Announcements

Northern Investors Company PLC.

11 NOVEMBER 2014

NORTHERN INVESTORS COMPANY PLC

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

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 investments and began an orderly realisation of its portfolio with a view to returning capital to shareholders.

Financial highlights (comparative figures as at 30 September 2013 and 31 March 2014):

 

 

 

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

 
£40.1m £45.5m £37.8m
Number of shares in issue
at end of period


 
8,728,440 12,128,440 8,728,440
Net asset value per share

 
459.9p 375.3p 433.4p
Cash distributions to shareholders
(dividends paid plus share buy-backs):
During period
Since change in investment policy (July 2011)

 


£0.9m
£41.5m


£1.1m
£26.5m


£15.2m
£40.6m
Return for the period:
Pence per share
As % of opening net asset value

 

36.5p
8.4%

21.0p
5.8%

77.3p
21.2%
Dividend per share declared
in respect of the period


 

-

-

10.0p
Mid-market share price at end of period

 
395.0p 311.5p 391.5p
Share price discount to net asset value

 
14.1% 17.0% 9.7%

For further information, please contact:

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

Oriel Securities
Neil Winward/Mark Bloomfield          020 7710 7600

HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS

Overview
Your directors have continued to work with the company's investment managers to progress the orderly realisation strategy adopted by shareholders in 2011.  The past six months have seen a relatively low level of transactional activity, but our managers have maintained their focus on implementing the agreed strategy for each holding and we expect to see further exits completed in the second half of the current financial year.

Our portfolio companies are generally making good progress;  this is reflected in the latest directors' valuations and it is pleasing to report a further increase in NAV to 459.9 pence per share as at 30 September 2014.

A final dividend of 10 pence per share for the year ended 31 March 2014 was paid in July, taking the total cash distributed to shareholders since July 2011 to £41.5 million - equivalent to over 70% of the net assets at the time of the change in strategy.

Investment portfolio
No new investments were made during the period.  Realisation proceeds amounted to £1.0 million, of which £0.6m related to the sale of the AIM-quoted shares in Nasstar.  The remaining portfolio, currently comprising 19 holdings, is becoming steadily more concentrated, with the "Top 3" investments in Kerridge Commercial Systems, Control Risks Group Holdings and Kitwave One representing approximately two thirds of total net assets.  These are very substantial unquoted companies with a strong record of profitability and cash generation.  At the other end of the spectrum we have five holdings to which, prudently, no value is currently attributed.  In the middle of the range there are 11 other businesses, generally making satisfactory progress and all expected to report an operating profit in their current financial year.  Several portfolio companies are currently in active marketing processes led by professional corporate finance advisers, in some cases with heads of agreement already in place with purchasers.

The economic environment in which our investee companies are operating remains challenging.  The recent weakness in the financial markets is indicative of widespread concerns about the possible impact of economic and political factors both inside and outside the UK.  Against this background it is encouraging that our portfolio continues to do well.

Financial performance
Over the six month period to 30 September 2014 the company's NAV, after deducting the 2013/14 final dividend of 10.0 pence per share paid in July, rose from 433.4 pence to 459.9 pence.  The return per share for the half year was 36.5 pence, compared with 21.0 pence in the corresponding period last year.  The flow of investment income remained healthy despite the continuing reduction in the company's asset base.  The management fee payable to NVM Private Equity continues to reduce year on year in line with the terms of the management agreement.  A further £455,000 was accrued in the period in respect of the exit performance fee which will be payable in due course to NVM subject to the stipulated cash distributions hurdle being exceeded.

The mid-market share price moved within the range from 380 pence to 400 pence during the period, ending only marginally up at 395 pence (31 March 2014 391.5 pence).  As a result the discount to NAV rose from 9.7% to 14.1%.

Dividend
Since 2013 the company's annual dividend has been paid in the form of a single final dividend, with no interim dividend being declared.  The net revenue available for distribution in respect of each year is likely to decrease as the sale of income-producing investments continues and cash is returned to shareholders.  The directors intend to declare annual dividends sufficient to maintain the company's authorised investment trust status.  The final dividend in respect of the current financial year is expected to be paid in July 2015.

Corporate strategy
Since July 2011 a total of £41.5 million has been returned to shareholders through three tender offers, priced at net asset value (less tender costs), and a series of dividends.  Our managers are currently working on several exit prospects and we expect to announce a further tender offer when sufficient funds are available, but at this stage it is not possible to confirm the precise timing.

Our latest review of the projected cash flows from the portfolio showed that the range of likely outcomes has not changed significantly from that previously indicated.  Based on a starting point of £59 million of net assets in 2011, it remains our estimate that, including cash already distributed, the equivalent of 100-115% of this sum (approximately £59-68 million) could be distributed to shareholders by 31 March 2015 and ultimately 140-165% (£82-97 million) by the end of the process in 2017.  However it is once again emphasised that these estimates are inevitably subject to some uncertainties including timing, market conditions, individual company performance and the behaviour of other shareholders.  In particular, the estimate of cash to be returned by March 2015 is highly sensitive to the timing of a small number of key realisations which could be subject to delay for unforeseen reasons.

Outlook
Although progress over the past six months has been relatively modest in terms of cash generation, a considerable amount of effort is being devoted by the board and managers to positioning investments for exit at the appropriate time.  We have some highly attractive assets within the portfolio and we believe that the realisation process remains currently on track, with an unchanged objective of completing the distribution of assets during the calendar year 2017 so as to provide shareholders with satisfactory overall returns.

On behalf of the Board

Nigel Guy
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 888  888 
Movements in fair value of investments 3,348  3,348  1,676  1,676 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  3,353  3,353  2,564  2,564 
Income 693  693  868  868 
Investment management fee (45) (635) (680) (60) (603) (663)
Other expenses (194) (194) (216) (216)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 454  2,718  3,172  592  1,961  2,553 
Tax on return on ordinary activities (27) 38  11  (64) 58  (6)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 427  2,756  3,183  528  2,019  2,547 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 4.9p 31.6p 36.5p 4.4p 16.6p 21.0p

  Year ended 31 March 2014
    Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments       3,170  3,170 
Movements in fair value of investments       6,472  6,472 
        ----------  ----------  ---------- 
        9,642  9,642 
Income       1,764  1,764 
Investment management fee       (120) (1,762) (1,882)
Other expenses       (378) (378)
        ----------  ----------  ---------- 
Return on ordinary activities before tax       1,266  7,880  9,146 
Tax on return on ordinary activities       (166) 195  29 
        ----------  ----------  ---------- 
Return on ordinary activities after tax       1,100  8,075  9,175 
        ----------  ----------  ---------- 
Return per share       9.3p 68.0p 77.3p

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 37,831  44,119  44,119 
Return on ordinary activities after tax 3,183  2,547  9,175 
Dividends recognised in the period (873) (1,152) (1,152)
Shares re-purchased for cancellation (14,311)
  ----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2014 40,141  45,514  37,831 
  ----------  ----------  ---------- 

BALANCE SHEET
(unaudited) as at 30 September 2014

 30 September 2014 
£000 
30 September 2013 
£000 
31 March 2014 
£000 
Fixed assets:      
Investments 41,133  42,601  38,763 
  ----------  ----------  ---------- 
Current assets:      
Investments 56  1,469  56 
Debtors 39  57  92 
Cash and deposits 2,396  3,352  1,787 
  ----------  ----------  ---------- 
  2,491  4,878  1,935 
Creditors (amounts falling due      
within one year) (3,483) (1,965) (2,867)
  ----------  ----------  ---------- 
Net current assets/(liabilities) (992) 2,913  (932)
  ----------  ----------  ---------- 
       
Net assets 40,141  45,514  37,831 
  ----------  ----------  ---------- 
Capital and reserves:      
Called-up equity share capital 2,182  3,032  2,182 
Capital redemption reserve 2,973  2,123  2,973 
Capital reserve 5,151  16,119  5,475 
Special reserve 12,674  12,674  12,674 
Revaluation reserve 15,575  10,106  12,495 
Revenue reserve 1,586  1,460  2,032 
  ----------  ----------  ---------- 
Total equity shareholders' funds 40,141  45,514  37,831 
  ----------  ----------  ---------- 
Net asset value per share 459.9p 375.3p 433.4p

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 from operating activities   499    416    833 
Taxation:            
Corporation tax recovered/(paid)     29    29 
Financial investment:            
Purchase of investments   (55)   (54)  
Sale/repayment of investments 983    2,847    13,762   
  ----------    ----------    ----------   
Net cash inflow from financial investment 983    2,792    13,708 
Equity dividends paid   (873)   (1,152)   (1,152)
    ----------    ----------    ---------- 
Net cash inflow before use            
of liquid resources and financing   609    2,085    13,418 
Financing:            
Shares re-purchased for cancellation       (14,311)
    ----------    ----------    ---------- 
Net cash inflow/(outflow) before use            
of liquid resources   609    2,085    (893)
Net cash inflow/(outflow) from            
use of liquid resources     (18)   1,395 
    ----------    ----------    ---------- 
Increase/(decrease) in cash and deposits   609    2,067    502 
    ----------    ----------    ---------- 
Reconciliation of revenue return before tax     
to net cash flow from operating activities     
Revenue return on ordinary activities before tax 454    592    1,266 
Decrease in debtors   53    78    43 
Increase in creditors   324    349    1,286 
Management expenses charged to capital   (332)   (603)   (1,762)
    ----------    ----------    ---------- 
Net cash inflow from operating activities   499    416    833 
    ----------    ----------    ---------- 
Reconciliation of movement in net funds      
 1 April 2014 Cash flows 30 September 2014 
  £000  £000  £000 
Cash and deposits   1,787    609    2,396 
Short-term investments   56      56 
    ----------    ----------    ---------- 
Net funds   1,843    609    2,452 
    ----------    ----------    ---------- 
          

INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2014

CompanyCost
£000
Valuation
£000
% of net assets
by valuation
       
Kerridge Commercial Systems 400 14,610 36.4
Control Risks Group Holdings 3,731 7,668 19.1
Kitwave One 3,633 4,326 10.8
Weldex (International) Offshore Holdings 3,252 2,177 5.4
Arleigh Group 554 1,877 4.7
Cawood Scientific 1,196 1,609 4.0
Wear Inns 1,304 1,523 3.8
CGI Group Holdings 1,908 1,475 3.7
Promatic Group 1,195 1,300 3.2
Axial Systems Holdings 2,311 1,245 3.1
  ---------- ---------- -------
Ten largest investments 19,484 37,810 94.2
       
Other investments 6,074 3,323 8.3
  ---------- ---------- -------
Total fixed asset investments 25,558 41,133 102.5
  ----------    
Net current liabilities   (992) (2.5)
    ---------- -------
Net assets   40,141 100.0
    ---------- -------
       

BUSINESS RISKS

The board carries out a regular review of the risk environment in which the company operates.  The principal risks and uncertainties 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.  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.

Portfolio concentration risk:  following the adoption of the company's revised investment policy in July 2011, the portfolio is becoming more concentrated as investments are realised and cash is returned to shareholders.  This will increase the proportionate impact of changes in the value of individual investments on the value of the company as a whole.

Financial risk:  as most of the company's investments involve a medium- to long-term commitment and 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.

Stock market risk:  venture capital investments quoted on the London Stock Exchange or AIM may 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 party.

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.

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) drew attention by way of emphasis of matter to the fact that the financial statements had not been prepared on the going concern basis 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.  The financial statements have not been prepared on the going concern basis, since the company's current objective is to conduct an orderly realisation of the investment portfolio and return cash to shareholders.  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 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 and Mr M P Nicholls.

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 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 7,828,440 (2013 12,128,440) 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 8,728,440 (2013 12,128,440) ordinary shares in issue at that date.

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 Investors Co PLC via Globenewswire

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