Annual Report • Mar 31, 2014
Annual Report
Open in ViewerOpens in native device viewer
Annualreport and financialstatements 31 March 2014
Best Information to Shareholders Awards 2013 Best VCT Report & Accounts
Itinvests 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: | 2014 | 2013 |
|---|---|---|
| Net assets | £71.3m | £50.6m |
| Net asset value pershare | 108.9p | 104.6p |
| Return pershare | ||
| Revenue | 2.1p | 1.8p |
| Capital | 8.4p | 10.7p |
| Total | 10.5p | 12.5p |
| Dividend pershare declared in respect ofthe year | 5.5p | 5.5p |
| Cumulative return to shareholderssince launch | ||
| Net asset value pershare | 108.9p | 104.6p |
| Dividends paid pershare* | 43.9p | 38.4p |
| Net asset value plus dividends paid pershare | 152.8p | 143.0p |
| Mid-marketshare price at end of year | 97.0p | 89.3p |
| Share price discountto net asset value | 10.9% | 14.7% |
| Tax-free dividend yield (based on mid-market | ||
| share price atthe end ofthe year) | 5.7% | 6.2% |
*Excluding proposed final dividend
Shares quoted ex dividend 2 July 2014
Annual general meeting 16 July 2014 (2.30pm, The Balmoral, 1 Princes Street, Edinburgh EH2 2EQ)
Final dividend paid (to shareholders on register on 4 July 2014)
25 July 2014
There have been some changesto the format and content ofthe annualreport,reflecting the currentrequirements ofthe Companies Act, the AIC Code of CorporateGovernance and the remuneration regulations. We are required to ensure thatthe annualreport and financialstatements are fair, balanced and understandable; you willsee fromthe statement on page 25 that we believe that thisisthe case.
I amglad to reportthatNorthern 3 VCT has continued tomake good progress.Net asset value (NAV) pershare hasincreased forthe fifth successive year and £20million wasraised through a public offer of new ordinary shares. Our company now has net assets of over £70million and is well placed forthe future.
TheNAV pershare at 31 March 2014 was 108.9p, an increase of 4.1% overthe corresponding figure of 104.6p as at 31 March 2013. The return pershare forthe year as shown in the income statement, before taking account of dividends payable, was 10.5p (last year 12.5p), equivalentto 10.0% ofthe openingNAV. Asin the preceding year, investment performance wasstrong in both the quoted and the unquoted portfolios. Income frominvestmentsincreased from£1.5million to £2.0million, enabling the company to report an improvementin revenue return pershare from1.8p to 2.1p.
The company's encouraging performance in recent years has enabled your board to increase itsrate of annual dividend progressively,from 4.0p in 2010 to 5.5p last year.Our objective is to pay a dividend thatissustainable, using our reserves,should it be necessary,to iron out fluctuationsin annualresults. Implicitin thisis a balance betweenmaximising cash distributions to shareholders, which of course are tax-free, and preserving the company's capital base, which supportsthe acquisition ofthe new investmentsthat will generate returnsin the future. We believe thatthe currentlevel of dividend achievesthis balance and should bemaintained.
An interimdividend of 2.0p pershare was paid in January 2014 and in accordance with our objective we propose an unchanged final dividend of 3.5p pershare,making a total of 5.5p forthe year. Subjectto approval by shareholders atthe annual generalmeeting, the final dividend will be paid on 25 July 2014 to shareholders on the register on 4 July 2014. The dividend investmentscheme which was re-introduced in 2013 continuesto operate, giving shareholdersthe opportunity to re-invest their dividendsin new ordinary shares with the benefit ofthe tax reliefs available on new subscriptionsto VCTs.
Five new unquoted holdings were added to the portfolio during the year at a cost of £5.6million, with a further £0.9million invested in existing portfolio companies. Successfulsales were achieved by IGDoors and e-know.net.
Four new holdings were acquired forthe AIMquoted portfolio and we sold the holdingsin Andor Technology and Vianet. After a long period ofmoderate performance the AIM market hasmade better progress overthe past year; we havemaintained a significant exposure to thismarketsince themerger withNorthern AIM VCT in 2011 and ourNAV has benefitted accordingly.
With interestratesremaining at a low level an additional £3million of oursurplusliquidity was allocated to the portfolio oflisted blue-chip equities, which has continued to produce a growing income yield as well asmaintaining its capital value.
The company has continued tomeetthe qualifying conditionslaid down byHM Revenue &Customsformaintaining its approval as a VCT.Ourmanagersmonitorthe position closely and the board receivesregular reportsfromthemanagers as well asfrom PricewaterhouseCoopers LLP, whomwe retain asindependent advisers on VCT taxationmatters.
The £20million top-up offer of new ordinary shareslaunched in July 2013, in conjunction with smaller offers byNorthern Venture Trust andNorthern 2 VCT, wasfully subscribed by the end ofNovember and the final allotment of shares hasrecently been completed.On behalf ofthe board I would like to thank all of our investorsfortheir continuing support. As a result ofthe offer we have substantialfunds available forfuture investment and itis encouraging to note that ourmanagers are currently seeing a strong flow of new opportunities.
The company'sshare buy-back policy is kept underregularreview by the board and we have continued to buy back sharesin themarket, when necessary in ordertomaintain liquidity, at a 10% discounttoNAV.During the year 783,000 shares were repurchased at an average price of 93.6p,representing lessthan 2% ofthe number ofsharesin issue atthe start ofthe year.
The 2014 Finance Bill, published following the Chancellor's Budget announcementin March, includesmeasuresto prevent "enhanced" share buy-backs, where a VCT offersto buy back sharesfrominvestors at a narrow discount on condition thatthe proceeds are applied in subscribing for a fresh issue ofshares. This was widely expected. TheGovernmentis also proposing that where new VCT shares are allotted on or after 6 April 2014, VCTs will be prevented for a specified period frompaying dividendsto shareholders out of distributable reserves created by cancelling the share premiumaccount arising on the allotment of the shares.Our balance sheet already has ample distributable reserves and we do not expect the new rulesto have any impact on future dividend distributions.
The European Commission isin the process ofreviewing the rulesrelating to state aid for businessesinmember countries, which in theUK includes VCTs, and itisto be hoped thatthere will be no change in the positioning of VCTs as an important part oftheUK government'sstrategy forsupporting small andmedium-sized enterprises.
James FergusonChairman
The Commission's Alternative Investment Fund ManagersDirective (AIFMD) became part ofUK law in July 2013, with a 12month transitional period to July 2014. TheDirective regulatesthe management of alternative investmentfunds, including venture capitalfundssuch as VCTs. As previously indicated, your directors have decided to appoint our existingmanagers,NVM Private Equity, asNorthern 3 VCT's AIFM forthe purposes oftheDirective.
After a year which hasseen considerable activity on a number offronts, we expectthat themain focus overthe next 12months will be on nurturing our existing portfolio and deploying the proceeds ofthe recentshare offer into new investments.Ourmanagers have been strengthening theirresourcesin anticipation of an increased level of activity, and the new financial year hasstarted with an encouraging number of opportunitiesin the course of development. We look forward tomaintaining good progressin the future.
James Ferguson Chairman 30 May 2014
aged 66, 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 62, ismanaging partner ofio solutions (e-businessstrategy advisers), chairman of Digital City Business Trading Limited, a nonexecutive director ofNCFE Limited and a governor of TeessideUniversity.He was formerly chairman ofDarlington Building Society and group chief executive of Whessoe plc.He was appointed to the board in 2001.
aged 65, is executive chairman ofNVM Private Equity Limited, which he co-founded in 1988. He is a non-executive director ofNorthern Venture Trust PLC and several unquoted companies.He was appointed to the board in 2001.
aged 58, 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 St Ann's Wharf 112Quayside Newcastle upon TyneNE1 3DX Telephone: 0191 244 6000 Fax: 0191 244 6001 Email: [email protected]
NVM Private Equity Limited RotterdamHouse 116Quayside Newcastle upon TyneNE1 3DY
Sarasin&Partners LLP JuxonHouse 100 St Paul's Churchyard London EC4M 8BU
Speirs&Jeffrey Limited 50George Street Glasgow G2 1EH
KPMGLLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N6RH
King& Wood Mallesons LLP 10Queen Street Place London EC4R 1BE
PanmureGordon (UK) Limited OneNew Change London EC4M 9AF
Barclays Bank PLC BarclaysHouse 5 St Ann's Street Newcastle upon TyneNE1 3DX
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 interest-bearing and equity investments and bank deposits.
The company is amember ofthe Association of Investment Companies(AIC).Northern 3 VCT PLC ismanaged byNVM Private Equity Limited (NVM), an independentspecialistfirmof venture capitalmanagers based inNewcastle upon Tyne, Reading and Manchester.NVM also acts asmanager ofthree otherlisted investment companies,Northern Investors Company PLC, Northern Venture Trust PLC andNorthern 2 VCT PLC, and two limited partnerships,NV1 LP and NV2 LP.NVM has a total of £300million under management.
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 atleast five 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 2015 is asfollows:
Half-yearly financialreportforsixmonths ending 30 September 2014 published
Interimdividend paid
Final dividend and resultsfor yearto 31 March 2015 announced
Annualreport and accounts published
Annual generalmeeting;final dividend paid
The company'sshare price is carried daily in the Financial Times,theDaily Telegraph,the Newcastle 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. Information aboutthe dividend reinvestment scheme 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.
Thisreport has been prepared by the directors in accordance with the requirements of Section 414 ofthe Companies Act 2006. The company's independent auditorisrequired by law to report on whetherthe information given in the strategic reportis consistent with the financial statements. The auditor'sreportisset out on pages 26 and 27.
The company's objective isto provide high long-termtax-free returnsto investorsthrough a combination of dividend yield and capital growth. The company invests primarily in unquotedUKmanufacturing and service businesses whichmeetthemanagers' key criteria of good value, growth potential,strong management and ability to generate cash.
The company is a Venture Capital Trust(VCT) approved byHM Revenue&Customs. In order tomaintain approved status, a VCTmust comply on a continuing basis with the provisions of Section 274 ofthe Income Tax Act 2007; in particular,the company isrequired at all timesto hold atleast 70% ofitsinvestments (as defined in the legislation)in VCT-qualifying holdings, of which atleast 30% (70% forfunds raised after 5 April 2011)must comprise eligible ordinary shares. Forthis purpose a "VCTqualifying 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 of investment 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 of risk 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 of liquidity which willmaximise the company's flexibility asto the timing ofinvestment acquisitions and disposals, dividend payments and share buy-backs. Within the VCT-qualifying portfolio investments will be structured using variouslisted and unlisted investment instruments, 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 VCT-qualifying 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.
The directors expectthat no single investment would normally representin excess of 3% of the 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 resultitis 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, enabling the fundstogetherto undertake investment commitmentsin any one investee company, including non-state aided funds, of up to approximately £8million.Under a coinvestmentscheme 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, Reading and Manchester and currently has £300million 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.
During the year underreview Northern 3 VCT achieved a totalreturn to ordinary shareholders, before dividends, of 10.5p per share, equivalentto 10.0% ofthe opening net asset value pershare of 104.6p.
The net cash outflow relating to the venture capital portfolio during the year was £4.8million, comprising new investments of £9.3million lesssales proceeds and repayments of £4.5million. Portfolio cash flow overthe past five yearsissummarised in Table 1.
Themovementin total net assets and net asset value pershare issummarised in Table 2.
| Year ended 31 March | New investment £000 |
Disposal proceeds £000 |
Net cash inflow/ (outflow) £000 |
|---|---|---|---|
| 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 |
| 2014 | 9,289 | 4,458 | (4,831) |
| Total | 29,645 | 22,705 | (6,940) |
| Pence per ordinary |
||
|---|---|---|
| £000 | share | |
| Net asset value at 31 March 2013 | 50,556 | 104.6 |
| Netrevenue (investment income lessrevenue expenses and tax) | 1,164 | 2.1 |
| Capitalsurplus arising on investments: | ||
| Realised net gains on disposals | 1,254 | 2.3 |
| Movementsin fair value of investments | 4,382 | 7.9 |
| Management expenses allocated to capital account (net of tax relief) | (994) | (1.8) |
| Totalreturn forthe year asshown in income statement | 5,806 | 10.5 |
| Proceeds of issue of new shares(net of expenses) | 18,671 | (0.8) |
| Sharesre-purchased for cancellation | (737) | 0.1 |
| Net movement forthe year before dividends | 23,740 | 9.8 |
| Net asset value at 31 March 2014 before dividendsrecognised | 74,296 | 114.4 |
| Dividendsrecognised in the financialstatementsforthe year | (2,999) | (5.5) |
| Net asset value at 31 March 2014 | 71,297 | 108.9 |
Aftertaking account of other cash flows, including share subscription receipts of £18.7million and dividend payments of £3.0million,the company'stotal cash balances increased in the year by £7.1million to £13.6million. In addition the company holds listed interest-bearing and equity investments valued at £11.8million, increased from £8.4million at 31 March 2013.
The directors have declared or proposed dividendstotalling 5.5p pershare in respect of the year, comprising a 1.8p revenue dividend and a 3.7p capital distribution.
During the year ended 31 March 2014, nine new holdings were added to the venture capital portfolio at a cost of £7.4million, and additional investmentstotalling £1.9million weremade in existing portfolio companies. The portfolio at 31 March 2014 comprised 47 holdings with an aggregate value of £46.6million.
A summary ofthe venture capital holdings at 31 March 2014 is given on page 11, with information on the fifteen largestinvestments on pages 12 to 15.
The new investments completed during the year were:
EcoAnimalHealthGroup (£497,000) AIM-quoted developer ofmedicinesforthe control of disease in livestock and companion animals, London
Netcall(£546,000) AIM-quoted developer of customer engagementsoftware,Hemel Hempstead
Additional investments weremade during the yearin Brady (£557,000) and MantisDeposition Holdings(£517,000).
| IT services | 48.0% |
|---|---|
| Consumer | 16.0% |
| Industrial/manufacturing | 7.9% |
| Businessservices | 20.7% |
| Healthcare/biotechnology | 7.4% |
Investment realisations 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.
IGDoors wassold toHörmannGroup for £1,316,000 in June 2013.Astbury Marsden Holdings, which had previously been written down to zero, wassold for a nominalsum following a prolonged period of underperformance. e-know.net was acquired by AIM-quotedNasstarfor amixture of cash and sharesin January 2014.Andor Technology wasthe subject of a recommended bid by Oxford Instruments. The investmentin Vianet wassold in themarket due to concerns about the potential impact oftheGovernment's proposed Statutory Code for pub companies.
The pie charts above show the composition ofthe venture capital portfolio at 31 March 2014 by value according tomaturity, industry sector,financing stage and whether quoted or unquoted.
Most ofthe unquoted companiesin the portfolio have continued tomake good progress. Kerridge Commercial Systems reported increased sales and profits and remainsthe largestsingle holding in the portfolio. VolumaticHoldings continuesto enhance its position in the cash handling systemsmarket and Silverwing has benefitted fromstrong demand forits non-destructive testing systemsforthe oil and gasindustry. Cawood Scientific and KitwaveOne completed importantstrategic acquisitions. In those cases where performance is behind expectations we have as usualtaken a cautious view in determining valuations.
The AIM portfolio produced excellentreturns, with a number of holdings enjoying a belated re-rating. Pilat MediaGlobal wasthe subject of a successful bid by SyntecMedia at 95p, completed shortly after ourfinancial year end, at a good premiumto the March 2013 valuation of 32.5p. Share price gains of 40% ormore were also recorded byAdvanced Computer Software Group, VecturaGroup and CelloGroup. IDOX had a disappointing year, with the share price falling by 23%, butremainsthe second largest AIM holding and we believe themedium-term prospects are encouraging. The flow of VCTqualifying new issues on AIM continued to be very thin, butthree new non-qualifying holdings which ourmanagers perceive as having good capital growth potential were purchased in themarket.
The amount held in listed interest-bearing investments continued to reduce asindividual bondsmatured, but an additional £3million was committed to holdingsin listed blue-chip equities,selected with a view to income yield, as an alternative to holding cash deposits at very low interestrates.
Unquoted investments are valued in accordance with the accounting policy set out on page 31, which takes account of current industry guidelinesforthe valuation of venture capital portfolios. Provision against costismade where an investmentis under-performing significantly.
As at 31 March 2014 the number ofinvestments falling into each valuation category was as shown in Table 4.
Net asset value (p) Net asset value plus cumulative dividends paid per share (p)
Dividend per share (p)
Expansion 61.5%
| Unquoted | 69.9% |
|---|---|
| AIM | 29.0% |
| LSE | 1.1% |
| Company | Date of original investment |
Original cost £000 |
Sales proceeds £000 |
Realised surplus/ (deficit) £000 |
|---|---|---|---|---|
| IG Doors – trade sale | 2003 | 355 | 1,316 | 961 |
| Astbury Marsden Holdings – trade sale | 2008 | 1,178 | – | (1,178) |
| e-know.net – trade sale | 2005 | 225 | 800 | 575 |
| Andor Technology – recommended bid | 2010 | 598 | 893 | 295 |
| Vianet – marketsale | 2009 | 368 | 238 | (130) |
| Category | Number of investments |
Valuation £000 |
% of portfolio by value |
|---|---|---|---|
| Unquoted investments at directors' valuation | |||
| Earnings multiple | 18 | 25,419 | 54.5 |
| Original cost | 6 | 6,594 | 14.1 |
| Original cost less provision | 6 | 439 | 1.0 |
| Net assets | 1 | 126 | 0.3 |
| Quoted investments at bid price | |||
| Listed on London Stock Exchange | 1 | 535 | 1.1 |
| Quoted on AIM | 15 | 13,512 | 29.0 |
| Total | 47 | 46,625 | 100.0 |
The directorsregard the following asthe key indicators pertaining to the company's performance:
shareholders:the charts atthe bottomofthe page opposite 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.
Ongoing charges:the charts atthe bottomof this page show total annualrunning expenses as a percentage ofthe average net assets attributable to shareholdersfor each ofthe pastfive financial years.
Maintenance of VCT qualifying status:the directors believe thatthe company has at all timessince inception complied with the VCT qualifying conditionslaid down byHM Revenue&Customs.
Cumulative dividends per share (p)
Ongoing charges excluding performance fees (%)
Ongoing charges including performance fees (%)
The board carries out a regularreview ofthe risk environmentin which the company operates. The principalrisks and uncertaintiesidentified by the board are asfollows:
Investmentrisk:many ofthe company's investments are in small andmedium-sized unquoted and AIM-quoted companies which are VCT qualifying holdings, and which by their nature entail a higherlevel ofrisk and lower liquidity than investmentsin large quoted companies. The directors aimto limitthe risk attaching to the portfolio as a whole by careful selection, closemonitoring and timely realisation ofinvestments, by carrying out rigorous due diligence procedures and maintaining a wide spread of holdingsin terms offinancing stage and industry sector. The board reviewsthe investment portfolio with themanagers on a regular basis.
Financialrisk: asmost ofthe company's investmentsinvolve amedium-to long-term commitment andmany 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. In times of adverse sentimentthere can be very little, if any,market demand for sharesin smaller companies quoted on AIM.
Creditrisk:the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment. The directorsreview the creditworthiness ofthe counterpartiesto these instruments and cash deposits and seek to ensure there is no undue concentration of creditrisk with any one party.
Liquidity risk:the company'sinvestmentsmay be difficultto realise. The factthat a stock is quoted on a recognisedmarket 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 is required to comply with current VCT legislation in theUK as well asthe European Commission's state aid rules. Changesto theUK legislation orthe state aid rulesin the future could have an adverse effect on the company's ability to achieve satisfactory investmentreturns whilst retaining its VCT approval. The board and the managermonitor political developments and where appropriate seek tomake representations either directly orthrough 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 reportsto the board on a quarterly basis. The board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role.
The company had no employees during the year and allthe directors aremale.
As an externallymanaged investment company, the company is not directly responsible for any greenhouse gas emissions.
As a result ofthe successful 2013/14 public share offer and the consistent performance ofthe investment portfolio,the company's balance sheetisin excellentshape. The flow of potential new investmentsis currently strong and underlying conditionsin theUK economy appearto be improving. Against this background the directors believe that the future outlook forthe company is good.
C D Mellor
Secretary 30 May 2014
as at 31 March 2014
| Cost £000 |
Valuation £000 |
% of net assets by value |
|
|---|---|---|---|
| Fifteen largest private equity investments(see pages 12 to 15) | |||
| Kerridge Commercial Systems | 1,537 | 6,512 | 9.1 |
| Advanced Computer SoftwareGroup* | 1,035 | 4,536 | 6.4 |
| VolumaticHoldings | 2,096 | 3,188 | 4.5 |
| TinglobalHoldings | 1,812 | 1,941 | 2.7 |
| IDOX* | 600 | 1,882 | 2.6 |
| Silverwing | 1,272 | 1,858 | 2.6 |
| WearInns | 1,406 | 1,795 | 2.5 |
| Pilat MediaGlobal* | 641 | 1,528 | 2.2 |
| No 1 Traveller | 1,441 | 1,441 | 2.0 |
| Control RisksGroupHoldings | 746 | 1,363 | 1.9 |
| IntuitiveHolding | 1,293 | 1,315 | 1.8 |
| BuoyantUpholstery | 1,294 | 1,294 | 1.8 |
| SinclairIS Pharma* | 957 | 1,182 | 1.7 |
| It's AllGood | 1,131 | 1,131 | 1.6 |
| Cawood Scientific | 825 | 1,077 | 1.5 |
| 18,086 | 32,043 | 44.9 | |
| Other private equity investments | |||
| KitwaveOne | 1,000 | 1,035 | 1.4 |
| Axial SystemsHoldings | 1,293 | 988 | 1.4 |
| Lineup Systems | 974 | 974 | 1.4 |
| HaystackDryers | 1,284 | 946 | 1.3 |
| KirtonGroup | 892 | 892 | 1.2 |
| Cleveland Biotech (Holdings) | 862 | 862 | 1.2 |
| Brady* | 732 | 825 | 1.2 |
| ArleighGroup | 297 | 758 | 1.1 |
| PromaticGroup | 701 | 739 | 1.0 |
| OptilanGroup | 1,125 | 659 | 0.9 |
| Eckoh* | 528 | 655 | 0.9 |
| Netcall* | 546 | 560 | 0.8 |
| CloserStillGroup | 549 | 549 | 0.8 |
| VecturaGroup** | 248 | 535 | 0.8 |
| CelloGroup* | 349 | 502 | 0.7 |
| LannerGroup | 475 | 435 | 0.6 |
| Eco AnimalHealthGroup* | 497 | 380 | 0.5 |
| Synectics* | 171 | 333 | 0.5 |
| JelfGroup* | 177 | 328 | 0.5 |
| Nasstar* | 202 | 312 | 0.4 |
| MantisDepositionHoldings | 1,033 | 258 | 0.4 |
| Nationwide Accident Repair Services* | 290 | 253 | 0.3 |
| Adept Telecom* | 236 | 226 | 0.3 |
| Direct Valeting | 43 | 224 | 0.3 |
| Gentronix | 361 | 181 | 0.3 |
| Envirotec | 177 | 126 | 0.2 |
| S&P Coil Products | 24 | 37 | 0.1 |
| Summit Corporation* | 122 | 10 | – |
| Altacor | 405 | – | – |
| North East Property&Investments | 180 | – | – |
| Crantock Bakery | 845 | – | – |
| Warmseal Windows(Newcastle) | 339 | – | – |
| Total private equity investments | 35,043 | 46,625 | 65.4 |
| Listed equity investments | 8,338 | 8,796 | 12.3 |
| Listed interest-bearing investments | 3,013 | 3,022 | 4.3 |
| Totalfixed assetinvestments | 46,394 | 58,443 | 82.0 |
| Net current assets | 12,854 | 18.0 | |
| Net assets | 71,297 | 100.0 |
* Quoted on AIM
** Listed on London Stock Exchange
| Cost | £1,537,000 |
|---|---|
| Valuation | £6,512,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 7.1% (NVM fundstotal 42.8%) |
| Business/location | Software developerfor wholesale and retail distribution sectors,Hungerford |
| History | Management buy-outfromADP Inc, March 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 £104,000 |
| Year ended 30 September | 2013 £m |
2012 £m |
|---|---|---|
| Sales | 28.5 | 25.5 |
| Profit before tax | 2.6 | 1.9 |
| Profit aftertax | 1.7 | 1.5 |
| Net assets | 5.3 | 3.8 |
| Cost | £1,035,000 |
|---|---|
| Valuation | £4,536,000 |
| Basis of valuation | Bid price (AIM) |
| Equity held | 0.8% (NVM fundstotal 1.7%) |
| 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 | Dividends £15,000 |
| Year ended 28 February | 2013 £m |
2012 £m |
|---|---|---|
| Sales | 120.9 | 101.8 |
| Profit before tax | 9.2 | 6.9 |
| Profit aftertax | 9.1 | 6.3 |
| Net assets | 139.1 | 98.2 |
| Cost | £2,096,000 |
|---|---|
| Valuation | £3,188,000 |
| Basis of valuation | Earningsmultiple |
| Equity held | 16.9% (NVM fundstotal 50.7%) |
| 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 £150,000 |
| Year ended 31 March | 2013 £m |
|---|---|
| Sales | 10.2 |
| Profit before tax | 1.9 |
| Profit aftertax | 1.4 |
| Net assets | 2.2 |
| Cost | £1,812,000 |
|---|---|
| Valuation | £1,941,000 |
| 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 £267,000 |
| Year ended 31 May | 2013 £m |
2012* £m |
|---|---|---|
| Sales | 19.0 | 18.4 |
| (Loss) before tax | (0.2) | (0.4) |
| (Loss)/profit aftertax | (0.3) | 2.4 |
| Net assets | 1.2 | 1.6 |
*11months ended 31 May
| Cost | £600,000 |
|---|---|
| Valuation | £1,882,000 |
| Basis of valuation | Bid price (AIM) |
| Equity held | 1.4% (NVM funds 2.4%) |
| 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 £37,000 |
| Year ended 31 October | 2013 £m |
2012 £m |
|---|---|---|
| Sales | 57.3 | 55.4 |
| Profit before tax | 6.7 | 6.9 |
| Profit aftertax | 7.5 | 6.7 |
| Net assets | 44.7 | 38.9 |
| Cost | £1,272,000 |
|---|---|
| Valuation | £1,858,000 |
| Basis of valuation | Earningsmultiple |
| 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 £89,000 |
First audited accounts will be forthe period ended 31December 2013
| Cost | £1,406,000 |
|---|---|
| Valuation | £1,795,000 |
| 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 £120,000 |
| Year ended 31 March | 2013 £m |
2012 £m |
|---|---|---|
| Sales | 11.8 | 7.4 |
| (Loss)/profit before tax | (0.3) | 0.1 |
| (Loss)/profit aftertax | (0.3) | 0.1 |
| Net assets | 1.4 | 0.2 |
| Cost | £641,000 |
|---|---|
| Valuation | £1,528,000 |
| Basis of valuation | Bid price (AIM) |
| Equity held | 2.6% (NVM fundstotal 2.6%) |
| Business/location | Software developerforthe broadcasting industry, Wembley |
| History | Holding acquired through a share placing on AIM in 2002 |
| OtherNVM funds investing |
None |
| Income in year | Nil |
| Year ended 31 December | 2013 £m |
2012 £m |
|---|---|---|
| Sales | 27.7 | 23.5 |
| Profit before tax | 2.5 | 2.0 |
| Profit aftertax | 2.0 | 1.5 |
| Net assets | 23.2 | 21.0 |
| Cost | £1,441,000 |
|---|---|
| Valuation | £1,441,000 |
| Basis of valuation | Cost |
| Equity held | 9.1% (NVM fundstotal 44.9%) |
| Business/location | Operator of airportlounges and related services, London |
| History | Growth capital investmentin March 2014, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT, NV1 LP |
| Income in year | Nil |
First audited accounts will be forthe period ending 31December 2014
| Cost | £746,000 |
|---|---|
| Valuation | £1,363,000 |
| 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 £65,000 |
| Year ended 31 March | 2013 £m |
2012 £m |
|
|---|---|---|---|
| Sales | 211.7 | 204.2 | |
| Profit before tax | 18.3 | 13.6 | |
| Profit aftertax | 13.5 | 9.0 | |
| Net assets | 29.6 | 21.1 |
| Cost | £1,293,000 |
|---|---|
| Valuation | £1,315,000 |
| Basis of valuation | Earningsmultiple |
| 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 £93,000 |
First audited accounts will be forthe period ended 31December 2013
| Cost | £1,294,000 |
|---|---|
| Valuation | £1,294,000 |
| Basis of valuation | Cost |
| Equity held | 9.9% (NVM fundstotal 54.0%) |
| Business/location | Manufacturer of upholstered sofas and chairs,Nelson |
| History | Management buy-outfinancing in July 2013, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT, NV1 LP |
| Income in year | Dividends nil, loan stock interest £67,000 |
First audited accounts will be forthe period ending 30 September 2014
| Cost | £957,000 |
|---|---|
| Valuation | £1,182,000 |
| Basis of valuation | Bid price (AIM) |
| Equity held | 0.8% (NVM fundstotal 1.5%) |
| Business/location | Developer of dermatology products, London |
| History | Holding acquired through a share placing on AIM in 2007 |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT |
| Income in year | Nil |
| Year ended 30 June | 2013 £m |
2012 £m |
|---|---|---|
| Sales | 55.4 | 51.4 |
| (Loss) before tax | (16.2) | (9.7) |
| (Loss) aftertax | (17.4) | (8.6) |
| Net assets | 110.5 | 114.3 |
| Cost | £1,131,000 |
|---|---|
| Valuation | £1,131,000 |
| Basis of valuation | Cost |
| Equity held | 9.8% (NVM fundstotal 30.2%) |
| Business/location | Manufacturer of premiumsavoury snack products,Gateshead |
| History | Growth capital investmentin February 2014, led byNVM Private Equity |
| OtherNVM funds investing |
Northern Venture Trust,Northern 2 VCT |
| Income in year | Nil |
| Period ended 31 December | 2012* £m |
|---|---|
| Sales | 0.1 |
| (Loss) before tax | (0.6) |
| (Loss) aftertax | (0.6) |
| Net (liabilities) | (0.1) |
*16months
| Cost | £825,000 |
|---|---|
| Valuation | £1,077,000 |
| 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 | 2013 £m |
2012 £m |
|---|---|---|
| Sales | 7.9 | 7.5 |
| Profit before tax | 0.2 | 0.9 |
| Profit aftertax | 0.1 | 0.6 |
| Net assets | 1.4 | 1.2 |
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 2014.
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 company'sregistered number is 4280530.
The directors are required by the articles of association to propose an ordinary resolution at the company's annual generalmeeting in 2019 thatthe company should continue as a venture capitaltrustfor a furtherfive 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.
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 £5,806,000 has been transferred to reserves.
The final dividend of 3.5p pershare in respect of the year ended 31 March 2013 and an interim dividend of 2.0p pershare in respect ofthe year ended 31 March 2014 were paid during the year at a cost of £2,999,000 and have been charged to reserves.
The proposed final dividend of 3.5p pershare forthe year ended 31 March 2014 will, if approved by shareholders atthe annual generalmeeting, be paid on 25 July 2014 to shareholders on the register on 4 July 2014.
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.
None ofthe directors has a contract ofservice with the company and, except asmentioned below underthe heading "Management", no contract or arrangementsubsisted during or at the 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.
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 Levettis an executive director ofNVM.
With effectfromApril 2006 a co-investment scheme wasintroduced under which investment executives employed byNVM are required to invest personally (and on the same terms asthe company and otherfunds managed 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 783,000 ofits own shares, representing 1.6% ofthe called-up share capital ofthe company atthe beginning ofthe year, for a consideration of £737,000. Purchases weremade in line with the company's policy of purchasing available shares at a discountto net asset value. Atthe 2013 annual general meeting shareholders authorised the company to purchase in themarket up to 4,831,826 ordinary shares(equivalentto approximately 10% ofthe then issued ordinary share capital) at aminimumprice of 5p pershare and a maximumprice pershare of notmore than 105% ofthe averagemarket value forthe ordinary sharesin the company forthe five business days priorto the date on which the ordinary shares were purchased.
As at 31 March 2014 this authority remained effective in respect of 4,048,826 shares;the authority will lapse atthe conclusion ofthe 2014 annual generalmeeting ofthe company on 16 July 2014.
During the yearthe company issued 17,741,242 new ordinary sharesfor a cash consideration of £18,894,000 pursuantto a public offerfor subscription and 223,374 new ordinary shares for a cash consideration of £228,000 through the company's dividend investmentscheme.
On 13 May 2014 the company issued 1,003,316 new ordinary sharesfor a cash consideration of £1,097,000 as part of a public offerfor subscription. £513,000 ofthe fundssubscribed were received priorto 31 March 2014 and are included in total cash and deposits of £13,568,000 asshown in the balance sheet as at 31 March 2014, with a corresponding amount being included in creditors(amounts falling due within one year).
Movementsin fixed assetinvestments during the year are set outinNote 8 to the financial statements.
Notice ofthe 2014 annual generalmeeting to be held on 16 July 2014 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.
KPMGLLP have indicated their willingnessto continue as auditor ofthe company and resolutionsto re-appointthemand to authorise the directorsto fix theirremuneration will be proposed atthe annual generalmeeting.
C D Mellor
Secretary 30 May 2014
Thisreport has been prepared by the directors in accordance with the requirements of Section 410 ofthe Companies Act 2006. Resolutionsto approve the directors'remuneration report and the statement ofthe directors'remuneration policy will be proposed atthe annual general meeting on 16 July 2014.
The company'sindependent auditor, KPMG LLP, isrequired to give its opinion on certain information included in thisreport, asindicated below. The auditor'sreport on these and other mattersisset out on pages 26 and 27.
Thisstatement ofthe directors'remuneration policy isintended to take effectfollowing approval by shareholders atthe annual general meeting on 16 July 2014.
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 meets annually (ormore frequently ifrequired) to considerthe selection and appointment of directors and tomake recommendationsto the board asto the level of directors'fees. The board has notretained external advisersin relation to remunerationmatters but has access to information about directors'fees paid by other companies of a similarsize and type.No views which are relevantto the formulation of the directors'remuneration policy have been expressed to the company by shareholders, whether at a generalmeeting or otherwise.
The board considersthat directors'feesshould 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 of the directorsis eligible for bonuses, pension benefits,share options, long-termincentive schemes or other benefitsin respect oftheir services as non-executive directors ofthe company.(Mr T R Levett, who is an executive director ofNVM Private Equity, has an interest in the co-investmentscheme referred to in the directors'report on page 17.)
The articles of association place an overall limit (currently £100,000 per annum) on directors' remuneration. The articles of association provide that directorsshallretire and be subject to re-election atthe first annual general meeting aftertheir appointment and that any director who was not appointed orreappointed at one ofthe preceding two annual general meetingsshallretire and be subjectto reelection 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 appointmentmay be terminated on threemonths' notice being given by the company and in certain other circumstances. A director who ceasesto hold office is not entitled to receive any payment otherthan accrued fees (if any)for pastservices.
The fees paid to individual directorsin respect of the years ended 31 March 2014 and 31 March 2013, which representthe entire remuneration payable to directors, are shown in Table 1.
The interests ofthe directors ofthe company (including the interests oftheir connected persons)in the issued ordinary shares ofthe company, atthe beginning and end ofthe year and atthe date ofthisreport, are shown in Table 2.
All ofthe directors'share interests were held beneficially.
The company has notset out any formal requirements or guidelinesto directors concerning their ownership ofsharesin the company.
Asthe company has no employees,the directors do not considerit appropriate to present a table comparing remuneration paid to employees with distributionsto shareholders.
The graph opposite comparesthe totalreturn (assuming re-investment of all dividends)to shareholdersin the company overthe five years ended 31 March 2014 with the total return froma notional investmentin a broad UK equitymarketindex.
Atthe annual generalmeeting on 17 July 2013 the resolution to approve the directors' remuneration reportforthe year ended 31 March 2013 was approved unanimously.
The directors'fees payable by the company were set at £21,000 per annumforthe chairman and £16,000 per annumfor other directors with effectfrom1 April 2013. In accordance with the directors'remuneration policy, directors'fees were reviewed by the nomination committee during itsmeeting on 17 February 2014, when it wasrecommendedthatfeesshouldbe increased to £22,000 per annumforthe chairman and £17,000 per annumfor other directors with effectfrom1 April 2014,to reflectinflation and the requirements ofthe respective roles.
J G D Ferguson Chairman of the Nomination Committee 30 May 2014
| Year ended 31 March 2014 £ |
Year ended 31 March 2013 £ |
|
|---|---|---|
| J G D Ferguson (Chairman) | 21,000 | 20,000 |
| C J Fleetwood | 16,000 | 15,000 |
| T R Levett | – | – |
| J M O Waddell | 16,000 | 15,000 |
| Total | 53,000 | 50,000 |
Mr T R Levett waived his entitlement to directors' feesin respect of both years.
| 30 May 2014 | 31 March 2014 | 1 April 2013 | |
|---|---|---|---|
| J G D Ferguson (Chairman) | 369,329 | 369,329 | 203,857 |
| C J Fleetwood | 44,834 | 44,834 | 25,577 |
| T R Levett | 238,148 | 238,148 | 200,922 |
| J M O Waddell | 7,283 | 7,283 | 7,283 |
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 ofInvestment Companies CorporateGovernanceGuide for Investment Companies(AICGuide). The AIC Code, as explained by the AICGuide, addresses allthe principlesset outin theUK Corporate Governance 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/aic-code-of-corporategovernance-0.
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 2014 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. For the 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.
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 is responsible 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 involvementin the day to day business ofthe company.He facilitates the effective contribution ofthe 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.Directorsmay also take independent professional advice at the 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 general meeting. 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 and issatisfied thatthe 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 ofNVM,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 of the board as a whole. Accordingly itis not considered appropriate to require directors who have served formore than nine yearsto seek annualre-election.Neverthelessthe board acknowledgesthat periodic refreshment ofits membership is desirable.
The board has appointed three standing committeestomake recommendationsto the board in specific areas. The board does not have a separate remuneration committee, as the company has no employees or executive directors.Detailed information relating to the remuneration of 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 recommendationsto 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 committeemeets three times per year and has direct accessto KPMGLLP,the company's external auditor. The board considersthatthemembers ofthe committeeareindependentandhavecollectively the skills and experience required to discharge their duties effectively, and thatthe chairman of the committeemeetsthe requirements ofthe UK 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 ifso would recommend thisto the board.
During the year ended 31 March 2014 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 atthe pre-year end audit planningmeeting and at the conclusion ofthe audit ofthe financial statements.
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 of the latest available information aboutinvestee companies and currentmarket data. The audit committee reviewed the estimates and judgementsmade in the investment valuations and wassatisfied thatthey are appropriate.
Venture capitaltruststatus:the investment manager confirmed to the audit committee that the conditionsformaintaining the company's status 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.
The investmentmanager and auditor confirmed to the audit committee thatthey were not aware of anymaterialmisstatements.Having reviewed the reportsreceived fromthe manager and auditor,the audit committee issatisfied thatthe key areas ofrisk and judgement have been appropriately addressed in the financialstatements and thatthe significant assumptions used in determining the value of assets and liabilities have been properly appraised and are sufficiently robust. The committee considersthat KPMGLLP has carried outits duties as auditorin a diligent and professionalmanner.
As part ofthe review of auditor effectiveness and independence, KPMGLLP has confirmed thatitisindependent ofthe company and has complied with applicable auditing standards. KPMGLLP together with its predecessor KPMG Audit Plc has held office as auditorfortwelve years; in accordance with professional guidelinesthe engagement partnerisrotated after atmostfive years, and the current partner hasserved forthree years.Having completed its review the audit committee issatisfied that KPMGLLP remained effective and independent in carrying outitsresponsibilities up to the date ofsigning thisreport. The audit committee is satisfied that KPMGLLP isindependent and that it 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 managers 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 review ofthe performance ofthe investmentmanager,NVM, and ofthe terms ofthemanagement agreement including the level offees payable and the length ofthe notice period. The principalterms ofthe agreement are set outinNote 3 to the financialstatements 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 consistentlongtermperformance 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 2014 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.
In fulfilment ofthe chairman's obligations undertheUK CorporateGovernance Code,the chairman givesfeedback to the board on issues raised with himby shareholders with a view to ensuring thatmembers ofthe board develop an understanding ofthe views ofshareholders abouttheir company. The board recognisesthe value ofmaintaining regular communications with shareholders. Formalreports 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. Themanager holds an annual VCT investorseminarto which shareholders are invited. Proxy voting figures for each resolution are announced at general meetings and aremade available publicly following the relevantmeeting.
Furtherinformation can also be obtained via theNVM website at www.nvm.co.uk.
| Board | Audit committee |
Nomination committee |
Management engagement committee |
|
|---|---|---|---|---|
| Number of meetings 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 |
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 investmentmanager. Responsibility for accounting,secretarial services and physical custody of documents oftitle relating to venture capital investments has been contractually delegated toNVM underthemanagement agreement.NVM has established its own systemofinternal controls in relation to thesematters, details of which have been reviewed by the audit committee.
Non-financial internal controlsinclude the systems of operational and compliance controls maintained by the investmentmanagerin relation to the company's business as well as themanagement 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 and managing the significant potentialrisks faced by the company and have reviewed the effectiveness ofthe internal controlsystems. This process has been in place throughout and subsequentto the accounting period underreview.
Riskmanagementis discussed in the strategic report on page 10.
As at 31 March 2014 65,499,878 ordinary shares were in issue (as atthat date none ofthe issued shares were held by the company astreasury shares). Subjectto any suspension or abrogation ofrights pursuantto relevantlaw orthe company's articles of association,the shares confer on their holders(otherthan the company in respect of any treasury shares)the following principalrights:
(c)the rightto receive notice of and to attend and speak and vote in person or by proxy at any generalmeeting ofthe company.On a show of hands everymember present or represented and voting has one vote and on a poll everymember present orrepresented and voting has one vote for every share of which thatmemberisthe holder;the appointment of a proxymust be received notlessthan 48 hours before the time ofthe holding ofthe relevantmeeting or adjourned meeting or, in the case of a polltaken otherwise than at or on the same day asthe relevantmeeting or adjournedmeeting, be received afterthe poll has been demanded and notlessthan 24 hours before the time appointed forthe taking ofthe poll.
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 outin 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 as therein set out);the transferorremainsthe holder ofthe shares untilthe name ofthe transferee is entered in the register of members. The directorsmay refuse to register a transfer of certificated sharesin favour of more 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 the UK Listing Authority, any such discretionmay 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 outrulesrelating to the sharesin the company's articles of association, shareholders are subjectto 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 general meeting 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 or she 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 relevantinsolvency procedure, or becomes of unsoundmind, orifthe board so decides following atleastsixmonths' absence without leave 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 powers to purchase its own sharesto the extent permitted by shareholders. Authority was given atthe company's 2013 annual generalmeeting tomakemarket purchases of up to 4,831,262 ordinary shares at any time up to the 2014 annual generalmeeting and otherwise on the termsset outin the relevantresolution, and authority is being sought atthe annual general meeting to be held on 16 July 2014 asset out in a separate circular.
C D Mellor
Secretary 30 May 2014
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 sufficient to show and explain the company'stransactions and disclose with reasonable accuracy at any time the financial position ofthe company and enable themto ensure thatthe financial statements comply with the Companies Act 2006. They have generalresponsibility for taking such steps as are reasonably open to themto safeguard the assets ofthe company and to prevent and detectfraud and other irregularities.
Under applicable law and regulations,the directors are also responsible for preparing a directors'report,strategic report, directors' remuneration report and corporate governance statementthat comply 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 isthe responsibilityofNVMandnotthe company. The work carried out by KPMGLLP asindependent auditor ofthe company does notinvolve consideration ofthemaintenance and integrity ofthe website and accordingly they accept no responsibility for any changesthat have occurred to the financialstatementssince they were initially presented on the website.
Visitorsto the website should be aware that legislation in theUnited Kingdomgoverning the preparation and dissemination ofthe financialstatementsmay differfromlegislation in theirjurisdiction.
The directors confirmthatto the best oftheir knowledge:
C D Mellor
Secretary 30 May 2014
To the members of Northern 3 VCT PLC
We have audited the financialstatements ofNorthern 3 VCT PLC forthe year ended 31 March 2014 set out on pages 28 to 40. In our opinion the financialstatements:
In arriving at our audit opinion above on the financialstatements,the risk ofmaterial misstatementthat had the greatest effect on our audit was asfollows:
(£32.6million). Referto pages 21 and 22 (audit committee report), page 31 (accounting policy) and pages 28 to 40 (financialstatements).
The risk: 45.7% ofthe company'stotal assets (by value)is held in investments where no quotedmarket price is available.Unquoted investments aremeasured atfair value, which is established in accordance with the International Private Equity and Venture Capital Valuation Guidelines by usingmeasurements of value such as price ofrecent orderly transactions, earningsmultiples and net assets. There is a significantrisk overthe valuation ofthese investments and thisis one ofthe key judgemental areasthat our auditfocused on.
Ourresponse:Our proceduresincluded, among others:
Themateriality forthe financialstatements as a whole wasset at £1,440,000. This was determined using a benchmark oftotal assets (of which itrepresents 2%). Total assets, which is primarily composed ofthe company's investment portfolio, is considered the key driver ofthe company's capital and revenue performance and, assuch, we believe thatit is one ofthe principal considerationsfor members ofthe company in assessing its financial performance.
We agreed with the audit committee to reportto it all corrected and uncorrected misstatements we identified through our audit with a value in excess of £72,000, in addition to other auditmisstatements below thatthreshold that we believe warranted reporting on qualitative grounds.
Our audit ofthe company was undertaken to themateriality levelspecified above and was all performed atthe investmentmanager, NVM Private Equity Limited, inNewcastle.
In our opinion:
UnderInternational Standards on Auditing (UK and Ireland) we are required to reportto you if, based on the knowledge we acquired during our audit, we have identified otherinformation in the annualreportthat contains amaterial inconsistency with eitherthat knowledge orthe financialstatements, amaterialmisstatement offact, orthatis otherwisemisleading.
In particular, we are required to reportto you if:
Underthe Companies Act 2006 we are required to reportto you if, in our opinion:
Underthe Listing Rules we are required to review:
We have nothing to reportin respect ofthe above responsibilities.
As explainedmore fully in theDirectors' Responsibilities Statementset out on page 25, the directors are responsible forthe preparation ofthe financialstatements and for being satisfied thatthey give a true and fair view. A description ofthe scope of an audit of financialstatementsis provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate.
Thisreportismade solely to the Company's members as a body and issubjectto important explanations and disclaimersregarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into thisreport asifset outin full and should be read to provide an understanding ofthe purpose ofthisreport, the work we have undertaken and the basis of our opinions.
(Senior StatutoryAuditor) for and on behalf ofKPMG LLP, StatutoryAuditor CharteredAccountants Saltire Court 20 Castle Terrace EdinburghEH1 2EG
30 May 2014
forthe year ended 31 March 2014
| Year ended 31 March 2014 | Year ended 31 March 2013 | ||||||
|---|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | |
| Gain on disposal ofinvestments | 8 | – | 1,254 | 1,254 | – | 1,375 | 1,375 |
| Movementsin fair value ofinvestments | 8 | – | 4,382 | 4,382 | – | 5,096 | 5,096 |
| – | 5,636 | 5,636 | – | 6,471 | 6,471 | ||
| Income | 2 | 2,006 | – | 2,006 | 1,523 | – | 1,523 |
| Investment management fee | 3 | (283) | (1,181) | (1,464) | (245) | (1,341) | (1,586) |
| Other expenses | 4 | (357) | (15) | (372) | (297) | – | (297) |
| Return on ordinary activities before tax | 1,366 | 4,440 | 5,806 | 981 | 5,130 | 6,111 | |
| Tax on return on ordinary activities | 5 | (202) | 202 | – | (113) | 113 | – |
| Return on ordinary activities aftertax | 1,164 | 4,642 | 5,806 | 868 | 5,243 | 6,111 | |
| Return pershare | 7 | 2.1p | 8.4p | 10.5p | 1.8p | 10.7p | 12.5p |
| Dividends paid/proposed | |||||||
| in respect ofthe year | 6 | 1.8p | 3.7p | 5.5p | 2.0p | 3.5p | 5.5p |
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 2014
| Notes | Year ended 31 March 2014 £000 |
Year ended 31 March 2013 £000 |
|
|---|---|---|---|
| Equity shareholders'funds at 1April 2013 | 50,556 | 47,798 | |
| Return on ordinary activities aftertax | 5,806 | 6,111 | |
| Dividendsrecognised in the year | 6 | (2,999) | (2,446) |
| Net proceeds ofshare issues | 14 | 18,671 | – |
| Shares purchased for cancellation | 14 | (737) | (907) |
| Equity shareholders'funds at 31 March 2014 | 71,297 | 50,556 |
The accompanying notes are an integral part ofthisstatement.
as at 31 March 2014
| 31 March 2014 | 31 March 2013 | ||
|---|---|---|---|
| Notes | £000 | £000 | |
| Fixed assets | |||
| Investments | 8 | 58,443 | 44,532 |
| Current assets | |||
| Debtors | 12 | 288 | 241 |
| Cash and deposits | 13,568 | 6,517 | |
| 13,856 | 6,758 | ||
| Creditors(amountsfalling due within one year) | 13 | (1,002) | (734) |
| Net current assets | 12,854 | 6,024 | |
| Net assets | 71,297 | 50,556 | |
| Capital and reserves | |||
| Called-up equity share capital | 14 | 3,275 | 2,416 |
| Share premium | 15 | – | 3,219 |
| Capitalredemption reserve | 15 | 10 | 484 |
| Capitalreserve | 15 | 55,264 | 36,083 |
| Revaluation reserve | 15 | 12,049 | 7,681 |
| Revenue reserve | 15 | 699 | 673 |
| Total equity shareholders'funds | 71,297 | 50,556 | |
| Net asset value pershare | 16 | 108.9p | 104.6p |
The accompanying notes are an integral part ofthisstatement.
The financialstatements on pages 28 to 40 were approved by the directors on 30 May 2014 and are signed on their behalf by:
JGDFerguson C J Fleetwood Director Director
forthe year ended 31 March 2014
| Year ended 31 March 2014 £000 |
Year ended 31 March 2013 £000 |
|
|---|---|---|
| Net cash inflow/(outflow)from operating activities | 391 | (122) |
| Taxation Corporation tax paid |
– | – |
| Financial investment Purchase of investments Sale/repayment of investments |
(15,437) 7,162 |
(5,794) 7,275 |
| Net cash (outflow)/inflow from financial investment | (8,275) | 1,481 |
| Equity dividends paid | (2,999) | (2,446) |
| Net cash (outflow) before financing | (10,883) | (1,087) |
| Financing Issue of ordinary shares Share issue expenses Purchase of ordinary sharesfor cancellation |
19,122 (451) (737) |
– – (907) |
| Net cash inflow/(outflow)from financing | 17,934 | (907) |
| Increase/(decrease) in cash and deposits | 7,051 | (1,994) |
| Reconciliation ofreturn before tax to net cash flow from operating activities Return on ordinary activities before tax Gain on disposal of investments Movementsin fair value of investments (Increase) in debtors Increase/(decrease) in creditors |
5,806 (1,254) (4,382) (47) 268 |
6,111 (1,375) (5,096) (49) (287) |
| Net cash inflow/(outflow)from operating activities | 391 | (122) |
| Analysis of movementin netfunds | 1 April 2013 | Cash flows | 31 March 2014 |
|---|---|---|---|
| £000 | £000 | £000 | |
| Cash and deposits | 6,517 | 7,051 | 13,568 |
forthe year ended 31 March 2014
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 of the SORP.
Purchases and sales ofinvestments are recognised in the financialstatements at the date oftransaction (trade date).
The company'sinvestments have been designated by the directors asfair value through profit orloss atthe time of acquisition and are measured atsubsequentreporting dates at fair 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 capitalreturn 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 of the company's portfolio with a view to the ultimate realisation of capital gains, equity accounting would not give a true and fair view of the 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 debt securities are recognised on an effective interestrate basis, provided there is no reasonable doubtthat 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 all timing 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 established where 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 accountin accordance with the above policies.
Changesin the fair value ofinvestments are dealt with in thisreserve.
forthe year ended 31 March 2014
| Year ended 31 March 2014 £000 |
Year ended 31 March 2013 £000 |
|
|---|---|---|
| Franked investmentincome: | ||
| Unquoted companies | 111 | 95 |
| Quoted companies | 372 | 403 |
| Interestreceivable: | ||
| Bank deposits* | 37 | 22 |
| Loansto unquoted companies | 1,409 | 907 |
| Listed interest-bearing investments | 77 | 96 |
| 2,006 | 1,523 |
*Denotesincome arising frominvestments not designated asfair value through profit orloss atthe time of acquisition.
| Year ended 31 March 2014 | Year ended 31 March 2013 | ||||||
|---|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| £000 | £000 | £000 | £000 | £000 | £000 | ||
| Investment management fee: | |||||||
| Basic Performance-related |
283 – |
848 333 |
1,131 333 |
245 – |
734 607 |
979 607 |
|
| 283 | 1,181 | 1,464 | 245 | 1,341 | 1,586 |
During the yearNVM Private Equity Limited (NVM) provided investmentmanagement and secretarialservicesto the company under an agreement dated 24 September 2001.On 21 May 2014 the company entered into a new agreement appointingNVM asits Alternative Investment Fund Managerforthe purposes ofthe Alternative Investment Fund ManagersDirective, on the same financialterms as previously. The agreementmay 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 £49,000 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 2.9% ofits net assets andNVM has agreed that any excess will be refunded by way of a reduction in itsfees.
| Year ended 31 March 2014 £000 |
Year ended 31 March 2013 £000 |
|
|---|---|---|
| Administrative and secretarialservices | 49 | 48 |
| Directors'remuneration | 53 | 54 |
| Auditor'sremuneration – auditservices | 20 | 18 |
| Legal and professional expenses | 52 | 19 |
| Share issue promoter's commission | 42 | 39 |
| Irrecoverable VAT | 29 | 22 |
| Other expenses | 112 | 97 |
| 357 | 297 |
Information on directors'remuneration is given in the directors'remuneration report on pages 18 and 19.
| Year ended 31 March 2014 | Year ended 31 March 2013 | |||||
|---|---|---|---|---|---|---|
| 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 | 202 | (202) | – | 113 | (113) | – |
| (b) Tax reconciliation Return on ordinary activities before tax |
1,366 | 4,440 | 5,806 | 981 | 5,130 | 6,111 |
| Return on ordinary activities multiplied by the standard rate of UK corporation tax |
||||||
| of 23% (2013 24%) | 314 | 1,021 | 1,335 | 235 | 1,231 | 1,466 |
| Effect of: | ||||||
| UK dividends notsubject to tax | (111) | – | (111) | (120) | – | (120) |
| Capitalreturns notsubject to tax | – | (288) | (288) | – | (330) | (330) |
| Unrealised adjustmentsto fair value | – | (1,008) | (1,008) | – | (1,223) | (1,223) |
| Disallowable expenses | – | 3 | 3 | – | – | – |
| Marginalrelief | (1) | 1 | – | (2) | 2 | – |
| Increase in surplus management expenses | – | 69 | 69 | – | 207 | 207 |
| Current tax charge/(credit) forthe year | 202 | (202) | – | 113 | (113) | – |
The company has notrecognised a deferred tax assetin respect ofsurplusmanagement expenses carried forward of £1,267,000 (31 March 2013 £968,000), 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 or losses arising on the revaluation or disposal ofinvestments.
TheGovernment has enacted legislation to reduce theUK corporation tax rate to 20% from1 April 2015.
forthe year ended 31 March 2014
| Year ended 31 March 2014 | Year ended 31 March 2013 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| (a) Recognised as distributionsin the | ||||||
| financialstatementsforthe year | ||||||
| Previous year'sfinal dividend | 482 | 1,204 | 1,686 | 590 | 884 | 1,474 |
| Current year'sinterim dividend | 656 | 657 | 1,313 | 486 | 486 | 972 |
| 1,138 | 1,861 | 2,999 | 1,076 | 1,370 | 2,446 | |
| (b) Paid and proposed in respect ofthe year | ||||||
| Interim paid – 2.0p (2013 2.0p) pershare | 656 | 657 | 1,313 | 486 | 486 | 972 |
| Final proposed – 3.5p (2013 3.5p) pershare | 524 | 1,768 | 2,292 | 483 | 1,209 | 1,692 |
| 1,180 | 2,425 | 3,605 | 969 | 1,695 | 2,664 |
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 calculation ofthe return pershare is based on the return on ordinary activities aftertax forthe year of £5,806,000 (2013 £6,111,000) and on 55,104,185 (2013 48,852,114)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 or independently observable)level ofinputthatissignificantto the fair valuemeasurementforthe individual investmentin its entirety asfollows:
| 31 March 2014 £000 |
31 March 2013 £000 |
|
|---|---|---|
| Level 1 | ||
| Quoted venture capital investments | 14,047 | 9,781 |
| Listed equity investments | 8,796 | 5,812 |
| Listed interest-bearing investments | 3,022 | 2,614 |
| Level 2 | ||
| None | – | – |
| Level 3 | ||
| Unquoted venture capital investments | 32,578 | 26,325 |
| 58,443 | 44,532 |
Movementsin investments during the year are summarised asfollows:
| Venture capital Venture capital – unquoted Level 3 |
– quoted Level 1 |
Listed equity Level 1 |
Listed interest- bearing Level 1 |
Total | |
|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | |
| Book cost at 1 April 2013 | 23,712 | 5,570 | 5,000 | 2,569 | 36,851 |
| Fair value adjustment at 1 April 2013 | 2,613 | 4,211 | 812 | 45 | 7,681 |
| Fair value at 1 April 2013 | 26,325 | 9,781 | 5,812 | 2,614 | 44,532 |
| Movementsin the year: | |||||
| Purchases at cost | 6,503 | 2,786 | 4,289 | 1,859 | 15,437 |
| Disposals – proceeds | (3,079) | (1,379) | (1,289) | (1,415) | (7,162) |
| – netrealised gains/(losses) | 965 | 199 | 115 | (25) | 1,254 |
| Movementsin fair value | 1,864 | 2,660 | (131) | (11) | 4,382 |
| Fair value at 31 March 2014 | 32,578 | 14,047 | 8,796 | 3,022 | 58,443 |
| Comprising: | |||||
| Book cost at 31 March 2014 | 27,713 | 7,330 | 8,338 | 3,013 | 46,394 |
| Fair value adjustment at 31 March 2014 | 4,865 | 6,717 | 458 | 9 | 12,049 |
| 32,578 | 14,047 | 8,796 | 3,022 | 58,443 | |
| Equity shares | 12,293 | 14,047 | 8,796 | – | 35,136 |
| Interest-bearing securities | 20,285 | – | – | 3,022 | 23,307 |
| 32,578 | 14,047 | 8,796 | 3,022 | 58,443 |
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 investmentsis 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 be unlikely to increase or decrease the fair value of Level 3 investments bymore than 5% (see note 17 for details ofthe impactthis would have on the financialstatements).
At 31 March 2014 there were commitmentstotalling £490,000 (31 March 2013 £892,000)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 |
|
|---|---|---|---|---|
| Andor Technology – recommended bid | 598 | 633 | 893 | 260 |
| Astbury MarsdenHoldings – trade sale | 1,178 | – | – | – |
| Direct Valeting – preference share redemption | 105 | 116 | 116 | – |
| e-know.net – trade sale | 225 | 485 | 800 | 315 |
| IGDoors – trade sale | 355 | 910 | 1,316 | 406 |
| TinglobalHoldings – loan stock repayment | 176 | 175 | 176 | 1 |
| Kerridge Commercial Systems – loan stock repayment | 127 | 127 | 127 | – |
| IDOX –marketsale | 61 | 250 | 248 | (2) |
| NorthEast Property&Investments – loanstock repayment | 100 | 100 | 117 | 17 |
| Vianet –marketsale | 368 | 297 | 238 | (59) |
| Others | 237 | 201 | 427 | 226 |
| 3,530 | 3,294 | 4,458 | 1,164 |
forthe year ended 31 March 2014
The cost and carrying value ofmaterial investmentsin unquoted companies held at 31 March 2014 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 2014 | 31 March 2013 | ||||
|---|---|---|---|---|---|
| Total | Carrying | Total | Carrying | ||
| cost | value | cost | value | ||
| £000 | £000 | £000 | £000 | ||
| Kerridge Commercial Systems | |||||
| Ordinary shares | 320 | 5,295 | 320 | 3,446 | |
| Loan stock | 1,217 | 1,217 | 1,343 | 1,343 | |
| 1,537 | 6,512 | 1,663 | 4,789 | ||
| VolumaticHoldings | |||||
| Ordinary shares | 216 | 1,308 | 216 | 1,738 | |
| Loan stock | 1,880 | 1,880 | 1,880 | 1,880 | |
| 2,096 | 3,188 | 2,096 | 3,618 | ||
| TinglobalHoldings | |||||
| Ordinary shares | 228 | 357 | 228 | – | |
| Loan stock | 1,584 | 1,584 | 1,760 | 1,750 | |
| 1,812 | 1,941 | 1,988 | 1,750 | ||
| Silverwing | |||||
| Ordinary shares | 162 | 748 | 162 | 162 | |
| Loan stock | 1,110 | 1,110 | 1,110 | 1,110 | |
| 1,272 | 1,858 | 1,272 | 1,272 | ||
| WearInns | |||||
| Ordinary shares | 293 | 641 | 293 | 666 | |
| Loan stock | 1,113 | 1,154 | 1,113 | 1,113 | |
| 1,406 | 1,795 | 1,406 | 1,779 | ||
| No 1 Traveller | |||||
| Ordinary shares | 158 | 158 | – | – | |
| Loan stock | 1,283 | 1,283 | – | – | |
| 1,441 | 1,441 | – | – | ||
| Control RisksGroupHoldings | |||||
| Ordinary shares | 746 | 1,363 | 746 | 1,315 | |
| IntuitiveHolding | |||||
| Ordinary shares | 134 | 156 | 134 | 134 | |
| Loan stock | 1,159 1,293 |
1,159 1,315 |
1,159 1,293 |
1,159 1,293 |
|
| BuoyantUpholstery | |||||
| Ordinary shares | 132 | 132 | – | – | |
| Loan stock | 1,162 1,294 |
1,162 1,294 |
– – |
– – |
|
| It'sAllGood | |||||
| Ordinary shares | 115 | 115 | – | – | |
| Loan stock | 1,016 1,131 |
1,016 1,131 |
– – |
– – |
|
| Cawood Scientific | |||||
| Ordinary shares | 95 | 347 | 95 | 260 | |
| Loan stock | 730 | 730 | 730 | 730 | |
| 825 | 1,077 | 825 | 990 | ||
| Lineup Systems | |||||
| Ordinary shares | 174 | 174 | 174 | 174 | |
| Loan stock | 800 | 800 | 800 | 800 | |
| 974 | 974 | 974 | 974 | ||
| 31 March 2014 | 31 March 2013 | |||
|---|---|---|---|---|
| Total cost |
Carrying value |
Total cost |
Carrying value |
|
| £000 | £000 | £000 | £000 | |
| IGDoors | ||||
| Ordinary shares | – | – | 355 | 910 |
| OptilanGroup | ||||
| Ordinary shares | 179 | – | 179 | – |
| Loan stock | 946 | 659 | 946 | 792 |
| 1,125 | 659 | 1,125 | 792 | |
| KitwaveOne | ||||
| Ordinary shares | 102 | 137 | 102 | 109 |
| Loan stock | 898 | 898 | 898 | 898 |
| 1,000 | 1,035 | 1,000 | 1,007 | |
| HaystackDryers | ||||
| Ordinary shares | 131 | – | 99 | 99 |
| Loan stock | 1,153 | 946 | 893 | 893 |
| 1,284 | 946 | 992 | 992 |
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 2014 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 2014 £000 |
31 March 2013 £000 |
|
|---|---|---|
| Prepayments and accrued income | 288 | 241 |
| 31 March 2014 £000 |
31 March 2013 £000 |
|
|---|---|---|
| Accruals and deferred income Share subscriptions held pending allotment |
489 513 |
734 – |
| 1,002 | 734 |
forthe year ended 31 March 2014
| 31 March 2014 £000 |
31 March 2013 £000 |
|
|---|---|---|
| Allotted and fully paid: 65,499,878 (2013 48,318,262) ordinary shares of 5p |
3,275 | 2,416 |
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 issued 17,741,242 ordinary shares of 5p for cash at an average premiumof 101.5p pershare pursuantto a public offerfor subscription and 223,374 ordinary shares of 5p for cash at an average premiumof 97.1p pershare pursuantto the company's dividend investment scheme.
During the yearthe company repurchased 783,000 sharesfor cancellation at a cost of £737,000.
On 13 May 2014 the company issued 1,003,316 new ordinary sharesfor cash consideration of £1,097,000 as part of a public offerforsubscription.
| Share premium £000 |
Capital redemption reserve £000 |
Capital reserve £000 |
Revaluation reserve £000 |
Revenue reserve £000 |
|
|---|---|---|---|---|---|
| At 1 April 2013 | 3,219 | 484 | 36,083 | 7,681 | 673 |
| Premiumon issue of ordinary shares | 18,224 | – | – | – | – |
| Share issue expenses | (451) | – | – | – | – |
| Shares purchased for cancellation | – | 39 | (737) | – | – |
| Cancellation ofthe share premiumand capital | |||||
| redemption reserve | (20,992) | (513) | 21,505 | – | – |
| Share premiumand capitalredemption reserve | |||||
| cancellation expenses | – | – | (15) | – | – |
| Realised on disposal ofinvestments | – | – | 1,254 | – | – |
| Transfer on disposal ofinvestments | – | – | 14 | (14) | – |
| Movementsin fair value ofinvestments | – | – | – | 4,382 | – |
| Managementfee capitalised net of associated tax | – | – | (979) | – | – |
| Revenue return on ordinary activities aftertax | – | – | – | – | 1,164 |
| Dividendsrecognised in the year | – | – | (1,861) | – | (1,138) |
| At 31 March 2014 | – | 10 | 55,264 | 12,049 | 699 |
At 31 March 2014 distributable reserves amounted to £56,430,000 (31 March 2013 £37,613,000), comprising the capitalreserve,the revenue reserve and that part ofthe revaluation reserve relating to holding gains/losses on readily realisable listed interest-bearing and equity investments.
On 17 February 2014 shareholders approved a specialresolution to cancelthe share premiumaccount and capitalredemption reserve ofthe company. Court consentto the cancellation was granted on 12 March 2014, and accordingly on that date the share premiumaccount and capitalredemption reserve were cancelled and an equivalentsumwas credited to the capitalreserve (which is a distributable reserve).
The calculation of net asset value pershare as at 31 March 2014 is based on net assets of £71,297,000 (2013 £50,556,000) divided by the 65,499,878 (2013 48,318,262) ordinary sharesin issue atthat date.
The company'sfinancial instruments comprise equity and interest-bearing investments, 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 directorsin 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 strategic report 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. Investmentsin 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.
32.0% (31 March 2013 30.8%) 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 2014 would have changed net assets and the totalreturn forthe year by £1,142,000 (31 March 2013 £780,000).
45.7% (31 March 2013 52.1%) 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 2014 would have changed net assets and the totalreturn forthe year by £1,629,000 (31 March 2013 £1,316,000).
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 2014 | 31 March 2013 | ||||||
|---|---|---|---|---|---|---|---|
| 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-interest investments | 1,163 | 5.5% | 0.3 | 2,614 | 1.8% | 0.8 | |
| Short term cash deposits | 3,000 | 1.0% | 0.4 | 1,000 | 1.1% | 0.2 | |
| Fixed-rate investmentsin unquoted companies | 2,351 | 9.0% | 2.5 | 1,306 | 10.0% | 1.6 | |
| 6,514 | 4,920 |
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 year.
The company'sfloating rate investments comprise floating-rate loansto unquoted companies, listed floating rate notes 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 2014 (31 March 2013 0.5%). The amounts held in floating rate investments atthe balance sheet date were asfollows:
| 31 March 2014 £000 |
31 March 2013 £000 |
|
|---|---|---|
| Floating rate loansto unquoted companies Listed floating rate notes Interest-bearing deposit accounts |
17,934 1,859 10,568 |
13,946 – 5,517 |
| 30,361 | 19,463 |
forthe year ended 31 March 2014
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 assetsrepresentthe maximumcreditrisk exposure atthe balance sheet date.
At 31 March 2014 the company'sfinancial assets exposed to creditrisk comprised the following:
| 31 March 2014 £000 |
31 March 2013 £000 |
|
|---|---|---|
| Listed fixed-interest investments | 1,163 | 2,614 |
| Listed floating rate notes | 1,859 | – |
| Short term cash deposits | 3,000 | 1,000 |
| Fixed-rate investmentsin unquoted companies | 2,351 | 1,306 |
| Floating rate loansto unquoted companies | 17,934 | 13,946 |
| Interest-bearing deposit accounts | 10,568 | 5,517 |
| Accrued dividends and interestreceivable | 272 | 228 |
| 37,147 | 24,611 |
Creditrisk relating to listed interest-bearing investmentsismitigated 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 of New 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 transactionsis considered to be low due to the shortsettlement period involved and the high credit quality ofthe brokers used. The board furthermitigatesthe risk by monitoring the quality ofservice provided by the brokers.
The company'sinterest-bearing deposit accounts aremaintained withmajorUK clearing banks. There were no significant concentrations of creditrisk to counterparties at 31 March 2014 or 31 March 2013.No individual investment exceeded 8.7% ofthe company's net assets at 31 March 2014 (31 March 2013 4.4%).
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 interest-bearing investments 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 2014 these investments were valued at £16,590,000 (31 March 2013 £9,131,000).
The company had no contingentliabilities at 31 March 2014 or 31 March 2013.
At 31 March 2014 contingent assets notrecognised in the financialstatementsin respect of potential deferred proceedsfromthe sale ofinvestee companies amounted to approximately £65,000 (31 March 2013 £262,000). The extentto which these amounts will become receivable in due course is dependent on future events.
S t A n n ' s W h a r f 1 1 2 Q u a y s i d e N e w c a s t l e u p o n T y n e N E 1 3 D X
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
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.