Announcements

Northern 3 VCT PLC.

RNS Number : 6232H
Northern 3 VCT PLC
06 November 2008
 



6 NOVEMBER 2008


NORTHERN 3 VCT PLC


UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE 
SIX MONTHS ENDED 30 SEPTEMBER 2008



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 for the six months ended 30 September 2007 in italics)


   200

   2007 

  • Net assets

£24.9m

£29.5m

  • Net asset value per share

86.1p

97.9p

  • Return per share



Revenue

1.5p

1.5p

Capital

(11.8)p

1.4p

Total

(10.3)p

2.9p

  • Interim dividend per share



in respect of the period



Revenue

1.4p

1.4p

Capital

0.6p

0.6p

Total

2.0p

2.0p

  • Cumulative returns to



shareholders since launch



Net asset value per share

86.1p

97.9p

Dividends paid per share

18.9p

14.9p

Net asset value plus dividends



paid per share

105.0p

112.8p

  • Share price at end of period

85.5p

85.0p





For further information, please contact:

NVM Private Equity Limited

Alastair Conn/Christopher Mellor

Website:  www.nvm.co.uk


0191 244 6000

Lansons Communications

Karen Mignon


020 7294 3685



HALF-YEARLY MANAGEMENT REPORT
FOR THE SIX MONTHS ENDED 3
0 SEPTEMBER 2008


The period since the publication of the company's last annual report in May 2008 has seen a dramatic deterioration in the state of the world's financial markets, principally due to the unprecedented problems within the banking system. Short-term inflationary pressures have combined with the instability of the markets to create a very difficult trading environment for the smaller unquoted companies in the UK which represent the mainstream of our investment activity, and which in many cases are experiencing pressure from their bankers to cope with reduced facilities.


Results

The unaudited net asset value per share at 30 September 2008 was 86.1p, a fall of 10.6% from the audited figure of 96.3p at 31 March 2008. Over the same period the FTSE All-Share index fell by 15.1%. The return per share for the half year was minus 10.3p, compared with a positive return of 2.9p in the corresponding period last year.  The cumulative return to shareholders (net asset value plus dividends paid since launch) is 105.0p compared with 112.8p 12 months ago.


The revenue return per share for the half year was unchanged at 1.5p, with a fall in investment income counter-balanced by the exceptional VAT credit referred to below.  


The board has declared an unchanged interim dividend of 2.0p per share, comprising a revenue dividend of 1.4p and a capital dividend of 0.6p. The interim dividend will be paid on 17 January 2009 to shareholders on the register at the close of business on 12 December 2008.


Investment portfolio

New investment activity in the half year was at a relatively low level, reflecting the increasingly difficult market conditions. Two new venture capital investments totalling £1.2 million were completed:


  • Advanced Computer Software (£429,000) - AIM-quoted developer of computer software for the healthcare market, London

  • CloserStill Holdings (£743,000) - holding company for business-to-business exhibition promoters, London

Small additional investments were made in Britspace Holdings and the AIM-quoted IS Pharma (formerly known as Maelor).


In May 2008 Product Support (Holdings) was acquired by Wincanton plc in an all-cash deal from which our company realised £2.0 million from an original investment of £1.0 million, with the possibility of a small further payment to come depending on future performance.


The deterioration in the UK economy has inevitably affected a number of portfolio companies, and the directors' valuation of the unquoted holdings reflects not only trends in profitability but also the general reduction in price-earnings ratios reported in the stock market. In the current climate we believe it is more important than ever to take a conservative view of fair value and several of our investments have been written down to reflect this. The AIM-quoted part of the portfolio has also fallen in value, with the FTSE AIM index down by over 35% during the half year.


It is likely that some of our companies will need further funding to see them through the current downturn, and with the clearing banks seeking to limit their exposure it can be expected that these companies will look to their venture capital backers to provide the bulk of any additional requirement. This may lead to some difficult decisions having to be taken, but where we have a positive view of the quality of management and the strength of future prospects we will be prepared to consider further investment.


Against a background of fluctuations in the corporate bond markets, the portfolio of listed fixed-interest investments managed by Sarasin & Partners LLP was showing an unrealised revaluation deficit of £390,000 at 30 September 2008, equivalent to approximately 1.4p per share. It remains our intention to hold most of these stocks to maturity and at this stage we do not expect to realise any significant losses.


Shareholder issues

Following a review of corporate broking arrangements, Landsbanki Securities (formerly Teather & Greenwood) were appointed as brokers to Northern 3 VCT in 2007. They commenced making a market in Northern 3 VCT's shares and assisted the company in implementing its share buy-back policy. However Landsbanki Securities was adversely affected by the recent well-publicised financial difficulties of its parent group and went into administration in October 2008, as a result of which the firm ceased its market-making activities. There is currently only one remaining market-maker in Northern 3 VCT's shares and the quoted share price has fallen substantially, not helped by the company's inability to deal in its own shares in the close period leading up to the announcement of these half-yearly results.


Your directors understand that a successor firm to Landsbanki Securities, now known as Teathers, expects to resume normal activities imminently under new corporate ownership. We are awaiting confirmation of this before deciding whether to make alternative corporate broking arrangements, and would like to reassure shareholders that the restoration of an orderly market in the company's shares is being given the highest priority.


During the six months to 30 September 2008 the company bought back for cancellation 894,966 shares, representing approximately 3.0% of the issued capital. The directors are considering the possibility of launching a small "top-up" issue of new ordinary shares in the first quarter of 2009 in response to enquiries from shareholders wishing to make a further investment in the company. An announcement concerning this will be made in due course.


VAT on management fees

The Government announced in the 2008 Budget that, with effect from 1 October 2008, investment management fees paid by VCTs would be exempt from VAT. HM Revenue & Customs has subsequently accepted that under European Union VAT law this exemption should have applied from 1 January 1990 onwards, and has indicated that claims may be made for repayment of VAT previously paid by VCTs on management fees, subject to certain restrictive time limits.


At this stage the directors are reasonably certain that the amount of VAT recoverable by Northern 3 VCT will be at least £300,000 and an asset of this amount has been recognised in the half-yearly accounts as an exceptional credit in the income statement.


VCT qualifying status

The directors are pleased to report that the company has continued to satisfy HM Revenue & Customs' conditions for the maintenance of approved venture capital trust status. Our managers continue to monitor the position closely with the help of our taxation advisers at PricewaterhouseCoopers LLP.


Board of directors

I would like to take this opportunity to remind shareholders that I will be standing down as chairman of the company in January 2009 and that the directors have invited James Ferguson to become chairman in my place. I will continue to serve as a director and look forward to working with James and our board colleagues in what will undoubtedly be a challenging period ahead.


Prospects

Although the financial markets have shown some signs of stabilising during recent weeks, the outlook for the UK economy appears gloomy for the foreseeable future. This will inevitably have an impact on the performance of our investment portfolio in the short to medium term, notwithstanding that in recent months our overall asset value has held up well by comparison with stock market indices. The company's balance sheet is sound and we have a good reserve of liquidity which will enable us to take advantage of new investment opportunities on a highly selective basis, as well as providing further support to existing investee companies where this is justified by future prospects.


It remains our long-term objective to increase the company's net asset value whilst maintaining a progressive dividend policy through the distribution of both revenue and realised capital gains. This should assist in the development of a more active secondary market in the company's shares. Given the current outlook for the UK economy our managers believe that realisation activity is likely to be subdued for the foreseeable future, and accordingly we will take a prudent approach to the use of our liquid resources.


On behalf of the Board


John Hustler

Chairman



The unaudited half-yearly financial statements for the six months ended 30 September 2008 are set out below.



INCOME STATEMENT

(unaudited) for the six months ended 30 September 2008



Six months ended

30 September 2008

Six months ended

30 September 2007


Revenue 

£000 

Capital 

£000 

Total 

£000 

Revenue 

£000 

Capital 

£000 

Total 

£000 

Gain on disposal of investments

458 

458 

427 

427 

Movements in fair value of investments

(3,917)

(3,917)

173 

173 


------ 

------ 

------ 

------ 

------ 

------ 


(3,459)

(3,459)

600 

600 

Income

686 

686 

799 

799 

Investment management fee

(78)

(234)

(312)

(87)

(260)

(347)

Recoverable VAT

72 

228 

300 

Other expenses

(109)

(109)

(101)

(101)


------ 

------ 

------ 

------ 

------ 

------ 

Return on ordinary activities







  before tax

571 

(3,465)

(2,894)

611 

340 

951 

Tax on return on ordinary activities

(128)

- 

(128)

(167)

84 

(83)


------ 

------ 

------ 

------ 

------ 

------ 

Return on ordinary activities







  after tax 

443 

(3,465)

(3,022)

444 

424 

868 


------ 

------ 

------ 

------ 

------ 

------ 

Return per share

1.5p

(11.8)p

(10.3)p

1.5p

1.4p

2.9p



18 months ended

31 March 2008








Revenue 

£000 

Capital 

£000 

Total 

£000 

Gain on disposal of investments




85 

85 

Movements in fair value of investments




1,969 

1,969 





------ 

------ 

------ 





2,054 

2,054 

Income




2,228 

2,228 

Investment management fee




(259)

(903)

(1,162)

Recoverable VAT




Other expenses




(295)

(295)





------ 

------ 

------ 

Return on ordinary activities







  before tax




1,674 

1,151 

2,825 

Tax on return on ordinary activities




(441)

271 

(170)





------ 

------ 

------ 

Return on ordinary activities







  after tax 




1,233 

1,422 

2,655 





------ 

------ 

------ 

Return per share




4.1p

4.7p

8.8p



RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited) for the six months ended 30 September 2008



Six months ended

30 September 2008

Six months ended

30 September 2007

18 months ended

31 March 2008


£000 

£000 

£000 

Equity shareholders' funds at




  1 April 2008

28,645 

29,492 

29,281 

Return on ordinary activities after tax

(3,022)

868 

2,655 

Dividends recognised in the period

(603)

(2,418)

Net proceeds of share issues

- 

69 

287 

Shares purchased for cancellation

(772)

(304)

(1,142)

Expenses charged to capital reserve

(18)

(18)


------ 

------ 

------ 

Equity shareholders' funds at




  30 September 2008

24,854 

29,504 

28,645 


------ 

------ 

------ 



BALANCE SHEET

(unaudited) as at 30 September 2008



30 September 2008 

30 September 2007 

31 March 2008


£000 

£000 

£000 

Fixed asset investments:




Venture capital investments




  Unquoted

13,778 

16,089 

17,852 

  Quoted

1,910 

2,487 

1,851 


------ 

------ 

------ 

Total venture capital investments

15,688 

18,576 

19,703 

Listed fixed-interest investments

7,423 

9,382 

7,497 


------ 

------ 

------ 

Total fixed asset investments

23,111 

27,958 

27,200 


------ 

------ 

------ 

Current assets:




  Debtors

566 

463 

265 

  Cash at bank

1,385 

1,250 

1,526 


------ 

------ 

------ 


1,951 

1,713 

1,791 

Creditors (amounts due within one year)

(208)

(167)

(346)


------ 

------ 

------ 

Net current assets

1,743 

1,546 

1,445 


------ 

------ 

------ 





Net assets

24,854 

29,504 

28,645 


------ 

------ 

------ 





Capital and reserves:




Called-up equity share capital

1,443 

1,506 

1,487 

Share premium

8,031 

7,893 

8,031 

Capital redemption reserve

188 

116 

143 

Capital reserve - realised

15,779 

17,413 

15,997 

Capital reserve - unrealised

(1,270)

1,847 

2,749 

Revenue reserve

683 

729 

238 


------ 

------ 

------ 

Total equity shareholders' funds

24,854 

29,504 

28,645 


------ 

------ 

------ 

Net asset value per share

86.1p

97.9p

96.3p



CASH FLOW STATEMENT

(unaudited) for the six months ended 30 September 2008



Six months ended 

30 September 2008 

Six months ended 

30 September 2007 

18 months ended 

31 March 2008 


£000 

£000 

£000 

£000 

£000 

£000 

Net cash inflow from







  operating activities


113 


295 


1,206 

Taxation:







Corporation tax paid


(115)



(105)

Financial investment:







Purchase of investments

(4,246)


(7,077)


(16,041)


Sale/repayment of investments

4,876 


7,018 


16,133 



------ 


------ 


------ 


Net cash inflow/(outflow)







  from financial investment


630 


(59)


92 

Equity dividends paid



(603)


(2,418)



------ 


------ 


------ 

Net cash inflow/(outflow)







  before financing


631 


(367)


(1,225)

Financing:







Issue of ordinary shares


74 


293 


Share issue expenses


(5)


(6)


Purchase of ordinary shares







  for cancellation

(772)


(304)


(1,142)



------ 


------ 


------ 


Net cash outflow from financing


(772)


(235)


(855)



------ 


------ 


------ 

Decrease in cash at bank


(141)


(602)


(2,080)



------ 


------ 


------ 








Reconciliation of return before







tax to net cash flow from







operating activities







Return on ordinary activities







  before tax


(2,894)


951 


2,825 

Gain on disposal of investments


(458)


(427)


(85)

Movements in fair value







  of investments


3,917 


(173)


(1,969)

(Increase)/decrease in debtors


(301)


(33)


335 

Increase/(decrease) in creditors


(151)


(5)


118 

Expenses charged to capital



(18)


(18)



------ 


------ 


------ 

Net cash inflow from







  operating activities


113 


295 


1,206 



------ 


------ 


------ 








Analysis of movement in net funds








April 2008

Cash flows 

30 September 2008


£000

£000 

£000

Cash at bank


1,526 


(141)


1,385 



------ 


------ 


------ 



INVESTMENT PORTFOLIO SUMMARY

as at 30 September 2008



Cost

£000

Valuation

£000

% of net assets

by valuation

15 largest investments:




Pivotal Laboratories Holdings

679

1,045

4.2

Paladin Group

860

1,038

4.2

Optilan Group

1,000

1,000

4.0

Axial Systems Holdings

1,000

1,000

4.0

Envirotec

456

867

3.5

Promanex Group Holdings

1,000

750

3.0

CloserStill Holdings

743

743

3.0

DxS

325

615

2.5

Promatic Group

568

568

2.3

Frontier Foods

542

542

2.2

Crantock Bakery

442

522

2.1

Abermed

375

502

2.0

Astbury Marsden Holdings

1,000

500

2.0

Britspace Holdings

588

473

1.9

Arleigh International

210

473

1.9


------

------

-----


9,788

10,638

42.8

Other venture capital investments

7,170

5,050

20.3


------

------

-----

Total venture capital investments

16,958

15,688

63.1

Listed fixed-interest investments

7,813

7,423

29.9


------

------

-----

Total fixed asset investments

24,771

23,111

93.0


------



Net current assets


1,743

7.0



------

-----

Net assets


24,854

100.0



------

-----



The above half-yearly financial statements for the six months ended 30 September 2008 do not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985 and have not been delivered to the Registrar of Companies. The figures for the 18 months ended 31 March 2008 have been extracted from the audited financial statements for that period, which have been delivered to the Registrar of Companies; the independent auditors' report on those financial statements under Section 235 of the Companies Act 1985 was unqualified. The half-yearly financial statements have been prepared on the basis of the accounting policies set out in the financial statements for the 18 months ended 31 March 2008.


The directors confirm that to the best of their 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 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 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 calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the period and on 29,376,116 (2007 30,477,836) ordinary shares, being the weighted average number of shares in issue during the period.


The proposed interim dividend of 2.0p per share for the year ending 31 March 2009 will be paid on 17 January 2009 to shareholders on the register at the close of business on 12 December 2008.


A copy of the half-yearly financial report for the six months ended 30 September 2008 is expected to be posted to shareholders on 21 November 2008 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.


ENDS


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