Half-yearly report <Origin Href="QuoteRef">NTN.L</Origin>
12/11/2015 15:42
12 NOVEMBER 2015
NORTHERN 3 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015
Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private
Equity LLP. It invests mainly in unquoted venture capital holdings and aims
to provide high long-term tax-free returns to shareholders through a
combination of dividend yield and capital growth.
Financial highlights (comparative figures as at 30 September 2014 and 31
March 2015)
Six months to Six months to Year to
30 September 30 September 31 March
2015 2014 2015
Net assets £66.3m £70.3m £71.2m
Net asset value per share 100.7p 105.5p 107.2p
Return per share:
Revenue Capital Total 1.1p 1.3p 2.5p
5.8p (1.1)p 1.4p
6.9p 0.2p 3.9p
Dividend per share declared/paid
in respect of the period (31 March 2015 includes 10.0p special dividend) 2.0p 2.0p 15.5p
Cumulative returns to shareholders
since launch:
100.7p
105.5p
107.2p
Net asset value per share Dividends paid per share* Net asset value plus dividends paid per share 62.9p 47.4p 49.4p
163.6p 152.9p 156.6p
Mid-market share price at end of period 90.0p 95.8p 96.8p
Share price discount to net asset value 10.6% 9.2% 9.7%
Tax-free dividend yield (based on mid-market
share price at end of period):
Excluding special dividend 6.1% 5.7% 5.7%
Including special dividend N/A N/A 16.0%
*Excluding interim dividend not yet paid
For further information, please contact:
NVM Private Equity LLP
Alastair Conn/Christopher Mellor 0191 244
6000
Website: www.nvm.co.uk
HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS
Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2015 was 100.7p
(31 March 2015 107.2p). The September figure is stated after deducting the
second interim and final dividends totalling 13.5p per share in respect of the
year ended 31 March 2015, which were paid in July 2015. The second interim
dividend of 10.0p was a special payment out of the proceeds of profitable
investment sales completed in the final quarter of the 2014/15 financial year.
The return per share for the half year as shown in the income statement,
before deducting the dividend, was 6.9p compared with 0.2p in the six month
period ended 30 September 2014.
The directors have declared an unchanged interim dividend of 2.0p per share,
which will be paid on 29 January 2016 to shareholders on the register at the
close of business on 8 January 2016. It is our present objective to maintain
an annual dividend of at least 5.5p per share.
In July we suspended the dividend investment scheme (DRIS) under which
shareholders had been able to re-invest their dividends in new ordinary shares
in the company. We reluctantly took this step because of the uncertainty
caused by the Government's proposed changes to the VCT legislation. Although
we are making some progress in absorbing the implications of these changes, we
do not yet feel that it is appropriate to re-instate the DRIS and so it
remains suspended until further notice.
Investment portfolio
Total additions to the venture capital portfolio in the half year amounted to
£11.3 million. Two new holdings in unquoted trading companies and two
AIM-quoted holdings were acquired at a cost of £3.1 million, as follows:
* Entertainment Magpie Group (£1,360,000) - operator of website for
re-selling pre-owned entertainment media and electronic items, Manchester
* Love Energy Savings (£1,017,000) - business-to-business energy cost
comparison and procurement service, Bolton
* Vislink (£564,000) - AIM-quoted provider of communications technology to
the broadcast, security and defence industries, Hungerford
* Gear4music (Holdings) (£150,000) - AIM-quoted online retailer of musical
instruments and music equipment, York
In addition £8.2 million was invested in six companies formed with a view to
acquiring trading businesses.
Proceeds from investment sales and repayments amounted to £3.0 million,
producing a gain of £0.7 million over 31 March 2015 carrying values. The
majority shareholder in Tinglobal Holdings purchased our remaining holding for
£0.7 million and the investment in Direct Valeting was sold to a trade
acquirer for £0.4 million, realising a satisfactory profit in each case.
The AIM-quoted investments in Accumuli and Nationwide Accident Repair Services
were sold at a profit following recommended bids. Warmseal Windows
(Newcastle) , which had previously been written down to nil value, went into
administration after a long period of difficult trading. Several other
investee companies are currently in discussions with a view to possible exits.
The venture capital portfolio continues to make good overall progress and
this is reflected in a number of individual valuation uplifts. A small
number of companies have performed less well than expected and are receiving
close attention and support from our investment manager.
Share issues and buy-backs
The company has enjoyed a strong cash position following the successful £20
million public share offer in the 2013/14 tax year. Your board did not
consider it appropriate to launch a further share issue in the 2014/15 tax
year and indeed we were able to declare a special dividend totalling £6.6
million from the proceeds of investment realisations. With funds still
available for future investment, and a reasonable prospect of more
realisations over the next six months, we do not envisage raising funds from
investors in the 2015/16 tax year.
In May it was announced that the discount to NAV at which the company buys
back shares in the market would be reduced from 10% to 5%. 520,000 shares
were re-purchased during the six months ended 30 September 2015 at a cost of
£466,000.
VCT qualifying status
The company has continued to comply with the conditions laid down by HM
Revenue & Customs for the maintenance of approved venture capital trust
status. Our managers monitor the position closely and the board also
receives regular reports from our taxation advisers at Robertson Hare LLP.
VCT legislation
The Government introduced new legislation in the Summer Finance Bill 2015
which will have a significant impact on the investment activities of most
VCTs. I wrote to shareholders in July 2015 to inform you that the directors
were assessing the effect of the new provisions, which at the time were
subject to further clarification and amendment by the Government.
The Finance Bill is expected to receive Royal Assent shortly and it is clear
that the range of potential investments open to generalist VCTs such as your
company will be reduced, as the Government seeks to implement the European
Commission's State aid guidelines which require VCTs to focus more sharply on
the provision of growth capital to younger companies.
Your directors are working closely with NVM and our other professional
advisers to understand the full implications of the new rules for our future
investment activities, and to adapt our approach to the new regime as we seek
to maintain our strong long-term investment performance. We will report the
outcome of our review to shareholders in due course.
Prospects
Financial markets have been adversely affected over the past six months by
concerns about a slowdown in the Chinese economy, as well as specific sector
issues such as those resulting from the fall in the oil price. This will
present challenges to our investee companies, but the portfolio has shown an
encouraging degree of resilience and we expect to see some profitable exits in
the second half of the year.
On behalf of the Board
James Ferguson
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 - 639 639 - 97 97
Movements in fair value of investments - 3,678 3,678 - (369) (369)
---------- ---------- ---------- ---------- ---------- ----------
- 4,317 4,317 - (272) (272)
Income 1,148 - 1,148 1,328 - 1,328
Investment management fee (183) (550) (733) (184) (551) (735)
Other expenses (173) - (173) (185) - (185)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities before tax 792 3,767 4,559 959 (823) 136
Tax on return on ordinary activities (67) 67 - (113) 113 -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities after tax 725 3,834 4,559 846 (710) 136
---------- ---------- ---------- ---------- ---------- ----------
Return per share 1.1p 5.8p 6.9p 1.3p (1.1)p 0.2p
Dividend per share for the period 1.0p 1.0p 2.0p 1.0p 1.0p 2.0p
Year ended 31 March 2015
Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 3,429 3,429
Movements in fair value of investments - (1,693) (1,693)
---------- ---------- ----------
- 1,736 1,736
Income 2,676 - 2,676
Investment management fee (364) (1,094) (1,458)
Other expenses (376) - (376)
---------- ---------- ----------
Return on ordinary activities before tax 1,936 642 2,578
Tax on return on ordinary activities (261) 261 -
---------- ---------- ----------
Return on ordinary activities after tax 1,675 903 2,578
---------- ---------- ----------
Return per share 2.5p 1.4p 3.9p
Dividend per share for the period 2.5p 13.0p 15.5p
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 71,155 71,297 71,297
Return on ordinary activities after tax 4,559 136 2,578
Dividends recognised in the period (8,958) (2,322) (3,654)
Net proceeds of share issues - 1,296 1,416
Shares re-purchased for cancellation (466) (147) (482)
---------- ---------- ----------
Equity shareholders' funds at 30 Sept 2015 66,290 70,260 71,155
---------- ---------- ----------
BALANCE SHEET
(unaudited) as at 30 September 2015
30 September 2015 £000 30 September 2014 £000 31 March 2015 £000
Fixed assets:
Investments 61,086 60,226 50,371
---------- ---------- ----------
Current assets:
Debtors 169 223 255
Cash and deposits 5,158 9,979 20,726
---------- ---------- ----------
5,327 10,202 20,981
Creditors (amounts falling due
within one year) (123) (168) (197)
---------- ---------- ----------
Net current assets 5,204 10,034 20,784
---------- ---------- ----------
Net assets 66,290 70,260 71,155
---------- ---------- ----------
Capital and reserves:
Called-up equity share capital 3,292 3,329 3,318
Share premium 1,348 1,235 1,348
Capital redemption reserve 61 17 35
Capital reserve 54,754 52,489 62,884
Revaluation reserve 5,927 12,176 2,393
Revenue reserve 908 1,014 1,177
---------- ---------- ----------
Total equity shareholders' funds 66,290 70,260 71,155
---------- ---------- ----------
Net asset value per share 100.7p 105.5p 107.2p
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/(outflow) from
operating activities 254 (361) 70
Taxation:
Corporation tax paid - - -
Financial investment:
Purchase of investments (11,937) (7,694) (12,986)
Sale/repayment of investments 5,539 5,639 22,794
---------- ---------- ----------
Net cash inflow/(outflow) from financial investment (6,398) (2,055) 9,808
Equity dividends paid (8,958) (2,322) (3,654)
---------- ---------- ----------
Net cash inflow/(outflow) before financing (15,102) (4,738) 6,224
Financing:
Issue of shares - 1,330 1,463
Share issue expenses - (34) (47)
Re-purchase of shares for cancellation (466) (147) (482)
---------- ---------- ----------
Net cash inflow/(outflow) from financing (466) 1,149 934
---------- ---------- ----------
Increase/(decrease) in cash and deposits (15,568) (3,589) 7,158
---------- ---------- ----------
Reconciliation of return before tax to
net cash flow from operating activities
Return on ordinary activities before tax 4,559 136 2,578
Gain on disposal of investments (639) (97) (3,429)
Movements in fair value of investments (3,678) 369 1,693
Decrease in debtors 86 65 33
Decrease in creditors (74) (834) (805)
---------- ---------- ----------
Net cash inflow/(outflow) from operating activities 254 (361) 70
---------- ---------- ----------
Reconciliation of movements in net funds
1 April 2015 Cash flows 30 September 2015
£000 £000 £000
Cash and deposits 20,726 (15,568) 5,158
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2015
Company Cost £000 Valuation £000 % of net assets by valuation
Fifteen largest private equity investments:
Buoyant Upholstery 1,294 2,721 4.1
Lineup Systems 974 2,467 3.7
MSQ Partners Group 1,477 2,296 3.4
IDOX* 600 2,006 3.0
Biological Preparations Group 1,915 1,915 2.9
Volumatic Holdings 1,929 1,901 2.9
Kitwave One 1,001 1,900 2.9
Silverwing 1,272 1,673 2.5
Axial Systems Holdings 1,293 1,569 2.4
Closerstill Group 1,520 1,520 2.3
Wear Inns 1,406 1,461 2.2
Control Risks Group Holdings 746 1,461 2.2
No 1 Traveller 1,441 1,454 2.2
Agilitas IT Holdings 1,448 1,452 2.2
It's All Good 1,131 1,411 2.1
---------- ---------- -------
19,447 27,207 41.0
Other private equity investments 27,761 26,297 39.7
---------- ---------- -------
Total private equity investments 47,208 53,504 80.7
Listed equity investments 7,951 7,582 11.4
---------- ---------- -------
Total fixed asset investments 55,159 61,086 92.1
----------
Net current assets 5,204 7.9
---------- -------
Net assets 66,290 100.0
---------- -------
*Quoted on AIM
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: many of the company's investments are in small
and medium-sized unquoted and AIM-quoted companies which are VCT qualifying
holdings, and which by their nature entail a higher level of risk and lower
liquidity than investments in large quoted companies. Mitigation: the
directors aim to limit the risk attaching to the portfolio as a whole by
careful selection, close monitoring and timely realisation of investments, by
carrying out rigorous due diligence procedures and maintaining a wide spread
of holdings in terms of financing stage and industry sector. The board
reviews the investment portfolio with the investment manager on a regular
basis.
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 take advantage of new
unquoted investment opportunities. The company has very little direct
exposure to foreign currency risk and does not enter into derivative
transactions.
Economic risk: events such as economic recession or general fluctuation 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 where appropriate.
Stock market risk: some of the company's investments are quoted on the London
Stock Exchange or AIM and will 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.
Mitigation: the company's quoted investments are actively managed by
specialist managers and the board keeps the portfolio under ongoing review.
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.
Legislative and regulatory risk: in order to maintain its approval as a VCT,
the company is required to comply with current VCT legislation in the UK,
which reflects the European Commission's state aid rules. Changes to the UK
legislation or the state aid rules in the future could have an adverse effect
on the company's ability to achieve satisfactory investment returns whilst
retaining its VCT approval. Mitigation: The board and the investment manager
monitor political developments and where appropriate seek to make
representations either directly or through relevant trade bodies.
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 investment manager. These include controls
designed to ensure that the company's assets are safeguarded and that proper
accounting records are maintained.
VCT qualifying status risk: the company is required at all times to observe
the conditions laid down in the Income Tax Act 2007 for the maintenance of
approved VCT status. The loss of such approval could lead to the company
losing its exemption from corporation tax on capital gains, to investors being
liable to pay income tax on dividends received from the company and, in
certain circumstances, to investors being required to repay the initial income
tax relief on their investment. Mitigation: the investment manager keeps the
company's VCT qualifying status under continual review and its reports are
reviewed by the board on a quarterly basis. The board has also retained
Robertson Hare LLP to undertake an independent VCT status monitoring role.
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) did not include
any reference to matters to which the auditor drew attention by way of
emphasis without qualifying the report 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.
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 directors of the company at the date of this statement were Mr J G D
Ferguson (Chairman), Mr C J Fleetwood, Mr T R Levett and Mr J M O Waddell.
The calculation of the revenue and capital return per share is based on the
return on ordinary activities after tax for the period and on 66,188,044 (2014
66,269,375) 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 65,833,399 (2014 66,575,347) ordinary
shares in issue at that date.
The interim dividend of 2.0p per share for the year ending 31 March 2016 will
be paid on 29 January 2016 to shareholders on the register at the close of
business on 8 January 2016.
A copy of the half-yearly financial report for the six months ended 30
September 2015 is expected to be posted to shareholders by 30 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 3 VCT PLC via Globenewswire
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