Announcements

Northern Investors Company PLC.

20 MAY 2016

NORTHERN INVESTORS COMPANY PLC

RESULTS FOR THE YEAR ENDED 31 MARCH 2016

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.  The company has subsequently returned a total of £76.7 million to shareholders by way of tender offers and dividend distributions.

Financial highlights (comparative figures as at 31 March 2015):

 

 
 2016 2015
Net assets

 
£17.1m£25.6m
Number of shares in issue at end of year

 
2,496,7674,900,000
Net asset value per share

 
685.4p522.7p
Cash distributions to shareholders  
(dividends paid plus share buy-backs):  
During year£16.1m£20.0m
Since change in investment policy in July 2011

 
£76.7m£60.6m
Total return for the year:  
Pence per share159.5p92.2p
As % of opening net asset value

 
30.5%21.3%
Proposed dividend per share for the year

 
24.0p17.0p
Mid-market share price at end of year

 
635.0p507.5p
Share price discount to net asset value

 
7.4%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

Website:  www.nvm.co.uk

NORTHERN INVESTORS COMPANY PLC

CHAIRMAN'S STATEMENT

Overview
I am delighted to report that the orderly realisation strategy adopted by shareholders in 2011 has made significant progress over the past year, with a continuing reduction in the number of remaining holdings in the portfolio and significant further returns to investors.  As previously announced, in March 2016 the company completed its fifth tender offer to shareholders, as a result of which £15.3 million was distributed.  This takes the total cash returns since July 2011 to £76.7 million, with a further £17.1 million of net assets still on the balance sheet at 31 March 2016.  Our policy of developing a considered exit strategy for each investment, and realising the inherent value at the optimum time, has continued to deliver excellent results.

Financial results
The net asset value (NAV) per share at 31 March 2016 was 685.4 pence, an increase of 31.1% from the corresponding figure of 522.7 pence at 31 March 2015.  Over the past five financial years the NAV per share has increased by 125%.

The total return per share for the year as shown in the income statement was 159.5 pence, equivalent to 30.5% of the opening NAV.  Gains realised on investment sales during the year amounted to 103.6 pence per share, as value continued to be unlocked by the run-off process.  Dividend and interest income from the much reduced investment portfolio fell by approximately one third, but the revenue return per share, calculated on the weighted average number of shares in issue during the year, rose from 11.7 pence to 12.3 pence.  It is likely that investment income will continue to decline as the portfolio continues to reduce in size.

Dividend
Since 2013 the annual dividend has been paid in the form of a single final dividend, with no interim dividend being declared.  The directors propose a dividend for the year ended 31 March 2016 of 24.0 pence per share (last year 17.0 pence), equivalent to a total of £599,000 based on the 2,496,767 shares now remaining in issue, thus distributing substantially the whole of the available revenue surplus after tax for the year.  This is the twentieth consecutive year in which the dividend per share has been increased.  Subject to approval by shareholders at the annual general meeting on 5 July 2016, the final dividend will be paid on 22 July 2016 to shareholders on the register on 1 July 2016.

The directors will continue to recommend a dividend each year which takes account of the level of investment income and expenses, subject to observing the minimum amount necessary to maintain the company's authorised investment trust status.

Investment portfolio
The number of holdings in the portfolio has continued to reduce, from 15 at the beginning of the financial year to eight at 31 March 2016.  Successful exits were achieved from Arleigh Group, Control Risks Group Holdings, Direct Valeting, Kitwave One and Wear Inns.  A total of £20.8 million was realised from sales during the year, representing a satisfactory uplift over the £15.8 million carrying value of the relevant investments at the start of the year.  Cumulatively, 22 investments have been exited since the change in investment policy in July 2011, generating total capital proceeds of over £70 million.

The directors' valuation of the eight remaining holdings at 31 March 2016 was £11.7 million.  The board reviews performance and exit prospects for each holding with the manager on a regular basis.  Now that we are in the later stages of the realisation process, the degree of diversification in the portfolio will continue to reduce.  Our orderly realisation strategy has produced excellent results to date, but we recognise that it may be necessary to take a pragmatic approach to the realisable value of some of the remaining investments in order to maintain progress towards the final outcome.

Corporate strategy
Following the latest tender offer, the cumulative total of cash distributed to shareholders since the change in investment policy is £77 million, equivalent to 130% of the July 2011 net assets of £59 million.  It is still our objective that the return of cash to shareholders should be substantially completed by December 2017;  our latest review indicates that the further amount to be returned could be in the range from £18 million to £23 million, making an ultimate total of between £95 million and £100 million.  This is equivalent to between 160% and 170% of the net assets at the start of the realisation process, and implies future cash distributions of between 720 pence and 920 pence for each share now in issue.  As ever it must be emphasised that estimates of future cash flows, and their timing, are subject to considerable uncertainties, including general market conditions, future investee company performance, the behaviour of other shareholders in investee companies and, of course, M&A market sentiment.

To date, our preferred method of returning capital to shareholders has been by tender offers priced at NAV, giving shareholders a choice as to whether to tender their proportionate entitlement or a greater or lesser number of shares according to their individual circumstances.  The March 2016 tender offer was not fully taken up, with £15.3 million worth of shares tendered compared with a maximum available of £20.0 million.  As a result those shareholders who wished to exit completely have been able to do so.  However we are left with over £10 million of cash on the balance sheet at 31 March 2016, of which at least £5 million is surplus to foreseeable requirements and available for distribution to shareholders in accordance with our run-off policy.

Whilst further tender offers remain a possibility, your directors will give careful consideration to the possibility of adopting an alternative method of distribution which returns cash to all shareholders pro rata to their holding.  We are aware that the proportion of the company's shares held by private investors has increased progressively over the past five years and that, in the light of recent changes to the taxation of dividend income and capital gains, some of these investors may have a strong preference for returns to be taxable as capital rather than income.  The board will continue to liaise with its financial and legal advisers in determining appropriate ways of distributing the realised value in the portfolio.  Should these methods require any form of shareholder approval, then the relevant consent will be sought at the appropriate time.

Contingent assets
As noted in the financial statements, at 31 March 2016 the company was entitled to receive over the period to December 2017 up to £1.4 million of deferred proceeds from investment sales.  These proceeds have not yet been recognised in the financial statements as there is an element of conditionality, and hence no reasonable certainty, attaching to their eventual receipt.

The company has, in common with a number of other investment trust companies, brought a claim against HM Revenue & Customs to recover VAT paid on investment management fees in the period from 1990 to 2009, to the extent not already recovered by the company, together with compound interest.  The claim has, by agreement with HMRC, been stayed pending the outcome of similar litigation involving other investment trust companies.  At this stage the outcome of the claim is not foreseeable and it is not practicable to estimate the possible recovery, if any.

Management
The change in the company's investment policy in 2011 was accompanied by a review of the terms of the management agreement with NVM, in which the board sought to move the emphasis from annual management fees towards an incentive fee based on the generation of cash for distribution to shareholders.  It was agreed that the annual management fee would be reduced on a stepped basis from £900,000 in the year ended 31 March 2012 to £300,000 in the year ended 31 March 2016.  As we reported at the half year stage, the board has agreed with NVM that with effect from April 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, but subject to an overall cap of £275,000 per annum.  Also with effect from April 2016, the manager's notice period has been reduced from twelve to six months.

The directors have continued to make provision in each year's financial statements for the additional fee expected to be payable in due course under the performance incentive arrangement agreed with NVM in 2011.  The provision as at 31 March 2016 was £5.0 million (31 March 2015 £3.9 million);  the minimum cash distribution target agreed at the outset (£59 million plus a 7% annual hurdle) was exceeded when the latest tender offer was completed, and so an initial payment of £2.8 million is due to NVM on the publication of the audited financial statements for the year ended 31 March 2016.  NVM have executed the realisation programme with a high level of professional skill and commitment and their performance fee, which ensures a close alignment of their interests with those of shareholders, has been well earned.

Shares and share price
Following completion of the March 2016 tender offer, in which 2,403,233 shares were re-purchased at 635 pence per share, the number of shares remaining in issue at the year end was 2,496,767 - representing approximately 13% of the issued capital at the start of the realisation process in 2011.

During the year the mid-market share price rose by 25%, from 507.5 pence to 635.0 pence.  The share price discount to NAV at the year end was 7.4% (31 March 2015 2.9%).  The share price total return over the five years to 31 March 2016, with dividends reinvested, was +247% compared with +32% for the FTSE All-Share total return index.

Board of directors
John Barnsley and Mark Nicholls will retire and seek re-election at the annual general meeting in accordance with the board's policy that directors who have served for nine or more years should seek re-election annually.  I believe that the shareholders have benefitted greatly from a stable board during the portfolio realisation programme and their re-election to the board has my full support.  In addition, I would like to thank my fellow directors for the knowledge and insight they have brought to the realisation process to date and I am sure that their expertise will be valuable as we move towards the later stages of the exercise.

Prospects
The remaining portfolio includes a number of holdings with good exit potential, but there is no doubt that completion of the run-off programme within the desired timescale will require hard work, creativity and a stable economic environment.  As I write this, the uncertainty created by the UK/EU referendum, the US Presidential election and global growth concerns is clearly dampening economic progress as business leaders take stock of the various potential outcomes.  Whilst it is hoped that this is only a temporary phenomenon, we are mindful of the longer term impact and the challenges and risks it may present.  However, your directors and manager will continue to focus their efforts on achieving a successful conclusion to the process which so far has produced excellent results.

Nigel Guy
Chairman

The audited financial statements for the year ended 31 March 2016 are set out below.

INCOME STATEMENT
for the year ended 31 March 2016

 Year ended 31 March 2016Year ended 31 March 2015
 Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments 5,067  5,067  5,870  5,870 
Movements in fair value of investments 3,413  3,413  2,464  2,464 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  8,480  8,480  8,334  8,334 
Income 1,025  1,025  1,546  1,546 
Investment management fee (60) (1,324) (1,384) (90) (1,474) (1,564)
Other expenses (316) (316) (313) (313)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax,            
being total comprehensive income 649  7,156  7,805  1,143  6,860  8,003 
Tax on return on ordinary activities (45) 45  (123) 155  32 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 604  7,201  7,805  1,020  7,015  8,035 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 12.3p 147.2p 159.5p 11.7p 80.5p 92.2p

BALANCE SHEET
as at 31 March 2016

 31 March 2016 
£000 
31 March 2015 
£000 
Fixed assets:    
 Investments 11,720  24,068 
  ----------  ---------- 
Current assets:    
 Investments 56  56 
 Debtors 25  56 
 Cash and cash equivalents 10,408  5,477 
  ----------  ---------- 
  10,489  5,589 
Creditors (amounts falling due within one year) (5,097) (4,046)
  ----------  ---------- 
Net current assets 5,392  1,543 
  ----------  ---------- 
Net assets 17,112  25,611 
  ----------  ---------- 
Capital and reserves:    
Called-up equity share capital 624  1,225 
Capital redemption reserve 4,531  3,930 
Capital reserve (2,918) 4,257 
Special reserve 12,674  12,674 
Revaluation reserve 251  1,346 
Revenue reserve 1,950  2,179 
  ----------  ---------- 
Total equity shareholders' funds 17,112  25,611 
  ----------  ---------- 
Net asset value per share 685.4p 522.7p

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2016

 ------ Non-distributable reserves ------------ Distributable reserves ------Total 
  

Share 
capital 
Capital 
redemption 
reserve 
 

Revaluation 
reserve 
 

Capital 
reserve 
 

Special 
reserve 
 

Revenue 
reserve 
 
 £000 £000 £000 £000 £000 £000 £000 
At 1 April 2015 1,225  3,930  1,346  4,257  12,674  2,179  25,611 
Return on ordinary activities              
after tax for the year (1,095) 8,296  604  7,805 
Re-purchase of shares (601) 601  (15,260) (15,260)
Share re-purchase expenses (211) (211)
Dividends paid (833) (833)
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 31 March 2016 624  4,531  251  (2,918) 12,674  1,950  17,112 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
         

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2015

 ------ Non-distributable reserves ------------ Distributable reserves ------Total 
  

Share 
capital 
Capital 
redemption 
reserve 
 

Revaluation 
reserve 
 

Capital 
reserve 
 

Special 
reserve 
 

Revenue 
reserve 
 
 £000 £000 £000 £000 £000 £000 £000 
At 1 April 2014 2,182  2,973  12,495  5,475  12,674  2,032  37,831 
Return on ordinary activities              
after tax for the year (11,149) 18,164  1,020  8,035 
Re-purchase of shares (957) 957  (19,142) (19,142)
Share re-purchase expenses (240) (240)
Dividends paid (873) (873)
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 31 March 2015 1,225  3,930  1,346  4,257  12,674  2,179  25,611 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
         

STATEMENT OF CASH FLOWS
for the year ended 31 March 2016

 Year ended 
31 March 2016 
£000 
Year ended 
31 March 2015 
£000 
Cash flows from operating activities:    
Return on ordinary activities before tax 7,805  8,003 
Adjustments for:    
Gain on disposal of investments (5,067) (5,870)
Movement in fair value of investments (3,413) (2,464)
Decrease in debtors 31  36 
Increase in creditors 1,051  1,211 
  ----------  ---------- 
Net cash inflow from operating activities 407  916 
  ----------  ---------- 
Cash flows from investing activities:    
Purchase of investments
Sale/repayment of investments 20,828  23,029 
  ----------  ---------- 
Net cash inflow from investing activities 20,828  23,029 
  ----------  ---------- 
Cash flows from financing activities:    
Repurchase of ordinary shares for cancellation (15,260) (19,142)
Share repurchase expenses (211) (240)
Dividends paid on ordinary shares (833) (873)
  ----------  ---------- 
Net cash outflow from financing activities (16,304) (20,255)
  ----------  ---------- 
Net increase in cash and cash equivalents 4,931  3,690 
Cash and cash equivalents at beginning of year 5,533  1,843 
  ----------  ---------- 
Cash and cash equivalents at end of year 10,464  5,533 
  ----------  ---------- 

INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2016

  

Cost
£000
 

Valuation
£000
% of
net assets
by value
Axial Systems Holdings 2,311 3,519 20.6
Optilan Group 1,900 2,747 16.0
Cawood Scientific 1,196 1,984 11.6
Weldex (International) Offshore Holdings 3,252 1,921 11.2
CGI Group Holdings 1,908 819 4.8
Lanner Group 621 730 4.3
Crantock Bakery 215 - -
S&P Coil Products 66 - -
  ---------- ---------- --------
Total fixed asset investments 11,469 11,720 68.5
  ----------    
Net current assets   5,392 31.5
    ---------- --------
Net assets   17,112 100.0
    ---------- --------

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 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.  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 has and will continue to become 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.  The directors' valuation of the company's investments represents their best assessment of the fair value of the investments as at the valuation date and the amounts eventually realised from such investments may be more or less than the directors' valuation.  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 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.  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 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.

DIRECTORS' RESPONSIBILITIES STATEMENT

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, including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".  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 year.

In preparing the 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 explained below, the directors do not believe it is appropriate to prepare the financial statements for the year ended 31 March 2016 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, strategic 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 Private Equity LLP (NVM) website, www.nvm.co.uk.  The maintenance and integrity of this website is the responsibility of NVM and not of the company.  The work carried out by KPMG LLP as independent auditor of the company does not involve consideration of the maintenance and integrity of the website and accordingly they accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website.  Visitors to the website should be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

In relation to the financial statements for the year ended 31 March 2016 each of the directors has confirmed that, to the best of his knowledge, (i) 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 of the company;  (ii) the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance, business model and strategy;  and (iii) the directors' report and strategic report include 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 and Mr M P Nicholls.

OTHER MATTERS

The above summary of results for the year ended 31 March 2016 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 auditor's report on those financial statements under Section 495 of the Companies Act 2006 is unqualified, draws attention to the non-going concern basis of preparing the accounts by way of emphasis without qualifying the report 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 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 calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the year and on 4,893,434 (2015 8,717,951) ordinary shares, being the weighted average number of shares in issue during the year.

The calculation of the net asset value per share is based on the net assets at 31 March 2016 divided by the 2,496,767 (2015 4,900,000) ordinary shares in issue at that date.

The proposed final dividend of 24.0 pence per share for the year ended 31 March 2016 will, if approved by shareholders, be paid on 22 July 2016 to shareholders on the register at the close of business on 1 July 2016.

The full annual report including financial statements for the year ended 31 March 2016 is expected to be posted to shareholders by 6 June 2016 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

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