Announcements

Northern 3 VCT PLC.

13 MAY 2013

NORTHERN 3 VCT PLC

RESULTS FOR THE YEAR ENDED 31 MARCH 2013

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 2012):

            2013             2012
Net assets£50.6m£47.8m
Net asset value per share104.6p96.7p
Return per share: 
Revenue1.8p2.4p
Capital10.7p6.8p
Total12.5p9.2p
Dividend per share proposed 
in respect of the year5.5p5.0p
Cumulative return to shareholders since launch: 
Net asset value per share104.6p96.7p
Dividends paid per share*38.4p33.4p
Net asset value plus dividends paid per share143.0p130.1p
Mid-market share price at end of year89.25p80p
Share price discount to net asset value14.7%17.3%

*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

CHAIRMAN'S STATEMENT

Northern 3 VCT has made good progress during the past year.  Two significant landmarks were passed in that net assets now exceed £50 million whilst the NAV per share rose to above 100p.  Also, we are proposing that the annual dividend be increased from 5.0p to 5.5p per share.  It was pleasing that Northern 3 VCT and the other Northern VCTs were declared winners of the Best VCT category at the Investment Week Investment Company of the Year Awards for 2012, sponsored by the Association of Investment Companies and Trustnet.

Results and dividend
The NAV per share at 31 March 2013 was 104.6p, an increase of 8.2% over the corresponding figure of 96.7p as at 31 March 2012.  The NAV total return per share for the year as shown in the income statement was 12.5p (last year 9.2p), equivalent to 12.9% of the opening NAV.  This satisfactory result was based on continuing strong investment performance across both the quoted and the unquoted portfolios.  The income received from investments reduced to £1.5 million from £1.7 million last year, due to the fact that last year's total included a non-recurring receipt of £0.5 million on the sale of Promanex Group Holdings in August 2011.

Your board announced in February 2012 that the target level of annual dividend to shareholders had been increased from 4.5p to 5.0p per share.  For the year ended 31 March 2013 we have already declared an unchanged interim dividend of 2.0p per share, which was paid in January 2013.  In the light of the results for the year we are proposing to increase the final dividend from 3.0p to 3.5p per share, making a total of 5.5p for the year (last year 5.0p).  Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 26 July 2013 to shareholders on the register on 5 July 2013.

Investment portfolio
The venture capital portfolio has continued to perform well in an unhelpful economic environment.  Four new unquoted holdings were acquired during the year at a cost of £3.8 million, with a further £2.0 million invested in existing portfolio companies.  Closerstill Holdings and Paladin Group were sold successfully.

Our AIM-quoted investments, including those acquired through the merger with Northern AIM VCT in 2011, had a good year and made an important contribution to the overall result.

In a period of derisory returns on cash, our policy of allocating part of the company's surplus liquidity to listed blue-chip equities has continued to generate a growing income as well as an increase in capital.

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.

Share capital
It was announced in January 2013 that following a review by the board, the company would in future buy back its own shares in the market at a discount of 10% (reduced from 15%).  We believe that this level of discount strikes a fair balance between the interests of continuing shareholders and those who wish to sell.  The policy will be reviewed regularly in the light of market conditions.  The objective is to maintain the company's quoted share price at a 10% discount to the latest published NAV per share;  the share price at 31 March 2013 actually represents a 14.7% discount to the NAV announced today, but we would expect the share price to move now that the updated result is in the market.  During the year 1,085,990 shares were bought back for cancellation at an average price of 83.1p.

No new shares in the company were issued during the year.  Cash reserves are now at a relatively low level and your board is considering the possibility of launching a public offer of shares later in 2013, possibly in conjunction with the other Northern VCTs.  We will be writing to shareholders about this in due course.

Dividend reinvestment
The dividend reinvestment plan introduced in January 2010, whereby shareholders can opt to have their dividends re-invested in existing ordinary shares in the company, has not been a great success in terms either of its take-up by shareholders or of its impact on secondary market trading in the company's shares.  We have therefore decided to withdraw the scheme with immediate effect and replace it with a dividend reinvestment scheme under which participants' dividends will be invested in new ordinary shares.  This will not only provide the company with additional funds for investment but also enable shareholders to benefit from the tax reliefs available to investors in new VCT shares, including initial income tax relief at 30%.  More details are given in a separate circular which is being sent to shareholders with the annual report.  Shareholders wishing to take part in the scheme should make sure that they have the appropriate election in place.

VCT legislation and regulation
This has become a frequently recurring topic.  Shareholders will be aware that the 2012 Finance Act relaxed the size limits for VCT-qualifying investee companies, but also introduced a new £5 million cap on the amount of funding which a company can raise from VCTs within a 12 month period.  Management buy-outs can be VCT-qualifying investments only to the extent that they employ funds raised prior to 6 April 2012.  We are learning to work within these restrictions.

I referred in my half-yearly report to the consultation paper published by the FSA (now the FCA) on the retail distribution of unregulated collective investment schemes, which suggested that restrictions might be placed on the categories of retail investors to whom VCT share offers can be promoted.  Happily, following strong representations from individual VCT houses and the Association of Investment Companies, it now appears that this threat has receded.

Outlook
The encouraging results of the past two years have been achieved in the face of the continuing travails of the UK economy.  There is no reason to believe that the background will become significantly brighter in the short term, and hence a degree of caution about the future is appropriate, but the venture capital portfolio is making steady progress.  Our managers have several potential investments at an advanced stage of negotiation and there are also interesting opportunities in the AIM market.  We therefore take a reasonably optimistic view of the prospects for the next 12 months.

James Ferguson
Chairman

The audited financial statements for the year ended 31 March 2013 are set out below.

INCOME STATEMENT
for the year ended 31 March 2013

Year ended 31 March 2013 Year ended 31 March 2012 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of
  investments 1,375  1,375  628  628 
Movements in fair value
  of investments 5,096  5,096  3,023  3,023 
----------  ----------  ----------  ----------  ----------  ---------- 
6,471  6,471  3,651  3,651 
Income 1,523  1,523  1,746  1,746 
Investment management fee (245) (1,341) (1,586) (208) (894) (1,102)
Other expenses (297) (297) (283) (11) (294)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities before tax 981  5,130  6,111  1,255  2,746  4,001 
Tax on return on
  ordinary activities (113) 113  (210) 210 
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities after tax 868  5,243  6,111  1,045  2,956  4,001 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.8p 10.7p 12.5p 2.4p 6.8p 9.2p
Dividends paid/proposed
  in respect of the year 2.0p 3.5p 5.5p 2.2p 2.8p 5.0p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2013

Year ended 
31 March 2013 
£000 
Year ended 
31 March 2012 
£000 
Equity shareholders' funds at 1 April 2012 47,798  37,428 
Return on ordinary activities after tax 6,111  4,001 
Dividends recognised in the year (2,446) (1,931)
Net proceeds of share issues 3,418 
Shares issued on merger 5,482 
Shares repurchased for cancellation (907) (600)
----------  ---------- 
Equity shareholders' funds at 31 March 2013 50,556  47,798 
----------  ---------- 

BALANCE SHEET
as at 31 March 2013

31 March 2013 
£000 
31 March 2012 
£000 
Fixed assets:
  Investments 44,532  39,606 
----------  ---------- 
Current assets:
  Debtors 241  192 
  Cash and deposits 6,517  8,511 
----------  ---------- 
6,758  8,703 
Creditors (amounts falling due within one year) (734) (511)
----------  ---------- 
Net current assets 6,024  8,192 
----------  ---------- 
Net assets 50,556  47,798 
----------  ---------- 
Capital and reserves:
Called-up equity share capital 2,416  2,470 
Share premium 3,219  3,219 
Capital redemption reserve 484  430 
Capital reserve 36,083  36,756 
Revaluation reserve 7,681  4,042 
Revenue reserve 673  881 
----------  ---------- 
Total equity shareholders' funds 50,556  47,798 
----------  ---------- 
Net asset value per share 104.6p 96.7p

CASH FLOW STATEMENT
for the year ended 31 March 2013

Year ended 
31 March 2013 
Year ended 
31 March 2012 
£000 £000 £000 £000 
Cash flow statement
Net cash inflow/(outflow) from operating activities (122)  528 
Taxation:
Corporation tax paid
Financial investment:
Purchase of investments (5,794) (4,798)
Sale/repayment of investments 7,275  7,429 
----------  ---------- 
Net cash inflow from financial investment 1,481  2,631 
Acquisitions:
Cash and deposits acquired on merger 604 
Equity dividends paid (2,446) (1,931)
----------  ---------- 
Net cash inflow/(outflow) before financing (1,087) 1,832 
Financing:
Issue of shares 3,598 
Share issue expenses (259)
Shares re-purchased for cancellation (907) (600)
----------  ---------- 
Net cash inflow/(outflow) from financing (907) 2,739 
----------  ---------- 
Increase/(decrease) in cash and deposits (1,994) 4,571 
----------  ---------- 
Reconciliation of return before tax
to net cash flow from operating activities
Return on ordinary activities before tax 6,111  4,001 
Gain on disposal of investments (1,375) (628)
Movements in fair value of investments (5,096) (3,023)
(Increase)/decrease in debtors (49) 230 
Increase/(decrease) in creditors 287  (52)
----------  ---------- 
Net cash inflow/(outflow) from operating activities (122) 528 
----------  ---------- 
Reconciliation of movement in net funds
1 April 2012 Cash flows 31 March 2013 
£000 £000 £000 
Cash and deposits 8,511  (1,994) 6,517 
----------  ----------  ---------- 

INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2013

Cost
£000
Valuation
£000
% of
net assets
by value
Kerridge Commercial Systems 1,663 4,789 9.5
Volumatic 2,096 3,618 7.1
Advanced Computer Software Group* 1,035 3,272 6.5
IDOX* 660 2,726 5.4
Wear Inns 1,406 1,779 3.5
Tinglobal Holdings 1,988 1,750 3.5
Control Risks Group Holdings 746 1,315 2.6
Intuitive 1,293 1,293 2.6
Silverwing 1,272 1,272 2.5
Kitwave One 1,000 1,007 2.0
Haystack Dryers 992 992 2.0
Cawood Scientific 825 990 1.9
Lineup Systems 974 974 1.9
IG Doors 355 910 1.8
Optilan Group 1,125 792 1.6
---------- ---------- --------
Fifteen largest venture capital investments 17,430 27,479 54.4
Other venture capital investments 11,852 8,627 17.0
---------- ---------- --------
Total venture capital investments 29,282 36,106 71.4
Listed equity investments 5,000 5,812 11.5
Listed fixed-interest investments 2,569 2,614 5.2
---------- ---------- --------
Total fixed asset investments 36,851 44,532 88.1
----------
Net current assets 6,024 11.9
---------- --------
Net assets 50,556 100.0
---------- --------

*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.

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 as well as the European Commission's State Aid rules.  Changes to the UK legislation or the State Aid rules in the future could have an adverse effect on the company's ability to achieve satisfactory investment returns whilst retaining its VCT approval.  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 2013 does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006 and has not been delivered to the Registrar of Companies.  Statutory financial statements will be filed with the Registrar of Companies in due course;  the independent auditor's report on those financial statements under Section 495 of the Companies Act 2006 is unqualified and does not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The proposed final dividend of 3.5p per share for the year ended 31 March 2013 will, if approved by shareholders, be paid on 26 July 2013 to shareholders on the register at the close of business on 5 July 2013.

The full annual report including financial statements for the year ended 31 March 2013 is expected to be posted to shareholders on 31 May 2013 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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