Northern 3 VCT PLC.

12 NOVEMBER 2013



Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity.  It 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 are for the six months ended 30 September 2012):

       2013       2012
Net assets£50.1m£47.2m
Net asset value per share104.5p96.8p
Return per share after tax: 
Interim dividend per share declared
in respect of the period


Cumulative return to shareholders since launch: 
Net asset value per share
Dividends paid per share*
Net asset value plus dividends paid per share
Mid-market share price at end of period92.25p82.13p
Share price discount to net asset value11.7%15.2%
Tax-free dividend yield (based on 5.5p
annual dividend and mid-market share price
at end of period)



*Excluding interim dividend not yet paid

For further information, please contact:

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



Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2013, after deducting the 2012/13 final dividend of 3.5p per share which was paid in July, was 104.5p (31 March 2013 104.6p).  The return per share, before deducting the dividend, was 3.3p compared with 2.9p in the six month period ended 30 September 2012.

Investment income for the period was £1.1 million, compared with £0.8 million in the corresponding period last year, reflecting an improvement in income receipts from the unquoted portfolio.  The revenue return per share increased to 1.4p (corresponding period 1.0p).

Your board has declared an unchanged interim dividend of 2.0p per share, which will be paid on 10 January 2014 to shareholders on the register at the close of business on 29 November 2013.  We announced in May 2013 that, in the light of the company's continuing strong performance, the target level of annual dividend had been increased to 5.5p per share.  Accordingly the board expects that, in the absence of unforeseen circumstances, a final dividend of 3.5p per share will be proposed in due course in respect of the year ending 31 March 2014, payable in July 2014.

Investment portfolio

During the six months ended 30 September 2013 the following new holdings were acquired for the venture capital portfolio:

  • Cleveland Biotech (Holdings) (£862,000) - manufacturer of environmentally friendly bacterial solutions for waste management, Stockton-on-Tees
  • Kirton Group (£892,000) - manufacturer of specialist seating and shower, toilet and commode chairs, Haverhill
  • Buoyant Upholstery (£1,294,000) - manufacturer of upholstered sofas and chairs, Nelson

Further investments were made in three of the company's AIM-quoted holdings, Brady (£246,000), Pilat Media Global (£187,000) and Sinclair IS Pharma (£204,000).

Sale proceeds from venture capital holdings in the half year totalled £2.5 million, including £1.3 million from the sale of IG Doors to Hörmann Group in June.  The AIM-quoted holding in Vianet was sold in the market because of concerns about the impact of impending legislation relating to the operation of pub companies, and the opportunity was taken to sell part of the holding in IDOX following a period of share price strength.

We are pleased with the progress of the unquoted portfolio, and the performance of the AIM-quoted portfolio has again been strong.

Share offer and buy-back policy
In July 2013 the company launched a £20 million top-up offer of new ordinary shares for subscription in the 2013/14 and 2014/15 tax years, in conjunction with offers by Northern Venture Trust and Northern 2 VCT.  The Northern 3 VCT offer has to date attracted subscriptions of over £12 million;  6,949,631 new shares were allotted on 4 October 2013 and a further allotment will take place on 29 November 2013.  The offer will remain open until fully subscribed, at which point the company's net assets would be almost £70 million with substantial cash resources available for investment in the venture capital portfolio.  I am pleased to welcome our new investors and to thank all our shareholders for their continuing support.

It remains the company's policy to buy back its shares in the market at a 10% discount to NAV, and in the half year 533,000 shares were repurchased at an average price of 92.6p.  Panmure Gordon has been appointed as the company's corporate broker.

VCT qualifying status
The company has continued to comply with the conditions laid down by HM Revenue & Customs for the maintenance of approved venture capital trust status.  Our managers monitor the position closely and the board also receives regular reports from our taxation advisers at PricewaterhouseCoopers LLP.

VCT legislation and regulation
In July 2013 HM Treasury and HM Revenue & Customs published a consultation document setting out proposals to prohibit "enhanced" share buy-backs, where a VCT re-purchases existing shares from shareholders on favourable terms on condition that the proceeds are re-invested in new shares.  We have contributed to representations made in response by our managers and the Association of Investment Companies, and we hope that the resulting legislation will be drafted so as to avoid unintended adverse consequences.  The European Commission is currently reviewing the rules relating to state aid for businesses in EC member countries, including the VCT scheme in the UK, and we await the resulting conclusions with interest.

The Commission's Alternative Investment Fund Managers Directive (AIFMD) became part of UK law in July 2013, with a 12 month transitional period to July 2014.  The Directive regulates the management of alternative investment funds, including venture capital funds such as VCTs.  Your board envisages that NVM Private Equity will be appointed as the company's AIFM for the purposes of the Directive.

The FCA's Retail Distribution Review has brought about significant changes in the way VCTs raise funds through new share issues, as can be seen from our recent prospectus.  The FCA also concluded a consultation on the retail distribution of unregulated collective investment schemes, as a result of which we were pleased to learn that VCTs had been excluded from a list of investment products whose distribution to retail investors is to be severely restricted.

There are some indications of improvement in the prospects for the UK economy and this should be helpful to our investee companies, which have faced difficult market conditions over the past five years.  Northern 3 VCT has a strong balance sheet, with a well-diversified portfolio and ample cash available for further investment, and we expect to make further progress in the second half of the financial year.

On behalf of the Board

James Ferguson

The unaudited half-yearly financial statements for the six months ended 30 September 2013 are set out below.

(unaudited) for the six months ended 30 September 2013

Six months ended
30 September 2013
Six months ended
30 September 2012
Gain on disposal of investments 623  623  546  546 
Movements in fair value of investments 563  563  697  697 
----------  ----------  ----------  ----------  ----------  ---------- 
1,186  1,186  1,243  1,243 
Income 1,100  1,100  812  812 
Investment management fee (130) (391) (521) (126) (378) (504)
Other expenses (173) (173) (145) (145)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 797  795  1,592  541  865  1,406 
Tax on return on ordinary activities (102) 102  (53) 53 
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 695  897  1,592  488  918  1,406 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.4p 1.9p 3.3p 1.0p 1.9p 2.9p
Dividend per share for the period 1.0p 1.0p 2.0p 1.0p 1.0p 2.0p

Year ended 31 March 2013
Gain on disposal of investments 1,375  1,375 
Movements in fair value of investments 5,096  5,096 
----------  ----------  ---------- 
6,471  6,471 
Income 1,523  1,523 
Investment management fee (245) (1,341) (1,586)
Other expenses (297) (297)
----------  ----------  ---------- 
Return on ordinary activities before tax 981  5,130  6,111 
Tax on return on ordinary activities (113) 113 
----------  ----------  ---------- 
Return on ordinary activities after tax 868  5,243  6,111 
----------  ----------  ---------- 
Return per share 1.8p 10.7p 12.5p
Dividend per share for the period 2.0p 3.5p 5.5p

(unaudited) for the six months ended 30 September 2013

Six months ended 
30 September 2013 
Six months ended 
30 September 2012 
Year ended 
31 March 2013 
Equity shareholders' funds at 1 April 2013 50,556  47,798  47,798 
Return on ordinary activities after tax 1,592  1,406  6,111 
Dividends recognised in the period (1,686) (1,475) (2,446)
Net proceeds of share issues 100 
Shares re-purchased for cancellation (496) (518) (907)
----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2013 50,066  47,211  50,556 
----------  ----------  ---------- 

(unaudited) as at 30 September 2013

30 September 2013 
30 September 2012 
31 March 2013 
Fixed asset investments 47,459  40,126  44,532 
----------  ----------  ---------- 
Current assets:
  Debtors 217  181  241 
  Cash and deposits 9,139  7,071  6,517 
----------  ----------  ---------- 
9,356  7,252  6,758 
Creditors (amounts falling due
  within one year) (6,749) (167) (734)
----------  ----------  ---------- 
Net current assets 2,607  7,085  6,024 
----------  ----------  ---------- 
Net assets 50,066  47,211  50,556 
----------  ----------  ---------- 
Capital and reserves
Called-up equity share capital 2,395  2,438  2,416 
Share premium 3,314  3,220  3,219 
Capital redemption reserve 511  462  484 
Capital reserve 34,362  36,784  36,083 
Revaluation reserve 8,598  3,528  7,681 
Revenue reserve 886  779  673 
----------  ----------  ---------- 
Total equity shareholders' funds 50,066  47,211  50,556 
----------  ----------  ---------- 
Net asset value per share 104.5p 96.8p 104.6p

(unaudited) for the six months ended 30 September 2013

Six months ended 
30 September 2013 
Six months ended 
30 September 2012 
Year ended 
31 March 2013 
£000 £000 £000 £000 £000 £000 
Cash flow statement
Net cash outflow from
operating activities (198) (105) (122)
Corporation tax paid
Financial investment:
Purchase of investments (5,603) (3,460) (5,794)
Sale/repayment of investments 3,862  4,118  7,275 
----------  ----------  ---------- 
Net cash inflow/(outflow) from financial investment (1,741) 658  1,481 
Equity dividends paid (1,686) (1,475) (2,446)
----------  ----------  ---------- 
Net cash outflow before financing (3,625) (922) (1,087)
Issue of shares 112 
Share issue expenses (12)
Share subscriptions held
pending allotment


Re-purchase of shares for cancellation (496) (518) (907)
----------  ----------  ---------- 
Net cash inflow/(outflow) from financing 6,247  (518) (907)
----------  ----------  ---------- 
Increase/(decrease) in cash and deposits 2,622  (1,440) (1,994)
----------  ----------  ---------- 
Reconciliation of return before tax to
net cash flow from operating activities
Return on ordinary activities before tax 1,592  1,406  6,111 
Gain on disposal of investments (623) (546) (1,375)
Movements in fair value of investments (563) (697) (5,096)
(Increase)/decrease in debtors 24  11  (49)
Increase/(decrease) in creditors (628) (279) 287 
----------  ----------  ---------- 
Net cash outflow from operating activities (198) (105) (122)
----------  ----------  ---------- 
Reconciliation of movements in net funds
1 April 2013 Cash flows 30 September 2013 
£000 £000 £000 
Cash and deposits 6,517  2,622  9,139 
----------  ----------  ---------- 

as at 30 September 2013

% of net assets
by valuation
Fifteen largest venture capital investments:
Kerridge Commercial Systems 1,663 4,870 9.7
Volumatic Holdings 2,096 3,618 7.2
Advanced Computer Software Group* 1,035 3,271 6.5
IDOX* 600 1,931 3.9
Tinglobal Holdings 1,812 1,828 3.7
Silverwing 1,272 1,695 3.4
Wear Inns 1,406 1,542 3.1
Control Risks Group Holdings 746 1,315 2.6
Buoyant Upholstery 1,294 1,294 2.6
Intuitive Holding 1,293 1,293 2.6
Kitwave One 1,000 1,081 2.2
Sinclair IS Pharma* 957 1,039 2.1
Haystack Dryers 992 992 2.0
Lineup Systems 974 974 1.9
Cawood Scientific 825 968 1.9
---------- ---------- -------
17,965 27,711 55.4
Other venture capital investments 12,685 10,966 21.9
---------- ---------- -------
Total venture capital investments 30,650 38,677 77.3
Listed equity investments 5,217 5,768 11.5
Listed fixed-interest investments 2,994 3,014 6.0
---------- ---------- -------
Total fixed asset investments 38,861 47,459 94.8
Net current assets 2,607 5.2
---------- -------
Net assets 50,066 100.0
---------- -------
*Quoted on AIM


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:  Many 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, close monitoring 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 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 venture capital 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 can be very little, if any, market demand for shares in 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 and seek to ensure there is no undue concentration of credit risk with any one counterparty.

Liquidity risk:  The company's investments may be difficult to realise.  The fact that a stock is quoted on a recognised stock exchange 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 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.


The above summary of results for the six months ended 30 September 2013 does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006, has not been audited or reviewed by the company's independent auditor and has not been delivered to the Registrar of Companies.  The figures for the year ended 31 March 2013 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies;  the independent auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.  The half-yearly financial statements have been prepared on the basis of the accounting policies set out in the annual financial statements for the year ended 31 March 2013.

Each of the directors confirms that to the best of his knowledge the half-yearly financial statements have been prepared in accordance with the Statement "Half-yearly financial reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by (a) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year, and (b) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

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.

The calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the period and on 48,202,080 (2012 49,068,638) ordinary shares, being the weighted average number of shares in issue during the period.

The calculation of the net asset value per share is based on the net assets at 30 September 2013 divided by the 47,895,561 (2012 48,767,103) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 31 March 2014 will be paid on 10 January 2014 to shareholders on the register at the close of business on 29 November 2013.

A copy of the half-yearly financial report for the six months ended 30 September 2013 is expected to be posted to shareholders by 22 November 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,

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