%
2.49%
2.24%
2.37%
2019
2020
2021
2022
2023
*excludes dividends proposed but not yet paid
Ongoing charges excluding performance
fees (% of average net assets)
Ongoing charges including performance
fees (% of average net assets)
Strategic report
continued
70.4
58.2
79.8
68.4
62.1
166.5
170.5
174.5
184.5
188.5
NAV per share
Cumulative dividends paid per share
6**
4
4
4
4
4*
Northern Venture Trust PLC
Annual Report and Financial Statements
20
Maintenance of VCT-qualifying
status:
the Directors believe that
the Company has at all times since
inception complied with the VCT
qualifying conditions laid down by HM
Revenue & Customs.
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 adviser 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, interest rate increases, and
supply shortages.
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 investment adviser
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 the London Stock Exchange
or 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 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 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 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.
Northern Venture Trust PLC
Annual Report and Financial Statements
21
Additional disclosures required
by the Companies Act
Section 172 Statement
Section 172 of the Companies Act
2006 requires a Director to promote
the success of the Company. In doing
this they must act in the way that
they consider, in good faith, would be
most likely to promote the success
of the Company for the benefit of its
members as a whole. In doing this
our Directors are required to have a
regard, amongst other matters, to the:
•
likely consequences of any
decisions in the long term
•
need to foster the Company’s
business relationships with
suppliers and others
•
desirability of the Company
maintaining a reputation for high
standards of business conduct
•
need to act fairly as between
members of the Company.
In discharging their duties each
Director has regard to the factors set
out above and to other factors which
they consider relevant to the decision
being made. Those factors may
include, for example, the interests and
views of our shareholders, advisers
and regulators. The Board’s aim
is to make sure that decisions are
consistent and predictable. Details on
how the Board operates and the way
Directors reach decisions, including
some of the matters discussed and
debated during the period, the key
stakeholder considerations that
were central to those discussions
and the way in which Directors had
regard to the need to foster the
Company’s long-term relationship
with shareholders and other
stakeholders, are included in the
Corporate Governance section of
this report on pages 46 to 50. An
example of a key decision reached
by the Board during the period is the
level of dividends paid or proposed,
which totalled 6 pence per share.
In reaching their final decision on
this matter, the Board considered
the level of returns generated
by the Company, the potential
timing of investment realisations,
the potential future capital
requirements of portfolio companies
and continuing compliance with the
VCT scheme rules.
Key stakeholders
Employees and Directors
The Company had no employees
during the period and there are five
directors.
Shareholders
The Directors recognise the
value of maintaining regular
communications with shareholders.
Formal reports are published at
the half-year and year-end stages,
and an opportunity is given to
shareholders at the annual general
meeting to question the Board
and the investment adviser on
matters relating to the Company’s
operation and performance. The
investment adviser usually holds
an annual VCT investor seminar to
which shareholders are invited and
the Directors attend.
The Directors’ decisions are
intended to achieve the Company’s
corporate objective. Maintaining
the Company’s status as a VCT is a
critical element of this.
Investment adviser
The Company’s most critical business
relationship is with the investment
adviser, Mercia. There is regular
contact with Mercia and members of
Mercia’s executive committee attend
all of the Company’s board meetings.
The content discussed at each
meeting is over a wide range of
topics from company operations to
issues faced by portfolio companies.
Portfolio companies
The Company holds minority
investments in its portfolio
companies and it has appointed
Mercia to advise on the management
of the portfolio. Whilst day to day
interaction with portfolio companies
is delegated via the management
and investment advisory agreement
(management agreement) to Mercia,
updates on the entire portfolio
are received by the Board at least
quarterly.
The directors take an
active interest in the challenges
faced by portfolio companies. More
details can be found on page 39.
Key decisions in period
Payment of dividend: despite
achieving a total return loss in the
period, the Board maintained the
annual dividend in excess of its target
as realisation proceeds more than
exceeded the value of dividends paid.
In doing so, the Board considered
commitments previously made to
Shareholders, and assessed its short
term liquidity requirements.
New performance related
management fee: the discussions
over the proposed new methodology
was discussed at length with the
investment adviser both formally
at board meetings and between
meetings, with a great deal of time
spent on modelling and analysing
the impact of different approaches.
The final proposal was agreed as
in the Board’s view it improved
transparency and favoured long
term sustainable growth over
short term volatility. Shareholders
will be consulted on plans at the
general meeting that will take place
immediately aſter the close of the the
next Annual General Meeting.
Environmental, Social
and Governance (‘ESG’)
considerations
For full details on the Company’s
approach to ESG and mandatory
reporting requirements, please see
page 34.
Strategic report
continued
Future prospects
The slowdown of the domestic and
global economy, increased interest
rates and supply side pressures
continue to present challenges for
UK businesses. Your Directors have
been encouraged by the resilience
exhibited by the portfolio as a whole.
The directors regularly monitor the
service received from the Company’s
investment adviser, registrars and
custodians who all continue to
operate effectively.
We remain committed to supporting
the development and prosperity
of entrepreneurial early stage
businesses in the UK and believe that
your company remains well placed
to do so.
By order of the Board
Mercia Company Secretarial
Services Limited
Company Secretary
15 June 2023
Northern Venture Trust PLC
Annual Report and Financial Statements
22
Investment portfolio
Fiſteeen largest venture capital investments (see pages 26 to 33)
Cost
£000
Valuation
£000
Like for like valuation
increase/ (decrease)
over period**
% of net assets
by value
1
Evotix (formerly SHE)
2,766
12,658
188.6%
12.3%
2
Grip-UK (t/a Climbing Hangar)
3,530
3,530
0.0%
3.4%
3
Volumatic Holdings
216
3,275
17.1%
3.2%
4
Gentronix
1,362
3,082
111.5%
3.0%
5
Tutora (t/a Tutorful)
2,722
2,837
4.7%
2.8%
6
Rockar
1,877
2,795
36.9%
2.7%
7
Newcells Biotech
2,479
2,519
(10.8)%
2.5%
8
Biological Preparations Group
2,366
2,267
(17.7)%
2.2%
9
Adludio
2,103
2,103
0.0%
2.1%
10
Clarilis
1,972
1,972
(22.8)%
1.9%
11
IDOX*
238
1,970
(10.9)%
1.9%
12
Administrate
2,374
1,901
5.6%
1.9%
13
Buoyant Upholstery
1,173
1,895
(31.6)%
1.8%
14
Pure Pet Food
1,774
1,845
0.3%
1.8%
15
Netacea
1,781
1,781
0.0%
1.7%
Other venture capital investments
16
Project Glow Topco (t/a Currentbody.com)
1,686
1,686
0.0%
1.6%
17
Social Value Portal
1,573
1,573
0.0%
1.5%
18
Enate
1,516
1,516
0.0%
1.5%
19
Ridge Pharma
1,497
1,500
0.2%
1.5%
20
Forensic Analytics
1,490
1,490
0.0%
1.5%
21
Turbine Simulated Cell Technologies
1,433
1,433
0.0%
1.4%
22
Broker Insights
1,395
1,395
0.0%
1.4%
23
Optellum
1,276
1,276
0.0%
1.2%
Northern Venture Trust PLC
Annual Report and Financial Statements
23
Other venture capital investments
Cost
£000
Valuation
£000
Like for like valuation
increase/ (decrease)
over period**
% of net assets
by value
24
Duke & Dexter
1,237
1,246
0.7%
1.2%
25
VoxPopMe
1,218
1,205
(12.6)%
1.2%
26
Weldex (International) Offshore Holdings
3,262
1,137
(41.0)%
1.1%
27
musicMagpie*
238
1,111
(85.4)%
1.1%
28
Centuro Global
1,038
1,038
0.0%
1.0%
29
Pimberly
1,008
1,008
0.0%
1.0%
30
Send Technology Solutions
974
974
0.0%
1.0%
31
Axis Spine Technologies
955
955
0.0%
0.9%
32
Wonderush (t/a Hownow)
947
947
0.0%
0.9%
33
LMC Soſtware
929
929
0.0%
0.9%
34
Fresh Approach (UK) Holdings
965
899
(0.3)%
0.9%
35
Locate Bio
876
876
0.0%
0.9%
36
Moonshot
874
874
0.0%
0.9%
37
Naitive Technologies
787
787
0.0%
0.8%
38
Oddbox
1,093
753
(84.7)%
0.7%
39
Northrow
1,427
730
(45.7)%
0.7%
40
Atlas Cloud
704
704
1.1%
0.7%
41
Intuitive Holding
1,674
686
(5.4)%
0.7%
42
Sen Corporation
681
681
0.0%
0.7%
43
Medovate
1,770
534
(67.5)%
0.5%
44
Thanksbox (t/a Mo)
1,559
518
(52.3)%
0.5%
45
Synthesized
510
510
0.0%
0.5%
46
Rego Technologies (t/a Upp) (formerly Volo)
2,369
470
(13.5)%
0.5%
47
Seahawk Bidco
513
467
(21.3)%
0.5%
48
Nutshell
734
385
(47.6)%
0.4%
Investment portfolio
Northern Venture Trust PLC
Annual Report and Financial Statements
24
Other venture capital investments
Cost
£000
Valuation
£000
Like for like valuation
increase/ (decrease)
over period**
% of net assets
by value
49
Haystack Dryers
1,661
242
2.8%
0.2%
50
Arnlea Holdings
1,305
226
17.9%
0.2%
51
Sorted Holdings
3,022
212
(87.5)%
0.2%
52
Customs Connect Group
1,525
121
57.1%
0.1%
53
Angle*
131
73
(61.0)%
0.1%
54
RTC Group*
436
57
(64.3)%
0.0%
55
Velocity Composites*
108
43
(14.9)%
0.0%
56
Quotevine
1,311
–
(100.0)%
0.0%
57
Ablatus Therapeutics
612
–
(100.0)%
0.0%
Total venture capital investments
79,052
79,697
77.8%
Listed equity investments
7,859
8,912
8.7%
Total fixed asset investments
86,911
88,609
86.5%
Net current assets
13,888
13.5%
Net assets
102,497
100.0%
*Listed on AIM
**This percentage change in ‘like for like’ valuations is a comparison of the 31 March 2023 valuations with the 30 September 2021 valuations (or where a new investment has been made in the period, the
investment amount), having adjusted for any partial disposals, loan stock repayments or new and follow-on investments in the period.
Northern Venture Trust PLC
Annual Report and Financial Statements
25
15 largest
venture capital investments
Evotix (formerly SHE Software Group)
1
£2,766,000
|
£12,658,000
Cost
Valuation
Basis of valuation
Revenue multiple
Equity held
11.1% (Mercia funds total 31.2%)
Business/location
Health & Safety platform provider, East
Kilbride
History
Investment in February 2018, led by NVM
Private Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Audited financial information:
Year ended
31 March
2022
£m
2021
£m
Sales
8.5
6.7
EBITDA
(0.1)
(2.8)
Loss before tax
(1.0)
(3.0)
Loss aſter tax
(0.7)
(2.9)
Net assets
0.9
0.7
Grip UK (t/a Climbing Hangar)
2
£3,530,000
|
£3,530,000
Cost
Valuation
Basis of valuation
Price of a recent investment
Equity held
20.8% (Mercia funds total 61.4%)
Business/location
Operator of indoor climbing and leisure
facilities, London
History
Development capital financing, July
2018, led by NVM Private Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Audited financial information:
Year ended
30 September
2021
£m
2020
£m
Sales
2.3
2.0
EBITDA
(1.5)
(1.0)
Loss before tax
(1.5)
(1.0)
Loss aſter tax
(1.5)
(0.9)
Net assets
6.7
4.2
Northern Venture Trust PLC
Annual Report and Financial Statements
26
Volumatic Holdings
3
£216,000
|
£3,275,000
Cost
Valuation
Basis of valuation
Earnings multiple
Equity held
24.8% (Mercia funds total 77.7%)
Business/location
Manufacturer of intelligent cash handling equipment, Coventry
History
Management buy-out, March 2012, led by NVM Private Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends £92,000, loan stock interest nil
Audited financial information:
Year ended
31 March
2022
£m
2021
£m
Sales
15.5
10.6
EBITDA
3.3
2.5
Profit before tax
3.2
2.4
Profit aſter tax
2.9
2.2
Net assets
11.7
8.8
Gentronix
4
£1,362,000
|
£3,082,000
Cost
Valuation
Basis of valuation
Revenue multiple
Equity held
34.9% (Mercia funds total 86.6%)
Business/location
Technology for carcinogenic drug identification, Manchester
History
Development capital financing, February 2007, led by NVM
Private Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest £18,000
Audited financial information:
Year ended
31 August
2022
£m
2021
£m
Sales
3.7
2.5
EBITDA
(0.6)
(0.3)
Loss before tax
(0.7)
(0.1)
Loss aſter tax
(0.7)
(0.1)
Net assets
1.5
1.5
Northern Venture Trust PLC
Annual Report and Financial Statements
27
Tutora (t/a Tutorful)
5
£2,722,000
|
£2,837,000
Cost
Valuation
Basis of valuation
Revenue multiple
Equity held
13.4% (Mercia funds total 37.9%)
Business/location
Online platform for private tutors, Sheffield
History
Development capital financing, October 2019, led by Mercia
Fund Management
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Audited financial information:
Year ended
31 December
2021
£m
2020
£m
Sales
3.1
2.5
EBITDA
(3.6)
(1.0)
Loss before tax
(2.7)
(1.0)
Loss aſter tax
(2.6)
(0.9)
Net (liabilities)/assets
(0.5)
2.1
15 largest venture capital investments
continued
Rockar
6
£1,877,000
|
£2,795,000
Cost
Valuation
Basis of valuation
Price of a recent investment
Equity held
8.1% (Mercia funds total 23.0%)
Business/location
E-Commerce & fulfilment platform for the new car sales
industry, Hull
History
Management buy-out financing, July 2016, led by NVM Private
Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest £48,000
Audited financial information:
Year ended
31 December
2022
£m
2021
£m
Sales
7.5
6.2
EBITDA
1.1
1.3
Profit before tax
0.8
0.8
Profit aſter tax
1.2
1.0
Net assets
4.2
3.0
Northern Venture Trust PLC
Annual Report and Financial Statements
28
Biological Preparations Group
8
£2,366,000
|
£2,267,000
Cost
Valuation
Basis of valuation
Earnings multiple
Equity held
25.3% (Mercia funds total 71.2%)
Business/location
Developer and supplier of products based on microbial,
antimicrobial, plant extract and enzyme technology, Cardiff
History
Management buy-out financing, March 2015, led by NVM
Private Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Audited financial information:
Year ended
31 December
2021
£m
2020
£m
Sales
7.0
9.6
EBITDA
(0.4)
1.0
(Loss) before tax
(0.5)
(0.4)
(Loss) aſter tax
(0.4)
(0.5)
Net assets
2.2
(3.3)
Newcells Biotech
7
£2,479,000
|
£2,519,000
Cost
Valuation
Basis of valuation
Price of a recent investment
Equity held
14.7% (Mercia funds total 41.4%)
Business/location
Supplies assay products to the drug and chemical
development markets, Newcastle
History
Development capital financing, June 2018, led by NVM Private
Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Audited financial information:
Year ended
31 January
2022
£m
2021
£m
Sales
1.3
1.3
EBITDA
(2.0)
(1.2)
Loss before tax
(2.4)
(1.3)
Loss aſter tax
(2.1)
(1.1)
Net assets
2.8
4.9
Northern Venture Trust PLC
Annual Report and Financial Statements
29
Clarilis
10
£1,972,000
|
£1,972,000
Cost
Valuation
Basis of valuation
Price of a recent investment
Equity held
9.9% (Mercia funds total 28.0%)
Business/location
Provides automated legal document preparation soſtware,
Leamington Spa
History
Development capital financing, June 2018, led by NVM Private
Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Unaudited financial information:
Year ended
31 December
2021
£m
2020
£m
Sales
1.8
1.6
EBITDA
(1.9)
(1.3)
Loss before tax
(1.9)
(1.3)
Loss aſter tax
(1.7)
(1.1)
Net assets
3.4
5.1
Adludio
9
£2,103,000
|
£2,103,000
Cost
Valuation
Basis of valuation
Price of a recent investment
Equity held
14.2% (Mercia funds total 40.5%)
Business/location
Marketing services provider helping brands run online
campaigns, London
History
Development capital financing, August 2021, led by Mercia
Fund Management
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Unaudited financial information:
Year ended
31 December
2022
£m
2021
£m
Sales
7.4
6.9
EBITDA
(1.3)
(1.6)
(Loss) before tax
(1.4)
(1.7)
(Loss) aſter tax
(1.5)
(2.0)
Net assets
2.7
4.0
15 largest venture capital investments
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
30
Idox
11
£238,000
|
£1,970,000
Cost
Valuation
Basis of valuation
Bid price (AIM)
Equity held
0.7% (Mercia funds total 1.7%)
Business/location
Document content soſtware, London
History
Holding acquired through a share placing on AIM in 2000
Other Mercia funds investing
Northern 3 VCT
Income in period
Dividends £13,000, loan stock interest nil
Audited financial information:
Year ended
31 October
2022
£m
2021
£m
Sales
66.2
62.2
EBITDA
8.7
19.5
Profit before tax
6.6
7.2
Profit aſter tax
5.6
11.8
Net assets
67.4
60.8
Administrate
12
£2,374,000
|
£1,901,000
Cost
Valuation
Basis of valuation
Price of a recent investment
Equity held
10.3% (Mercia funds total 29.0%)
Business/location
SaaS training management and LMS platform, Edinburgh
History
Development capital financing, December 2018, led by NVM
Private Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Unaudited financial information:
Year ended
31 December
2022
£m
2021
£m
Sales
4.3
3.6
EBITDA
(5.0)
(3.4)
Loss before tax
(5.0)
(3.4)
Loss aſter tax
(4.8)
(3.0)
Net (liabilities)/assets
(1.3)
0.2
Northern Venture Trust PLC
Annual Report and Financial Statements
31
Pure Pet Food
14
£1,774,000
|
£1,845,000
Cost
Valuation
Basis of valuation
Price of a recent investment
Equity held
26.5% (Mercia funds total 74.4%)
Business/location
Production of organic pet food, Halifax
History
Development capital financing, March 2019, led by NVM Private
Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest nil
Audited financial information:
Year ended
31 March
2022
£m
2021
£m
Sales
3.4
1.8
EBITDA
(1.7)
(0.9)
Loss before tax
(1.7)
(0.9)
Loss aſter tax
(1.7)
(0.9)
Net assets/(liabilities)
1.1
(0.2)
Buoyant Upholstery
13
£1,173,000
|
£1,895,000
Cost
Valuation
Basis of valuation
Earnings multiple
Equity held
12.8% (Mercia funds total 35.9%)
Business/location
Design and manufacture of upholstered furniture, Nelson
History
Development capital financing, July 2013, led by NVM Private
Equity
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT
Income in period
Dividends nil, loan stock interest £120,000
Audited financial information:
Year ended
31 December
2021
£m
2020
£m
Sales
50.6
36.3
EBITDA
2.7
1.5
Profit/(loss) before tax
1.5
0.0
Profit/(loss) aſter tax
1.1
0.0
Net assets
5.7
4.7
15 largest venture capital investments
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
32
Netacea
15
£1,781,000
|
£1,781,000
Cost
Valuation
Basis of valuation
Revenue mutliple
Equity held
3.6% (Mercia funds total 34.6%)
Business/location
Protects websites, mobile apps and APIs using an intelligent
detection engine. Manchester
History
Development capital financing into Intechnica, December
2021, subsequent de-merger into Netacea, May 2022, led by
Mercia Fund Management
Other Mercia funds investing
Northern 2 VCT, Northern 3 VCT, Mercia Investment Plan LP,
Northern Powerhouse Investment Fund, North West Fund for
Venture Capital
Income in period
Dividends nil, loan stock interest nil
Audited financial information:
Year ended
[•]
2022
£m
2021
£m
Sales
N/A
N/A
EBITDA
N/A
N/A
Loss before tax
N/A
N/A
Loss aſter tax
N/A
N/A
Net liabilities
N/A
N/A
Northern Venture Trust PLC
Annual Report and Financial Statements
33
Responsible
Investment
Environmental,
social and
governance
The Company is committed to
conducting its affairs responsibly and,
alongside the investment adviser,
considers environmental, social and
governance (ESG) issues as part of its
operations.
In addition to its commitment to
financial performance, the Board
is mindful of the impact of the
Company and its investments on the
environment alongside its social and
corporate governance responsibilities.
We recognise that the ESG regulatory
and reporting landscape is subject
to rapid change, and therefore
the Company works closely with
the investment adviser to ensure
compliance and develop initiatives.
The Company is required, under
the Companies Act 2006, to
provide details of environmental
performance, social, human rights,
employee, community issues;
including information about any
policies it has in relation to these
matters and the effectiveness of
these policies. As the Company does
not have any employees, nor its own
premises, the Company does not
maintain specific policies in relation
to these matters, however the
investment adviser maintains its own
policies as appropriate.
KPI:
Percentage of
shareholders signed
up for electronic
communications
Impact:
Reducing the company’s
carbon emissions from
its own operations
Theme:
Environmental
KPI:
Number of post-2015
portfolio companies
that completed the
ESG_VC questionnaire
Impact:
Increasing engagement
with ESG issues within
the Company’ portfolio
Theme:
Governance
KPI:
The carbon emissions of the
investment adviser were
measured in the year to
31 March 2023 and a long-term
reduction plan is being enacted
Impact:
Reducing the carbon
impact of our
operations performed
through the investment
adviser
Theme:
Environmental
KPI:
Percentage of portfolio
companies where the
investment adviser has
a member of staff as a
statutory director
Impact:
Encouraging best
practice directly at board
level of each portfolio
company
Theme:
Governance
KPI:
Proportion of the Board
identifying as female
Impact:
Promoting diversity in
leadership
Theme:
Social
KPI:
Percentage of portfolio
companies that have
formally raised ESG on
the Board agenda in
the year
Impact:
Encouraging portfolio
engagement with ESG
principles
Theme:
Governance
KPI:
Investments made
outside of London
Impact:
Improving access to
capital across the
UK, benefiting local
communities
Theme:
Social
KPI:
Number of portfolio
companies where
we have assisted in
identifying board / c-suite
members in the year
Impact:
Improving governance in
portfolio companies
Theme:
Governance
78%
52%
Impact
Assessed
36
20%
70%
74%
11
Responsible Investment ESG KPIs
Northern Venture Trust PLC
Annual Report and Financial Statements
34
Below is a summary of some of
the progress made this period:
Portfolio Engagement
Aſter a successful pilot scheme in
2021, this was the second period that
the investment adviser worked with
portfolio companies to complete ESG
surveys using the venture capital
specific framework developed
by ESG_VC. The questionnaire is
designed to assist unquoted portfolio
companies respond to ESG risks and
opportunities and how these are
considered as part of their operations.
The survey asks portfolio companies
a range of questions across key
environmental, social and governance
factors. It also asks them to indicate
the relevance of those to their
business, as well as their ability to
influence those factors.
The investment adviser believes that
this engagement with the portfolio
is important due to the following
reasons:
•
It encourages early-stage portfolio
companies to begin to engage with
ESG, or if later-stage, map their
current position and flag potential
focus areas.
•
It produces a data set for tracking
our performance in influencing
ESG factors within the portfolio,
and changes on a portfolio basis
over time.
•
It enables comparison between
portfolio companies, and when
aggregated with the anonymised
data of other venture capital
portfolio companies, allows the
investment adviser to determine
how best to target its support.
Over time the investment adviser
will use the insights gained from
these questionnaires to inform
how we target support for portfolio
companies, and the types of
investments it makes.
Shareholder communications
As part of the Board’s ongoing
commitment to reducing the
Company’s carbon emissions, and
in line with the process performed
in late 2021, letters requesting that
shareholders confirm their mailing
preferences are included alongside
all distributed printed copies of
this annual report. By reducing the
number of hard copy documents the
Board aims to reduce the Company’s
emissions from printing and postage.
As of the signing date of this report,
78% of shareholders are signed up
for electronic communications. If a
shareholder has elected to receive
paper communications, the Company
is no longer printing the interim
report but will advise them when this
report is available on the investment
adviser’s website.
Highlights and initiatives
Further investments into
sustainability-focused
companies
The Company continued to invest in
a number of sustainability-focused
and purpose-led companies in the
period and follow on investments
were also made into existing portfolio
companies. More detail on the
investment into Social Value Portal is
provided on page 38.
Northern Venture Trust PLC
Annual Report and Financial Statements
35
Environmental, social and governance
continued
Sustainable
economic
growth
•
Provide support for
entrepreneurship and SME growth
•
Support and promote job creation
and talent development
•
Focus on technological innovation
Reducing inequalities
within our
communities
•
Reduce inequalities across the UK and within UK regions
•
Empower and promote diversity and inclusion
Health &
wellbeing for all
•
Promote health and well-being
•
Support R&D of effective and essential treatments and other
healthcare services
The investment adviser to responsible investment, which is an investment approach that considers environmental, social,
and governance (ESG) factors in the investment decision-making process.
The investment adviser provides growth capital
and tailored investment solutions to thriving regional businesses to create long-term shareholder value. It has formed
a responsible investment committee, which meets monthly and comprises a number of employees from across the
business, including a number from the VCT investment team.
The investment adviser’s responsible investment committee ensures delivery against three guiding principles, inspired by
the UN’s Sustainable Development Goals (‘SDGs’):
Policies
The investment adviser has a number
of ESG-focused policies, including:
•
Origination and Investment Policy
•
Portfolio Value Creation Policy
•
Internal Values and Culture Policy
These policies guide the way in which
we invest and engage with portfolio
companies outlining best practice.
The investment adviser is currently
in the process of refreshing these
policies with a view to publishing
them in the next financial year.
Investment Process
ESG matters are considered when
reviewing investment opportunities.
Every investment paper has a section
where the investment team consider
any relevant ESG matters, which are
then discussed, where relevant, by the
investment committee before each
investment is approved.
The investment adviser’s approach to responsible investment
Embedding an ‘ESG mindset’
All of the investment adviser’s staff
have ESG objectives that are agreed
with their line manager as part of
the annual performance appraisal
process, and regular training
sessions are organised to develop the
investment team’s awareness of key
issues.
Outlook
The investment adviser will continue
to support the Company to develop
initiatives and support the Board’s
ESG agenda.
Northern Venture Trust PLC
Annual Report and Financial Statements
36
The Company is committed to
investing in companies that are aware
of their impact on the environment.
As part of the investment adviser’s
investment process, environmental
risks associated with potential
portfolio companies are evaluated.
The investment adviser encourages
portfolio companies to adopt
environmentally friendly practices
where possible by using the influence
of its investment team on each of the
portfolio company’s boards.
Carbon emission reporting
and SECR
The Streamlined Energy and Carbon
Reporting (SECR) is a UK regulation
that requires some large companies
to report on their energy use,
greenhouse gas emissions, and
energy efficiency measures in their
annual reports. The Company does
not own or lease its own premises
and does not employ any staff directly
and as the Company consumes
under 40MWh of energy per year, it
is deemed a ‘low energy user’ and
is therefore out of scope for SECR
reporting. The Company’s registered
office is at the investment adviser’s
head office, who have measured their
carbon emissions and offset them in
the most recent financial year.
Environmental
Investment adviser’s
carbon emissions
The investment adviser’s parent
company, Mercia Asset Management
PLC, is in the process of finalising its
second annual review of corporate
carbon emissions, in collaboration
with Positive Planet. It offset its
emissions for the year to March 2022,
and will look to do so again in 2023.
More information can be found in its
annual report.
Task Force on Climate-related
Financial Disclosures
The Company is not in scope for TCFD
and the investment adviser, due to its
total assets under management being
under £5 billion, is also out of scope.
The Company will seek to voluntarily
adopt any recommendations made
by the Task Force on Climate-related
Financial Disclosures (TCFD) which
fall within its investment mandate as
soon as reasonably practical.
Portfolio carbon
emissions reporting
Your board is acutely aware of
the importance of measuring and
reporting the impact of the Company’s
complete carbon impact, including
the impact of its investments in
portfolio companies. Due to the early
stage of its investee companies,
many do not have the systems or
resources in place to accurately record
emissions. The investment adviser
is therefore currently focused on
engaging with management teams
directly, raising engagement and
awareness through initiatives such
as the ESG_VC questionnaire. Instead
of providing emissions data based
on a large number of assumptions,
the investment adviser will continue
to monitor developments in carbon
reporting frameworks and engage
with third parties with the aim of
reporting on portfolio company level
activity once meaningful, auditable
data can be provided for the majority
of the portfolio.
Northern Venture Trust PLC
Annual Report and Financial Statements
37
Environmental, social and governance
continued
Diversity
Your Directors understand the
importance of promoting diversity of
the Company’s board. The ongoing
board succession plan seeks to
create a diverse group of experienced
individuals. The Board has 20%
representation from female directors.
The investment adviser has also
committed to encouraging diversity,
with several initiatives in place such
as:
•
Signing up to the Investing in
Women Code, a commitment
to support the advancement of
female entrepreneurship in the
female entrepreneurs’ access to
tools, resources and finance from
the financial services sector.
•
Committing to improving diversity
in its hiring practices, this has
resulted in two new female hires to
its dedicated VCT investment team
in the year to 31 March 2023.
•
It adheres to an Equal
Opportunities policy which values
and respects all employees,
irrespective of role, gender, race,
age, sexual orientation or religious
belief.
Social
National focus
The investment adviser has offices
across the UK, enabling local access to
its investment team by management
teams. This enables the Company to
invest in companies spread across the
country, not just in London. In total,
70% of the Company’s investment,
measured by value, is outside of
London.
Other initiatives
The investment adviser has a number
of programmes designed to support
social initiatives:
•
It actively encourages employees
to become involved in volunteering
and charitable
community
projects through initiatives such as
Mercia Spirit.
•
It seeks to engage with outreach
programmes to promote diversity
& inclusion within communities.
•
It seeks input from all of its
employees to ensure ongoing
balanced representation through a
formal committee structure.
Social Value Portal is a soſtware business that enables organisations to measure
their social value, using its proprietary framework and technology platform.
Social value is defined as the positive value businesses create for the economy,
communities and society as a whole. Quantification of social value is now
mandatory for those bidding for public sector work, however the ‘S’ in ESG
reporting has oſten been overlooked due to challenges in ascribing a pounds
and pence value to this nuanced, multi-faceted and oſten complex area.
Amount invested
The Northern VCTs invested £5.0 million in February 2023 alongside a
£1.5 million of co-investment from Mercia’s EIS funds.
Use of funds
Funding from this round will enable the business to expand on its efforts in the
UK private sector and capitalise on the in-bound demand it has seen from its
customers to offer its framework internationally.
Case Study:
Social Value Portal
Northern Venture Trust PLC
Annual Report and Financial Statements
38
As providers of Venture Capital with
a dedicated investment team of 15
professionals that attend portfolio
company board meetings, governance
is the area that your board and the
investment adviser strongly believe
the Company can make the biggest
difference.
Investment process
As part of our standard investment
process we look for companies with
independent and diverse boards,
robust internal controls, and a
commitment to ethical behaviour
and transparency. Management due
diligence is performed as part of the
investment process, feeding into
the decision process on whether to
invest. In addition, each investment
recommendation from the investment
adviser includes a dedicated section
discussing ESG specific risks and value
creation opportunities, encouraging
the investment adviser’s investment
team and management teams to
engage.
Governance
Portfolio talent and operating
partners
The investment adviser has appointed
a Head of Portfolio Talent to its
dedicated VCT investment team,
which will strengthen the team’s
credentials appointing and retaining
the most appropriate people in
portfolio companies. This forms
part of a wider strategy to create
value, and aligns the Board’s view
that strong corporate governance is
essential for long-term success. By
supporting portfolio companies and
surrounding them with experienced
individuals we seek to strengthen
each portfolio company’s internal
governance framework and provide a
strong culture to ‘do the right thing’.
Encouraging best practice and
value creation
By attending board meetings and
engaging with management teams,
the investment adviser aims to
encourage best practice. Examples
of this over the past 18 months have
been:
•
working with management teams
to ensure they had support during
the recent banking sector issues,
including strengthening their
treasury policies
•
enacting the investment adviser’s
KPI for the year to 31 March 2023 to
ensure that ESG was raised at least
once on a formal board agenda for
all companies
•
bringing portfolio CEOs together
for events to network and learn
from each other
Northern Venture Trust PLC
Annual Report and Financial Statements
39
The Directors present their
report and the audited
financial statements for the
18 month period ended
31 March 2023.
Activities and status
The principal activity of the Company
during the period was the making
of long-term equity and loan
investments, mainly in unquoted
companies.
The Directors have managed the
affairs of the Company with the
intention of maintaining its status as
an approved venture capital trust for
the purposes of Section 274 of the
Income Tax Act 2007. The Directors
consider that the Company was not
at any time up to the date of this
report a close company within the
meaning of Chapter 2 of Part 10 of
the Corporation Tax Act 2010. The
Company’s registered number is
03090163.
The Directors are required by the
articles of association to propose an
ordinary resolution at the Company’s
annual general meeting in 2027 that
the Company should continue as
a venture capital trust for a further
five year period, and at each fiſth
subsequent annual general meeting
thereaſter. Shareholders will be
asked to approve an amendment to
the Company’s articles of association
to extend the date of the annual
general meeting at which such
ordinary resolution will be proposed
to 2029. This will postpone the
continuation resolution until a
period of five years has elapsed from
the allotment of shares pursuant
to the proposed prospectus top-up
offer in the tax year 2023/24.
If any
such resolution is not passed, the
Directors shall within four months
convene an extraordinary general
meeting to consider proposals for the
reorganisation or winding-up of the
Company.
A consideration of the environmental
impact of the Company’s activities is
set out on page 37.
Corporate Governance
The statement on Corporate
Governance set out on pages 46 to 50
is included in the directors’ report by
reference.
Results and dividend
The return aſter tax for the period of
minus £9,923,000 has been deducted
from reserves.
The final dividend of 2.0 pence per
share in respect of the 18 month
period ended 30 September 2021,
and the two interim dividends
totalling 4.0 pence per share, in
respect of the 18 month period
ended 31 March 2023 were paid
during the period at a cost of
£9,890,000 and have been charged to
reserves.
The proposed final dividend of
2.0 pence per share for the 18 month
period ended 31 March 2023 will,
if approved by shareholders at the
Annual General Meeting, be paid on
18 August 2023 to shareholders on
the register on 21 July 2023.
Provision of information to the
auditor
Each of the Directors who held
office at the date of approval of this
directors’ report confirms that, so
far as they are aware, there is no
relevant audit information of which
the Company’s auditor is unaware
and that they have taken all the
steps that they could reasonably be
expected to have taken as directors
in order to make themselves aware
of any relevant audit information
and to establish that the Company’s
auditor is aware of that information.
Statement on long-term
viability
In accordance with the requirements
of the AIC Code of Corporate
Governance, the Directors have
assessed the prospects of the
Company over the three year period
to March 2026. The Directors consider
that for the purpose of this exercise
it is not practical or meaningful to
look forward over a period of more
than three years and that the period
is appropriate for a business of the
Company’s nature and size.
In making their assessment the
Directors have carried out a robust
review of the risk environment
in which the Company operates,
including those risks which might
threaten its business model or
future performance and the steps
taken with a view to their mitigation
(see page 21 for further details on
risk management). The Directors
have considered the ability of
the Company to comply on an
Directors’
Report
ongoing basis with the conditions
for maintaining VCT approved
status. The Directors have also
considered the nature of the
Company’s business, including its
substantial reserve of cash and
near-cash investments, the potential
of its venture capital portfolio
to generate future income and
capital proceeds and the ability of
the Directors to control the level
of future cash outflows arising
from share-buy backs, dividends
and investments. When assessing
the potential future cashflows of
the Company, the Directors have
considered various scenarios
including a ‘downside case’ where
potential cash inflows are severely
impacted by economic disruption
that equity funds raised, investment
realisations and investment income
all fall to nil. As detailed on page
48, the Management Engagement
Committee has also considered
the Company’s relationship with
the investment adviser, Mercia, by
reference to the performance of the
venture capital portfolio and the
expertise demonstrated by Mercia in
venture capital investment.
Taking into account the Company’s
current position and principal risks,
the Directors have concluded that
there is a reasonable expectation
that the Company will be able to
continue in operation over the three
year period and meet its liabilities as
they fall due over that period.
Northern Venture Trust PLC
Annual Report and Financial Statements
40
Going concern
The financial statements have been
prepared on a going concern basis.
The Directors performed an
assessment of the Company’s ability
to meet its liabilities as they fall due.
In performing this assessment, the
Directors took into consideration
the uncertain economic outlook
including:
•
the investments and liquid
resources held by the Company;
•
the fact that the Company has no
debt or capital commitments;
•
the ability of the Company to meet
all of its liabilities and ongoing
expenses from its assets, including
its period-end cash balance;
•
revenue and operating cost
forecasts for the forthcoming year;
•
the ability of third-party service
providers to continue to provide
services; and
•
potential downside scenarios
including a fall in the valuation of
the investment portfolio or levels
of investment income.
Based on this assessment, the
Directors are confident that the
Company will have sufficient funds
to continue to meet its liabilities as
they fall due for at least 12 months
from the date of approval of the
financial statements, and therefore
determine the going concern basis to
be appropriate.
An explanation of the significant
post-balance sheet events are given
in the investment realisations section
of the strategic report and in note 20
of the financial statements.
Directors
None of the Directors has a service
contract with the Company but
each Director is provided with a
letter of appointment.
Except as
mentioned below under the heading
‘Management’, no contract or
arrangement subsisted during or at
the end of the period in which any
director was materially interested
and which was significant in relation
to the Company’s business. A list of
each director who has served during
the period is given on page 45.
Director Diversity
In accordance with Listing Rules
9.8.6R(10), 9.8.6I G, 14.3.33R(2) and
14.3.36G, the Company confirms that
each of the Directors of the Company
was asked to confirm the gender that
they identify with and their ethnicity,
as of 31 March 2023.
The responses
have been collated and reflect the
following data:
Number
of Board
members
Percentage of
the Board
Number
of senior
positions on
the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage
of executive
management
Men
4
80%
100%
N/A
N/A
Women
1
20%
0%
N/A
N/A
Non-binary
N/A
N/A
All other gender identities
N/A
N/A
Prefer not to say
N/A
N/A
Number
of Board
members
Percentage of
the Board
Number
of senior
positions on
the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage
of executive
management
White British or other White (including minority
white groups)
5
100%
1
N/A
N/A
Mixed/multiple ethnic groups
N/A
N/A
Asian/Asian British
N/A
N/A
Black/African/ Caribbean/Black British
N/A
N/A
Other ethnic group, including Arab
N/A
N/A
Prefer not to say
N/A
N/A
In accordance with Listing Rules 9.8.6R(9) and 14.4.33R(1), the Company confirms that it is has not met the following
targets:
•
At least 40% of the Board are women.
•
At least one of the senior Board positions (Chair, Chief Executive Officer, Senior Independent Director or Chief
Financial Officer) is a woman.
•
At least one member of the Board is from a minority ethnic background, excluding those listed as coming from a
white ethnic background.
The Board recognises the importance, value and strength of having a diverse membership.
Although the key objective
with any board appointment is to recruit the best person for the job, the Board has strengthened its diversity in the most
recent Board appointment(s) and will continue to do so by ensuring the candidate search process utilises proven methods
of appealing to a diverse mix of applicants.
The Board is exclusively non-executive and as such only the position of Chair is relevant to the Board.
Further the
Company has not elected to appoint a Senior Independent Director.
Northern Venture Trust PLC
Annual Report and Financial Statements
41
Directors’ report
continued
Directors’ and officers’ liability
insurance
The Company has, as permitted by
the Companies Act 2006, maintained
insurance cover on behalf of the
Directors and secretary indemnifying
them against certain liabilities which
may be incurred by any of them in
relation to the Company.
Management
Mercia took over management of the
Company’s investment affairs on
23 December 2019 aſter the novation
of the pre-existing management
and investment advisory agreement
(management agreement) between
the Company and NVM Private
Equity LLP (NVM), who had acted
as investment adviser since the
Company’s inception. The principal
terms of the Company’s management
agreement with Mercia are set out in
Note 3 to the financial statements.
Prior to 31 March 2022 Mercia had
contractually delegated certain
of its duties to provide financial,
administrative and company
secretarial advice and services to NVM.
As of 31 March 2022 this agreement
ceased and all previously delegated
functions are now performed by
employees of Mercia.
The Management Engagement
Committee carries out a regular
review of the terms of Mercia’s
appointment with a view to ensuring
that Mercia’s remuneration is set at
an appropriate level, having regard
to the nature of the work carried out
and general market practice.
As required by the Listing Rules,
the Directors confirm that in their
opinion the continuing appointment
of Mercia as investment adviser on
the terms agreed is in the interests
of the Company’s shareholders as a
whole. In reaching this conclusion
the Directors have taken into account
the performance of the investment
portfolio and the efficient and
effective service provided by Mercia
to the Company.
Remuneration receivable by the
investment adviser
The remuneration receivable by
the investment adviser by virtue of
the management agreement with
Northern Venture Trust PLC comprises
the following:
Remuneration payable by
Northern Venture Trust PLC
Basic management fee:
the
investment adviser is entitled to
receive a basic annual management
fee equivalent to 2.06% of net assets,
calculated half-yearly as at 31 March
and 30 September. In consenting to
the novation of the management
agreement to Mercia in December
2019, it has been agreed that the
fee due on the value of liquid assets
above the threshold of £20 million
will continue to attract a reduced rate
of 1% per annum on a permanent
basis. In the 18 month period ended
31 March 2023 the basic annual
management fee was £3,243,000
(12 month ended 30 September 2021:
£2,316,000).
Performance-related management
fee:
the investment adviser is entitled
to receive an annual performance-
related management fee equivalent
to 15% of the total return in excess of
a formula-driven hurdle rate, details
of whose composition are set out in
Note 3 to the financial statements.
The annualised hurdle rate for the 18
month period ended 31 March 2023
was 6.1% (preceding year: 6.0%).
There was no performance-related
management fee due for the 18
month period ended 31 March 2023
(year ended 30 September 2021:
£2,538,000). There are amendments
proposed to the operation of the fee,
which are described in the Chair’s
Statement and the accompanying
circular.
Accounting and secretarial fee:
the
investment adviser is responsible for
providing accounting, administrative
and secretarial services to the
Company for a fee for the period of
£119,000 (preceding year: £74,000),
linked to the movement in the RPI.
The total remuneration payable in
aggregate to the investment adviser
by Northern Venture Trust PLC in
respect of the period, comprising
the basic management fee, the
performance related management fee
and the accounting and secretarial
fee, was £3,362,000 (year ended
30 September 2021: £4,928,000).
Under current tax legislation the
fees paid by the Company to the
investment adviser are not subject to
VAT. The total annual running costs
of the Company, including the basic
management fee and the accounting
and secretarial fee but excluding the
performance-related management
fee, are capped at 2.9% of average
net assets and any excess will be
refunded to the Company by way of a
reduction in the investment adviser’s
basic management fee. The annualised
running costs of the Company for the
18 month period ended 31 March 2023
were equivalent to 2.37% of average
net assets (year ended 30 September
2021: 2.33%).
Remuneration payable by
investee companies
Under the management agreement,
the investment adviser is entitled to
receive fees from investee companies
in respect of the arrangement of
investments and the provision of
non-executive directors and other
advisory services. The investment
adviser is responsible for paying
the due diligence and other costs
incurred in connection with proposed
investments which for whatever
reason do not proceed to completion.
In the 18 month period ended 31
March 2023 the arrangement fees
receivable by the investment adviser
from investee companies which were
attributable to investments made by
Northern Venture Trust PLC amounted
to £573,000 (year ended 30 September
2021: £358,000), and directors’ and
monitoring fees amounted to £572,000
(year ended 30 September 2021:
£418,000).
Executive co-investment
scheme
Since 2006 the Company has, together
with the other VCT funds managed
by Mercia, participated in a co-
investment scheme with the objective
of enabling the investment adviser
to recruit, retain and incentivise its
key investment personnel. Under the
scheme executives are required to
invest personally (and on the same
terms as the Company and other
VCT funds managed by Mercia) in
the ordinary share capital of every
unquoted investee company in
which the Company invests. Since
the novation of the management
agreement to Mercia, Mercia has
managed a new co-investment
scheme. The shares held by executives
can only be sold at such time as the
VCT funds advised by Mercia sell their
shares and any prior ranking loan
notes or preference shares held by
the funds having been repaid. The
executives participating in the scheme
jointly subscribe for 5.0% of the non-
yielding ordinary shares available to
the Northern VCT funds, except in the
case of investments where there is no
class of yielding securities, in which
case the executives jointly subscribe
for 1.0% of the non-yielding ordinary
shares available to the Northern
VCT funds. At 31 March 2023 the
Mercia co-investment scheme held
investments in 42 investee companies
acquired at a total cost of £567,000,
of which £176,000 was attributable to
investments made by the Company.
Northern Venture Trust PLC
Annual Report and Financial Statements
42
Share capital – purchase of
shares
During the period the Company
purchased for cancellation 7,335,532
of its own shares, representing 4.6%
of the called-up share capital of the
Company at the beginning of the
period, for a total consideration of
£4,570,000. Purchases were made
in line with the Company’s policy
of purchasing available shares at a
discount to net asset value. At the
general meeting held in January
2023 shareholders authorised the
Company to purchase in the market
up to 16,712,392 ordinary shares
(equivalent to approximately 10%
of the then issued ordinary share
capital) at a minimum price of 25
pence per share and a maximum
price per share of not more than
105% of the average market value for
the ordinary shares in the Company
for the five business days prior to the
date on which the ordinary shares
were purchased. As at 31 March 2023
this authority remained effective
in respect of 15,525,973 shares; the
authority will lapse at the conclusion
of the Annual General Meeting of the
Company on 21 July 2023.
The rights
attached to shares are detailed in the
Corporate Governance section on
page 49.
Share capital – issue of shares
During the period the Company
issued a total of 11,185,395
new ordinary shares, for a cash
consideration of £7,670,000.
At the
2022 annual general meeting, held
on 7 January 2022, shareholders
authorised the Company to allot
shares up to a maximum nominal
value of £10,610,265 (being
42,441,060 ordinary shares) as if any
rights of pre-emption did not apply
to such allotment. That authority
was due to lapse on the earlier of the
next annual general meeting of the
Company or 30 April 2023.
To ensure
that the Company had sufficient
and continuing authority to allot
new ordinary shares, at the general
meeting of the Company held on
12 January 2023, in substitution
of the authority granted at the
2022 annual general meeting,
shareholders authorised the
Company to allot shares up to
a maximum nominal value of
£8,356,196 (being 33,424,784
ordinary shares) as if any rights of
pre-emption did not apply to such
allotment.
As at 31 March 2023
this authority remained effective
in respect of 32,437,379 shares; the
authority will lapse at the conclusion
of the 2023 Annual General Meeting
of the Company on 21 July 2023.
The rights attaching to shares are
detailed in the Corporate Governance
section on page 49.
Fixed assets
Movements in fixed asset
investments during the period are
set out in Note 8 to the financial
statements.
Financial Instruments
The Company’s financial instruments
comprise its investment portfolio,
cash balances, debtors and creditors
that arise directly from its operations
such as sales and purchases awaiting
settlement and accrued income. The
financial risk management objectives
and policies arising from its financial
instruments and the exposure of the
Company to risk are disclosed in Note
17 to the financial statements.
Energy and carbon
The Company consumes under
40MWh of energy per year and is
deemed a ‘low energy user’ for the
Streamlined Energy and Carbon
Reporting (SECR) UK regulation, see
page 37 for more details.
Events aſter the balance sheet
date
Details of events aſter the balance
sheet date are in note 20 of the
financial statements on page 79.
Annual General Meeting
Notice of the 2023 Annual General
Meeting to be held on 21 July 2023
is set out in a separate circular to
shareholders along with explanatory
comments on the resolutions.
Substantial shareholdings
No disclosures of major shareholdings
had been made to the Company
under Disclosure and Transparency
Rule 5 (Vote Holder and Issuer
Notification Rules) as at the date of
this report.
Independent auditor
Mazars LLP have indicated their
willingness to continue as auditor
of the Company and resolutions to
re-appoint them and to authorise
the Audit Committee to fix their
remuneration will be proposed at the
Annual General Meeting.
By order of the Board
Mercia Company Secretarial
Services Limited
15 June 2023
Northern Venture Trust PLC
Annual Report and Financial Statements
43
Directors’
Remuneration Report
This report has been prepared by
the Directors in accordance with the
requirements of Section 410 of the
Companies Act 2006. A resolution to
approve the Directors’ Remuneration
Report will be proposed at the Annual
General Meeting on 21 July 2023.
The Company’s independent auditor,
Mazars LLP, is required to give its
opinion on certain information
included in this report, as indicated
below. The auditor’s report on these
and other matters is set out on pages
52 to 56.
Directors’ remuneration policy
The Board currently comprises five
directors, all of whom are non-
executive. The Board does not have a
separate Remuneration Committee,
as the Company has no employees
or executive directors. The Board has
established a Nomination Committee,
chaired by Mr S J Constantine and
comprising all of the Directors, which
meets annually (or more frequently
if required) to consider the selection
and appointment of directors and
to make recommendations to the
Board as to the level of directors’ fees.
The Board has not retained external
advisers in relation to remuneration
matters but has access to information
about directors’ fees paid by other
companies of a similar size and type.
The Board considers that directors’
fees should reflect the time
commitment required and the
high level of responsibility borne
by directors. It is not considered
appropriate that either new or
existing directors’ remuneration
should be performance-related, and
none of the Directors are eligible for
bonuses, pension benefits, share
options, long-term incentive schemes
or other benefits in respect of their
services as non-executive directors of
the Company. Mr T R Levett, who was
formerly a consultant to Mercia, the
Company’s investment adviser, has an
interest in the co-investment scheme
referred to in the directors’ report on
page 43.
The articles of association place an
overall limit (currently £200,000 per
annum) on directors’ remuneration.
The articles of association provide
that Directors shall retire and be
subject to re-election at the first
annual general meeting aſter their
appointment and that any director
who was not appointed or re-
appointed at one of the preceding
two annual general meetings shall
retire and be subject to re-election
at each annual general meeting. As
a matter of good practice, the Board
has adopted the 2019 AIC code
recommendation that all Directors
should seek annual re-election.
None of the Directors have a service
contract with the Company. On being
appointed or re-elected, Directors
receive a letter from the Company
setting out the terms of their
appointment and their specific duties
and responsibilities. A director’s
Table 1: Directors’ fees
18 month
period ended
31 Mar
2023
£
Year ended
30 Sep 2021
£
Year ended
30 Sep 2020
£
2023
change***
2021
change
2020
change
S J Constantine (Chair)
57,500
35,000
35,000
10%
–
–
N J Beer*
7,269
27,000
27,000
(82)%
–
–
R J Green
47,858
25,000
25,000
28%
–
–
D N Hudson**
36,250
–
–
–
–
–
T R Levett
30,000
–
–
–
–
–
D A Mayes
42,500
25,000
25,000
13%
–
–
H P Younger*
6,731
25,000
25,000
(82)%
–
–
Total
228,108
137,000
137,000
11%
–
–
* N J Beer and H P Younger resigned on 7 January 2022
** D N Hudson was appointed on 1 January 2022
*** 18 month period ended 31 March 2023 fees annualised for the purpose of this calculation
appointment may be terminated on
three months’ notice being given by
the Company and in certain other
circumstances. A director who ceases
to hold office is not entitled to receive
any payment other than accrued fees
(if any) for past services.
Directors’ remuneration for
the 18 month period ended
31 March 2023 (audited
information)
The fees paid to individual Directors in
respect of the eighteen months to
31 March 2023 and year ended
30 September 2021, which represent
the entire remuneration payable to
Directors, are shown in Table 1.
Northern Venture Trust PLC
Annual Report and Financial Statements
44
Return to shareholders in Northern Venture Trust PLC
150
140
130
120
110
100
90
80
2018
2019
2020
2021
2022
2023
Northern Venture Trust NAV total return
Northern Venture Trust share price total return
UK equity market index total return
Table 2: Directors’ interests in ordinary shares
15 June 2023
Number of
shares
31 March 2023
Number of
shares
30 September 2021
Number of
shares
S J Constantine (Chair)
498,428
376,335
376,335
N J Beer*
N/A
N/A
313,013
R J Green
296,247
296,247
296,247
D N Hudson**
42,086
42,086
N/A
T R Levett
467,785
467,785
467,785
D A Mayes
1,618,445
1,292,864
1,010,850
H P Younger*
N/A
N/A
186,621
* N J Beer and H P Younger resigned on 7 January 2022
** D N Hudson was appointed on 1 January 2022
Five years to 31 March 2023 (March 2018= 100)
Directors’ share interests
(audited information)
The interests of the Directors of the
Company (including the interests of
their connected persons) in the issued
ordinary shares of the Company, at
the beginning of the year, at the end
of the period and at the date of this
report, are shown in Table 2.
All of the Directors’ share interests
were held beneficially.
The Company has not set out any
formal requirements or guidelines to
Directors concerning their ownership
of shares in the Company.
Relative importance of spend
on pay
As the Company has no employees,
the Directors do not consider it
appropriate to present tables
comparing employee pay to that
of the Directors, or comparing
remuneration paid to employees with
distributions to shareholders.
Company performance
The graph opposite compares the
total return (assuming re-investment
of all dividends) to shareholders in the
Company over the five years ended
30 September 2021 with the total
return from a broad UK equity market
index over the same period.
Statement of voting at annual
general meeting
At the annual general meeting on
7 January 2022 the resolution to
approve the Directors’ Remuneration
Report for the year ended
30 September 2021 was approved
by a show of hands. 96.7% of the
proxy votes received in relation to
the resolution were either for or
discretionary.
At a general meeting
on 12 January 2023 the resolution to
approve the Directors’ remuneration
policy was approved by a show of
hands. 82.7% of the proxy votes
received in relation to the resolution
were either for or discretionary.
Statement by the Chair of the
Nomination Committee
In accordance with the Directors’
remuneration policy, Directors’ fees
were reviewed by the Nomination
Committee during its meeting on
24 February 2023. The Directors
decided there would be no increase
in Director’s fees which remain at
the levels effective since 1 April 2022,
£40,000 per annum for the Chair,
£35,000 per annum for the Chair of
the Audit Committee and £30,000 per
annum for other Directors.
By order of the Board
S J Constantine
Chair of the Nomination Committee
15 June 2023
Northern Venture Trust PLC
Annual Report and Financial Statements
45
Corporate
Governance
The Board of Northern Venture Trust
PLC has considered the principles and
recommendations of the Association
of Investment Companies Code of
Corporate Governance (AIC Code). The
AIC Code addresses the Principles and
Provisions set out in the UK Corporate
Governance Code (the UK Code),
as well as setting out additional
Provisions on issues that are of
specific relevance to the Company.
The Board considers that reporting
against the Principles and Provisions
of the AIC Code, which has been
endorsed by the Financial Reporting
Council, provides more relevant
information to shareholders than
reporting against the UK Code.
The Company is committed to
maintaining high standards in
corporate governance and during
the eighteen months ended 31
March 2023 has complied with the
Principles and Provisions of the AIC
Code, except as set out below. The AIC
Code is available on the AIC website
(www.theaic.co.uk). It includes an
explanation of how the AIC Code
adapts the Principles and Provisions
set out in the UK Code to make them
relevant for investment companies.
The UK Corporate Governance Code
includes provisions relating to the
role of the chief executive, executive
directors’ remuneration and the
need for an internal audit function.
For the reasons set out in the AIC
Code, and in the preamble to the
UK Corporate Governance Code, the
Board considers these provisions
are not relevant to the position of
Northern Venture Trust PLC, which is
an externally administered venture
capital trust. The Company has
therefore not reported further in
respect of these provisions.
Board of directors
The Company has a board of
five non-executive directors, the
majority of whom are considered to
be independent of the Company’s
investment adviser, Mercia Fund
Management Limited (Mercia) and
the majority of whom are considered
to be independent of the Company’s
previous investment adviser, NVM
Private Equity. The Board meets
regularly in person or by conference
call six times each year, and on other
occasions as required. The Board
is responsible to shareholders for
the effective stewardship of the
Company’s affairs and has a formal
schedule of matters specifically
reserved for its decision which
include:
•
consideration of long-term
strategic issues;
•
valuation of the unquoted
investment portfolio; and
•
ensuring the Company’s
compliance with good practice in
corporate governance matters.
A brief biographical summary of each
director is given on pages 12 and 13.
The Chair, Mr S J Constantine, leads
the Board in the determination of
its strategy and in the achievement
of its objectives. The Chair is
responsible for organising the
business of the Board, ensuring its
effectiveness and setting its agenda,
and has no involvement in the day
to day business of the Company. He
facilitates the effective contribution
of the Directors and ensures that
they receive accurate, timely and
clear information and that they
communicate effectively with
shareholders.
The Board has established a
formal process, led by the Chair,
for the annual evaluation of the
performance of the Board, its
principal Committees and individual
Directors. The Directors are made
aware on appointment that their
performance will be subject to
regular evaluation. The performance
of the Chair is evaluated by a meeting
of the other board members under
the leadership of Mr R J Green.
The Company Secretary, Mercia
Company Secretarial Services
Limited is responsible for advising
the Board through the Chair on
all governance matters. All of the
Directors have access to the advice
and services of the Company
Secretary, who has administrative
responsibility for the meetings
of the Board and its Committees.
Directors may also take independent
professional advice at the Company’s
expense where necessary in the
performance of their duties. As all
of the Directors are non-executive,
it is not considered appropriate to
identify a member of the Board as
the senior non-executive director of
the Company.
Regarding principle 6.2 (14) of the
AIC Code which recommends the
appointment of a senior independent
non-executive director to provide
a sounding board for the Chair and
serve as an intermediary for the
other directors and shareholders,
the Board has opted not to do so.
This matter is discussed annually
by the Nomination Committee, and
the recommendation considered by
the Board. The Board has concluded
that given the size and composition
of the Board (consisting entirely
of experienced non-executive
directors):
1. the Chair has the ability to use
each of the Directors as a sounding
board as required from time to
time;
2. the Board members have
confirmed that given the access
they have to the Chair, they do not
require another director to act as
an intermediary on their behalf.
The Directors don’t consider that
appointing a senior non-executive
would provide any benefit to
shareholders, who already have
the ability to contact the Company,
board and its investment adviser
through a variety of channels.
Providing another director as a
point of access would not enhance
this process.
3. Board members formally assess
the Chair’s performance annually
without input from the Chair and
there is no need to appoint a
senior non-executive in respect of
this process.
Northern Venture Trust PLC
Annual Report and Financial Statements
46
The Company’s articles of association
and the schedule of matters reserved
to the Board for decision provide that
the appointment and removal of the
Company Secretary is a matter for
the Board.
The articles of association provide
that Directors shall retire and be
subject to re-election at the first
annual general meeting aſter their
appointment and that any director
who was not appointed or re-
appointed at one of the preceding
two annual general meetings shall
retire and be subject to re-election
at each annual general meeting.
However the Board has as a matter of
good practice adopted the AIC Code
recommendation that all Directors
should seek annual re-election.
Independence of Directors
The Board regularly reviews the
independence of its members and
is satisfied that the Company’s
Directors are independent in
character and judgement and there
are no relationships or circumstances
which could affect their objectivity
(with the exception of Mr T R Levett
who was a consultant to Mercia, the
Company’s investment adviser from
23 December 2019 to 31 March 2022).
The AIC Code recommends that
where a director has served for more
than nine years, the Board should
state its reasons for believing that
the individual remains independent.
The Board is of the view that a term
of service in excess of nine years is
not in itself prejudicial to a director’s
or chair’s ability to carry out their
duties effectively and from an
independent perspective; the nature
of the Company’s business is such
that individual Directors’ experience
and continuity of board membership
can significantly enhance the
effectiveness of the Board as a
whole. The AIC Code (principle 7.22
(24)) recommends determining and
disclosing a policy on the tenure
of the Chair.
The Company does
not have a set limit on the tenure
of the members of the Board or the
Chair, however the Chair does follow
principle 12 of the AIC code, namely
that he avoids relationships which
might compromise independence
throughout their tenure. The
Board has as a matter of good
practice adopted the AIC Code
recommendation that all Directors
should seek annual re-election,
and acknowledges that regular
refreshment of its membership is
desirable.
Board Committees
The Board has appointed three
standing Committees to make
recommendations to the Board
in specific areas. The Board does
not have a separate Remuneration
Committee, as the Company has no
employees or executive directors.
Detailed information relating to the
remuneration of directors is given in
the Directors’ Remuneration Report
on pages 44 and 45.
Audit Committee
During the period, the Audit
Committee comprised:
Mr R J Green (Chair)
Mr S J Constantine
Mr N J Beer
(resigned 7 January 2022)
Ms D N Hudson
(appointed 1 January 2022)
Mr T R Levett
(appointed to the Committee 26 May 2022)
Mr D A Mayes
Mr H P Younger
(resigned 7 January 2022)
The Audit Committee’s terms of
reference include the following roles
and responsibilities:
•
monitoring and making
recommendations to the Board
in relation to the Company’s
published financial statements
and other formal announcements
relating to the Company’s financial
performance;
•
monitoring and making
recommendations to the Board
in relation to the valuation of the
Company’s unquoted investments;
•
monitoring and making
recommendations to the Board in
relation to the Company’s internal
control (including internal financial
control) and risk management
systems;
•
periodically considering the need
for an internal audit function;
•
making recommendations to
the Board in relation to the
appointment, re-appointment and
removal of the external auditor
and approving the remuneration
and terms of engagement of the
external auditor;
•
reviewing and monitoring the
external auditor’s independence
and objectivity and the
effectiveness of the audit process,
taking into consideration relevant
UK professional and regulatory
requirements;
•
monitoring the extent to which
the external auditor is engaged to
supply non-audit services; and
•
ensuring that the investment
adviser has arrangements in
place for the investigation and
follow-up of any concerns raised
confidentially by staff in relation to
the propriety of financial reporting
or other matters.
The Committee reviews its terms
of reference and its effectiveness
annually and recommends to the
Board any changes required as a
result of the review. The terms of
reference are available on request
from the Company Secretary and on
the Company’s website. The Audit
Committee ordinarily meets three
times per year and has direct access
to Mazars, the Company’s external
auditor. The Board considers that
the members of the Committee are
independent and have collectively
the skills and experience required
to discharge their duties effectively,
and that the Chair of the Committee
meets the requirements of the UK
Corporate Governance Code as
to recent and relevant financial
experience. We note that the Chair,
Mr S J Constantine, is a member of
the Audit Committee. Whilst this is
not compliant with the provisions of
the 2018 UK Corporate Governance
Code, it is compliant with the
provisions of the AIC Code. As all
members of the Audit Committee are
independent non-executive directors,
we believe that this is appropriate.
During the 18 month period ended
31 March 2023 the Company did
not have an independent internal
audit function as it is not deemed
necessary given the size of the
Company and the nature of the
Company’s business. However,
the Committee considers annually
whether there is a need for such a
function and if so would recommend
this to the Board.
During the 18 month period ended
31 March 2023 the Audit Committee
discharged its responsibilities by:
•
reviewing and approving the
external auditor’s terms of
engagement, remuneration and
independence;
•
reviewing the external auditor’s
plan for the audit of the
Company’s financial statements,
including identification of key
risks and confirmation of auditor
independence;
•
reviewing the investment adviser’s
statement of internal controls
operated in relation to the
Company’s business and assessing
the effectiveness of those controls
in minimising the impact of key
risks;
Northern Venture Trust PLC
Annual Report and Financial Statements
47
•
reviewing periodic reports on the
effectiveness of the investment
adviser’s compliance procedures;
•
reviewing the appropriateness
of the Company’s accounting
policies;
•
reviewing the Company’s draſt
annual financial statements and
half-yearly results statement prior
to board approval, including the
proposed fair value of investments;
•
reviewing the external auditor’s
detailed reports to the Committee
on the annual financial
statements;
•
reviewing the taxation advisers’
VCT status monitoring and
compliance reports; and
•
considering the effectiveness of
the external audit process.
The key area of risk that has been
identified and considered by the Audit
Committee in relation to the business
activities and financial statements
of the Company is the valuation and
existence of unquoted investments,
particularly in light of the significant
economic uncertainty caused by
COVID-19. Another important area of
risk that is considered by the Audit
Committee is compliance with HM
Revenue & Customs conditions for
maintenance of approved venture
capital trust status.
These issues were discussed with the
investment adviser and the auditor
at the pre-year end audit planning
meeting and at the conclusion of the
audit of the financial statements.
Valuation of unquoted investments:
the investment adviser confirmed
to the Audit Committee that the
investment valuations had been
carried out consistently with prior
periods and in accordance with
published industry guidelines,
(including the supplementary
guidance issued by IPEV in July
2022), taking account of the latest
available information about investee
companies and current market data.
The investment adviser highlighted
that the assessment of the future
prospects of portfolio companies was
subject to heightened estimation
uncertainty due to the COVID-19
pandemic. The Audit Committee
reviewed the estimates and
judgements used in the investment
valuations and was satisfied that the
final valuations are appropriate.
Venture capital trust status:
the
investment adviser confirmed to the
Audit Committee that the conditions
for maintaining the Company’s status
as an approved venture capital trust
had been complied with throughout
the period. The position was also
confirmed and reported on by
Philip Hare & Associates LLP in its
capacity as adviser to the Company
on taxation matters and the relevant
report was reviewed by the Audit
Committee.
The investment adviser and auditor
confirmed to the Audit Committee
that they were not aware of any
material misstatements. Having
reviewed the reports received from
the investment adviser and auditor,
the Audit Aommittee is satisfied that
the key areas of risk and judgement
have been appropriately addressed
in the financial statements and that
the significant assumptions used
in determining the value of assets
and liabilities have been properly
appraised and are sufficiently
robust. The Committee considers
that Mazars LLP has carried out its
duties as auditor in a diligent and
professional manner.
Following a detailed review of
the draſt annual report, the Audit
Committee concluded that, taken as
a whole, it was considered it to be
fair, balanced and understandable.
The Audit Committee recommended
to the Board that the Directors’
responsibilities statement in respect
of the annual report and the financial
statements, should be signed
accordingly.
The Committee regularly reviews and
monitors the auditor’s effectiveness
and independence. Mazars LLP has
confirmed that it is independent of
the Company and has complied with
the applicable auditing standards.
In accordance with professional
guidelines the engagement leader
is rotated aſter at most five years,
this is the third year that the current
partner has served. As part of its
review, the Committee considers
the nature and extent of non-audit
services supplied by the auditor, all
of which must be approved by the
Committee. There were no non-audit
services contracted for during the
period.
Nomination Committee
During the period the Nomination
Committee comprised:
Mr S J Constantine (Chair)
Mr N J Beer
(resigned 7 January 2022)
Mr R J Green
Ms D N Hudson
(appointed 1 January 2022)
Mr T R Levett
Mr D A Mayes
Mr H P Younger
(resigned 7 January 2022)
The Nomination Committee
considers the selection and
appointment of Directors and makes
annual recommendations to the
Board as to the level of Directors’
fees. The Committee monitors
the balance of skills, knowledge,
diversity and experience offered by
board members, and satisfies itself
that they are able to devote sufficient
time to carry out their role efficiently
and effectively. When recommending
new appointments to the Board the
Committee draws on its members’
extensive business experience and
range of contacts to identify suitable
candidates and would consider
the use of formal advertisements
and external consultants where
appropriate. The Committee
recognises the benefits of diversity
in the constitution of the Board and
it is the Committee’s intention that
the diversity of representation on the
Board will continue to increase over
time. New directors are provided
with briefing material relating to the
Company, its investment adviser and
the venture capital industry as well
as to their own legal responsibilities
as directors. The Committee has
written terms of reference which are
reviewed annually and are available
on request from the Company
Secretary and on the Company’s
website.
Management Engagement
Committee
During the period the Management
Engagement Committee comprised:
Mr S J Constantine (Chair)
Mr N J Beer
(resigned 7 January 2022)
Mr R J Green
Ms D N Hudson
(appointed 1 January 2022)
Mr T R Levett
(appointed to the Committee 7 February 2023)
Mr D A Mayes
Mr H P Younger
The Management Engagement
Committee undertakes a periodic
review of the performance of the
investment adviser, Mercia, and
of the terms of the management
agreement including the level of fees
payable and the length of the notice
period. The principal terms of the
agreement are set out in Note 3 to
the financial statements on page 64.
Following the latest review by the
Committee, the Board concluded
that the continuing appointment
of Mercia was in the interests of the
Company and its shareholders as
a whole. Mercia has demonstrated
its commitment to, and expertise
in, venture capital investment since
their appointment. Mercia has also
performed its company secretarial
and accounting duties efficiently and
effectively.
Corporate governance
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
48
Attendance at Board and Committee meetings
Table 1 sets out the number of substantive Board and Committee meetings
held during the 18 month period ended 31 March 2023 and the number
attended by each director compared with the maximum possible attendance.
Table 1: Directors’ attendance at meetings
Board
Audit
committee
Nomination
committee
Management
engagement
committee
Number of meetings held
7*
6
2
2
Attendance (actual/possible):
S J Constantine (Chairman)
7/7
6/6
2/2
2/2
N J Beer
(resigned 7 January 2022)
1/1
1/1
N/A
1/1
R J Green
7/7
6/6
2/2
2/2
D N Hudson
(appointed 1 January 2022)
6/6
5/6
2/2
2/2
T R Levett
6/7
3/4
1/2
2/2**
D A Mayes
6/7
5/6
2/2
2/2
H P Younger
(resigned 7 January 2022)
1/1
1/1
N/A
N/A
*In addition to the sixseven meetings of the Board held in person during the year, there were a further twenty
nine meetings held by conference call
** Mr Levett attended one meeting as an attendee and one meeting as a Committee member
Corporate responsibility
The Board aims to ensure that the
Company takes a positive approach
to corporate responsibility, in relation
both to itself and to the companies
it invests in. This entails maintaining
a responsible attitude to ethical,
environmental, governance and social
issues, and the encouragement of
good practice in investee companies.
The Board seeks to avoid investing
in companies which do not operate
within relevant ethical, environmental
and social legislation or otherwise fail
to comply with appropriate industry
standards.
Investor relations
In fulfilment of the Chair’s obligations
under the UK Corporate Governance
Code, the Chair gives feedback to
the Board on any issues raised with
him by shareholders with a view to
ensuring that members of the Board
develop an understanding of the views
of shareholders about their company.
The Board recognises the value of
maintaining regular communications
with shareholders. Formal reports
are sent to shareholders at the half-
year and year end stages, and an
opportunity is given to shareholders
at the annual general meeting
to question the Board and the
investment adviser on matters relating
to the Company’s operation and
performance. The investment adviser
holds an annual VCT investor seminar
to which shareholders are invited.
Proxy voting figures for each resolution
are announced at general meetings
and are made available publicly
following the relevant meeting.
Further information can also be
obtained via the Company’s website.
Internal control
The Directors have overall
responsibility for ensuring that
there are in place robust systems
of internal control, both financial
and non-financial, and for reviewing
their effectiveness. The purpose of
the internal financial controls is to
ensure that proper accounting records
are maintained, the Company’s
assets are safeguarded and the
financial information used within
the business and for publication is
accurate and reliable; such a system
can provide only reasonable and
not absolute assurance against
material misstatement or loss. The
Board regularly reviews financial
performance and results with the
investment adviser. Responsibility for
accounting and secretarial services
has been contractually delegated
to Mercia under the management
agreement. Mercia has established
its own system of internal controls
in relation to these matters, details
of which have been reviewed by the
Audit Committee.
Non-financial internal controls
include the systems of operational
and compliance controls maintained
by the investment adviser in relation
to the Company’s business as well
as the management of key risks as
referred to in the section headed ‘Risk
management’ below.
The Directors confirm that by means
of the procedures set out above,
and in accordance with ‘Guidance
on Risk Management, Internal
Control and Related Financial and
Business Reporting’, published by the
Financial Reporting Council, they have
established a continuing process for
identifying, evaluating and managing
the significant potential risks faced by
the Company and have reviewed the
effectiveness of the internal control
systems. This process has been in
place throughout, and subsequent, to
the accounting period under review.
Risk management
Risk management is discussed in the
strategic report on page 21.
Share capital, rights attaching
to the shares and restrictions
on voting and transfer
As at 31 March 2023 there were
164,920,166 ordinary shares in issue
(as at that date none of the issued
shares were held by the Company
as treasury shares). Subject to any
suspension or abrogation of rights
pursuant to relevant law or the
Company’s articles of association,
the shares confer on their holders
(other than the Company in respect
of any treasury shares) the following
principal rights:
(a) the right to receive out of profits
available for distribution such
dividends as may be agreed to be
paid (in the case of a final dividend
in an amount not exceeding the
amount recommended by the
Board as approved by shareholders
in general meeting or in the case of
an interim dividend in an amount
determined by the Board). All
dividends unclaimed for a period
of 12 years aſter having become
due for payment are forfeited
automatically and cease to remain
owing by the Company;
(b) the right, on a return of assets on a
liquidation, reduction of capital or
otherwise, to share in the surplus
assets of the Company remaining
aſter payment of its liabilities pari
passu with the other holders of
ordinary shares; and
Northern Venture Trust PLC
Annual Report and Financial Statements
49
(c) the right to receive notice of and
to attend and speak and vote in
person or by proxy at any general
meeting of the Company. On a
show of hands every member
present or represented and voting
has one vote and on a poll every
member present or represented
and voting has one vote for every
share of which that member is the
holder; the appointment of a proxy
must be received not less than
48 hours before the time of the
holding of the relevant meeting or
adjourned meeting or, in the case
of a poll taken otherwise than at
or on the same day as the relevant
meeting or adjourned meeting, be
received aſter the poll has been
demanded and not less than 24
hours before the time appointed
for the taking of the poll.
These rights can be suspended.
If a member, or any other person
appearing to be interested in shares
held by that member, has failed
to comply within the time limits
specified in the Company’s articles
of association with a notice pursuant
to Section 793 of the Companies Act
2006 (notice by company requiring
information about interests in its
shares), the Company can until the
default ceases suspend the right to
attend and speak and vote at a general
meeting and if the shares represent at
least 0.25% of their class the Company
can also withhold any dividend or
other money payable in respect of the
shares (without any obligation to pay
interest) and refuse to accept certain
transfers of the relevant shares.
Shareholders, either alone or with
other shareholders, have other rights
as set out in the Company’s articles
of association and in the Companies
Act 2006.
A member may choose whether
their shares are evidenced by share
certificates (certificated shares) or
held in electronic (uncertificated)
form in CREST (the UK electronic
settlement system). Any member
may transfer all or any of their shares,
subject in the case of certificated
shares to the rules set out in the
Company’s articles of association or
in the case of uncertificated shares
to the regulations governing the
operation of CREST (which allow
the Directors to refuse to register
a transfer as therein set out); the
transferor remains the holder of
the shares until the name of the
transferee is entered in the register of
members. The Directors may refuse
to register a transfer of certificated
shares in favour of more than four
persons jointly or where there is no
adequate evidence of ownership or
the transfer is not duly stamped (if
so required). The Directors may also
refuse to register a share transfer if
it is in respect of a certificated share
which is not fully paid up or on which
the Company has a lien provided
that, where the share transfer is in
respect of any share admitted to the
Official List maintained by the UK
Listing Authority, any such discretion
may not be exercised so as to prevent
dealings taking place on an open and
proper basis, or if in the opinion of the
Directors (and with the concurrence of
the UK Listing Authority) exceptional
circumstances so warrant, provided
that the exercise of such power
will not disturb the market in those
shares. Whilst there are no squeeze-
out and sell out rules relating to the
shares in the Company’s articles
of association, shareholders are
subject to the compulsory acquisition
provisions in Sections 974 to 991 of
the Companies Act 2006.
Amendment of articles of
association
The Company’s articles of association
may be amended by the members of
the Company by special resolution
(requiring a majority of at least 75%
of the persons voting on the relevant
resolution).
Appointment and replacement
of Directors
A person may be appointed as a
Director of the Company by the
shareholders in a general meeting
by ordinary resolution (requiring
a simple majority of the persons
voting on the relevant resolution) or
by the Directors; no person, other
than a director retiring by rotation
or otherwise, shall be appointed
or re-appointed as director at any
general meeting unless he or she is
recommended by the Directors or,
not less than seven or more than 42
clear days before the date appointed
for the meeting, notice is given to the
Company of the intention to propose
that person for appointment or re-
appointment in the form and manner
set out in the Company’s articles of
association.
Each Director who is appointed by
the Directors (and who has not been
elected as a Director of the Company
by the members at a general meeting
held in the interval since their
appointment as a Director of the
Company) is to be subject to election
as a Director of the Company by the
members at the first annual general
meeting of the Company following
their appointment. At each annual
general meeting of the Company, any
director who was not appointed or
re-appointed at one of the preceding
two annual general meetings shall
retire and be subject to re-election.
As a matter of good practice, the
Board has adopted the AIC code
recommendation that all Directors
should seek annual re-election.
The Companies Act 2006 allows
shareholders in general meeting
by ordinary resolution (requiring a
simple majority of the persons voting
on the relevant resolution) to remove
any director before the expiration
of his or her period of office, but
without prejudice to any claim for
damages which the director may have
for breach of any contract of service
between him or her and the Company.
A person also ceases to be a director
if he or she resigns in writing, ceases
to be a Director by virtue of any
provision of the Companies Act,
becomes prohibited by law from
being a director, becomes bankrupt or
is the subject of a relevant insolvency
procedure, or becomes of unsound
mind, or if the Board so decides
following at least six months’ absence
without leave or if he or she becomes
subject to relevant procedures under
the mental health laws, as set out in
the Company’s articles of association.
Powers of the Directors
The Company’s articles of association
specify that, subject to the provisions
of the Companies Act 2006 and
articles of association of the
Company and any directions given by
shareholders by special resolution,
the business of the Company is to
be managed by the Directors, who
may exercise all the powers of the
Company, whether relating to the
management of the business or not,
except where the Companies Act
2006 or the articles of association of
the Company otherwise require. In
particular the Directors may exercise
on behalf of the Company its powers
to purchase its own shares to the
extent permitted by shareholders.
Authority was given at the Company’s
2022 annual general meeting to make
market purchases of up to 16,712,392
ordinary shares at any time up to the
2023 annual general meeting and
otherwise on the terms set out in the
relevant resolution, and authority is
being sought at the annual general
meeting to be held on 21 July 2023 as
set out in a separate circular.
By order of the Board
Mercia Company Secretarial
Services Limited
15 June 2023
Corporate governance
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
50
Directors’
Responsibilities Statement
The Directors are responsible for
preparing the annual report and
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
are required to prepare the financial
statements in accordance with UK
accounting standards, including FRS
102 ‘The Financial Reporting Standard
applicable in the UK and Republic of
Ireland’.
Under company law the Directors
must not approve the financial
statements unless they are satisfied
that they give a true and fair view of
the state of affairs of the Company
and of its profit or loss for the
period.
In preparing these financial
statements, the Directors are required
to:
•
select suitable accounting policies
and then apply them consistently;
•
make judgements and estimates
that are reasonable and prudent;
•
state whether applicable UK
accounting standards have been
followed, subject to any material
departures disclosed and explained
in the financial statements;
•
assess the Company’s ability
to continue as a going concern,
disclosing, as applicable, matters
related to going concern; and
•
use the going concern basis of
accounting unless they either
intend to liquidate the Company
or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Company’s transactions and
disclose with reasonable accuracy
at any time the financial position of
the Company and enable them to
ensure that its financial statements
comply with the Companies Act
2006.
They are responsible for such
internal control as they determine is
necessary to enable the preparation
of financial statements that are free
from material misstatement, whether
due to fraud or error, and have general
responsibility for taking such steps
as are reasonably open to them to
safeguard the assets of the Company
and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a strategic report, directors’
report, Directors’ Remuneration
Report and Corporate Governance
statement that complies with that law
and those regulations.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of
the Directors in respect of the
annual report and financial
statements for the 18 month
period ended 31 March 2023
We confirm that to the best of our
knowledge:
•
the financial statements, prepared
in accordance with the applicable
set of accounting standards, give
a true and fair view of the assets,
liabilities, financial position and
profit or loss of the Company; and
•
the strategic report and directors’
report includes a fair review of the
development and performance
of the business and the position
of the issuer, together with a
description of the principal risks
and uncertainties that they face.
We consider the annual report and
accounts, taken as a whole, is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the
Company’s position and performance,
business model and strategy.
By order of the Board
Mercia Company Secretarial
Services Limited
15 June 2023
Northern Venture Trust PLC
Annual Report and Financial Statements
51
Independent
Auditor’s Report
Opinion
We have audited the financial
statements of Northern Venture Trust
PLC (‘the company’) for the 18 month
period ended 31 March 2023 which
comprise the income statement,
the balance sheet, the statement of
changes in equity, the statement of
cash flows and notes to the financial
statements, including a summary of
significant accounting policies.
The financial reporting framework
that has been applied in their
preparation is applicable law
and United Kingdom Accounting
Standards, including FRS 102,
‘The Financial Reporting Standard
applicable in the UK and Republic of
Ireland’ (United Kingdom Generally
Accepted Accounting Practice).
In our opinion, the financial
statements:
•
give a true and fair view of the
state of the company’s affairs
as at 31 March 2023 and of the
company’s return for the period
then ended;
•
have been properly prepared in
accordance with United Kingdom
Generally Accepted Accounting
Practice; and
•
have been prepared in accordance
with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance
with International Standards
on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities
under those standards are
further described in the ‘Auditor’s
responsibilities for the audit of the
financial statements’ section of
our report. We are independent of
the company in accordance with
the ethical requirements that are
relevant to our audit of the financial
statements in the UK, including the
FRC’s Ethical Standard as applied
to listed entities and public interest
entities, and we have fulfilled our
other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence
we have obtained is sufficient and
appropriate to provide a basis for our
opinion.
Conclusions relating to going
concern
In auditing the financial statements,
we have concluded that the directors’
use of the going concern basis of
accounting in the preparation of the
financial statements is appropriate.
Our audit procedures to evaluate
the directors’ assessment of the
company’s ability to continue to
adopt the going concern basis of
accounting included but were not
limited to:
•
undertaking an initial assessment
at the planning stage of the audit
to identify events or conditions
that may cast significant doubt on
the company’s ability to continue
as a going concern;
•
reviewing the directors’ going
concern assessment that includes
the analysis of the company’s,
medium term viability over the
three years to 31 March 2026, as
well as a ‘most likely’ (base case)
scenario and a ‘downside case’
scenario, as approved by the Board
of Directors on 26 May 2023;
•
making enquiries of the directors
to understand the period of
assessment they considered,
the assumptions made, the
completeness of adjustments
made, and the implication of those
when assessing the ‘base case’
scenario and the ‘downside case’
scenario. This included examining
the minimum cash inflow and
committed outgoings;
•
assessing the cash flow forecasts
for the ‘base case’ and ‘downside
case’ scenarios and evaluating
whether the directors’ conclusion
on the liquidity position of the
company under both scenarios is
reasonable;
•
considering the consistency of
the directors’ forecasts with other
areas of the financial statements
and our audit; and
•
evaluating the appropriateness
of the directors’ disclosures in
the financial statements on going
concern.
Based on the work we have
performed, we have not identified
any material uncertainties relating to
events or conditions that, individually
or collectively, may cast significant
doubt on the company’s ability to
continue as a going concern for a
period of at least twelve months from
when the financial statements are
authorised for issue.
Our responsibilities and the
responsibilities of the directors
with respect to going concern are
described in the relevant sections of
this report.
In relation to the company’s
reporting on how it has applied the
UK Corporate Governance Code,
we have nothing material to add or
draw attention to in relation to the
directors’ statement in the financial
statements about whether the
directors’ considered it appropriate
to adopt the going concern basis of
accounting.
Key audit matters
Key audit matters are those matters
that, in our professional judgement,
were of most significance in our audit
of the financial statements of the
current period and include the most
significant assessed risks of material
misstatement (whether or not due to
fraud) we identified, including those
which had the greatest effect on: the
overall audit strategy; the allocation
of resources in the audit; and directing
the efforts of the engagement team.
These matters were addressed in the
context of our audit of the financial
statements as a whole, and in forming
our opinion thereon, and we do not
provide a separate opinion on these
matters.
We summarise below the key audit
matters in forming our audit opinion
above, together with an overview
of the principal audit procedures
performed to address each matter
and key observations arising from
those procedures.
Northern Venture Trust PLC
Annual Report and Financial Statements
52
These matters, together with our findings, were communicated to those charged with governance through our Audit Completion Report.
Key Audit Matter
How our scope addressed this matter
Valuation and existence of the unquoted
investments portfolio
(as described on page 48 in the Audit
Committee Report and as per the accounting
policy note set out on page 62)
Unquoted investments held as of 31 March
2023 were valued at £76,444,000as at 31
March 2023 (Year ended September 2021:
£74,312,000)
The company has a significant portfolio of
unquoted investments. These are measured
at fair value, which is in accordance with the
International Private Equity and Venture
Capital Valuation Guidelines by using
measurements of value such as price of
recent transactions subsequently calibrated,
earnings multiples, and net assets. Therefore,
the valuations methodologies incorporate a
significant level of judgements to ascertain
fair value under each method.
There is therefore a risk that the judgements
made under each methodology may lead to
a material misstatement of the investment
values. Additionally, there is a risk that
investments recorded might not exist.
We therefore identified the valuation and
existence of unquoted investments as a key
audit matter, as it had a significant effect on
our overall audit strategy and our allocation
of resources, including the involvement of
more senior members of the audit team.
Our audit work included but was not limited to:
•
understanding and evaluating management’s process
around investment recording and valuations;
•
we engaging our internal valuation specialists as [art of the
audit team to perform the below procedures:
•
considering whether the techniques and methodologies
applied for valuing the sample of unquoted investments
were in accordance with published guidance, principally the
International Private Equity and Venture Capital Valuation
Guidelines. This included reviewing and challenging
the principles and assumptions used in the valuation of
investments;
•
for investments valued using the recent transaction method,
we obtained an understanding of the circumstances
surrounding the transaction and whether it was considered
to be carried out on an arms-length basis and therefore
suitable as an input to the valuation;
•
for investments valued using the earning multiple, we
reviewed the reasonableness of the multiple used when
compared to similar companies in the market. We also
agreed the inputs, such as holdings and earning figures used,
to supporting evidence;
•
for investments valued aſter latest funding round, we
recalculated the enterprise value used by obtaining
supporting evidence (i.e. share and loan certificates and
bank statements).
•
examining past date comparison points to understand
variations in data and valuation model drivers;
•
ascertaining the existence of investment holdings by
agreeing the holdings to share certificates and loan
certificates, and reviewing Companies House documentation
to verify total share capital of the investees; and
•
reviewing the adequacy and appropriateness of disclosures
of unquoted investments in accordance with relevant
accounting standards, including considerations of the
potential effect of changing one or more inputs to reasonably
possible alternative valuation assumptions.
Our observations
Based on the work performed and evidence obtained, we found
that the valuation of the unquoted investments
as at 31 March
2023 to be reasonable and are performed in accordance with
guidelines stated above.
Key Audit Matter
How our scope addressed this matter
Risk of fraud in revenue recognition
(as per the accounting policy note set out on
page 62)
The company has recognised significant
income earned on its investments in
its income statement. According to the
Statement of Recommended Practice issued
by the Association of Investment Companies
(‘AIC SORP’), recognition of revenue
relies upon evidence such as dividend
announcements and distribution notices,
with an emphasis on timely recognition on
an accruals basis and accurate separation
between capital and income items.
We therefore identified accuracy,
completeness and cut-off of revenue as a key
audit matter, as it had a significant effect on
our overall audit strategy and our allocation
of resources, including the involvement of
more senior members of the audit team.
Our audit work included but was not limited to:
•
understanding and assessing management’s process for
revenue recognition, including considering whether the
processes for revenue recognition are in accordance with
the requirements of United Kingdom Generally Accepted
Accounting Practice and the AIC SORP;
•
for income from quoted investments, forming an
expectation for a selected sample of income using dividend
announcements on recognised stock exchanges, where
applicable, and checking the point of recognition, including
further detailed testing on dividend announcements one
month either side of the period-end to verify that dividends
were recorded in the correct period and tracing to bank
statements;
•
for income from unquoted investments, agreeing a sample of
dividends to distribution notices from the investees and cash
receipts during the period directly from investees’ funds;
•
for a sample of interest income on interest-bearing unquoted
investments, verifying the key input data and re-performing
the calculation of income received, as well as agreeing to
cash receipts;
•
for a sample of interest income on money market fund
agreeing to the bank letters and the evidence of the cash
receipts;
•
testing the realised movements on investments by agreeing
the proceeds to bank statements and investment sale
agreements, as well as recalculating the movement based on
book cost and proceeds; and
•
performing cut-off testing to verify that dividend income and
any investment sales during the period have been recorded
in the appropriate period.
Our observations
Based on the work performed and evidence obtained, we
consider the methodology used in recognising revenue to be
appropriate.
Northern Venture Trust PLC
Annual Report and Financial Statements
53
Our application of materiality and an overview of the scope of
our audit
The scope of our audit was influenced by our application of materiality. We set
certain quantitative thresholds for materiality. These, together with qualitative
considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement
line items and disclosures and in evaluating the effect of misstatements,
both individually and on the financial statements as a whole. Based on our
professional judgement, we determined materiality for the financial statements
as a whole as follows:
Overall materiality
£998,000 (Year ended September 2021: £1,218,360)
How we determined it
The overall materiality level has been calculated with
reference to the company’s net assets, of which it represents
approximately 1% (Year ended September 2021: 1% of net
assets).
Rationale for benchmark
applied
Net assets have been identified as the principal benchmark
within the financial statements as they are considered to be
the main focus of the shareholders. The significant degree
of judgements underpinning the valuation of unquoted
investments is the main rationale behind the risk of error we
identified in the valuations that could give rise to a material
misstatement. 1% has been chosen as it is a generally
accepted auditing practice for investment trust audits and
the Company is a public interest entity.
Performance materiality
Performance materiality is set to reduce to an appropriately
low level the probability that the aggregate of uncorrected
and undetected misstatements in the financial statements
exceeds materiality for the financial statements as a whole.
Based on our risk assessments, together with our
assessment of the overall control environment and the
consideration of our previous audit experience with
the company, our performance materiality was set at
£749,000 (Year ended September 2021: £36,551), which
is approximately 75% of overall materiality (Year ended
September 2021: 65%).
Reporting threshold
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£30,000 (Year ended
September 2021: £36,551) as well
as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
As part of designing our audit,
we assessed the risk of material
misstatement in the financial
statements, whether due to fraud
or error, and then designed and
performed audit procedures
responsive to those risks. In particular,
we looked at where the directors
made subjective judgements such as
making assumptions on significant
accounting estimates.
We tailored the scope of our audit to
ensure that we performed sufficient
work to be able to give an opinion
on the financial statements as a
whole. We used the outputs of a risk
assessment, our understanding of the
company, its environment, controls
and critical business processes,
to consider qualitative factors in
order to ensure that we obtained
sufficient coverage across all financial
statement line items.
Other information
The other information comprises the
information included in the annual
report other than the financial
statements and our auditor’s report
thereon. The directors are responsible
for the other information. Our opinion
on the financial statements does
not cover the other information
and, except to the extent otherwise
explicitly stated in our report, we do
not express any form of assurance
conclusion thereon.
Our responsibility is to read the
other information and, in doing
so, consider whether the other
information is materially inconsistent
with the financial statements, or our
knowledge obtained in the course
of audit or otherwise appears to be
materially misstated. If we identify
such material inconsistencies or
apparent material misstatements,
we are required to determine
whether this gives rise to a material
misstatement in the financial
statements themselves. If, based
on the work we have performed,
we conclude that there is a
material misstatement of this other
information, we are required to report
that fact.
We have nothing to report in this
regard.
Opinions on other matters
prescribed by the Companies
Act 2006
In our opinion, the part of the
directors’ remuneration report to be
audited has been properly prepared
in accordance with the Companies Act
2006.
In our opinion, based on the work
undertaken in the course of the audit:
•
the information given in the
strategic report and the directors’
report for the period for which the
financial statements are prepared
is consistent with the financial
statements and those reports have
been prepared in accordance with
applicable legal requirements;
•
the information about internal
control and risk management
systems in relation to financial
reporting processes and about
share capital structures, given
in compliance with rules 7.2.5
and 7.2.6 in the Disclosure
Guidance and Transparency Rules
sourcebook made by the Financial
Conduct Authority (the FCA Rules),
is consistent with the financial
statements and has been prepared
in accordance with applicable legal
requirements; and
•
information about the company’s
corporate governance code
and practices and about its
administrative, management
and supervisory bodies and their
committees complies with rules
7.2.2, 7.2.3 and 7.2.7 of the FCA
Rules.
Matters on which we are
required to report by exception
In light of the knowledge and
understanding of the company and its
environment obtained in the course
of the audit, we have not identified
material misstatements in;
•
the strategic report or the
directors’ report; or
•
the information about internal
control and risk management
systems in relation to financial
reporting processes and about
share capital structures, given in
compliance with rules 7.2.5 and
7.2.6 of the FCA Rules.
Independent Auditor’s Report
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
54
We have nothing to report in respect
of the following matters in relation
to which the Companies Act 2006
requires us to report to you if, in our
opinion:
•
adequate accounting records have
not been kept by the company,
or returns adequate for our audit
have not been received from
branches not visited by us; or
•
the company financial statements
and the part of the directors’
remuneration report to be audited
are not in agreement with the
accounting records and returns; or
•
certain disclosures of directors’
remuneration specified by law are
not made; or
•
we have not received all the
information and explanations we
require for our audit; or
•
a corporate governance statement
has not been prepared by the
company.
Corporate governance
statement
The Listing Rules require us to review
the directors’ statement in relation to
going concern, longer-term viability
and that part of the Corporate
Governance Statement relating to
the company’s compliance with
the provisions of the UK Corporate
Governance Statement specified for
our review.
Based on the work undertaken as
part of our audit, we have concluded
that each of the following elements
of the Corporate Governance
Statement is materially consistent
with the financial statements or our
knowledge obtained during the audit:
•
directors’ statement with regards
the appropriateness of adopting the
going concern basis of accounting
and any material uncertainties
identified set out on page 41;
•
directors’ explanation as to
its assessment of the entity’s
prospects, the period this
assessment covers and why this is
appropriate set out on page 40.
•
directors’ statement on fair,
balanced and understandable set
out on page 51;
•
board’s confirmation that it has
carried out a robust assessment of
the emerging and principal risks set
out on page 49;
•
the section of the annual report
that describes the review of
effectiveness of risk management
and internal control systems set out
on page 21; and;
•
the section describing the work
of the audit committee set out on
page 47.
Responsibilities of directors
As explained more fully in the
directors’ responsibilities statement
set out on page 47, the directors are
responsible for the preparation of the
financial statements and for being
satisfied that they give a true and fair
view, and for such internal control as
the directors determine is necessary
to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud
or error.
In preparing the financial statements,
the directors are responsible for
assessing the company’s ability
to continue as a going concern,
disclosing, as applicable, matters
related to going concern and using
the going concern basis of accounting
unless the directors either intend to
liquidate the company or to cease
operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
for the audit of the financial
statements
Our objectives are to obtain
reasonable assurance about whether
the financial statements as a whole
are free from material misstatement,
whether due to fraud or error, and to
issue an auditor’s report that includes
our opinion. Reasonable assurance is
a high level of assurance but is not a
guarantee that an audit conducted in
accordance with ISAs (UK) will always
detect a material misstatement when
it exists. Misstatements can arise from
fraud or error and are considered
material if, individually or in the
aggregate, they could reasonably be
expected to influence the economic
decisions of users taken on the basis
of these financial statements.
The extent to which our procedures
are capable of detecting irregularities,
including fraud is detailed below.
Irregularities, including fraud,
are instances of non-compliance
with laws and regulations. We
design procedures in line with our
responsibilities, outlined above, to
detect material misstatements in
respect of irregularities, including
fraud.
Based on our understanding of
the company and its industry, we
considered that non-compliance with
the following laws and regulations
might have a material effect on
the financial statements: the Data
Protection Act 2018 and the UK GDPR,
the Bribery Act 2010, and anti-money
laundering regulations.
To help us identify instances of
non-compliance with these laws
and regulations, and in identifying
and assessing the risks of material
misstatement in respect to non-
compliance, our procedures included,
but were not limited to:
•
gaining an understanding of the
legal and regulatory framework
applicable to the company and
the industry in which it operates,
and considering the risk of acts
by the company which were
contrary to the applicable laws and
regulations, including fraud;
•
inquiring of the directors,
management and, where
appropriate, those charged
with governance, as to whether
the company is in compliance
with laws and regulations, and
discussing their policies and
procedures regarding compliance
with laws and regulations;
•
inspecting correspondence with
relevant licensing or regulatory
authorities, including HMRC and
FCA;
•
reviewing minutes of directors’
meetings in the period; and
•
discussing amongst the
engagement team the laws and
regulations listed above, and
remaining alert to any indications
of non-compliance.
We also considered those laws and
regulations that have a direct effect
on the preparation of the financial
statements, such as the Listing Rules,
HMRC Investment Trust rules, the
UK Corporate Governance Code, the
AIC code of Corporate Governance,
the Companies Act 2006 and UK tax
legislation. We identified the risk of
Northern Venture Trust PLC
Annual Report and Financial Statements
55
non-compliance with the provisions
of Section 274 of the Income Tax
Act 2007, as well as the conditions
under the Finance Act 2018 for the
maintenance of the VCT approved
status, as the principal area of laws
and regulations that could have a
material impact on the continuance
of the company. We engaged internal
tax experts to review of the company’s
compliance with the applicable
regulations
In addition, we evaluated the
directors’ and management’s
incentives and opportunities for
fraudulent manipulation of the
financial statements, including the
risk of management override of
controls, and determined that the
principal risks related to posting
manual journal entries to manipulate
financial performance, management
bias through judgements and
assumptions in significant accounting
estimates, in particular in relation
to the valuation of unquoted
investments, revenue recognition
(which we pinpointed to accuracy,
cut-off and completeness of
assertions), and significant one-off or
unusual transactions.
Our procedures in relation to fraud
included but were not limited to:
•
making enquiries of the directors
and management on whether
they had knowledge of any actual,
suspected or alleged fraud;
•
gaining an understanding of the
internal controls established to
mitigate risks related to fraud;
•
discussing amongst the
engagement team the risks of
fraud; and
•
addressing the risks of fraud
through management override
of controls by performing journal
entry testing.
The primary responsibility for
the prevention and detection of
irregularities, including fraud,
rests with both those charged with
governance and management. As
with any audit, there remained a risk
of non-detection of irregularities,
as these may involve collusion,
forgery, intentional omissions,
misrepresentations or the override of
internal controls.
The risks of material misstatement
that had the greatest effect on our
audit are discussed in the ‘Key audit
matters’ section of this report.
A further description of our
responsibilities is available on
the Financial Reporting Council’s
website at www.frc.org.uk/
auditorsresponsibilities. This
description forms part of our auditor’s
report.
Other matters which we are
required to address
Following the recommendation
of the Audit Committee, we were
appointed by the Audit Committee on
22 December 2020 to audit the
financial statements for the year
ended 30 September 2021 and
subsequent financial periods.
The period of total uninterrupted
engagement is two years, covering
the 18 month period ended
31 March 2023.
The non-audit services prohibited
by the FRC’s Ethical Standard were
not provided to the company and we
remain independent of the company
in conducting our audit.
Our audit opinion is consistent with
the additional report to the Audit
Committee.
Use of the audit report
This report is made solely to the
company’s members as a body in
accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our
audit work has been undertaken
so that we might state to the
company’s members those matters
we are required to state to them
in an auditor’s report and for no
other purpose. To the fullest extent
permitted by law, we do not accept
or assume responsibility to anyone
other than the company and the
company’s members as a body for our
audit work, for this report, or for the
opinions we have formed.
Stephen Eames (Senior
Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory
Auditor
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
Date: 15 June 2023
Independent Auditor’s Report
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
56
Income Statement
for the 18 month period ended 31 March 2023
Notes
Period ended 31 March 2023
Year ended 30 September 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Gain/(loss) on disposal of investments
8
Unrealised fair value gains/(losses) on investments
8
(9,776 )
(9,776 )
(6,832 )
(6,832 )
Dividend and interest income
2
Investment management fee
3
(811 )
(2,432 )
(3,243 )
(579 )
(4,275 )
(4,854 )
Other expenses
4
(796 )
(796 )
(472 )
(472 )
Return before tax
(659 )
(9,264 )
(9,923 )
Tax on return
5
(181 )
(15 )
Return aſter tax
(478 )
(9,445 )
(9,923 )
Return per share
7
(0.3
(5.7
(6.0
•
The total column of the income statement is the statement of total comprehensive income of the Company prepared in accordance with
FRS 102 ‘The Financial Reporting Standard applicable in the
UK and Republic of Ireland’. The supplemental revenue return and capital return columns
have been prepared in accordance with the Statement of Recommended Practice ‘Financial Statements of
Investment Trust Companies and
Venture Capital Trusts’ issued in July 2022 by the Association of Investment Companies (‘AIC SORP’).
•
There are no recognised gains or losses other than those disclosed in the income statement.
•
All items in the above statement derive from continuing operations.
•
No items were recognised in other comprehensive income during the current period or prior year.
•
The accompanying notes are an integral part of this statement.
Northern Venture Trust PLC
Annual Report and Financial Statements
57
as at 31 March 2023
Notes
31 March
2023
£000
30 September
2021
£000
Fixed assets
Investments
8
Current assets
Debtors
12
Cash and deposits
Creditors (amounts falling due within one year)
13
(183 )
(2,679 )
Net current assets
Net assets
Capital and reserves
Called-up equity share capital
14
Share premium
15
Capital redemption reserve
15
Capital reserve
15
Revaluation reserve
15
Revenue reserve
15
Total equity shareholders’ funds
Net asset value per share
16
The accompanying notes are an integral part of this statement.
S J Constantine
Director
Balance Sheet
Northern Venture Trust PLC
Annual Report and Financial Statements
58
Statement of changes in equity
for the 18 month period ended 31 March 2023
Notes
Non distributable reserves
Distributable reserves
Called-up
share capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Revaluation
reserve*
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
At 1 October 2021
Return aſter tax
(19,732 )
(478 )
(9,923 )
Dividends paid
6
(9,609 )
(281 )
(9,890 )
Net proceeds of share issues
15
Shares purchased for cancellation
15
(1,834 )
(4,570 )
(4,570 )
At 31 March 2023
Year ended 30 September 2021
Notes
Non distributable reserves
Distributable reserves
Called-up
share capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Revaluation
reserve*
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
At 1 October 2020
Return aſter tax
Dividends paid
6
(16,144 )
(477 )
(16,621 )
Net proceeds of share issues
15
Shares purchased for cancellation
15
(655 )
(1,839 )
(1,839 )
At 30 September 2021
•
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.
The accompanying notes are an integral part of this statement.
Northern Venture Trust PLC
Annual Report and Financial Statements
59
Statement of cash flows
for the 18 month period ended 31 March 2023
Notes
Period ended
31 March
2023
£000
Year ended
30 September
2021
£000
Cash flows from operating activities
Return before tax
(9,923 )
Adjustments for:
(Gain)/loss on disposal of investments
(2,944 )
(8,380 )
Movements in fair value of investments
(17,660 )
Decrease in debtors
12
Decrease in creditors
13
(2,496 )
Net cash outflow from operating activities
(5,349 )
(1,337 )
Cash flows from investing activities
Purchase of investments
8
(27,450 )
(13,506 )
Proceeds on disposal of investments
8
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Issue of ordinary shares
Share issue expenses
15
(214 )
(40 )
Purchase of ordinary shares for cancellation
15
(4,570 )
(1,839 )
Equity dividends paid
6
(9,890 )
(16,621 )
Net cash (outflow)/inflow from financing activities
(6,878 )
(15,579 )
Increase/(decrease) in cash and cash equivalents
(11,105 )
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Northern Venture Trust PLC
Annual Report and Financial Statements
60
Notes to the financial statements
for the 18 month period ended 31 March 2023
1. Accounting policies
A summary of the principal accounting policies, all of which have been consistently applied throughout the period and the preceding year, is set out below.
(a) Basis of accounting
The financial statements have been prepared under FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ and in accordance with the Statement of Recommended Practice
‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued in July 2022 by the Association of Investment Companies (‘AIC SORP’).
The Company’s accounting reference date has been changed from 30 September to 31 March. This report covers the 18 month period to 31 March 2023, and moving forward all subsequent reporting will be
produced on this reference date.
The financial statements have been prepared on a going concern basis under the historical cost convention except investments which are stated at their fair value.
The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration the uncertain economic outlook in
light of the COVID-19 pandemic including:
•
the investments and liquid resources held by the Company;
•
the fact that the Company has no debt or capital commitments;
•
the ability of the Company to meet all of its liabilities and ongoing expenses from its assets, including its period-end cash balance;
•
revenue and operating cost forecasts for the forthcoming year;
•
the ability of third-party service providers to continue to provide services; and
•
potential downside scenarios including a fall in the valuation of the investment portfolio or levels of investment income.
Based on this assessment, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the
financial statements, and therefore determine the going concern basis to be appropriate.
(b) Significant estimates and judgements
Disclosure is required of judgements and estimates made by management in applying the accounting policies that have a significant effect on the financial statements. While estimates are based on best
judgement using information and financial data available, the actual outcome may differ from these estimates.
A price sensitivity analysis is provided in the other price risk sensitivity section of Note 17
on page 75.
The key estimate in the financial statements is the determination of the fair value of the unlisted investments by the Directors as it significantly impacts the valuation of the unlisted investments at the
balance sheet date.
The fair valuation process involves estimates using inputs that are unobservable.
The key judgement in the valuation of the unquoted investments process is the Directors’ determination of the appropriate application of the International Private Equity and Venture Capital (IPEV)
guidelines to each unlisted investment.
The judgement applied in the selection of the methodology used for determining the fair value of each unlisted investment can have a significant impact upon the
valuation.
Northern Venture Trust PLC
Annual Report and Financial Statements
61
(c) Valuation of investments
Purchases and sales of investments are recognised in the financial statements at the date of transaction (trade date).
As permitted by FRS 102 chapters 11 and 12, the Company’s investments are recorded at fair value as the point of acquisition and are measured at subsequent reporting dates at fair value,
with any changes
being recognised in profit or loss. In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price,
depending on the convention of the exchange on which the investment is quoted. In the case of unquoted investments, fair value is established in accordance with IPEV guidelines by using measurements
of value such as calibrating to the price of recent investment and earnings or revenue multiples; where no reliable fair value can be estimated using such techniques, unquoted investments are carried
at cost subject to provision for impairment where necessary. The key assumption when using the price of a recent investment as an input to the valuation is that the price obtained remains a reasonable
proxy for fair value for a period of time such that an enterprise value can be inferred and subsequently recalibrated where necessary to take account of changes to either the prevailing market conditions or
performance of the investee.
The price of a recent investment is not a default position for establishing fair value as at the measurement date and when this technique is employed, the resultant valuations
are cross-checked for reasonableness by employing an alternative valuation technique. The key assumptions for the multiples approach are the selection of the most appropriate earnings or revenue
measure (historic or forecast) and the selection of the multiple itself which may be influenced by the multiples achieved by a range of comparable companies in either private or public transactions.
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the income statement and allocated to the revaluation reserve. Transaction costs
attributable to the acquisition or disposal of investments are charged to capital return within the income statement.
The disclosure requirements relating to capital management under Section 34 paragraph 31 of FRS 102 are met in the strategic report on pages 16 to 22 and in note 8 to the financial statements.
(d) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits, including short-term highly liquid investments and money market funds readily convertible to known amounts of cash.
(e) Income
Dividends receivable on quoted equity shares are recognised on the ex-dividend date. Dividends receivable on the portfolio of quoted equity investments held for liquidity purposes are recognised on the
date of receipt due to the nature of how this portfolio is managed. Dividends receivable on unquoted equity shares are recognised when the Company’s right to receive payment is established and there is no
reasonable doubt that payment will be received. Fixed income returns on non-equity shares and debt securities are recognised on an effective interest rate basis, provided there is no reasonable doubt that
payment will be received in due course.
(f) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to revenue return within the income statement except that:
•
expenses which are incidental to the acquisition or disposal of an investment are allocated to capital return as incurred; and
•
expenses are split and allocated partly to capital return where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated, and accordingly the
basic element of the investment management fee has been allocated 25% to revenue return and 75% to capital return, in order to reflect the Directors’ expected long-term view of the nature of the
investment returns of the Company. The performance-related element of the investment management fee is charged 100% to capital return.
Notes to the financial statements
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
62
(g) Revenue and capital
The revenue column of the income statement includes all income and revenue expenses of the Company. The capital column includes realised and unrealised gains and losses on investments and that part
of the investment management fee which is allocated to capital return.
(h) Taxation
UK corporation tax payable is provided on taxable profits at the current rate. The tax charge for the period is allocated between revenue return and capital return on the ‘marginal basis’ as recommended in
the SORP. Provision is made for deferred taxation on all timing differences calculated at the current rate of tax relevant to the benefit or liability.
(i) Dividends payable
Dividends payable are recognised as distributions in the financial statements when the Company’s liability to make payment has been established.
( j) Provisions
A provision is recognised in the balance sheet when the Company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to
settle the obligation. No provision is established where a reliable estimate of the obligation cannot be made. Provisions are allocated to revenue or capital depending on the nature of the circumstances.
(k) Share capital account
The share capital account represents the nominal value of all shares issued by the Company.
(l) Share premium
The share premium account represents the value paid by shareholders for shares above the nominal value.
(m) Capital redemption reserve
The capital redemption reserve is a non-distributable reserve into which amounts are transferred following the redemption or purchase of a company’s own shares.
(n) Revaluation reserve
Changes in the fair value of investments are dealt with in this reserve.
(o) Capital reserve
The following are accounted for in the capital reserve: gains or losses on the realisation of investments; the cost of repurchasing ordinary shares, including stamp duty and transaction costs; and other capital
charges and credits charged to this account in accordance with the above policies.
(p) Revenue reserve
The revenue reserve comprises the retained earnings of a business from profits made in the current and prior periods.
(q) Segmental reporting
The Company has a single operating segment carrying out the investment activity of the Company. All venture investments are based in the UK.
Northern Venture Trust PLC
Annual Report and Financial Statements
63
Notes to the financial statements
continued
2. Income
18 month
period ended
31 March
2023
£000
Year ended
30 September
2021
£000
Investment income:
Dividends from unquoted companies
105
11
Dividends from quoted companies and investment funds
191
229
Interest receivable:
Bank deposits*
101
24
Loans to unquoted companies
551
1,108
948
1,372
* Denotes income arising from investments not designated as fair value through profit or loss at the time of acquisition.
3. Investment management fee
18 month period ended
31 March 2023
Year ended
30 September 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Investment management fee
Basic
811
2,432
3,243
579
1,737
2,316
Performance-related
–
–
–
–
2,538
2,538
811
2,432
3,243
579
4,275
4,854
Mercia Fund Management (Mercia) provides investment advisory, secretarial and administrative services to the Company under an agreement dated 20 December 1999, which may be terminated at any time
by not less than twelve months’ notice being given by either party.
The agreement was novated from the previous investment adviser, NVM Private Equity LLP to Mercia on 23 December 2019.
The investment adviser receives a basic management fee, payable quarterly in advance, at the rate of 2.06% per annum of net assets calculated half-yearly as at 31 March and 30 September.
The fee due
on the value of liquid assets above the threshold of £20 million attracts a reduced rate of 1% per annum. The investment adviser bears the cost of the fees of Brewin Dolphin for managing the listed interest-
bearing and equity portfolios.
The investment adviser also arranges the administrative and secretarial services for the Company for a fee of £81,000 per annum (linked to the movement in the RPI).
This fee
is included in other expenses (see Note 4).
The investment adviser is also entitled to receive a performance-related management fee, which is payable only when the total return per share (defined as the movement in net asset value plus dividends
paid) for the year, expressed as a percentage of the opening net asset value per share, exceeds a specified hurdle.
The hurdle is a composite rate based on (a) 7% on average long-term investments and (b)
the higher of (i) base rate and (ii) 3% on average cash and near-cash investments during the year.
That part of the Company’s investments to which the ‘higher of base rate and 3%’ hurdle applies is restricted
to a maximum of 25% of total investments, so that any excess of cash or near-cash over 25% of total investments will be subject to the higher hurdle of 7%.
The hurdle rate for the 18 month period ended 31
March 2023 was 6.1% (year ended 30 September 2021: 6.0%).
Northern Venture Trust PLC
Annual Report and Financial Statements
64
The performance-related management fee in each financial period is equivalent to 15% of the amount by which the total return per share exceeds the hurdle, multiplied by the weighted average number
of shares in issue.
Following a period in which total return is negative, a high water mark will apply to the calculation of the performance-related management fee such that an amount equivalent to the
negative return will be deducted from subsequent years’ total returns prior to any further performance-related management fee calculation taking place.
The performance-related management fee is
capped at 2.25% of opening net asset value for the relevant financial year. The performance-related management fee due in respect of the 18 months ended 30 March 2023 was nil (year to September 2021:
£2,538,000).
The total running costs of the Company for each financial period, excluding performance-related management fees, are capped at 2.9% of its net assets and the investment adviser has agreed that any
excess will be refunded by way of a reduction in its management fees.
4. Other expenses
18 month
period ended
31 March
2023
£000
Year ended
30 September
2021
£000
Administrative and secretarial services
119
74
Directors’ remuneration
228
137
National Insurance contributions
31
14
Auditor’s remuneration – audit services
60
42
Legal and professional expenses
31
31
Share issue promoter’s commission
63
42
Other expenses
264
132
796
472
Information on Directors’ remuneration is given in the Directors’ Remuneration report on pages 44 and 45.
Northern Venture Trust PLC
Annual Report and Financial Statements
65
Notes to the financial statements
continued
Period ended
31 March 2023
Year ended
30 September 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
(a) Analysis of charge/(credit) for the period
UK corporation tax payable/(recoverable) on the return for the period
(181)
181
–
15
(15)
–
(b) Tax reconciliation
Return before tax
(659)
(9,264)
(9,923)
321
21,765
22,086
Return multiplied by the standard rate of UK corporation tax of 19.0% (2021: 19.0%)
(125)
(1,760)
(1,885)
61
4,135
4,196
Effect of:
UK dividends not subject to tax
(56)
–
(56)
(46)
–
(46)
Capital returns not subject to tax
–
(559)
(559)
–
(1,592)
(1,592)
Movements in fair value of investments not subject to tax
–
1,858
1,858
–
(3,355)
(3,355)
Increase in surplus management expenses
–
642
642
–
797
797
Tax charge/(credit) for the period
(181)
181
–
15
(15)
–
(c) Factors which may affect future tax charges
The Company has not recognised a deferred tax asset in respect of surplus management expenses carried forward of £9,527,000 (30 September 2021: £6,136,000), as the Company may not generate sufficient
taxable income in the foreseeable future to utilise these expenses. There is no other unprovided deferred taxation.
Approved venture capital trusts are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a
venture capital trust, no deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
Northern Venture Trust PLC
Annual Report and Financial Statements
66
6.
Dividends
18 month period ended
31 March 2023
Year ended
30 September 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
(a) Recognised as distributions in the financial statements for the period
Previous year’s final dividend
281
2,932
3,213
477
3,497
3,974
Current period’s interim & special dividends
–
6,677
6,677
–
12,647
12,647
281
9,609
9,890
477
16,144
16,621
(b) Paid and proposed in respect of the period
Interim & special - 4.0p (2021: 8.0p) per share
–
6,677
6,677
–
12,647
12,647
Final proposed - 2.0p (2021: 2.0p) per share
–
3,298
3,298
282
2,940
3,222
–
9,975
9,975
282
15,587
15,869
The revenue dividends paid and proposed in respect of the period form the basis for determining whether the Company has complied with the requirements of Section 274 of the Income Tax Act 2007 as to
the distribution of investment income.
7. Return per share
The calculation of the return per share is based on the return aſter tax for the period of minus £9,923,000 (2021: £22,086,000) and on 165,209,895 (2021: 159,349,187) shares, being the weighted average
number of shares in issue during the period.
8. Investments
All investments are accounted for as fair value through profit or loss on initial recognition, therefore all gains and losses arising on these investments are reflected through the profit or loss.
FRS 102, including subsequent amendments, requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy shall have the following classifications:
•
Level 1 – unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
•
Level 2 – inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.
•
Level 3 – inputs are unobservable (ie for which market data is unavailable) for the asset or liability.
Northern Venture Trust PLC
Annual Report and Financial Statements
67
Notes to the financial statements
continued
31 March
2023
£000
30 September
2021
£000
Level 1
Quoted venture capital investments
3,253
11,572
Listed equity investment funds
8,912
10,368
Level 2
Quoted venture capital investments
–
311
Level 3
Unquoted venture capital investments
76,444
74,312
88,609
96,563
Movements in investments during the period are summarised as follows:
Venture capital – unquoted
Level 3
£000
Venture capital – quoted
Level 2
£000
Venture capital – quoted
Level 1
£000
Listed equity
Level 1
£000
Total
£000
Book cost at 1 October 2021
65,763
34
1,745
7,591
75,133
Fair value adjustment at 1 October 2021
8,549
277
9,827
2,777
21,430
Fair value at 1 October 2021
74,312
311
11,572
10,368
96,563
Movements in the period:
Purchases at cost
25,049
–
–
2,401
27,450
Disposals - proceeds
(24,677)
(344)
(1,074)
(2,477)
(28,572)
- net realised gains on disposal
3,430
33
3
(522)
2,944
Movements in fair value
(1,670)
–
(7,248)
(858)
(9,776)
Fair value at 31 March 2023
76,444
–
3,253
8,912
88,609
Comprising:
Book cost at 31 March 2023
77,668
–
1,384
7,859
86,911
Fair value adjustment at 31 March 2023
(1,224)
–
1,869
1,053
1,698
76,444
–
3,253
8,912
88,609
Equity shares
55,212
–
3,253
8,912
67,377
Preference shares
8,012
–
–
–
8,012
Interest-bearing securities
13,220
–
–
–
13,220
76,444
–
3,253
8,912
88,609
Northern Venture Trust PLC
Annual Report and Financial Statements
68
The gains and losses included in the above table have all been recognised in the income statement on page 57. The listed equity category in the table above comprises quoted investment funds which hold
listed equity securities.
FRS 102 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value
measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of each investee company.
See
note 17 for details of the impact of sensitivity analysis on the financial statements.
Details of movements in the venture investment portfolio during the period is provided in the
investment portfolio section on page 23.
At 31 March 2023 there were no commitments (30 September 2021: £nil) in respect of investments approved by the investment adviser but not yet completed.
9. Investment disposals
Disposals of venture capital investments during the period were as follows:
Original cost
£000
Directors’
valuation at
30 September
2021
£000
Disposal
proceeds
£000
Realised gain/
(loss) against
carrying value
£000
Lineup Systems – disposal of entire holding
975
5,968
7,288
1,320
Currentbody.com – disposal of entire holding
2,050
5,845
5,630
(215)
Intelling Group – disposal of entire holding
1,222
3,505
3,616
111
Knowledgemotion (t/a Boclips) – disposal of entire holding
1,903
1,938
3,284
1,346
Life’s Great Group (t/a Mojo Mortgages) – disposal of entire holding
1,592
2,466
2,480
14
Vectura Group – disposal of entire holding
599
1,071
1,074
3
Soda Soſtware Labs (t/a Hello Soda) – disposal of entire holding
–
–
895
895
Intechnica Holdings – disposal of entire holding
261
261
594
333
Ideagen plc – disposal of entire holding
34
311
344
33
Fresh Approach (UK) Holdings – partial disposal
510
503
510
7
AVID Technology Group – disposal of entire holding
–
–
280
280
Axial Systems Holdings – disposal of entire holding
1,004
515
41
(474)
Customs Connect Group – partial disposal
39
–
40
40
S&P Coil – disposal of entire holding
–
–
19
19
Channel Mum – in liquidation
1,343
246
–
(246)
No1 Lounges – in liquidation
2,006
–
–
–
13,538
22,629
26,095
3,466
Northern Venture Trust PLC
Annual Report and Financial Statements
69
Notes to the financial statements
continued
10. Unquoted investments
The cost and carrying value of material investments in unquoted companies held at 31 March 2023 are shown below. For this purpose any investment included in the table of the fiſteen largest venture
capital investments on pages 26 to 33, or in the corresponding table in the previous year’s annual report, is regarded as material.
31 March 2023
30 September 2021
Cost
Valuation
Cost
Valuation
£’000
£’000
£’000
£’000
Evotix (formerly SHE)
Ordinary shares
2,766
12,658
2,058
3,678
Loan Stock
–
–
354
354
2,766
12,658
2,412
4,032
Grip-UK (t/a Climbing Hangar)
Ordinary shares
563
563
563
563
Preference shares
2,967
2,967
2,967
2,967
3,530
3,530
3,530
3,530
Volumatic Holdings
Ordinary shares
216
3,275
216
2,797
216
3,275
216
2,797
Gentronix
Ordinary shares
1,240
2,960
982
1,076
Loan Stock
122
122
122
122
1,362
3,082
1,104
1,198
Tutora (t/a Tutorful)
Ordinary shares
1,838
1,838
1,131
1,111
Loan Stock
884
999
884
892
2,722
2,837
2,015
2,003
Rockar
Ordinary shares
1,504
1,886
1,504
1,295
Loan Stock
373
909
296
669
1,877
2,795
1,800
1,964
Newcells Biotech
Ordinary shares
1,771
1,771
1,771
2,115
Loan Stock
708
748
–
–
2,479
2,519
1,771
2,115
Northern Venture Trust PLC
Annual Report and Financial Statements
70
31 March 2023
30 September 2021
Cost
Valuation
Cost
Valuation
£’000
£’000
£’000
£’000
Biological Preparations Group
Ordinary shares
241
–
241
–
Preference shares
366
–
366
171
Loan Stock
1,759
2,267
1,759
2,026
2,366
2,267
2,366
2,197
Adludio
Ordinary shares
2,103
2,103
1,402
1,402
2,103
2,103
1,402
1,402
Clarilis
Ordinary shares
1,972
1,972
1,972
2,553
1,972
1,972
1,972
2,553
Administrate
Ordinary shares
2,374
1,901
1,806
1,232
2,374
1,901
1,806
1,232
Buoyant Upholstery
Ordinary shares
170
892
170
1,770
Loan Stock
1,003
1,003
1,003
1,003
1,173
1,895
1,173
2,773
Pure Pet Food
Ordinary shares
1,419
1,483
1,419
1,486
Loan Stock
355
362
–
–
1,774
1,845
1,419
1,486
Netacea
Ordinary shares
1,441
1,441
–
–
Loan Stock
340
340
–
–
1,781
1,781
–
–
Weldex (International) Offshore Holdings
Ordinary shares
51
–
51
–
Loan Stock
3,211
1,137
3,211
1,927
3,262
1,137
3,262
1,927
Northern Venture Trust PLC
Annual Report and Financial Statements
71
31 March 2023
30 September 2021
Cost
Valuation
Cost
Valuation
£’000
£’000
£’000
£’000
Oddbox
Ordinary shares
386
26
386
4,216
Loan Stock
707
727
–
–
1,093
753
386
4,216
Sorted Holdings
Ordinary shares
2,840
–
2,840
1,504
Loan Stock
182
212
182
190
3,022
212
3,022
1,694
Medovate
Ordinary shares
1,770
534
1,593
1,464
1,770
534
1,593
1,464
Lineup Systems
Ordinary shares
–
–
175
5,168
Loan Stock
–
–
800
800
–
–
975
5,968
Currentbody
Ordinary shares
–
–
734
4,225
Loan Stock
–
–
1,316
1,621
–
–
2,050
5,846
Intelling
Ordinary shares
–
–
117
2,362
Preference shares
–
–
246
283
Loan Stock
–
–
860
860
–
–
1,223
3,505
Life’s Great Group (t/a Mojo Mortgages)
Ordinary shares
–
–
1,326
2,200
Loan Stock
–
–
266
266
–
–
1,592
2,466
Knowledgemotion
Ordinary shares
–
–
1,903
1,938
–
–
1,903
1,938
Notes to the financial statements
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
72
Additional information relating to material investments in unquoted companies is given on pages 26 to 33.
11. Significant interests
At 31 March 2023 the Company held significant investments, amounting to 20% or more of the equity capital of an undertaking, in the following companies:
Company
Registered office address
Investment
type
Equity
£000
Debt
£000
Total investment cost
£000
GRIP-UK (t/a The Climbing Hangar)
12 Jordan Street, Liverpool L1 0BP
Unquoted
3,530
–
3,530
Gentronix
Block 23 Mereside, Alderley Park, Alderley Edge, Cheshire SK10 4TG
Unquoted
1,240
122
1,362
Biological Preparations Group
Unit 12 A-C Pantglas Industrial Estate, Bedwas, Caerphilly CF83 8DR
Unquoted
607
1,759
2,366
Volumatic Holdings
Taurus House, Endemere Road, Coventry CV6 5PY
Unquoted
216
–
216
Pure Pet Food
Unit 4 Chain Bar Road, Cleckheaton BD19 3QF
Unquoted
1,419
355
1,774
Haystack Dryers
Unit 1 Pintail Business Park, 165 Christchurch Road, Ringwood, Hampshire
BH24 3AL
Unquoted
169
1,492
1,661
During the period Northern Venture Trust PLC received loan note interest totalling £15,000 from Gentronix Limited. No amounts were received from the other significant investments.
12. Debtors
31 March
2023
£000
30 September
2021
£000
Prepayments and accrued income
70
308
70
308
13. Creditors (amounts falling due within one year)
31 March
2023
£000
30 September
2021
£000
Accruals and deferred income
183
2,679
Northern Venture Trust PLC
Annual Report and Financial Statements
73
Notes to the financial statements
continued
14. Called-up equity share capital
31 March
2023
£000
30 September
2021
£000
Allotted and fully paid:
164,920,166 (2021:161,070,303) ordinary shares of 25p
41,230
40,268
The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective, as set out on page 16.
The Company is not subject to externally imposed capital requirements.
During the period the Company issued 11,185,395 (year ended 30 September 2021: 4,071,110) ordinary shares of 25 pence for cash at an average premium of 43.6 (2021: 46.8) pence per share. 7,335,532
(2021: 2,620,797) ordinary shares were re-purchased for cancellation during the period at a cost of £4,546,568 (2021: £1,826,197).
15. Reserves
Share
premium
£000
Capital
redemption
reserve
£000
Capital
reserve
£000
Revaluation
reserve
£000
Revenue
reserve
£000
At 1 October 2021
14,608
3,508
38,325
21,430
1,159
Premium on issue of ordinary shares
5,000
–
–
–
–
Share issue expenses
(214)
–
–
–
–
Shares purchased for cancellation
–
1,834
(4,570)
–
–
Realised on disposal of investments
–
–
2,944
–
–
Transfer on disposal of investments
–
–
9,956
(9,956)
–
Movements in fair value of investments
–
–
–
(9,776)
–
Management fee charged to capital net of associated tax
–
–
(2,613)
–
–
Revenue return aſter tax
–
–
–
–
(478)
Dividends recognised in the period
–
–
(9,609)
–
(281)
At 31 March 2023
19,394
5,342
34,433
1,698
400
At 31 March 2022, distributable reserves amounted to £35,886,000 (30 September 2021: £42,261,000), comprising the capital reserve, the revenue reserve and that part of the revaluation reserve relating to
gains/losses on readily realisable quoted investments.
Northern Venture Trust PLC
Annual Report and Financial Statements
74
16. Net asset value per share
The calculation of net asset value per share as at 31 March 2023 is based on net assets of £102,497,000 (30 September 2021: £119,298,000) divided by the 164,920,166 (30 September 2021: 161,070,303) shares
in issue at that date.
17. Financial instruments
The Company’s financial instruments comprise equity and interest-bearing investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in
accordance with its investment policy of investing mainly in a portfolio of VCT-qualifying unquoted and AIM-quoted securities whilst holding a proportion of its assets in cash or near-cash investments in
order to provide a reserve of liquidity.
Fixed asset investments (see note 8) are valued at fair value. For quoted investments this is either bid price or the latest traded price, depending on the convention of the exchange on which the investment is
quoted. Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines. The fair value of all other financial assets and liabilities
is represented by their carrying value in the balance sheet.
In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk
facing the Company are market risk, other price sensitivity risk, credit risk and liquidity risk.
The Company’s approach to managing these risks is set out below together with a description of the nature and
amount of the financial instruments held at the balance sheet date.
Market risk
The Company’s strategy for managing investment risk is determined with regard to the Company’s investment objective, as outlined in the strategic report on page 6.
The management of market risk is
part of the investment management process and is a central feature of venture capital investment.
The Company’s portfolio is managed in accordance with the policies and procedures described in the
corporate governance statement on pages 46 to 50, having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in
unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by
diversifying the portfolio across business sectors and asset classes.
The overall disposition of the Company’s assets is monitored by the Board on a quarterly basis.
Details of the Company’s investment portfolio at the balance sheet date are set out on page 23.
An analysis of investments between debt and equity instruments is given in Note 8.
11.9% (30 September 2021: 18.7%) by value of the Company’s net assets comprises equity securities listed on the London Stock Exchange or quoted on AIM.
A 5% increase in the bid prices of securities as at
31 March 2023 would have increased net assets and the total return for the period by £608,000 (30 September 2021: £1,113,000); a corresponding fall would have reduced net assets and the total return for
the period by the same amount.
Other price risk sensitivity
74.6% (2021: 62.3%) by value of the Company’s net assets comprises investments in unquoted companies held at fair value. A sensitivity analysis is provided below which recognises that the valuation
methodologies employed involve subjectivity in the selection of the key inputs, as described in the valuation policy on page 62. Although the Directors believe that the estimates of fair value are appropriate,
the use of different methodologies or assumptions regarding the inputs could lead to different measurements of fair value. Each portfolio company has been categorised as being subject to potentially
higher or lower estimation uncertainty by considering a range of factors and the availability and extent of cash resources.
A greater sensitivity factor has been applied to those investments assessed as
being susceptible to higher estimation uncertainty.
Whilst the sensitivities applied illustrate the impact of varying the key inputs by the levels specified, it is possible that applying reasonable alternative
assumptions to individual investments could lead to measurements of fair value which vary to a greater extent than that illustrated.
Northern Venture Trust PLC
Annual Report and Financial Statements
75
As at 31 March 2023
Valuation basis
Fair value of
unquoted
investments
£000
Variable input
sensitivity
Impact: increase*
Impact: decrease*
£000*
% of net
assets
£000*
% of net
assets
Earnings/revenue multiple
Higher sensitivity
1,741
+/– 20%
276
0.3%
168
0.2%
Lower sensitivity
20,916
+/– 10%
1,521
1.5%
1,856
1.8%
Price of a recent investment subsequently calibrated as appropriate
Higher sensitivity
16,550
+/– 20%
679
0.7%
495
0.5%
Lower sensitivity
37,237
+/– 10%
3,155
3.1%
2,958
2.9%
Total unquoted investments
76,444
5,631
5.6%
5,477
5.4%
As at 30 September 2021
Valuation basis
Earnings/revenue multiple
Higher sensitivity
9,859
+/– 20%
2,580
2.2%
2,580
2.2%
Lower sensitivity
26,651
+/– 10%
3,059
2.6%
2,598
2.2%
Price of a recent investment subsequently calibrated as appropriate
Higher sensitivity
13,072
+/– 20%
1,299
1.1%
552
0.5%
Lower sensitivity
19,738
+/– 10%
1,749
1.5%
1,399
1.2%
Original cost subsequently calibrated as appropriate
Higher sensitivity
–
+/– 20%
–
0.0%
–
0.0%
Lower sensitivity
4,992
+/– 10%
428
0.4%
428
0.4%
Total unquoted investments
74,312
9,115
7.8%
7,557
6.5%
•
Impact on net assets and net return aſter taxation.
Notes to the financial statements
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
76
Interest rate risk
Some of the Company’s financial assets are interest-bearing, of which some are at fixed rates and some variable.
As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the
prevailing levels of market interest rates.
(a) Fixed rate investments
The table below summarises weighted average effective interest rates for the Company’s fixed rate interest-bearing financial instruments:
31 March 2023
30 September 2021
Total fixed
rate portfolio
£000
Weighted
average
interest rate
%
Weighted
average
period for
which rate
is fixed
Years
Total fixed rate
portfolio
£000
Weighted
average
interest rate
%
Weighted
average period
for which rate
is fixed
Years
Fixed-rate investments in unquoted companies
9,798
8.4%
2.2
8,366
8.0%
1.0
Although the Company holds investments in loan stocks that pay interest, the Board does not consider it appropriate to assess the impact of interest rate changes in isolation upon the value of the unquoted
investment portfolio, as interest rate changes are only one factor affecting the market price movements that are discussed above under market price risk.
(b) Floating rate investments
The Company’s floating rate investments comprise floating-rate loans to unquoted companies and cash held in interest-bearing deposit accounts. The benchmark rate which determines the rate of interest
receivable is the UK bank base rate for interest bearing deposit accounts, which was 4.25% at 31 March 2023 (30 September 2021: 0.1%) and the LIBOR three month GBP rate for floating rate loans to
unquoted companies, which was 4.42% at 31 March 2023 (30 September 2021: 0.08%). It is considered that an increase or decrease of 100 basis points in interest rates as at the reporting date would not have
a significant effect on the Company’s net assets or total return for the period. The amounts held in floating rate investments at the balance sheet date were as follows:
31 March
2023
£000
30 September
2021
£000
Floating rate loans to unquoted companies
3,422
4,428
Interest bearing deposit accounts
14,001
25,106
17,423
29,534
Northern Venture Trust PLC
Annual Report and Financial Statements
77
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.
The investment adviser and the Board carry
out a regular review of counterparty risk.
The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date.
At 31 March 2023 the Company’s financial assets exposed to credit risk comprised the following:
31 March
2023
£000
30 September
2021
£000
Fixed-rate investments in unquoted companies (above)
9,798
8,366
Floating rate loans to unquoted companies (above)
3,422
4,428
Interest-bearing deposit accounts
14,001
25,106
Accrued dividends and interest receivable
39
282
27,260
38,182
Credit risk relating to listed fixed-interest investments is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by major UK and international
companies and institutions.
Credit risk relating to loans to and preference shares in unquoted companies is considered to be part of market risk.
Those assets of the Company which are traded on recognised stock exchanges and quoted investment funds are held on the Company’s behalf by a third party custodian, a nominee company of Brewin
Dolphin Limited.
Bankruptcy or insolvency of a custodian could cause the Company’s rights with respect to securities held by the custodian to be delayed or limited.
The Company’s interest-bearing deposit accounts are maintained with major banks of high creditworthiness. There was no significant concentration of credit risk to counterparties at 31 March 2023 or
30 September 2021.
Liquidity risk
The Company’s financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally may be illiquid.
As a result, the Company
may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as a
deterioration in the creditworthiness of any particular issuer.
The Company’s liquidity risk is managed on a continuing basis by the investment adviser in accordance with policies and procedures laid down by the Board.
The Company’s overall liquidity risks are
monitored on a quarterly basis by the Board.
The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.
At 31 March 2023 these holdings were valued at £22,913,000
(30 September 2021: £35,474,000).
Notes to the financial statements
continued
Northern Venture Trust PLC
Annual Report and Financial Statements
78
18. Contingencies
At 31 March 2023 contingent assets not recognised in the financial statements in respect of potential deferred proceeds from the sale of investee companies amounted to approximately £1,048,000
(30 September 2021: £771,000). The extent to which these amounts will become receivable in due course is dependent on future events.
The Company had no contingent liabilities at 31 March 2023 or 30 September 2021.
19. Related party transactions
Fees payable during the period to the Directors and their interest in shares of the Company are disclosed within the Directors’ Remuneration Report on pages 44 and 45.
There were no amounts outstanding and due to the Directors as at 31 March 2023 (30 September 2021: nil).
20. Post balance sheet events
Aſter the period end, on 4 April 2023, the Company issued 9,741,182 ordinary shares for a consideration of £5,864,354 as a result of a prospectus share offer launched during the 18 month period ended 31
March 2023.
On 12 April 2023, the Company invested £442,000 in existing portfolio company, Voxpopme, by way of a follow on funding round.
On 28 April 2023, the Company invested £1,594,000 in new portfolio company Camena Bioscience, a provider of synthetic DNA.
On 16 May 2023, the investment in Evotix (formerly SHE Soſtware) was sold. The transaction was advanced at the balance sheet date, and as a result the valuation of the investment has been included at the
sales price achieved.
On 18 May 2023, the Company invested £255,000 in existing portfolio company, Netacea, by way of a follow on funding round.
On 01 June 2023, the Company realised its portfolio of readily realisable investments, and placed the proceeds into the money market fund.
Northern Venture Trust PLC
Annual Report and Financial Statements
79
Glossary of terms
Alternative performance measure or APM
APMs are not prescribed by accounting standards but are industry specific performance measures which help users of the annual accounts and financial statements to better interpret and understand
performance.
Some of the terms in this glossary have been identified as APMs.
Cumulative return per share (APM)
The sum of the published NAV per share plus cumulative dividends paid per share since the Company was launched. We use this measure as it enables comparisons to be made between different VCTs over the
whole life of each fund.
The cumulative return per share for Northern Venture Trust as at 31 March 2023 comprises the NAV per share of 62.1 pence (2021: 74.1 pence) plus the cumulative dividends paid of
188.5 pence (2021: 182.5 pence) giving a result of 250.6 pence per share (2021: 256.6 pence per share).
Cumulative dividends paid
The total amount of shareholder dividend distributions paid since the Company was launched.
Distributable reserves
The sum of the capital reserve, revenue reserve and that part of the revaluation reserve which is related to readily realisable investments.
Dividend yield (APM)
The sum of dividends proposed or paid in respect of the last 12 months as at a given date expressed as a percentage of the net asset value per share at the start of the period.
We use this measure as it shows
the dividend income receivable by shareholders over a 12 month period expressed as a theoretical yield based on acquiring a single share at the NAV per share at the start of the period.
The dividend yield as at
31 March 2023 is calculated by dividing the dividend per share paid or proposed over the preceding 12 months of 6.0 pence (2021: 10.0 pence) by the NAV per share at the start of the period of 74.1 pence
(2021: 70.7 pence) giving a result of 8.1% (2021: 14.1%).
Ex-dividend date
The date immediately preceding the record date for a given dividend.
Shareholders who acquire their shares on or aſter the ex-dividend date will not be eligible to receive the relevant dividend.
Gain/loss on disposal of investments
The profit or loss on the sale of an investment during the period calculated by reference to the proceeds received on sale of the investment less the valuation of the investment at the last annual report date.
NAV total return (APM)
The theoretical return to a shareholder over a given period based on acquiring shares at the start of the period at the latest published NAV per share then utilising the proceeds of each dividend paid during
the period to acquire further shares at the latest published NAV per share as at each ex-dividend date.
We use this measure as it enables comparisons to be drawn against an investment index in order to
benchmark performance.
The result is plotted on page 45 and the calculation follows the method prescribed by the Association of Investment Companies.
18m period to
31 March
2023
Year ended
31 March
2023
Year ended
31 March
2022
Year ended
30 September
2021
Calculation
Closing NAV per share (p)
62.1p
62.1p
68.4p
74.1p
a
Dividends paid out (p)
6.0p
4.0p
10.0p
10.5p
b
Impact of re-investing dividends (p)
(0.2)p
0.0p
(0.4)p
0.6p
c
Adjusted NAV per share (p)
67.9p
66.1p
78.0p
85.2p
d = a + b + c
Opening NAV per share (p)
74.1p
68.4p
79.8p
70.7p
e
NAV total return (%)
(8.4)%
(3.4)%
(2.2)%
20.6%
= (d / e) -1
Northern Venture Trust PLC
Annual Report and Financial Statements
80
Net asset value or NAV
The amount by which total assets of the Company exceed its total liabilities. It is equal to the total equity shareholders’ funds.
Net asset value per share or NAV per share
Net asset value divided by the number of ordinary shares.
Ongoing charges excluding performance-related management fees (APM)
The total of investment management fees and other expenses as shown in the income statement, as a percentage of the average net asset value. This measure is disclosed to provide information to
shareholders, in line with industry best practice.
18m period to
31 March
2023
Year ended
31 March
2023
Year ended
31 March
2022
Year ended
30 September
2021
Investment management fee (annualised)
3,243
2,139
2,262
2,316
Other expenses
796
542
491
472
Total expenses (a)
4,039
2,681
2,753
2,788
Annualised average net assets (b)
113,753
110,981
123,018
119,764
Ongoing charges (a)/(b) (expressed as a percentage)
2.37%
2.42%
2.24%
2.33%
Record date
The cut-off date on which a shareholder needs to be beneficially entitled to a share on the share register of the Company in order to qualify for a forthcoming dividend.
Share price total return (APM)
The theoretical return to a shareholder over a given period based on acquiring shares at the start of the period at the prevailing mid-market share price then utilising as it enables comparisons to be drawn
against an investment index in order to benchmark performance.
The result is plotted on page 45 and the calculation follows the method prescribed by the Association of Investment Companies.
18m period to
31 March
2023
Year ended
31 March
2023
Year ended
31 March
2022
Year ended
30 September
2021
Calculation
Closing price per (p)
57.5p
57.5p
66.0p
70.3p
a
Dividends paid out (p)*
6.0p
4.0p
10.0p
10.5p
b
Impact of re-investing dividends (p)
(0.4)p
(0.1)p
(0.7)p
0.6p
c
Adjusted price per share (p)
63.1p
61.4p
75.3p
81.3p
d = a + b + c
Opening price per share (p)
70.3p
66.0p
66.5p
56.5p
e
Share price total return %
(10.1)%
(7.0)%
13.2%
44.0%
=(d / e)-1
Total return for the period
The total income, gain or loss on disposal of investments and movements in the fair value of investments less ongoing charges for the period, as shown in the income statement.
Northern Venture Trust PLC
Annual Report and Financial Statements
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Annual Report and Financial Statements
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Northern Venture Trust PLC
Forward House
17 High Street
Henley-in-Arden
B95 5AA