Announcements

Northern 3 VCT PLC.

11 NOVEMBER 2014

NORTHERN 3 VCT PLC

UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014

Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity Limited.  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:

 

 

 

 
Six months to
30 September
 2014
Six months to
30 September
 2013
Year to
31 March
 2014
Net assets

 
£70.3m £50.1m £71.3m
Net asset value per share

 
105.5p 104.5p 108.9p
Return per share:
Revenue
Capital
Total

 

1.3p
(1.1)p
0.2p

1.4p
1.9p
3.3p

2.1p
8.4p
10.5p
Dividend per share declared
in respect of the period


 

2.0p

2.0p

5.5p
Cumulative returns to shareholders
since launch:
Net asset value per share
Dividends paid per share
Net asset value plus dividends paid per share

 


105.5p
47.4p
152.9p


104.5p
41.9p
146.4p


108.9p
43.9p
152.8p
Mid-market share price at end of period

 
95.75p 92.25p 97.00p
Share price discount to net asset value

 
9.2% 11.7% 10.9%
Tax-free dividend yield (based on mid-market
share price at end of period)


 

5.7%

6.0%

5.7%

For further information, please contact:

NVM Private Equity Limited
Alastair Conn/Christopher Mellor
Website:  www.nvm.co.uk
 

0191 244 6000

HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS

Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2014, after deducting the 2013/14 final dividend of 3.5p per share which was paid in July, was 105.5p (31 March 2014 108.9p).  The return per share as shown in the income statement, before deducting the final dividend, was 0.2p compared with 3.3p in the six month period ended 30 September 2013.

Investment income for the period was £1.3 million, compared with £1.1 million in the corresponding period last year.  The revenue return per share, based on the increased number of shares in issue, was slightly lower at 1.3p (corresponding period 1.4p).

Your board has declared an unchanged interim dividend of 2.0p per share, which will be paid on 16 January 2015 to shareholders on the register at the close of business on 5 December 2014.  It remains our objective to maintain an annual dividend of at least 5.5p per share.

Investment portfolio
The past six months have seen a high level of new investment activity in the venture capital portfolio.  The following holdings were added during the period:

  • Accumuli (£490,000) - IT security and risk management specialist, Basingstoke (AIM-quoted)
  • Hayward Tyler (£515,000) - manufacturer of electric motors and pumps, Luton (AIM-quoted)
  • Arnlea Holdings (£1,138,000) - developer of asset management software for the oil and gas industry, Aberdeen
  • Agilitas Holdings (£1,448,000) - provider of outsourced IT inventory management services, Nottingham
  • Fresh Approach (UK) Holdings (£1,286,000) - creative events manager, Manchester
  • MSQ Partners (£1,477,000) - marketing and communications agency group, London
  • Buoyant Upholstery (£1,294,000) - manufacturer of upholstered sofas and chairs, Nelson

Proceeds from investment sales and repayments amounted to £3.7 million, generating a realised gain of £0.2 million compared with 31 March 2014 carrying values.  The AIM-quoted investment in Pilat Media Global was acquired by SintecMedia through an agreed bid, producing proceeds of £1.6 million compared with our original cost of £0.6 million.  Tinglobal Holdings raised new equity funding from a strategic trade investor and was able to repay £1.6 million of loan stock.  Altacor and Mantis Deposition Holdings, both of which had been written down in value at 31 March 2014 after periods of disappointing performance, were sold for aggregate proceeds of £0.4 million.  There are good prospects of some exits in the second half of the financial year.

The AIM portfolio showed no overall gain or loss in the period, compared with a 12% fall in the AIM market index.  Our managers continue to seek suitable opportunities for new investment.

Shareholders
As a result of the success of the company's £20 million public share offer in the 2013/14 tax year, cash balances are presently healthy and we have the option of withdrawing funds from the listed equity and fixed-income portfolios if necessary.  The board has reviewed projected future cash requirements in the light of new investment activity and potential realisations of existing investments, and has concluded that it would not be appropriate to raise further funds by launching a share issue in the 2014/15 tax year.

We have maintained our policy of being prepared to buy back the company's shares in the market at a 10% discount to NAV.  In the half year under review a total of 150,000 shares, equivalent to 0.2% of the issued share capital, was repurchased at an average price of 98p.

Earlier this year the opportunity was extended to shareholders to receive communications from the company electronically rather than by paper copy.  The option remains open to any other shareholders who wish to join the scheme.

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
We have previously reported on the Government's proposals to introduce restrictions on investors who sell shares in a VCT within the period six months before and after subscribing for shares in the same VCT, and to restrict the ability of VCTs to pay dividends to shareholders out of distributable reserves created by cancelling the share premium arising where new shares are allotted after 6 April 2014.  The 2014 Finance Act containing the relevant legislation duly received Royal Assent in July 2014.

The Government has recently undertaken a consultation exercise on the future of VCTs and other tax-advantaged investment schemes, against the background of a European Commission review of the rules relating to state aid for businesses in member countries, which in the UK includes VCTs.  The outcome of this review is awaited;  we hope that there will be no significant change in the positioning of VCTs as an important part of the UK government's strategy for supporting small and medium-sized enterprises.

The Commission's Alternative Investment Fund Managers Directive (AIFMD) is now part of UK law.  The Directive regulates the management of alternative investment funds, including venture capital funds such as VCTs.  The directors have appointed the company's existing manager, NVM Private Equity, as our AIFM for the purposes of the Directive with effect from May 2014.

Prospects
The UK stock market has made little progress over the half year, reflecting concerns over the global economic outlook as well as uncertainty as to the outcome of the impending general election.  Our managers have a full workload as they seek to maintain the required rate of new investment as well as helping existing portfolio companies implement their strategic plans.  Our company's balance sheet remains strong and we hope that performance in the second half of the year will benefit from some profitable realisations.

On behalf of the Board

James Ferguson
Chairman

The unaudited half-yearly financial statements for the six months ended 30 September 2014 are set out below.

INCOME STATEMENT
(unaudited) for the six months ended 30 September 2014

 Six months ended
30 September 2014
Six months ended
30 September 2013
 Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments 97  97  623  623 
Movements in fair value of investments (369) (369) 563  563 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  (272) (272) 1,186  1,186 
Income 1,328  1,328  1,100  1,100 
Investment management fee (184) (551) (735) (130) (391) (521)
Other expenses (185) (185) (173) (173)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 959  (823) 136  797  795  1,592 
Tax on return on ordinary activities (113) 113  (102) 102 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 846  (710) 136  695  897  1,592 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.3p (1.1)p 0.2p 1.4p 1.9p 3.3p
Dividend per share for the period 1.0p 1.0p 2.0p 1.0p 1.0p 2.0p

  Year ended 31 March 2014
    Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments       1,254  1,254 
Movements in fair value of investments       4,382  4,382 
        ----------  ----------  ---------- 
        5,636  5,636 
Income       2,006  2,006 
Investment management fee       (283) (1,181) (1,464)
Other expenses       (357) (15) (372)
        ----------  ----------  ---------- 
Return on ordinary activities before tax       1,366  4,440  5,806 
Tax on return on ordinary activities       (202) 202 
        ----------  ----------  ---------- 
Return on ordinary activities after tax       1,164  4,642  5,806 
        ----------  ----------  ---------- 
Return per share       2.1p 8.4p 10.5p
Dividend per share for the period       1.8p 3.7p 5.5p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 30 September 2014

 Six months ended 
30 September 2014 
£000 
Six months ended 
30 September 2013 
£000 
Year ended 
31 March 2014 
£000 
Equity shareholders' funds at 1 April 2014 71,297  50,556  50,556 
Return on ordinary activities after tax 136  1,592  5,806 
Dividends recognised in the period (2,322) (1,686) (2,999)
Net proceeds of share issues 1,296  100  18,671 
Shares re-purchased for cancellation (147) (496) (737)
  ----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2014 70,260  50,066  71,297 
  ----------  ----------  ---------- 

BALANCE SHEET
(unaudited) as at 30 September 2014

 30 September 2014 
£000 
30 September 2013 
£000 
31 March 2014 
£000 
Fixed assets:      
Investments 60,226  47,459  58,443 
  ----------  ----------  ---------- 
Current assets:      
Debtors 223  217  288 
Cash and deposits 9,979  9,139  13,568 
  ----------  ----------  ---------- 
  10,202  9,356  13,856 
Creditors (amounts falling due      
 within one year) (168) (6,749) (1,002)
  ----------  ----------  ---------- 
Net current assets 10,034  2,607  12,854 
  ----------  ----------  ---------- 
       
Net assets 70,260  50,066  71,297 
  ----------  ----------  ---------- 
Capital and reserves:      
Called-up equity share capital 3,329  2,395  3,275 
Share premium 1,235  3,314 
Capital redemption reserve 17  511  10 
Capital reserve 52,489  34,362  55,264 
Revaluation reserve 12,176  8,598  12,049 
Revenue reserve 1,014  886  699 
  ----------  ----------  ---------- 
Total equity shareholders' funds 70,260  50,066  71,297 
  ----------  ----------  ---------- 
Net asset value per share 105.5p 104.5p 108.9p

CASH FLOW STATEMENT
(unaudited) for the six months ended 30 September 2014

 Six months ended 
30 September 2014 
Six months ended 
30 September 2013 
Year ended 
31 March 2014 
 £000 £000 £000 £000 £000 £000 
Cash flow statement      
Net cash inflow/(outflow) from            
operating activities   (361)   (198)   391 
Taxation:            
Corporation tax paid      
Financial investment:            
Purchase of investments (7,694)   (5,603)   (15,437)  
Sale/repayment of investments 5,639    3,862    7,162   
  ----------    ----------    ----------   
Net cash outflow from financial investment (2,055)   (1,741)   (8,275)
Equity dividends paid   (2,322)   (1,686)   (2,999)
    ----------    ----------    ---------- 
Net cash outflow before financing (4,738)   (3,625)   (10,883)
Financing:            
Issue of shares 1,330    112    19,122   
Share issue expenses (34)   (12)   (451)  
Share subscriptions held
pending allotment

 
6,643 
 
 
Re-purchase of shares for cancellation (147)   (496)   (737)  
  ----------    ----------    ----------   
Net cash inflow from financing 1,149    6,247    17,934 
    ----------    ----------    ---------- 
Increase/(decrease) in cash and deposits   (3,589)   2,622    7,051 
    ----------    ----------    ---------- 
Reconciliation of return before tax to      
net cash flow from operating activities      
Return on ordinary activities before tax   136    1,592    5,806 
Gain on disposal of investments   (97)   (623)   (1,254)
Movements in fair value of investments   369    (563)   (4,382)
(Increase)/decrease in debtors   65    24    (47)
Increase/(decrease) in creditors   (834)   (628)   268 
    ----------    ----------    ---------- 
Net cash inflow/(outflow) from operating activities (361)   (198)   391 
    ----------    ----------    ---------- 
Reconciliation of movements in net funds     
 1 April 2014 Cash flows 30 September 2014 
  £000  £000  £000 
Cash and deposits   13,568    (3,589)   9,979 
    ----------    ----------    ---------- 
             
          

INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2014

CompanyCost
£000
Valuation
£000
% of net assets
by valuation
       
Fifteen largest venture capital investments:      
Kerridge Commercial Systems 1,537 6,744 9.6
Advanced Computer Software Group* 1,036 4,357 6.2
Volumatic Holdings 2,096 2,308 3.3
IDOX* 600 2,043 2.9
Silverwing 1,272 1,852 2.6
Wear Inns 1,406 1,767 2.5
Buoyant Upholstery 1,294 1,565 2.2
Control Risks Group Holdings 746 1,534 2.2
MSQ Partners 1,477 1,477 2.1
Agilitas Holdings 1,448 1,448 2.1
No 1 Traveller 1,441 1,441 2.1
Fresh Approach (UK) Holdings 1,286 1,286 1.8
Optilan Group 1,125 1,169 1.7
Intuitive Holding 1,293 1,159 1.6
Arnlea Holdings 1,138 1,138 1.6
  ---------- ---------- -------
  19,195 31,288 44.5
Other venture capital investments 18,467 17,855 25.4
  ---------- ---------- -------
Total venture capital investments 37,662 49,143 69.9
Listed equity investments 7,477 8,166 11.6
Listed fixed-interest investments 2,911 2,917 4.2
  ---------- ---------- -------
Total fixed asset investments 48,050 60,226 85.7
  ----------    
Net current assets   10,034 14.3
    ---------- -------
Net assets   70,260 100.0
    ---------- -------
*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:  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 AIM and will be subject to market fluctuations upwards and downwards.  External factors such as terrorist activity can negatively impact stock markets worldwide.  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 legislative and regulatory 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.

OTHER MATTERS

The unaudited half-yearly financial statements for the six months ended 30 September 2014 do not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006, have not been reviewed or audited by the company's independent auditor and have not been delivered to the Registrar of Companies.  The comparative figures for the year ended 31 March 2014 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies.  The auditor's report on those financial statements (i) was unqualified, (ii) did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) 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 2014.

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 six months ended 30 September 2014 and on 66,269,375 (2013 48,202,080) 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 2014 divided by the 66,575,347 (2013 47,895,561) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 31 March 2015 will be paid on 16 January 2015 to shareholders on the register at the close of business on 5 December 2014.

A copy of the half-yearly financial report for the six months ended 30 September 2014 is expected to be posted to shareholders by 24 November 2014 and will be available to the public at the registered office of the company at Time Central, 32 Gallowgate, Newcastle upon Tyne NE1 4SN 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.




This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Northern 3 VCT PLC via Globenewswire

HUG#1870538