Source - GNW

 

17 MAY 2018

NORTHERN VENTURE TRUST PLC

UNAUDITED HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2018

Northern Venture Trust PLC is a Venture Capital Trust (VCT) whose investment adviser is NVM Private Equity.  The trust was one of the first VCTs launched on the London Stock Exchange in 1995.  It invests mainly in UK unquoted companies and aims to provide high long-term tax-free returns to shareholders through a combination of dividend yield and capital growth.

Financial highlights (comparative figures as at 31 March 2017 and 30 September 2017)

 

 

 

 
Six months to
31 March
 2018
Six months to
31 March
 2017
Year to
30 September
 2017
Net assets£93.7m£76.9m£76.3m
Net asset value per share70.7p79.1p72.6p
Return per share:
Revenue
Capital
Total
 

0.4p
0.7p
1.1p

0.9p
1.2p
2.1p
 

1.8p
1.9p
3.7p
Dividend per share for the period
First interim dividend
Second interim (special) dividend
Final dividend
Total
 

2.0p
-
-
2.0p

3.0p
5.0p
-
8.0p
 

3.0p
5.0p
3.0p
11.0p
Cumulative returns to shareholders
since launch:
Net asset value per share
Dividends paid per share*
Net asset value plus dividends paid per share
 *Excluding interim dividend payable on 29 June 2018
 

 

70.7p
162.5p
233.2p

 


79.1p
151.5p
230.6p
 

 

72.6p
159.5p
232.1p
Mid-market share price at end of period66.25p75.50p71.00p
Tax-free dividend yield (based on mid-market share price at end of period)**:   
Excluding special dividend
Including special dividend
7.5%
N/A
7.9%
14.6%
8.5%
15.5%

**The annualised dividend yield is calculated by reference to the dividends in respect of the 12 month period ended on each reference date.

For further information, please contact:

NVM Private Equity LLP
Simon John/James Bryce                    0191 244 6000
Website:  www.nvm.co.uk

HALF-YEARLY MANAGEMENT REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2018

The past six months have been another busy period for the company, with six new investments completed following the successful £20 million public share offer last Autumn.  Whilst our unquoted venture capital portfolio has made good progress and increased in value over the period, quoted markets have fared less well and this has led overall to only a modest increase in the capital value of our investments.  We expect that the profile of the unquoted portfolio will gradually change over time in response to recent developments in the VCT legislation, leading to lower levels of income from our investments and greater fluctuation in capital returns in the future.  As previously indicated, this will inevitably have a bearing on the board's dividend policy and pending a further review at the financial year end, we have decided at this stage to declare an interim dividend of 2.0p per share in respect of the period to 31 March 2018.

Results and dividend
The unaudited net asset value (NAV) per share at 31 March 2018 was 70.7p, compared with the audited figure of 72.6p at 30 September 2017.  The total return per share before dividends for the six months ended 31 March 2018 as shown in the income statement was 1.1p (six months ended 31 March 2017: 2.1p), equivalent to 1.5% of the NAV at the start of the period.  Investment income was lower than in the corresponding period last year at £1.1 million (six months to 31 March 2017: £1.4 million); however the comparative included the benefit of a one-off receipt of interest arrears, following an investment disposal.  Adjusting for this non-repeating revenue, investment income was broadly consistent.  As required by the current VCT rules, the portfolio is gradually shifting towards earlier stage investments, which tend to be structured with a view to capital growth rather than income yield, and this is likely to cause a continuing reduction in the company's investment income going forward.  As stated above, the profile of capital returns from earlier stage investments is also expected to lead to a greater fluctuation in annual results than in the past.  In the light of this, we have declared an interim dividend of 2.0p per share (2017: 3.0p), which will be paid on 29 June 2018 to shareholders on the register on 8 June 2018.  Our medium-term aim is to set a sustainable level of base annual dividend, having regard to the changing investment environment, which we hope will be augmented from time to time by additional payments where investment gains permit.  We remain conscious of the importance which shareholders attach to a reliable flow of tax-free income.

Unquoted Investments
Six new VCT-qualifying holdings were acquired during the period, for total consideration of £6.5 million. Following a significant volume of fund-raising activity across the sector in recent years, there is currently a heightened level of funding available for venture capital and private equity investing.  This inevitably increases competition for attractive investment opportunities; however your board continues to apply the usual high standards in its appraisal of potential new investments.  As expected, we have also started to experience an encouraging level of follow-on investment activity across the earlier stage portfolio.  

Positive underlying trading trends were observed in a number of portfolio companies; however, the period under review was relatively quiet for investment realisations.  Whilst a number of portfolio companies made scheduled loan stock repayments, there was only one full exit from an investment. The remaining holding of S&P Coil Products, which had been written down to nil, was sold for nominal proceeds, having already returned approximately 1.8 times the original investment during previous periods. Additionally, £0.4 million was received and recognised during the period in respect of deferred consideration from the sales of Alaric Systems, Kitwave One and Optilan Group in previous periods.

Shareholder issues
Having reviewed the forecast cash requirements for 2018 and beyond, we launched a full prospectus offer of new ordinary shares in September 2017, to raise up to £20 million.  Strong demand was experienced and the offer was fully subscribed approximately three weeks after opening. Your directors are aware of the potential drag on overall returns caused by holding significant levels of liquidity. Before proposing the share offer, we considered this downside and weighed it against the benefit of securing sufficient funding both to support our existing early stage investee companies with follow-on capital and to pursue attractive new investment opportunities.  Given the low interest rates currently prevailing in the UK, we continue to hold a portion of our liquid funds in readily realisable quoted investments, with a view to generating a higher yield than by holding all liquid funds in cash deposits alone.  Whilst this may give rise to some short-term volatility in the capital valuation of the funds, we expect the capital value will at least be protected in the longer term. 

Our dividend investment scheme, which enables shareholders to re-invest their dividends in new ordinary shares free of dealing costs and with the benefit of the tax reliefs available on new VCT share subscriptions, continues to operate.

We have maintained our policy of being willing to buy back the company's shares in the market, when necessary in order to maintain liquidity, at a 5% discount to NAV.  During the six months ended 31 March 2018 a total of 475,000 shares were repurchased by the company for cancellation, at an average price of 66.4p.

VCT legislation and regulation
In November 2017, the Chancellor of the Exchequer delivered his Autumn Budget statement, including the results of the Government's Patient Capital Review.  We welcome the sentiment of support for the VCT regime within the consultation response and the acknowledgement of the important role that the VCT sector plays in supporting entrepreneurial businesses. As expected however, there were some less positive aspects of the announcement and the opportunity has again been taken to introduce further rule changes concerning the range of permitted VCT-qualifying investments and the conditions required to be observed in order to maintain approved VCT status.  Most of the proposed changes are being introduced on a phased basis, therefore the immediate impact on the company is expected to be relatively limited.  The main change in the medium term is that the minimum proportion of investments required to be held in VCT-qualifying holdings will increase from 70% to 80%.  We will continue to work closely with our investment adviser in order to maintain compliance with the relevant legislation at all times.

The other main development in the company's regulatory environment during the period was the introduction of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, which came into force on 1 January 2018.  The aim of the regulation is to increase transparency across the investment management sector by providing investment information to retail investors in a consistent format, known as a Key Information Document (KID).  We have complied with the regulations by publishing a KID for Northern Venture Trust, prepared in accordance with the strictly prescribed format. Whilst we welcome any initiatives to improve the flow of information to investors, readers of the KID should note that the potential performance scenarios included therein have been developed predominantly by reference to past performance, as stipulated by the regulations, and should therefore be treated with an appropriate degree of caution.   

VCT qualifying status
The company has continued to meet the stringent qualifying conditions laid down by HM Revenue & Customs for maintaining its approval as a VCT.  Our investment adviser, NVM, monitors the position closely and reports regularly to the board.  Philip Hare & Associates LLP has continued to act as independent adviser to the company on VCT taxation matters.

Outlook
The rate of investment over the last six months has been encouraging as we have continued to adapt our investment approach in response to the updated VCT regulations.  The political and economic landscape in the UK looks set to remain in a state of flux for some time, which makes it extremely difficult to predict the future with much certainty.  We do however remain confident in the resilience developed over many years to deal with change and will continue to apply our high standards and rigorous procedures to the management of the portfolio with a view to continuing to deliver good returns to shareholders.

On behalf of the Board

Simon Constantine
Chairman

Extracts from the unaudited half-yearly financial statements for the six months ended 31 March 2018 are set out below.

INCOME STATEMENT
(unaudited) for the six months ended 31 March 2018

 Six months ended 31 March 2018 Six months ended 31 March 2017 
 Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments 415  415  759  759 
Movements in fair value of investments 1,018  1,018  800  800 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  1,433  1,433  1,559  1,559 
Income 1,088  1,088  1,431  1,431 
Investment management fee (216) (648) (864) (199) (596) (795)
Other expenses (241) (11)  (252) (204) (204)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 631  774  1,405  1,028  963  1,991 
Tax on return on ordinary activities (96) 96  (176) 176 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 535  870  1,405  852  1,139  1,991 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 0.4p 0.7p 1.1p 0.9p 1.2p 2.1p
        


 
 Year ended 30 September 2017 
  

 
 

 
 

 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments       1,651  1,651 
Movements in fair value of investments       1,072  1,072 
        ----------  ----------  ---------- 
        2,723  2,723 
Income       2,989  2,989 
Investment management fee       (407) (1,222) (1,629)
Other expenses       (408) (408)
        ----------  ----------  ---------- 
Return on ordinary activities before tax       2,174  1,501  3,675 
Tax on return on ordinary activities       (373) 373 
        ----------  ----------  ---------- 
Return on ordinary activities after tax       1,801  1,874  3,675 
        ----------  ----------  ---------- 
Return per share       1.8p 1.9p 3.7p

BALANCE SHEET
(unaudited) as at 31 March 2018

 31 March 2018 31 March 2017 30 September 2017 
 £000 £000 £000 
Fixed asset investments 72,988  66,858  65,699 
  ----------  ----------  ---------- 
Current assets:      
 Debtors 312  597  661 
 Cash and cash equivalents 20,539  13,807  9,981 
  ----------  ----------  ---------- 
  20,851  14,404  10,642 
Creditors (amounts falling due within one year) (120) (4,388) (81)
  ----------  ----------  ---------- 
Net current assets 20,731  10,016  10,561 
  ----------  ----------  ---------- 
       
Net assets 93,719  76,874  76,260 
  ----------  ----------  ---------- 
       
Capital and reserves:      
Called-up equity share capital 33,159  24,302  26,256 
Share premium 481  2,984  6,941 
Capital redemption reserve 663  544  544 
Capital reserve 50,767  40,805  34,150 
Revaluation reserve 7,036  6,278  5,972 
Revenue reserve 1,613  1,961  2,397 
  ----------  ----------  ---------- 
Total equity shareholders' funds 93,719  76,874  76,260 
  ----------  ----------  ---------- 
Net asset value per share 70.7p 79.1p 72.6p

STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 31 March 2018

 ---------------Non-distributable reserves---------------Distributable reservesTotal 
  

Share 
capital 
 

Share 
premium 
Capital 
redemption 
reserve 
 

Revaluation 
reserve 
 

Capital 
reserve 
 

Revenue 
reserve 
 
 £000 £000 £000 £000 £000 £000 £000 
At 1 October 2017 26,256  6,941  544  5,972  34,150  2,397  76,260 
Return on ordinary activities              
after tax for the period 1,064 (194) 535  1,405 
Dividends paid (2,643) (1,319) (3,962)
Net proceeds of share issues 7,022  13,311  20,333 
Shares purchased for cancellation  

(119)
 

-
 

119
 

-
 

(317)
 

-
 

(317)
 
Cancellation of share premium reserve - (19,771) - - 19,771 - -  
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 31 March 2018 33,159  481  663  7,036  50,767  1,613  93,719 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
                  

STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 31 March 2017

 ---------------Non-distributable reserves---------------Distributable reservesTotal 
  

Share 
capital 
 

Share 
premium 
Capital 
redemption 
reserve 
 

Revaluation 
reserve 
 

Capital 
reserve 
 

Revenue 
reserve 
 
 £000 £000 £000 £000 £000 £000 £000 
At 1 October 2016 24,110  2,599  544  7,360  40,514  2,073  77,200 
Return on ordinary activities              
after tax for the period (1,082) 2,221  852  1,991 
Dividends paid (1,930) (964) (2,894)
Net proceeds of share issues 192  385  577 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 31 March 2017 24,302  2,984  544  6,278  40,805  1,961  76,874 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
         

STATEMENT OF CHANGES IN EQUITY
(unaudited) for the year ended 30 September 2017

 ---------------Non-distributable reserves---------------Distributable reservesTotal 
  

Share 
capital 
 

Share 
premium 
Capital 
redemption 
reserve 
 

Revaluation 
reserve 
 

Capital 
reserve 
 

Revenue 
reserve 
 
 £000 £000 £000 £000 £000 £000 £000 
At 1 October 2016 24,110  2,599  544  7,360  40,514  2,073  77,200 
Return on ordinary activities              
after tax for the year (1,388)  3,262  1,801  3,675 
Dividends paid (9,626) (1,477) (11,103)
Net proceeds of share issues 2,146  4,342  6,488 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 30 September 2017 26,256  6,941  544  5,972  34,150  2,397  76,260 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
         

STATEMENT OF CASH FLOWS
(unaudited) for the six months ended 31 March 2018

 Six months ended Six months ended Year ended 
 31 March 2018 31 March 2017 30 September 2017 
 £000 £000 £000 
Cash flows from operating activities:      
Return on ordinary activities before tax 1,405  1,991  3,675 
Adjustments for:      
Gain on disposal of investments (415) (759) (1,651)
Movement in fair value of investments (1,018) (800) (1,072)
Decrease/(increase) in debtors 349 (266) (292)
Increase/(decrease) in creditors 39 (856) (866)
  ----------  ----------  ---------- 
Net cash inflow/(outflow) from operating activities 360 (690) (206)
  ----------  ----------  ---------- 
Cash flows from investing activities:      
Purchase of investments (7,033) (2,496) (6,458)
Sale/repayment of investments 1,176  10,807  17,054 
  ----------  ----------  ---------- 
Net cash (outflow)/inflow from investing activities (5,857)  8,311  10,596 
  ----------  ----------  ---------- 
Cash flows from financing activities:      
Issue of ordinary shares 20,769  592  6,592 
Share issue expenses (435) (15) (104)
Share subscriptions held pending allotment 4,297 
Purchase of ordinary shares for cancellation (317)  -  
Equity dividends paid (3,962) (2,894) (11,103)
  ----------  ----------  ---------- 
Net cash inflow/(outflow) from financing activities 16,055  1,980  (4,615)
  ----------  ----------  ---------- 
Net increase in cash/cash equivalents 10,558  9,601  5,775  
Cash and cash equivalents at beginning of period 9,981  4,206  4,206 
  ----------  ----------  ---------- 
Cash and cash equivalents at end of period 20,539  13,807  9,981 
  ----------  ----------  ---------- 
         

INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2018

 Cost
£000
Valuation
£000
% of net assets
by valuation
Venture capital investments:      
No 1 Lounges 2,006 3,406 3.6
Entertainment Magpie Group 1,611 3,092 3.3
CGI Group Holdings 3,818 3,078 3.3
Lineup Systems 975 2,910 3.1
Sorted Holdings 1,808 2,820 3.0
Agilitas IT Holdings 1,662 2,604 2.8
MSQ Partners Group 1,695 2,558 2.7
Love Saving Group 1,204 2,473 2.6
Buoyant Upholstery 1,173 2,418 2.6
Closerstill Group 1,747 2,283 2.4
Biological Preparations Group 2,366 1,959 2.1
Wear Inns 1,640 1,854 2.0
Weldex (International) Offshore Holdings 3,262 1,670 1.8
Medovate 1,593 1,593 1.7
Graza 1,581 1,581 1.7
  ------------ ------------ ------------
Fifteen largest venture capital investments 28,141 36,299 38.7
Other venture capital investments 27,732 25,125 26.8
  ------------ ------------ ------------
Total venture capital investments 55,873 61,424 65.5
Listed equity investments 5,181 6,664 7.2
Listed interest-bearing investments 4,898 4,900 5.2
  ------------ ------------ ------------
Total fixed asset investments 65,952 72,988 77.9
  ------------    
Cash and cash equivalents   20,539 21.9
Debtors less creditors   192 0.2
    ------------ ------------
Net assets   93,719 100.0
    ------------ ------------
       

RISK MANAGEMENT

The board carries out a regular and robust review of the risk environment in which the company operates.  The principal risks and uncertainties identified by the board which might affect the company's business model and future performance, and the steps taken with a view to their mitigation, are as follows:

Investment and liquidity risk: investment in smaller and unquoted companies, such as those in which the company invests, involves a higher degree of risk than investment in larger listed companies because they generally have limited product lines, markets and financial resources and may be more dependent on their management or key individuals. The securities of smaller companies in which the company invests are typically unlisted, making them illiquid, and this may cause difficulties in valuing and disposing of the securities. The company may invest in businesses whose shares are quoted on AIM - the fact that a share is quoted on AIM does not mean that it can be readily traded and the spread between the buying and selling prices of such shares may be wide.  Mitigation: the directors aim to limit the risk attaching to the portfolio as a whole by careful selection, close monitoring and timely realisation of investments, by carrying out rigorous due diligence procedures and maintaining a wide spread of holdings in terms of financing stage and industry sector.  The board reviews the investment portfolio with the investment adviser on a regular basis.

Financial risk: most of the company's investments involve a medium to long-term commitment and many are relatively illiquid.  Mitigation: the directors consider that it is inappropriate to finance the company's activities through borrowing except on an occasional short-term basis.  Accordingly they seek to maintain a proportion of the company's assets in cash or cash equivalents in order to be in a position to take advantage of new unquoted investment opportunities and to make follow-on investments in existing portfolio companies.  The company has very little direct exposure to foreign currency risk and does not enter into derivative transactions.

Economic risk: events such as economic recession or general fluctuation in stock markets, exchange rates and interest rates may affect the valuation of investee companies and their ability to access adequate financial resources, as well as affecting the company's own share price and discount to net asset value.  Mitigation: the company invests in a diversified portfolio of investments spanning various industry sectors, and maintains sufficient cash reserves to be able to provide additional funding to investee companies where appropriate.

Stock market risk: some of the company's investments are quoted on the London Stock Exchange or AIM and will be subject to market fluctuations upwards and downwards.  External factors such as terrorist activity can negatively impact stock markets worldwide.  In times of adverse sentiment there may be very little, if any, market demand for shares in smaller companies quoted on AIM.  Mitigation: the company's quoted investments are actively managed by specialist advisers and the board keeps the portfolio under ongoing review.

Credit risk: the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment.  Mitigation: the directors review the creditworthiness of the counterparties to these instruments and cash deposits and seek to ensure there is no undue concentration of credit risk with any one party.

Legislative and regulatory risk: in order to maintain its approval as a VCT, the company is required to comply with current VCT legislation in the UK, which reflects the European Commission's State aid rules.  Changes to the UK legislation or the State aid rules in the future could have an adverse effect on the company's ability to achieve satisfactory investment returns whilst retaining its VCT approval.  Mitigation: the board and the investment adviser monitor political developments and where appropriate seek to make representations either directly or through relevant trade bodies.

Internal control risk: the company's assets could be at risk in the absence of an appropriate internal control regime.  Mitigation: the board regularly reviews the system of internal controls, both financial and non-financial, operated by the company and the investment adviser.  These include controls designed to ensure that the company's assets are safeguarded and that proper accounting records are maintained.

VCT qualifying status risk: whilst it is the intention of the directors that the company will be managed so as to continue to qualify as a VCT, there can be no guarantee that this status will be maintained. A failure to continue meeting the qualifying requirements could result in the loss of VCT tax relief, the company losing its exemption from corporation tax on capital gains, to shareholders being liable to pay income tax on dividends received from the company and, in certain circumstances, to shareholders being required to repay the initial income tax relief on their investment. Mitigation: the investment adviser keeps the company's VCT qualifying status under continual review and its reports are reviewed by the board on a quarterly basis.  The board has also retained Philip Hare & Associates LLP to undertake an independent VCT status monitoring role.

OTHER MATTERS

The unaudited half-yearly financial statements for the six months ended 31 March 2018 do not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006, have not been reviewed or audited by the company's independent auditor and have not been delivered to the Registrar of Companies.  The comparative figures for the year ended 30 September 2017 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies.  The auditor's report on those financial statements (i) was unqualified, (ii) did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.  The half-yearly financial statements have been prepared on the basis of the accounting policies set out in the annual financial statements for the year ended 30 September 2017.

Each of the directors confirms that to the best of his knowledge the half-yearly financial statements have been prepared in accordance with the Statement "Half-yearly financial reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by (a) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year, and (b) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

The directors of the company at the date of this statement were Mr S J Constantine (Chairman), Mr N J Beer, Mr R J Green, Mr T R Levett, Mr D A Mayes and Mr H P Younger.

The calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the period and on 127,587,005 (2017: 96,859,127) ordinary shares, being the weighted average number of shares in issue during the period.

The calculation of the net asset value per share is based on the net assets at 31 March 2018 divided by the 132,635,462 (2017: 97,209,695) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 30 September 2018 will be paid on 29 June 2018 to shareholders on the register at the close of business on 8 June 2018.

A copy of the half-yearly financial report for the six months ended 31 March 2018 is expected to be posted to shareholders by 1 June 2018 and will be available to the public at the registered office of the company at Time Central, 32 Gallowgate, Newcastle upon Tyne NE1 4SN and on the NVM Private Equity LLP website, www.nvm.co.uk.

Neither the contents of the NVM Private Equity LLP website nor the contents of any website accessible from hyperlinks on the NVM Private Equity LLP website (or any other website) is incorporated into, or forms part of, this announcement.




This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Northern Venture Trust PLC via Globenewswire