1 DECEMBER 2020

NORTHERN VENTURE TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2020

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

Financial highlights (comparative figures as at 30 September 2019):

	2020	2019
Net assets	£112.8m	£95.7m
Net asset value per share	70.7p	68.9p
Return per share after tax:
Revenue	0.3p	0.8p
Capital	7.0p	1.3p
Total	7.3p	2.1p
Dividend per share for the year:
Interim dividend	1.5p	2.0p
Proposed final dividend	2.5p	2.0p
Total	4.0p	4.0p
Cumulative return to shareholders since launch:
Net asset value per share	70.7p	68.9p
Dividends paid per share*	172.0p	168.5p
Net asset value plus dividends paid per share	242.7p	237.4p
Mid-market share price at end of year	56.5p	64.5p
Tax-free dividend yield (based on the net asset value per share at the start of the year)	5.8%	5.6%

*Excluding proposed final dividend payable on 22 January 2021

For further information, please contact:

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

Website: www.nvm.co.uk

Mercia Asset Management PLC
Martin Glanfield 0330 223 1430

HIGHLIGHTS

Return per share for the year of 7.3 pence per share, representing 10.6% of opening NAV
NAV per share at year end of 70.7 pence, after paying dividends of 3.5 pence, compares with 68.9 pence at 2019 year end and 58.2p at the half year
Successful public share offer raising £12.5 million
Five new and 10 follow-on investments in innovative earlier stage companies added to the portfolio

CHAIRMAN’S STATEMENT

Overview
The global economy and financial markets have been significantly impacted over the past year by the evolving coronavirus (COVID-19) pandemic. The necessary responses to COVID-19 have affected the working and personal lives of practically everyone in the UK and have created a challenging business environment for a number of our portfolio companies. Our investment adviser has been providing close support where required and I am pleased to report that the response from our investee management teams has been thorough and resilient. The effects of the pandemic on individual investments vary greatly as the company benefits from holding a diversified portfolio. Whilst there are some cases which are negatively impacted and in one or two cases very considerably so, a significant number of businesses are seeing either neutral or increased trading in the current environment.

It was most certainly a year of two halves. Our 31 March half year end was only one week after the first lockdown was announced and it was appropriate that we adjusted the holding values of more than half of our portfolio companies downwards amidst the deep uncertainty. Most of our businesses have learned to live with this uncertainty, some must wait for it to be lifted and a few have thrived in it, especially those benefitting from the accelerated trend towards online retailing.

Liquidity remains the lifeblood of early stage investment funds and as a result of the successful share offer which concluded in April 2020, your company is well positioned to continue to support and promote its growing portfolio of entrepreneurial businesses.

Results and dividend
In the year ended 30 September 2020 the company achieved a return on ordinary activities of £10,940,000 (2019: £2,848,000) or 7.3 pence per share (2019: 2.1 pence), representing a total return of 10.6% on the opening net asset value (NAV) per share. This reflects major progress in the performance and hence values at some portfolio companies in the second half, most notably Entertainment Magpie and Agilitas IT Holdings (Agilitas), which was sold subsequent to the year end as referred to below. The result for the year has generated a performance fee to our investment adviser for the first time in four years of £284,000. The NAV per share at 30 September 2020, after deducting dividends paid during the year of 3.5 pence, was 70.7 pence compared with 68.9 pence at 30 September 2019 and 58.2 pence at 31 March 2020.

The cumulative total return to shareholders increased to 242.7 pence (2019: 237.4 pence) per share, which marks the fifteenth consecutive year of growth. Investment income was lower than in the prior year at £1.5 million (2019: £2.2 million), reflecting the disposal of some income-yielding investments and the deferral of interest payments to support some investee companies through the pandemic.

The profile of the unquoted portfolio is continuing to evolve as we acquire investments in earlier stage innovative UK companies with high growth potential. As previously indicated, the profile of the new investments will lead to greater volatility in the timing and quantum of returns, and continuing to pay regular dividends whilst increasing the NAV per share in the medium term remains a priority for your board. In 2018 we revised our dividend policy in the light of the new rules for investment introduced in 2015 and 2017, which we expected to result in more volatile returns. We introduced a target dividend yield of 5% of opening NAV, which has been exceeded in each of the last two years. After careful consideration, the board has proposed a final dividend of 2.5 pence per share, bringing the total dividend for the year to 4.0 pence, which represents a tax-free yield of 5.8% on the opening net asset value per share of 68.9 pence. The final dividend, if approved, will be paid on 22 January 2020 to shareholders on the register on 29 December 2020.

Venture capital investment and realisation activities
Further progress was made on the development of the portfolio during the period with five new investments acquired for total consideration of £3.7 million, four of which were completed in the six months to 31 March 2020. The investment rate including follow-ons was again relatively strong in the first half of the year at £6.0 million, however it did slow down in the second half at only £2.8 million as our investment adviser focussed on portfolio support rather than new investment activity.

Our AIM-quoted holdings in each of Nasstar plc, Brady plc and Summit Therapeutics plc were all disposed of in full through separate transactions which took these companies private. Inevitably in a portfolio of this type there will be some early losses realised, of which we incurred one during the year with the sale of Primal Food for a nominal sum. We also wrote down our investment in No 1 Lounges to nil.

Just over 50% by value of our portfolio at the year-end comprised investments in more mature businesses acquired under previous VCT rules. We expect that these more mature investments will continue to provide an income yield and a series of profitable exits in the years to come, supporting the overall return of the company whilst the earlier-stage portfolio develops. Whilst the period under review was quiet for investment realisations, I am pleased to report the sale of Agilitas after the year end, returning eight times our original invested capital over the life of the investment, the significant uplift for which was included in these results. Mercia is also actively working towards the sale of several other unquoted investments expected to complete over the next 12 months.

Venture capital portfolio update
Following the first reports of COVID-19 during the year, the initial effects in the UK principally impacted businesses with complex supply chains or overseas customers in certain territories. As the spread of the virus led to a global pandemic, the effect on the economy became much more pronounced and measures taken to tackle COVID-19 have had a material impact on almost every business in the UK.

COVID-19 has accelerated certain trends which were already established and is benefitting portfolio companies that employ business strategies such as innovative delivery and distribution and the digitisation of traditional off-line business processes. Your company benefits from holding a diversified portfolio of investments and the areas of the economy which continue to be the most affected, particularly travel, leisure and hospitality, represent less than 10% by cost of the venture capital portfolio. Technology and software sub-sectors have been more resilient during 2020 and investments in these areas represent around 40% by cost of the portfolio. We are also invested in a number of businesses which employ an e-commerce business model and trading in these holdings has generally been extremely strong both during the initial lockdown and subsequently.

We undertake a thorough valuation of the entire portfolio on a quarterly basis and reported significant unrealised reductions as at 31 March 2020 in our interim results. This was at the very start of the first lockdown when the impact of the pandemic was almost impossible to predict. The positive underlying trading trends exhibited by some of our investee companies over the subsequent six months and an increase in publicly available valuation metrics over the same period contributed to a number of unrealised valuation increases during the second half of the year. However, much of the uplift in valuation of the portfolio was in the more mature investments made under the old rules with 20 of the 26 earlier stage investments remaining broadly at the same valuation over the second six months.

Share offers and liquidity
In order to ensure that we had sufficient liquidity to support our portfolio companies, we launched an offer of new ordinary shares in January 2020 which raised gross proceeds of £12.5 million. Commitments were made before COVID-19 took hold but with allotment in the first week of April, we were faced with a very difficult situation in the middle of March. Given the uncertainty and having reference to valuations of quoted shares, which fell dramatically during the month immediately preceding the first lockdown, we revalued our portfolio and issued a supplementary prospectus at what turned out to be the lowest point in the markets, inviting shareholders to reconfirm their interest in the share issue. Around 94% by value proceeded with their applications and on behalf of the board, I would like to thank our shareholders, both existing and new for their support, especially through this difficult time.

Our dividend investment scheme, which enables shareholders to invest their dividends in new ordinary shares free of dealing costs and with the benefit of the tax reliefs available on new VCT share subscriptions, continues to operate with around 18% participation during the year.

Cash and liquid investments represented 28% of net asset value at 30 September 2020. We have reviewed the liquidity dynamics with Mercia in detail, considering the resources currently on hand and the significant progress made over the past six months towards likely investment realisations in 2021. As a result of this review, we have decided not to launch a further share offer in the 2020-21 tax year. We will review the position again for the 2021-22 tax year in light of the realisation and investment rates achieved in 2021.

Share buy-backs
We have maintained our policy of being willing to buy back the company’s shares in the market, when necessary in order to maintain liquidity, at a 5% discount to NAV. During the year ended 30 September 2020 a total of 2,988,048 (2019: 4,907,101) shares were repurchased by the company for cancellation at an average price of 58.8 pence (2019: 65.1 pence), representing 2.2% (2019: 3.7%) of the opening issued share capital.

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

The latest updates to the relevant VCT legislation were announced in November 2017 and the final remaining new measure has applied to the company for the first time in the current financial year. In addition to the 80% minimum proportion of investments required to be held in VCT-qualifying holdings, the company is now required to invest 30% of the proceeds of any share issues within 12 months of the financial year in which the shares are allotted. I am pleased to say that the company has complied fully with this new measure during the year.

The VCT scheme rules have been subject to significant legislative changes over the last five years and whilst there were no further amendments announced in 2020, it is possible that further changes will be made in the future. We will continue to work closely with Mercia to maintain compliance with the scheme rules at all times.

Annual general meeting
The company has historically held its annual general meeting (AGM) in December. Over recent years the production of the annual report and in particular its audit have become more time consuming as the number of investments made has increased and additional requirements have been placed on us and our auditors by regulators. Consequently, the announcement of our results is just over two weeks later than last year and this has caused a delay in the AGM, which will take place on 15 January 2021.

The AGM usually provides an excellent opportunity for shareholders, directors and the investment advisor to meet in person and exchange views and comments. However, the health and wellbeing of both shareholders and colleagues is of upmost importance to the board and therefore in the light of the changeable situation regarding guidance on non-essential travel and social distancing, we have concluded that the AGM should not be open to physical attendance by shareholders. Detailed arrangements are however being made to enable virtual attendance and shareholders will be invited to submit proxy votes and ask questions in advance of as well as at the meeting itself. Details and formal notice of the AGM are provided in the AGM Circular published at the same time as the Annual Report.

Board Succession
We regularly review the composition of your board, taking into account the experience, tenure and contribution of each director individually and together. We are conscious of the nine year guidance under the UK Corporate Governance Code, although believe this to be less relevant in a small investment fund that now typically holds its investments for up to 10 years and where longevity of directors’ service has considerable value. Nevertheless, your current directors have served between six and 11 years each and we consider it time to seek fresh input in the near future. Therefore Nigel Beer and Hugh Younger will be retiring from the board at the AGM in 2022 after 12 years’ service, which has seen us through some very significant changes, most notably the change in investing rules in 2015 and more recently the transfer of our management and investment advisory agreement from NVM to Mercia in 2019. Their contributions have been invaluable and I am sure will continue to be so over the next year, during which time we will be seeking a new non-executive director with either operational or investment experience in earlier stage, technology driven businesses.

Outlook
Financial markets have been subject to significant volatility during 2020 as market participants have struggled to assess the impact of the pandemic on various sectors and the economy as a whole. Many financial indices have staged a significant recovery from the lows experienced in March 2020. Whilst making a definitive prediction about the future path of the economy in the current environment would be unwise, we are however encouraged by the resilience exhibited by the portfolio overall thus far and have confidence in its diversity.

Access to capital is one of the most important factors contributing to the success of early stage businesses and your board believes that the company is well placed to provide that vital support with a view to increasing long term shareholder value as we continue to work alongside our existing portfolio companies and increase our focus on finding new exciting businesses to back.

Simon Constantine
Chairman

Extracts from the audited financial statements for the year ended 30 September 2020 are set out below.

INCOME STATEMENT
for the year ended 30 September 2020

	Year ended 30 September 2020			Year ended 30 September 2019
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Gain on disposal of investments	-	(3)	(3)	-	1,244	1,244
Movements in fair value of investments	-	12,043	12,043	-	1,673	1,673
	----------	----------	----------	----------	----------	----------
	-	12,040	12,040	-	2,917	2,917
Income	1,509	-	1,509	2,166	-	2,166
Investment management fee	(462)	(1,672)	(2,134)	(445)	(1,334)	(1,779)
Other expenses	(475)	-	(475)	(456)	-	(456)
	----------	----------	----------	----------	----------	----------
Return on ordinary activities before tax	572	10,368	10,940	1,265	1,583	2,848
Tax on return on ordinary activities	(55)	55	-	(168)	168	-
	----------	----------	----------	----------	----------	----------
Return on ordinary activities after tax	517	10,423	10,940	1,097	1,751	2,848
	----------	----------	----------	----------	----------	----------
Return per share	0.3p	7.0p	7.3p	0.8p	1.3p	2.1p

BALANCE SHEET
as at 30 September 2020

	30 September 2020 £000	30 September 2019 £000
Fixed assets: Investments	91,852	72,409
	----------	----------
Current assets:
Debtors	674	1,182
Cash and deposits	20,693	22,160
	----------	----------
	21,367	23,342

Creditors (amounts falling due within one year)	(428)	(93)
	----------	----------
Net current assets	20,939	23,249
	----------	----------

Net assets	112,791	95,658
	----------	----------
Capital and reserves
Called-up equity share capital	39,905	34,693
Share premium	12,745	5,584
Capital redemption reserve	2,853	2,106
Capital reserve	37,872	46,820
Revaluation reserve	18,086	4,948
Revenue reserve	1,330	1,507
	----------	----------
Total equity shareholders’ funds	112,791	95,658
	----------	----------
Net asset value per share	70.7p	68.9p

STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2020

	---------------Non-distributable reserves---------------				Distributable reserves		Total
	Called-up share capital	Share premium	Capital redemption reserve	Revaluation reserve*	Capital reserve	Revenue reserve
	£000	£000	£000	£000	£000	£000	£000
At 1 October 2019	34,693	5,584	2,106	4,948	46,820	1,507	95,658

Return on ordinary activities after tax	-	-	-	13,138	(2,715)	517	10,940
Dividends paid	-	-	-	-	(4,477)	(694)	(5,171)
Net proceeds of share issues	5,959	7,161	-	-	-	-	13,120
Shares purchased for cancellation	(747)	-	747	-	(1,756)	-	(1,756)
	----------	----------	----------	----------	----------	----------	----------
At 30 September 2020	39,905	12,745	2,853	18,086	37,872	1,330	112,791
	----------	----------	----------	----------	----------	----------	----------

STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2019

	---------------Non-distributable reserves---------------					Distributable reserves			Total
	Called-up share capital	Share premium		Capital redemption reserve	Revaluation reserve*	Capital reserve	Revenue reserve
	£000	£000		£000	£000	£000	£000	£000
At 1 October 2018	33,142	817		879	6,346	51,617	1,109	93,910

Return on ordinary activities after tax	-	-		-	(1,398)	3,149	1,097	2,848
Dividends paid	-	-		-	-	(4,749)	(699)	(5,448)
Net proceeds of share issues	2,778	4,767		-	-	-	-	7,545
Shares purchased for cancellation	(1,227)	-	1,227		-	(3,197)	-	(3,197)
	----------	----------		----------	----------	----------	----------	----------
At 30 September 2019	34,693	5,584		2,106	4,948	46,820	1,507	95,658
	----------	----------		----------	----------	----------	----------	----------

*the revaluation reserve is generally non-distributable other than that part of the reserve relating to gains/losses on readily realisable quoted investments, which is distributable.

STATEMENT OF CASH FLOWS
for the year ended 30 September 2020

	Year ended	Year ended
	30 September 2020	30 September 2019
	£000	£000
Cash flows from operating activities:
Return on ordinary activities before tax	10,940	2,848
Adjustments for:
Gain on disposal of investments	3	(1,244)
Movement in fair value of investments	(12,043)	(1,673)
Decrease/(increase) in debtors	508	(1,041)
Increase/(decrease) in creditors	336	(13)
	----------	----------
Net cash outflow from operating activities	(256)	(1,123)
	----------	----------
Cash flows from investing activities:

Annual Financial Report