Announcements

Northern 3 VCT PLC.

18 MAY 2012

NORTHERN 3 VCT PLC

RESULTS FOR THE YEAR ENDED 31 MARCH 2012

Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity.  The trust invests mainly in unquoted venture capital holdings and aims to provide high long-term tax-free returns to shareholders through a combination of dividend yield and capital growth.

Financial highlights (comparative figures as at 31 March 2011):

            2012             2011
Net assets£47.8m£37.4m
Net asset value per share96.7p92.2p
Return per share: 
Revenue2.4p1.4p
Capital6.8p4.5p
Total9.2p5.9p
Dividend per share proposed 
in respect of the year5.0p4.5p
Cumulative return to shareholders since launch: 
Net asset value per share96.7p92.2p
Dividends paid per share*33.4p28.9p
Net asset value plus dividends paid per share130.1p121.1p
Mid-market share price at end of year80p75p
Share price discount to net asset value17.3%18.7%

*Excluding proposed final dividend

For further information, please contact:

NVM Private Equity Limited
Alastair Conn/Christopher Mellor             0191 244 6000

Website:  www.nvm.co.uk

NORTHERN 3 VCT PLC

CHAIRMAN'S STATEMENT

Northern 3 VCT has had an eventful year during which we have completed a successful merger with Northern AIM VCT, raised additional funds through a top-up share issue, achieved growth in NAV per share and increased the annual dividend to 5.0p per share.

Results and dividend
The NAV per share at 31 March 2012 was 96.7p, an increase of 4.9% over the corresponding figure of 92.2p as at 31 March 2011.  The NAV total return per share for the year as shown in the income statement was 9.2p (last year 5.9p), equivalent to 10.0% of the opening NAV.  Over the same period the FTSE All-Share index (total return) increased by 1.4%.

An interim dividend of 2.0p per share, unchanged from the preceding year, was paid in January 2012.  It was announced in February that your board had decided to increase the target for the company's annual dividend from 4.5p to 5.0p per share.  Accordingly a final dividend of 3.0p per share is now proposed, making a total of 5.0p for the year (last year 4.5p). This will be made up of 2.2p from revenue and 2.8p from capital, which compares with 1.4p and 3.1p last year.  Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 13 July 2012 to shareholders on the register on 22 June 2012.

Share issues during the year
In August 2011 we announced proposals for a merger of Northern 3 VCT with Northern AIM VCT, a smaller VCT also managed by NVM Private Equity.  Following approval by the shareholders of both companies, the merger was effected in September 2011 by means of a scheme of reconstruction whereby the net assets of Northern AIM VCT, valued at £5.6 million, were transferred to Northern 3 VCT in exchange for the allotment of 5,950,459 new shares in Northern 3 VCT at a price of 93.5p to the former Northern AIM VCT shareholders.  Then in March 2012 we allotted a further 3,635,028 shares to investors for cash at a price of 99p, adding to the funds available for our future investment activities.  I believe that both of these transactions have been beneficial to the company and on behalf of the board I would like to thank our new shareholders and our existing investors for their support.

Investment portfolio
The venture capital portfolio has again performed well despite the continuing weakness of the UK economy, and credit is due to the management teams of our investee companies for their achievements.  In addition to the 20 holdings (six of which were new to our company) acquired through the merger with Northern AIM VCT, four new investments were completed during the year at a cost of £3.1 million.  Proceeds of disposals during the year totalled £3.9 million, including £2.1 million from the sale of Promanex Group Holdings to Costain Group and a further £0.6 million in deferred consideration from the sale of DxS in 2009.

We have continued to adopt a diversified approach to the investment of our liquid funds.  The portfolio of relatively short-dated corporate bonds has produced a steady income, whilst the investment of approximately £5 million into higher-yielding UK blue chip listed equities has generated a useful and growing income with the added benefit, as this is written, of a modest increase in capital value.

VCT qualifying status
The company has continued to meet the qualifying conditions laid down by HM Revenue & Customs for maintaining its approval as a VCT.  The board retains PricewaterhouseCoopers LLP as independent advisers on VCT taxation matters.

VCT legislation
The Government announced at the time of the 2011 Budget over a year ago that the VCT rules would be changed with effect from April 2012, so as to relax the limits on the size of qualifying companies and increase the amount of funding which companies can raise from VCTs.  In July 2011 HM Treasury published a consultation paper confirming its intention to implement these reforms, with a new annual limit of £10 million on the amount any qualifying company could raise from VCTs, and also to refocus VCT investment on "genuine risk capital investments".

Subsequently a degree of uncertainty has been created by the draft legislation contained in the 2012 Finance Bill, published on 29 March, which included some significant changes to the previous proposals - in particular a reduction to £5 million in the annual investment limit per company.  The VCT industry is still awaiting clarification from HM Treasury and the European Commission in relation to several specific issues, which in the short term has led to a number of investments by VCTs having to be postponed despite in some cases having been previously approved by HM Revenue & Customs.  Your board believes that generalist VCTs such as Northern 3 VCT have been a highly effective catalyst to economic growth, corporate development, technological innovation, job creation and the generation of tax and other revenues for the Treasury and it is to be hoped that the future legislative framework will reflect this.

Outlook
Your company has almost doubled in size over the past three years and now has net assets of over £47 million.  During this period of growth we have been careful to maintain our focus on the enhancement of NAV and dividends per share.  It seems unlikely that there will be a significant improvement in the economy or the financial markets over the next 12 months, but our investments continue to display an encouraging resilience and this should enable the company to make further progress despite the challenging environment.

James Ferguson
Chairman

The audited financial statements for the year ended 31 March 2012 are set out below.

INCOME STATEMENT
for the year ended 31 March 2012

Year ended 31 March 2012 Year ended 31 March 2011 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of
  Investments 628  628  778  778 
Movements in fair value
  of investments 3,023  3,023  1,361  1,361 
----------  ----------  ----------  ----------  ----------  ---------- 
3,651  3,651  2,139  2,139 
Income 1,746  1,746  1,100  1,100 
Investment management fee (208) (894) (1,102) (173) (603) (776)
Recoverable VAT 25  74  99 
Other expenses (283) (11) (294) (268) (268)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities before tax 1,255  2,746  4,001  684  1,610  2,294 
Tax on return on
  ordinary activities (210) 210  (148) 147  (1)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities after tax 1,045  2,956  4,001  536  1,757  2,293 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 2.4p 6.8p 9.2p 1.4p 4.5p 5.9p
Dividends paid/proposed
In respect of the year 2.2p 2.8p 5.0p 1.4p 3.1p 4.5p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2012

Year ended 
31 March 2012 
£000 
Year ended 
31 March 2011 
£000 
Equity shareholders' funds at 1 April 2011 37,428  32,412 
Return on ordinary activities after tax 4,001  2,293 
Dividends recognised in the year (1,931) (1,556)
Net proceeds of share issues 3,418  5,002 
Shares issued on merger 5,482 
Shares repurchased for cancellation (600) (723)
----------  ---------- 
Equity shareholders' funds at 31 March 2012 47,798  37,428 
----------  ---------- 

BALANCE SHEET
as at 31 March 2012

31 March 2012 
£000 
31 March 2011 
£000 
Fixed assets:
  Investments 39,606  33,746 
----------  ---------- 
Current assets:
  Debtors 192  397 
  Cash and deposits 8,511  3,940 
----------  ---------- 
8,703  4,337 
Creditors (amounts falling due within one year) (511) (655)
----------  ---------- 
Net current assets 8,192  3,682 
----------  ---------- 
Net assets 47,798  37,428 
----------  ---------- 
Capital and reserves:
Called-up equity share capital 2,470  2,029 
Share premium 3,219  21,378 
Capital redemption reserve 430  392 
Capital reserve 36,756  12,307 
Revaluation reserve 4,042  743 
Revenue reserve 881  579 
----------  ---------- 
Total equity shareholders' funds 47,798  37,428 
----------  ---------- 
Net asset value per share 96.7p 92.2p

CASH FLOW STATEMENT
for the year ended 31 March 2012

Year ended 
31 March 2012 
Year ended 
31 March 2011 
£000 £000 £000 £000 
Cash flow statement
Net cash inflow from operating activities 528  197 
Taxation:
Corporation tax paid
Financial investment:
Purchase of investments (4,798) (12,741)
Sale/repayment of investments 7,429  4,251 
----------  ---------- 
Net cash inflow/(outflow) from financial investment 2,631  (8,490)
Acquisitions:
Cash and deposits acquired on merger 604 
Equity dividends paid (1,931) (1,556)
----------  ---------- 
Net cash inflow/(outflow) before financing 1,832  (9,849)
Financing:
Issue of shares 3,598  5,301 
Share issue expenses (259) (299)
Shares re-purchased for cancellation (600) (723)
----------  ---------- 
Net cash inflow from financing 2,739  4,279 
----------  ---------- 
Increase/(decrease) in cash and deposits 4,571  (5,570)
----------  ---------- 
Reconciliation of return before tax
to net cash flow from operating activities
Return on ordinary activities before tax 4,001  2,294 
Gain on disposal of investments (628) (778)
Movements in fair value of investments (3,023) (1,361)
(Increase)/decrease in debtors 230  (80)
Increase/(decrease) in creditors (52) 122 
----------  ---------- 
Net cash inflow from operating activities 528  197 
----------  ---------- 
Reconciliation of movement
in net funds
1 April 2011 Cash flows 31 March 2012 
£000 £000 £000 
Cash and deposits 3,940  4,571  8,511 
----------  ----------  ---------- 

INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2012

Cost
£000
Valuation
£000
% of
net assets
by value
Kerridge Commercial Systems 1,661 3,803 8.0
Closerstill Holdings 743 2,038 4.3
Volumatic 1,995 1,995 4.2
Advanced Computer Software Group* 762 1,700 3.6
IDOX* 660 1,608 3.4
Paladin Group 1,013 1,261 2.6
Axial Systems Holdings 1,293 1,255 2.6
Control Risks Group Holdings 746 1,037 2.2
Kitwave One 1,000 1,015 2.1
Wear Inns 839 1,011 2.1
Tinglobal Holdings 988 988 2.1
IG Doors 688 977 2.0
Lineup Systems 974 974 2.0
RCC Lifesciences 995 965 2.0
Cawood Scientific 825 942 2.0
---------- ---------- --------
Fifteen largest venture capital investments 15,182 21,569 45.2
Other venture capital investments 12,243 9,577 19.9
---------- ---------- --------
Total venture capital investments 27,425 31,146 65.1
Listed equity investments 5,000 5,363 11.2
Listed fixed-interest investments 3,073 3,097 6.5
---------- ---------- --------
Total fixed asset investments 35,498 39,606 82.8
----------
Net current assets 8,192 17.2
---------- --------
Net assets 47,798 100.0
---------- --------

*Quoted on AIM

BUSINESS RISKS

The board carries out a regular review of the risk environment in which the company operates.  The main areas of risk identified by the board are as follows:

Investment risk:  The majority of the company's investments are in small and medium-sized unquoted and AIM-quoted companies which are VCT qualifying holdings, and which by their nature entail a higher level of risk and lower liquidity than investments in large quoted companies. The directors aim to limit the risk attaching to the portfolio as a whole by careful selection and timely realisation of investments, by carrying out rigorous due diligence procedures and by maintaining a wide spread of holdings in terms of financing stage and industry sector.  The board reviews the investment portfolio with the investment managers on a regular basis.

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

Economic risk:  Events such as economic recession or general fluctuations in stock markets 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.

Stock market risk:  Some of the company's investments are quoted on the London Stock Exchange or the AIM market and will be subject to market fluctuations upwards and downwards.  External factors such as terrorist activity can negatively impact stock markets worldwide and the AIM market is no exception to this.  In times of adverse sentiment there tends to be very little, if any, market demand for shares in the smaller companies quoted on AIM.

Credit risk:  the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment.  The directors review the creditworthiness of the counterparties to these instruments and cash deposits in addition to ensuring no significant concentration of credit risk is with any one counterparty.

Liquidity risk:  The company's investments may be difficult to realise.  The fact that a stock is quoted on AIM does not guarantee its liquidity and there may be a large spread between bid and offer prices.  Unquoted investments are not traded on a recognised stock exchange and are inherently illiquid.

Political risk:  in order to maintain its approval as a VCT, the company is required to comply with current VCT legislation in the UK as well as the European Commission's State Aid rules.  Politically motivated changes to the UK legislation or the State Aid rules in the future could have an adverse effect on the company's ability to achieve satisfactory investment returns whilst retaining its VCT approval.  The board and the manager monitor political developments and where appropriate seek to make representations either directly or through the relevant trade bodies.

Internal control risk:  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:  The company is required at all times to observe the conditions laid down in the Income Tax Act 2007 for the maintenance of approved VCT status.  The loss of such approval could lead to the company losing its exemption from corporation tax on capital gains, to investors being liable to pay income tax on dividends received from the company and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment.  The manager keeps the company's VCT qualifying status under continual review and reports to the board on a quarterly basis.  The board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the directors to prepare financial statements for each financial year.  Under that law the directors have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for the period.  In preparing these financial statements, the directors are required to (i) select suitable accounting policies and then apply them consistently;  (ii) make judgements and estimates that are reasonable and prudent;  (iii) state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;  and (iv) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

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 have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

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

The company's financial statements are published on the NVM website, www.nvm.co.uk.  The maintenance and integrity of this website is the responsibility of NVM and not of the company.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors confirm that, to the best of their knowledge, the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, and the directors' report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that the company faces.

The directors of the company at the date of this announcement were Mr J G D Ferguson (Chairman), Mr C J Fleetwood, Mr T R Levett and Mr J M O Waddell.

OTHER MATTERS

The above summary of results for the year ended 31 March 2012 does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006 and has not been delivered to the Registrar of Companies.  Statutory financial statements will be filed with the Registrar of Companies in due course;  the independent auditors' report on those financial statements under Section 495 of the Companies Act 2006 is unqualified and does not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The proposed final dividend of 3.0p per share for the year ended 31 March 2012 will, if approved by shareholders, be paid on 13 July 2012 to shareholders on the register at the close of business on 22 June 2012.

The full annual report including financial statements for the year ended 31 March 2012 is expected to be posted to shareholders on 1 June 2012 and will be available to the public at the registered office of the company at Northumberland House, Princess Square, Newcastle upon Tyne NE1 8ER and on the NVM Private Equity Limited website, www.nvm.co.uk.

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




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Source: Northern 3 VCT PLC via Thomson Reuters ONE

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