Announcements

Northern Investors Company PLC.

11 NOVEMBER 2015

NORTHERN INVESTORS COMPANY PLC

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

Northern Investors Company PLC is a private equity investment trust managed by NVM Private Equity LLP.  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 2014 and 31 March 2015):

 

 

 

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

 
£27.1m £40.1m £25.6m
No of shares in issue at end of period

 
4,900,000 8,728,440 4,900,000
Net asset value per share

 
553.6p 459.9p 522.7p
Cash distributions to shareholders
(dividends paid plus share buy-backs):
During period
Since change in investment policy (July 2011)

 


£0.8m
£61.4m


£0.9m
£41.5m


£20.0m
£60.6m
Return for the period:
Pence per share
As % of opening net asset value

 

47.9p
9.2%

36.5p
8.4%

92.2p
21.3%
Dividend per share declared
in respect of the period


 

-

-

17.0p
Mid-market share price at end of period

 
590.0p 395.0p 507.5p
Share price premium/(discount)
to net asset value


 

6.6%

(14.1)%

(2.9)%

For further information, please contact:

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

Stifel Nicolaus Europe Limited
Neil Winward/Mark Bloomfield/Gaudi le Roux         020 7710 7600

HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS

Overview
Your directors and manager have continued to implement the orderly realisation strategy adopted by shareholders in 2011.  During the six month period under review the number of holdings in the portfolio reduced further from 15 to 12, with investment sales generating total cash proceeds of £2.5 million.  With cash deposits at 30 September 2015 standing at £7.5 million, it is expected that another return of funds to shareholders will take place by 31 March 2016, although clearly the quantum will be determined by the level of further exit activity in the next few months.

The net asset value (NAV) per share increased by 5.9% during the half year to a new high of 553.6 pence as at 30 September 2015, reflecting positive performance by most of our remaining investee companies.

A final dividend of 17.0 pence per share for the year ended 31 March 2015 was paid in July, taking the total cash distributed to shareholders since July 2011 to £61.4 million - equivalent to 104% of the net assets at the time of the change in strategy.

Investment portfolio
No new investments were made during the period.  The investments in Direct Valeting and Wear Inns were sold for proceeds of £0.8 million and £1.4 million respectively, and a further £0.3 million was realised from loan repayments and deferred proceeds from earlier sales.  Warmseal Windows (Newcastle) went into administration after a long period of difficult trading, but this had no impact on NAV as the investment had been written down to nil value in 2011.  Since 30 September 2015 the investment in Arleigh Group has been sold for cash proceeds of £1.5 million.

The portfolio at 30 September 2015 comprised 12 holdings, with the investments in Kitwave One and Control Risks Group Holdings together representing some 50% of the company's net assets.  The increasing concentration of the portfolio is an inevitable feature of the realisation process.  Your directors review the exit prospects for each investment with the manager on a regular basis and although there have inevitably been some movements in the projected timing of individual transactions, we are satisfied that the overall realisation process continues to move in line with expectations.

Progress within the portfolio is satisfactory, although recent global market turmoil initiated in China reminds us of the relative fragility of confidence within the capital markets on which some prospective purchasers of our investee companies may be reliant for funding.

Financial performance
Over the six month period to 30 September 2015 the company's NAV, after deducting the 2014/15 final dividend of 17.0 pence per share paid in July, rose from 522.7 pence to 553.6 pence.  The return per share for the half year was 47.9 pence, compared with 36.5 pence in the corresponding period last year.  Investment income from the portfolio was lower than in the corresponding period, as expected given the continuing reduction in the company's asset base.  The management fee payable to NVM Private Equity has continued to reduce as set out in the management agreement.

A further £335,000 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 total performance fee provision is now £4,227,000;  the earliest point at which an initial payment to the manager may become due is May 2016, based on the audited accounts for the 2015/16 financial year, provided that there is a further distribution of at least £9.8 million to shareholders by 31 March 2016.

The mid-market share price increased from 507.5 pence to 590.0 pence during the half year, with the result that at 30 September 2015 the share price was at a premium of approximately 6.6% to NAV (31 March 2015: 2.9% discount).

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 2016.

Corporate strategy
Since July 2011 a total of £61.4 million has been returned to shareholders through four tender offers, priced at net asset value, and a series of dividends.  We currently expect that a further return of funds to shareholders will take place before the end of the current financial year;  the precise amount to be distributed will depend on exit activity over the next few months, but we envisage that in any case it will be not less than £7.0 million.

It was indicated six months ago that we expected the liquidation of the portfolio to be completed by the end of 2017, with the total cash returned to shareholders projected to lie in the range between 155% and 170% of the original £59 million of net assets in 2011.  Our latest review with the manager suggests that this projection remains valid, which would mean an ultimate return of funds in the range between £91 million and £100 million.  Based on the present issued capital of 4,900,000 ordinary shares, and with £61.4 million already returned to shareholders, the range of projected outcomes implies future distributions of between approximately 605 pence and 785 pence per share in total.  However it should be noted that these figures are likely to change as realisation proceeds continue to be distributed, firstly as the projected amounts to be distributed change over time, and secondly as the projected distributions may accrue to a reducing number of shares in issue if shares are re-purchased by the company through tender offers.  The estimates also remain subject to inevitable uncertainties including timing, market conditions, individual company performance and the behaviour of other shareholders in investee companies.

Management agreement and smaller related party transaction
The change in the company's investment policy in 2011 was accompanied by a review of the terms of the management agreement with NVM, with the result that the annual management fee was reduced on a stepped basis from £900,000 in the year ended 31 March 2012 to £300,000 in the year ending 31 March 2016.  Your board has now agreed with NVM that for periods after 31 March 2016 the management fee will comprise two elements, a fixed fee at the rate of £100,000 per annum and a variable fee equivalent to 1.0% of the company's net assets calculated on a half-yearly basis.  The total management fee will be capped at £275,000 per annum.  It has also been agreed that with effect from 1 April 2017 the manager's notice period will be reduced from twelve to six months.  This approach is consistent with our expectation that the portfolio will reduce considerably over the period to the end of 2017.  The directors have been advised that the changes to the management agreement fall within the definition of a 'smaller related party transaction' for the purpose of the Listing Rules, such that the company is not required to seek formal shareholder approval.

Outlook
The orderly realisation of the company's investments continues to make good progress and your directors believe that the results to date validate the strategy adopted in 2011.  The next twelve months will be an important period as we seek to achieve our goal of completing the process by the end of 2017.

On behalf of the Board

Nigel Guy
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 240  240 
Movements in fair value of investments 2,185  2,185  3,348  3,348 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  2,425  2,425  3,353  3,353 
Income 590  590  693  693 
Investment management fee (30) (455) (485) (45) (635) (680)
Other expenses (194) (194) (194) (194)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 366  1,970  2,336  454  2,718  3,172 
Tax on return on ordinary activities (11) 24  13  (27) 38  11 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 355  1,994  2,349  427  2,756  3,183 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 7.2p 40.7p 47.9p 4.9p 31.6p 36.5p

  Year ended 31 March 2015
    Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments       5,870  5,870 
Movements in fair value of investments       2,464  2,464 
        ----------  ----------  ---------- 
        8,334  8,334 
Income       1,546  1,546 
Investment management fee       (90) (1,474) (1,564)
Other expenses       (313) (313)
        ----------  ----------  ---------- 
Return on ordinary activities before tax       1,143  6,860  8,003 
Tax on return on ordinary activities       (123) 155  32 
        ----------  ----------  ---------- 
Return on ordinary activities after tax       1,020  7,015  8,035 
        ----------  ----------  ---------- 
Return per share       11.7p 80.5p 92.2p

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 25,611  37,831  37,831 
Return on ordinary activities after tax 2,349  3,183  8,035 
Dividends recognised in the period (833) (873) (873)
Shares re-purchased for cancellation (19,382)
  ----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2015 27,127  40,141  25,611 
  ----------  ----------  ---------- 

BALANCE SHEET
(unaudited) as at 30 September 2015

 30 September 2015 
£000 
30 September 2014 
£000 
31 March 2015 
£000 
Fixed assets:      
Investments 23,979  41,133  24,068 
  ----------  ----------  ---------- 
Current assets:      
Investments 56  56  56 
Debtors 14  39  56 
Cash and deposits 7,453  2,396  5,477 
  ----------  ----------  ---------- 
  7,523  2,491  5,589 
Creditors (amounts falling due      
within one year) (4,375) (3,483) (4,046)
  ----------  ----------  ---------- 
Net current assets/(liabilities) 3,148  (992) 1,543 
  ----------  ----------  ---------- 
       
Net assets 27,127  40,141  25,611 
  ----------  ----------  ---------- 
Capital and reserves:      
Called-up equity share capital 1,225  2,182  1,225 
Capital redemption reserve 3,930  2,973  3,930 
Capital reserve 3,890  5,151  4,257 
Special reserve 12,674  12,674  12,674 
Revaluation reserve 3,707  15,575  1,346 
Revenue reserve 1,701  1,586  2,179 
  ----------  ----------  ---------- 
Total equity shareholders' funds 27,127  40,141  25,611 
  ----------  ----------  ---------- 
Net asset value per share 553.6p 459.9p 522.7p

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 from operating activities   295    499    916 
Taxation:            
Corporation tax recovered/(paid)      
Financial investment:            
Purchase of investments      
Sale/repayment of investments 2,514    983    23,029   
  ----------    ----------    ----------   
Net cash inflow from financial investment 2,514    983    23,029 
Equity dividends paid   (833)   (873)   (873)
    ----------    ----------    ---------- 
Net cash inflow before financing   1,976    609    23,072 
Financing:            
Shares re-purchased for cancellation       (19,382)
    ----------    ----------    ---------- 
Increase in cash and deposits   1,976    609    3,690 
    ----------    ----------    ---------- 
Reconciliation of revenue return before tax     
to net cash flow from operating activities     
Revenue return on ordinary activities before tax 366    454    1,143 
Decrease in debtors   55    53    36 
Increase in creditors   329    627    1,211 
Management expenses charged to capital   (455)   (635)   (1,474)
    ----------    ----------    ---------- 
Net cash inflow from operating activities   295    499    916 
    ----------    ----------    ---------- 
Reconciliation of movement in net funds      
 1 April 2015 Cash flows 30 September 2015 
  £000  £000  £000 
Cash and deposits   5,477    1,976    7,453 
Short-term investments   56      56 
    ----------    ----------    ---------- 
Net funds   5,533    1,976    7,509 
    ----------    ----------    ---------- 
          

INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2015

CompanyCost
£000
Valuation
£000
% of net assets
by valuation
       
Control Risks Group Holdings 3,731 7,303 26.9
Kitwave One 3,633 6,393 23.6
Axial Systems Holdings 2,311 2,013 7.4
Weldex (International) Offshore Holdings 3,252 1,921 7.1
Optilan Group 1,900 1,850 6.8
Arleigh Group 301 1,526 5.6
Cawood Scientific 1,196 1,352 5.0
CGI Group Holdings 1,908 910 3.4
Lanner Group 771 711 2.6
Crantock Bakery 1,061 - -
North East Property and Investments 142 - -
S&P Coil Products 66 - -
  ---------- ---------- -------
Total fixed asset investments 20,272 23,979 88.4
  ----------    
Net current assets   3,148 11.6
    ---------- -------
Net assets   27,127 100.0
    ---------- -------
       

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:  the majority of the company's investments comprise minority holdings 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.  Mitigation: the investment manager aims to limit the risk attaching to the portfolio as a whole by close monitoring of individual holdings, including the appointment of investor directors where appropriate.  The board reviews the portfolio, including the schedule of projected exits, with the investment manager on a regular basis with a view to ensuring that the orderly realisation process remains on track.

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.  Mitigation: the directors and manager keep the changing composition of the portfolio under review and focus closely on those holdings which represent the largest proportions of total value.

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 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 fluctuations in interest rates, stock markets and the level of demand for corporate acquisitions in individual industry sectors 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 board and manager monitor the investment portfolio closely and aim to position each holding for realisation at the optimum time.  The company maintains sufficient cash reserves to be able to provide additional funding to investee companies should this be necessary.

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.

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 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 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) 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 2015.  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 2015 and on 4,900,000 (2014 8,728,440) 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 2015 divided by the 4,900,000 (2014 8,728,440) ordinary shares in issue at that date.

A copy of the half-yearly financial report for the six months ended 30 September 2015 is expected to be posted to shareholders by 24 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 Investors Co PLC via Globenewswire

HUG#1966143