TIDMNTV
15 June 2023
NORTHERN 2 VCT PLC
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 MARCH 2023
Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by
Mercia Fund Management Limited. It invests mainly in unquoted
venture capital holdings in growing UK companies and aims to
provide long-term tax-free returns to shareholders through a
combination of dividend yield and capital growth.
Financial highlights (comparative figures as at 31 March
2022):
Year ended Year ended
31 March 31 March
2023 2022
Net assets GBP109.6m GBP104.9m
Net asset value per share 59.0p 64.4p
Return per share
Revenue (0.2)p 0.2p
Capital (1.7)p 0.4p
Total (1.9)p 0.6p
Dividend per share declared in respect of the period
Interim dividend 2.0p 2.0p
Proposed final dividend 1.3p 1.6p
Total 3.3p 3.6p
Cumulative return to shareholders since launch
Net asset value per share 59.0p 64.4p
Dividends paid per share* 136.0p 132.4p
Net asset value plus dividends paid per share 195.0p 196.8p
Mid-market share price at end of period 54.5p 61.5p
Share price discount to net asset value 7.6% 4.5%
Annualised tax-free dividend yield (based on net asset
value per share) 5.1% 5.0%
*Excluding proposed final dividend payable on 18 August 2023
Enquiries:
James Sly / Sarah Williams, Mercia Asset Management PLC -- 0330
223 1430
Website: www.mercia.co.uk/vcts/n2vct/
CHAIR'S STATEMENT
Uncertainty in the economic landscape persisted over the past
year. Inflationary pressures resulted in interest rate increases
and volatility in the financial markets which presented challenges.
While consumer facing companies have been particularly impacted by
the high-inflation environment, many quoted equity indices
experienced large declines and company valuations across most
sectors fell from previous highs.
Against this challenging backdrop, it is pleasing to report that
the valuation of our unquoted portfolio increased in the year,
supported by a number of excellent exits both in the year and
immediately post year end. Realisation of our unquoted investments
in the year generated proceeds of GBP12.1 million, delivering a
GBP6.2 million return on initial cost of GBP5.9 million. Investment
activity has remained high, with GBP16.0 million invested in 27
promising early stage businesses.
Despite declining business confidence generally, our public
share offer of GBP6 million was fully subscribed and I would like
to thank existing shareholders for their continued support and
warmly welcome new investors. Proceeds from the share offer
together with sales proceeds from investments mean that the Company
is well positioned both to pursue new opportunities to support
small and medium businesses and to work with existing portfolio
companies to realise their growth plans.
Results and dividend
In the year ended 31 March 2023 the Company delivered a return
of minus 1.9 pence per share (2022: 0.6 pence), equivalent to minus
3.0% of the opening net asset value (NAV) per share. Gains in the
unquoted portfolio were offset by declines in our listed
investments, particularly musicMagpie, a legacy AIM investment that
was impacted both by challenging trading conditions and the
repricing of AIM shares generally. The NAV per share as at 31 March
2023, after deducting dividends paid during the year totalling 3.6
pence, was 59.0 pence compared with 64.4 pence as at 31 March
2022.
Several investment realisations were completed during the year,
with a number of notable transactions either completed or in
progress as at the balance sheet date. One particular highlight
after the balance sheet date was the sale of Evotix, sold in May
2023, for proceeds of GBP11.5 million compared to an original cost
of GBP2.5 million, a 4.6x return, which is particularly welcome as
it was an early-stage investment made since the VCT rule changes in
2015; the realised value has been represented in the Directors'
unquoted valuations as at the balance sheet date. Other highlights
were the sales of Lineup Systems and Knowledgemotion that
registered returns of 7.8 times and 1.7 times cost respectively
over their lifetimes (inclusive of loan interest received). These
gains contributed to an overall increase of GBP0.6 million in the
Directors' valuation of the unquoted portfolio.
The unquoted valuations were also impacted by a number of
write-downs including the failure of Channel Mum, which was
unfortunately put into liquidation after facing challenging trading
conditions. In addition, the Company's investment in Axial was sold
at a loss following its loss of several large contracts.
In 2018 we set an objective of paying an annual dividend
representing a yield of at least 5% of the opening NAV per share in
each year whilst endeavouring to protect the NAV from erosion over
the medium term. Over the three years since 31 March 2020 the NAV
per share has increased by 10% from 53.5 pence to 59.0 pence, after
taking account of dividend payments totalling 14.6 pence over the
same period. We have therefore broadly continued to meet our
objective.
Having already declared an interim dividend of 2.0 pence per
share which was paid in January 2023, your Directors now propose a
final dividend of 1.3 pence per share. The total of 3.3 pence per
share is equivalent to 5.1% of the opening NAV of 64.4 pence per
share. The proposed final dividend will be paid on 18 August 2023,
subject to approval by shareholders at the Annual General
Meeting.
The target dividend yield will remain subject to regular review
and the level of future dividend distributions will continue to
reflect the level of returns generated by the Company in the medium
term, the timing of investment realisations, the availability of
distributable reserves and continuing compliance with the VCT
scheme rules.
Investment portfolio
The Company continues to be a generalist investor, with large
allocations in the software, healthcare/bio-technology and consumer
sectors. The older investments made under the 'pre 2015' rules
continue to be realised, and comprised 19% by value of the
Company's investments as of the balance sheet date. This mature
portfolio will continue to reduce as a percentage of overall
capital invested as we realise our holdings in these investments,
and we expect that it will continue to provide a series of
profitable exits in the years to come, supporting the overall
return of the Company.
Over the year the Company saw reductions in the valuations of
its listed investments, notably the continued fall in value of AIM
listed musicMagpie and the listed portfolio of investments, in line
with the decline in investment markets generally. Overall, the
value of the Company's listed investments declined by GBP1.9
million of which GBP1.0 million was MusicMagpie. Despite the
marked-to-market losses of the listed portfolio that is held to
generate a yield on cash pending investment, the portfolio has
generated annualised total returns of 3.1% since investment in 2018
and has therefore provided a positive contribution to NAV in what
has been a very low interest rate environment. Your Directors
always consider the state of the investment markets and how these
might impact the valuations of the unquoted venture portfolio and
have updated valuations to reflect current market conditions where
appropriate.
Investment levels have remained high and exceeded the previous
year's record breaking deployment level, with GBP10.0 million of
capital provided to 9 new venture capital investments and GBP6.0
million of follow on capital invested into 19 existing portfolio
investments, including a second tranche of investment into one
company that was new in the year (previous year: GBP14.7 million
combined).
Share offer and liquidity
As a result of the public share offer launched in January 2023,
10,290,184 new ordinary shares were issued in April 2023 for gross
proceeds of GBP6.0 million.
Following the smaller non-prospectus top-up offer in 2022/23,
and taking into account the increased rate of investment that has
now been sustained for a second successive year, the Board is
pleased to announce that the Company will launch a prospectus offer
in the 2023/24 tax year for GBP14.0 million, with an over-allotment
facility of GBP6.0 million. This offer will launch in September
2023, and full details will be published shortly.
Our dividend investment scheme continues to operate. This
enables shareholders to 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. During the year
around 15% of total dividends were reinvested by shareholders.
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, a total of
4,673,456 shares were repurchased for cancellation, equivalent to
approximately 2.5% of the opening share capital.
Changes to the performance-related management fee ('performance
fees')
Following a review of current arrangements by the Board,
included in the Circular for the upcoming General Meeting is a
resolution proposing changes to the Management Agreement in
relation to the performance-related management fee with the
Manager. If approved by shareholders, these changes will be
implemented by a deed of variation to the Company's existing
Management Agreement.
The changes in VCT legislation in 2015 required the Company to
focus new investment on earlier stage companies which, by their
nature, are higher risk and therefore likely to deliver more
volatile investment returns. A number of changes are proposed in
order to better align future performance fees with shareholder
returns as well as to bring the performance fee methodology more in
line with other market participants and to harmonise its
application across the Northern VCTs. The changes are designed to
ensure strong returns above a hurdle are delivered consistently,
not just in a single year, with a requirement that any decline in
shareholder NAV must be made wholly good before a performance fee
is payable to the Manager. Full details of the changes are set out
in the accompanying Circular for the General Meeting, which will be
held immediately after the Annual General Meeting on 29 July
2023.
Responsible Investment
The Company is mindful of its Environmental, Social and
Governance (ESG) responsibilities and we have outlined our evolving
approach in the annual report.
VCT legislation and qualifying status
The Company has continued to meet the stringent and complex
qualifying conditions laid down by HM Revenue & Customs for
maintaining its approval as a VCT. The Manager monitors the
position closely and reports regularly to the Board. Philip Hare
& Associates LLP has continued to act as independent adviser to
the Company on VCT taxation matters.
The upcoming 2025 'sunset clause' was a European state aid
requirement when the VCT scheme received state aid approval, which
means that without a change in legislation investors will not
receive upfront tax relief when investing in VCTs from 6 April
2025. While the government has signalled that it will extend the
scheme, to date no formal legislation has been introduced to enact
this commitment. The Company and the Manager will continue to
monitor progress in this area. The Board considers that the
Company, and VCTs more generally, are successfully delivering
against the Government's mandate, which is to channel money into
higher-risk, early-stage businesses.
Another issue facing VCTs and similar schemes such as the
Enterprise Investment Scheme is the 'Financial Health Test' that
has been enforced more narrowly over the past twelve months. This
test states that where a company is investing outside of its
initial investing period, if more than half of an investee
company's subscribed share capital has disappeared as a result of
accumulated losses, then no further capital may be invested. In
reality a number of early stage businesses need to be funded for
longer than that initial period, making losses originally to fund
growth. The Manager has performed a detailed review of the
portfolio, and while the Company's portfolio is relatively
unaffected at the current time, your Board will continue to monitor
the situation carefully.
Whilst no further amendments to the VCT legislation were
announced by the Chancellor in his 2023 Budget statement, it is
possible that further changes will be made in the future. We will
continue to work closely with the Manager to maintain compliance
with the scheme rules at all times.
Board of directors
Your board recognises the need to consider succession planning
and with due regard to developing its diversity. We are determined
to only ever appoint when we have found high quality, value adding
and experienced people who will contribute to the Board in the
interests of shareholders. As previously announced, Ranjan Ramparia
joined as a director in the year.
As part of the process of refreshing itself, which your board
has been undertaking over the last few years, senior non-executive
director, Frank Neale is not seeking re-election and retires at the
AGM. As he stands down I want to thank him for his extraordinary
contribution to the success of the Company over many years. It
would be difficult to overstate the knowledge and expertise Frank
Neale had brought to the board's deliberations, for which we are
very appreciative. His wisdom and guidance will be much missed.
As reported in previous years, the Board goes through a rigorous
appraisal process both collectively and individually during which
it considers the independence of each director in the light of
their performance at, and between, board meetings and when engaging
with the Manager. Shareholders can be assured that with the benefit
of their wide experience and expertise your directors act of behalf
of shareholders in challenging the Manager in respect of the
strategic direction of the Company, the investment portfolio, the
valuation of unquoted assets, performance-related management fees,
fund raising and any other matter likely to impact the development
of the Company.
All of the Directors who served throughout the year, with the
exception of Frank Neale who is retiring from the Board, will be
seeking re-election at the 2023 AGM in accordance with the AIC Code
of Corporate Governance.
Annual General Meeting
The Company's Annual General Meeting (AGM) will take place on 28
July 2023. The AGM usually provides an excellent opportunity for
shareholders, directors and the Manager to meet in person, exchange
views and comment. We intend to hold the 2023 AGM in person at Reed
Smith LLP, Broadgate Tower, 20 Primrose Street, London, EC2A 2RS.
Following positive feedback received from the last three years, we
also intend to offer remote access for shareholders through an
online webinar facility for those who would prefer not to travel.
Please note that shareholders attending remotely must register
their votes ahead of time, as it will not be possible to count
votes from online participants at the AGM. Full details and formal
notice of the AGM are set out in a separate document. The General
Meeting regarding the proposed changes to the performance-related
management fee will be held immediately after the AGM.
Outlook
Despite a challenging macroeconomic outlook with high inflation
and rising interest rates, we will continue to provide patient
capital to support innovative early stage businesses in the UK.
Your board is encouraged by the continued strong deployment rates,
and will continue to invest throughout the economic cycle.
Your board has confidence in the overall diversity of the
portfolio and believes that it will continue to generate long term
shareholder value.
We thank our investors for their continuing support.
David Gravells
Chair 15 June 2023
Extracts from the audited financial statements for the year
ended 31 March 2023 are set out below.
Income statement
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain/(loss) on
disposal of
investments - (219) (219) - 4,491 4,491
Unrealised fair
value
gains/(losses)
on investments - (1,302) (1,302) - (2,265) (2,265)
---------------- -------- -------- -------- -------- -------- --------
- (1,521) (1,521) - 2,226 2,226
Dividend and
interest
income 598 - 598 1,314 - 1,314
Investment
management fee (505) (1,514) (2,019) (541) (1,621) (2,162)
Other expenses (522) - (522) (455) - (455)
---------------- -------- -------- -------- -------- -------- --------
Return before
tax (429) (3,035) (3,464) 318 605 923
Tax on return 109 (109) - (3) 3 -
---------------- -------- -------- -------- -------- -------- --------
Return after tax (320) (3,144) (3,464) 315 608 923
---------------- -------- -------- -------- -------- -------- --------
Return per share (0.2)p (1.7)p (1.9)p 0.2p 0.4p 0.6p
---------------- -------- -------- -------- -------- -------- --------
Balance sheet
31 March 2023 31 March 2022
GBP000 GBP000
Fixed assets
Investments 80,314 77,878
Current assets
Debtors 118 43
Cash and cash equivalents 29,318 27,086
29,436 27,129
Creditors (amounts falling due within one
year) (174) (153)
Net current assets 29,262 26,976
Net assets 109,576 104,854
Capital and reserves
Called-up equity share capital 9,282 8,145
Share premium 38,165 21,952
Capital redemption reserve 849 615
Capital reserve 59,176 63,642
Revaluation reserve 2,015 9,765
Revenue reserve 89 735
Total equity shareholders' funds 109,576 104,854
Net asset value per share 59.0p 64.4p
Statement of changes in equity
for the year
ended 31
March 2023
Non Distributable Distributable
--------- reserves ------------ Reserves
Called up Capital
share Share redemption Revaluation Capital Revenue
capital premium reserve reserve* reserve reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2022 8,145 21,952 615 9,765 63,642 735 104,854
Return after
tax - - - (7,750) 4,606 (320) (3,464)
Dividends
paid - - - - (6,408) (326) (6,734)
Net proceeds
of share
issues 1,371 16,213 - - - - 17,584
Shares
purchased
for
cancellation (234) - 234 - (2,664) - (2,664)
At 31 March
2023 9,282 38,165 849 2,015 59,176 89 109,576
Year ended 31
March 2022
At 1 April
2021 8,102 20,175 511 22,343 63,547 822 115,500
Return after
tax - - - (12,578) 13,186 315 923
Dividends
paid - - - - (11,703) (402) (12,105)
Net proceeds
of share
issues 147 1,837 - - - - 1,984
Shares
purchased
for
cancellation (104) (60) 104 - (1,388) - (1,448)
At 31 March
2022 8,145 21,952 615 9,765 63,642 735 104,854
Statement of cash flows
for the year ended 31 March 2023
Year ended Year ended
31 March 2023 31 March 2022
GBP000 GBP000
---------------------------------------------- ------------- -------------
Cash flows from operating activities
Return before tax (3,464) 923
Adjustments for:
(Gain)/loss on disposal of investments 219 (4,491)
Movements in fair value of investments 1,302 2,265
(Increase)/decrease in debtors (75) 1,619
Increase/(decrease) in creditors 21 (1,654)
Net cash outflow from operating activities (1,997) (1,338)
---------------------------------------------- ------------- -------------
Cash flows from investing activities
Purchase of investments (17,600) (16,414)
Sale/repayment of investments 13,643 27,840
Net cash inflow/(outflow) from investing
activities (3,957) 11,426
---------------------------------------------- ------------- -------------
Cash flows from financing activities
Issue of ordinary shares 18,075 1,984
Share issue expenses (491) (60)
Purchase of ordinary shares for cancellation (2,664) (1,388)
Equity dividends paid (6,734) (12,105)
Net cash inflow/(outflow) from financing
activities 8,186 (11,569)
---------------------------------------------- ------------- -------------
Increase/(decrease) in cash and cash
equivalents 2,232 (1,481)
Cash and cash equivalents at beginning of year 27,086 28,567
---------------------------------------------- ------------- -------------
Cash and cash equivalents at end of year 29,318 27,086
---------------------------------------------- ------------- -------------
Investment portfolio
% of
Like for like valuation increase/ (decrease) over net
Cost Valuation year** assets
by
GBP'000 GBP'000 % value
Fifteen largest venture
capital investments
Evotix (formerly
1 SHE) 2,518 11,529 113.7% 10.5%
Volumatic
2 Holdings 216 3,275 (1.9)% 3.0%
Grip-UK (t/a
3 Climbing Hangar) 3,213 3,213 0.0% 2.9%
4 Gentronix 1,164 2,630 109.9% 2.4%
5 Rockar 1,766 2,630 34.7% 2.4%
Tutora (t/a
6 Tutorful) 2,490 2,595 7.6% 2.4%
7 Newcells Biotech 2,257 2,293 (10.9)% 2.1%
Biological
Preparations
8 Group 2,166 2,069 (15.2)% 1.9%
9 Adludio 1,916 1,916 0.0% 1.7%
10 Clarilis 1,828 1,828 (4.4)% 1.7%
11 Administrate 2,148 1,720 7.0% 1.6%
Buoyant
12 Upholstery 1,057 1,707 (36.7)% 1.6%
13 Netacea 1,683 1,683 0.0% 1.5%
Social Value
14 Portal 1,680 1,680 0.0% 1.5%
15 Pure Pet Food 1,605 1,669 0.3% 1.5%
------------------------------------------------- ------
Other venture capital
investments
Project Glow
Topco (t/a
16 Currentbody.com) 1,544 1,544 0.0% 1.4%
Turbine Simulated
Cell
17 Technologies 1,503 1,503 0.0% 1.4%
18 Enate 1,394 1,394 0.0% 1.3%
19 Ridge Pharma 1,387 1,390 0.2% 1.3%
Forensic
20 Analytics 1,357 1,357 0.0% 1.2%
21 Broker Insights 1,318 1,318 0.0% 1.2%
22 Optellum 1,206 1,206 0.0% 1.1%
23 Duke & Dexter 1,132 1,140 0.7% 1.0%
24 Centuro Global 1,109 1,109 0.0% 1.0%
25 VoxPopMe 1,114 1,102 (11.3)% 1.0%
26 musicMagpie* 222 1,037 (50.0)% 0.9%
Send Technology
27 Solutions 1,023 1,023 0.0% 0.9%
Wonderush Ltd
28 (t/a Hownow) 1,009 1,009 0.0% 0.9%
Axis Spine
29 Technologies 1,002 1,002 0.0% 0.9%
30 Pimberly 918 918 0.0% 0.8%
Fresh Approach
31 (UK) Holdings 951 886 3.5% 0.8%
32 LMC Software 877 877 0.0% 0.8%
33 Moonshot 812 812 0.0% 0.7%
34 Locate Bio 798 798 0.0% 0.7%
Naitive
35 Technologies 731 731 0.0% 0.7%
36 Oddbox 1,002 689 (81.6)% 0.6%
37 Northrow 1,342 686 (46.0)% 0.6%
38 Atlas Cloud 648 648 1.0% 0.6%
39 Sen Corporation 643 643 0.0% 0.6%
40 Intuitive Holding 1,508 618 5.1% 0.6%
41 Medovate 1,611 486 (67.5)% 0.4%
42 Synthesized 482 482 0.0% 0.4%
Thanksbox (t/a
43 Mo) 1,411 469 (42.5)% 0.4%
Rego Technologies
(t/a Upp)
44 (formerly Volo) 2,223 440 (19.0)% 0.4%
45 Seahawk Bidco 479 436 (15.9)% 0.5%
46 Nutshell 675 354 (32.5)% 0.3%
47 Adept Telecom* 235 332 22.2% 0.3%
48 Arnlea Holdings 1,287 223 9.4% 0.3%
49 Haystack Dryers 1,497 218 59.3% 0.2%
50 Sorted Holdings 2,716 190 7.4% 0.2%
Customs Connect
51 Group 1,433 113 4.5% 0.2%
52 Angle* 134 75 (61.0)% 0.1%
Velocity
53 Composites* 96 39 (15.0)% 0.1%
54 Quotevine 1,186 - (100.0)% 0.0%
Ablatus
55 Therapeutics 559 - (100.0)% 0.0%
Total venture capital
investments 70,281 71,734 65.5%
Listed equity
investments 8,019 8,580 7.8%
Total fixed asset
investments 78,300 80,314 73.3%
--------------------- ------- ---------
Net current assets 29,262 26.7%
--------------------- ------- ---------
Net assets 109,576 100.0%
--------------------- ------- --------- ------------------------------------------------- ------
*Listed on AIM
**This percentage change in 'like for like' valuations is a
comparison of the 31 March 2023 valuations with the 31 March 2022
valuations (or where a new investment has been made in the year,
the investment amount), having adjusted for any partial disposals,
loan stock repayments or new and follow-on investments in the
year.
Risk management
The Board carries out a regular and robust assessment of the
risk environment in which the Company operates and seeks to
identify new risks as they emerge. The principal and emerging risks
and uncertainties identified by the Board which might affect the
Company's business model and future performance, and the steps
taken with a view to their mitigation, are as follows:
Investment and liquidity risk: investment in smaller and
unquoted companies, such as those in which the Company invests,
involves a higher degree of risk than investment in larger listed
companies because they generally have limited product lines,
markets and financial resources and may be more dependent on key
individuals. The securities of smaller companies in which the
Company invests are typically unlisted, making them illiquid, and
this may cause difficulties in valuing and disposing of the
securities. The Company may invest in businesses whose shares are
quoted on AIM -- the fact that a share is quoted on AIM does not
mean that it can be readily traded and the spread between the
buying and selling prices of such shares may be wide.
Mitigation: the Directors aim to limit the risk attaching to the
portfolio as a whole by careful selection, close monitoring, active
management of portfolio issues, and timely realisation of
investments, by carrying out rigorous due diligence procedures and
maintaining a wide spread of holdings in terms of financing stage
and industry sector, within the rules of the VCT scheme. The Board
reviews the investment portfolio with the Manager on a regular
basis.
Financial risk: most of the Company's investments involve a
medium to long-term commitment and many are illiquid.
Mitigation: the Directors consider that it is inappropriate to
finance the Company's activities through borrowing except on an
occasional short-term basis. Accordingly they seek to maintain a
proportion of the Company's assets in cash or cash equivalents in
order to be in a position to pursue new unquoted investment
opportunities and to make follow-on investments in existing
portfolio companies. The Company has very little direct exposure to
foreign currency risk and does not enter into derivative
transactions.
Economic risk: events such as economic recession or general
fluctuation in stock markets, exchange rates and interest rates may
affect the valuation of investee companies and their ability to
access adequate financial resources, as well as affecting the
Company's own share price and discount to net asset value. The
level of economic risk has been elevated recently by inflationary
pressures, interest rate increases, and supply shortages.
Mitigation: the Company invests in a diversified portfolio of
investments spanning various industry sectors, and maintains
sufficient cash reserves to be able to provide additional funding
to investee companies where it is appropriate and in the interests
of the Company to do so. The Manager typically provides an
investment executive to actively support the Board of each unquoted
investee company. At all times, and particularly during periods of
heightened economic uncertainty, the investment executives share
best practice from across the portfolio with investee management
teams in order to mitigate economic risk.
Stock market risk: some of the Company's investments are quoted
on the London Stock Exchange or AIM and will be subject to market
fluctuations upwards and downwards. External factors such as the
terrorist activity, political activity or global health crises can
negatively impact stock markets worldwide. In times of adverse
sentiment there may be very little, if any, market demand for
shares in smaller companies quoted on AIM.
Mitigation: the Company's quoted investments are actively
managed by specialist managers, including Mercia in the case of the
AIM-quoted investments, and the Board keeps the portfolio and the
actions taken under ongoing review.
Credit risk: the Company holds a number of financial instruments
and cash deposits and is dependent on the counterparties
discharging their commitment.
Mitigation: the Directors review the creditworthiness of the
counterparties to these instruments and cash deposits and seek to
ensure there is no undue concentration of credit risk with any one
party.
Legislative and regulatory risk: in order to maintain its
approval as a VCT, the Company is required to comply with current
VCT legislation in the UK. Changes to UK legislation in the future
could have an adverse effect on the Company's ability to achieve
satisfactory investment returns whilst retaining its VCT
approval.
Mitigation: the Board and the Manager monitor political
developments and where appropriate seek to make representations
either directly or through relevant trade bodies.
Internal control risk: the Company's assets could be at risk in
the absence of an appropriate internal control regime which is able
to operate effectively even during times of disruption.
Mitigation: the Board regularly reviews the system of internal
controls, both financial and non-financial, operated by the Company
and the Manager. 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 Manager 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 financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with UK
accounting standards, including FRS 102 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland'.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for the year.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
-- assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
-- use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors have confirmed that to the best of their
knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
-- the Strategic Report and Directors' Report includes a fair
review of the development and performance of the business and the
position of the issuer, together with a description of the
principal risks and uncertainties that they face.
The Directors consider the annual report and accounts, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
The directors of the company at the date of this announcement
were Mr D P A Gravells (Chair), Mr S P Devonshire, Miss C A
McAnulty, Mr F L G Neale and Miss R K Ramparia.
OTHER MATTERS
The above summary of results for the year ended 31 March 2023
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 return per share is based on the loss
after tax for the year of GBP3,464,000 (2022: profit of GBP923,000)
and on 187,331,778 (2022: 162,327,282) shares, being the weighted
average number of shares in issue during the year.
The calculation of net asset value per share as at 31 March 2023
is based on net assets of GBP109,576,000 (2022: GBP104,854,000)
divided by the 185,640,724 (2022: 162,907,914) ordinary shares in
issue at that date.
If approved by shareholders, the proposed final dividend of 1.3
pence per share for the year ended 31 March 2023 will be paid on 18
August 2023 to shareholders on the register at the close of
business on 21 July 2023.
The full annual report including financial statements for the
year ended 31 March 2023 is expected to be made available to
shareholders on or around 26 June 2023 and will be available to the
public at the registered office of the company at Forward House, 17
High Street, Henley-in-Arden B95 5AA and on the Company's
website.
The contents of the Mercia Asset Management PLC website and the
contents of any website accessible from hyperlinks on the Mercia
Asset Management PLC website (or any other website) are not
incorporated into, nor form part of, this announcement.
(END) Dow Jones Newswires
June 15, 2023 10:00 ET (14:00 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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