Northern 3
VCT PLC
Annual Report and Financial Statements
31 March 2024
Welcome
Northern 3 VCT PLC is a Venture
Capital Trust (VCT) managed by
Mercia Fund Management Limited.
It invests mainly in unquoted venture
capital holdings and aims to provide
long-term tax-free returns to shareholders
through a combination of dividend yield
and capital growth.
Financial summary
...........................................
03
Venture capital portfolio summary
.......................
04
Chairman’s statement
.......................................
08
Directors and advisers
.......................................
10
Shareholder information
....................................
12
Strategic report
................................................
14
Investment portfolio
.........................................
22
Fiſteen largest venture capital investments
.............
25
Responsible investment
.....................................
30
Directors’ report
...............................................
36
Directors’ remuneration report
............................
40
Corporate governance
.......................................
42
Directors’ responsibilities statement
.....................
48
Independent auditor’s report
..............................
49
Income statement
............................................
54
Balance sheet
..................................................
55
Statement of changes in equity
............................
56
Statement of cash flows
.....................................
57
Notes to the financial statements
.........................
58
Glossary of terms
.............................................
73
Contents
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
02
Year ended
31 March
2024
Year ended
31 March
2023
Net assets
£122.5m
£113.0m
Net asset value per share
89.3p
91.6p
Return per share
Revenue
1.1p
(0.1)p
Capital
1.1p
(1.5)p
Total
2.2p
(1.6)p
Dividend per share declared in respect of the period
Interim dividend
Proposed final dividend
Total
4.2p
4.5p
Return to shareholders since launch
Net asset value per share
89.3p
91.6p
Cumulative dividends paid per share
^*
117.9p
113.4p
Cumulative return per share
^
207.2p
205.0p
Mid-market share price at end of period
84.5p
84.5p
Share price discount to net asset value
5.4%
7.8%
Annualised tax-free dividend yield
^ **
4.6%
4.6%
*
Excluding proposed final dividend payable on 23 August 2024.
** Based on net asset value per share at the start of the period.
^
Definitions of the terms and alternative performance measures used in this report can be found in the Glossary of terms on page 73.
Financial summary
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
03
Venture capital
portfolio summary
£78.2m
Portfolio valuation at
31 March 2024
£1.2m
Average cost
of investment
£78.0m
Cost of investments
63
Portfolio
companies
5.1
years
Average age
of investment
4
6
Number of full
realisations this year
Number of new
investments this year
£13.1m
Proceeds from all
realisations in year
£15.1m
14
Invested in new
and follow-on
investments
Portfolio companies
that received follow-on
capital this year
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
04
For additional information visit
our investor area online
Key dates
during 2024
Results announced
18 June
Shares quoted ex-dividend
25 July
Record date for final dividend
26
July
Annual General Meeting*
1 August 2:30pm
Final dividend paid
23 August
* To be convened at Shoosmiths LLP, 9 Haymarket Square,
Edinburgh, EH3 8RY, with optional remote access for
shareholders through an online webinar facility
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
05
Asset allocation
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
31 March 2024
31 March 2023
Cash and short-term deposits
Listed equity
Venture capital - quoted
Venture capital - unquoted
25.7%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
24.1%
10.4%
4.9%
60.6%
*
+
%
+
+
3
7
E
R
8
E
^
6
E
-
<
/
0
E
60.1%
10.5%
3.7%
Venture capital portfolio summary
continued
Age of investment
Up to 1 year
10%
1-3 years
37%
3-5 years
11%
5-7 years
19%
7+ years
23%
Industry sector
Soſtware / electronics
44%
Healthcare / biotechnology
28%
Consumer
15%
Services
10%
Industrial / manufacturing
3%
Financing stage
Growth capital
– post November 2015
82%
Growth capital
– pre November 2015
8%
Management buyout
– pre November 2015
10%
Quotation
Unquoted
94%
AIM
6%
Note: these charts are calculated by value of investments.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
06
Total
venture
capital
holdings
63
Nottingham
London
Bristol
Henley-in-Arden
Birmingham
Newcastle
Sheffield
Leeds
Hull
Manchester
Preston
Investment Manager
office locations
12
North
West
1
Wales
4
West Midlands
1
South West
5
Scotland
3
North East
4
Yorkshire /
Humberside
1
East Midlands
2
Anglia
17
London
13
South
East
Investment
reach
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
07
“
£7.5 million provided to
six new venture capital
investments and £7.6 million
of follow-on capital invested
into existing investments.
Chairman’s statement
James Ferguson
Chairman
“
Results and dividend
The net asset value (NAV) per share at 31 March 2024 was
89.3 pence compared with 91.6 pence as at 31 March 2023.
The total return per share for the year as shown in the income
statement was 2.2 pence (2023: minus 1.6 pence).
The target annual dividend yield continues to be set at 4.5%
of opening NAV per share. Having already declared an interim
dividend of 2.0 pence per share which was paid in January 2024,
the Directors now propose a final dividend of 2.2 pence. These
payments totalling 4.2 pence (2023: 4.5 pence) are equivalent
to 4.6% of the opening NAV (2023: 4.6%). The proposed final
dividend will, subject to approval by shareholders at the Annual
General Meeting, be paid on 23 August 2024.
Our dividend investment scheme, under which dividends can
be reinvested 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. Instructions on how to
join the scheme are included within the dividend section of our
website, which can be found here:
mercia.co.uk/vcts/n3vct/
.
Investment portfolio
A number of notable transactions were either completed or in
progress as of 31 March 2024. The highlight during the year was
the sale of Evotix (formerly SHE Soſtware) which provided an
initial return of 4.6 times cost rising to 4.9 times following the
recent receipt of further deferred income since the year end,
included in this set of results.
Several portfolio companies enjoyed significant growth in the
year – Pure Pet Food, Project Glow Topco (t / a Currentbody.
com) and Pimberly each increased in value by over £1 million.
Sales in the venture portfolio realised £13.1 million on an initial
cost of £8.0 million, producing a gain of £5.1 million. Against this
provisions were raised in the investments in Volumatic Holdings
and Grip UK (t / a The Climbing Hangar). Additionally the value
of musicMagpie, which is listed on AIM, fell by £0.7 million.
£7.5 million was provided for six new venture capital investments
and £7.6 million of follow-on capital was invested in existing
investments.
There have been recent comments suggesting that in general
unlisted shares have been valued too highly. We would like to
reiterate the fact that your Board has always had a realistic but
conservative approach to valuation policy, which is reflected in
our net asset value.
Share offers and liquidity
In April 2023 gross proceeds of £6.0 million were received from
the fully subscribed 2022 / 23 share offer with 6,597,040 new
ordinary shares issued. We announced recently the successful
subscription of the 2023 / 24 share offer, which amounted to
£20 million of gross subscriptions. This was made up of an
interim allotment of 9,681,062 new ordinary shares in December
2023, generating £9.0 million in gross subscriptions, and
11,702,332 new ordinary shares issued just aſter the end of the
period in April 2024, yielding gross subscriptions of £11.0 million.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
08
The Board continues to monitor liquidity carefully and will
publish details of the plans for raising funds in the 2024 / 25 tax
year in due course.
We have maintained our policy of buying back our shares in the
market, where necessary to maintain market liquidity. During the
year 3,255,224 shares, equivalent to approximately 2.6% of the
opening share capital, were purchased for cancellation.
Responsible investment
The Company’s approach to Environmental, Social and
Governance (ESG) responsibilities is set out on pages 30 to 35.
Succession planning
Following a change of Manager in 2019, the impact of COVID,
and the geopolitical and macroeconomic issues that I have
discussed in my previous statements, the Nomination
Committee has prioritised Board stability during the last few
years. The Committee feels that it is now appropriate to progress
its succession plan and the Board anticipates that an additional
director will be appointed in the current financial period.
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 reports regularly
on the position to the Board. Philip Hare & Associates LLP has
continued to act as independent adviser to the Company on VCT
taxation matters.
The Board was pleased to note the recognition by the UK
Government of the role that VCTs perform, following the
announcement of the extension of the VCT tax reliefs for a further
10 years to 2035. The Board considers that the Company is
delivering in accordance with the Government’s mandate, which
is to channel money into higher-risk, early-stage businesses.
Whilst no further amendments to the VCT legislation have been
announced, 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.
Annual General Meeting
The Company’s Annual General Meeting (AGM) will take place
on 1 August 2024. We intend to hold the 2024 AGM in person
at Shoosmiths LLP, 9 Haymarket Square, Edinburgh, EH3 8RY.
Following positive comments received from the last meetings,
we also intend to offer remote access for shareholders through
an online webinar facility. Full details and formal notice of the
AGM will be provided separately. 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.
Outlook
Access to capital is one of the key factors contributing to the
success of early-stage businesses; we are confident that the
Company is well-positioned to provide this. Despite economic
uncertainties, we are encouraged by the present opportunities
for investment.
James Ferguson
Chairman
18 June 2024
“
The highlight during
the year was the sale
of Evotix (formerly
SHE Software) which
provided an initial
return of 4.6 times
cost.
“
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
09
Directors and advisers
James Ferguson BA
Chairman
was chairman and managing director of
Stewart Ivory Limited from 1989 until 2000.
He was formerly chairman of The Scottish
Oriental Smaller Companies Trust PLC and a
non-executive director of The Independent
Investment Trust PLC. He is the former deputy
chairman of the Association of Investment
Companies and former chairman of Value &
Income Trust PLC and North American Income
Trust PLC. He was appointed to the Board in
2001 and became Chairman in 2009.
Anna Brown LLB (Hons), Dip LP
is a partner with international law firm
Addleshaw Goddard LLP, specialising in
mergers & acquisitions, investments and
equity capital markets work. Prior to that
she was a partner at Pinsent Masons LLP and
McGrigors LLP (until its merger with Pinsent
Masons). She was appointed to the Board
in 2020.
Chris Fleetwood BA FCA
Chairman of Audit Committee
was managing partner of io solutions
(e-business strategy advisers). He was also
formerly chairman of Darlington Building
Society, group chief executive of Whessoe
PLC and, governor of Teesside University and
a non-executive director of NCFE Limited.
He was appointed to the Board in 2001.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
10
Tim Levett MBA
is non-executive chairman of NVM Private
Equity LLP, which he co-founded in 1988. He is
a non-executive director of several unquoted
companies and a member of the Association
of Investment Companies’ VCT Forum. He
ceased to be a consultant to Mercia Fund
Management Limited on 31 March 2022 and
non-executive director of Northern Venture
Trust PLC on 21 July 2023. He was appointed
to the Board in 2001.
John Waddell LLB FRSE
was until 2015 chief executive of Archangel
Investors Limited, a Scottish-based syndicate
of individual private investors, and sits on the
boards of numerous unquoted companies.
He also advises two early-stage funds and
was previously a director of Noble Grossart
Limited. He was appointed to the Board in
2007.
i
Registered number
04280530
Secretary and registered office
Mercia Company Secretarial Services Limited
Forward House
17 High Street
Henley-in-Arden B95 5AA
0330 223 1430
vctshareholderenquiries@mercia.co.uk
mercia.co.uk/vcts/n3vct/
Investment Manager
Mercia Fund Management
Limited
Forward House
17 High Street
Henley-in-Arden B95 5AA
Listed investment adviser
Brewin Dolphin Limited
Time Central
32 Gallowgate
Newcastle upon Tyne NE1 4SR
Independent auditor
Forvis Mazars LLP
The Pinnacle
160 Midsummer Boulevard
Milton Keynes MK9 1FF
Taxation advisers
Philip Hare & Associates LLP
6 Snow Hill
London EC1A 2AY
Solicitors
Reed Smith LLP
Broadgate Tower
20 Primrose Street
London EC2A 2RS
Stockbrokers
Panmure Gordon (UK) Limited
One New Change
London EC4M 9AF
Bankers
Barclays Bank PLC
1 Churchill Place
London
E14 5HP
Santander UK PLC
2 Triton Square
Regent’s Place
London NW1 3AN
BlackRock
Institutional Cash Series plc
200 Capital Dock
79 Sir John Rogerson’s Quay
Dublin 2 D02 RK57
Ireland
Registrar
The City Partnership (UK)
Limited
The Mending Rooms
Park Valley Mills
Meltham Road
Huddersfield
HD4 7BH
01484 240 910
registrars@city.uk.com
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
11
Shareholder information
The Company
been listed on the London Stock Exchange since September
2001. The Company invests mainly in unquoted venture capital
holdings, with its remaining assets invested in a portfolio of
quoted investments, money market funds and bank deposits.
Northern 3 VCT PLC is managed by Mercia Fund Management
Limited (Mercia), a wholly owned subsidiary of Mercia Asset
Management PLC (MAM). MAM is a specialist alternative asset
manager with over 15 years’ experience of providing capital to
high-growth UK SMEs, meeting a large, growing and under-served
need for long-term investment capital. MAM offers high-growth UK
SMEs a complete capital solution including private equity, debt,
seed and venture capital (the latter category accounting for the
majority of its investment activity). In being managed by Mercia,
the VCTs have the opportunity to co-invest alongside MAM’s own
funds, or other funds managed by MAM and its subsidiaries, that
are able to provide replacement capital and invest without the
restrictions of the VCT Rules.
Mercia also acts as adviser to Northern Venture Trust PLC and
manager of Northern 2 VCT PLC, in addition to various other
investment funds. The Company, Northern Venture Trust PLC
and Northern 2 VCT PLC are generally known in the market as the
Northern VCTs and are the only VCTs which Mercia manages
or advises.
Northern 3 VCT PLC is a member of the Association of Investment
Companies (AIC).
Venture Capital Trusts
Venture Capital Trusts (VCTs) were introduced by the Chancellor
of the Exchequer in the November 1994 Budget, the relevant
legislation now being contained in the Income Tax Act 2007. VCTs
are intended to provide a means whereby private individuals can
invest in small unquoted trading companies in the UK, with an
incentive in the form of a range of tax benefits. With effect from
6 April 2006, the benefits to eligible investors include:
•
income tax relief at up to 30% on new subscriptions of up to
£200,000 per tax year, provided the shares are held for at least
five years;
•
exemption from income tax on dividends paid by VCTs (such
dividends may include the VCT’s capital gains as well as its
income); and
•
exemption from capital gains tax on disposals of shares
in VCTs.
In order to maintain approved status, a VCT must comply on a
continuing basis with the provisions of Section 274 of the Income
Tax Act 2007; in particular, a VCT is required at all times to hold
at least 80% by value of its investments in qualifying holdings, of
which at least 70% must comprise eligible shares. For this purpose
a ‘qualifying holding’ is an investment in new shares or securities
of an unquoted company (which may however be quoted on
AIM) which has a permanent establishment in the UK, is carrying
on a qualifying trade, and whose gross assets and number of
employees at the time of investment do not exceed
prescribed limits.
The definition of ‘qualifying trade’ excludes certain activities such
as property investment and development, financial services and
asset leasing. The Finance (No 2) Act 2015 contained a number of
significant changes to the VCT rules for investments completed
aſter its introduction, designed to secure approval of the VCT
scheme by the European Commission. A company whose trade
is more than seven years old (ten years for ‘knowledge intensive’
companies) will generally only qualify for VCT investment if it has
previously received State-aided risk finance before the end of
the initial investing period or the new investment exceeds 10%
of the total turnover for the past five years and the funds are
used for new products and / or geographical markets; there is a
lifetime limit of £12 million (£20 million for ‘knowledge intensive’
companies) on the amount of State-aid funding receivable by
a company; and VCT funds may not be used by a company to
acquire shares in another company or to acquire a business. A
breach of the requirements may lead to a loss of VCT status.
The Finance Act 2018 contained further changes to the conditions
for a VCT to maintain its approved status. The changes were
designed to increase the level of qualifying investments made by
VCTs. A non-exhaustive list of the main points is as follows:
•
investments made from 15 March 2018 are only qualifying if
they meet the risk-to-capital condition. This principles-based
condition broadly requires the investee company to be an
early-stage, higher-risk, entrepreneurial company which has
the potential to grow in the long term;
•
debt finance provided by VCTs must be made on an
unsecured basis;
•
a VCT must invest at least 30% of any funds raised in an
accounting period commencing on or aſter 6 April 2018 in
qualifying holdings within 12 months of the period end; and
•
investments made from 6 April 2019 in qualifying holdings
must comprise, in aggregate, at least 70% of eligible shares,
regardless of when the money used to fund the investment
was raised.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
12
The Autumn Finance Bill 2023 contained an extension to the
‘sunset clause’, with shares issued by Venture Capital Trusts before
6 April 2035 now eligible for tax relief (was previously 2025).
Share price
The Company’s share price is carried daily in the Financial Times
and the Daily Telegraph.
A range of shareholder information is provided on the internet
at https://northern-vcts.cityhub.uk.com/login by the Company’s
registrar, The City Partnership (UK) Limited, including details of
shareholdings, indicative share prices and information on recent
dividends (see page 11 for contact details for The City Partnership
(UK) Limited).
Share price information can also be obtained via the Company’s
website.
Dividend investment scheme
The Company operates a dividend investment scheme, giving
shareholders the option of investing their dividends in new
ordinary shares in the Company with the benefit of the tax reliefs
currently available to VCT subscribers. Instructions on how to
join the scheme are included within the dividend section of our
website, which can be found here: mercia.co.uk/vcts/n3vct/.
Electronic communications
The Company continues to provide the option to shareholders
to receive communications from the Company electronically
rather than by paper copy. Shareholders who wish to change their
preferences should visit the Hub (https://northern-vcts.cityhub.
uk.com/login (operated by the Company’s registrar The City
Partnership (UK) Limited), and select their preferred method of
delivery of company communications. Alternatively, shareholders
may contact the registrar directly to confirm their communication
preference using the details on page 11.
Financial
calendar
Subject to regular review by the Directors, the
Company’s financial calendar for the year ending
31 March 2025 is as follows:
November 2024
Half-yearly financial report for the six months
ending 30 September 2024 published
January 2025
Interim dividend paid
June 2025
Final dividend and results for year ending
31 March 2025 announced
June 2025
Annual report and financial statements published
August 2025
Annual General Meeting
August 2025
Final dividend paid
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
13
Strategic report
This report has been prepared by the Directors in accordance
with the requirements of Section 414 of the Companies Act 2006.
The Company’s independent auditor is required by law to report
on whether the information given in the Strategic Report and
Directors’ Report is consistent with the financial statements. The
auditor’s report is set out on pages 49 to 53.
Corporate objective
The Company’s objective is to provide long-term tax-free returns
to investors through a combination of dividend yield and capital
growth, by investing primarily in unquoted UK businesses which
meet the Manager’s key criteria of good growth potential, strong
management and potential to generate cash in the medium to
long term.
Investment policy
The Company’s investment policy has been designed to enable
the Company to achieve its objective whilst complying with the
qualifying conditions set out in the VCT rules, as amended by
HM Government from time to time.
The Directors intend that the long-term disposition of the
Company’s assets will be approximately 80% in a portfolio of
VCT-qualifying unquoted and AIM-quoted investments and
20% in other investments selected with a view to producing
an enhanced return while avoiding undue capital volatility, to
provide a reserve of liquidity which will maximise the Company’s
flexibility as to the timing of investment acquisitions and
disposals, dividend payments and share buy-backs.
Within the VCT-qualifying portfolio, investments will be
structured using various investment instruments, including
ordinary and preference shares, loan stocks and convertible
securities, to achieve an appropriate balance of income and
capital growth. The selection of new investments will necessarily
have regard to the VCT rules, which are designed to focus
investment on earlier stage development capital opportunities.
The portfolio will be diversified by investing in a broad range
of VCT-qualifying industry sectors and by holding investments
in companies at different stages of maturity in the corporate
development cycle. The normal investment holding period is
expected to be in the range from three to ten years.
No single investment will normally represent an excess of 3% of
the Company’s total assets at the time of initial investment. As
investments are held with a view to long-term capital growth as
well as income, it is possible that individual holdings may grow
in value to the point where they represent a significantly higher
proportion of total assets prior to a realisation opportunity
being available.
Investments will normally be made using the Company’s equity
shareholders’ funds and it is not intended that the Company will
take on any long-term borrowings.
Investment management
Mercia Fund Management Limited (‘Mercia’) acts as Investment
Manager and has done so since the Company consented
to the novation of its existing investment management
agreement from NVM Private Equity LLP (‘NVM’) effective on
23 December 2019.
The Board’s Management Engagement Committee reviews
the terms of Mercia’s appointment as Investment Manager on
a regular basis. Further information about the terms of the
management agreement with Mercia and the remuneration
payable to Mercia is set out in the Directors’ Report on pages 36
to 39 and in Note 3 to the financial statements.
Co-investment arrangements
The Company operates within a co-investment and allocation
policy that applies to all funds managed by the Mercia group.
Under the terms of this policy, where an investment opportunity
is VCT qualifying and the funding requirement is in excess
of £3 million, the Company and the other VCTs managed by
Mercia are the preferred lead investors. For these opportunities
the Company is entitled to participate pro rata to net assets
alongside the other VCT funds managed by Mercia; save where
the investment opportunity is located in the West or East
Midlands, Yorkshire, Humberside, Teesside or the North East,
where minimum syndication requirements mean that certain
other funds managed by Mercia can participate in the funding
round alongside the Northern VCTs; with an allocation in
proportion to each funds’ relative net asset values. Where the
funding round for a new opportunity is under £3 million the VCTs
will not be the lead investors; but if any such deal is in excess of
£2.5 million, the Northern VCT funds have the right to participate
at a de minimis level of £0.5 million.
In relation to follow-on rounds of investment where the
Company and other Northern VCTs are existing investors, the
Company, alongside the other Northern VCT funds, shall have
priority to determine how much they wish to invest, with no
requirement to offer such investment opportunities to the other
funds managed or advised by the Mercia group (although they
are free to do so if so determined by the Manager).
Under a co-investment scheme, members of the VCT investment
team and certain key Mercia executives are required to
invest personally alongside the funds in each VCT-qualifying
investment on a predetermined basis.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
14
Overview of the year
During the year under review the Company achieved a total
return, before dividends, of 2.2 pence per share, equivalent to
2.4% of the opening net asset value per share of 91.6 pence. The
movement in total net assets and net asset value per share is
summarised in Table 1. The return was driven by an increase in
net revenue, and a realised and unrealised gain in the fair value
of investments.
Total income from investments during the year increased to
£2.6 million (2023: £0.7 million), reflecting the increased interest
rates and resulting higher returns on the Company’s cash
reserves. The basic investment management fee payable to
the Manager was £2.1 million (2023: £2.1 million). There was no
performance-related management fee payable in respect of the
current or prior years.
The net cash outflow from the venture capital portfolio was
£2.7 million, comprising investments of £15.1 million less total
disposal proceeds of £12.4 million. The venture portfolio’s cash
flow over the past five years is summarised in Table 2.
Aſter taking account of other cash flows, including fundraising
of £15.8 million gross and dividend payments of £6.0 million,
the Company’s total cash balances increased over the year by
£3.4 million to £30.7 million. In addition, the Company holds
quoted equity investments and interest-bearing investments
valued at £12.8 million, compared with £11.8 million at
31 March 2023.
Dividends
The Directors have declared or proposed dividends totalling
4.2 pence per share in respect of the year.
Table 2: Venture capital portfolio cash flow
Year ended 31 March
New
investment
£000
Disposal
proceeds
£000
Net cash
inflow /
(outflow)
£000
2020
10,877
10,268
(609)
2021
8,813
1,635
(7,178)
2022
11,707
31,118
19,411
2023
16,208
15,447
(761)
2024
15,098
12,428
(2,670)
Total
62,703
70,896
8,193
Table 1: Movements in net assets and net asset value per share
£000
Pence per
ordinary share
Net asset value at 31 March 2023
112,993
91.6
Net revenue (investment income less revenue expenses and tax)
1,538
1.1
Capital surplus arising on investments:
Realised net gains on disposals
855
0.7
Movements in fair value of investments
2,312
1.7
Expenses allocated to capital account (net of tax)
(1,667)
(1.3)
Total return for the year as shown in income statement
3,038
2.2
Proceeds of issue of new shares (net of expenses)
15,249
–
Shares repurchased for cancellation
(2,800)
–
Net movement for the year before dividends
15,487
2.2
Net asset value at 31 March 2024 before dividends recognised
128,480
93.8
Dividends paid in the financial year
(5,984)
(4.5)
Net asset value at 31 March 2024
122,496
89.3
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
15
Strategic report
continued
A summary of the venture capital holdings at 31 March 2024 is
given on pages 22 to 24, with information on the fiſteen largest
investments on pages 25 to 29.
Investment realisations
Details of investment disposals during the year are given in Note
9 on page 65. The most significant disposals (original cost or
sales proceeds in excess of £1.0 million) are summarised in
Table 3.
Evotix
is a health and safety platform provider. In May 2023
the Company realised its investment for an initial £11.4 million,
representing an initial return of 4.6x during the life of the
investment. Contractual deferred proceeds of £0.7 million were
received aſter the balance sheet date in June 2024, and have been
included in these set of results, increasing the return to 4.9x.
Haystack Dryers
is a provider of full body dryers to theme parks
and care homes. The Company originally invested in 2012 and
exited in December 2023 for £0.2 million, representing a return
of 0.2x.
Medovate
is a developer of medical devices. In November 2023
the Company realised its investment for proceeds of £0.1 million,
representing a return of 0.1x.
Sorted Holdings
provides soſtware for parcel labelling and
tracking. In February 2024 the Company sold its equity (which
had been fully provided for in the previous financial year) for
a nominal sum when Sorted Holdings was acquired, which
represented a complete write off of the Company’s equity
holding. The Company maintains its debt holding.
Table 3: Significant investment realisations
Company
Date of
original
investment
Original
cost
£000
Sales
proceeds
£000
Realised
surplus /
(deficit)
£000
Evotix (formerly
SHE Soſtware)*
2018
2,487
12,079
9,592
Haystack Dryers
2012
1,284
214
(1,070)
Medovate
2017
1,591
81
(1,510)
Sorted Holdings
(partial disposal)
2016
2,388
–
(2,388)
Valuation policy
Unquoted investments are valued in accordance with the
accounting policy set out on page 59, which follows the
International Private Equity and Venture Capital Valuation (IPEV)
guidelines, being the industry accepted best practice.
Where valuations are based on company earnings, audited
historic results will be taken into account along with more
recent unaudited information and projections where these
are considered sufficiently reliable. For investments in earlier
stage businesses, where a material arm’s length transaction has
recently been concluded, this is usually taken as the starting
point for fair value, and subsequently tested and recalibrated
to reflect changes in market conditions or company-specific
performance. Performance is typically considered using a range
of metrics such as annual recurring revenue, EBITDA, milestones
achieved, customer wins, cash runway and budget accuracy.
Provision against cost is made where an investment is under-
performing significantly.
As at 31 March 2024 the number of venture capital investments
falling into each valuation category was as shown in Table 4.
Maintenance of VCT-qualifying status
The Directors believe that the Company has at all times since
inception complied with the VCT-qualifying conditions laid down
by HM Revenue & Customs.
Venture capital investment portfolio
A review of the portfolio can be found in the Chairman’s
statement on pages 8 to 9. The last twelve months have been
impacted by continued inflationary pressures, rising interest
rates, a stagnant economy and global geopolitical instability and
conflict. During the year our Investment Manager has worked
with portfolio management teams to navigate the fast-evolving
landscape.
The new investments completed during the year were:
Camena Bioscience (£1,744,000)
Provider of synthetic DNA
Risk Ledger (£1,556,000)
Cyber security focused on supply chain risk
Wobble Genomics (£1,053,000)
Development of processes to identify, extract and sequence RNA
iOpt (£1,038,000)
Platform to remotely monitor property assets
MIP Discovery (£1,115,000)
Development of molecular imprinted polymers as alternative
to antibodies
Warwick Acoustics (£1,019,000)
Development of flat and flexible electrostatic speakers
Venture capital investment activity
During the year ended 31 March 2024, six new venture capital
investments were completed at a cost of £7.5 million, and
additional funding totalling £7.6 million was invested in
14 existing portfolio companies, by way of follow-on funding
rounds. The proportion of annual investment in follow-on
investments is increasing in line with the evolution of the
portfolio to earlier stage companies, which oſten require
multiple rounds of growth finance to realise their potential.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
16
Table 4: Venture capital investment valuation by category
Number of
investments
Valuation
£000
% of portfolio
by value
Unquoted investments at the Directors’ valuation
Revenue / earnings multiple
30
43,885
56%
Price of a recent investment subsequently calibrated as appropriate
24
29,760
38%
Quoted investments at bid price
Quoted on AIM
9
4,521
6%
Total
63
78,166
100%
*
Sales proceeds includes deferred proceeds received in June 2024.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
17
Responsible investment
The Company’s approach to Environmental, Social and
Governance (ESG) responsibilities is set out on pages 30 to 35.
Key performance indicators
The Directors regard the following as the key indicators
pertaining to the Company’s performance:
Net asset value and total return to shareholders:
the chart
opposite shows the movement in net asset value and total
return (net asset value plus cumulative dividends) per share over
the past five financial years.
Dividend distributions:
the chart opposite shows the dividends
(including proposed final dividend) declared in respect of each
of the past five financial years.
Ongoing charges:
the charts opposite show total annual running
expenses as a percentage of the average net assets attributable
to shareholders for each of the past five financial years.
Dividends per share (pence)
*
*
includes dividends proposed but not yet paid
** special dividend
Net asset value and cumulative
dividends paid since launch (pence)
*
*
excludes dividends proposed but not yet paid
Ongoing charges excluding performance
fees (% of average net assets)
Ongoing charges including performance
fees (% of average net assets)
Strategic report
continued
Net asset value per share
Cumulative dividends paid since launch
173.5
206.4
206.3
205.0
207.2
2020
2021
2023
2022
2024
78.1
107.0
97.9
91.6
95.4
99.4
108.4
113.4
89.3
117.9
2.39%
2.39%
2.27%
2.16%
2.27%
2020
2021
2022
2023
2024
2.39%
4.12%
2.27%
2.16%
2.27%
2020
2021
2022
2023
2024
2020
2021
2022
2023
2024
4.5**
4.0
5.0
4.2
4.5
4.5
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
18
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 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 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 the 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.
The Board continually assesses and monitors emerging risks that
could impact the Company’s operations and strategic objectives.
As part of the risk assessment process, the Board evaluates a wide
range of potential threats and uncertainties that may arise from
evolving market dynamics, regulatory changes, technological
advancements, geopolitical developments, and other external
factors. By remaining aware of emerging risks, the Board ensures
that the Company is better equipped to anticipate challenges and
adapt swiſtly to changing circumstances.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
19
Strategic report
continued
Additional disclosures required by the Companies Act
Section 172 Statement
Section 172 of the Companies Act 2006 requires a Director to
promote the success of the Company. In doing this they must
act in the way that they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of
its members as a whole. In doing this the Directors are required
to have a regard, amongst other matters, to the:
•
likely consequences of any decisions in the long term
•
interests of the Company’s employees
•
need to foster the Company’s business relationships with
suppliers, customers and others
•
impact of the Company’s operations on the community and
environment
•
desirability of the Company maintaining a reputation for high
standards of business conduct
•
need to act fairly as between members of the Company
In discharging their duties each Director has regard to the
factors set out above and to other factors which they consider
relevant to the decision being made. Those factors may include,
for example, the interests and views of our shareholders,
suppliers and regulators. The Board’s aim is to make sure that
decisions are consistent and predictable. Details on how the
Board operates and the way directors reach decisions, including
some of the matters discussed and debated during the year,
the key stakeholder considerations that were central to those
discussions and the way in which the Directors had regard
to the need to foster the Company’s long-term relationship
with shareholders and other stakeholders, are included in the
Corporate Governance section of this report on pages 42 to 47.
The tables opposite detail the key stakeholders and associated
engagements with the Board and the key decisions reached in
the year.
Key stakeholders
Stakeholder
Detail regarding stakeholder engagement
Shareholders
The Directors recognise the value of maintaining regular communications with shareholders. Formal reports
are published at the half-year and year-end stages and the Manager publishes periodic newsletters.
An opportunity is given to shareholders at each annual general meeting to question the Board and the
Manager on matters relating to the Company’s operation and performance. Shareholders are able to observe
the annual general meeting virtually if they are not able to attend in person.
The Manager holds an annual seminar to which shareholders are invited and the Directors attend. The Board
welcomes the opportunity to engage with shareholders at these events.
Regulatory News Service (RNS) announcements are published in accordance with the Listing Rules and the
Disclosure Guidance and Transparency Rules.
Investment Manager
The Company’s most critical business relationship is with the Manager, Mercia. There is regular contact with
Mercia and members of Mercia’s senior leadership team attend the Company’s Board meetings. The content
discussed at each meeting is over a wide range of topics from Company strategy to issues faced by portfolio
companies.
The Management Engagement Committee and Board review the performance of the Manager on an ongoing
basis.
Portfolio companies
The Company holds minority investments in its portfolio companies and it has appointed Mercia to manage
the portfolio. Whilst day-to-day interaction with portfolio companies is delegated via the investment
management agreement to Mercia, updates are received by the Board at least quarterly. The Directors take an
active interest in the challenges faced by portfolio companies. More details can be found on page 35.
Suppliers
The Company has relationships with a number of key suppliers including its auditor, taxation advisers,
solicitors, stockbrokers, banks and registrar. The Manager, with the oversight of the Board, monitors the
performance of each of the Company’s suppliers on a periodic basis and each have demonstrated
continued effectiveness. During the year, the Company engaged The City Partnership (UK) Limited to act
as the Company Registrar.
Community and
environment
Alongside the Manager, the Company considers its impact on the community and environment. Full details
regarding the Company’s approach can be found within the Responsible Investment section of this report on
pages 30 to 35.
Employees
The Company does not have any employees. The Board is comprised of non-executive Directors.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
20
Key decisions
The Directors’ decisions are intended to achieve the Company’s corporate objective. Maintaining the Company’s status as a VCT is a
critical element of this.
Decision
Detail regarding decision made
Payment of dividends
The Company targets a dividend of at least 4.5% of the opening NAV per share in each year, subject to
protecting the NAV from erosion over the medium term. Although the Company reported a total return of
2.2 pence per share in the year, which was below the dividends announced of 4.2 pence per share, the Board
has sought to consider commitments previously made to shareholders, and assessed its short and medium-
term liquidity requirements. In cash terms, the dividends announced in respect of the year to 31 March 2024
were fully covered by the realisation of Evotix in May 2023.
New performance-
related management
fee
A detailed review of the existing performance-related management fee arrangements was performed by the
Board and the changes were approved by shareholders in July 2023. The new arrangements are designed to
favour long-term sustainable growth over short-term volatility and seek to more closely align the interests of
the Manager and shareholders.
Decision to fundraise
The decision was made to fundraise a total of £20 million for the Company including over-allotment
facilities. The Company continues to actively invest in VCT-qualifying holdings, not only in new investment
opportunities but also by providing additional rounds of funding for existing investee companies. This
approach requires the Company to maintain a strong reserve of liquid assets, so that sufficient cash resources
are available to meet expected future requirements over an extended period.
Future prospects
The challenges posed by the slower domestic and global
economy, higher interest rates, and supply-side pressures
persist for UK businesses. Nevertheless, the Directors find
encouragement in the overall resilience demonstrated by our
portfolio.
Our commitment to supporting the growth and success of
entrepreneurial ventures in the UK remains unwavering. We are
confident that our Company is well-positioned to support such
endeavours.
By order of the Board
Mercia Company Secretarial Services Limited
Company Secretary
18 June 2024
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
21
Investment portfolio
Fiſteen largest venture capital investments (see pages 25 to 29)
Cost
£000
Valuation
£000
Like for like valuation
increase / (decrease)
over year**
£000
% of net assets
by value
1
Pimberly
1,910
3,227
1,317
2.6%
2
Project Glow Topco (t / a Currentbody.com)
1,519
3,206
1,686
2.6%
3
Tutora (t / a Tutorful)
2,973
2,973
(103)
2.4%
4
Newcells Biotech
2,707
2,928
185
2.4%
5
Pure Pet Food
1,601
2,897
1,232
2.4%
6
Rockar
1,660
2,800
328
2.3%
7
IDOX*
530
2,684
(44)
2.2%
8
Netacea
2,577
2,577
–
2.1%
9
Gentronix
805
2,532
727
2.1%
10
Adludio
2,438
2,447
9
2.0%
11
Grip-UK (t / a The Climbing Hangar)
3,492
2,343
(1,149)
1.9%
12
Broker Insights
2,032
2,041
9
1.7%
13
Buoyant Upholstery
907
1,985
521
1.6%
14
Ridge Pharma
1,345
1,947
600
1.6%
15
Volumatic Holdings
216
1,921
(1,354)
1.6%
Other venture capital investments
16
LMC Soſtware
1,909
1,909
–
1.6%
17
Forensic Analytics
1,869
1,869
–
1.5%
18
Clarilis
1,772
1,772
–
1.4%
19
Biological Preparations Group
1,915
1,746
(74)
1.4%
20
Turbine Simulated Cell Technologies
1,542
1,744
202
1.4%
21
Camena Bioscience
1,744
1,744
–
1.4%
22
Social Value Portal
1,722
1,722
–
1.4%
23
Locate Bio
1,625
1,625
–
1.3%
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
22
Other venture capital investments
Cost
£000
Valuation
£000
Like for like valuation
increase / (decrease)
over year**
£000
% of net assets
by value
24
Risk Ledger
1,556
1,556
–
1.3%
25
VoxPopMe
1,493
1,493
12
1.2%
26
Enate
1,373
1,373
–
1.1%
27
Administrate
2,143
1,349
(366)
1.1%
28
Optellum
1,250
1,250
–
1.0%
29
Moonshot
1,217
1,217
–
1.0%
30
Centuro Global
1,136
1,136
–
0.9%
31
MIP Discovery
1,115
1,115
–
0.9%
32
Wobble Genomics
1,053
1,053
–
0.9%
33
Send Technology Solutions
1,049
1,049
–
0.9%
34
iOpt
1,038
1,038
–
0.8%
35
Wonderush Ltd (t / a Hownow)
1,029
1,029
–
0.8%
36
Axis Spine Technologies
1,028
1,028
–
0.8%
37
Warwick Acoustics
1,019
1,019
–
0.8%
38
Seahawk Bidco
433
838
444
0.7%
39
Naitive Technologies
721
721
–
0.6%
40
Oddbox
986
718
41
0.6%
41
Northrow
1,385
638
(100)
0.5%
42
Eckoh*
528
629
34
0.5%
43
Duke & Dexter
1,113
580
(541)
0.5%
44
Intuitive Holding
1,293
573
43
0.5%
45
Rego Technologies (t / a Upp)(formerly Volo)
2,182
522
91
0.4%
46
Synthesized
500
500
–
0.4%
47
Netcall*
273
450
(40)
0.4%
48
Fresh Approach (UK) Holdings
805
417
(331)
0.4%
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
23
Other venture capital investments
Cost
£000
Valuation
£000
Like for like valuation
increase / (decrease)
over year**
£000
% of net assets
by value
49
Thanksbox (t / a Mo)
1,520
374
(207)
0.3%
50
Atlas Cloud
638
351
(287)
0.3%
51
Sen Corporation
666
293
(376)
0.3%
52
musicMagpie*
201
255
(683)
0.2%
53
Arnlea Holdings
1,138
207
10
0.2%
54
ECO Animal Health*
497
191
(28)
0.2%
55
Sorted
154
154
(25)
0.1%
56
Synectics*
171
146
49
0.1%
57
Pebble Beach Systems*
564
100
30
0.1%
58
Customs Connect Group
1,348
100
(8)
0.1%
59
Angle*
131
45
(28)
0.0%
60
Velocity Composites*
57
20
(1)
0.0%
61
Quotevine
1,184
–
–
0.0%
62
Nutshell
665
–
(349)
0.0%
63
Ablatus Therapeutics
551
–
–
0.0%
Total venture capital investments
78,013
78,166
63.8%
Listed equity investments
10,314
12,835
10.5%
Total fixed asset investments
88,327
91,001
74.3%
Net current assets
31,495
25.7%
Net assets
122,496
100.0%
*
Quoted on AIM.
**
This change in ‘like for like’ valuations is a comparison of the 31 March 2024 valuations with the 31 March 2023 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.
Investment portfolio
continued
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
24
15 largest
Cost
£1.5m
|
(2023: £1.5m)
Valuation
£3.2m
(2023: £1.5m)
Basis of valuation
Earnings multiple
Equity held
6.3% (Mercia funds total 20.7%)
Business / location
Online retailer for home-use beauty
devices, Stockport
History
Development capital financing, November
2021, led by Mercia Fund Management
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest nil
Key published information:
Period ended 31 January
2023
£m
2022
£m
Sales
64.6
38.9
EBITDA
5.7
2.2
Profit / (loss) before tax
(9.4)
0.9
Profit / (loss) aſter tax
(9.3)
0.5
Net assets
(8.7)
1.7
venture capital investments
Cost
£1.9m
|
(2023: £0.9m)
Valuation
£3.2m
(2023: £0.9m)
Basis of valuation
Price of a recent investment
Equity held
6.2% (Mercia funds total 51.0%)
Business / location
Cloud-based Product Information
System, Manchester
History
Development capital financing, October
2021, led by Mercia Fund Management
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT,
Mercia Investment Plan LP, NPIF YHTV
Equity LP
Income in year
Dividends nil, loan stock interest nil
1
Key published information:
Year ended 30 June
2023
£m
2022
£m
Sales
4.2
3.0
EBITDA
(3.3)
(2.2)
Profit / (loss) before tax
(3.3)
(2.3)
Profit / (loss) aſter tax
(2.7)
(1.7)
Net assets
2.0
4.6
Cost
£3.0m
|
(2023: £2.4m)
Valuation
£3.0m
(2023: £2.5m)
Basis of valuation
Revenue multiple
Equity held
13.6% (Mercia funds total 42.7%)
Business / location
Online platform for private tutors,
Sheffield
History
Development capital financing, October
2019, led by Mercia Fund Management
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest
£141,000
Key published information:
Year ended 31 December
2022
£m
2021
£m
Sales
3.1
3.1
EBITDA
(3.6)
(3.6)
Profit / (loss) before tax
(3.6)
(2.7)
Profit / (loss) aſter tax
(3.6)
(2.6)
Net liabilities
(2.1)
(0.5)
2
3
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
25
Cost
£2.7m
|
(2023: £2.2m)
Valuation
£2.9m
(2023: £2.3m)
Basis of valuation
Price of a recent investment
Equity held
14.1% (Mercia funds total 44.4%)
Business / location
Supplies assay products to the drug
and chemical development markets,
Newcastle
History
Development capital financing, June
2018, led by NVM Private Equity
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest £89,000
Key published information:
Year ended 31 January
2023
£m
2022
£m
Sales
2.2
1.3
EBITDA
(1.6)
(2.0)
Profit / (loss) before tax
(2.9)
(2.4)
Profit / (loss) aſter tax
(2.5)
(2.1)
Net assets
0.7
2.8
Cost
£1.6m
|
(2023: £1.6m)
Valuation
£2.9m
(2023: £1.7m)
Basis of valuation
Revenue multiple
Equity held
21.0% (Mercia funds total 74.4%)
Business / location
Production of organic pet food, Halifax
History
Development capital financing, March
2019, led by NVM Private Equity
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT,
NPIF YHTV Equity LP
Income in year
Dividends nil, loan stock interest nil
Key published information:
Year ended 31 March
2023
£m
2022
£m
Sales
4.6
3.4
EBITDA
(2.6)
(1.7)
Profit / (loss) before tax
(2.7)
(1.7)
Profit / (loss) aſter tax
(2.5)
(1.5)
Net assets
(1.4)
1.1
4
5
Cost
£1.7m
|
(2023: £1.7m)
Valuation
£2.8m
(2023: £2.5m)
Basis of valuation
Revenue multiple
Equity held
7.2% (Mercia funds total 23.0%)
Business / location
E-Commerce & fulfillment platform for
the new car sales industry, Hull
History
Management buy-out financing, July
2016, led by NVM Private Equity
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest £44,000
Key published information:
Year ended 31 December
2023
£m
2022
£m
Sales
8.1
7.5
EBITDA
2.1
1.7
Profit / (loss) before tax
–
0.8
Profit / (loss) aſter tax
0.4
1.2
Net assets
4.6
4.2
6
15 largest venture capital investments
continued
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
26
Cost
£0.8m
|
(2023: £0.8m)
Valuation
£2.5m
(2023: £1.8m)
Basis of valuation
Revenue multiple
Equity held
21.2% (Mercia funds total 86.6%)
Business / location
Technology for carcinogenic drug
identification, Manchester
History
Development capital financing, February
2007, led by NVM Private Equity
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest £12,000
Key published information:
Year ended 31 August
2023
£m
2022
£m
Sales
7.5
3.7
EBITDA
1.0
(0.6)
Profit / (loss) before tax
0.5
(0.7)
Profit / (loss) aſter tax
0.9
(0.6)
Net assets
1.7
0.8
Cost
£0.5m
|
(2023: £0.5m)
Valuation
£2.7m
(2023: £2.7m)
Basis of valuation
Bid price (AIM)
Equity held
1.0% (Mercia funds total 1.7%)
Business / location
Document content soſtware, London
History
Holding acquired through a share placing
on AIM in 2000
Other Mercia funds
investing
Northern Venture Trust
Income in year
Dividends £48,000, loan stock
interest nil
Key published information:
Year ended 31 October
2023
£m
2022
£m
Sales
73.3
66.2
EBITDA
24.5
22.5
Profit / (loss) before tax
7.8
6.6
Profit / (loss) aſter tax
5.5
5.5
Net assets
73.3
67.4
8
9
Cost
£2.6m
|
(2023: £1.7m)
Valuation
£2.6m
(2023: £1.7m)
Basis of valuation
Price of a recent investment
Equity held
5.8% (Mercia funds total 17.3%)
Business / location
Protects websites, mobile apps and APIs
using an intelligent detection engine,
Manchester
History
Development capital financing into
Intechnica, December 2021, subsequent
de-merger into Netacea, May 2022
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest £35,000
Key published information:
Year ended 31 March
2023
£m
2022
£m
Sales
4.5
3.5
EBITDA
(9.8)
(6.6)
Profit / (loss) before tax
(10.2)
(6.9)
Profit / (loss) aſter tax
(8.9)
(6.0)
Net assets
(23.6)
(14.7)
7
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
27
15 largest venture capital investments
continued
Cost
£2.0m
|
(2023: £1.4m)
Valuation
£2.0m
(2023: £1.4m)
Basis of valuation
Revenue multiple
Equity held
4.3% (Mercia funds total 12.9%)
Business / location
Commercial insurance platform, Dundee
History
Development capital financing, December
2021, led by Mercia Fund Management
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest nil
Key published information:
Year ended 31 January
2023
£m
2022
£m
Sales
2.6
2.6
EBITDA
(2.0)
(0.5)
Profit / (loss) before tax
(2.0)
(0.5)
Profit / (loss) aſter tax
(2.0)
(0.5)
Net assets
2.8
4.8
Cost
£2.4m
|
(2023: £2.0m)
Valuation
£2.4m
(2023: £2.0m)
Basis of valuation
Price of a recent investment
Equity held
12.0% (Mercia funds total 36.8%)
Business / location
Marketing services provider helping
brands run online campaigns, London
History
Development capital financing, August
2021, led by Mercia Fund Management
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest nil
Key published information:
Year ended 31 December
2022
£m
2021
£m
Sales
1.9
2.0
EBITDA
(1.7)
(2.0)
Profit / (loss) before tax
(1.7)
(2.2)
Profit / (loss) aſter tax
(1.7)
(2.0)
Net assets
1.8
3.1
Cost
£3.5m
|
(2023: £3.2m)
Valuation
£2.3m
(2023: £3.2m)
Basis of valuation
Earnings multiple
Equity held
18.1% (Mercia funds total 59.3%)
Business / location
Operator of indoor climbing and leisure
facilities, Liverpool
History
Development capital financing, July
2018, led by NVM Private Equity
Other Mercia funds
investing
Northern Venture Trust, Northern
2 VCT
Income in year
Dividends nil, loan stock interest nil
Key published information:
Year ended 30 September
2023
£m
2022
£m
Sales
7.9
5.7
EBITDA
(0.4)
(0.8)
Profit / (loss) before tax
(1.7)
(1.7)
Profit / (loss) aſter tax
(1.6)
(1.7)
Net assets
3.5
5.1
1
0
1
1
1
2
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
28
Cost
£0.9m
|
(2023: £0.9m)
Valuation
£2.0m
(2023: £1.5m)
Basis of valuation
Earnings multiple
Equity held
9.9% (Mercia funds total 35.9%)
Business / location
Design and manufacture of upholstered
furniture, Nelson
History
Development capital financing, July 2013,
led by NVM Private Equity
Other Mercia funds
investing
Northern 2 VCT, Northern 2 VCT
Income in year
Dividends £153,000, loan stock interest
£80,000
Key published information:
Year ended 30 September
2023
£m
2022
£m
Sales
51.5
51.4
EBITDA
3.1
1.1
Profit / (loss) before tax
1.4
(0.6)
Profit / (loss) aſter tax
0.9
(0.7)
Net assets
5.0
5.1
Cost
£1.3m
|
(2023: £1.3m)
Valuation
£1.9m
(2023: £1.3m)
Basis of valuation
Revenue multiple
Equity held
12.2% (Mercia funds total 38.6%)
Business / location
Sale of pharmaceuticals, Reading
History
Development capital financing,
September 2018, led by NVM Private
Equity
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends nil, loan stock interest nil
Key published information:
Year ended 31 December
2023
£m
2022
£m
Sales
4.9
3.4
EBITDA
(0.2)
(0.4)
Profit / (loss) before tax
(0.2)
(0.4)
Profit / (loss) aſter tax
(0.2)
(0.4)
Net assets
0.7
0.9
1
3
1
4
1
5
Cost
£0.2m
|
(2023: £0.2m)
Valuation
£1.9m
(2023: £3.3m)
Basis of valuation
Earnings multiple
Equity held
24.8% (Mercia funds total 78.3%)
Business / location
Manufacturer of intelligent cash
handling equipment, Coventry
History
Management buy-out, March 2012, led
by NVM Private Equity
Other Mercia funds
investing
Northern Venture Trust, Northern 2 VCT
Income in year
Dividends £185,000, loan stock interest
nil
Key published information:
Year ended 31 March
2023
£m
2022
£m
Sales
9.1
15.5
EBITDA
1.0
3.3
Profit / (loss) before tax
1.3
3.2
Profit / (loss) aſter tax
1.1
2.9
Net assets
8.3
7.2
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
29
Environmental,
social and
governance
The Company is committed to
conducting its affairs responsibly and,
alongside the Manager, considers
environmental, social and governance
(ESG) issues as part of its operations.
In addition to its commitment to
financial performance, the Board
is mindful of the impact of the
Company and its investments on the
environment alongside its social and
corporate governance responsibilities.
We recognise that the ESG regulatory
and reporting landscape is subject
to rapid change, and therefore the
Company works closely with the
Manager to ensure compliance and
develop initiatives.
The Company is required, under
the Companies Act 2006, to provide
details of environmental performance,
social, human rights, employee,
and community issues; including
information about any policies it
has in relation to these matters and
the effectiveness of these policies.
As the Company does not have any
employees, nor its own premises, the
Company does not maintain specific
policies in relation to these matters,
however the Manager maintains its
own policies as appropriate.
KPI:
Percentage of shareholders signed up
for electronic communications
Impact
:
Reducing the Company’s carbon
emissions from its own operations
Theme
:
Environmental
KPI
:
Proportion of portfolio’s fair value
made outside of London
Impact
:
Improving access to capital across the
UK, benefiting local communities
Theme:
Social
KPI:
The carbon emissions of the Manager
were measured in the years to
31 March 2024 and 31 March 2023
and a long-term reduction plan is
being enacted
Impact
:
Reducing the carbon impact of our
operations performed through the
Manager
Theme
:
Environmental
KPI
:
Percentage of post-2015 portfolio
companies that have completed a
ESG_VC survey
Impact
:
Increasing engagement with ESG
issues within the Company’s portfolio
Theme
:
Governance
KPI
:
The Manager is formally signed up to
HM Treasury’s Women in Finance Charter
and will start to report within the next
financial year
Impact
:
Pledging to support the progression
of women into senior roles in financial
services, set internal targets to improve
diversity and publicly report on progress
Theme
:
Social
KPI
:
Number of portfolio companies where
the Manager has a member of staff as
a statutory director
Impact
:
Encouraging best practice directly at
board level of each portfolio company
Theme
:
Governance
KPI
:
Proportion of the Board as at
31 March 2024 identifying as female
Impact
:
Promoting diversity in leadership
Theme
:
Social
KPI
:
Number of portfolio companies where
we have assisted in identifying board
/ c-suite members in the year
Impact
:
Improving governance in portfolio
companies
Theme
:
Governance
Impact
Assessed
Charter
Signatory
Responsible investment ESG KPIs
Responsible investment
93%
(FY23: 76%)
78%
(FY23: 72%)
37
(FY23: 36)
70%
(FY23: 52%)
9
(FY23: 11)
20%
(FY23: 20%)
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
30
Highlights and initiatives
Below is a summary of some of the progress made this year:
Further investments
into sustainability-
focused companies
The Company continued to invest in a number of
sustainability-focused and purpose-led opportunities in the
year and follow-on investments were also made into the
existing portfolio. A case study on the Company’s investment
in Biological Preparations is provided on page 33.
Portfolio engagement
This was the third year that the Manager worked with portfolio companies to complete ESG surveys using the venture capital specific framework developed by
ESG_VC. The questionnaire is designed to assist unquoted portfolio companies respond to ESG risks and opportunities and how these are considered as part of
their operations. The survey asks portfolio companies a range of questions across key environmental, social and governance factors. It also asks them to indicate
the relevance of those to their business, as well as their ability to influence those factors.
The Manager believes that this engagement with the portfolio is important due to the following reasons:
It encourages early-stage portfolio
companies to begin to engage with
ESG, or if later-stage, map their
current position and flag potential
focus areas.
It produces a data set for tracking
our performance in influencing ESG
factors within the portfolio, and
changes on a portfolio basis over
time.
It enables comparison between portfolio
companies, and when aggregated with
the anonymised data of other venture
capital portfolio companies, allows the
Manager to determine how best to target
its support.
Over time the Manager will use the insights gained from these questionnaires to inform how we target support for portfolio companies, and the types of
investments it makes.
Shareholder
communications
As part of the Board’s ongoing commitment to serving its shareholders, improving
communication channels and reducing the Company’s carbon emissions, the
Company’s registrar was migrated from Equiniti to City Partnership in the year.
This will make it easier for shareholders to access information regarding their
shareholding, while reducing the requirement for hard copy documentation.
By reducing the number of hard copy documents the Board aims to reduce the
Company’s emissions from printing and postage. As of the signing date of this
report, 93% of shareholders are signed up for electronic communications.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
31
Environmental, social and governance
continued
The Manager is committed to responsible investment, which is an investment approach that considers environmental, social, and
governance (ESG) factors in the investment decision-making process. The Manager provides growth capital and tailored investment
solutions to thriving regional businesses to create long-term shareholder value. It has formed a responsible investment committee,
which meets monthly and comprises a number of employees from across the business, including a number from the VCT
investment team.
The Manager’s responsible investment committee ensures delivery against three guiding principles, inspired by the UN’s Sustainable
Development Goals (SDGs):
Policies
The Manager has a number of ESG-focused policies, including:
•
Origination and Investment Policy
•
Portfolio Value Creation Policy
•
Internal Values and Culture Policy
•
Exclusion Policy
•
Vulnerable Customers Policy
These policies guide the way in which we invest and engage with
portfolio companies, outlining best practice. The Manager is
currently in the process of refreshing these policies with a view to
publishing them in the next financial year.
Investment process
ESG matters are considered when reviewing investment
opportunities. Every investment paper has a section where the
investment team consider any relevant ESG matters, which are
then discussed, where relevant, by the investment committee
before each investment is approved.
Embedding an ‘ESG mindset’
All of the Manager’s staff have ESG objectives that are agreed with
their line manager as part of the annual performance appraisal
process, and regular training sessions are organised to develop
the investment team’s awareness of key issues.
Outlook
The Manager will continue to support the Company to develop
initiatives and support the Board’s ESG agenda.
The Manager’s approach to responsible investment
Sustainable
economic
growth
•
Provide support for
entrepreneurship and
SME growth
•
Support and promote
job creation and talent
development
•
Focus on technological
innovation
Reducing inequalities
within our
communities
•
Reduce inequalities across the UK and within UK regions
•
Empower and promote diversity and inclusion
Health &
wellbeing for all
•
Promote health and well-being
•
Support R&D of effective and essential treatments and
other healthcare services
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
32
Biological Preparations is an industry leader
in environmental biotechnology. It replaces
harmful, non-renewable chemical technology
with environmentally, socially, and commercially
beneficial solutions that meet the needs and
demands of the modern world. Management’s
efforts are built around the three major categories
of ‘climate’, ‘resources’ and ‘improved life’ which
provide a roadmap that combines a sustainable
future with commercial success.
Amount invested
The Northern VCTs have invested £6.4 million since
July 2013.
Use of funds
Since investing, the company has continued to
build its product lineup, utilising new technologies
to improve its offering and become consistently
profitable.
Case Study:
Biological
Preparations
£6.4m
Invested since
July 2013
by the Northern VCTs
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
33
The Company is committed to investing in companies that
are aware of their impact on the environment. As part of the
Manager’s investment process, environmental risks associated
with potential portfolio companies are evaluated. The Manager
encourages portfolio companies to adopt environmentally
friendly practices where possible by using the influence of its
investment team on each of the portfolio company’s boards.
Carbon emission reporting and SECR
The Streamlined Energy and Carbon Reporting (SECR) is a UK
regulation that requires some large companies to report on their
energy use, greenhouse gas emissions, and energy efficiency
measures in their annual reports. The Company does not own or
lease its own premises and does not employ any staff directly and
as the Company consumes under 40MWh of energy per year, it is
deemed a ‘low energy user’ and is therefore out of scope for SECR
reporting. The Company’s registered office is at the Manager’s
head office, who has measured its carbon emissions and offset
them in the most recent financial year.
Manager’s carbon emissions
The Manager’s parent company, Mercia Asset Management PLC,
is in the process of finalising its third annual review of corporate
carbon emissions, in collaboration with Positive Planet. It offset its
emissions for the year to March 2023, and will look to do so again
in 2024. More information can be found in its annual report.
Environmental
Task Force on Climate-related Financial Disclosures
The Company is not in scope for TCFD and the Manager, due to
its total assets under management being under £5 billion, is also
out of scope. The Company will seek to voluntarily adopt any
recommendations made by the Task Force on Climate-related
Financial Disclosures (TCFD) which fall within its investment
mandate as soon as reasonably practical.
Portfolio carbon emissions reporting
Your Board is acutely aware of the importance of measuring
and reporting the impact of the Company’s complete carbon
impact, including the impact of its investments in portfolio
companies. Due to the early stage of its investee companies,
many do not have the systems or resources in place to
accurately record emissions. The Manager is therefore currently
focused on engaging with management teams directly, raising
engagement and awareness through initiatives such as the
ESG_VC questionnaire. Instead of providing emissions data based
on a large number of assumptions, the Manager will continue
to monitor developments in carbon reporting frameworks and
engage with third parties with the aim of reporting on portfolio
company activity once meaningful, auditable data can be
provided for the majority of the portfolio.
Environmental, social and governance
continued
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
34
As providers of Venture Capital with a dedicated investment
team of 15 professionals that attend portfolio company board
meetings, governance is the area where your Board and the
Manager strongly believe the Company can make a big impact.
Investment process
As part of our standard investment process we look for
companies with independent and diverse boards, robust
internal controls, and a commitment to ethical behaviour
and transparency. Management due diligence is performed
as part of the investment process, feeding into the decision
process on whether to invest. In addition, each investment
recommendation from the Manager includes a dedicated
section discussing ESG-specific risks and value creation
opportunities, encouraging the Manager’s investment team
and management teams to engage.
Portfolio talent and operating partners
The Manager has a Head of Portfolio Talent within its dedicated
VCT investment team, which will strengthen the team’s
credentials appointing and retaining the most appropriate
people in portfolio companies. This forms part of a wider
strategy to create value, and aligns the Board’s view that strong
corporate governance is essential for long-term success. By
supporting portfolio companies and surrounding them with
experienced individuals we seek to strengthen each portfolio
company’s internal governance framework and provide a
strong culture to ‘do the right thing’.
Encouraging best practice and value creation
By attending board meetings and engaging with management
teams, the Manager aims to encourage best practice. In the
past year this was achieved through:
•
Facilitated Networking and Collaboration:
The Manager
created opportunities for portfolio companies to network
and collaborate with each other, as well as with sector
experts and potential future funders. Hosting events,
workshops, and networking sessions facilitated knowledge
sharing for portfolio companies.
•
Established Clear Performance Metrics:
The Manager
worked with many of our management teams to define
key performance indicators (KPIs) aligned with the goals
of each company. Regularly tracking and reviewing
these metrics helped identify areas of improvement and
encouraged portfolio companies to focus on activities that
drove growth and profitability.
•
Continuous Learning and Development:
The Manager
encouraged a culture of continuous learning and
development within portfolio companies. Support
for coaching and continuous improvement of each
management team is targeted to foster positive outcomes,
and ultimately a better investment return.
Governance
Diversity
Your Directors understand the importance of promoting diversity
of the Company’s Board. The ongoing Board succession plan seeks
to create a diverse group of experienced individuals. The Board has
20% representation from female Directors.
The Manager has also committed to encouraging diversity, with
several initiatives in place such as:
•
Signing up to the Investing in Women Code, a commitment to
support the advancement of female entrepreneurship in the
tools, resources and finance from the financial services sector.
•
Committing to improving diversity in its hiring practices,
this has resulted in 50% (one of two) of new dedicated VCT
investment team hires in the year to 31 March 2024 being
female.
•
Adhering to an Equal Opportunities policy which values and
respects all employees, irrespective of role, gender, race, age,
sexual orientation or religious belief.
National focus
The Manager has a network of 12 locations nationwide, enabling
local access to its investment team by management teams. This
enables the Company to invest in companies spread across
the country, not just in London. In total, 78% of the Company’s
investment, measured by value, is outside of London.
Other initiatives
The Manager has a number of programmes designed to support
social initiatives:
•
It actively encourages employees to become involved in
volunteering and charitable community projects through
initiatives such as Mercia Spirit.
•
It seeks to engage with outreach programmes to promote
diversity and inclusion within communities.
•
It seeks input from all of its employees to ensure ongoing
balanced representation through a formal committee structure.
Social
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
35
The Directors present their report and the audited
financial statements for the year ended 31 March 2024.
Activities and status
The principal activity of the Company during the year was the
making of long-term equity and loan investments, mainly in
unquoted companies.
The Directors have managed the affairs of the Company with
the intention of maintaining its status as an approved venture
capital trust for the purposes of Section 274 of the Income Tax
Act 2007. The Directors consider that the Company was not at
any time up to the date of this report a close company within the
meaning of Chapter 2 of Part 10 of the Corporation Tax Act 2010.
The Company’s registered number is 04280530.
A consideration of the environmental impact of the Company’s
activities is set out on pages 30 to 35.
Corporate governance
The statement on Corporate Governance set out on pages 42 to
47 is included in the Directors’ Report by reference.
Results and dividend
The return aſter tax for the year of £3,038,000 (2023: return of
minus £1,967,000) has been transferred to reserves.
The final dividend of 2.5 pence per share in respect of the year
ended 31 March 2023 and interim dividend of 2.0 pence per
share in respect of the year ended 31 March 2024 were paid
during the year at a cost of £5,984,000 and have been charged to
reserves.
The Directors have proposed a final dividend of 2.2 pence per
share for the year ended 31 March 2024. Subject to approval
of the final dividend at the Annual General Meeting, the final
dividend will be paid on 23 August 2024 to shareholders on the
register on 26 July 2024.
Provision of information to the auditor
Each of the Directors who held office at the date of approval of
this Directors’ Report confirms that, so far as they are aware,
there is no relevant audit information of which the Company’s
auditor is unaware and that they have taken all the steps that
they could reasonably be expected to have taken as a Director in
order to make themself aware of any relevant audit information
and to establish that the Company’s auditor is aware of that
information.
Statement on long-term viability
In accordance with the requirements of the AIC Code of
Corporate Governance, the Directors have assessed the
prospects of the Company over the three-year period to March
2027. The Directors consider that for the purpose of this exercise
it is not practical or meaningful to look forward over a period of
more than three years and that the period is appropriate for a
business of the Company’s nature and size.
In making their assessment the Directors have carried out a
robust review of the risk environment in which the Company
operates, including those risks which might threaten its business
model or future performance and the steps taken with a view
to their mitigation (see page 19 for further details on risk
management). The Directors have considered the ability of the
Company to comply on an ongoing basis with the conditions
for maintaining VCT-approved status. The Directors have also
considered the nature of the Company’s business, including
its substantial reserve of cash and near-cash investments, the
potential of its venture capital portfolio to generate future
income and capital proceeds, and the ability of the Directors to
control the level of future cash outflows arising from share buy-
backs, dividends and investments. When assessing the potential
future cashflows of the Company, the Directors have considered
various scenarios including a ‘downside case’ where potential
cash inflows are severely impacted by economic disruption. As
detailed on page 44, the Management Engagement Committee
has also considered the Company’s relationship with the
Investment Manager, Mercia, by reference to the performance of
the venture capital portfolio and the expertise demonstrated by
Mercia in venture capital investment.
Taking into account the Company’s current position and
principal risks, the Directors have concluded that there is
a reasonable expectation that the Company will be able to
continue in operation over the three-year period and meet its
liabilities as they fall due over that period.
Going concern
The financial statements have been prepared on a going concern
basis.
The Directors performed an assessment of the Company’s
ability to meet its liabilities as they fall due. In performing this
assessment, the Directors took into consideration the uncertain
economic outlook including:
•
the investments and liquid resources held by the Company;
•
the fact that the Company has no debt or capital
commitments;
•
the ability of the Company to meet all of its liabilities and
ongoing expenses from its assets, including its year-end cash
balance;
•
revenue and operating cost forecasts for the forthcoming year;
•
the ability of third-party service providers to continue to
provide services; and
•
potential downside scenarios including a fall in the valuation
of the investment portfolio or levels of investment income.
Based on this assessment, the Directors are confident that
the Company will have sufficient funds to continue to meet its
liabilities as they fall due for at least 12 months from the date of
approval of the financial statements, and therefore determine
the going concern basis to be appropriate.
Directors’ report
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
36
An explanation of the significant post-balance sheet events are
given in the investment realisations section of the Strategic
Report and in Note 20 of the financial statements.
Directors
None of the Directors has a contract of service with the
Company and, except as mentioned below under the heading
‘Management’ no contract or arrangement subsisted during
or at the end of the year in which any Director was materially
interested and which was significant in relation to the
Company’s business. A list of each Director who has served
during the year is given on page 40.
Directors’ and officers’ liability insurance
The Company has, as permitted by the Companies Act 2006,
maintained insurance cover on behalf of the Directors and
secretary indemnifying them against certain liabilities which
may be incurred by any of them in relation to the Company.
Director diversity
In accordance with Listing Rules 9.8.6R(10), 9.8.6I G, 14.3.33R(2)
and 14.3.36G, the Company confirms that each of the Directors
of the Company was asked to confirm the gender that they
identify with and their ethnicity, as of 31 March 2024. The
responses have been collated and reflect the following data:
Number
of Board
members
Percentage of
the Board
Number
of senior
positions on
the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage
of executive
management
Men
4
80%
100%
N / A
N / A
Women
1
20%
–
N / A
N / A
Non-binary
–
–
–
N / A
N / A
All other gender identities
–
–
–
N / A
N / A
Not specified / prefer not to say
–
–
–
N / A
N / A
Number
of Board
members
Percentage of
the Board
Number
of senior
positions on
the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage
of executive
management
White British or other White (including minority White groups)
5
100%
1
N / A
N / A
Mixed / multiple ethnic groups
–
–
–
N / A
N / A
Asian / Asian British
–
–
–
N / A
N / A
Black / African / Caribbean / Black British
–
–
–
N / A
N / A
Other ethnic group, including Arab
–
–
–
N / A
N / A
Not specified / prefer not to say
–
–
–
N / A
N / A
In accordance with Listing Rules 9.8.6R(9) and 14.4.33R(1), the Company confirms that it has not met the following targets:
•
At least 40% of the Board are women.
•
At least one of the senior Board positions (Chair, Chief Executive Officer, Senior Independent Director or Chief Financial Officer)
is a woman.
•
At least one member of the Board is from a minority ethnic background, excluding those listed as coming from a White ethnic
background.
The Board recognises the importance, value and strength of having a diverse membership. Although the key objective with any board
appointment is to recruit the best person for the job, the Board has strengthened its diversity in the most recent Board appointment(s)
and will continue to do so by ensuring the candidate search process utilises proven methods of appealing to a diverse mix of applicants.
The Board is exclusively non-executive and as such only the position of Chair is relevant to the Board. Further the Company has not
elected to appoint a Senior Independent Director.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
37
Directors’ report
continued
Management
Mercia took over management of the Company’s investment
affairs on 23 December 2019 aſter the novation of the pre-existing
management agreement between the Company and NVM Private
Equity LLP (NVM), who had acted as manager since the Company’s
inception. The principal terms of the Company’s management
agreement with Mercia are set out in Note 3 to the financial
statements.
The Management Engagement Committee carries out a regular
review of the terms of Mercia’s appointment with a view to
ensuring that Mercia’s remuneration is set at an appropriate level,
having regard to the nature of the work carried out and general
market practice.
As required by the Listing Rules, the Directors confirm that in their
opinion the continuing appointment of Mercia as Investment
Manager on the terms agreed is in the interests of the Company’s
shareholders as a whole. In reaching this conclusion the Directors
have taken into account the performance of the investment
portfolio and the efficient and effective service provided by Mercia
to the Company.
Remuneration receivable by the Manager
The remuneration receivable by the Manager by virtue of the
management agreement with the Company comprises the
following:
Remuneration payable by the Company
Basic management fee:
the Manager is entitled to receive
a basic annual management fee equivalent to 2.06% of net
assets, calculated half-yearly as at 31 March and 30 September.
In consenting to the novation of the management agreement
to Mercia in December 2019, it was agreed that the fee due on
the value of liquid assets above the threshold of £20 million
would continue to attract a reduced rate of 1% per annum on
a permanent basis. In the year ended 31 March 2024 the basic
annual management fee was £2,113,000 (2023: £2,077,000).
Performance-related management fee:
Performance-related
management fees are payable on annual performance above
the higher of the annual hurdle of 5% of opening NAV per share
and the difference between the cumulative total return brought
forward to its high water mark (together, the ‘Excess Return’).
The performance-related management fee is calculated at
14% of the Excess Return and the payment of the performance-
related management fee in any one year is capped to 2.25% of
the net asset value at the start of the year with the balance being
deferred. There was no performance-related management fee due
for the year ended 31 March 2024 (year ended 31 March 2023: nil).
Accounting and secretarial fee:
the Manager is responsible for
providing accounting, administrative and secretarial services to
the Company for an annual fee of £73,000, (2023: £66,000), linked
to the movement in the RPI.
The total remuneration payable in aggregate to the Manager
by the Company in respect of the year, comprising the basic
management fee, the performance-related management fee
and the accounting and secretarial fee, was £2,186,000,
(2023: £2,143,000).
Under current tax legislation the fees paid by the Company to the
Manager are not subject to VAT. The total annual running costs
of the Company, including the basic management fee and the
accounting and secretarial fee but excluding the performance-
related management fee, are capped at 2.9% of average net
assets and any excess will be refunded to the Company by way of
a reduction in the Manager’s basic management fee. The annual
running costs of the Company for the year ended 31 March 2024
were equivalent to 2.27% of average net assets (2023: 2.16%).
Remuneration payable by investee companies
Under the management agreement, the Manager is entitled
to receive fees from investee companies in respect of the
arrangement of investments and the provision of non-executive
directors and other advisory services. The Manager is responsible
for paying the due diligence and other costs incurred in
connection with proposed investments which for whatever reason
do not proceed to completion.
In the year ended 31 March 2024 the arrangement fees receivable
by the Manager from investee companies which were attributable
to investments made by the Company amounted to £436,000
(2023: £414,000), and directors’ and monitoring fees amounted to
£364,000 (2023: £344,000).
Executive co-investment scheme
Since 2006 the Company has, together with the other VCT
funds managed by Mercia, participated in a co-investment
scheme with the objective of enabling the Manager to recruit,
retain and incentivise its key investment personnel. Under the
scheme executives are required to invest personally (and on the
same terms as the Company and other VCT funds managed by
Mercia) in the ordinary share capital of every unquoted investee
company in which the Company invests. Since the novation of the
management agreement to Mercia, Mercia has managed a new
co-investment scheme. The shares held by executives can only
be sold at such time as the VCT funds advised by Mercia sell their
shares and any prior ranking loan notes or preference shares held
by the funds having been repaid. The executives participating in
the scheme jointly subscribe for 5.0% of the non-yielding ordinary
shares available to the Northern VCT funds, except in the case
of investments where there is no class of yielding securities, in
which case the executives jointly subscribe for 1.0% of the non-
yielding ordinary shares available to the Northern VCT funds. At
31 March 2024 the Mercia co-investment scheme held investments
in 46 investee companies acquired at a total cost of £791,000,
of which £271,000 was attributable to investments made by
the Company.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
38
Share capital – purchase of shares
During the year the Company purchased for cancellation
3,255,224 of its own shares, representing 2.6% of the called-up
share capital of the Company at the beginning of the year, for a
total consideration of £2,800,000. Purchases were made in line
with the Company’s policy of purchasing available shares at a
discount to net asset value. At the 2023 annual general meeting,
held on 27 July 2023, shareholders authorised the Company
to purchase in the market up to 15,590,018 ordinary shares
(equivalent to approximately 10% of the issued ordinary share
capital of the Company following the issue of the ordinary shares
pursuant to the 2023 / 24 share offer) at a minimum price of
5 pence per share and a maximum price per share of not more
than 105% of the average market value for the ordinary shares in
the Company for the five business days prior to the date on which
the ordinary shares were purchased. As at 31 March 2024 this
authority remained effective in respect of 13,086,578 shares; the
authority will lapse at the conclusion of the 2024 Annual General
Meeting of the Company on 1 August 2024.
Share capital – issue of shares
During the year the Company issued 17,099,780 new ordinary
shares for a cash consideration of £15,249,000 net of DRIS and
share offer costs. At the 2023 annual general meeting, held on
27 July 2023, shareholders authorised the Company to allot
shares specifically in relation to the 2023 / 24 share offer up to
a maximum nominal value of £1,299,168.15 (being 25,983,363
ordinary shares) as if any rights of pre-emption did not apply
to such allotment. As at 31 March 2024 this authority remained
effective in respect of 16,302,301 shares; the authority lapsed on
30 April 2024. At the 2023 annual general meeting, held on 27 July
2023, shareholders authorised the Company to generally allot
shares up to a maximum nominal value of £1,559,001.82 (being
31,180,036 ordinary shares) as if any rights of pre-emption did
not apply to such allotment. As at 31 March 2024 this authority
remained effective in respect of 30,358,358 shares; the authority
will lapse at the conclusion of the 2024 Annual General Meeting of
the Company on 1 August 2024.
Share capital – rights
The rights attaching to shares are detailed in the Corporate
Governance section on page 46.
Fixed assets
Movements in fixed asset investments during the year are set out
in Note 8 to the financial statements.
Financial instruments
The Company’s financial instruments comprise its investment
portfolio, cash and cash equivalent balances, debtors and
creditors that arise directly from its operations such as sales
and purchases awaiting settlement and accrued income. The
financial risk management objectives and policies arising from its
financial instruments and the exposure of the Company to risk are
disclosed in Note 17 to the financial statements.
Energy and carbon
The Company consumes under 40MWh of energy per year
and is deemed a ‘low energy user’ for the Streamlined Energy
and Carbon Reporting (SECR) UK regulation; see page 34 for
more details.
Events aſter the balance sheet date
Details of events aſter the balance sheet date are in Note 20 of the
financial statements on page 72.
Annual General Meeting
Notice of the 2024 Annual General Meeting to be held on 1 August
2024 is set out in a separate circular to shareholders along with
explanatory comments on the resolutions.
Substantial shareholdings
No disclosures of major shareholdings had been made to the
Company under Disclosure and Transparency Rule 5 (Vote Holder
and Issuer Notification Rules) as at the date of this report.
Independent auditor
Forvis Mazars LLP have indicated their willingness to continue as
auditor of the Company and resolutions to reappoint them and
to authorise the Audit Committee to fix their remuneration will be
proposed at the Annual General Meeting.
By order of the Board
Mercia Company Secretarial Services Limited
Company Secretary
18 June 2024
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
39
This report has been prepared by the Directors in accordance with
the requirements of Section 420 of the Companies Act 2006. A
resolution to approve the Directors’ Remuneration Report will be
proposed at the Annual General Meeting on 1 August 2024.
The Company’s independent auditor, Forvis Mazars LLP, is
required to give its opinion on certain information included in
this report, as indicated below. The auditor’s report on these and
other matters is set out on pages 49 to 53.
Directors’ remuneration policy
The Board currently comprises five Directors, all of whom are
non-executive. The Board does not have a separate Remuneration
Committee, as the Company has no employees or executive
directors. The Board has established a Nomination Committee,
chaired by Mr J G D Ferguson and comprising all of the Directors,
which meets annually (or more frequently if required) to
consider the selection and appointment of directors and to
make recommendations to the Board as to the level of directors’
fees. The Board has not retained external advisers in relation
to remuneration matters but has access to information about
directors’ fees paid by other companies of a similar size and type.
The Board considers that directors’ fees should reflect the time
commitment required and the high level of responsibility borne
by directors, and should be broadly comparable to those paid by
similar companies. It is not considered appropriate that either
new or existing Directors’ remuneration should be performance-
related, and none of the Directors are eligible for bonuses,
pension benefits, share options, long-term incentive schemes
or other benefits in respect of their services as non-executive
Directors of the Company.
The articles of association place an overall limit (currently
£150,000 per annum) on Directors’ remuneration. The articles
of association provide that Directors shall retire and be subject
to re-election at the first annual general meeting aſter their
Table 1: Directors’ fees
Year ended
31 Mar 2024
£
Year ended
31 Mar 2023
£
Year ended
31 Mar 2022
£
Year ended
31 Mar 2021
£
2024
change
%
2023
change
%
2022
change
%
2021
change
%
J G D Ferguson
(Chairman)
31,500
30,000
27,500
27,500
5%
9%
–
–
A B Brown
(appointed 14 September 2020)
25,200
24,000
22,000
12,025
5%
9%
83%
–
C J Fleetwood
(Chair of Audit Committee)
27,300
26,000
24,000
24,000
5%
8%
–
–
T R Levett*
25,200
24,000
–
–
5%
–
–
–
J M O Waddell
25,200
24,000
22,000
22,000
5%
9%
–
–
Total
134,400
128,000
95,500
85,525
*
Mr T R Levett waived his entitlement to directors’ fees the year ended 31 March 2022 and year ended 31 March 2021.
Directors’ remuneration report
appointment and that any Director who was not appointed or
reappointed at one of the preceding two annual general meetings
shall retire and be subject to re-election at each annual general
meeting. As a matter of good practice, the Board has adopted the
2019 AIC code recommendation that all Directors should seek
annual re-election. None of the Directors has a service contract
with the Company. On being appointed or re-elected, Directors
receive a letter from the Company setting out the terms of their
appointment and their specific duties and responsibilities. A
Director’s appointment may be terminated on three months’
notice being given by the Company and in certain other
circumstances. A Director who ceases to hold office is not entitled
to receive any payment other than accrued fees (if any) for past
services.
An ordinary resolution to approve the Directors’ remuneration
policy of the Company was approved by shareholders at the
annual general meeting of the Company on 27 July 2023 and
remains in force for a three-year period.
Directors’ remuneration for the year ended 31 March
2024 (audited information)
The fees paid to individual Directors in respect of the years ended
31 March 2024, 31 March 2023, 31 March 2022 and 31 March 2021,
which represent the entire remuneration payable to Directors, are
shown in Table 1.
Directors’ share interests (audited information)
The interests of the Directors of the Company (including the
interests of their connected persons) in the issued ordinary shares
of the Company, at the beginning of the year, at the end of the
year and at the date of this report are shown in Table 2.
All of the Directors’ share interests were held beneficially.
The Company has not set out any formal requirements or
guidelines to Directors concerning their ownership of shares in the
Company.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
40
Year to
31 March
2024
£000
Year to
31 March
2023
£000
Percentage
change
Total Directors’ fees
134
128
5%
Total expenses
2,719
2,573
6%
Total dividends paid
5,984
6,241
(4)%
Net asset value
122,174
112,993
8%
Relative importance of spend on pay
The below table is required to be included in accordance with The
Large and Medium Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2008. It should be noted that
the figures below are not directly comparable due to:
•
The payment of the final dividend for the prior year within the
current financial year; and
•
The fundraising which was conducted in the year.
Company performance
The graph opposite compares the total return (assuming re-
investment of all dividends) to shareholders in the Company over
the five years ended 31 March 2024 with the total return from a
broad UK equity market index over the same period.
Statement of voting at annual general meeting
At the annual general meeting on 27 July 2023 the resolution to
approve the Directors’ Remuneration Report for the year ended
31 March 2023 was approved by a show of hands. 90.1% of the
proxy votes received in relation to the resolution were either for
or discretionary. 8.9% of the proxy votes received voted against
the resolution. Communications received from shareholders
in relation to the resolution were addressed by the Chairman
at the annual general meeting. Shareholders’ views are always
welcomed and considered by the Board.
Statement by the Chairman of the Nomination
Committee
In accordance with the Directors’ remuneration policy, directors’
fees were reviewed by the Nomination Committee during its
meeting on 8 February 2024, when it was decided there would be
no increase in Directors’ fees which remain at the levels effective
since 1 April 2023, £31,500 per annum for the Chairman, £27,300
for the Chair of the Audit Committee and £25,200 per annum for
the other Directors.
By order of the Board
J G D Ferguson
Chairman of the Nomination Committee
18 June 2024
Table 2: Directors’ interests in ordinary shares
18 June
2024
Number of
shares
31 March
2024
Number of
shares
31 March
2023
Number of
shares
J G D Ferguson
(Chairman)
929,290
929,290
929,290
A B Brown
23,944
23,944
6,395
C J Fleetwood
113,451
113,451
95,934
T R Levett
361,695
361,695
361,695
J M O Waddell
44,058
44,058
35,220
Northern 3 VCT NAV total return
Northern 3 VCT share price total return
FTSE All-Share index total return
Return to shareholders in Northern 3 VCT PLC
140
130
120
110
100
90
80
70
2019
2020
2021
2022
2023
2024
Five years to 31 March 2024 (March 2019 = 100)
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
41
The Board of Northern 3 VCT PLC has considered the Principles
and Provisions of the Association of Investment Companies Code
of Corporate Governance (AIC Code). The AIC Code addresses the
Principles and Provisions set out in the UK Corporate Governance
Code (the UK Code), as well as setting out additional Provisions on
issues that are of specific relevance to the Company.
The Board considers that reporting against the Principles and
Provisions of the AIC Code which has been endorsed by the
Financial Reporting Council, provides more relevant information
to shareholders than reporting against the UK Code.
The Company is committed to maintaining high standards in
corporate governance and during the year ended 31 March 2024
and has complied with the Principles and Provisions of the AIC
Code, with the exception of provisions 13, 14 and 24, which have
not been applied for the reasons detailed below. The AIC Code
is available on the AIC website (www.theaic.co.uk). It includes
an explanation of how the AIC Code adapts the Principles and
Provisions set out in the UK Code to make them relevant for
investment companies.
The UK Code includes provisions relating to the role of the chief
executive, executive directors’ remuneration and the need for an
internal audit function. For the reasons set out in the AIC Code,
and in the preamble to the UK Code, the Board considers these
provisions are not relevant to the position of the Company, which
is an externally managed venture capital trust. The Company has
therefore not reported further in respect of these provisions.
Board of Directors
The Company has a Board of five non-executive Directors, all
of whom are considered to be independent of the Company’s
Investment Manager, Mercia Fund Management Limited (Mercia).
The Board meets regularly in person or by conference call five
times each year, and on other occasions as required. The Board
is responsible to shareholders for the effective stewardship of
the Company’s affairs and has a formal schedule of matters
specifically reserved for its decision which include:
•
consideration of long-term strategic issues;
•
valuation of the unquoted investment portfolio; and
•
ensuring the Company’s compliance with good practice in
corporate governance matters.
A brief biographical summary of each Director is given on pages
10 and 11.
The Chairman, Mr J G D Ferguson, leads the Board in the
determination of its strategy and in the achievement of its
objectives. The Chairman is responsible for organising the
business of the Board, ensuring its effectiveness and setting
its agenda, and has no involvement in the day-to-day business
of the Company. He facilitates the effective contribution of
the Directors and ensures that they receive accurate, timely
and clear information and that they communicate effectively
with shareholders.
The Board has established a formal process, led by the Chairman,
for the annual evaluation of the performance of the Board, its
principal committees and individual Directors. The Directors
are made aware on appointment that their performance will be
subject to regular evaluation. The performance of the Chairman
is evaluated by a meeting of the other Board members under the
leadership of Mr C J Fleetwood.
The Company Secretary, Mercia Company Secretarial Services
Limited, is responsible for advising the Board through the
Chairman on all governance matters. All of the Directors have
access to the advice and services of the Company Secretary,
which has administrative responsibility for the meetings of the
Board and its committees. Directors may also take independent
professional advice at the Company’s expense where necessary in
the performance of their duties.
The Company’s articles of association and the schedule of matters
reserved to the Board for decision provide that the appointment
and removal of the Company Secretary is a matter for the Board.
Provision 14 of the AIC Code recommends the appointment of a
senior independent non-executive director to provide a sounding
board for the chair and serve as an intermediary for the other
directors and shareholders. The Board has opted not to appoint
a senior independent director and does not comply with this AIC
Code provision. The Board has concluded that given the size and
composition of the Board (consisting entirely of experienced non-
executive Directors), the appointment of a senior independent
non-executive director is not appropriate:
1. The Chairman has the ability to use each of the Directors as a
sounding board as required from time to time.
2. The Board members have confirmed that given the access they
have to the Chairman, they do not require another director to
act as an intermediary on their behalf. The Directors do not
consider that appointing a senior non-executive would provide
any benefit to shareholders, who already have the ability to
contact the Company, Board and its Investment Manager
through a variety of channels. Providing another director as a
point of access would not enhance this process.
3. Board members formally assess the Chairman’s performance
annually without input from the Chairman and there is no need
to appoint a senior non-executive in respect of this process.
The articles of association provide that Directors shall retire and
be subject to re-election at the first annual general meeting aſter
their appointment and that any Director who was not appointed
or reappointed at one of the preceding two annual general
meetings shall retire and be subject to re-election at each annual
general meeting. However the Board has, as a matter of good
practice, adopted the AIC Code recommendation that all Directors
should seek annual re-election.
Corporate governance
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
42
Independence of directors
The Board regularly reviews the independence of its members
and is satisfied that the Company’s Directors are independent
in character and judgement and there are no relationships or
circumstances which could affect their objectivity.
Provision 13 of the AIC Code recommends that where a director
has served for more than nine years, the board should state its
reasons for believing that the individual remains independent.
The Board is of the view that a term of service in excess of nine
years is not in itself prejudicial to a director’s ability to carry out
their duties effectively and from an independent perspective; the
nature of the Company’s business is such that individual Directors’
experience and continuity of Board membership can significantly
enhance the effectiveness of the Board as a whole. Provision
24 of the AIC Code recommends determining and disclosing a
policy on the tenure of the chair. The Company does not have
a set limit on the tenure of the members of the Board and the
Chairman and therefore does not comply with this provision.
However the Board has, as a matter of good practice, adopted the
AIC Code recommendation that all Directors should seek annual
re-election, and acknowledges that regular refreshment of its
membership is desirable.
Board committees
The Board has appointed three standing committees to make
recommendations to the Board in specific areas. The Board does
not have a separate Remuneration Committee, as the Company
has no employees or executive Directors. Detailed information
relating to the remuneration of directors is given in the Directors’
Remuneration Report on pages 40 and 41.
Audit Committee
During the year the Audit Committee comprised:
Mr C J Fleetwood (Chair)
Mrs A B Brown
Mr J G D Ferguson
Mr T R Levett
Mr J M O Waddell
The Audit Committee’s terms of reference include the following
roles and responsibilities:
•
monitoring and making recommendations to the Board in
relation to the Company’s published financial statements
and other formal announcements relating to the Company’s
financial performance;
•
monitoring and making recommendations to the Board
in relation to the valuation of the Company’s unquoted
investments;
•
monitoring and making recommendations to the Board in
relation to the Company’s internal control (including internal
financial control) and risk management systems;
•
periodically considering the need for an internal audit
function;
•
making recommendations to the Board in relation to the
appointment, reappointment and removal of the external
auditor and approving the remuneration and terms of
engagement of the external auditor;
•
reviewing and monitoring the external auditor’s independence
and objectivity and the effectiveness of the audit process,
taking into consideration relevant UK professional and
regulatory requirements;
•
monitoring the extent to which the external auditor is engaged
to supply non-audit services; and
•
ensuring that the Investment Manager has arrangements
in place for the investigation and follow-up of any concerns
raised confidentially by staff in relation to the propriety of
financial reporting or other matters.
The Audit Committee reviews its terms of reference and its
effectiveness annually and recommends to the Board any changes
required as a result of the review. The terms of reference are
available on request from the Company Secretary and on the
Company’s website. The Audit Committee ordinarily meets
three times per year and has direct access to Forvis Mazars LLP,
the Company’s external auditor. The Board considers that the
members of the Audit Committee are independent and have
collectively the skills and experience required to discharge their
duties effectively, and that the Chair of the Audit Committee
meets the requirements of the UK Code as to recent and relevant
financial experience. We note that the Chairman of the Board, Mr
J G D Ferguson, is a member of the Audit Committee. Whilst this is
not compliant with the provisions of the UK Code, it is compliant
with the provisions of the AIC Code. As all members of the Audit
Committee are independent non-executive Directors, we believe
that this is appropriate.
During the year ended 31 March 2024 the Company did not
have an independent internal audit function as it is not deemed
necessary given the size of the Company and the nature of the
Company’s business. However, the Audit Committee considers
annually whether there is a need for such a function and makes a
recommendation to the Board.
During the year ended 31 March 2024 the Audit Committee
discharged its responsibilities by:
•
reviewing and approving the external auditor’s terms of
engagement, remuneration and independence;
•
reviewing the external auditor’s plan for the audit of the
Company’s financial statements, including identification of
key risks and confirmation of auditor independence;
•
reviewing the Manager’s statement of internal controls
operated in relation to the Company’s business and assessing
the effectiveness of those controls in minimising the impact of
key risks;
•
reviewing periodic reports on the effectiveness of the
Manager’s compliance procedures;
•
reviewing the appropriateness of the Company’s accounting
policies;
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
43
•
reviewing the Company’s draſt annual financial statements
and half-yearly results statement prior to Board approval,
including the proposed fair value of investments;
•
reviewing the external auditor’s detailed reports to the Audit
Committee on the annual financial statements;
•
reviewing the taxation advisers’ VCT status monitoring and
compliance reports; and
•
considering the effectiveness of the external audit process.
The key area of risk that has been identified and considered by the
Audit Committee in relation to the business activities and financial
statements of the Company is the valuation and existence
of unquoted investments, particularly in light of economic
uncertainty caused by inflationary pressures, higher interest rates,
global economic slowdown and geopolitical tensions. Another
important area of risk that is considered by the Audit Committee
is compliance with HM Revenue & Customs conditions for
maintenance of approved venture capital trust status.
These issues were discussed with the Investment Manager and
the auditor at the pre-year end audit planning meeting and at the
conclusion of the audit of the financial statements.
Valuation of unquoted investments:
the Investment Manager
confirmed to the Audit Committee that the investment valuations
had been carried out consistently with prior periods and in
accordance with published industry guidelines, taking account of
the latest available information about investee companies and
current market data. The Audit Committee reviewed the estimates
and judgements used in the investment valuations and was
satisfied that the final valuations are appropriate.
Venture capital trust status:
the Investment Manager confirmed
to the Audit Committee that the conditions for maintaining
the Company’s status as an approved venture capital trust had
been complied with throughout the year. The position was also
confirmed and reported on by Philip Hare & Associates LLP in its
capacity as adviser to the Company on taxation matters and the
relevant report was reviewed by the Audit Committee.
The Investment Manager and auditor confirmed to the
Audit Committee that they were not aware of any material
misstatements. Having reviewed the reports received from the
Manager and auditor, the Audit Committee is satisfied that the key
areas of risk and judgement have been appropriately addressed
in the financial statements and that the significant assumptions
used in determining the value of assets and liabilities have
been properly appraised and are sufficiently robust. The Audit
Committee considers that Forvis Mazars LLP has carried out its
duties as auditor in a diligent and professional manner.
Following a detailed review of the draſt annual report, the Audit
Committee concluded that, taken as a whole, it was considered
to be fair, balanced and understandable. The Audit Committee
recommended to the Board that the Directors’ responsibilities
statement in respect of the annual report and the financial
statements should be signed accordingly.
The Audit Committee regularly reviews and monitors the auditor’s
effectiveness and independence. Forvis Mazars LLP has confirmed
that it is independent of the Company and has complied with the
applicable auditing standards. In accordance with professional
guidelines the engagement leader is rotated aſter at most five
years; this is the fourth year that the current partner has served.
As part of its review, the Audit Committee considers the nature
and extent of non-audit services supplied by the auditor, all of
which must be approved by the Audit Committee. There were no
non-audit services contracted for during the year.
Nomination Committee
During the year the Nomination Committee comprised:
Mr J G D Ferguson (Chairman)
Mrs A B Brown
Mr C J Fleetwood
Mr T R Levett
Mr J M O Waddell
The Nomination Committee considers the selection and
appointment of Directors and makes annual recommendations to
the Board as to the level of Directors’ fees. The Nomination
Committee monitors the balance of skills, knowledge, diversity
and experience offered by Board members, and satisfies itself
that they are able to devote sufficient time to carry out their
role efficiently and effectively. When recommending new
appointments to the Board, the Nomination Committee draws
on its members’ extensive business experience and range of
contacts to identify suitable candidates, and would consider
the use of formal advertisements and external consultants
where appropriate. The Nomination Committee recognises
the benefits of diversity in the constitution of the Board and it
is the Nomination Committee’s intention that the diversity of
representation on the Board will continue to increase over time.
New Directors are provided with briefing material relating to
the Company, its Investment Manager and the venture capital
industry as well as to their own legal responsibilities as Directors.
The Nomination Committee has written terms of reference which
are reviewed annually and are available on request from the
Company Secretary and on the Company’s website.
During the year ended 31 March 2024 the Nomination Committee
refreshed its succession plan and anticipates appointing a
non- executive director in the financial year to 31 March 2025.
To facilitate this appointment, it will be necessary to increase
the current limit on director’s remuneration of £150,000 per
annum. The Nomination Committee recommends that the
limit is increased to £200,000 to both support recruitment and
create headroom for future remuneration. This will require an
amendment to the Company’s articles of association and the
Board is seeking shareholder approval to this change at the AGM.
Management Engagement Committee
During the year the Management Engagement Committee
comprised:
Mr J G D Ferguson (Chairman)
Mrs A B Brown
Mr C J Fleetwood
Mr T R Levett
Mr J M O Waddell
Corporate governance
continued
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
44
The Management Engagement Committee undertakes a periodic review of the performance of the Investment Manager, Mercia, and of
the terms of the management agreement including the level of fees payable and the length of the notice period. The principal terms of
the agreement are set out in Note 3 to the financial statements on page 61.
Following the latest review by the Management Engagement Committee, the Board concluded that the continuing appointment of
Mercia was in the interests of the Company and its shareholders as a whole. Mercia has demonstrated its commitment to, and expertise
in, venture capital investment since their appointment. Mercia has also performed its company secretarial and accounting duties
efficiently and effectively.
Attendance at board and committee meetings
Table 1 sets out the number of substantive Board and Committee meetings held during the year ended 31 March 2024 and the number
attended by each Director compared with the maximum possible attendance.
Table 1: Directors’ attendance at meetings
Board
Audit
Committee
Nomination
Committee
Management
Engagement
Committee
Number of meetings held
5*
3
1
1
Attendance (actual / possible):
J G D Ferguson (Chairman)
4 / 5
2 / 3
0 / 1
0 / 1
A B Brown
5 / 5
3 / 3
1 / 1
1 / 1
C J Fleetwood
5 / 5
3 / 3
1 / 1
1 / 1
T R Levett
4 / 5
3 / 3
1 / 1
1 / 1
J M O Waddell
5 / 5
3 / 3
1 / 1
1 / 1
*
In addition to the five substantive meetings of the Board held during the year, there were a further eight meetings held by conference call.
Corporate responsibility
The Board aims to ensure that the Company takes a positive approach to corporate responsibility, in relation both to itself and to the
companies it invests in. This entails maintaining a responsible attitude to ethical, environmental, governance and social issues, and the
encouragement of good practice in investee companies. The Board seeks to avoid investing in companies which do not operate within
relevant ethical, environmental and social legislation or otherwise fail to comply with appropriate industry standards.
Investor relations
In fulfilment of the Chairman’s obligations under the UK Corporate Governance Code, the Chairman gives feedback to the Board on any
issues raised with him by shareholders with a view to ensuring that members of the Board develop an understanding of the views of
shareholders about the Company. The Board recognises the value of maintaining regular communications with shareholders. Formal
reports are sent to shareholders at the year-end in accordance with their communication preferences, and an opportunity is given to
shareholders at each annual general meeting to question the Board and the Investment Manager on matters relating to the Company’s
operation and performance. The Manager holds an annual VCT investor seminar to which shareholders are invited. Proxy voting figures
for each resolution are announced at general meetings and are made available publicly following the relevant meeting.
Further information can also be obtained via the Company’s
website.
Internal control
The Directors have overall responsibility for ensuring that there
are in place robust systems of internal control, both financial
and non-financial, and for reviewing their effectiveness. The
purpose of the internal financial controls is to ensure that
proper accounting records are maintained, the Company’s
assets are safeguarded and the financial information used
within the business and for publication is accurate and reliable;
such a system can provide only reasonable and not absolute
assurance against material misstatement or loss. The Board
regularly reviews financial performance and results with the
Investment Manager. Responsibility for accounting and secretarial
services has been contractually delegated to Mercia under the
management agreement. Mercia has established its own system
of internal controls in relation to these matters, details of which
have been reviewed by the Audit Committee.
Non-financial internal controls include the systems of operational
and compliance controls maintained by the Investment
Manager in relation to the Company’s business as well as the
management of key risks as referred to in the section headed ‘Risk
management’ below.
The Directors confirm that by means of the procedures set out
above, and in accordance with ‘Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting’,
published by the Financial Reporting Council, they have
established a continuing process for identifying, evaluating
and managing the significant potential risks faced by the
Company and have reviewed the effectiveness of the internal
control systems. This process has been in place throughout, and
subsequent to, the accounting period under review.
Risk management
Risk management is discussed in the Strategic Report on page 19.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
45
Share capital, rights attaching to the shares and
restrictions on voting and transfer
As at 31 March 2024 there were 137,164,335 ordinary shares in
issue (as at that date none of the issued shares were held by
the Company as treasury shares). Subject to any suspension or
abrogation of rights pursuant to relevant law or the Company’s
articles of association, the shares confer on their holders (other
than the Company in respect of any treasury shares) the following
principal rights:
(a) the right to receive out of profits available for distribution
such dividends as may be agreed to be paid (in the case of
a final dividend in an amount not exceeding the amount
recommended by the Board as approved by shareholders in
general meeting or in the case of an interim dividend in an
amount determined by the Board). All dividends unclaimed
for a period of 12 years aſter having become due for payment
are forfeited automatically and cease to remain owing by the
Company;
(b) the right, on a return of assets on a liquidation, reduction
of capital or otherwise, to share in the surplus assets of the
Company remaining aſter payment of its liabilities pari passu
with the other holders of ordinary shares; and
(c) the right to receive notice of and to attend and speak and vote
in person or by proxy at any general meeting of the Company.
On a show of hands every member present or represented and
voting has one vote and on a poll every member present or
represented and voting has one vote for every share of which
that member is the holder; the appointment of a proxy must be
received not less than 48 hours before the time of the holding
of the relevant meeting or adjourned meeting or, in the case
of a poll taken otherwise than at or on the same day as the
relevant meeting or adjourned meeting, be received aſter the
poll has been demanded and not less than 24 hours before the
time appointed for the taking of the poll.
These rights can be suspended. If a member, or any other person
appearing to be interested in shares held by that member, has
failed to comply within the time limits specified in the Company’s
articles of association with a notice pursuant to Section 793 of the
Companies Act 2006 (notice by company requiring information
about interests in its shares), the Company can until the default
ceases suspend the right to attend and speak and vote at a
general meeting and if the shares represent at least 0.25% of
their class the Company can also withhold any dividend or other
money payable in respect of the shares (without any obligation
to pay interest) and refuse to accept certain transfers of the
relevant shares.
Shareholders, either alone or with other shareholders, have other
rights as set out in the Company’s articles of association and in
the Companies Act 2006.
A member may choose whether their shares are evidenced
by share certificates (certificated shares) or held in electronic
(uncertificated) form in CREST (the UK electronic settlement
system). Any member may transfer all or any of their shares,
subject in the case of certificated shares to the rules set out in the
Company’s articles of association or in the case of uncertificated
shares to the regulations governing the operation of CREST (which
allow the Directors to refuse to register a transfer as therein set
out); the transferor remains the holder of the shares until the
name of the transferee is entered in the register of members.
The Directors may refuse to register a transfer of certificated
shares in favour of more than four persons jointly or where there
is no adequate evidence of ownership or the transfer is not duly
stamped (if so required). The Directors may also refuse to register
a share transfer if it is in respect of a certificated share which is not
fully paid up or on which the Company has a lien provided that,
where the share transfer is in respect of any share admitted to
the Official List maintained by the UK Listing Authority, any such
discretion may not be exercised so as to prevent dealings taking
place on an open and proper basis, or if in the opinion of the
Directors (and with the concurrence of the UK Listing Authority)
exceptional circumstances so warrant, provided that the exercise
of such power will not disturb the market in those shares. Whilst
there are no squeeze-out and sell-out rules relating to the shares
in the Company’s articles of association, shareholders are subject
to the compulsory acquisition provisions in Sections 974 to 991 of
the Companies Act 2006.
Amendment of articles of association
The Company’s articles of association may be amended by the
members of the Company by special resolution (requiring a
majority of at least 75% of the persons voting on the relevant
resolution).
Appointment and replacement of Directors
A person may be appointed as a Director of the Company by
the shareholders in a general meeting by ordinary resolution
(requiring a simple majority of the persons voting on the
relevant resolution) or by the Directors; no person, other than a
Director retiring by rotation or otherwise, shall be appointed or
reappointed as a Director at any general meeting unless they are
recommended by the Directors or, not less than seven or more
than 42 clear days before the date appointed for the meeting,
notice is given to the Company of the intention to propose that
person for appointment or reappointment in the form and
manner set out in the Company’s articles of association.
Each Director who is appointed by the Directors (and who has not
been elected as a Director of the Company by the members at a
general meeting held in the interval since his appointment as a
Director of the Company) is to be subject to election as a Director
of the Company by the members at the first annual general
meeting of the Company following their appointment. At each
annual general meeting of the Company, any Director who was
not appointed or reappointed at one of the preceding two annual
general meetings shall retire and be subject to re-election.
The Companies Act 2006 allows shareholders in general meeting
by ordinary resolution (requiring a simple majority of the persons
voting on the relevant resolution) to remove any Director before
the expiration of their period of office, but without prejudice to
any claim for damages which the Director may have for breach of
any contract of service between them and the Company.
Corporate governance
continued
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
46
A person also ceases to be a Director if they resign in writing,
cease to be a Director by virtue of any provision of the Companies
Act, become prohibited by law from being a Director, become
bankrupt or is the subject of a relevant insolvency procedure, or
becomes of unsound mind, or if the Board so decides following at
least six months’ absence without leave or if they become subject
to relevant procedures under the mental health laws, as set out in
the Company’s articles of association.
Powers of the Directors
The Company’s articles of association specify that, subject to the
provisions of the Companies Act 2006 and articles of association
of the Company and any directions given by shareholders
by special resolution, the business of the Company is to be
managed by the Directors, who may exercise all the powers of the
Company, whether relating to the management of the business
or not, except where the Companies Act 2006 or the articles of
association of the Company otherwise require. In particular the
Directors may exercise on behalf of the Company its powers to
purchase its own shares to the extent permitted by shareholders.
Authority was given at the Company’s 2023 annual general
meeting to make market purchases of up to 15,590,018 ordinary
shares at any time up to the 2024 Annual General Meeting and
otherwise on the terms set out in the relevant resolution, and
authority is being sought at the Annual General Meeting to be held
on 1 August 2024 as set out in a separate circular.
By order of the Board
Mercia Company Secretarial Services Limited
Company Secretary
18 June 2024
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
47
Directors’ responsibilities statement
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.
Responsibility statement of the Directors in respect
of the annual report and financial statements for the
year ended 31 March 2024
We confirm that to the best of our 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.
We 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.
By order of the Board
Mercia Company Secretarial Services Limited
Company Secretary
18 June 2024
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
48
Independent auditor’s report
Opinion
We have audited the financial statements of Northern 3 VCT
PLC (‘the Company’) for the year ended 31 March 2024 which
comprise the income statement, the balance sheet, the statement
of changes in equity, the statement of cash flows and notes to
the financial statements, including a summary of significant
accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom Accounting
Standards, including FRS 102, ‘The Financial Reporting Standard
applicable in the UK and Republic of Ireland’ (United Kingdom
Generally Accepted Accounting Practice).
In our opinion, the financial statements:
•
give a true and fair view of the state of the Company’s affairs
as at 31 March 2024 and of the Company’s return for the year
then ended;
•
have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
•
have been prepared in accordance with the requirements of
the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under those standards are further described
in the “Auditor’s responsibilities for the audit of the financial
statements” section of our report. We are independent of the
Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities
and public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our audit procedures to evaluate the Directors’ assessment of the
Company’s ability to continue to adopt the going concern basis of
accounting included but were not limited to:
•
Undertaking an initial assessment at the planning stage
of the audit to identify events or conditions that may cast
significant doubt on the Company’s ability to continue as a
going concern;
•
Reviewing the Directors’ going concern assessment that
includes the analysis of the Company’s medium-term viability
over the three years to 31 March 2027, as well as a ‘most
likely’ (base case) scenario and a ‘downside case’ scenario, as
approved by the Board of Directors on 30 May 2024;
•
Making enquiries of the Directors to understand the year of
assessment they considered, the assumptions made, the
completeness of adjustments made, and the implication
of those when assessing the ‘base case’ scenario and the
‘downside case’ scenario. This included examining the
minimum cash inflow and committed outgoings;
•
Assessing the cash flow forecasts for the ‘base case’ and
‘downside case’ scenarios and evaluating whether the
Directors’ conclusion on the liquidity position of the Company
under both scenarios is reasonable;
•
Considering the consistency of the Directors’ forecasts with
other areas of the financial statements and our audit; and
•
Evaluating the appropriateness of the Directors’ disclosures in
the financial statements on going concern.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company’s ability to continue as a going concern for a period of
at least twelve months from when the financial statements are
authorised for issue.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections of
this report.
In relation to the Company’s reporting on how it has applied
the Association of Investment Companies Code of Corporate
Governance (“AIC Code”), we have nothing material to add or
draw attention to in relation to the Directors’ statement in the
financial statements about whether the Director’s considered it
appropriate to adopt the going concern basis of accounting.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current year and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
We summarise below the key audit matters in forming our
audit opinion above, together with an overview of the principal
audit procedures performed to address each matter and key
observations arising from those procedures.
These matters, together with our findings, were communicated
to those charged with governance through our Audit Completion
Report.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
49
Key Audit Matter
How our scope addressed this matter
Valuation and existence of the unquoted investments portfolio
(as described on page 44 in the Audit Committee Report and as per the
accounting policy set out on page 59).
Unquoted investments held as of 31 March 2024 were valued at
£73,645,000 as at 31 March 2024 (year ended March 2023: £68,444,900).
The company has a significant portfolio of unquoted investments.
These investments are measured at fair value, which is established in
accordance with the International Private Equity and Venture Capital
Valuation Guidelines by using measurements of value such as price of
recent transactions subsequently calibrated, earnings multiples and nets
assets. Within these valuations there are a significant level of judgements
made in ascertaining the fair value.
There is therefore a risk that the judgements made under each
methodology may lead to a material misstatement of the investment
values. Additionally, there is a risk that investments recorded might not
exist or might not be owned by the Company.
We therefore identified the valuation and existence of unquoted
investments as a key audit matter, as it had a significant effect on our
overall audit strategy and our allocation of resources.
Our audit work included but was not limited to:
•
Understanding and evaluating management’s process around investment recording and valuations;
•
Engaging our internal valuation specialists in considering whether the techniques and methodologies applied for valuing unquoted investments
are in accordance with published guidance, and specifically the International Private Equity and Venture Capital Valuation Guidelines. Their
involvement included the challenge of the assumptions used by investment managers of Mercia when deriving the fair value of investments,
including the calibration / appropriateness of results based on investment progress and results achieved by investee companies;
•
For investments valued using the recent transaction method, we have obtained an understanding of the circumstances surrounding the transaction
and whether it is considered to be carried out on an arms’ length basis (being therefore a suitable input into the valuation);
•
Examining past date comparison points to understand variations in data and valuation model drivers;
•
Ascertaining the existence of investment holdings by agreeing the holdings to share certificates and loan certificates, and reviewing the Companies
House documentation to verify total share capital of the investees; and
•
Reviewing the adequacy and appropriateness of disclosures of unquoted investments in accordance with the relevant accounting standards,
including the considerations of the potential effect of changing one or more inputs to reasonably possible alternative valuation assumptions,
including within the sensitivity disclosures prepared by Northern 3 VCT PLC.
Our observations
Based on the work performed and evidence obtained, we noted no issues in the existence & valuation of unquoted investments as at 31 March 2024 to be
reasonable and are performed in accordance with the guidelines stated above.
Risk of fraud in revenue recognition
(as per the accounting policy set out on page 59)
The company has recognised significant income earned on its
investments in its income statement. According to the Statement
of Recommended Practice issued by the Association of Investment
Companies (‘AIC SORP’), recognition of revenue relies upon evidence
such as dividend announcements and distribution notices, with an
emphasis on timely recognition on an accruals basis and accurate
separation between capital and income items.
We therefore identified accuracy, completeness and cut-off of revenue
as a key audit matter, as it had a significant effect on our overall audit
strategy and our allocation of resources, including the involvement of
more senior members of the audit team.
Our audit work included but was not limited to:
•
Understanding and assessing the management’s process for revenue recognition, including considering whether the processes for revenue
recognition are in accordance with the requirements of UK GAAP and AIC SORP;
•
For income from quoted investments, forming an expectation for a selected sample of revenues using dividend announcements on recognised
stock exchanges where applicable and checking the point of the recognition, including further detailed testing on dividend announcements one
month either side of the year-end to verify that dividends are recorded in the correct year;
•
For income from unquoted investments, agreeing the dividends to distribution notices from the investees and cash receipts during the year directly
from investees’ funds;
•
For interest income earned on interest-bearing unquoted investments, verifying the key input data and reperforming the calculation of income
received, as well as agreeing revenues to cash receipts;
•
Testing the realised movements on investments by agreeing the proceeds on sales to the bank statements and investment sale agreements, as well
as recalculating the movements based on book cost and proceeds;
•
Performing cut-off testing to verify that dividend income and any investments sales during the year are recognised in the appropriate period.
Our observations
Based on the work performed and evidence obtained, we consider the methodology used in recognising revenue to be appropriate period.
Independent auditor’s report
continued
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
50
Our application of materiality and an overview of the
scope of our audit
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing
and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect of
misstatements, both individually and on the financial statements
as a whole. Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Overall
materiality
£1,222,000 (2023: £1,103,000)
How we
determined
it
The overall materiality level has been calculated with
reference to the Company’s net assets, of which it
represents approximately 1% (2023: approximately 1% of
net assets).
Rationale for
benchmark
applied
Net assets have been identified as the principal benchmark
within the financial statements as they are considered to be
the main focus of the shareholders. The significant degree
of judgements underpinning the valuation of unquoted
investments is the main rationale behind the risk of error we
identified in the valuations that could give rise to a material
misstatement. 1% has been chosen as it is a generally
accepted auditing practice for investment trust audits and
the company is a public interest entity.
Performance
materiality
Performance materiality is set to reduce to an appropriately
low level the probability that the aggregate of uncorrected
and undetected misstatements in the financial statements
exceeds materiality for the financial statements as a whole.
Based on our risk assessments, together with our
assessment of the overall control environment and the
consideration of our previous audit experience with the
Company, our performance materiality was set at £916,000
(2023: £827,000), which is 75% of overall materiality (2023:
75% of overall materiality).
Reporting
threshold
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£37,000 (2023: £33,000) as well as misstatements below
that amount that, in our view, warranted reporting for
qualitative reasons.
As part of designing our audit, we assessed the risk of material misstatement in the financial statements, whether due to fraud or error,
and then designed and performed audit procedures responsive to those risks. In particular, we looked at where the Directors made
subjective judgements such as making assumptions on significant accounting estimates.
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements
as a whole. We used the outputs of a risk assessment, our understanding of the Company, its environment, controls and critical
business processes, to consider qualitative factors in order to ensure that we obtained sufficient coverage across all financial statement
line items.
Other information
The other information comprises the information included in the Annual Report other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements, or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to
a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the Directors’ report for the year for which the financial statements are
prepared is consistent with the financial statements and those reports have been prepared in accordance with applicable legal
requirements;
•
the information about internal control and risk management systems in relation to financial reporting processes and about share
capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Guidance and Transparency Rules sourcebook
made by the Financial Conduct Authority (the ‘FCA Rules’), is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements; and
•
information about the Company’s corporate governance code and practices and about its administrative, management and
supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
51
Independent auditor’s report
continued
Matters on which we are required to report by
exception
In light of the knowledge and understanding of the Company and
its environment obtained in the course of the audit, we have not
identified material misstatements in;
•
the strategic report or the Directors’ report; or
•
the information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5
and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
•
adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the Company financial statements and the part of the
Directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
•
certain disclosures of Directors’ remuneration specified by law
are not made; or
•
we have not received all the information and explanations we
require for our audit; or
•
a corporate governance statement has not been prepared by
the Company.
Corporate governance statement
The Listing Rules require us to review the Directors’ statement in
relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the Company’s
compliance with the provisions of the Association of Investment
Companies Code of Corporate Governance (“AIC Code”) specified
for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
•
Directors’ statement with regards the appropriateness of
adopting the going concern basis of accounting and any
material uncertainties identified set out on page 36;
•
Directors’ explanation as to its assessment of the entity’s
prospects, the period this assessment covers and why the
period is appropriate set out on page 36.
•
Directors’ statement on fair, balanced and understandable set
out on page 44;
•
Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 45;
•
The section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 19; and;
•
The section describing the work of the audit committee set out
on page 43.
Responsibilities of directors
As explained more fully in the Directors’ responsibilities
statement set out on page 48, the Directors are responsible for
the preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the Directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud.
Based on our understanding of the Company and its industry,
we considered that non-compliance with the following laws
and regulations might have a material effect on the financial
statements: the Data Protection Act 2018, the UK GDPR, the
Bribery Act 2010, and anti-money laundering regulations.
To help us identify instances of non-compliance with these
laws and regulations, and in identifying and assessing the risks
of material misstatement in respect to non-compliance, our
procedures included, but were not limited to:
•
Gaining an understanding of the legal and regulatory
framework applicable to the Company and the industry in
which it operates, and considering the risk of acts by the
Company which were contrary to the applicable laws and
regulations, including fraud;
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
52
•
Inquiring of the Directors, management and, where
appropriate, those charged with governance, as to whether
the Company is in compliance with laws and regulations, and
discussing their policies and procedures regarding compliance
with laws and regulations;
•
Inspecting correspondence with relevant licensing or
regulatory authorities, including HMRC and FCA;
•
Reviewing minutes of Directors’ meetings in the year; and
•
Discussing amongst the engagement team the laws and
regulations listed above, and remaining alert to any
indications of non-compliance.
We also considered those laws and regulations that have a direct
effect on the preparation of the financial statements, such as the
Listing Rules, HMRC Investment Trust rules, the UK Corporate
Governance Code, the AIC code of Corporate Governance, the
Companies Act 2006 and UK tax legislation. We identified the
risk of non-compliance with the provisions of Section 274 of the
Income Tax Act 2007, as well as the conditions under the Finance
Act 2018 for the maintenance of the VCT approved status, as the
principal area of laws and regulations that could have a material
impact on the continuance of the Company. We engaged internal
tax experts to review of the Company’s compliance with the
applicable regulations
In addition, we evaluated the Directors’ and management’s
incentives and opportunities for fraudulent manipulation of
the financial statements, including the risk of management
override of controls, and determined that the principal risks
related to posting manual journal entries to manipulate financial
performance, management bias through judgements and
assumptions in significant accounting estimates, in particular
in relation to the valuation of unquoted investments, revenue
recognition (which we pinpointed to accuracy, cut-off and
completeness assertions), and significant one-off or unusual
transactions.
Our procedures in relation to fraud included but were not
limited to:
•
Making enquiries of the Directors and management on
whether they had knowledge of any actual, suspected or
alleged fraud;
•
Gaining an understanding of the internal controls established
to mitigate risks related to fraud;
•
Discussing amongst the engagement team the risks of fraud;
and
•
Addressing the risks of fraud through management override of
controls by performing journal entry testing.
The primary responsibility for the prevention and detection of
irregularities, including fraud, rests with both those charged with
governance and management. As with any audit, there remained
a risk of non-detection of irregularities, as these may involve
collusion, forgery, intentional omissions, misrepresentations or
the override of internal controls.
The risks of material misstatement that had the greatest effect on
our audit are discussed in the “Key audit matters” section of this
report.
A further description of our responsibilities is available on
the Financial Reporting Council’s website at www.frc.org.uk/
auditorsresponsibilities. This description forms part of our
auditor’s report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were
appointed by the Audit Committee on 22 December 2020 to audit
the financial statements for the year ended 31 March 2021 and
subsequent financial years. The period of total uninterrupted
engagement is four years, covering the years ended 31 March
2021, 31 March 2022, 31 March 2023 and 31 March 2024.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Company and we remain independent of
the Company in conducting our audit.
During the period under review, there was a breach by Forvis
Mazars LLP of paragraph 2.3a of the FRC Ethical Standard as a
Forvis Mazars LLP partner held shares in Northern 3 VCT PLC. Our
assessment, which has been shared and agreed with Directors, is
that it was a technical breach and does not impact independence
since the respective partner is not considered a covered person as
defined by FRC Ethical Standard. The investment was disposed off
immediately when it was discovered. We therefore concluded that
we remain independent of the Company in conducting our audit.
We continue to monitor and reassess controls in place to prevent
such breaches happening in the future.
Our audit opinion is consistent with the additional report to the
Audit Committee.
Use of the audit report
This report is made solely to the Company’s members as a body
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the
Company’s members as a body for our audit work, for this report,
or for the opinions we have formed.
Stephen Eames (Senior Statutory Auditor)
for and on behalf of Forvis Mazars LLP
Chartered Accountants and Statutory Auditor
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
Date: 18 June 2024
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
53
Income statement
for the year ended 31 March 2024
Notes
Year ended 31 March 2024
Year ended 31 March 2023
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Gain on disposal of investments
8
Movements in fair value of investments
8
(1,540 )
(1,540 )
(126 )
(126 )
Dividend and interest income
2
Investment management fee
3
(528 )
(1,585 )
(2,113 )
(519 )
(1,558 )
(2,077 )
Other expenses
4
(606 )
(606 )
(496 )
(496 )
Return before tax
(283 )
(1,684 )
(1,967 )
Tax on return
5
(82 )
(122 )
Return aſter tax
(161 )
(1,806 )
(1,967 )
Return per share
7
(0.1
(1.5
(1.6
•
The dividends paid or proposed in respect of the year are 4.2p (2023: 4.5p).
•
The total column of the income statement is the statement of total comprehensive income of the Company prepared in accordance with FRS 102 ‘The Financial Reporting Standard applicable in the
UK and Republic of Ireland’. The supplemental revenue return and capital return columns have been prepared in accordance with the Statement of Recommended Practice ‘Financial Statements of
Investment Trust Companies and Venture Capital Trusts’ issued in July 2022 by the Association of Investment Companies (‘AIC SORP’).
•
There are no recognised gains or losses other than those disclosed in the income statement.
•
All items in the above statement derive from continuing operations.
•
No items were recognised in other comprehensive income during the current or prior year.
•
The accompanying notes are an integral part of this statement.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
54
as at 31 March 2024
Notes
31 March
2024
£000
31 March
2023
£000
Fixed assets
Investments
8
Current assets
Debtors
12
Cash and cash equivalents
Creditors (amounts falling due within one year)
13
(158 )
(169 )
Net current assets
Net assets
Capital and reserves
Called-up equity share capital
14
Share premium
15
Capital redemption reserve
15
Capital reserve
15
Revaluation reserve
15
Revenue reserve
15
Total equity shareholders’ funds
Net asset value per share
16
The accompanying notes are an integral part of this statement.
J G D Ferguson
Director
Balance sheet
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
55
Statement of changes in equity
for the year ended 31 March 2024
Notes
Non-distributable reserves
Distributable reserves
Called-up
share capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Revaluation
reserve*
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
At 1 April 2023
Return aſter tax
(1,880 )
Dividends paid
6
(5,295 )
(689 )
(5,984 )
Net proceeds of share issues
15
Shares purchased for cancellation
15
(163 )
(2,800 )
(2,800 )
At 31 March 2024
for the year ended 31 March 2023
Notes
Non-distributable reserves
Distributable reserves
Called-up
share capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Revaluation
reserve*
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
At 1 April 2022
Return aſter tax
(9,105 )
(161 )
(1,967 )
Dividends paid
6
(5,614 )
(627 )
(6,241 )
Net proceeds of share issues
15
Shares purchased for cancellation
15
(169 )
(2,973 )
(2,973 )
At 31 March 2023
*
The accompanying notes are an integral part of this statement.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
56
Statement of cash flows
for the year ended 31 March 2024
Notes
Year ended
31 March
2024
£000
Year ended
31 March
2023
£000
Cash flows from operating activities
Return before tax
(1,967 )
Adjustments for:
(Gain) / loss on disposal of investments
8
(855 )
(1,414 )
Movements in fair value of investments
8
(2,312 )
(Increase) / decrease in debtors
12
(122 )
(47 )
Increase / (decrease) in creditors
13
(11 )
Net cash inflow / (outflow) from operating activities
(262 )
(1,871 )
Cash flows from investing activities
Purchase of investments
8
(17,614 )
(17,699 )
Sale / repayment of investments
8, 12
Net cash inflow / (outflow) from investing activities
(2,757 )
(632 )
Cash flows from financing activities
Issue of ordinary shares
Share issue expenses
15
(535 )
(501 )
Purchase of ordinary shares for cancellation
15
(2,800 )
(2,973 )
Equity dividends paid
6
(5,984 )
(6,241 )
Net cash inflow / (decrease) from financing activities
Increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
57
Notes to the financial statements
1. Accounting policies
A summary of the principal accounting policies, all of which have been consistently applied throughout the year and the preceding year, is set out below.
(a) Basis of accounting
The financial statements have been prepared under FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ and in accordance with the Statement of Recommended Practice
‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued in July 2022 by the Association of Investment Companies (‘AIC SORP’).
The financial statements have been prepared on a going concern basis under the historical cost convention except investments which are stated at their fair value.
The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration the uncertain economic
outlook including:
•
the investments and liquid resources held by the Company;
•
the fact that the Company has no debt or capital commitments;
•
the ability of the Company to meet all of its liabilities and ongoing expenses from its assets, including its year-end cash balance;
•
revenue and operating cost forecasts for the forthcoming year;
•
the ability of third-party service providers to continue to provide services; and
•
potential downside scenarios including a fall in the valuation of the investment portfolio or levels of investment income.
Based on this assessment, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the
financial statements, and therefore determine the going concern basis to be appropriate.
(b) Significant estimates and judgements
Disclosure is required of judgements and estimates made by management in applying the accounting policies that have a significant effect on the financial statements. While estimates are based on best
judgement using information and financial data available, the actual outcome may differ from these estimates. A price sensitivity analysis is provided in the other price risk sensitivity section of Note 17
on page 69.
The key estimate in the financial statements is the determination of the fair value of the unlisted investments by the Directors as it significantly impacts the valuation of the unlisted investments at the
balance sheet date. The fair valuation process involves estimates using inputs that are unobservable. The fair value of the unlisted investments at the balance sheet date was £73,645,000.
The key judgement in the valuation of the unquoted investments process is the Directors’ determination of the appropriate application of the International Private Equity and Venture Capital (‘IPEV’)
guidelines to each unlisted investment. The judgement applied in the selection of the methodology used for determining the fair value of each unlisted investment can have a significant impact upon
the valuation.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
58
(c) Valuation of investments
Purchases and sales of investments are recognised in the financial statements at the date of transaction (trade date).
As permitted by FRS 102 chapters 11 and 12, the Company’s investments are recorded at fair value at the point of acquisition and are measured at subsequent reporting dates at fair value, with any changes
being recognised in profit or loss. The fair value of investments held at 31 March 2024 is £91,001,000 (31 March 2023: £85,775,000). In the case of investments quoted on a recognised stock exchange,
fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending on the convention of the exchange on which the investment is quoted. In the case of
unquoted investments, fair value is established in accordance with IPEV guidelines by using measurements of value such as calibrating to the price of recent investment and earnings or revenue multiples;
where no reliable fair value can be estimated using such techniques, unquoted investments are carried at cost subject to provision for impairment where necessary. This process is used for both the
valuation of unquoted equity and debt investments. In the case of debt investments, debt, including both principal and any accrued interest is valued with reference to their recoverability upon eventual
sale of the Company’s investment. The key assumption when using the price of a recent investment as an input to the valuation is that the price obtained remains a reasonable proxy for fair value for a
period of time such that an enterprise value can be inferred and subsequently recalibrated where necessary to take account of changes to either the prevailing market conditions or performance of the
investee. The price of a recent investment is not a default position for establishing fair value as at the measurement date and when this technique is employed, the resultant valuations are cross-checked
for reasonableness by employing an alternative valuation technique. The key assumptions for the multiples approach are the selection of the most appropriate earnings or revenue measure (historic or
forecast) and the selection of the multiple itself which may be influenced by the multiples achieved by a range of comparable companies in either private or public transactions.
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the income statement and allocated to the revaluation reserve. Transaction costs
attributable to the acquisition or disposal of investments are charged to capital return within the income statement.
(d) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits, including short-term highly liquid investments and money market funds readily convertible to known amounts of cash.
(e) Income
Dividends receivable on quoted equity shares are recognised on the ex-dividend date. Dividends receivable on the portfolio of quoted equity investments held for liquidity purposes are recognised on the
date of receipt due to the nature of how this portfolio is managed. Dividends receivable on unquoted equity shares are recognised when the Company’s right to receive payment is established and there is no
reasonable doubt that payment will be received. Fixed income returns on non-equity shares and debt securities are recognised on an effective interest rate basis, provided there is no reasonable doubt that
payment will be received in due course.
(f) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to revenue return within the income statement except that:
•
expenses which are incidental to the acquisition or disposal of an investment are allocated to capital return as incurred; and
•
expenses are split and allocated partly to capital return where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated, and accordingly the
basic element of the investment management fee has been allocated 25% to revenue return and 75% to capital return, in order to reflect the Directors’ expected long-term view of the nature of the
investment returns of the Company. The performance-related element of the investment management fee is charged 100% to capital return.
(g) Revenue and capital
The revenue column of the income statement includes all income and revenue expenses of the Company. The capital column includes realised and unrealised gains and losses on investments and that part
of the investment management fee which is allocated to capital return.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
59
Notes to the financial statements
continued
(h) Taxation
UK corporation tax payable is provided on taxable profits at the current rate. The tax charge for the year is allocated between revenue return and capital return on the ‘marginal basis’ as recommended in the
SORP. Provision is made for deferred taxation on all timing differences calculated at the current rate of tax relevant to the benefit or liability.
(i) Dividends payable
Dividends payable are recognised as distributions in the financial statements when the Company’s liability to make payment has been established.
( j) Provisions
A provision is recognised in the balance sheet when the Company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to
settle the obligation. No provision is established where a reliable estimate of the obligation cannot be made. Provisions are allocated to revenue or capital depending on the nature of the circumstances.
(k) Share capital account
The share capital account represents the nominal value of all shares issued by the Company.
(l) Share premium account
The share premium account represents the value paid by shareholders for shares above the nominal value.
(m) Capital redemption reserve
The capital redemption reserve is a non-distributable reserve into which amounts are transferred following the redemption or purchase of a company’s own shares.
(n) Revaluation reserve
Changes in the fair value of investments are dealt with in this reserve.
(o) Capital reserve
The following are accounted for in the capital reserve: gains or losses on the realisation of investments; the cost of repurchasing ordinary shares, including stamp duty and transaction costs; and other
capital charges and credits charged to this account in accordance with the above policies.
(p) Revenue reserve
The revenue reserve comprises the retained earnings of a business from profits made in the current and prior periods.
(q) Segmental reporting
The Company has a single operating segment carrying out the investment activity of the Company. All venture investments are based in the UK.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
60
2. Income
|
Year ended
31 March
2024
£000
|
Year ended
31 March
2023
£000
|
|
|
Investment income:
|
||
|
Dividends from unquoted companies
|
370
|
21
|
|
Dividends from quoted companies
|
311
|
336
|
|
Money market funds*
|
1,103
|
185
|
|
Bank deposits*
|
443
|
41
|
|
Loans to unquoted companies
|
363
|
149
|
|
2,590
|
732
|
*
Denotes income arising from investments not designated as fair value through profit or loss.
3. Investment management fee
|
Year ended
|
Year ended
|
|||||
|
31 March 2024
|
31 March 2023
|
|||||
|
Revenue
£000
|
Capital
£000
|
Total
£000
|
Revenue
£000
|
Capital
£000
|
Total
£000
|
|
|
Investment management fee
|
||||||
|
Basic
|
528
|
1,585
|
2,113
|
519
|
1,558
|
2,077
|
|
Performance-related
|
–
|
–
|
–
|
–
|
–
|
–
|
|
528
|
1,585
|
2,113
|
519
|
1,558
|
2,077
|
|
Mercia Fund Management Limited (Mercia) provides investment management, secretarial and administrative services to the Company under an agreement dated 20 December 1999, which may be
terminated at any time by not less than 12 months’ notice being given by either party.
The Manager receives a basic management fee, payable quarterly in advance, at the rate of 2.06% per annum of net assets calculated half-yearly as at 31 March and 30 September. The fee due on the value
of liquid assets above the threshold of £20 million attracts a reduced rate of 1% per annum. The Manager bears the cost of the fees of Brewin Dolphin for managing the listed interest-bearing and equity
portfolios. The Manager also provides administrative and secretarial services to the Company for an annualised fee as at 31 March 2024 of £75,000 per annum (linked to the movement in the RPI). This fee is
included in other expenses (see Note 4).
The Manager is entitled to receive an annual performance-related management fee. The fee is calculated on annual performance above the higher of the annual hurdle of 5% of opening NAV per share and
the deficit to the high water mark total return brought forward (together, the ‘Excess Return’). The performance-related management fee is calculated at 14% of the Excess Return and the payment of the
performance-related management fee in any one year is capped to 2.25% of the net asset value at the start of the year with the balance being deferred. There were no performance-related management fees
due in respect of the year ended 31 March 2024 (2023: nil).
The total running costs of the Company, excluding performance-related management fees and any irrecoverable VAT thereon, are capped at 2.9% of its net assets and Mercia has agreed that any excess will
be refunded by way of a reduction in its fees.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
61
Notes to the financial statements
continued
4. Other expenses
|
Year ended
31 March
2024
£000
|
Year ended
31 March
2023
£000
|
|
|
Administrative and secretarial services
|
73
|
66
|
|
Directors’ remuneration
|
134
|
128
|
|
National Insurance contributions
|
13
|
13
|
|
Auditor’s remuneration
|
||
|
– audit services
|
63
|
58
|
|
– non-audit services
|
–
|
–
|
|
Legal and professional expenses
|
49
|
19
|
|
Share issue promoter’s commission
|
35
|
43
|
|
Other expenses
|
239
|
169
|
|
606
|
496
|
Information on the Directors’ remuneration is given in the Directors’ Remuneration Report on pages 40 and 41.
5. Tax on return for the year
|
Year ended
|
Year ended
|
|||||
|
31 March 2024
|
31 March 2023
|
|||||
|
Revenue
£000
|
Capital
£000
|
Total
£000
|
Revenue
£000
|
Capital
£000
|
Total
£000
|
|
|
(a) Analysis of charge / (credit) for the year
|
||||||
|
UK corporation tax payable / (recoverable) on the return for the year
|
(82)
|
82
|
–
|
(122)
|
122
|
–
|
|
(b) Tax reconciliation
|
||||||
|
Return before tax
|
1,456
|
1,582
|
3,038
|
(283)
|
(1,684)
|
(1,967)
|
|
Return multiplied by the standard rate of UK corporation tax of 25.0% (2023: 19.0%)
|
364
|
396
|
760
|
(54)
|
(320)
|
(374)
|
|
Effect of:
|
||||||
|
Dividends not subject to tax
|
(446)
|
–
|
(446)
|
(68)
|
–
|
(68)
|
|
Capital returns not subject to tax
|
–
|
(216)
|
(216)
|
–
|
(269)
|
(269)
|
|
Movements in fair value of investments not subject to tax
|
–
|
(576)
|
(576)
|
–
|
293
|
293
|
|
Increase in surplus management expenses
|
–
|
478
|
478
|
–
|
418
|
418
|
|
Tax (credit) / charge for the year
|
(82)
|
82
|
–
|
(122)
|
122
|
–
|
(c) Factors which may affect future tax charges
The Company has not recognised a deferred tax asset in respect of surplus management expenses carried forward of £12,696,000 (31 March 2023: £10,599,000), as the Company may not generate sufficient
taxable income in the foreseeable future to utilise these expenses. There is no other unprovided deferred taxation.
Approved venture capital trusts are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a
venture capital trust, no current or deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
62
6. Dividends
|
Year ended
|
Year ended
|
|||||
|
31 March 2024
|
31 March 2023
|
|||||
|
Revenue
£000
|
Capital
£000
|
Total
£000
|
Revenue
£000
|
Capital
£000
|
Total
£000
|
|
|
(a) Recognised as distributions in the financial statements for the year
|
||||||
|
Previous year’s final dividend
|
–
|
3,229
|
3,229
|
627
|
3,133
|
3,760
|
|
Current year’s first interim dividend
|
689
|
2,066
|
2,755
|
–
|
2,481
|
2,481
|
|
689
|
5,295
|
5,984
|
627
|
5,614
|
6,241
|
|
|
(b) Paid and proposed in respect of the year
|
||||||
|
Interim paid – 2.0p (2023: 2.0p) per share
|
689
|
2,066
|
2,755
|
–
|
2,481
|
2,481
|
|
Final proposed – 2.2p (2023: 2.5p) per share
|
686
|
2,332
|
3,018
|
–
|
3,083
|
3,083
|
|
1,375
|
4,398
|
5,773
|
–
|
5,564
|
5,564
|
|
The revenue dividends paid and proposed in respect of the year form the basis for determining whether the Company has complied with the requirements of Section 274 of the Income Tax Act 2007 as to the
distribution of investment income.
7. Return per share
The calculation of the return per share is based on the return aſter tax for the year of £3,038,000 (2023: loss £1,967,000) and on 131,811,967 (2023: 124,886,897) shares, being the weighted average number of
shares in issue during the year.
8. Investments
All investments are accounted for as fair value through profit or loss on initial recognition, therefore all gains and losses arising on these investments are reflected through the profit or loss.
FRS 102, including subsequent amendments, requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy shall have the following classifications:
•
•
•
Level 1 – unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2 – inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3 – inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
|
31 March
2024
£000
|
31 March
2023
£000
|
|
|
Level 1
|
||
|
Quoted venture capital investments
|
4,521
|
5,568
|
|
Listed equity investment funds
|
12,835
|
11,762
|
|
Level 3
|
||
|
Unquoted venture capital investments
|
73,645
|
68,445
|
|
91,001
|
85,775
|
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
63
Notes to the financial statements
continued
Movements in investments during the year are summarised as follows:
|
Venture capital – unquoted
Level 3
£000
|
Venture capital – quoted
Level 1
£000
|
Listed equity
Level 1
£000
|
Total
£000
|
|
|
Book cost at 31 March 2023
|
67,747
|
3,196
|
10,278
|
81,221
|
|
Fair value adjustment at 31 March 2023
|
698
|
2,372
|
1,484
|
4,554
|
|
Fair value at 31 March 2023
|
68,445
|
5,568
|
11,762
|
85,775
|
|
Movements in the year:
|
||||
|
Purchases at cost
|
15,098
|
–
|
2,516
|
17,614
|
|
Disposals – proceeds
|
(12,784)
|
(342)
|
(2,429)
|
(15,555)
|
|
– net realised gains on disposal
|
698
|
7
|
150
|
855
|
|
Movements in fair value
|
2,188
|
(712)
|
836
|
2,312
|
|
Fair value at 31 March 2024
|
73,645
|
4,521
|
12,835
|
91,001
|
|
Comprising:
|
||||
|
Book cost at 31 March 2024
|
75,061
|
2,952
|
10,314
|
88,327
|
|
Fair value adjustment at 31 March 2024
|
(1,416)
|
1,569
|
2,521
|
2,674
|
|
73,645
|
4,521
|
12,835
|
91,001
|
|
|
Equity shares
|
57,106
|
4,521
|
12,835
|
74,462
|
|
Preference shares
|
7,431
|
–
|
–
|
7,431
|
|
Interest-bearing securities
|
9,108
|
–
|
–
|
9,108
|
|
73,645
|
4,521
|
12,835
|
91,001
|
The gains and losses included in the above table have all been recognised in the income statement on page 54. The listed equity category in the table above comprises quoted investment funds which hold
listed equity securities.
FRS 102 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value
measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of each investee company. See
Note 17 for details of the impact of sensitivity analysis on the financial statements.
Details of movements in the venture investment portfolio during the period is provided in the Investment Portfolio section on page 22.
At 31 March 2024 there were no commitments (31 March 2023: nil) in respect of investments approved by the Manager but not yet completed.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
64
9. Investment disposals
Disposals of venture investments during the year were as follows:
|
Original cost
£000
|
Carrying value
at 31 March
2023
£000
|
Disposal
proceeds
£000
|
Realised
gain against
carrying value
£000
|
||
|
Evotix – disposal of entire holding
|
2,487
|
11,383
|
12,079
|
696
|
|
|
Avid – deferred proceeds
|
–
|
–
|
175
|
175
|
|
|
AVID Technology Group – deferred proceeds
|
–
|
–
|
143
|
143
|
|
|
Knowledgemotion (t / a Boclips) – deferred proceeds
|
235
|
332
|
337
|
5
|
|
|
Intechnica Holdings – deferred proceeds
|
–
|
–
|
38
|
38
|
|
|
Arrow Technical Services – deferred proceeds
|
–
|
–
|
12
|
12
|
|
|
S&P coil – deferred proceeds
|
–
|
–
|
7
|
7
|
|
|
Fresh Approach (UK) Holdings – amortisation of loan notes
|
36
|
36
|
36
|
–
|
|
|
Velocity Composites – partial disposal
|
8
|
3
|
5
|
2
|
|
|
Haystack Dryers – disposal of entire holding
|
1,284
|
187
|
213
|
26
|
|
|
Medovate – disposal of entire holding
|
1,591
|
480
|
81
|
(399)
|
|
|
Sorted Holdings – partial disposal
|
2,388
|
–
|
–
|
–
|
|
|
8,029
|
12,421
|
13,126
|
705
|
The cost of the venture investments disposed of in the preceding financial year was £6,680,000 for disposal proceeds totalling £15,447,000.
10. Unquoted investments
The cost and carrying value of material investments in unquoted companies held at 31 March 2024 are shown in the table on page 22.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
65
Notes to the financial statements
continued
11. Significant interests
At 31 March 2024 the Company held significant investments, amounting to 20% or more of the equity capital of an undertaking, in the following companies:
|
Company
|
Registered office address
|
Investment type
|
Equity
£000
|
Debt
£000
|
Total investment cost
£000
|
|
Gentronix
|
Block 23 Mereside, Alderley Park, Alderley Edge, Cheshire SK10 4TG
|
Unquoted
|
733
|
71
|
805
|
|
Biological Preparations Group
|
Unit 12 A-C Pantglas Industrial Estate, Bedwas, Caerphilly CF83 8DR
|
Unquoted
|
504
|
1,412
|
1,915
|
|
Volumatic Holdings
|
Taurus House, Endemere Road, Coventry CV6 5PY
|
Unquoted
|
216
|
–
|
216
|
|
Pure Pet Food
|
Unit 4 Chain Bar Road, Cleckheaton BD19 3QF
|
Unquoted
|
1,281
|
320
|
1,601
|
During the period the Company received loan note interest totalling £7,000 from Gentronix and dividend income totalling £185,000 from Volumatic Holdings. No amounts were received from the other
significant investments.
12. Debtors
|
31 March
2024
£000
|
31 March
2023
£000
|
|
|
Accrued income
|
200
|
78
|
|
Due from investment sales
|
698
|
–
|
|
Prepayments
|
29
|
29
|
|
927
|
107
|
13. Creditors (amounts falling due within one year)
|
31 March
2024
£000
|
31 March
2023
£000
|
|
|
Accruals and deferred income
|
158
|
169
|
|
158
|
169
|
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
66
14. Called-up equity share capital
|
31 March
2024
£000
|
31 March
2023
£000
|
|
|
Allotted and fully paid:
|
||
|
137,164,335 (2023: 123,319,779) ordinary shares of 5.0p
|
6,858
|
6,166
|
The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective, as set out on page 14. The Company is not subject to externally
imposed capital requirements.
During the year the Company issued 17,099,780 ordinary shares of 5.0p for cash at an average premium of 87.3p per share. 3,255,224 shares were purchased for cancellation during the year at a cost of
£2,800,000.
15. Reserves
|
Share
premium
£000
|
Capital
redemption
reserve
£000
|
Capital
reserve
£000
|
Revaluation
reserve
£000
|
Revenue
reserve
£000
|
|
|
At 1 April 2023
|
37,344
|
771
|
63,561
|
4,554
|
597
|
|
Premium on issue of ordinary shares
|
14,929
|
–
|
–
|
–
|
–
|
|
Share issue expenses
|
(535)
|
–
|
–
|
–
|
–
|
|
Shares purchased for cancellation
|
–
|
163
|
(2,800)
|
–
|
–
|
|
Realised on disposal of investments
|
–
|
–
|
855
|
–
|
–
|
|
Transfer on disposal of investments
|
–
|
–
|
4,192
|
(4,192)
|
–
|
|
Movements in fair value of investments
|
–
|
–
|
–
|
2,312
|
–
|
|
Management fee charged to capital net of associated tax
|
–
|
–
|
(1,667)
|
–
|
–
|
|
Revenue return aſter tax
|
–
|
–
|
–
|
–
|
1,538
|
|
Dividends recognised in the year
|
–
|
–
|
(5,295)
|
–
|
(689)
|
|
At 31 March 2024
|
51,738
|
934
|
58,846
|
2,674
|
1,446
|
At 31 March 2024 distributable reserves amounted to £62,813,000 (31 March 2023: £65,642,000), comprising the capital reserve, the revenue reserve and that part of the revaluation reserve relating to holding
gains or losses on readily realisable equity investments.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
67
Notes to the financial statements
continued
16. Net asset value per share
The calculation of net asset value per share as at 31 March 2024 is based on net assets of £122,496,000 (2023: £112,993,000) divided by the 137,164,335 (2023: 123,319,779) ordinary shares in issue at
that date.
17. Financial instruments
The Company’s financial instruments comprise equity and interest-bearing investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in
accordance with its investment policy of investing mainly in a portfolio of VCT-qualifying unquoted and AIM-quoted securities whilst holding a proportion of its assets in cash or near-cash investments in
order to provide a reserve of liquidity.
Fixed asset investments (see Note 8) are valued at fair value. For quoted investments this is either bid price or the latest traded price, depending on the convention of the exchange on which the investment is
quoted. Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines. The fair value of all other financial assets and liabilities
is represented by their carrying value in the balance sheet, due to the short term nature of these instruments.
In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk
facing the Company are market risk, credit risk and liquidity risk. The Company’s approach to managing these risks is set out below together with a description of the nature and amount of the financial
instruments held at the balance sheet date.
Market risk
The Company’s strategy for managing investment risk is determined with regard to the Company’s investment objective, as outlined in the Strategic Report on page 14. The management of market risk is
part of the investment management process and is a central feature of venture capital investment. The Company’s portfolio is managed in accordance with the policies and procedures described in the
Corporate Governance statement on pages 42 to 47, having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in
unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by
diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company’s assets is monitored by the Board on a quarterly basis.
Details of the Company’s investment portfolio at the balance sheet date are set out on page 22. An analysis of investments between debt and equity instruments is given in Note 8.
14.2% (31 March 2023: 15.5%) by value of the Company’s net assets comprises equity securities listed on regulated stock exchanges. A 5% increase in the bid price of these securities as at 31 March 2024
would have increased net assets and the total return for the year by £868,000 (31 March 2023: £867,000); a corresponding fall would have reduced net assets and the total return for the year by the same
amount.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
68
Other price risk sensitivity
60.1% (31 March 2023: 60.6%) by value of the Company’s net assets comprises investments in unquoted companies held at fair value. A sensitivity analysis is provided below which recognises that the
valuation methodologies employed involve subjectivity in the selection of the key inputs, as described in the valuation policy on page 59. Although the Directors believe that the estimates of fair value
are appropriate, the use of different methodologies or assumptions regarding the inputs could lead to different measurements of fair value. Each portfolio company has been categorised as being subject
to potentially higher or lower estimation uncertainty by considering a range of factors including the potential disruption to business activities and the availability and extent of cash resources. A greater
sensitivity factor has been applied to those investments assessed as being susceptible to higher estimation uncertainty. Whilst the sensitivities applied illustrate the impact of varying the key inputs by the
levels specified, it is possible that applying reasonable alternative assumptions to individual investments could lead to measurements of fair value which vary to a greater extent than that illustrated.
|
Fair value of
|
Impact: increase*
|
Impact: decrease*
|
||||
|
unquoted
|
||||||
|
As at 31 March 2024
Valuation basis
|
investments
£000
|
Variable input
sensitivity
|
£000*
|
% of net
assets
|
£000*
|
% of net
assets
|
|
Earnings / revenue multiple
|
||||||
|
Higher sensitivity
|
19,424
|
+ / – 20%
|
3,533
|
2.9%
|
3,154
|
2.6%
|
|
Lower sensitivity
|
24,461
|
+ / – 10%
|
1,746
|
1.4%
|
1,887
|
1.5%
|
|
Price of a recent investment subsequently calibrated as appropriate
|
||||||
|
Higher sensitivity
|
13,818
|
+ / – 20%
|
1,560
|
1.3%
|
644
|
0.5%
|
|
Lower sensitivity
|
15,942
|
+ / – 10%
|
707
|
0.6%
|
650
|
0.5%
|
|
Total unquoted investments
|
73,645
|
7,546
|
6.2%
|
6,335
|
5.1%
|
|
|
As at 31 March 2023 Valuation basis
|
||||||
|
Earnings / revenue multiple
|
||||||
|
Higher sensitivity
|
1,577
|
+ / – 20%
|
251
|
0.2%
|
153
|
0.1%
|
|
Lower sensitivity
|
18,948
|
+ / – 10%
|
1,384
|
1.2%
|
1,633
|
1.4%
|
|
Price of a recent investment subsequently calibrated as appropriate
|
||||||
|
Higher sensitivity
|
14,877
|
+ / – 20%
|
611
|
0.5%
|
447
|
0.4%
|
|
Lower sensitivity
|
33,043
|
+ / – 10%
|
2,569
|
2.3%
|
2,348
|
2.1%
|
|
Total unquoted investments
|
68,445
|
4,815
|
4.3%
|
4,581
|
4.0%
|
|
*
Impact on net assets and net return aſter taxation.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
69
Notes to the financial statements
continued
Interest rate risk
Some of the Company’s financial assets are interest-bearing, of which some are at fixed rates and some variable. As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the
prevailing levels of market interest rates.
(a) Fixed rate investments
The table below summarises weighted average effective interest rates for the Company’s fixed rate interest-bearing financial instruments:
|
31 March 2024
|
31 March 2023
|
|||||
|
Total fixed
rate portfolio
£000
|
Weighted
average
interest rate
%
|
Weighted
average
period for
which rate
is fixed
Years
|
Total fixed rate
portfolio
£000
|
Weighted
average
interest rate
%
|
Weighted
average
period for
which rate
is fixed
Years
|
|
|
Fixed rate investments in unquoted companies
|
8,327
|
10.3%
|
1.5
|
7,663
|
8.7%
|
2.4
|
Although the Company holds investments in loan stocks that pay interest, the Board does not consider it appropriate to assess the impact of interest rate changes in isolation upon the value of the unquoted
investment portfolio, as interest rate changes are only one factor affecting the market price movements that are discussed above under market price risk.
(b) Floating rate investments
The Company’s floating rate investments comprise floating rate loans to unquoted companies and cash held in interest-bearing deposit accounts. The benchmark rate which determines the rate of interest
receivable is the UK bank base rate for interest-bearing deposit accounts, which was 5.25% at 31 March 2024 (31 March 2023: 4.25%) and the LIBOR three-month GBP rate for floating rate loans to unquoted
companies, which was 5.30% at 31 March 2024 (31 March 2023: 4.42%). It is considered that an increase or decrease of 100 basis points in interest rates as at the reporting date would not have a significant
effect on the Company’s net assets or total return for the year. The amounts held in floating rate investments at the balance sheet date were as follows:
|
31 March
2024
£000
|
31 March
2023
£000
|
|
|
Floating rate loans to unquoted companies
|
781
|
2,734
|
|
Cash deposits
|
30,726
|
27,280
|
|
31,507
|
30,014
|
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
70
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry
out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date.
At 31 March 2024 the Company’s financial assets exposed to credit risk comprised the following:
|
31 March
2024
£000
|
31 March
2023
£000
|
|
|
Fixed rate investments in unquoted companies (above)
|
8,327
|
7,663
|
|
Floating rate loans to unquoted companies (above)
|
781
|
2,734
|
|
Cash deposits (per balance sheet)
|
30,726
|
27,279
|
|
Accrued dividends and interest receivable
|
200
|
78
|
|
40,034
|
37,754
|
Credit risk relating to loans and preference shares in unquoted companies is considered to be part of market risk. The balances included within unquoted loan investments related to loans which were past
due as at 31 March 2024 is nil (31 March 2023: nil). The exposure to credit risk on accrued income is mitigated by performing loan affordability evaluations on investee companies as part of the investment
due diligence process.
Those assets of the Company which are traded on recognised stock exchanges are held on the Company’s behalf by a third party custodian (a nominee company of Brewin Dolphin Limited). Bankruptcy or
insolvency of a custodian could cause the Company’s rights with respect to securities held by the custodian to be delayed or limited.
Credit risk arising on transactions with brokers relates to transactions in quoted securities awaiting settlement. Risk relating to unsettled transactions is considered to be low due to the short settlement
period involved and the high credit quality of the brokers used. The Board further mitigates the risk by monitoring the quality of service provided by the brokers.
The Company’s interest-bearing deposit accounts are maintained with major banks of high creditworthiness.
There were no significant concentrations of credit risk to counterparties at 31 March 2024 or 31 March 2023.
Liquidity risk
The Company’s financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally may be illiquid. As a result, the Company
may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as a
deterioration in the creditworthiness of any particular issuer.
The Company’s liquidity risk is managed on a continuing basis by the Investment Manager in accordance with policies and procedures laid down by the Board. The Company’s overall liquidity risks are
monitored on a quarterly basis by the Board.
The Company maintains sufficient cash and readily realisable securities to pay accounts payable and accrued expenses. At 31 March 2024 these investments were valued at £43,561,000 (31 March 2023:
£39,041,000).
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
71
Notes to the financial statements
continued
18. Contingencies
At 31 March 2024 contingent assets not recognised in the financial statements in respect of potential deferred proceeds from the sale of investee companies amounted to approximately £676,000
(31 March 2023: £950,000). The extent to which these amounts will become receivable in due course is dependent on future events.
The Company had no contingent liabilities at 31 March 2024 or 31 March 2023.
19. Related party transactions
Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors’ Remuneration Report on pages 40 and 41.
There were no amounts outstanding and due to the Directors as at 31 March 2024 (31 March 2023: nil).
Transactions with the Manager are disclosed in Note 3.
20. Post balance sheet events
Aſter the year end, on 4 April 2024, the Company issued 11,702,332 ordinary shares for a net consideration of £10,497,000, as a result of a prospectus share offer launched during the year ended
31 March 2024.
On 5 April 2024, the Company invested £961,000 in existing portfolio company, Naitive Technologies, by way of a follow-on funding round.
On 11 June 2024, the Company invested £276,000 in existing portfolio company, Adludio, by way of a follow on funding round.
On 14 June 2024, final consideration of £707,000 was received in respect of the realisation of Evotix.
On 17 June 2024, the Company invested £1,485,000 in Ski Zoom (t / a Heidi Ski), a booking platform for flexible winter mountain breaks.
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
72
Glossary of terms
Alternative performance measure or APM
APMs are not prescribed by accounting standards but are industry-specific performance measures which help users of the annual accounts and financial statements to better interpret and understand
performance. Some of the terms in this glossary have been identified as APMs.
Annualised tax-free dividend yield (APM)
The sum of dividends proposed or paid in respect of the last 12 months as at a given date expressed as a percentage of the net asset value per share at the start of the period. We use this measure as it shows
the dividend income receivable by shareholders over a 12-month period expressed as a theoretical yield based on acquiring a single share at the NAV per share at the start of the period. The dividend yield as at
31 March 2024 is calculated by dividing the dividend per share paid or proposed over the preceding 12 months of 4.2 pence (2023: 4.5 pence) by the NAV per share at the start of the period of 91.6 pence (2023:
97.9 pence) giving a result of 4.6% (2023: 4.6%).
Cumulative return per share (APM)
The sum of the published NAV per share plus cumulative dividends paid per share since the Company was launched. We use this measure as it enables comparisons to be made between different VCTs over the
whole life of each fund. The cumulative return per share for the Company as at 31 March 2024 comprises the NAV per share of 89.3 pence (2023: 91.6 pence) plus the cumulative dividends paid of 117.9 pence
(2023: 113.4 pence) giving a result of 207.2 pence per share (2023: 205.0 pence per share).
Cumulative dividends paid per share
The total amount of shareholder dividend distributions paid per share since the Company was launched.
Distributable reserves
The sum of the capital reserve, revenue reserve and that part of the revaluation reserve which is related to readily realisable investments.
Ex-dividend date
The date immediately preceding the record date for a given dividend. Shareholders who acquire their shares on or aſter the ex-dividend date will not be eligible to receive the relevant dividend.
Gain / loss on disposal of investments
The profit or loss on the sale of an investment during the year calculated by reference to the proceeds received on sale of the investment less the valuation of the investment at the last annual report date.
NAV total return (APM)
The theoretical return to a shareholder over a given period based on acquiring shares at the start of the period at the latest published NAV per share then utilising the proceeds of each dividend paid during
the period to acquire further shares at the latest published NAV per share as at each ex-dividend date. We use this measure as it enables comparisons to be drawn against an investment index in order to
benchmark performance. The result is plotted on page 41 and the calculation follows the method prescribed by the Association of Investment Companies.
31 March 2024 | 31 March 2023 | ||
Closing NAV per share (p) | 89.3p | 91.6p | a |
Dividends paid out (p) | 4.5p | 5.0p | b |
Adjusted NAV per share (p) | 93.8p | 96.6p | c = a + b |
Opening NAV per share (p) | 91.6p | 97.9p | d |
NAV total return (%) | 2.4% | (1.3%) | = (c / d) – 1 |
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
73
Net asset value or NAV
The amount by which total assets of the Company exceed its total liabilities. It is equal to the total equity shareholders’ funds.
Net asset value per share or NAV per share
Net asset value divided by the number of ordinary shares.
Ongoing charges excluding performance-related management fees (APM)
The total of investment management fees and other expenses as shown in the income statement, as a percentage of the average net asset value. This measure is disclosed to provide information to
shareholders, in line with industry best practice.
31 March 2024 | 31 March 2023 | |
Investment management fee | 2,113 | 2,077 |
Other expenses | 606 | 496 |
Total expenses (a) | 2,719 | 2,573 |
Annualised average net assets (b) | 119,615 | 119,353 |
Ongoing charges (a) / (b) (expressed as a percentage) | 2.27% | 2.16% |
Record date
The cut-off date on which a shareholder needs to be beneficially entitled to a share on the share register of the Company in order to qualify for a forthcoming dividend.
Share price total return (APM)
The theoretical return to a shareholder over a given period based on acquiring shares at the start of the period at the prevailing mid-market share price then utilising the proceeds of each dividend paid during
the period to acquire further shares at the share price as at each ex-dividend date. We use this measure as it enables comparisons to be drawn against an investment index in order to benchmark performance.
The result is plotted on page 41 and the calculation follows the method prescribed by the Association of Investment Companies.
31 March 2024 | 31 March 2023 | ||
Closing price per share (p) | 84.5p | 84.5p | a |
Dividends paid out (p) | 4.5p | 5.0p | b |
Adjusted price per share (p) | 89.0p | 89.5p | c = a + b |
Opening price per share (p) | 84.5p | 94.5p | d |
Share price total return % | 5.3% | (5.3%) | = (c / d) – 1 |
Total return for the year
The total income, gain or loss on disposal of investments and movements in the fair value of investments less ongoing charges for the period, as shown in the income statement.
Glossary of terms
continued
Northern 3 VCT PLC
Annual Report and Financial Statements 31 March 2024
74
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Northern 3 VCT PLC
Forward House
17 High Street
Henley-in-Arden
B95 5AA