Annual Financial Report

12 NOVEMBER 2018

NORTHERN VENTURE TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2018

Northern Venture Trust PLC is a Venture Capital Trust (VCT) whose investment adviser is NVM Private Equity LLP.  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 30 September 2017):

	2018	2017
Net assets	£93.9m	£76.3m
Net asset value per share	70.8p	72.6p
Return per share after tax:
Revenue	1.0p	1.8p
Capital	2.3p	1.9p
Total	3.3p	3.7p
Dividend per share for the year:
First interim dividend	2.0p	3.0p
Second interim (special) dividend	-	5.0p
Proposed final dividend	2.0p	3.0p
Total	4.0p	11.0p
Cumulative return to shareholders since launch:
Net asset value per share	70.8p	72.6p
Dividends paid per share*	164.5p	159.5p
Net asset value plus dividends paid per share	235.3p	232.1p
Mid-market share price at end of year	66.00p	71.00p
Tax-free dividend yield (based on the net asset value per share at the start of the year):
Excluding special dividend Including special dividend	5.5% N/A	7.5% 13.8%

*Excluding proposed final dividend not yet paid

For further information, please contact:

NVM Private Equity LLP
Simon John/James Bryce                    0191 244 6000

Website:  www.nvm.co.uk

HIGHLIGHTS

• Return per share for the year of 3.3p per share representing 4.5% of opening NAV
   
• NAV per share at year-end of 70.8 pence (2017: 72.6 pence) after paying dividends of 5.0 pence
   
• Successful public share offer raising £20 million
   
• £10.8 million of proceeds from realisations, representing a gain of £4.9 million (2017: £1.6 million)
   
• 12 new and seven follow-on investments in innovative earlier stage companies added to the portfolio

CHAIRMAN’S STATEMENT

Overview
I am pleased to report on another busy year for our company starting with a successful £20 million public share offer launched last autumn.  The investment rate has been strong throughout the year with a total of 12 new venture capital investments being added to the portfolio.  The number of completed realisations increased in the second half of the year generating a good level of gains and supporting the return for the year.  Building a portfolio of high growth companies where we expect some of them to deliver significant capital gains over time comes at the expense of lower levels of income in the short term and less predictability over the timing of realisations.  Both maintaining the current net asset value per share and paying a regular dividend are priorities for your board.  Our aim over the medium term is to pay a sustainable tax-free yield on opening net assets of not less than 5% per annum.  The new investment environment will lead to greater volatility in the timing and quantum of returns and we hope to augment the target yield from time to time by additional payments where investment gains permit. 

Results and dividend
In the year ended 30 September 2018 the company achieved a return on ordinary activities of £4,281,000 (2017: £3,675,000) or 3.3 pence per share (2017: 3.7 pence), representing a total return of 4.5% on the opening net asset value (NAV) per share.  The NAV per share at 30 September 2018, after deducting dividends paid during the year of 5.0 pence, was 70.8 pence compared with 72.6 pence as at 30 September 2017.  The cumulative return to shareholders was increased to 235.3 (2017: 232.1) pence per share which marks the thirteenth consecutive year of growth.  Investment income was lower than in the prior year at £2.5 million (2017: £3.0 million), however adjusting for non-repeating items, investment income was broadly consistent year on year. 

The board has proposed a final dividend of 2.0 pence per share, bringing the total dividend for the year to 4.0 pence.  A 4.0 pence dividend represents a tax free yield of 5.5% on the opening net asset value per share of 72.6 pence.  The final dividend, if approved, will be paid on 21 December 2018 to shareholders on the register on 23 November 2018. 

Investment portfolio
During the past year, 12 new VCT-qualifying investments were made at a total cost of £11.0 million.  These have all been in innovative earlier stage companies requiring capital for the development of new products and markets, as required by the current VCT rules.  Many of these earlier stage businesses will require further capital in order for them to fully realise their growth potential and we continue to channel a proportion of our investment activity into follow-on funding rounds.  A total of £1.3m was invested across seven existing portfolio companies during the year and we expect both the quantum and proportion of follow-on investment activity to increase in the coming years.  Future funding requirements are typically anticipated at the point of initial investment and for most of our follow-on investments over the past year, we have sought to broaden the shareholder base of our investee companies by introducing other venture capital investors in parallel with our own additional commitments. 

Our investment adviser, NVM has continued to build its early stage investment capability having hired four investment professionals during the year and two sector specialists whose roles encompass value-adding activities for portfolio companies.  The investment team now works from an expanded network of five regional offices.  NVM has developed a strong pipeline of investment opportunities and there were several potential investments in process at the year end.

The proceeds from venture capital investments realised in the year amounted to £10.8 million, generating a gain of £4.9m over the 30 September 2017 carrying values.  Over 60% by value of our venture capital portfolio at the year-end comprises investments in more mature businesses acquired under previous VCT rules.  These investments continue to provide diversity to the overall investment portfolio and will determine the liquidity available from realisations in the short to medium term whilst the earlier stage portfolio develops.

Share offers and liquidity
We launched a full prospectus offer of new ordinary shares in September 2017, which was fully subscribed within approximately three weeks, raising gross proceeds of £20 million.  In addition to the public offer, 1,913,530 shares were issued during the year via our dividend investment scheme for overall consideration of £1.3 million.  Around 20% of shares in issue during the year were registered to participate in the dividend investment scheme as at the relevant dividend payment dates.

Your directors have reviewed the liquidity dynamics of the company over the coming years in light of the strong pipeline of investment opportunities that NVM has developed as well as the opportunities to support existing companies with additional growth capital and have proposed a further non-prospectus top-up share offer to launch early in the new year to raise up to £6.6m. 

In proposing the top-up offer, we have weighed up the potential drag on overall returns caused by holding significant levels of liquidity against the benefit of securing sufficient funding to support our expanding portfolio.  Whilst interest rates prevailing in the UK have started to rise this year, they remain low by comparison to historical levels.  We therefore continue to hold a portion of our liquid funds in readily realisable quoted investment funds, with a view to generating a higher return than by holding all liquid resources in cash deposits alone.  Whilst this may give rise to some short-term volatility in the capital valuation of the investments, we expect the capital value will at least be protected in the longer term. 

Share buy-backs
We have maintained our policy of being willing to buy back the company’s shares in the market, when necessary in order to maintain liquidity, at a 5% discount to NAV.  During the year ended 30 September 2018 a total of 1,339,428 shares were repurchased by the company for cancellation, representing 1.3% of the opening issued share capital.

VCT qualifying status
The company has maintained its approved venture capital trust status with HM Revenue & Customs.  The company’s compliance with the VCT qualifying conditions is closely monitored by the board, who receive regular reports from NVM and from our VCT taxation advisers, Philip Hare & Associates LLP.

VCT legislation and regulation
Updates to the VCT rules announced by the Government in the Autumn Budget in November 2017 have now been confirmed by the enactment of the Finance Act 2018. The changes were made in response to the Government’s Patient Capital Review in 2017, which was conducted with the aim of considering the availability of long-term finance for growing businesses.  The principle intention of the most recent changes is to ensure that VCT investment is appropriately targeted to earlier stage businesses seeking funding for internal growth and development.  The detailed changes, which are being introduced on a phased basis, also require VCTs to invest newly raised funds within a shorter timeframe and to maintain a higher overall proportion of investments in qualifying holdings; this is likely to lead to smaller and more frequent share offers in future.  Further details of the current regulations can be found on page 5 of the annual report.

The VCT scheme rules have been subject to regular legislative changes and whilst there were no further amendments announced by the Chancellor in his recent Autumn Budget statement, it is possible that further changes will be made in the future.  We will continue to work closely with our investment adviser to maintain compliance with the scheme rules at all times.

Company secretary
Chris Mellor retired as company secretary of Northern Venture Trust on 31 March 2018, having held that position since the company’s formation in 1995.  On behalf of the directors I would like to thank him for his dedication, wise advice and support during his period in office.  We welcome James Bryce, NVM’s head of legal and compliance, as Mr Mellor’s successor.

Annual general meeting
The 2018 annual general meeting will take place in London on Friday 14 December 2018.  Details of the formal business of the meeting are set out in a separate circular which is being sent to shareholders with the annual report.  We look forward to meeting shareholders on that occasion.

Outlook
The political and economic environment has remained uncertain over the past year and little clarity has been obtained as to the eventual result of the ongoing negotiations between Britain and the rest of the EU.  The investment rate is encouraging and our investment adviser continues to identify attractive opportunities to invest in growing businesses, many of which are developing disruptive technologies or services.  We remain committed to expanding the portfolio of innovative earlier stage companies and believe that the potential returns from these investments in the medium to long term are attractive. In the mean time we take confidence in the overall diversity of the portfolio and in the company’s and NVM’s ability to deal with change.

Simon Constantine
Chairman

Extracts from the audited financial statements for the year ended 30 September 2018 are set out below.

INCOME STATEMENT
for the year ended 30 September 2018

	Year ended 30 September 2018							Year ended 30 September 2017
	Revenue  £000		Capital  £000			Total  £000		Revenue  £000		Capital  £000		Total  £000
Gain on disposal of investments	-		4,997			4,997		-		1,651		1,651
Movements in fair value of investments	-		(1,039		)	(1,039	)	-		1,072		1,072
	----------		----------			----------		----------		----------		----------
	-		3,958			3,958		-		2,723		2,723
Income	2,491		-			2,491		2,989		-		2,989
Investment management fee	(427	)	(1,281		)	(1,708	)	(407	)	(1,222	)	(1,629	)
Other expenses	(449	)	(11		)	(460	)	(408	)	-		(408	)
	----------		----------			----------		----------		----------		----------
Return on ordinary activities before tax	1,615		2,666			4,281		2,174		1,501		3,675
Tax on return on ordinary activities	(257	)	257			-		(373	)	373		-
	----------		----------			----------		----------		----------		----------
Return on ordinary activities after tax	1,358		2,923			4,281		1,801		1,874		3,675
	----------		----------			----------		----------		----------		----------
Return per share	1.0p		2.3p	3.3p				1.8p		1.9p		3.7p

BALANCE SHEET
as at 30 September 2018

	30 September 2018  £000		30 September 2017  £000
Fixed asset investments	69,318		65,699
	----------		----------
Current assets:
Debtors	141		661
Cash and deposits	24,557		9,981
	----------		----------
	24,698		10,642
Creditors (amounts falling due within one year)	(106	)	(81	)
	----------		----------
Net current assets	24,592		10,561
	----------		----------
Net assets	93,910		76,260
	----------		----------
Capital and reserves
Called-up equity share capital	33,142		26,256
Share premium	817		6,941
Capital redemption reserve	879		544
Capital reserve	51,617		34,150
Revaluation reserve	6,346		5,972
Revenue reserve	1,109		2,397
	----------		----------
Total equity shareholders’ funds	93,910		76,260
	----------		----------
Net asset value per share	70.8p		72.6p

STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2018

	---------------Non-distributable reserves---------------											Distributable reserves						Total
	Called-up 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		-			-				-		374		2,549			1,358			4,281
Net proceeds of share issues		7,221			13,647				-		-		-			-			20,868
Dividends paid		-			-				-		-		(3,966	)		(2,646	)		(6,612	)
Shares purchased for cancellation		(335	)		-				335		-		(887	)		-			(887	)
Cancellation of the share premium reserve		-				(19,771	)		-		-		19,771			-			-
	----------			----------				----------		----------		----------			----------			----------
At 30 September 2018		33,142			817				879		6,346		51,617			1,109			93,910
	----------			----------				----------		----------		----------			----------			----------

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

	---------------Non-distributable reserves---------------										Distributable reserves								Total
	Called-up 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		-		-			-		(1,388	)		3,262			1,801			3,675
Net proceeds of share issues		2,146		4,342			-		-			-			-			6,488
Shares purchased for cancellation		-		-	-				-			-			-			-
Dividends paid		-		-			-		-			(9,626	)		(1,477	)		(11,103		)
	----------		----------			----------		----------			----------			----------			----------
At 30 September 2017		26,256		6,941			544		5,972			34,150			2,397			76,260
	----------		----------			----------		----------			----------			----------			----------

STATEMENT OF CASH FLOWS
for the year ended 30 September 2018

	Year ended			Year ended
	30 September 2018			30 September 2017
	£	000		£	000
Cash flows from operating activities:
Return on ordinary activities before tax		4,281			3,675
Gain on disposal of investments		(4,997	)		(1,651	)
Movement in fair value of investments		1,039			(1,072	)
Decrease/(increase) in debtors		520			(292	)
Increase/(decrease) in creditors		25			(866	)
	----------			----------
Net cash inflow/(outflow) from operating activities		868			(206	)
	----------			----------
Cash flows from investing activities:
Purchase of investments		(14,257	)		(6,458	)
Sale/repayment of investments		14,596			17,054
	----------			----------
Net cash inflow from investing activities		339			10,596
	----------			----------
Cash flows from financing activities:
Issue of ordinary shares		21,317			6,592
Share issue expenses		(449	)		(104	)
Purchase of ordinary shares for cancellation		(887	)		-
Equity dividends paid		(6,612	)		(11,103	)
	----------			----------
Net cash inflow/(outflow) from financing activities		13,369			(4,615	)
	----------			----------
Increase in cash and cash equivalents		14,576			5,775
Cash and cash equivalents at beginning of year		9,981			4,206
	----------			----------
Cash and cash equivalents at end of year		24,557			9,981
	----------			----------

INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2018

Company	Cost £000	Valuation £000	% of net assets by valuation
Fifteen largest venture capital investments:
No 1 Lounges	2,006	3,202	3.4
Sorted Holdings	2,166	3,178	3.4
Agilitas IT Holdings	1,662	3,172	3.4
MSQ Partners Group	1,695	2,928	3.1
Lineup Systems	974	2,910	3.1
Closerstill Group	1,747	2,598	2.7
Entertainment Magpie Group	1,610	2,004	2.1
Biological Preparations Group	2,366	1,906	2.0
Volumatic Holdings	1,250	1,684	1.8
Weldex (International) Offshore Holdings	3,262	1,670	1.8
It’s All Good	1,205	1,661	1.8
Medovate	1,593	1,593	1.7
Graza	1,581	1,581	1.7
Intuitive Holding	1,674	1,500	1.6
Currentbody.com	1,413	1,413	1.5
	----------	----------	-------
	26,204	33,000	35.1
Other venture capital investments:
Customs Connect Group	1,406	1,406	1.5
Channel Mum	859	1,361	1.4
Soda Software Labs	1,308	1,308	1.4
Intelling Group	1,222	1,222	1.3
Volo Commerce	1,173	1,173	1.2
Idox*	238	1,108	1.2
Clarilis	1,092	1,092	1.2
Primal Food	1,063	1,063	1.1
Grip-UK	1,059	1,059	1.1
Knowledgemotion	1,048	1,048	1.1
Buoyant Upholstery	1,173	1,007	1.1
Rockar	999	999	1.1
SHE Software Group	995	995	1.1
Ridge Pharma	969	969	1.1
AVID Technology Group	964	964	1.0
Haystack Dryers	1,661	960	1.0
Axial Systems Holdings	1,004	859	0.9
Other investments each valued at less than £750,000	10,039	7,648	8.2
	----------	----------	-------
Total venture capital investments	54,476	59,241	63.1
Listed equity investment funds	6,112	7,744	8.2
Listed interest-bearing investment funds	2,382	2,333	2.5
	----------	----------	-------
Total fixed asset investments	62,970	69,318	73.8
	----------
Net current assets		24,592	26.2
		----------	-------
Net assets		93,910	100.0
		----------	-------
*Quoted on AIM
**Listed on London Stock Exchange

BUSINESS RISKS

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 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 pursue new unquoted investment opportunities and 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, including NVM in the case of AIM-quoted investments, and the board keeps the portfolio and the actions taken under ongoing review.

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

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

DIRECTORS’ RESPONSIBILITIES

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year.  Under that law the directors have elected to prepare the financial statements in accordance with UK Accounting Standards including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for the year. 

In preparing the financial statements, the directors are required to (i) select suitable accounting policies and then apply them consistently;  (ii) make judgements and estimates that are reasonable and prudent;  (iii) state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;  (iv) assess the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and (v) prepare the financial statements on the going concern basis unless they either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a directors’ report, strategic report, directors’ remuneration report and corporate governance statement that comply with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors have confirmed that to the best of their knowledge (i) taken as a whole the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the company;  and (ii) the directors’ report and strategic report include a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that they face. 

The directors consider that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s position and performance, business model and strategy.

The directors of the company at the date of this announcement 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.

OTHER MATTERS

The above summary of results for the year ended 30 September 2018 does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006 and has not been delivered to the Registrar of Companies.  Statutory financial statements will be filed with the Registrar of Companies in due course; the independent auditor’s report on those financial statements under Section 495 of the Companies Act 2006 is unqualified, does not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report and does not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the year and on 130,205,209 (2017 100,330,704) ordinary shares, being the weighted average number of shares in issue during the year.

The calculation of the net asset value per share is based on the net assets at 30 September 2018 divided by the 132,567,448 (30 September 2017 105,026,156) ordinary shares in issue at that date.

The proposed final dividend of 2.0 pence per share for the year ended 30 September 2018 will, if approved by shareholders, be paid on 21 December 2018 to shareholders on the register at the close of business on 23 November 2018.

The full annual report including financial statements for the year ended 30 September 2018 is expected to be posted to shareholders on 16 November 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.