Annual Report • Mar 31, 2013
Annual Report
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Annualreport and financialstatements 31 March 2013
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.
| Year ended 31 March: |
2013 | 2012 |
|---|---|---|
| Net assets |
£50.6m | £47.8m |
| Net asset value pershare |
104.6p | 96.7p |
| Return pershare |
||
| Revenue | 1.8p | 2.4p |
| Capital | 10.7p | 6.8p |
| Total | 12.5p | 9.2p |
| Dividend pershare declared in respect ofthe year |
5.5p | 5.0p |
| Cumulative return to shareholderssince launch |
||
| Net asset value pershare |
104.6p | 96.7p |
| Dividends paid pershare* |
38.4p | 33.4p |
| Net asset value plus dividends paid pershare |
143.0p | 130.1p |
| Mid-marketshare price at end of year |
89.25p | 80.0p |
| Share price discountto net asset value |
14.7% | 17.3% |
*Excluding proposed final dividend
Shares quoted ex dividend 3 July 2013
Annual general meeting 17 July 2013 (11.30am, Life Bioscience Centre, Times Square,Newcastle upon TyneNE1 4EP)
Final dividend paid (to shareholders on register on 5 July 2013) 26 July 2013
The venture capital portfolio has continued to perform well in an unhelpful economic environment.
Northern 3 VCT hasmade good progress during the past year. Two significantlandmarks were passed in that net assets now exceed £50million whilsttheNAV pershare rose to over 100p. Also, we are proposing thatthe annual dividend be increased from5.0p to 5.5p pershare. It was pleasing thatNorthern 3 VCT and the otherNorthern VCTs were declared winners ofthe Best VCT category atthe Investment Week Investment Company ofthe Year Awards for 2012,sponsored by the Association of Investment Companies and Trustnet.
TheNAV pershare at 31 March 2013 was 104.6p, an increase of 8.2% overthe corresponding figure of 96.7p as at 31 March 2012. TheNAV totalreturn pershare forthe year asshown in the income statement was 12.5p (last year 9.2p), equivalentto 12.9% ofthe openingNAV. Thissatisfactory result was based on continuing strong investment performance across both the quoted and the unquoted portfolios. The income received from investmentsfellto £1.5million from£1.7million last year, due to the factthatlast year'stotal included a non-recurring receipt of £0.5million on the sale of PromanexGroupHoldingsin August 2011.
Your board announced in February 2012 thatthe targetlevel of annual dividend to shareholders had been increased from4.5p to 5.0p pershare. Forthe year ended 31 March 2013 we have already declared an unchanged interimdividend of 2.0p pershare, which was paid in January 2013. In the light ofthe results forthe year we are proposing to increase the final dividend from3.0p to 3.5p pershare, making a total of 5.5p forthe year(last year 5.0p). Subjectto approval by shareholders at the annual generalmeeting,the final dividend will be paid on 26 July 2013 to shareholders on the register on 5 July 2013.
The venture capital portfolio has continued to performwell in an unhelpful economic environment. Four new unquoted holdings were acquired during the year at a cost of £3.8million, with a further £2.0million invested in existing portfolio companies. CloserstillHoldings and PaladinGroup were sold successfully.
Our AIM-quoted investments, including those acquired through themerger withNorthern AIM VCT in 2011, had a good year andmade an important contribution to the overallresult. In a period of derisory returns on cash, our policy of allocating part ofthe company's surplusliquidity to listed blue-chip equities has continued to generate a growing income as well as an increase in capital.
The company has continued tomeetthe qualifying conditionslaid down byHM Revenue&Customsformaintaining its approval as a VCT. The board retains PricewaterhouseCoopers LLP asindependent advisers on VCT taxationmatters.
It was announced in January 2013 thatfollowing a review by the board,the company would in future buy back its own sharesin themarket at a discount of 10% (reduced from15%). We believe thatthislevel of discountstrikes a fair balance between the interests of continuing shareholders and those who wish to sell. The policy will be reviewed regularly in the light ofmarket conditions. The objective isto maintain the company's quoted share price at a 10% discountto the latest publishedNAV pershare;the share price at 31 March 2013 actually represents a 14.7% discountto the NAV announced today, but we would expect the share price tomove now thatthe updated resultisin themarket.During the year 1,085,990 shares were bought back for cancellation at an average price of 83.1p.
James FergusonChairman
No new sharesin the company were issued during the year. Cash reserves are now at a relatively low level and your board is considering the possibility oflaunching a public offer of shareslaterin 2013, possibly in conjunction with the otherNorthern VCTs. We will be writing to shareholders aboutthisin due course.
The dividend reinvestment plan introduced in January 2010, whereby shareholders can opt to have their dividendsre-invested in existing ordinary sharesin the company, has not been a greatsuccessin terms either ofitstake-up by shareholders or ofitsimpact on secondary markettrading in the company'sshares. We have therefore decided to withdraw the scheme with immediate effect and replace it with a dividend reinvestmentscheme under which participants' dividends will be invested in new ordinary shares. This will not only provide the company with additionalfundsforinvestment but also enable shareholdersto benefitfrom the tax reliefs available to investorsin new VCT shares, including initial income tax relief at 30%. More details are given in a separate circular which is being sentto shareholders with the annualreport. Shareholders wishing to take partin the scheme shouldmake sure thatthey have the appropriate election in place.
This has become a frequently recurring topic. Shareholders will be aware thatthe 2012 Finance Actrelaxed the size limitsfor VCTqualifying investee companies, but also introduced a new £5million cap on the amount offunding which a company can raise from VCTs within a 12month period. Management buy-outs can be VCT-qualifying investments only to the extentthatthey employ funds raised priorto 6 April 2012. We are learning to work within these restrictions.
Ireferred inmy half-yearly reportto the consultation paper published by the FSA (now the FCA) on the retail distribution of unregulated collective investmentschemes, which suggested thatrestrictionsmight be placed on the categories ofretail investors to whomVCT share offers can be promoted. Happily,following strong representations fromindividual VCT houses and the Association ofInvestment Companies, it now appearsthat thisthreat hasreceded.
The encouraging results ofthe pasttwo years have been achieved in the face ofthe continuing travails oftheUK economy. There is no reason to believe thatthe background will become significantly brighterin the shortterm, and hence a degree of caution aboutthe future is appropriate, butthe venture capital portfolio ismaking steady progress.Ourmanagers have several potential investments at an advanced stage of negotiation and there are also interesting opportunitiesin the AIM market. We therefore take a reasonably optimistic view ofthe prospectsforthe next 12months.
James Ferguson Chairman 13 May 2013
aged 65, was chairman andmanaging director of StewartIvory Limited from1989 until 2000. He is chairman of Value&Income Trust plc, The MonksInvestment Trust PLC,North American Income Trust plc and The Scottish Oriental Smaller Companies Trust plc, a nonexecutive director ofIndependentInvestment Trust plc and a former deputy chairman ofthe Association ofInvestment Companies.He was appointed to the board in 2001 and became chairman in 2009.
aged 61, ismanaging partner ofio solutions (e-businessstrategy advisers), chairman ofDigital City Business Trading Limited, a non-executive director ofNCFE Limited and a governor of TeessideUniversity. He wasformerly chairman ofDarlington Building Society and group chief executive of Whessoe plc.He was appointed to the board in 2001.
aged 64, is executive chairman ofNVM Private Equity Limited, which he co-founded in 1988.He is a non-executive director of Northern Venture Trust PLC and several unquoted companies.He was appointed to the board in 2001.
aged 56, is chief executive of Archangel Informal Investment Limited, a Scottish-based syndicate ofindividual private equity investors, and was previously a director ofNobleGrossart Limited. He was appointed to the board in 2007.
Christopher Mellor FCA MCSI NorthumberlandHouse Princess Square Newcastle upon TyneNE1 8ER Telephone: 0191 244 6000 Fax: 0191 244 6001 Email: [email protected]
Registered number 4280530
NVM Private Equity Limited NorthumberlandHouse Princess Square Newcastle upon TyneNE1 8ER
Sarasin&Partners LLP JuxonHouse 100 St Paul's Churchyard London EC4M 8BU
Speirs&Jeffrey Limited 36 Renfield Street Glasgow G2 1NA
KPMGAudit Plc Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N6RH
SJ Berwin LLP 10Queen Street Place London EC4R 1BE
Nplus1 Singer Advisory LLP 1Hanover Street London W1S 1YZ
Barclays Bank PLC 71Grey Street Newcastle upon TyneNE1 6EF
Equiniti Limited AspectHouse Spencer Road Lancing BN99 6DA Shareholder helpline: 0800 028 2349
Northern 3 VCT PLC is a Venture Capital Trust(VCT)launched in September 2001. The company investsmainly in unquoted venture capital holdings, with itsremaining assets invested in a portfolio oflisted fixed-interest and equity investments and bank deposits.
The company is amember ofthe Association ofInvestment Companies(AIC).
Northern 3 VCT PLC ismanaged byNVM Private Equity Limited (NVM), an independentspecialist firmof venture capitalmanagers based in Newcastle upon Tyne and Reading.NVM also acts asmanager ofthree otherlisted investment companies,Northern Investors Company PLC, Northern Venture Trust PLC andNorthern 2 VCT PLC, and a limited partnership,NV1 LP.NVM has a total of over £220million undermanagement.
Venture Capital Trusts were introduced by the Chancellor ofthe Exchequerin theNovember 1994 Budget,the relevantlegislation being contained in the Finance Act 1995. VCTs are intended to provide ameans whereby private individuals can investin small unquoted trading companiesin theUK, with an incentive in the formof a range oftax benefits. With effect from6 April 2006,the benefitsto eligible investorsinclude:
• income tax relief at up to 30% on new subscriptions of up to £200,000 pertax year, provided the shares are held for atleastfive years;
Subscribersforsharesin VCTs between 6 April 2004 and 5 April 2006 were entitled to income tax relief at 40% ratherthan 30% and the shares had to be held for atleastthree yearsrather than five years. Priorto 6 April 2004,subscribers forsharesin VCTs were entitled to income tax relief at 20% and could also obtain capital gains deferralrelief. Capital gains deferred by pre-6 April 2004 subscriptions are not affected by the subsequent changesin VCT tax reliefs.
The company'sfinancial calendarforthe year ending 31 March 2014 is asfollows:
Half-yearly financialreportforsixmonths ending 30 September 2013 published
Interimdividend paid
Final dividend and resultsfor yearto 31 March 2014 announced; annualreport and accounts published
Annual generalmeeting;final dividend paid
The company'sshare price is carried daily in the Financial Times,theDaily Telegraph, theNewcastle Journal and TheHerald. The company's FTSE Actuaries classification is "Investment Companies – VCTs".
A range ofshareholderinformation is provided on the internet at www.shareview.co.uk by the company'sregistrars, Equiniti Limited, including details ofshareholdings, indicative share prices and information on recent dividends(see page 4 for contact detailsfor Equiniti Limited).
Share price information can also be obtained via theNVM website at www.nvm.co.uk.
The company operates a dividend reinvestment scheme, giving shareholdersthe option of reinvesting their dividendsin new sharesin the company with the benefit ofthe tax reliefs currently available to VCT subscribers. This scheme hasreplaced the dividend reinvestment plan previously in operation; details ofthe change are set outin a separate circularto shareholders. Information aboutthe dividend reinvestmentscheme can also be obtained fromthe Company Secretary (see page 4 for contact details).
The company's objective is to provide high long-term tax-free returns to investors through a combination of dividend yield and capital growth.
Thisreview has been prepared by the directors in accordance with the requirements of Section 417 ofthe Companies Act 2006, and forms part ofthe directors'reportto shareholders. The company'sindependent auditorisrequired by law to report on whetherthe information given in the directors'report(including the businessreview)is consistent with the financial statements. The auditor's opinion isincluded in the auditor'sreport on page 26.
The company's objective isto provide high long-termtax-free returnsto investorsthrough a combination of dividend yield and capital growth, by investing in a portfoliomainly comprising holdingsinUK unquoted companies.
The company is a Venture Capital Trust (VCT) approved byHM Revenue&Customs. In ordertomaintain approved status, a VCT must comply on a continuing basis with the provisions of Section 274 ofthe Income Tax Act 2007; in particular,the company is required at alltimesto hold atleast 70% of itsinvestments(as defined in the legislation) in VCT-qualifying holdings, of which atleast 30% (70% forfundsraised after 5 April 2011) must comprise eligible ordinary shares. For this purpose a "VCT-qualifying holding" is an investmentin new shares orsecurities of aUK unquoted company (whichmay be quoted on AIM) which is carrying on a qualifying trade, and whose gross assets and number of employees atthe time ofinvestment do not exceed prescribed limits.
The definition of "qualifying trade" excludes certain activitiessuch as property investment and development,financialservices and asset leasing. With effectfrom6 April 2012 the legislation has been amended so asto prevent any company receivingmore than £5million in aggregate fromallstate-aided providers ofrisk capital, including VCTs, in the 12month period up to and including themostrecent such investment.
The company'sinvestment policy has been designed to enable the company to comply with the VCT qualifying conditionsset out above. The directorsintend thatthe long-term disposition ofthe company's assets will be approximately 80% in a portfolio of VCTqualifying unquoted and AIM investments and 20% in otherinvestmentsselected with a view to producing an enhanced return while avoiding undue capital volatility,to provide a reserve ofliquidity which willmaximise the company'sflexibility asto the timing of investment acquisitions and disposals, dividend payments and share buy-backs. Within the VCT-qualifying portfolio investments will be structured using variouslisted and unlisted investmentinstruments, including ordinary and preference shares, loan stocks and convertible securities,to achieve an appropriate balance ofincome and capital growth, having regard to the VCT legislation. This portfolio will be diversified by investing in a broad range of industry sectors and by holding investments in companies at differentstages ofmaturity in the corporate development cycle. The normal investment holding period will be in the range fromthree to seven years.Up to approximately 10% by value ofthe company'sinvestments may be in early stage companies with high growth potential.
Based on the company's present gross assets of approximately £51million, no single investment would normally representin excess of 4% ofthe company'stotal assets atthe time of acquisition.Howevershareholdersshould be aware thatthe company's VCT-qualifying investments are held with a view to long-term capital growth as well asincome and will often have limitedmarketability; as a result itis possible thatindividual holdingsmay grow in value to the point where they represent a significantly higher proportion oftotal assets priorto a realisation opportunity being available. Investments will normally bemade using the company's equity shareholders' funds and itis notintended thatthe company willtake on any long-termborrowings.
The company is entitled to participate pro rata to net assetsin all investment opportunities developed byNVM Private Equity Limited (NVM) and regularly invests alongside other fundsmanaged byNVM.Under a co-investment scheme introduced in 2006,NVM executives are required to invest personally alongside the fundsin each new investee company on a predetermined basis.
NVM has acted asthe company'sinvestment managersince inception.NVM has an experienced teamof venture capital executives based in its officesinNewcastle upon Tyne and Reading and currently has over £220million undermanagement.
The board'smanagement engagement committee reviewsthe terms ofNVM's appointment asinvestmentmanager on a regular basis. The principalterms ofthe company'smanagement agreement withNVM are set outinNote 3 to the financialstatements.
| Year ended 31 March | New investment £000 |
Disposal proceeds £000 |
Net cash inflow/ (outflow) £000 |
|---|---|---|---|
| 2009 | 2,237 | 3,404 | 1,167 |
| 2010 | 5,948 | 5,637 | (311) |
| 2011 | 4,956 | 1,951 | (3,005) |
| 2012 | 3,658 | 3,888 | 230 |
| 2013 | 5,794 | 6,771 | 977 |
| Total | 22,593 | 21,651 | (942) |
| £000 | Pence per ordinary share |
|
|---|---|---|
| Net asset value at 31 March 2012 | 47,798 | 96.7 |
| Netrevenue (investment income lessrevenue expenses and tax) | 868 | 1.8 |
| Capitalsurplus arising on investments: Realised net gains on disposals Movementsin fair value of investments |
1,375 5,096 |
2.8 10.4 |
| Management expenses allocated to capital account (net of tax relief) | (1,228) | (2.5) |
| Totalreturn forthe year asshown in income statement | 6,111 | 12.5 |
| Sharesre-purchased for cancellation | (907) | 0.4 |
| Net movement forthe year before dividends | 5,204 | 12.9 |
| Net asset value at 31 March 2013 before dividendsrecognised | 53,002 | 109.6 |
| Dividendsrecognised in the financialstatementsforthe year | (2,446) | (5.0) |
| Net asset value at 31 March 2013 | 50,556 | 104.6 |
During the year underreview Northern 3 VCT achieved a totalreturn to ordinary shareholders, before dividends, of 12.9p pershare, equivalent to 13.3% ofthe opening net asset value per share of 96.7p. Themovementin total net assets and net asset value pershare issummarised in Table 2.
The net cash flow fromthe venture capital portfolio during the year was £1.0million, comprising sales proceeds and repayments of £6.8million, less new investments of £5.8million. Portfolio cash flow overthe pastfive yearsissummarised in Table 1.
Aftertaking account of other cash flows,the company'stotal cash balances decreased in the year by £2.0million to £6.5million. In addition the company holdslisted fixed-interest and equity investments valued at £8.4million.
The directors have proposed dividendstotalling 5.5p pershare in respect ofthe year, comprising 2.0p revenue dividend and a 3.5p capital distribution.
During the year ended 31 March 2013,four new holdings were added to the venture capital portfolio at a cost of £3.8million, and additional investmentstotalling £2.0million weremade in existing portfolio companies. The portfolio at 31 March 2013 comprised 44 holdings with an aggregate value of £36.1million.
A summary ofthe venture capital holdings at 31 March 2013 is given on page 11, with information on the fifteen largestinvestments on pages 12 to 15.
| Age ofinvestment | |
|---|---|
| Up to 1 year | 10.7% |
| IT services | 47.5% |
|---|---|
| Construction | 2.5% |
| Consumer | 9.8% |
| Industrial | 8.9% |
| Businessservices | 25.3% |
| Healthcare/biotechnology | 6.0% |
The new investments completed during the year were:
Additional investments weremade during the yearin TinglobalHoldings(£1,000,000) andWearInns(£567,000).
Details ofinvestmentsales during the year are given inNote 9 on page 35. Themost significantrealisations(original cost orsales proceedsin excess of £0.3m) are summarised in Table 3.
CloserstillHoldings,the business-to-business exhibition organiser, wassold to Phoenix Private Equity in May 2012 for £2,215,000 in cash. The related investmentin Closer2 Investments wassimultaneously exchanged for a holding of equivalent value in CloserstillGroup, a new exhibitions group fundedmainly by Phoenix. PaladinGroup was acquired by Placesfor PeopleGroup duringNovember 2012 for £2,082,000.
The pie charts above show the composition ofthe venture capital portfolio at 31 March 2013 by value according to age, industry sector,financing stage and whether quoted or unquoted. The portfolio is well diversified and the company has continued to invest primarily inmanufacturing and service businesses which meetthemanagers' key criteria of good value, growth potential,strongmanagement and ability to generate cash.
The portfolio has continued to performwell despite theUK's current economic difficulties. Amongstthe unquoted investments, Kerridge Commercial Systems again achieved excellent results and remains ourmost valuable holding, whilst Volumatic hasmade particularly encouraging progresssince ourinvestmentjust over a year ago. Inevitably a small number of companies have found the going difficultin challenging conditions and where appropriate valuations have been reduced to reflectthis.
The AIM market has been strong overthe past 12months and ourtwo largest AIM holdings, Advanced Computer SoftwareGroup and IDOX, both delivered good returns.
Unquoted investments are valued in accordance with the accounting policy set out on page 31, which takes account of currentindustry guidelinesforthe valuation of venture capital portfolios. Provision against costismade where an investmentis under-performing significantly.
As at 31 March 2013 the number ofinvestments falling into each valuation category was as shown in Table 4.
The directorsregard the following asthe key indicators pertaining to the company's performance:
shareholders:the charts atthe bottom ofthis page show themovementin net asset value and totalreturn (net asset value plus cumulative dividends) pershare overthe pastfive financial years.
Dividend distributions:the charts atthe bottomofthis page and the page opposite show the dividends(including proposed final dividends) declared in respect of each ofthe pastfive financial years and on a cumulative basissince inception.
dividends paid per share (p)
Financing stage Expansion 64.3% MBO/MBI 33.0%
Early stage 2.7%
Unquoted 72.9% AIM 26.2% LSE 0.9%
| Company | Date of original investment |
Original cost £000 |
Sales proceeds £000 |
Realised surplus/ (deficit) £000 |
|---|---|---|---|---|
| Closerstill Holdings – institutional buy-out | 2008 | 742 | 2,215 | 1,473 |
| Paladin Group – trade sale | 2006 | 1,013 | 2,082 | 1,069 |
| IG Doors* – loan stock repayment | 2003 | 333 | 362 | 29 |
| RCC Lifesciences* – loan stock repayment | 2010 | 895 | 895 | – |
| KPJ Software Services – company wound up | 2009 | 362 | 326 | (36) |
| Spectrum Interactive – trade sale | 2005 | 226 | 348 | 122 |
*Partialrealisation
| Category | Number of investments |
Valuation £000 |
% of portfolio by value |
|---|---|---|---|
| Unquoted investments at directors' valuation | |||
| Earnings multiple | 19 | 20,900 | 57.9 |
| Original cost | 5 | 5,081 | 14.1 |
| Original cost less provision | 4 | 168 | 0.5 |
| Net assets | 2 | 176 | 0.5 |
| Quoted investments at bid price | |||
| Listed on London Stock Exchange | 1 | 318 | 0.9 |
| Quoted on AIM | 13 | 9,463 | 26.1 |
| Total | 44 | 36,106 | 100.0 |
Ongoing charges:the chart atthe bottomofthis page showstotal annual running expenses(including investment managementfees charged to capitalreserve but excluding performance-related fees) as a percentage ofthe average net assets attributable to shareholdersfor each of the pastfive financial years.
Maintenance of VCT qualifying status: the directors believe thatthe company has at alltimessince inception complied with the VCT qualifying conditionslaid down byHM Revenue&Customs.
The board carries out a regularreview of the risk environmentin which the company operates. The principalrisks and uncertainties identified by the board are asfollows:
Investmentrisk:themajority ofthe company's investments are in small andmedium-sized unquoted companies which are VCT qualifying holdings and which by their nature entail a higherlevel ofrisk and lowerliquidity than investmentsin large quoted companies. The directors aimto limitthe risk attaching to the portfolio as a whole by carefulselection, closemonitoring and timely realisation of investments, by carrying outrigorous due diligence procedures and bymaintaining a wide spread of holdingsin terms offinancing stage and industry sector. The board reviews the investment portfolio with themanager on a regular basis.
Financialrisk: asmost ofthe company's investmentsinvolve amedium-to long-term commitment and are relatively illiquid,the directors considerthatitisinappropriate to finance the company's activitiesthrough borrowing except on an occasionalshort-term basis. Accordingly they seek tomaintain a proportion ofthe company's assetsin cash or cash equivalentsin orderto be in a position to take advantage of new unquoted investment opportunities. The company has very little direct exposure to foreign currency risk and does not enterinto derivative transactions.
Economic risk: eventssuch as economic recession or generalfluctuation in stock markets and interestratesmay affectthe valuation ofinvestee companies and their ability to access adequate financialresources, as well as affecting the company's own share price and discountto net asset value.
Stock marketrisk:some ofthe company's venture capital investments are quoted on the London Stock Exchange or AIM and will be subjecttomarketfluctuations upwards and downwards. Externalfactorssuch asterrorist activity can negatively impactstockmarkets worldwide and AIM is no exception to this. In times of adverse sentimentthere tendsto be very little, if any,market demand forshares in the smaller companies quoted on AIM.
Creditrisk:the company holds a number of financial instruments and cash deposits. The company is dependent on the counterparty discharging their commitment. The directors review the counterpartiesto these instruments and cash depositsin addition to ensuring no significant concentration of creditrisk is with any one counterparty.
Liquidity risk:the company'sinvestments may be difficultto realise. The factthat a stock is quoted on AIM does not guarantee itsliquidity and theremay be a large spread between bid and offer prices.Unquoted investments are nottraded on a recognised stock exchange and are inherently illiquid.
Legislative and regulatory risk: in orderto maintain its approval as a VCT,the company isrequired to comply with current VCT legislation in theUK as well asthe European Commission's State Aid rules. Changesto the UK legislation orthe State Aid rulesin the future could have an adverse effect on the company's ability to achieve satisfactory investment returns whilstretaining its VCT approval. The board and themanagermonitor political developments and where appropriate seek tomake representations either directly orthrough the relevanttrade bodies.
Internal controlrisk:the board regularly reviewsthe systemofinternal controls, both financial and non-financial, operated by the company and themanager. These include controls designed to ensure thatthe company's assets are safeguarded and that proper accounting records aremaintained.
VCT qualifying statusrisk:the company is required at alltimesto observe the conditions laid down in the Income Tax Act 2007 forthe maintenance of approved VCT status. The loss ofsuch approval could lead to the company losing its exemption fromcorporation tax on capital gains,to investors being liable to pay income tax on dividendsreceived fromthe company and, in certain circumstances,to investors being required to repay the initial income tax relief on theirinvestment. The manager keepsthe company's VCT qualifying status under continualreview and reports to the board on a quarterly basis. The board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role.
The strong resultsforthe period under review have been achieved despite an unhelpful trading environmentformostUK businesses. The economy islikely to recover only slowly, if at all;thisis bound to have some impact on the prospectsfor our companies, but we will maintain our careful approach to selecting and monitoring investments with a view to building on the encouraging performance ofthe past 12months.
C D Mellor
Secretary 13 May 2013
10 Northern 3 VCT PLC Annual Report and Financial Statements 2013
as at 31 March 2013
| Cost £000 |
Valuation £000 |
% of net assets by value |
|
|---|---|---|---|
| Fifteen largest venture capital investments(see pages 12 to 15) | |||
| Kerridge Commercial Systems | 1,663 | 4,789 | 9.5 |
| Volumatic | 2,096 | 3,618 | 7.1 |
| Advanced Computer SoftwareGroup* | 1,035 | 3,272 | 6.5 |
| IDOX* | 660 | 2,726 | 5.4 |
| WearInns | 1,406 | 1,779 | 3.5 |
| TinglobalHoldings | 1,988 | 1,750 | 3.5 |
| Control RisksGroupHoldings | 746 | 1,315 | 2.6 |
| Intuitive | 1,293 | 1,293 | 2.6 |
| Silverwing | 1,272 | 1,272 | 2.5 |
| KitwaveOne | 1,000 | 1,007 | 2.0 |
| HaystackDryers | 992 | 992 | 2.0 |
| Cawood Scientific | 825 | 990 | 1.9 |
| Lineup Systems | 974 | 974 | 1.9 |
| IGDoors | 355 | 910 | 1.8 |
| OptilanGroup | 1,125 | 792 | 1.6 |
| 17,430 | 27,479 | 54.4 | |
| Other venture capital investments | |||
| SinclairIS Pharma* | 753 | 771 | 1.5 |
| ArleighGroup | 355 | 739 | 1.5 |
| PromaticGroup | 701 | 699 | 1.4 |
| Andor Technology* | 598 | 633 | 1.3 |
| MantisDepositionHoldings | 556 | 572 | 1.1 |
| CloserStillGroup | 549 | 549 | 1.1 |
| e-know.net | 225 | 485 | 1.0 |
| LannerGroup | 475 | 462 | 0.9 |
| Pilat MediaGlobal* | 390 | 388 | 0.8 |
| Synectics* | 170 | 344 | 0.7 |
| VecturaGroup** | 248 | 318 | 0.6 |
| VianetGroup* | 368 | 297 | 0.6 |
| CelloGroup* | 349 | 276 | 0.5 |
| Axial SystemsHoldings | 1,293 | 268 | 0.5 |
| Gentronix | 361 | 264 | 0.5 |
| JelfGroup* | 177 | 232 | 0.5 |
| Nationwide Accident Repair Services* | 290 | 215 | 0.4 |
| Direct Valeting | 148 | 205 | 0.4 |
| Envirotec | 176 | 196 | 0.4 |
| Brady* | 175 | 191 | 0.4 |
| Altacor | 336 | 168 | 0.3 |
| Longhirst Venues | 280 | 116 | 0.2 |
| Adept Telecom* | 236 | 114 | 0.2 |
| S&P Coil Products | 60 | 61 | 0.1 |
| RCC Lifesciences | 100 | 60 | 0.1 |
| Summit Corporation* | 122 | 4 | – |
| Crantock Bakery | 845 | – | – |
| Warmseal Windows(Newcastle) | 339 | – | – |
| Astbury MarsdenHoldings | 1,177 | – | – |
| Total venture capital investments | 29,282 | 36,106 | 71.4 |
| Listed equity investments | 5,000 | 5,812 | 11.5 |
| Listed fixed-interestinvestments | 2,569 | 2,614 | 5.2 |
| Totalfixed assetinvestments | 36,851 | 44,532 | 88.1 |
| Net current assets | 6,024 | 11.9 | |
| Net assets | 50,556 | 100.0 |
* Quoted on AIM ** Listed on London Stock Exchange
| £1,663,000 |
|---|
| £4,789,000 |
| Earningsmultiple |
| 7.1% (NVM fundstotal 42.8%) |
| Software developerfor wholesale and retail distribution sectors,Hungerford |
| Management buy-outfromADP Inc, March 2010, led byNVM Private Equity |
| Northern Investors Company,Northern Venture Trust,Northern 2 VCT |
| Dividends nil, loan stock interest £108,000 |
| Year ended 30 September | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 25.5 | 18.9 |
| Profit before tax | 1.9 | 1.2 |
| Profit aftertax | 1.5 | 0.9 |
| Net assets | 3.8 | 2.4 |
| Cost | £2,096,000 |
|---|---|
| Valuation | £3,618,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 16.9% (NVM fundstotal 50.6%) |
| Business/location | Manufacturer ofintelligent cash handling equipment, Birmingham |
| History | Management buy-out, March 2012, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT |
| Income in year | Dividends nil, loan stock interest £151,000 |
First audited accounts will be forthe period ended 31 March 2013
| Cost | £1,035,000 |
|---|---|
| Valuation | £3,272,000 |
| Basis of valuation | Bid price (AIM) |
| Equity held | 0.9% (NVM fundstotal 1.9%) |
| Business/location | Provider ofsoftware to the healthcare sector, London |
| History | Reverse take-over of an AIM quoted company and additionalfundraising, August 2008 |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT |
| Income in year | Nil |
| Year ended 28 February | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 101.8 | 95.4 |
| Profit before tax | 6.9 | 3.1 |
| Profit aftertax | 6.3 | 4.2 |
| Net assets | 98.2 | 84.6 |
| Cost | £660,000 |
|---|---|
| Valuation | £2,726,000 |
| Basis of valuation | Bid price (AIM) |
| Equity held | 1.6% (NVM fundstotal 2.6%) |
| Business/location | Developer ofsoftware productsfor document, content and informationmanagement, London |
| History | Holding acquired through a share placing on AIM in 2007 |
| OtherNVM funds investing |
Northern Venture Trust |
| Income in year | Dividends £35,000 |
| Year ended 31 October | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 57.9 | 38.6 |
| Profit before tax | 6.9 | 5.6 |
| Profit aftertax | 6.7 | 4.5 |
| Net assets | 38.9 | 34.4 |
| Cost | £1,406,000 |
|---|---|
| Valuation | £1,779,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 6.4% (NVM fundstotal 28.4%) |
| Business/location | Owner ofmanaged public houses, Newcastle upon Tyne |
| History | Acquisition capitalfinancing in February 2006, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Investors Company,Northern Venture Trust,Northern 2 VCT |
| Income in year | Dividends nil, loan stock interest £65,000 |
| Year ended 31 March | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 7.4 | 6.3 |
| Profit before tax | 0.1 | 0.1 |
| Profit aftertax | 0.1 | 0.1 |
| Net assets | 0.2 | 0.2 |
| Cost | £1,988,000 |
|---|---|
| Valuation | £1,750,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 15.8% (NVM fundstotal 47.3%) |
| Business/location | Supplier ofrefurbishedmid-range computer equipment, Cirencester |
| History | Management buy-outfromventure capital ownership,June 2011, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT |
| Income in year | Dividends nil, loan stock interest £113,000 |
| Year ended 31 May | 2012* £m |
|---|---|
| Sales | 18.4 |
| (Loss) before tax | (0.4) |
| Profit aftertax | 0.2 |
| Net assets | 1.6 |
* 11 months ended 31 May
| Cost | £746,000 |
|---|---|
| Valuation | £1,315,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 1.2% (NVM fundstotal 9.7%) |
| Business/location | Specialistrisk consultancy, London |
| History | Replacement capitalfinancing in March 2011, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Investors Company,Northern Venture Trust,Northern 2 VCT |
| Income in year | Dividends £50,000 |
| Year ended 31 March | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 204.2 | 172.8 |
| Profit before tax | 13.6 | 8.9 |
| Profit aftertax | 9.0 | 4.9 |
| Net assets | 21.1 | 15.4 |
| Cost | £1,293,000 |
|---|---|
| Valuation | £1,293,000 |
| Basis of valuation | Cost |
| Equity held | 11.6% (NVM fundstotal 62.9%) |
| Business/location | Software developerforthe travel industry, Croydon |
| History | Management buy-outfinancing inDecember 2012, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT, NV1 LP |
| Income in year | Dividends nil, loan stock interest £26,000 |
First audited accounts will be forthe period to 31December 2013
| Cost | £1,272,000 |
|---|---|
| Valuation | £1,272,000 |
| Basis of valuation | Cost |
| Equity held | 10.2% (NVM fundstotal 47.4%) |
| Business/location | Developer of non-destructive testing solutions forthe oil and gasindustry, Swansea |
| History | Management buy-outfinancing in August 2012, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT, NV1 LP |
| Income in year | Dividends nil, loan stock interest £44,000 |
First audited accounts will be forthe period to 31December 2013
| Cost | £1,000,000 |
|---|---|
| Valuation | £1,007,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 5.1% (NVM fundstotal 38.0%) |
| Business/location | Wholesaler of confectionery,soft drinks,snacks, beers, wines and tobacco,North Shields |
| History | Growth capital investmentin March 2011, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Investors Company,Northern Venture Trust,Northern 2 VCT |
| Income in year | Dividends nil, loan stock interest £63,000 |
| Year ended 30 April | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 154.6 | 100.2 |
| Profit before tax | 0.8 | 1.2 |
| Profit aftertax | 0.5 | 0.7 |
| Net assets | 4.8 | 4.3 |
| Cost | £992,000 |
|---|---|
| Valuation | £992,000 |
| Basis of valuation | Cost |
| Equity held | 12.6% (NVM fundstotal 43.6%) |
| Business/location | Manufacturer of body dryers, Wimborne |
| History | Growth capital investmentinNovember 2012, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT |
| Income in year | Nil |
First audited accounts will be forthe period to 31December 2013
| Cost | £825,000 |
|---|---|
| Valuation | £990,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 9.1% (NVM fundstotal 45.6%) |
| Business/location | Laboratory servicesforland-based industries, Bracknell/Cawood |
| History | Management buy-outfinancing in December 2010, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Investors Company,Northern Venture Trust,Northern 2 VCT |
| Income in year | Dividends nil, loan stock interest £58,000 |
| Year ended 31 March | 2012 | 2011* £m £m |
|---|---|---|
| Sales | 7.5 | 2.2 |
| Profit before tax | 0.9 | – |
| Profit aftertax | 0.6 | – |
| Net assets | 1.2 | 0.6 |
* 4 months ended 31 March
| December 2011, led byNVM Private Equity |
|---|
| Year ended 30 June | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 1.4 | 1.0 |
| Profit before tax | – | 0.3 |
| Profit aftertax | – | 0.3 |
| Net assets | 0.7 | 0.2 |
| Cost £355,000 Valuation £910,000 Basis of valuation Earningsmultiple Equity held 8.1% (NVM fundstotal 35.0%) Business/location Manufacture ofsteel andGRP composite doors, Cwmbran History Managementbuy-outfromExpametInternational, November 2003, led byNVM Private Equity |
||
|---|---|---|
| Northern Investors Company,Northern investing Venture Trust,Northern 2 VCT |
OtherNVM funds | |
| Income in year Nil |
| Year ended 31 December | 2012 £m |
2011 £m |
|---|---|---|
| Sales | 25.0 | 22.6 |
| Profit before tax | 2.1 | 0.8 |
| Profit aftertax | 1.6 | 0.2 |
| Net assets | 5.0 | 3.4 |
| Cost | £1,125,000 |
|---|---|
| Valuation | £792,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 9.1% (NVM fundstotal 37.3%) |
| Business/location | Telecommunicationssystemsintegrator, Coventry |
| History | Management buy-outfromprivate ownership, March 2008, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Investors Company,Northern Venture Trust,Northern 2 VCT |
| Income in year | Nil |
| Year ended 31 December | 2011 £m |
2010 £m |
|---|---|---|
| Sales | 28.9 | 28.7 |
| Loss before tax | – | (1.1) |
| Loss aftertax | (0.4) | (1.1) |
| Netliabilities | (0.7) | (0.3) |
The directors have managed the affairs ofthe company with the intention of maintaining its status as an approved venture capitaltrust.
The directors presenttheirreport and the audited financialstatementsforthe year ended 31 March 2013.
The principal activity ofthe company during the year wasthemaking oflong-termequity and loan investments,mainly in unquoted companies.
The directors havemanaged the affairs of the company with the intention ofmaintaining itsstatus as an approved venture capitaltrust forthe purposes of Section 274 ofthe Income Tax Act 2007. The directors considerthatthe company was not at any time up to the date of thisreport a close company within themeaning of Chapter 2 of Part 10 ofthe Corporation Tax Act 2010.
The directors are required by the present articles of association to propose an ordinary resolution atthe company's annual general meeting in 2015 thatthe company should continue as a venture capitaltrustfor a further five year period, and at each fifth subsequent annual generalmeeting thereafter. If any such resolution is not passed,the directorsshall within fourmonths convene an extraordinary generalmeeting to consider proposalsforthe reorganisation or winding-up ofthe company.
A resolution will be proposed atthe annual generalmeeting on 17 July 2013 to amend the articles of association such thatthe next continuation resolution will be proposed at the annual generalmeeting in 2019.
The directors are required by Section 417 of the Companies Act 2006 to include a business review in theirreportto shareholders. The businessreview isset out on pages 6 to 10 and isincluded in the directors'report by reference.
The statement on corporate governance set out on pages 20 to 24 isincluded in the directors'report by reference.
The return on ordinary activities aftertax for the year of £6,111,000 has been transferred to reserves.
The final dividend of 3.0p pershare in respect ofthe year ended 31 March 2012 and an interim dividend of 2.0p pershare in respect ofthe year ended 31 March 2013 were paid during the year at a cost of £2,446,000 and have been charged to reserves.
The proposed final dividend of 3.5p per share forthe year ended 31 March 2013 will, if approved by shareholders atthe annual generalmeeting, be paid on 26 July 2013 to shareholders on the register on 5 July 2013.
Each ofthe directors who held office atthe date of approval ofthis directors'report confirms that,so far as he is aware,there is no relevant auditinformation of which the company's auditoris unaware and that he hastaken allthe stepsthat he could reasonably be expected to have taken as a directorin ordertomake himself aware of any relevant auditinformation and to establish thatthe company's auditoris aware ofthatinformation.
Aftermaking the necessary enquiries,the directors believe thatitis appropriate to continue to apply the going concern basis in preparing the financialstatements.
The directors ofthe company during the year and theirinterestsin respect of which transactions are notifiable to the company underDisclosure and Transparency Rule 3.1.2R (and so far asthe company is, or ought upon reasonable enquiry to become, aware,the interests oftheir connected persons)in the issued ordinary shares of 5p ofthe company as at 31 March 2013 are shown in Table 1.
All ofthe directors'share interests were held beneficially. There have been no changes in the directors'share interests between 31 March 2013 and the date ofthisreport.
None ofthe directors has a contract ofservice with the company and, except asmentioned below underthe heading "Management", no contract or arrangementsubsisted during or atthe end ofthe yearin which any director was materially interested and which wassignificant in relation to the company's business.
The company has, as permitted by the Companies Act 2006,maintained insurance cover on behalf ofthe directors and secretary indemnifying themagainst certain liabilities whichmay be incurred by any ofthemin relation to the company.
The company's payment policy forthe forthcoming financial yearisto agree terms of payment before businessistransacted and to settle accountsin accordance with those terms. There were no amounts owing to trade creditors at 31 March 2013.
| 31 March 2013 | 1 April 2012 |
|---|---|
| 203,857 | 203,857 |
| 25,577 | 25,577 |
| 200,922 | 200,922 |
| 7,283 | 7,283 |
NVM Private Equity Limited (NVM) has acted asinvestment adviser andmanagerto the company since incorporation. The principal terms ofthe company'smanagement agreement withNVM are set outinNote 3 to the financialstatements. Mr T R Levett is an executive director ofNVM.
With effectfromApril 2006 amanagement performance incentive scheme wasintroduced under which investment executives employed byNVM are required to invest personally (and on the same terms asthe company and other fundsmanaged byNVM)in the ordinary share capital ofinvestee companiesin which the company invests. The directorsreview the operation ofthe scheme annually.
Asrequired by the Listing Rules,the directors confirmthatin their opinion the continuing appointment ofNVM asinvestmentmanager on the terms agreed isin the interests ofthe company'sshareholders as a whole. In reaching this conclusion the directors have taken into accountthe performance ofthe investment portfolio and the efficient and effective service provided byNVM to the company.
During the yearthe company purchased for cancellation 1,085,990 ofits own shares, representing 2.2% ofthe called-up share capital ofthe company atthe beginning ofthe year, for a consideration of £907,000. Purchases weremade in line with the company's policy of purchasing available shares at a discount to net asset value.
Atthe 2012 annual generalmeeting shareholders authorised the company to purchase in themarket up to 4,940,425 ordinary shares(equivalentto approximately 10% ofthe then issued ordinary share capital) at a minimumprice of 5p pershare and amaximum price pershare of notmore than 105% ofthe averagemarket value forthe ordinary shares in the company forthe five business days prior to the date on which the ordinary shares were purchased. As at 31 March 2013 1,085,990 shares had been purchased underthis authority, which atthat date remained effective in respect of 3,854,435 shares;the authority will lapse atthe conclusion ofthe 2013 annual general meeting ofthe company on 17 July 2013.
Movementsin fixed assetinvestments during the year are set outinNote 8 to the financialstatements.
Notice ofthe 2013 annual generalmeeting to be held on 17 July 2013 isset outin a separate circularto shareholders along with explanatory comments on the resolutions.
No disclosures ofmajorshareholdings had been made to the company underDisclosure and Transparency Rule 5 (VoteHolder and Issuer Notification Rules) as atthe date ofthisreport.
The company'sindependent auditor, KPMG Audit Plc, hasinstigated an orderly wind down of business. The directors have decided to propose the appointment of KPMGLLP as auditorin succession to KPMGAudit Plc and a resolution concerning this will be proposed atthe annual generalmeeting.
C D Mellor
Secretary 13 May 2013
Thisreport has been prepared by the directors in accordance with the requirements ofthe Companies Act 2006. A resolution to approve the report will be proposed atthe annual generalmeeting.
The company'sindependent auditor, KPMG Audit Plc, isrequired to give an opinion on certain information included in thisreport, asindicated below. The auditor'sreport on these and othermattersisset out on page 26.
The board currently comprisesfour directors, all of whomare non-executive. The board does not have a separate remuneration committee, asthe company has no employees or executive directors. The board has established a nomination committee, chaired by MrJGD Ferguson and comprising allthe directors, which considersthe selection and appointment of directors andmakesrecommendations to the board asto the level of directors'fees. The board has notretained external advisers in relation to remunerationmatters but has accessto information about directors'fees paid by other companies of a similarsize and type.
The board considersthat directors'fees should reflectthe time commitmentrequired and the high level ofresponsibility borne by directors, and should be broadly comparable to those paid by similar companies. Itis not considered appropriate that directors' remuneration should be performance-related, and none ofthe directorsis eligible for bonuses, pension benefits,share options, long-term incentive schemes or other benefitsin respect oftheirservices as non-executive directors ofthe company. Mr T R Levettis entitled to participate in performance incentive arrangements established forthe benefit of certain executives ofNVM Private Equity Limited, as described in the directors'report on page 17.
Directors'fees were reviewed by the nomination committee during itsmeeting in March 2013, when it wasrecommended that feesshould be increased to £21,000 (previously £20,000) per annumforthe chairman and £16,000 (previously £15,000)for other directors forthe year ending 31 March 2014. The last increase wasforthe year ended 31 March 2012. The articles of association place an overall limit (currently £100,000 per annum) on directors' remuneration.
The fees paid to individual directorsin respect ofthe years ended 31 March 2013 and 31 March 2012 are shown in Table 1.
The articles of association provide that directorsshallretire and be subjectto re-election atthe first annual generalmeeting aftertheir appointment and any director who was not appointed orre-appointed at one of the preceding two annual generalmeetings shallretire and be subjectto re-election at each annual generalmeeting.None ofthe directors has a service contract with the company.On being appointed orre-elected, directorsreceive a letterfromthe company setting outthe terms oftheir appointment and theirspecific duties and responsibilities. A director's appointment may be terminated on threemonths' notice being given by the company and in certain other circumstances.
The graph opposite comparesthe totalreturn (assuming all dividends are re-invested)to ordinary shareholdersin the company over the five years ended 31 March 2013 with the totalreturn froma notional investment in a broadUK equitymarketindex.
By order oftheBoard
C D Mellor Secretary 13 May 2013
| Year ended 31 March 2013 £ |
Year ended 31 March 2012 £ |
|---|---|
| 20,000 | 20,000 |
| 15,000 | 15,000 |
| – | – |
| 15,000 | 15,000 |
Mr T R Levett waived his entitlement to directors' feesin respect of both years.
The board ofNorthern 3 VCT PLC has considered the principles and recommendations ofthe Association ofInvestment Companies Code of CorporateGovernance (AIC Code) by reference to the related Association of Investment Companies CorporateGovernance Guide forInvestment Companies(AICGuide). The AIC Code, as explained by the AICGuide, addresses allthe principlesset outin theUK CorporateGovernance Code, as well assetting out additional principles and recommendations on issuesthat are ofspecific relevance to the company. The AIC Code can be viewed at www.theaic.co.uk/sites/default/files/ uploads/files/AICCorpGovGuideFeb2013.pdf.
The board considersthatreporting against the principles and recommendations ofthe AIC Code, and by reference to the AICGuide (which incorporatestheUK Corporate Governance Code), will provide better information to shareholders.
The company is committed tomaintaining high standardsin corporate governance and during the year ended 31 March 2013 complied with the recommendations ofthe AIC Code and the relevant provisions oftheUK Corporate Governance Code, except asset out below.
TheUK CorporateGovernance Code includes provisionsrelating to the role ofthe chief executive, executive directors'remuneration and the need for an internal auditfunction. Forthe reasonsset outin the AICGuide, and in the preamble to theUK CorporateGovernance Code,the board considersthese provisions are notrelevantto the position ofNorthern 3 VCT PLC, which is an externallymanaged venture capitaltrust. The company hastherefore not reported furtherin respect ofthese provisions.
In February 2013 the AIC published a revised version ofthe AIC Code,reflecting recent changesin theUK CorporateGovernance Code. Whilst compliance with the revised AIC Code is notmandatory untilthe financial year ending 31 March 2014,the board acknowledgesthatitrepresents an authoritative statement of best practice.
The board hastherefore amended its practices as appropriate so asto comply with the revised Code and thisisreflected in additional information included within thisreport.
The company has a board offour non-executive directors,themajority of whomare considered to be independent ofthe company'sinvestment manager,NVM Private Equity Limited (NVM). The boardmeetsregularly on a quarterly basis, and on other occasions asrequired. The board isresponsible to shareholdersforthe effective stewardship ofthe company's affairs and has a formalschedule ofmattersspecifically reserved forits decision which include:
A brief biographicalsummary of each director is given on page 4.
The chairman, MrJGDFerguson, leadsthe board in the determination ofitsstrategy and in the achievement ofits objectives. The chairman isresponsible for organising the business ofthe board, ensuring its effectiveness and setting its agenda, and has no involvement in the day to day business ofthe company. He facilitatesthe effective contribution of the directors and ensuresthatthey receive accurate,timely and clearinformation and thatthey communicate effectively with shareholders.
The board has established a formal process, led by the chairman,forthe annual evaluation ofthe performance ofthe board, its principal committees and individual directors. The directors aremade aware on appointment thattheir performance will be subjectto regular evaluation. The performance ofthe chairman is evaluated by ameeting ofthe other boardmembers underthe leadership of Mr C J Fleetwood.
The company secretary, Mr CD Mellor, is responsible for advising the board through the chairman on all governancematters. All ofthe directors have accessto the advice and services ofthe company secretary, who has administrative responsibility forthemeetings ofthe board and its committees.Directors may also take independent professional advice atthe company's expense where necessary in the performance oftheir duties. As all ofthe directors are non-executive, itis not considered appropriate to identify amember ofthe board asthe senior non-executive director ofthe company.
The company's articles of association and the schedule ofmattersreserved to the board for decision provide thatthe appointment and removal ofthe company secretary is amatter forthe board.
The company's articles of association require that one third ofthe directorsshould retire by rotation each year and seek re-election atthe annual generalmeeting, and that directors newly appointed by the board should seek re-appointment atthe next annual generalmeeting. The board complies with the requirement ofthe Combined Code that all directors are required to submitthemselves forre-election atleast every three years.
The board regularly reviewsthe independence ofitsmembers andissatisfiedthatthe company's directors are independentin character and judgement and there are no relationships or circumstances which could affecttheir objectivity (with the exception of Mr T R Levett who is a director and employee of NVM,the company'sinvestmentmanager).
The AIC Code recommendsthat where a director hasserved formore than nine years, the board should state itsreasonsfor believing thatthe individualremainsindependent. The board is ofthe view that a termofservice in excess of nine yearsis notin itself prejudicial to a director's ability to carry out his/her duties effectively and froman independent perspective;the nature ofthe company's businessissuch thatindividual directors' experience and continuity of boardmembership can significantly enhance the effectiveness ofthe board as a whole. Accordingly itis not considered appropriate to require directors who have served formore than nine years to seek annualre-election.Nevertheless the board acknowledgesthat periodic refreshment ofitsmembership is desirable.
The board has appointed three standing committeestomake recommendationsto the board in specific areas. The board does not have a separate remuneration committee, asthe company has no employees or executive directors.Detailed information relating to the remuneration of directorsis given in the directors'remuneration report on pages 18 and 19.
During the yearthe audit committee comprised:
Mr C J Fleetwood (Chairman) MrJGDFerguson MrJ M O Waddell
The audit committee'sterms ofreference include the following roles and responsibilities:
• monitoring andmaking recommendations to the board in relation to the company's published financialstatements and other formal announcementsrelating to the company'sfinancial performance;
The committee reviewsitsterms ofreference and its effectiveness annually and recommends to the board any changesrequired as a result ofthe review. The terms ofreference are available on requestfromthe company secretary and on theNVM website, www.nvm.co.uk. The audit committeemeetsthree times per year and has direct accessto KPMGAudit Plc, the company's external auditor. The board considersthatthemembers ofthe committee are independent and have collectively the skills and experience required to discharge their duties effectively, and thatthe chairman ofthe committeemeetsthe requirements oftheUK CorporateGovernance Code asto recent and relevantfinancial experience.
The company does not have an independent internal auditfunction asitis not deemed appropriate given the size ofthe company and the nature ofthe company's business.However, the committee considers annually whether there is a need forsuch a function and if so would recommend thisto the board.
During the year ended 31 March 2013 the audit committee discharged itsresponsibilities by:
The key areas ofrisk that have been identified and considered by the audit committee in relation to the business activities and financial statements ofthe company are asfollows:
These issues were discussed with the investmentmanager and the auditor at the pre-year end audit planningmeeting and atthe conclusion ofthe audit ofthe financialstatements.
Valuation of unquoted investments:the investmentmanager and the auditor confirmed to the audit committee thatthe investment valuations had been carried out consistently with prior periods and in accordance with published industry guidelines,taking account ofthe latest available information about investee companies and currentmarket data.
Venture capitaltruststatus:the investment manager confirmed to the audit committee thatthe conditionsformaintaining the company'sstatus as an approved venture capitaltrust had been complied with throughoutthe year. The position was also reviewed by PricewaterhouseCoopers LLP in its capacity as adviserto the company on taxationmatters.
Investmentincome recognition:the auditor reported that based on a review ofthe financial statements and discussions withmanagement, it wassatisfied thatincome recognition during the year complied with the company'sstated accounting policy.
Performance-related managementfee:the audit committee reviewed the calculation of the performance-relatedmanagementfee for the year and wassatisfied thatthe conditions for payment had beenmet. The calculation wasreviewed by the auditor.
The investmentmanager and auditor confirmed to the audit committee that they were not aware of anymaterial misstatements.Having reviewed the reports received fromthemanager and auditor,the audit committee issatisfied thatthe key areas ofrisk and judgement have been appropriately addressed in the financialstatements and that the significant assumptions used in determining the value of assets and liabilities have been properly appraised and are sufficiently robust. The committee considersthat KPMGAudit Plc has carried outits duties as auditorin a diligent and professionalmanner.
As part ofthe review of auditor effectiveness and independence, KPMGAudit Plc has confirmed thatitisindependent ofthe company and has complied with applicable auditing standards. KPMGAudit Plc has held office as auditorfor eleven years; in accordance with professional guidelinesthe engagement partnerisrotated after atmostfive years, and the current partner hasserved fortwo years.Having completed itsreview the audit committee issatisfied that KPMGAudit Plc remained effective and independentin carrying outitsresponsibilities up to the date ofsigning thisreport. KPMGAudit Plc hasinstigated an orderly wind down of business and KPMG LLP,the successor entity to KPMGAudit Plc, will be proposed as auditor atthe annual general meeting. The audit committee issatisfied that KPMGLLP isindependent and thatit would not be appropriate to putthe audit appointment outto tender atthe presenttime.
During the yearthe nomination committee comprised:
MrJGDFerguson (Chairman) Mr C J Fleetwood Mr T R Levett MrJ M O Waddell
The nomination committee considersthe selection and appointment of directors and makes annualrecommendationsto the board asto the level of directors'fees. The committee monitorsthe balance ofskills, knowledge and experience offered by boardmembers, and satisfiesitselfthatthey are able to devote sufficienttime to carry outtheirrole efficiently and effectively. When recommending new appointmentsto the board the committee draws on itsmembers' extensive business experience and range of contactsto identify suitable candidates;the use offormal advertisements and external consultantsis not considered cost-effective given the company's size.New directors are provided with briefing materialrelating to the company, itsinvestment manager and the venture capital industry as well asto their own legalresponsibilities as directors. The committee has written terms ofreference which are reviewed annually and are available on requestfromthe company secretary and on theNVM website,www.nvm.co.uk.
During the yearthemanagement engagement committee comprised:
MrJGDFerguson (Chairman) Mr C J Fleetwood MrJ M O Waddell
Themanagement engagement committee undertakes a periodic reviewofthe performance ofthe investmentmanager,NVM, and ofthe terms ofthemanagement agreementincluding the level offees payable and the length of the notice period. The principalterms ofthe agreement are set outinNote 3 to the financial statements on page 32.
Following the latestreview by the committee, the board concluded thatthe continuing appointment ofNVM wasin the interests of the company and itsshareholders as a whole. NVM has demonstrated its commitmentto and expertise in venture capital investment over an extended period, as a result of which the company has established a consistentlong-term performance record.NVM has also performed its company secretarial and accounting duties efficiently and effectively.
Table 1 sets outthe number offormal board and committeemeetings held during the year ended 31 March 2013 and the number attended by each director compared with themaximum possible attendance.
The board aimsto ensure thatthe company takes a positive approach to corporate responsibility, in relation both to itself and to the companiesitinvestsin. This entails maintaining a responsible attitude to ethical, environmental, governance and social issues, and the encouragement of good practice in investee companies. The board seeksto avoid investing in companies which do not operate within relevant ethical, environmental and social legislation or otherwise failto comply with appropriate industry standards.
| Board | Audit committee |
Nomination committee |
Management engagement committee |
|
|---|---|---|---|---|
| Number ofmeetings held | 5 | 3 | 1 | 1 |
| Attendance (actual/possible): | ||||
| JGDFerguson (Chairman) | 5/5 | 3/3 | 1/1 | 1/1 |
| C J Fleetwood | 5/5 | 3/3 | 1/1 | 1/1 |
| T R Levett | 5/5 | N/A | 1/1 | N/A |
| J M O Waddell | 5/5 | 3/3 | 1/1 | 1/1 |
In fulfilment ofthe chairman's obligations undertheUK CorporateGovernance Code, the chairman givesfeedback to the board on issuesraised with himby shareholders with a view to ensuring thatmembers ofthe board develop an understanding ofthe views of shareholders abouttheir company. The board recognisesthe value ofmaintaining regular communications with shareholders. Formal reports are sentto shareholders atthe half-year and year-end stages, and an opportunity is given to shareholders atthe annual generalmeeting to question the board and the investment manager onmattersrelating to the company's operation and performance. Proxy voting figuresfor each resolution are announced at generalmeetings and aremade available publicly following the relevantmeeting.
Furtherinformation can also be obtained via theNVM website at www.nvm.co.uk.
The directors have overallresponsibility for ensuring thatthere are in place systems of internal control, both financial and nonfinancial, and forreviewing their effectiveness. The purpose ofthe internalfinancial controls isto ensure that proper accounting records aremaintained,the company's assets are safeguarded and the financial information used within the business and for publication is accurate and reliable;such a systemcan provide only reasonable and not absolute assurance againstmaterialmisstatement orloss. The board regularly reviewsfinancial performance and results with the investment manager. Responsibility for accounting, secretarialservices and physical custody of documents oftitle relating to venture capital investments has been contractually delegated toNVM underthemanagement agreement.NVM has established its own systemofinternal controlsin relation to these matters, details of which have been reviewed by the audit committee.
Non-financial internal controlsinclude the systems of operational and compliance controlsmaintained by the investmentmanager in relation to the company's business as well asthemanagement of key risks asreferred to in the section headed "Riskmanagement" below.
The directors confirmthat bymeans ofthe proceduresset out above, and in accordance with "Internal Controls:Guidance forDirectors on the Combined Code", published by the Institute of Chartered Accountantsin England and Wales,they have established a continuing processforidentifying, evaluating andmanaging the significant potentialrisksfaced by the company and have reviewed the effectiveness ofthe internal controlsystems. This process has been in place throughout and subsequent to the accounting period underreview.
Riskmanagementis discussed in the business review on pages 9 and 10.
As at 31 March 2013 48,318,262 ordinary shares were in issue (as atthat date none of the issued shares were held by the company as treasury shares). Subjectto any suspension or abrogation ofrights pursuantto relevantlaw or the company's articles of association,the shares confer on their holders(otherthan the company in respect of any treasury shares)the following principalrights:
These rights can be suspended. If amember, or any other person appearing to be interested in shares held by thatmember, hasfailed to comply within the time limitsspecified in the company's articles of association with a notice pursuantto Section 793 ofthe Companies Act 2006 (notice by company requiring information aboutinterestsin itsshares),the company can untilthe default ceasessuspend the rightto attend and speak and vote at a generalmeeting and ifthe sharesrepresent atleast 0.25% of their classthe company can also withhold any dividend or othermoney payable in respect ofthe shares(without any obligation to pay interest) and refuse to accept certain transfers ofthe relevantshares.
Shareholders, either alone or with other shareholders, have otherrights asset out in the company's articles of association and in the Companies Act 2006.
Amembermay choose whether hisshares are evidenced by share certificates(certificated shares) or held in electronic (uncertificated) formin CREST (theUK electronic settlement system). Anymembermay transfer all or any of hisshares,subjectin the case of certificated sharesto the rulesset outin the company's articles of association orin the case of uncertificated sharesto the regulations governing the operation of CREST (which allow the directorsto refuse to register a transfer astherein set out);the transferorremains the holder ofthe shares untilthe name ofthe transferee is entered in the register ofmembers. The directorsmay refuse to register a transfer of certificated sharesin favour ofmore than four personsjointly or where there is no adequate evidence of ownership orthe transferis not duly stamped (ifso required). The directorsmay also refuse to register a share transferifitisin respect of a certificated share which is notfully paid up or on which the company has a lien provided that, where the share transferisin respect of any share admitted to theOfficial Listmaintained by theUK Listing Authority, any such discretion may not be exercised so asto prevent dealings taking place on an open and proper basis, orifin the opinion ofthe directors(and with the concurrence oftheUK Listing Authority) exceptional circumstancesso warrant, provided thatthe exercise ofsuch power will not disturb themarketin those shares.
Whilstthere are no squeeze-out and sell out rulesrelating to the sharesin the company's articles of association,shareholders are subject to the compulsory acquisition provisionsin Sections 974 to 991 ofthe Companies Act 2006.
The company's articles of associationmay be amended by themembers ofthe company by specialresolution (requiring amajority of atleast 75% ofthe persons voting on the relevantresolution).
A personmay be appointed as a director of the company by the shareholdersin general meeting by ordinary resolution (requiring a simplemajority ofthe persons voting on the relevantresolution) or by the directors; no person, otherthan a directorretiring by rotation or otherwise,shall be appointed orreappointed a director at any generalmeeting unless he is recommended by the directors or, notlessthan seven normore than 42 clear days before the date appointed forthemeeting, notice is given to the company ofthe intention to propose that person for appointment orre-appointmentin the formandmannerset outin the company's articles of association.
Each director who is appointed by the directors(and who has not been elected as a director ofthe company by themembers at a generalmeeting held in the intervalsince his appointment as a director ofthe company) isto be subjectto election as a director ofthe company by themembers atthe first annual generalmeeting ofthe company following his appointment. At each annual generalmeeting ofthe company one third ofthe directorsfor the time being, oriftheir numberis notthree or an integralmultiple ofthree the number nearestto but not exceeding one third, are to be subjectto re-election.
The Companies Act 2006 allowsshareholders in generalmeeting by ordinary resolution (requiring a simplemajority ofthe persons voting on the relevantresolution)to remove any director before the expiration of his or her period of office, but without prejudice to any claimfor damages which the directormay have for breach of any contract ofservice between himor her and the company. A person also ceasesto be a directorif he orshe resignsin writing, ceasesto be a director by virtue of any provision ofthe Companies Act, becomes prohibited by law frombeing a director, becomes bankrupt oristhe subject of a relevant insolvency procedure, or becomes of unsound mind, orifthe board so decidesfollowing at leastsixmonths' absence withoutleave orif he orshe becomessubjectto relevant procedures underthemental health laws, asset outin the company's articles of association.
The company's articles of association specify that,subjectto the provisions ofthe Companies Act 2006 and articles of association ofthe company and any directions given by shareholders by specialresolution,the business ofthe company isto bemanaged by the directors, whomay exercise allthe powers ofthe company, whetherrelating to the management ofthe business or not, except where the Companies Act 2006 orthe articles of association ofthe company otherwise require. In particularthe directorsmay exercise on behalf ofthe company its powersto purchase its own sharesto the extent permitted by shareholders. Authority was given atthe company's 2012 annual generalmeeting to makemarket purchases of up to 4,940,425 ordinary shares at any time up to the 2013 annual generalmeeting and otherwise on the termsset outin the relevantresolution, and authority is being sought atthe annual general meeting to be held on 17 July 2013 asset out in a separate circular.
C D Mellor Secretary 13 May 2013
The directors are responsible for preparing the annualreport and the financialstatementsin accordance with applicable law and regulations.
Company law requiresthe directorsto prepare financialstatementsfor each financial year. Underthatlaw they have elected to prepare the financialstatementsin accordance with UK Accounting Standards and applicable law (UKGenerally Accepted Accounting Practice).
Under company law the directorsmust not approve the financialstatements unlessthey are satisfied thatthey give a true and fair view ofthe state of affairs ofthe company and ofthe profit orloss ofthe company forthat period.
In preparing these financialstatements, the directors are required to:
The directors are responsible for keeping adequate accounting recordsthat are sufficientto show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position ofthe company and enable themto ensure thatthe financialstatements comply with the Companies Act 2006. They have general responsibility fortaking such steps as are reasonably open to themto safeguard the assets ofthe company and to prevent and detectfraud and otherirregularities.
Under applicable law and regulations,the directors are also responsible for preparing a directors'report, directors'remuneration report and corporate governance statement that complies with thatlaw and those regulations.
The company'sfinancialstatements are published on theNVM Private Equity Limited (NVM) website, www.nvm.co.uk. The maintenance and integrity ofthis website is the responsibility ofNVM and notthe company. Legislation in theUK governing the preparation and dissemination offinancialstatementsmay differfromlegislation in otherjurisdictions.
The directors confirmthatto the best oftheir knowledge:
C D Mellor Secretary 13 May 2013
We have audited the financialstatements of Northern 3 VCT PLC forthe year ended 31 March 2013 set out on pages 28 to 40. The financial reporting framework that has been applied in their preparation is applicable law andUK Accounting Standards(UKGenerally Accepted Accounting Practice).
Thisreportismade solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 ofthe Companies Act 2006.Our audit work has been undertaken so that we mightstate to the company'smembersthose matters we are required to state to themin an auditor'sreport 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'smembers, as a body,for our audit work,forthisreport, orforthe opinions we have formed.
As explainedmore fully in theDirectors' Responsibilities Statementin respect ofthe Annual Report and the Financial Statements on page 25,the directors are responsible forthe preparation ofthe financialstatements and for being satisfied thatthey give a true and fair view.Ourresponsibility isto audit, and express an opinion on,the financial statementsin accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standardsrequire us to comply with the Auditing Practices Board's (APB's) Ethical Standardsfor Auditors.
A description ofthe scope of an audit of financialstatementsis provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate.
In our opinion the financialstatements:
In our opinion:
We have nothing to reportin respect of the following:
Underthe Companies Act 2006 we are required to reportto you if, in our opinion:
Underthe Listing Rules we are required to review:
CatherineBurnet(Senior StatutoryAuditor) for and on behalf ofKPMG Audit Plc, StatutoryAuditor
CharteredAccountants Edinburgh
13 May 2013
forthe year ended 31 March 2013
| Year ended 31 March 2013 | Year ended 31 March 2012 | ||||||
|---|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | |
| Gain on disposal ofinvestments | 8 | – | 1,375 | 1,375 | – | 628 | 628 |
| Movementsin fair value ofinvestments | 8,15 | – | 5,096 | 5,096 | – | 3,023 | 3,023 |
| – | 6,471 | 6,471 | – | 3,651 | 3,651 | ||
| Income | 2 | 1,523 | – | 1,523 | 1,746 | – | 1,746 |
| Investmentmanagementfee | 3 | (245) | (1,341) | (1,586) | (208) | (894) | (1,102) |
| Other expenses | 4 | (297) | – | (297) | (283) | (11) | (294) |
| Return on ordinary activities before tax | 981 | 5,130 | 6,111 | 1,255 | 2,746 | 4,001 | |
| Tax on return on ordinary activities | 5 | (113) | 113 | – | (210) | 210 | – |
| Return on ordinary activities aftertax | 868 | 5,243 | 6,111 | 1,045 | 2,956 | 4,001 | |
| Return pershare | 7 | 1.8p | 10.7p | 12.5p | 2.4p | 6.8p | 9.2p |
| Dividends paid/proposed | |||||||
| in respect ofthe year | 6 | 2.0p | 3.5p | 5.5p | 2.2p | 2.8p | 5.0p |
• The total column ofthisstatementisthe profit and loss account ofthe company. The supplementary revenue return and capitalreturn columns have been prepared under guidance published by the Association ofInvestment Companies.
• There are no recognised gains orlosses otherthan those disclosed in the income statement.
• All itemsin the above statement derive fromcontinuing operations.
• The accompanying notes are an integral part ofthisstatement.
forthe year ended 31 March 2013
| Year ended 31 March 2013 |
Year ended 31 March 2012 |
||
|---|---|---|---|
| Notes | £000 | £000 | |
| Equity shareholders'funds at 1April 2012 | 47,798 | 37,428 | |
| Return on ordinary activities aftertax | 6,111 | 4,001 | |
| Dividendsrecognised in the year | 6 | (2,446) | (1,931) |
| Net proceeds ofshare issues | – | 3,418 | |
| Sharesissued onmerger | – | 5,482 | |
| Shares purchased for cancellation | 14 | (907) | (600) |
| Equity shareholders'funds at 31 March 2013 | 50,556 | 47,798 |
• The accompanying notes are an integral part ofthisstatement.
as at 31 March 2013
| 31 March 2013 | 31 March 2012 | ||
|---|---|---|---|
| Notes | £000 | £000 | |
| Fixed assets | |||
| Investments | 8 | 44,532 | 39,606 |
| Current assets | |||
| Debtors | 12 | 241 | 192 |
| Cash and deposits | 6,517 | 8,511 | |
| 6,758 | 8,703 | ||
| Creditors(amountsfalling due within one year) | 13 | (734) | (511) |
| Net current assets | 6,024 | 8,192 | |
| Net assets | 50,556 | 47,798 | |
| Capital and reserves | |||
| Called-up equity share capital | 14 | 2,416 | 2,470 |
| Share premium | 15 | 3,219 | 3,219 |
| Capitalredemption reserve | 15 | 484 | 430 |
| Capitalreserve | 15 | 36,083 | 36,756 |
| Revaluation reserve | 15 | 7,681 | 4,042 |
| Revenue reserve | 15 | 673 | 881 |
| Total equity shareholders'funds | 50,556 | 47,798 | |
| Net asset value pershare | 16 | 104.6p | 96.7p |
• The accompanying notes are an integral part ofthisstatement.
The financialstatements on pages 28 to 40 were approved by the directors on 13 May 2013 and are signed on their behalf by:
JGDFerguson C J Fleetwood Director Director
forthe year ended 31 March 2013
| Year ended 31 March 2013 £000 |
Year ended 31 March 2012 £000 |
|
|---|---|---|
| Net cash (outflow)/inflow from operating activities | (122) | 528 |
| Taxation Corporation tax paid |
– | – |
| Financial investment Purchase ofinvestments Sale/repayment ofinvestments |
(5,794) 7,275 |
(4,798) 7,429 |
| Net cash inflow fromfinancial investment | 1,481 | 2,631 |
| Acquisitions Cash and deposits acquired onmerger |
– | 604 |
| Equity dividends paid | (2,446) | (1,931) |
| Net cash (outflow)/inflow before financing | (1,087) | 1,832 |
| Financing Issue of ordinary shares Share issue expenses Purchase of ordinary sharesfor cancellation |
– – (907) |
3,598 (259) (600) |
| Net cash (outflow)/inflow fromfinancing | (907) | 2,739 |
| (Decrease)/increase in cash and deposits | (1,994) | 4,571 |
| Reconciliation ofreturn before tax to net cash flow from operating activities Return on ordinary activities before tax Gain on disposal ofinvestments Movementsin fair value ofinvestments (Increase)/decrease in debtors Increase/(decrease)in creditors |
6,111 (1,375) (5,096) (49) 287 |
4,001 (628) (3,023) 230 (52) |
| Net cash (outflow)/inflow fromoperating activities | (122) | 528 |
| Analysis of movementin netfunds 1 April 2012 £000 |
Cash flows £000 |
31 March 2013 £000 |
Cash and deposits 8,511 (1,994) 6,517
forthe year ended 31 March 2013
A summary ofthe principal accounting policies, all of which have been consistently applied throughoutthe year and the preceding year, isset out below.
The financialstatements have been prepared on a going concern basis underthe historical cost convention, exceptforthe revaluation of certain financial instruments, and in accordance withUKGenerally Accepted Accounting Practice (UKGAAP). Where presentational guidance set outin the Statement of Recommended Practice (SORP) "Financial Statements ofInvestment Trust Companies",revised in January 2009, is consistent with the requirements ofUKGAAP, the directors have soughtto prepare the financialstatements on a consistent basis compliant with the recommendations ofthe SORP.
Purchases and sales ofinvestments are recognised in the financialstatements atthe date oftransaction (trade date).
The company'sinvestments have been designated by the directors asfair value through profit orloss atthe time of acquisition and aremeasured atsubsequentreporting dates atfair value. In the case ofinvestments quoted on a recognised stock exchange,fair value is established by reference to the closing bid price on the relevant date orthe lasttraded price, depending on the convention ofthe exchange on which the investmentis quoted. In the case of unquoted investments,fair value is established in accordance with industry guidelines by usingmeasurements of value such as price ofrecenttransaction, earningsmultiple and net assets; where no reliable fair value can be estimated using such techniques, unquoted investments are carried at costsubjectto provision forimpairment where necessary.
Gains and losses arising fromchangesin fair value ofinvestments are recognised as part of the capitalreturn within the income statement and allocated to the revaluation reserve. Transaction costs attributable to the acquisition or disposal ofinvestments are charged to capital return within the income statement.
Those venture capital investmentsthatmay be termed associated undertakings are carried atfair value as determined by the directorsin accordance with the company's normal policy and are not equity accounted asrequired by the Companies Act 2006. The directors consider that, asthese investments are held as part ofthe company's portfolio with a view to the ultimate realisation of capital gains, equity accounting would not give a true and fair view ofthe company'sinterestsin these investments. Quantification ofthe effect ofthis departure is not practicable. Carrying investments atfair value isspecifically permitted under Financial Reporting Standard 9 "Associates and Joint Ventures", where venture capital entities hold investments as part of a portfolio.
Dividendsreceivable on quoted equity shares are broughtinto account on the ex-dividend date.Dividendsreceivable on unquoted equity shares are broughtinto account when the company'srightto receive paymentis established and there is no reasonable doubt that payment will be received. Fixed income returns on non-equity shares and debtsecurities are recognised on an effective interestrate basis, provided there is no reasonable doubt that payment will be received in due course.
All expenses are accounted for on an accruals basis. Expenses are charged to revenue return within the income statement exceptthat:
The revenue column ofthe income statement includes all income and revenue expenses ofthe company. The capital column includesrealised and unrealised gains and losses on investments and that part ofthe investmentmanagement fee which is allocated to capitalreturn.
UK corporation tax payable is provided on taxable profits atthe currentrate. The tax charge forthe yearis allocated between revenue return and capitalreturn on the "marginal basis" asrecommended in the SORP.
Provision ismade for deferred taxation on alltiming differences calculated atthe current rate oftax relevantto the benefit orliability.
Dividends payable are recognised as distributionsin the financialstatements when the company'sliability tomake payment has been established.
A provision isrecognised in the balance sheet when the company has a legal or constructive obligation as a result of a past event and itis probable that an outflow of economic benefits will be required to settle the obligation.No provision is establishedwhere a reliable estimate ofthe obligation cannot bemade. Provisions are allocated to revenue or capital depending on the nature ofthe circumstances.
The following are accounted forin the capital reserve: gains orlosses on the realisation of investments;realised and unrealised exchange differences of a capital nature;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.
Changesin the fair value ofinvestments are dealt with in thisreserve.
forthe year ended 31 March 2013
| Year ended 31 March 2013 £000 |
Year ended 31 March 2012 £000 |
|
|---|---|---|
| Franked investmentincome: | ||
| Unquoted companies | 95 | 104 |
| Quoted companies | 403 | 336 |
| Interestreceivable: | ||
| Bank deposits* | 22 | 12 |
| Loansto unquoted companies | 907 | 1,153 |
| Listed fixed-interestinvestments | 96 | 141 |
| 1,523 | 1,746 |
*Denotesincome arising frominvestments not designated asfair value through profit orloss atthe time of acquisition.
| Year ended 31 March 2013 | Year ended 31 March 2012 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Investmentmanagementfee : | ||||||
| Basic | 245 | 734 | 979 | 208 | 623 | 831 |
| Performance-related | – | 607 | 607 | – | 271 | 271 |
| 245 | 1,341 | 1,586 | 208 | 894 | 1,102 |
NVM Private Equity Limited (NVM) providesinvestmentmanagement and secretarialservicesto the company under an agreement dated 24 September 2001, whichmay be terminated at any time by notlessthan twelvemonths' notice being given by either party.
NVM receives a basicmanagementfee, payable quarterly in advance, atthe rate of 2.06% per annumof net assets calculated half-yearly as at 31 March and 30 September.NVM bearsthe cost of Sarasin&Partners'feesformanaging the listed fixed-interest portfolio.NVM also provides administrative and secretarialservicesto the company for a fee of £48,000 per annum(linked to themovementin the RPI). Thisfee isincluded in other expenses(seeNote 4).
NVM is also entitled to receive a performance-relatedmanagementfee equivalentto 14.2% ofthe amount, if any, by which the totalreturn in each financial year(expressed as a percentage of opening net asset value) exceeds a performance hurdle. The hurdle is a composite rate based on 7% on average long-terminvestments and the higher of base rate and 3% on average cash and near-cash investments during the year. Following a period in which net assets decline, a "high watermark" will apply to the calculation ofthe performance-related fee but will be then adjusted downwardsto the extentthat a positive return is achieved in the following financial year. The performance-relatedmanagementfee issubjectto an overall cap of 2.25% of net assets. Any performance-related element ofthe investmentmanagementfee is charged 100% to capitalreturn.
The totalrunning costs ofthe company, excluding performance-relatedmanagementfees and any irrecoverable VAT thereon, are capped at 3.5% ofits net assets andNVM has agreed that any excess will be refunded by way of a reduction in itsfees.
| Year ended 31 March 2013 £000 |
Year ended 31 March 2012 £000 |
|
|---|---|---|
| Administrative and secretarialservices | 48 | 46 |
| Directors'remuneration | 54 | 54 |
| Auditor'sremuneration – auditservices | 18 | 20 |
| Legal and professional expenses | 19 | 24 |
| Share issue promoter's commission | 39 | 29 |
| Irrecoverable VAT | 22 | 20 |
| Other expenses | 97 | 90 |
| 297 | 283 |
Information on directors'remuneration is given in the directors'remuneration report on pages 18 and 19.
| Year ended 31 March 2013 | Year ended 31 March 2012 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| (a)Analysis of charge/(credit)forthe year UK corporation tax payable/(recoverable) |
||||||
| on the return forthe year | 113 | (113) | – | 210 | (210) | – |
| (b) Tax reconciliation | ||||||
| Return on ordinary activities before tax | 981 | 5,130 | 6,111 | 1,255 | 2,746 | 4,001 |
| Return on ordinary activitiesmultiplied by the standard rate ofUK corporation tax of 24% (2012 26%) |
235 | 1,231 | 1,466 | 326 | 714 | 1,040 |
| Effect of: | ||||||
| UK dividends notsubjectto tax | (120) | – | (120) | (114) | – | (114) |
| Capitalreturns notsubjectto tax | – | (330) | (330) | – | (163) | (163) |
| Unrealised adjustmentsto fair value | – | (1,223) | (1,223) | – | (786) | (786) |
| Marginalrelief | (2) | 2 | – | (2) | 2 | – |
| Increase in surplusmanagement expenses | – | 207 | 207 | – | 23 | 23 |
| Currenttax charge/(credit)forthe year | 113 | (113) | – | 210 | (210) | – |
The company has notrecognised a deferred tax assetin respect ofsurplusmanagement expenses carried forward of £968,000 (31 March 2012 £109,000), asthe companymay not generate sufficienttaxable income in the foreseeable future to utilise these expenses. There is no other unprovided deferred taxation.
Approved venture capitaltrusts are exemptfromtax on capital gains within the company. Since the directorsintend thatthe company will continue to conductits affairsso astomaintain its approval as a venture capitaltrust, no current or deferred tax has been provided in respect of any capital gains orlosses arising on the revaluation or disposal ofinvestments.
TheGovernment has announced itsintention to furtherreduce theUK corporation tax rate to 20% by 1 April 2015.
forthe year ended 31 March 2013
| Year ended 31 March 2013 | Year ended 31 March 2012 | |||||
|---|---|---|---|---|---|---|
| Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
|
| (a) Recognised as distributionsin the financialstatementsforthe year |
||||||
| Previous year'ssecond interimdividend | – | – | – | 283 | 728 | 1,011 |
| Previous year'sfinal dividend | 590 | 884 | 1,474 | – | – | – |
| Current year'sinterimdividend | 486 | 486 | 972 | 460 | 460 | 920 |
| 1,076 | 1,370 | 2,446 | 743 | 1,188 | 1,931 | |
| (b) Paid and proposed in respect ofthe year | ||||||
| Interimpaid – 2.0p (2012 2.0p) pershare | 486 | 486 | 972 | 460 | 460 | 920 |
| Final proposed – 3.5p (2012 3.0p) pershare | 483 | 1,209 | 1,692 | 593 | 889 | 1,482 |
| 969 | 1,695 | 2,664 | 1,053 | 1,349 | 2,402 |
The revenue dividends paid and proposed in respect ofthe yearformthe basisfor determining whetherthe company has complied with the requirements of Section 274 ofthe Income Tax Act 2007 asto the distribution ofinvestmentincome.
The proposed final dividend of 3.5p pershare in respect ofthe year ended 31 March 2013 issubjectto approval by shareholders atthe annual general meeting on 17 July 2013 and has not been recognised as a liability in the financialstatements.
The calculation ofthe return pershare is based on the return on ordinary activities aftertax forthe year of £6,111,000 (2012 £4,001,000) and on 48,852,114 (2012 43,501,946)shares, being the weighted average number ofsharesin issue during the year.
All investments are designated asfair value through profit orloss on initialrecognition,therefore all gains and losses arise on investments designated atfair value through profit orloss.
Financial Reporting Standard 29 'Financial Instruments:Disclosures'(FRS 29)requires an analysis ofinvestments valued atfair value based on the reliability and significance ofthe information used tomeasure theirfair value. The level is determined by the lowest(thatisthe leastreliable orindependently observable)level ofinputthatissignificantto the fair valuemeasurementforthe individual investmentin its entirety asfollows:
| 31 March 2013 £000 |
31 March 2012 £000 |
|
|---|---|---|
| Level 1 | ||
| Quoted venture capital investments | 9,781 | 6,869 |
| Listed equity investments | 5,812 | 5,363 |
| Listed fixed-interestinvestments | 2,614 | 3,097 |
| Level 2 | ||
| None | – | – |
| Level 3 | ||
| Unquoted venture capital investments | 26,325 | 24,277 |
| 44,532 | 39,606 |
Movementsin investments during the year are summarised asfollows:
| Venture capital – unquoted |
Venture capital – quoted |
Listed equity |
Listed fixed-interest |
||
|---|---|---|---|---|---|
| Level 3 | Level 1 | Level 1 | Level 1 | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| Book cost at 1 April 2012 | 22,279 | 5,146 | 5,000 | 3,073 | 35,498 |
| Fair value adjustment at 1 April 2012 | 1,998 | 1,723 | 363 | 24 | 4,108 |
| Fair value at 1 April 2012 | 24,277 | 6,869 | 5,363 | 3,097 | 39,606 |
| Movementsin the year: | |||||
| Purchases at cost | 5,273 | 521 | – | – | 5,794 |
| Disposals – proceeds | (6,625) | (146) | – | (504) | (7,275) |
| – netrealised gains/(losses) | 1,360 | 18 | – | (3) | 1,375 |
| Movementsin fair value | 2,040 | 2,519 | 449 | 24 | 5,032 |
| Fair value at 31 March 2013 | 26,325 | 9,781 | 5,812 | 2,614 | 44,532 |
| Comprising: | |||||
| Book cost at 31 March 2013 | 23,712 | 5,570 | 5,000 | 2,569 | 36,851 |
| Fair value adjustment at 31 March 2013 | 2,613 | 4,211 | 812 | 45 | 7,681 |
| 26,325 | 9,781 | 5,812 | 2,614 | 44,532 | |
| Equity shares | 10,957 | 9,781 | 5,812 | – | 26,550 |
| Preference shares | 116 | – | – | – | 116 |
| Interest-bearing securities | 15,252 | – | – | 2,614 | 17,866 |
| 26,325 | 9,781 | 5,812 | 2,614 | 44,532 |
The gains and lossesincluded in the above table have all been recognised in the income statement on page 28.
FRS 29 requires disclosure, by class offinancial instrument, ifthe effect of changing one ormore inputsto reasonably possible alternative assumptions would resultin a significant change to the fair valuemeasurement. The information used in determination ofthe fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of each investee company.On that prudent basisthe directors consider thatthe impact of changing one ormore ofthe inputsto reasonably possible alternative assumptions would not change the fair value significantly. At 31 March 2013 there were commitmentstotalling £892,000 (31 March 2012 £2,233,000)in respect ofinvestments approved by themanager but not yet completed.
Disposals of venture capital investments during the year were asfollows:
| Original cost £000 |
Carrying value priorto disposal £000 |
Disposal proceeds £000 |
Realised gain/(loss) against carrying value £000 |
|
|---|---|---|---|---|
| CloserStillHoldings | 742 | 2,038 | 2,215 | 177 |
| PaladinGroup | 1,013 | 1,261 | 2,082 | 821 |
| SpectrumInteractive | 226 | 110 | 348 | 238 |
| IGDoors | 333 | 362 | 362 | – |
| RCC Lifesciences | 895 | 895 | 895 | – |
| KPJ Software Services | 362 | 327 | 326 | (1) |
| Prologic | 97 | 128 | 146 | 18 |
| Others | 270 | 272 | 397 | 125 |
| 3,938 | 5,393 | 6,771 | 1,378 |
forthe year ended 31 March 2013
The cost and carrying value ofmaterial investmentsin unquoted companies held at 31 March 2013 are shown below. Forthis purpose any investment included in the table ofthe fifteen largest venture capital investments on page 11, orin the corresponding table in the previous year's annualreport, isregarded asmaterial.
| 31 March 2013 | 31 March 2012 | |||||
|---|---|---|---|---|---|---|
| Total | Carrying | Total | Carrying | |||
| cost | value | cost | value | |||
| £000 | £000 | £000 | £000 | |||
| Kerridge Commercial Systems | ||||||
| Ordinary shares | 320 | 3,446 | 318 | 2,460 | ||
| Loan stock | 1,343 | 1,343 | 1,343 | 1,343 | ||
| 1,663 | 4,789 | 1,661 | 3,803 | |||
| Volumatic | ||||||
| Ordinary shares | 216 | 1,738 | 216 | 216 | ||
| Loan stock | 1,880 | 1,880 | 1,779 | 1,779 | ||
| 2,096 | 3,618 | 1,995 | 1,995 | |||
| WearInns Ordinary shares |
293 | 666 | 208 | 380 | ||
| Loan stock | 1,113 | 1,113 | 631 | 631 | ||
| 1,406 | 1,779 | 839 | 1,011 | |||
| TinglobalHoldings | ||||||
| Ordinary shares Loan stock |
228 1,760 |
– 1,750 |
228 760 |
228 760 |
||
| 1,988 | 1,750 | 988 | 988 | |||
| Control RisksGroupHoldings | ||||||
| Ordinary shares | 746 | 1,315 | 746 | 1,037 | ||
| Intuitive | ||||||
| Ordinary shares | 134 | 134 | – | – | ||
| Loan stock | 1,159 | 1,159 | – | – | ||
| 1,293 | 1,293 | – | – | |||
| Silverwing | ||||||
| Ordinary shares | 162 | 162 | – | – | ||
| Loan stock | 1,110 | 1,110 | – | – | ||
| 1,272 | 1,272 | – | – | |||
| KitwaveOne | ||||||
| Ordinary shares | 102 | 109 | 102 | 117 | ||
| Loan stock | 898 | 898 | 898 | 898 | ||
| 1,000 | 1,007 | 1,000 | 1,015 | |||
| HaystackDryers | ||||||
| Ordinary shares | 99 | 99 | – | – | ||
| Loan stock | 893 | 893 | – | – | ||
| 992 | 992 | – | – | |||
| Cawood Scientific | ||||||
| Ordinary shares | 95 | 260 | 95 | 212 | ||
| Loan stock | 730 | 730 | 730 | 730 | ||
| 825 | 990 | 825 | 942 | |||
| Lineup Systems Ordinary shares |
174 | 174 | 174 | 174 | ||
| Loan stock | 800 | 800 | 800 | 800 | ||
| 974 | 974 | 974 | 974 | |||
| IGDoors | ||||||
| Ordinary shares Loan stock |
355 – |
910 – |
355 333 |
619 358 |
||
| 355 | 910 | 688 | 977 | |||
| 31 March 2013 | 31 March 2012 | ||||
|---|---|---|---|---|---|
| Total cost £000 |
Carrying value £000 |
Total cost £000 |
Carrying value £000 |
||
| OptilanGroup | |||||
| Ordinary shares | 179 | – | 179 | – | |
| Loan stock | 946 | 792 | 946 | 625 | |
| 1,125 | 792 | 1,125 | 625 | ||
| CloserStillHoldings | |||||
| Ordinary shares | – | – | 142 | 1,437 | |
| Loan stock | – | – | 601 | 601 | |
| – | – | 743 | 2,038 | ||
| PaladinGroup | |||||
| Ordinary shares | – | – | 256 | 504 | |
| Loan stock | – | – | 757 | 757 | |
| – | – | 1,013 | 1,261 | ||
| Axial SystemsHoldings | |||||
| Ordinary shares | 219 | – | 219 | 181 | |
| Loan stock | 1,074 | 268 | 1,074 | 1,074 | |
| 1,293 | 268 | 1,293 | 1,255 | ||
| RCC Lifesciences | |||||
| Ordinary shares | 100 | 60 | 100 | 70 | |
| Loan stock | – | – | 895 | 895 | |
| 100 | 60 | 995 | 965 |
Additional information relating tomaterial investmentsin unquoted companiesis given on pages 12 to 15.
There are no shareholdingsin companies where the company's holding at 31 March 2013 represents(1)more than 20% ofthe allotted equity share capital of any class,(2)more than 20% ofthe total allotted share capital or(3)more than 20% ofthe assets ofthe company itself.
| 31 March 2013 £000 |
31 March 2012 £000 |
|
|---|---|---|
| Prepayments and accrued income | 241 | 192 |
| 31 March 2013 £000 |
31 March 2012 £000 |
|
|---|---|---|
| Accruals and deferred income Provision forinvestmentliabilities(Note 18) |
734 – |
447 64 |
| 734 | 511 |
forthe year ended 31 March 2013
| 31 March 2013 £000 |
31 March 2012 £000 |
|
|---|---|---|
| Allotted and fully paid: 48,318,262 (2012 49,404,252) ordinary shares of 5p |
2,416 | 2,470 |
The capital ofthe company ismanaged in accordance with itsinvestment policy with a view to the achievement ofitsinvestment objective, asset out on page 6. The company is notsubjectto externally imposed capitalrequirements.
During the yearthe company repurchased 1,085,990 sharesfor cancellation at a cost of £907,000.
| Capital | |||||
|---|---|---|---|---|---|
| Share | redemption | Capital | Revaluation | Revenue | |
| premium | reserve | reserve | reserve | reserve | |
| £000 | £000 | £000 | £000 | £000 | |
| At 1 April 2012 | 3,219 | 430 | 36,756 | 4,042 | 881 |
| Shares purchased for cancellation | – | 54 | (907) | – | – |
| Realised on disposal ofinvestments | – | – | 1,375 | – | – |
| Transfer on disposal ofinvestments | – | – | 1,457 | (1,457) | – |
| Movementsin fair value ofinvestments | – | – | – | 5,032 | – |
| Movementsin provision forinvestmentliabilities(Note 18) | – | – | – | 64 | – |
| Managementfee capitalised net of associated tax | – | – | (1,228) | – | – |
| Revenue return on ordinary activities aftertax | – | – | – | – | 868 |
| Dividendsrecognised in the year | – | – | (1,370) | – | (1,076) |
| At 31 March 2013 | 3,219 | 484 | 36,083 | 7,681 | 673 |
At 31 March 2013 distributable reserves amounted to £37,613,000 (31 March 2012 £38,024,000), comprising the capitalreserve,the revenue reserve and that part ofthe revaluation reserve relating to holding gains/losses on readily realisable listed fixed-interest and equity investments.
The calculation of net asset value pershare as at 31 March 2013 is based on net assets of £50,556,000 (2012 £47,798,000) divided by the 48,318,262 (2012 49,404,252) ordinary sharesin issue atthat date.
The company'sfinancial instruments comprise equity and fixed-interestinvestments, cash balances and liquid resourcesincluding debtors and creditors. The company holdsfinancial assetsin accordance with itsinvestment policy ofinvestingmainly in a portfolio of VCT-qualifying unquoted and AIM-quoted securities whilst holding a proportion ofits assetsin cash or near-cash investmentsin orderto provide a reserve ofliquidity.
Fixed assetinvestments(see note 8) are valued atfair value. For quoted investmentsthisis either bid price orthe latesttraded price, depending on the convention ofthe exchange on which the investmentis quoted.Unquoted investments are carried atfair value as determined by the directors in accordance with current venture capital industry guidelines. The fair value of all otherfinancial assets and liabilitiesisrepresented by their carrying value in the balance sheet.
In carrying on itsinvestment activities,the company is exposed to varioustypes ofrisk associated with the financial instruments andmarketsin which it invests. Themostsignificanttypes offinancialrisk facing the company aremarketrisk, creditrisk and liquidity risk. The company's approach tomanaging these risksisset out below together with a description ofthe nature and amount ofthe financial instruments held atthe balance sheet date.
The company'sstrategy formanaging investmentrisk is determined with regard to the company'sinvestment objective, as outlined in the business review on page 6. Themanagement ofmarketrisk is part ofthe investmentmanagement process and is a centralfeature of venture capital investment. The company's portfolio ismanaged in accordance with the policies and procedures described in the corporate governance statement on pages 20 to 24, having regard to the possible effects of adverse pricemovements, with the objective ofmaximising overallreturnsto shareholders. Investments in unquoted companies, by their nature, usually involve a higher degree ofrisk than investmentsin companies quoted on a recognised stock exchange, though the risk can bemitigated to a certain extent by diversifying the portfolio across businesssectors and asset classes. The overall disposition ofthe company's assetsismonitored by the board on a quarterly basis.
Details ofthe company'sinvestment portfolio atthe balance sheet date are set out on page 11. An analysis ofinvestments between debt and equity instrumentsis given inNote 8.
30.8% (31 March 2012 25.6%) by value ofthe company's net assets comprises equity securitieslisted on the London Stock Exchange or quoted on AIM. A 5%movementin the bid price ofthese securities as at 31 March 2013 would have changed net assets and the totalreturn forthe year by £780,000 (31 March 2012 £612,000).
52.1% (31 March 2012 50.8%) by value ofthe company's net assets comprisesinvestmentsin unquoted companies held atfair value. The valuation methods used by the company include the application of a price/earningsratio derived fromlisted companies with similar characteristics, and consequently the value ofthe unquoted element ofthe portfolio can be indirectly affected by pricemovements on the London Stock Exchange. A 5%movementin the valuation ofthe unquoted investments at 31 March 2013 would have changed net assets and the totalreturn forthe year by £1,316,000 (31 March 2012 £1,214,000).
Some ofthe company'sfinancial assets are interest-bearing, of which some are atfixed rates and some variable. As a result,the company is exposed to fair value interestrate risk due to fluctuationsin the prevailing levels ofmarketinterestrates.
The table below summarises weighted average effective interestratesforthe company'sfixed rate interest-bearing financial instruments:
| 31 March 2013 | 31 March 2012 | |||||
|---|---|---|---|---|---|---|
| Total fixed rate portfolio £000 |
Weighted average interest rate % |
Weighted average period for which rate isfixed Years |
Total fixed rate portfolio £000 |
Weighted average interest rate % |
Weighted average period for which rate isfixed Years |
|
| Listed fixed-interestinvestments | 2,614 | 1.8% | 0.8 | 3,097 | 3.0% | 1.6 |
| Shorttermcash deposits | 1,000 | 1.1% | 0.2 | – | – | – |
| Fixed-rate investmentsin unquoted companies | 1,306 | 10.0% | 1.6 | 1,427 | 9.7% | 1.5 |
| 4,920 | 4,524 |
Due to the relatively short period tomaturity ofthe fixed rate investments held within the portfolio, itis considered that an increase or decrease of 25 basis pointsin interestrates as atthe reporting date would not have had a significant effect on the company's net assets ortotalreturn forthe period.
The company'sfloating rate investments comprise floating-rate loansto unquoted companies and cash held in interest-bearing deposit accounts. The benchmark rate which determinesthe rate ofinterestreceivable on such investmentsistheUK bank base rate, which was 0.5% at 31 March 2013 (31 March 2012 0.5%). The amounts held in floating rate investments atthe balance sheet date were asfollows:
| 31 March 2013 £000 |
31 March 2012 £000 |
|
|---|---|---|
| Floating rate loansto unquoted companies Interest-bearing deposit accounts |
13,946 5,517 |
13,020 8,511 |
| 19,463 | 21,531 |
forthe year ended 31 March 2013
Creditrisk isthe risk that a counterparty to a financial instrument willfailto discharge an obligation or commitmentthatit has entered into with the company. The investmentmanager and the board carry out a regularreview of counterparty risk. The carrying values offinancial assetsrepresent themaximumcreditrisk exposure atthe balance sheet date.
At 31 March 2013 the company'sfinancial assets exposed to creditrisk comprised the following:
| 31 March 2013 £000 |
31 March 2012 £000 |
|
|---|---|---|
| Listed fixed-interestinvestments | 2,614 | 3,097 |
| Shorttermcash deposits | 1,000 | – |
| Fixed-rate investmentsin unquoted companies | 1,306 | 1,427 |
| Floating rate loansto unquoted companies | 13,946 | 13,020 |
| Interest-bearing deposit accounts | 5,517 | 8,511 |
| Accrued dividends and interestreceivable | 228 | 178 |
| 24,611 | 26,233 |
Creditrisk relating to listed fixed-interestinvestmentsismitigated by investing in a portfolio ofinvestmentinstruments of high credit quality, comprising securitiesissued by theUKGovernment, EuropeanUnion governments andmajorUK and international companies and institutions. Creditrisk relating to loansto and preference sharesin unquoted companiesis considered to be part ofmarketrisk.
Those assets ofthe company which are traded on recognised stock exchanges are held on the company's behalf by third party custodians(The Bank ofNew York Mellon Corporation in the case oflisted fixed-interestinvestments and nominee companies of BrewinDolphin Limited or Speirs&Jeffrey Limited in the case of quoted equity securities). Bankruptcy orinsolvency of a custodian could cause the company'srights with respectto securities held by the custodian to be delayed orlimited.
Creditrisk arising on transactions with brokersrelatesto transactionsin quoted securities awaiting settlement. Risk relating to unsettled transactions is considered to be low due to the shortsettlement period involved and the high credit quality ofthe brokers used. The board furthermitigatesthe risk bymonitoring the quality ofservice provided by the brokers.
The company'sinterest-bearing deposit accounts aremaintained withmajorUK clearing banks. There were no significant concentrations of credit risk to counterparties at 31 March 2013 or 31 March 2012.No individual investment exceeded 4.4% ofthe company's net assets at 31 March 2013 (31 March 2012 8.7%).
The company'sfinancial assetsinclude investmentsin unquoted equity securities which are nottraded on a recognised stock exchange and which generallymay be illiquid. As a result,the companymay not be able to realise some ofitsinvestmentsin these instruments quickly at an amount close to theirfair value in ordertomeetitsliquidity requirements, orto respond to specific eventssuch as a deterioration in the creditworthiness of any particularissuer.
The company'slisted fixed-interestinvestments are considered to be readily realisable asthey are of high credit quality as outlined above.
The company'sliquidity risk ismanaged on a continuing basis by the investmentmanagerin accordance with policies and procedureslaid down by the board. The company's overall liquidity risks aremonitored on a quarterly basis by the board.
The companymaintainssufficientinvestmentsin cash and readily realisable securitiesto pay accounts payable and accrued expenses. At 31 March 2013 these investments were valued at £9,131,000 (31 March 2012 £11,608,000).
At 31 March 2012 a provision of £64,000 wasretained in respect ofliabilities expected to arise under guarantees given to secure certain liabilities and obligations of an investee company. This provision wastreated as an unrealised lossin the revaluation reserve and wasincluded in creditors (amountsfalling due within one year).During the year ended 31 March 2013 no payments have beenmade in relation to the guarantees and the remaining provision has been released. There were no unprovided contingentliabilities at 31 March 2013 or 2012.
At 31 March 2013 contingent assets notrecognised in the financialstatementsin respect of potential deferred proceedsfromthe sale ofinvestee companies amounted to approximately £262,000 (31 March 2012 £395,000). The extentto which these amounts will become receivable in due course is dependent on future events.
N o r t h u m b e r l a n d H o u s e P r i n c e s s S q u a r e N e w c a s t l e u p o n Ty n e N E 1 8 E R
T 0 1 9 1 2 4 4 6 0 0 0 F 0 1 9 1 2 4 4 6 0 0 1 E n 3 v c t @ n v m . c o . u k
w w w . n v m . c o . u k
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