Northern Investors Company PLC.

16 MAY 2012



Northern Investors Company PLC is a private equity investment trust managed by NVM Private Equity Limited.  The trust was launched in 1984 and has been listed on the London Stock Exchange since 1990.

In July 2011 shareholders approved a change in investment strategy, whereby the trust ceased making new unquoted investments and began an orderly realisation of the portfolio with a view to returning funds to shareholders through a series of tender offers over a period of several years.

Financial highlights (comparative figures as at 31 March 2011):

            2012               2011
Net assets£49.2m£59.0m
Net asset value per share325.5p304.1p
Cash distributions to shareholders during year 
(dividends plus share buy-backs)£14.3m£1.5m
Revenue return per share9.0p5.4p
Dividend per share proposed 
in respect of the year9.0p8.0p
Total return for the year: 
Pence per share26.3p38.9p
As % of opening net asset value8.7%14.3%
Mid-market share price261p210p
Share price discount to net asset value19.8%30.9%

For further information, please contact:

Northern Investors Company PLC
Nigel Guy/Christopher Mellor                   0191 244 6000

Oriel Securities
Joe Winkley/Neil Winward                      020 7710 7600



2011 was a year of major strategic change for the company.  At a general meeting of shareholders on 21 July 2011, a resolution was passed to adopt a new investment objective and policy, whereby no new investments will be made and the portfolio will be realised in an orderly manner which achieves a balance between an efficient return of cash to shareholders and the maximisation of investment values.

This is the board's first annual report to shareholders since that change in investment strategy.  Having been in existence for some 27 years operating a conventional investment policy model, the company's objective is now to realise its investment portfolio with the sole purpose of returning capital to shareholders.  The first distribution took place in December 2011 in the form of a £12.8 million tender offer which saw 22% of the company's share capital re-purchased for cancellation.  Having joined the board as chairman in September 2011, as well as reviewing progress made by the company in the last year, I am pleased to have this opportunity to set out my initial observations on the effect of this fundamental change of strategy on the management of the underlying assets and the board's view of future prospects.

Corporate strategy and investment policy
The company's investment strategy has undergone a radical change, and it is likely that a series of issues which the board, its investment manager and the underlying portfolio companies have not hitherto had to face will emerge over time.  The management of an investment trust deploying capital on an "evergreen" basis is different from the management of one which is essentially "running off" a portfolio.  Priorities may need to be adjusted, conflicts may emerge, and management in the investee companies can become unsettled by the presence of a shareholder with changed objectives and outlook.  It is therefore important that the board works closely with the investment manager to establish a plan to implement this change in strategy and mitigate any issues before they arise.  The key is to achieve an orderly wind down of the portfolio, which the board is satisfied is the optimum route for achieving a successful outcome for our shareholders.

In this respect, the board has carried out a detailed review of every company in the portfolio alongside the investment manager, NVM Private Equity, with a view to establishing the medium term investment prospects and appropriate parameters and timescales for realising value.  In doing this we have also sought to clarify the various shareholding dynamics and rights so as to understand better the scale and scope of our influence over shareholder strategy in each of the portfolio companies.  One fact that becomes immediately obvious is that in the vast majority of investments, the investee company's management and their connected parties hold a controlling stake and are thus the pivotal stakeholder in determining exit timing.  This is perfectly normal for companies in this part of the venture capital size spectrum and underpins the industry standard approach of maximising value by selling the whole of the share capital including management's holding.

Going forward, we have also sought to ensure that our position in relation to follow on investments is clearly understood and in this respect we have developed and agreed with NVM a series of guidelines which they need to consider when reviewing further funding requirements within the portfolio.

Following our most recent portfolio review with the investment manager, we consider that the overview given in the tender offer circular dated 7 November 2011 remains valid, namely that:  an amount equivalent to between 60% and 80% of the September 2011 net assets of the Company (£59.6 million) could be distributed in cash to shareholders by 31 March 2015;  the realisation exercise could be fully completed within a further one to two years from that date;  and the ultimate cash proceeds to shareholders could be in the range from 120% to 160% of the September 2011 net assets - ie a value uplift in absolute terms of between £16 million and £40 million.  However it is important that shareholders appreciate that these estimates are subject to a number of uncertainties and should not be relied upon.  The board will continue to review progress with the investment manager at regular intervals and we will keep shareholders informed through the company's annual and half-yearly reports and also through ad hoc announcements as realisations take place.

Having considered possible methods of returning cash to shareholders, the board's present intention is that a series of tender offers will take place as funds become available for distribution.  The first such tender offer was completed in December 2011 with 4,267,000 shares being re-purchased at a price of 300p per share, a total payment of £12.8 million (excluding related expenses).  It is expected that the next tender offer will take place before the end of 2012, although the amount involved will largely depend on the realisations achieved during the year.

The July 2011 general meeting also approved amendments to the management agreement with NVM Private Equity, including the introduction of a fixed management fee reducing year by year and the removal of the previous performance fee to be replaced by an incentive fee based on ultimate cash returns to shareholders.  Although I only joined the board in September 2011, I am satisfied that NVM understands the changed remit for Northern Investors and that the terms of its amended management agreement are appropriate for the current circumstances.  Should the board's position on this change, we will seek shareholder approval to any future changes.

The board considers that it is no longer appropriate to prepare the financial statements on a going concern basis, as the new corporate strategy is expected ultimately to lead to the liquidation of the company.  No adjustments were necessary to the investment valuations or other assets and liabilities included in the financial statements as a consequence of the change in the basis of preparation.

The NAV per share at 31 March 2012 was 325.5p, up by 7.0% from the corresponding figure of 304.1p at 31 March 2011.  The FTSE All-Share index fell by 2.1% over the same period.  The total return per share for the year as shown in the income statement was 26.3p, equivalent to 8.7% of the opening NAV, compared with a rise of 1.4% in the FTSE All-Share index (total return).  This is a creditable performance against an economic background which has not been favourable to smaller private companies.

The mid-market share price rose by 24.3% during the year, from 210p to 261p, after peaking in early January 2012 at 275.5p.  The share price discount to NAV fell from 30.9% to 19.8%.

It is pleasing to note that our company was named 'Best Alternative Investment Trust' in the What Investment Investment Trust of the Year awards for 2011.

Revenue statement and dividend
The revenue return per share for the year rose from 5.4p to 9.0p.  The average number of shares in issue during the year was lower as a result of the tender offer, whilst investment income rose from £1.9 million to £2.8 million as a result of a large one-off receipt from Promanex Group Holdings immediately prior to our exit from that investment.  Management expenses included a non-recurring charge of £311,000 for costs relating to the review of investment policy and changes to the management agreement.

The proposed final dividend for the year is 6.8p per share (2011 5.8p), increasing the total for the full year from 8.0p to 9.0p.  This increase is possible because 4.3p of the final dividend will be paid in the form of an interest distribution, employing a mechanism which we used two years ago, which has reduced the corporation tax charge for the year by some £170,000 and so increased the after-tax revenue available for distribution.  Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 13 July 2012 to shareholders on the register on 22 June 2012.

It is intended that for the year ending 31 March 2013 and subsequent years the annual dividend will be paid in the form of a single final dividend, with no interim dividend being paid.  It is likely that the net revenue available for distribution in each year will reduce as income-producing investments are realised and cash is returned to shareholders.  However the directors will in any case declare annual dividends sufficient to maintain the company's authorised investment trust status.

Following a review by HM Revenue & Customs of the investment trust tax rules, trusts are now permitted to distribute capital as well as revenue profits by way of dividend.  Accordingly a resolution will be proposed at the annual general meeting to amend the company's articles of association so as to remove the present prohibition on distributing capital profits.

Investment portfolio
In line with the company's amended investment policy no new investments were completed, whilst a total of £0.7 million was invested in existing portfolio companies where considered necessary to maintain or enhance the ultimate value.

A successful exit was achieved during the year from Promanex Group Holdings, producing income and capital receipts of £5.2 million.  This was a good outcome from a company which had experienced significant problems with long-term contracts and whose carrying value was below £1 million as recently as March 2009.  A further £0.5 million in deferred proceeds was received in respect of DxS, which was sold in 2009.

Market conditions largely arising from an uncertain economic backdrop and problems in both the Eurozone and banking sector have not been helpful to investment sales but in the context of forward planning, corporate finance advisers have recently been appointed to a number of investee companies.  In addition several companies are currently in formal sale processes and whilst the outcome of any M&A activity is inherently uncertain, we expect that in the next 12 months we will see an increase over the recent rate of exits.

The portfolio generally is benefitting from its industrial diversity and, somewhat ironically, among the leading contributors to value growth in the year are those newer investments completed in the two years prior to the change in investment strategy.  Of particular note is Kerridge Commercial Systems, which is performing very strongly and represents a highly significant asset.

Board of directors
In addition to the variation of investment strategy, the board has also been through a period of significant change.  During the year Michael Denny, Peter Haigh and Sarah Stewart retired from the board.  Michael was one of the founding directors of the company in 1984 and was a prime mover in its original fund-raising and its subsequent growth and flotation on the London Stock Exchange.  Peter joined the board in 1987 and was chairman from 2005 until his retirement.  I would like to thank Michael, Peter and Sarah for their service to the company.  Frank Neale has indicated that he intends to retire from the board at the conclusion of the annual general meeting in July 2012 and I would also like to thank Frank for his contribution.

Philip Marsden and I were appointed to the board in September 2011 and I took up the position of chairman.  After a considerable change in personnel in a short period of time, the board now needs a period of stability to progress the task in hand.  I believe that the current composition of the board is well suited to the requirements of this new phase in the company's life as we implement the revised investment policy.

Following the recent news of a further technical recession in the UK, it is appropriate to sound a note of caution when considering the outlook for the next twelve months and beyond particularly for small, private companies which typically make up most of the portfolio.  Nevertheless we are encouraged by the progress being made by the majority of our portfolio companies and we believe that a carefully managed realisation programme has the potential to generate strong cash returns to shareholders phased over the next three to four years.

Nigel Guy

The audited financial statements for the year ended 31 March 2012 are set out below.

for the year ended 31 March 2012

Year ended 31 March 2012 Year ended 31 March 2011 
Gain on disposal of
  investments 591  591  3,834  3,834 
Movements in fair value
  of investments 3,025  3,025  3,758  3,758 
----------  ----------  ----------  ----------  ----------  ---------- 
3,616  3,616  7,592  7,592 
Income 2,771  2,771  1,915  1,915 
Investment management fee (180) (720) (900) (185) (1,410) (1,595)
Other expenses (679) (20) (699) (357) (357)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities before tax 1,912  2,876  4,788  1,373  6,182  7,555 
Tax on return on
  ordinary activities (287) 247  (40) (330) 330 
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities after tax 1,625  3,123  4,748  1,043  6,512  7,555 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 9.0p 17.3p 26.3p 5.4p 33.5p 38.9p

for the year ended 31 March 2012

Year ended 
31 March 2012 
Year ended 
31 March 2011 
Equity shareholders' funds at 1 April 2011 58,988  52,927 
Return on ordinary activities after tax 4,748  7,555 
Dividends recognised in the year (1,458) (1,494)
Shares repurchased for cancellation (including expenses) (13,037)
----------  ---------- 
Equity shareholders' funds at 31 March 2012 49,241  58,988 
----------  ---------- 

as at 31 March 2012

31 March 2012 
31 March 2011 
Fixed assets:
  Investments 45,139  47,736 
----------  ---------- 
Current assets:
  Investments 1,043  42 
  Debtors 89  765 
  Cash and deposits 3,268  12,180 
----------  ---------- 
4,400  12,987 
Creditors (amounts falling due within one year) (298) (1,735)
----------  ---------- 
Net current assets 4,102  11,252 
----------  ---------- 
Net assets 49,241  58,988 
----------  ---------- 
Capital and reserves:
Called-up equity share capital 3,782  4,849 
Share premium 12,694 
Capital redemption reserve 1,373  306 
Capital reserve 24,537  38,986 
Special reserve 12,674 
Revaluation reserve 4,691  136 
Revenue reserve 2,184  2,017 
----------  ---------- 
Total equity shareholders' funds 49,241  58,988 
----------  ---------- 
Net asset value per share 325.5p 304.1p

for the year ended 31 March 2012

Year ended 
31 March 2012 
Year ended 
31 March 2011 
£000 £000 £000 £000 
Cash flow statement
Net cash inflow from operating activities 669  511 
Corporation tax paid (1)
Financial investment:
Purchase of investments (735) (13,724)
Sale/repayment of investments 6,650  10,077 
----------  ---------- 
Net cash inflow/(outflow) from financial investment 5,915  (3,647)
Equity dividends paid (1,458) (1,494)
----------  ---------- 
Net cash inflow/(outflow) before financing
  and use of liquid resources 5,126  (4,631)
Shares re-purchased for cancellation (including expenses) (13,037)
----------  ---------- 
Net cash outflow before
  use of liquid resources (7,911) (4,631)
Net cash inflow/(outflow) from
  management of liquid resources (1,001) 995 
----------  ---------- 
Decrease in cash at bank (8,912) (3,636)
----------  ---------- 
Reconciliation of revenue return before tax
to net cash flow from operating activities
Revenue return on ordinary activities before tax 1,912  1,373 
(Increase)/decrease in debtors 176  (120)
Increase/(decrease) in creditors (679) 668 
Expenses charged to capital reserve (740) (1,410)
----------  ---------- 
Net cash inflow from operating activities 669  511 
----------  ---------- 
Reconciliation of movement
in net funds
1 April 2011 Cash flows 31 March 2012 
£000 £000 £000 
Cash at bank 12,180  (8,912) 3,268 
Short-term investments 42  1,001  1,043 
----------  ----------  ---------- 
Net funds 12,222  (7,911) 4,311 
----------  ----------  ---------- 

as at 31 March 2012

% of
net assets
by value
Kerridge Commercial Systems 3,978 9,898 20.1
Control Risks Group Holdings 3,731 4,869 9.9
Kitwave One 3,633 3,688 7.5
Closerstill Holdings 1,234 3,373 6.8
Axial Systems Holdings 2,311 2,310 4.7
Alaric Systems 1,619 2,198 4.4
Paladin Group 1,657 2,061 4.2
Weldex (International) Offshore Holdings 3,253 1,954 4.0
Wear Inns 1,304 1,581 3.2
Arleigh International 990 1,570 3.2
---------- ---------- --------
Ten largest investments 23,710 33,502 68.0
IG Doors 576 1,433 2.9
Cawood Scientific 1,196 1,408 2.9
Promatic Group 1,195 1,108 2.3
CGI Group Holdings 1,723 1,014 2.1
Optilan Group 1,900 950 1.9
Closer2 Investments 866 866 1.8
Lanner Group 891 840 1.7
Mantis Deposition Holdings 763 763 1.5 480 723 1.5
Direct Valeting 538 668 1.3
---------- ---------- --------
Twenty largest investments 33,838 43,275 87.9
S&P Coil Products 247 564 1.1
Envirotec 387 485 1.0
Longhirst Venues 397 389 0.8
Interlube Systems 62 396 0.8
RTC Group (AIM quoted) 388 30 0.1
Astbury Marsden Holdings 3,048 - -
Crantock Bakery 1,061 - -
Warmseal Windows (Newcastle) 818 - -
---------- ---------- --------
Total fixed asset investments 40,246 45,139 91.7
Net current assets 4,102 8.3
---------- --------
Net assets 49,241 100.0
---------- --------


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 companies, which by their nature entail a higher level of risk and lower liquidity than investments in large quoted companies.  Following the adoption of the company's new investment policy in July 2011, the portfolio will become more concentrated as investments are realised and cash is returned to shareholders.  The investment manager aims to limit the risk attaching to the portfolio as a whole by close monitoring of individual holdings, including appointment of investor directors where appropriate.  The board reviews the portfolio with the investment manager 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 meet expenditure commitments including any investments which may be made under the company's revised investment policy.  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.

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.


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.


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.  As noted below, the directors do not believe it is appropriate to prepare the financial statements for the year ended 31 March 2012 on a going concern basis.

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,  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 N R A Guy (Chairman), Mr J C Barnsley, Mr P W F Marsden, Mr F L G Neale and Mr M P Nicholls.


The above summary of results for the year ended 31 March 2012 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 auditors' 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.

In July 2011 shareholders approved a change in the investment policy of the company, with the objective of conducting an orderly realisation of the assets of the company in a manner that seeks to achieve a balance between an efficient return of cash to shareholders and maximising the value of the company's investments.  As it is likely that this process, which is expected to have a duration of several years, will ultimately lead to the liquidation of the company, the financial statements have not been prepared on a going concern basis.  No adjustments were necessary to the investment valuations or other assets and liabilities included in the financial statements as a consequence of the change in the basis of preparation.

The proposed final dividend of 6.8p per share for the year ended 31 March 2012 will, if approved by shareholders, be paid on 13 July 2012 to shareholders on the register at the close of business on 22 June 2012.

The full annual report including financial statements for the year ended 31 March 2012 is expected to be posted to shareholders on 3 June 2012 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.

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Northern Investors Co PLC via Thomson Reuters ONE