Announcements

Northern 3 VCT PLC.

12 NOVEMBER 2015

NORTHERN 3 VCT PLC

UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015

Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity LLP.  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 as at 30 September 2014 and 31 March 2015)

 

 

 

 
Six months to
30 September
 2015
Six months to
30 September
 2014
Year to
31 March
 2015
Net assets

 
£66.3m£70.3m£71.2m
Net asset value per share

 
100.7p105.5p107.2p
Return per share:
Revenue
Capital
Total

 

1.1p
5.8p
6.9p

1.3p
(1.1)p
0.2p

2.5p
1.4p
3.9p
Dividend per share declared/paid
in respect of the period

 (31 March 2015 includes 10.0p special dividend)

 

2.0p

2.0p

15.5p
Cumulative returns to shareholders
since launch:
Net asset value per share
Dividends paid per share*
Net asset value plus dividends paid per share

 


100.7p
62.9p
163.6p


105.5p
47.4p
152.9p


107.2p
49.4p
156.6p
Mid-market share price at end of period

 
90.0p95.8p96.8p
Share price discount to net asset value

 
10.6%9.2%9.7%
Tax-free dividend yield (based on mid-market
share price at end of period):
   
 Excluding special dividend
 Including special dividend
6.1%
N/A
5.7%
N/A
5.7%
16.0%

*Excluding interim dividend not yet paid

For further information, please contact:

NVM Private Equity LLP
Alastair Conn/Christopher Mellor                  0191 244 6000
Website:  www.nvm.co.uk

HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS

Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2015 was 100.7p (31 March 2015 107.2p).  The September figure is stated after deducting the second interim and final dividends totalling 13.5p per share in respect of the year ended 31 March 2015, which were paid in July 2015.  The second interim dividend of 10.0p was a special payment out of the proceeds of profitable investment sales completed in the final quarter of the 2014/15 financial year.

The return per share for the half year as shown in the income statement, before deducting the dividend, was 6.9p compared with 0.2p in the six month period ended 30 September 2014.

The directors have declared an unchanged interim dividend of 2.0p per share, which will be paid on 29 January 2016 to shareholders on the register at the close of business on 8 January 2016.  It is our present objective to maintain an annual dividend of at least 5.5p per share.

In July we suspended the dividend investment scheme (DRIS) under which shareholders had been able to re-invest their dividends in new ordinary shares in the company.  We reluctantly took this step because of the uncertainty caused by the Government's proposed changes to the VCT legislation.  Although we are making some progress in absorbing the implications of these changes, we do not yet feel that it is appropriate to re-instate the DRIS and so it remains suspended until further notice.

Investment portfolio
Total additions to the venture capital portfolio in the half year amounted to £11.3 million.  Two new holdings in unquoted trading companies and two AIM-quoted holdings were acquired at a cost of £3.1 million, as follows:

  • Entertainment Magpie Group (£1,360,000) - operator of website for re-selling pre-owned entertainment media and electronic items, Manchester
  • Love Energy Savings (£1,017,000) - business-to-business energy cost comparison and procurement service, Bolton
  • Vislink (£564,000) - AIM-quoted provider of communications technology to the broadcast, security and defence industries, Hungerford
  • Gear4music (Holdings) (£150,000) - AIM-quoted online retailer of musical instruments and music equipment, York

In addition £8.2 million was invested in six companies formed with a view to acquiring trading businesses.

Proceeds from investment sales and repayments amounted to £3.0 million, producing a gain of £0.7 million over 31 March 2015 carrying values.  The majority shareholder in Tinglobal Holdings purchased our remaining holding for £0.7 million and the investment in Direct Valeting was sold to a trade acquirer for £0.4 million, realising a satisfactory profit in each case.  The AIM-quoted investments in Accumuli and Nationwide Accident Repair Services were sold at a profit following recommended bids.  Warmseal Windows (Newcastle), which had previously been written down to nil value, went into administration after a long period of difficult trading.  Several other investee companies are currently in discussions with a view to possible exits.

The venture capital portfolio continues to make good overall progress and this is reflected in a number of individual valuation uplifts.  A small number of companies have performed less well than expected and are receiving close attention and support from our investment manager.

Share issues and buy-backs
The company has enjoyed a strong cash position following the successful £20 million public share offer in the 2013/14 tax year.  Your board did not consider it appropriate to launch a further share issue in the 2014/15 tax year and indeed we were able to declare a special dividend totalling £6.6 million from the proceeds of investment realisations.  With funds still available for future investment, and a reasonable prospect of more realisations over the next six months, we do not envisage raising funds from investors in the 2015/16 tax year.

In May it was announced that the discount to NAV at which the company buys back shares in the market would be reduced from 10% to 5%.  520,000 shares were re-purchased during the six months ended 30 September 2015 at a cost of £466,000.

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 Robertson Hare LLP.

VCT legislation
The Government introduced new legislation in the Summer Finance Bill 2015 which will have a significant impact on the investment activities of most VCTs.  I wrote to shareholders in July 2015 to inform you that the directors were assessing the effect of the new provisions, which at the time were subject to further clarification and amendment by the Government.

The Finance Bill is expected to receive Royal Assent shortly and it is clear that the range of potential investments open to generalist VCTs such as your company will be reduced, as the Government seeks to implement the European Commission's State aid guidelines which require VCTs to focus more sharply on the provision of growth capital to younger companies.

Your directors are working closely with NVM and our other professional advisers to understand the full implications of the new rules for our future investment activities, and to adapt our approach to the new regime as we seek to maintain our strong long-term investment performance.  We will report the outcome of our review to shareholders in due course.

Prospects
Financial markets have been adversely affected over the past six months by concerns about a slowdown in the Chinese economy, as well as specific sector issues such as those resulting from the fall in the oil price.  This will present challenges to our investee companies, but the portfolio has shown an encouraging degree of resilience and we expect to see some profitable exits in the second half of the year.

On behalf of the Board

James Ferguson
Chairman

The unaudited half-yearly financial statements for the six months ended 30 September 2015 are set out below.

INCOME STATEMENT
(unaudited) for the six months ended 30 September 2015

 Six months ended
30 September 2015
Six months ended
30 September 2014
 Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments 639  639  97  97 
Movements in fair value of investments 3,678  3,678  (369) (369)
  ----------  ----------  ----------  ----------  ----------  ---------- 
  4,317  4,317  (272) (272)
Income 1,148  1,148  1,328  1,328 
Investment management fee (183) (550) (733) (184) (551) (735)
Other expenses (173) (173) (185) (185)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 792  3,767  4,559  959  (823) 136 
Tax on return on ordinary activities (67) 67  (113) 113 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 725  3,834  4,559  846  (710) 136 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.1p 5.8p 6.9p 1.3p (1.1)p 0.2p
Dividend per share for the period 1.0p 1.0p 2.0p 1.0p 1.0p 2.0p

  Year ended 31 March 2015
    Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments       3,429  3,429 
Movements in fair value of investments       (1,693) (1,693)
        ----------  ----------  ---------- 
        1,736  1,736 
Income       2,676  2,676 
Investment management fee       (364) (1,094) (1,458)
Other expenses       (376) (376)
        ----------  ----------  ---------- 
Return on ordinary activities before tax       1,936  642  2,578 
Tax on return on ordinary activities       (261) 261 
        ----------  ----------  ---------- 
Return on ordinary activities after tax       1,675  903  2,578 
        ----------  ----------  ---------- 
Return per share       2.5p 1.4p 3.9p
Dividend per share for the period       2.5p 13.0p 15.5p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 30 September 2015

 Six months ended 
30 September 2015 
£000 
Six months ended 
30 September 2014 
£000 
Year ended 
31 March 2015 
£000 
Equity shareholders' funds at 1 April 2015 71,155  71,297  71,297 
Return on ordinary activities after tax 4,559  136  2,578 
Dividends recognised in the period (8,958) (2,322) (3,654)
Net proceeds of share issues 1,296  1,416 
Shares re-purchased for cancellation (466) (147) (482)
  ----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2015 66,290  70,260  71,155 
  ----------  ----------  ---------- 

BALANCE SHEET
(unaudited) as at 30 September 2015

 30 September 2015 
£000 
30 September 2014 
£000 
31 March 2015 
£000 
Fixed assets:      
Investments 61,086  60,226  50,371 
  ----------  ----------  ---------- 
Current assets:      
Debtors 169  223  255 
Cash and deposits 5,158  9,979  20,726 
  ----------  ----------  ---------- 
  5,327  10,202  20,981 
Creditors (amounts falling due      
 within one year) (123) (168) (197)
  ----------  ----------  ---------- 
Net current assets 5,204  10,034  20,784 
  ----------  ----------  ---------- 
       
Net assets 66,290  70,260  71,155 
  ----------  ----------  ---------- 
Capital and reserves:      
Called-up equity share capital 3,292  3,329  3,318 
Share premium 1,348  1,235  1,348 
Capital redemption reserve 61  17  35 
Capital reserve 54,754  52,489  62,884 
Revaluation reserve 5,927  12,176  2,393 
Revenue reserve 908  1,014  1,177
  ----------  ----------  ---------- 
Total equity shareholders' funds 66,290  70,260  71,155 
  ----------  ----------  ---------- 
Net asset value per share 100.7p 105.5p 107.2p

CASH FLOW STATEMENT
(unaudited) for the six months ended 30 September 2015

 Six months ended 
30 September 2015 
Six months ended 
30 September 2014 
Year ended 
31 March 2015 
 £000 £000 £000 £000 £000 £000 
Cash flow statement      
Net cash inflow/(outflow) from            
operating activities   254    (361)   70 
Taxation:            
Corporation tax paid      
Financial investment:            
Purchase of investments (11,937)   (7,694)   (12,986)  
Sale/repayment of investments 5,539    5,639    22,794   
  ----------    ----------    ----------   
Net cash inflow/(outflow) from financial investment (6,398)   (2,055)   9,808 
Equity dividends paid   (8,958)   (2,322)   (3,654)
    ----------    ----------    ---------- 
Net cash inflow/(outflow) before financing (15,102)   (4,738)   6,224 
Financing:            
Issue of shares   1,330    1,463   
Share issue expenses   (34)   (47)  
Re-purchase of shares for cancellation (466)   (147)   (482)  
  ----------    ----------    ----------   
Net cash inflow/(outflow) from financing (466)   1,149    934 
    ----------    ----------    ---------- 
Increase/(decrease) in cash and deposits   (15,568)   (3,589)   7,158 
    ----------    ----------    ---------- 
Reconciliation of return before tax to      
net cash flow from operating activities      
Return on ordinary activities before tax   4,559    136    2,578 
Gain on disposal of investments   (639)   (97)   (3,429)
Movements in fair value of investments   (3,678)   369    1,693 
Decrease in debtors   86    65    33 
Decrease in creditors   (74)   (834)   (805)
    ----------    ----------    ---------- 
Net cash inflow/(outflow) from operating activities 254    (361)   70 
    ----------    ----------    ---------- 
Reconciliation of movements in net funds     
 1 April 2015 Cash flows 30 September 2015 
  £000  £000  £000 
Cash and deposits   20,726    (15,568)   5,158 
    ----------    ----------    ---------- 
             
          

INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2015

CompanyCost
£000
Valuation
£000
% of net assets
by valuation
       
Fifteen largest private equity investments:      
Buoyant Upholstery 1,294 2,721 4.1
Lineup Systems 974 2,467 3.7
MSQ Partners Group 1,477 2,296 3.4
IDOX* 600 2,006 3.0
Biological Preparations Group 1,915 1,915 2.9
Volumatic Holdings 1,929 1,901 2.9
Kitwave One 1,001 1,900 2.9
Silverwing 1,272 1,673 2.5
Axial Systems Holdings 1,293 1,569 2.4
Closerstill Group 1,520 1,520 2.3
Wear Inns 1,406 1,461 2.2
Control Risks Group Holdings 746 1,461 2.2
No 1 Traveller 1,441 1,454 2.2
Agilitas IT Holdings 1,448 1,452 2.2
It's All Good 1,131 1,411 2.1
  ---------- ---------- -------
  19,447 27,207 41.0
Other private equity investments 27,761 26,297 39.7
  ---------- ---------- -------
Total private equity investments 47,208 53,504 80.7
Listed equity investments 7,951 7,582 11.4
  ---------- ---------- -------
Total fixed asset investments 55,159 61,086 92.1
  ----------    
Net current assets   5,204 7.9
    ---------- -------
Net assets   66,290 100.0
    ---------- -------
*Quoted on AIM      

BUSINESS RISKS

The board carries out a regular and robust review of the risk environment in which the company operates.  The principal risks and uncertainties identified by the board which might affect the company's business model and future performance, and the steps taken with a view to their mitigation, are as follows:

Investment and liquidity 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.  Mitigation: 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 maintaining a wide spread of holdings in terms of financing stage and industry sector.  The board reviews the investment portfolio with the investment manager on a regular basis.

Financial risk: most of the company's investments involve a medium- to long-term commitment and many are relatively illiquid.  Mitigation: 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 direct exposure to foreign currency risk and does not enter into derivative transactions.

Economic risk: events such as economic recession or general fluctuation 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.  Mitigation: the company invests in a diversified portfolio of investments spanning various industry sectors, and maintains sufficient cash reserves to be able to provide additional funding to investee companies where appropriate.

Stock market risk: some of the company's 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.  Mitigation: the company's quoted investments are actively managed by specialist managers and the board keeps the portfolio under ongoing review.

Credit risk: the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment.  Mitigation: 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 party.

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, which reflects 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.  Mitigation: The board and the investment manager monitor political developments and where appropriate seek to make representations either directly or through relevant trade bodies.

Internal control risk: the company's assets could be at risk in the absence of an appropriate internal control regime.  Mitigation: the board regularly reviews the system of internal controls, both financial and non-financial, operated by the company and the investment 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.  Mitigation: the investment manager keeps the company's VCT qualifying status under continual review and its reports are reviewed by the board on a quarterly basis.  The board has also retained Robertson Hare LLP to undertake an independent VCT status monitoring role.

OTHER MATTERS

The unaudited half-yearly financial statements for the six months ended 30 September 2015 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 2015 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 2015.

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 statement 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 66,188,044 (2014 66,269,375) 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 2015 divided by the 65,833,399 (2014 66,575,347) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 31 March 2016 will be paid on 29 January 2016 to shareholders on the register at the close of business on 8 January 2016.

A copy of the half-yearly financial report for the six months ended 30 September 2015 is expected to be posted to shareholders by 30 November 2015 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 LLP website, www.nvm.co.uk.

Neither the contents of the NVM Private Equity LLP website nor the contents of any website accessible from hyperlinks on the NVM Private Equity LLP 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

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