REG-Annual Financial Report <Origin Href="QuoteRef">NTN.L</Origin>
17/05/2016 16:05
17 MAY 2016
NORTHERN 3 VCT PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2016
Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private
Equity. The trust 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 31 March 2015):
2016 2015
Net assets £67.0m £71.2m
Net asset value per share 102.2p 107.2p
Return per share:
Revenue 2.1p 2.5p
Capital 8.3p 1.4p
Total 10.4p 3.9p
Dividend per share for the year:
First interim dividend 2.0p 2.0p
Second interim (special) dividend 5.0p 10.0p
Proposed final dividend 3.5p 3.5p
Total 10.5p 15.5p
Cumulative return to shareholders since launch:
Net asset value per share 102.2p 107.2p
Dividends paid per share* 64.9p 49.4p
Net asset value plus dividends paid per share 167.1p 156.6p
Mid-market share price at end of year 95.75p 96.75p
Share price discount to net asset value 6.3% 9.7%
Tax-free dividend yield (based on mid-market share price at end of year):
Excluding special dividend Including special dividend 5.7% 11.0% 5.7% 16.0%
*Excluding second interim and proposed final dividend payable on 15 July 2016
For further information, please contact:
NVM Private Equity LLP
Alastair Conn/Christopher Mellor 0191 244
6000
Website: www.nvm.co.uk
NORTHERN 3 VCT PLC
CHAIRMAN'S STATEMENT
I am pleased to report on another productive year for our company. The
investment portfolio has performed well and a number of satisfactory sales
were completed, from both unquoted and AIM-quoted holdings.
Results and dividend
The NAV per share at 31 March 2016, after deducting dividends totalling 15.5p
which were paid during the year, was 102.2p compared with 107.2p as at 31
March 2015. The total return per share for the year as shown in the income
statement was 10.4p (last year 3.9p), equivalent to 9.7% of the opening NAV.
Net realised and unrealised capital gains for the year totalled £6.8 million,
reflecting sales made during the year and the generally positive performance
achieved by portfolio companies.
Your directors' policy is to set the annual dividend at a level which is
sustainable taking one year with another, seeking to smooth out the inevitable
fluctuations in annual results. Since 2012 it has been our objective to
maintain the annual dividend at 5.5p per share, and we now propose an
unchanged final dividend of 3.5p in respect of the year ended 31 March 2016,
maintaining the total recurring dividend for the year at the target level of
5.5p. We have also decided to recognise the healthy inflow of sales proceeds
during the year by declaring a special dividend of 5.0p per share, which takes
the total payable in respect of the year to 10.5 pence.
The special dividend will take the form of a second interim dividend for the
year ended 31 March 2016, which will be paid on 15 July 2016 to shareholders
on the register on 17 June 2016. The proposed final dividend of 3.5p per
share will, subject to approval by shareholders at the annual general meeting,
be paid on the same date, making a total payment of 8.5p per share.
We announced in January 2016 that the company's dividend investment scheme,
which was suspended in July 2015 because of the uncertainty surrounding the
Government's review of the VCT legislation, was reinstated with immediate
effect. The scheme enables shareholders to re-invest their dividends in new
ordinary shares in the company, with the benefit of the tax reliefs available
on new subscriptions to VCTs. Further information about the scheme is
included in a separate letter sent to shareholders with the annual report.
Your directors attach a high priority to maintaining a strong flow of
tax-free dividends to shareholders. At this stage it is difficult to gauge
the likely impact on future investment returns of the recent VCT rule changes,
and we will keep the company's dividend policy under regular review.
Investment portfolio
The past six months have seen a lull in new unquoted investment activity, as
the market began to come to terms with the new VCT investment parameters and
HM Revenue & Customs seemingly struggled to process investment clearance
applications on a timely basis. During the first half we invested
£8.2 million in six new companies launched with a view to commencing a
VCT-qualifying trade, and completed investments in Love Saving Group and
Entertainment Magpie Group. The investments in Kitwave One, Control Risks
Group Holdings, Tinglobal Holdings and Direct Valeting were sold on
satisfactory terms.
In the AIM-quoted portfolio, the only new investment was in Gear4music
(Holdings). The investments in Accumuli, Nationwide Accident Repair Services
and Jelf Group were all sold at a profit as a result of agreed bids. The
number of VCT-qualifying new issues on AIM has remained low and under the new
VCT rules we are now prohibited from acquiring any further holdings in the
secondary market, so it seems likely that the number of AIM investments in the
portfolio will reduce further in the medium term. This is regrettable as
AIM-quoted investments have made a useful contribution to the company's
performance in recent years.
Shareholder issues
12 months ago we reduced, from 10% to 5%, the discount to NAV at which the
company offers to buy back its shares in the market. The number of shares
re-purchased during the year ended 31 March 2016 was 820,000, compared with
500,000 during the preceding year.
The company's most recent public offer of new shares took place in the
2013/14 financial year, almost three years ago, when £20 million was
raised. The proceeds of that share issue, together with the substantial
amounts realised from successful investment sales, have been more than
sufficient to meet subsequent new investment requirements. Your directors
are conscious that many shareholders would like to have the opportunity to
make a further investment in the company, and the possibility of further share
offers will be kept under review.
VCT qualifying status
The company has continued to meet the qualifying conditions laid down by HM
Revenue & Customs for maintaining its approval as a VCT. The board reviews
the company's compliance position on a regular basis with the manager.
Philip Hare & Associates LLP (formerly Robertson Hare LLP) continues to act as
independent adviser to the company on VCT taxation matters.
VCT legislation
Shareholders will no doubt be aware that the Finance Act (No 2) 2015, which
became law in November 2015, made some radical changes to the legislation
defining investments qualifying under the VCT scheme. We understand that the
Government's intention is to make the VCT scheme more compliant with the
European Commission's State aid rules. VCTs investment is now to be focused
on "growth and development" funding for relatively immature businesses, whilst
transactions involving ownership change, such as management buyouts, are
prohibited. The new measures apply to all funds raised by VCTs in the past
as well as the proceeds of future share issues.
There is widespread agreement that the change in investment emphasis is
likely to result in future returns from VCT portfolios becoming more volatile,
with a greater proportion of investments which carry high risk but also
potentially high reward. Northern 3 VCT is unlikely to prove an exception to
this but we are encouraged by the fact that our manager NVM has a strong
record in early-stage investment, and is building up its investment resource
to meet the new requirements.
A resolution will be proposed at the annual general meeting to amend the
wording of the company's investment policy, so as to conform with the revised
VCT qualifying investment requirements.
Outlook
We are entering into an interesting phase in the development of the VCT
sector, and inevitably there is some uncertainty as to how the new rules will
be interpreted and whether those VCTs which have built strong performance
records will continue to thrive under the altered regime. Your board and
manager are confident that the foundations which have been established over
the past 15 years give us a good basis to meet the challenges ahead.
James Ferguson
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 2016 Year ended 31 March 2015
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 1,796 1,796 - 3,429 3,429
Movements in fair value of investments - 5,037 5,037 - (1,693) (1,693)
---------- ---------- ---------- ---------- ---------- ----------
- 6,833 6,833 - 1,736 1,736
Income 2,201 - 2,201 2,676 - 2,676
Investment management fee (354) (1,530) (1,884) (364) (1,094) (1,458)
Other expenses (314) - (314) (376) - (376)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities before tax 1,533 5,303 6,836 1,936 642 2,578
Tax on return on ordinary activities (145) 145 - (261) 261 -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities after tax 1,388 5,448 6,836 1,675 903 2,578
---------- ---------- ---------- ---------- ---------- ----------
Return per share 2.1p 8.3p 10.4p 2.5p 1.4p 3.9p
Dividend per share 2.0p 8.5p 10.5p 2.5p 13.0p 15.5p
BALANCE SHEET
as at 31 March 2016
31 March 2016 £000 31 March 2015 £000
Fixed assets:
Investments 58,695 50,371
---------- ----------
Current assets:
Debtors 252 255
Cash and cash equivalents 8,637 20,726
---------- ----------
8,889 20,981
Creditors (amounts falling due within one year) (620) (197)
---------- ----------
Net current assets 8,269 20,784
---------- ----------
Net assets 66,964 71,155
---------- ----------
Capital and reserves:
Called-up equity share capital 3,277 3,318
Share premium 1,348 1,348
Capital redemption reserve 76 35
Capital reserve 54,452 62,884
Revaluation reserve 6,899 2,393
Revenue reserve 912 1,177
---------- ----------
Total equity shareholders' funds 66,964 71,155
---------- ----------
Net asset value per share 102.2p 107.2p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2016
---------------Non-distributable reserves--------------- Distributable reserves Total
Share capital Share premium Capital redemption reserve Revaluation reserve Capital reserve Revenue reserve
£000 £000 £000 £000 £000 £000 £000
At 1 April 2015 3,318 1,348 35 2,393 62,884 1,177 71,155
Return on ordinary activities
after tax for the year - - - 4,506 942 1,388 6,836
Net proceeds of share issues - - - - - - -
Re-purchase of shares (41) - 41 - (754) - (754)
Dividends recognised - - - - (8,620) (1,653) (10,273)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2016 3,277 1,348 76 6,899 54,452 912 66,964
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2015
---------------Non-distributable reserves--------------- Distributable reserves Total
Share capital Share premium Capital redemption reserve Revaluation reserve Capital reserve Revenue reserve
£000 £000 £000 £000 £000 £000 £000
At 1 April 2014 3,275 - 10 12,049 55,264 699 71,297
Return on ordinary activities
after tax for the year - - - (9,656) 10,559 1,675 2,578
Net proceeds of share issues 68 1,348 - - - - 1,416
Re-purchase of shares (25) - 25 - (482) - (482)
Dividends recognised - - - - (2,457) (1,197) (3,654)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2015 3,318 1,348 35 2,393 62,884 1,177 71,155
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
for the year ended 31 March 2016
Year ended Year ended
31 March 2016 31 March 2015
£000 £000
Cash flows from operating activities:
Return on ordinary activities before tax 6,836 2,578
Adjustments for:
Gain on disposal of investments (1,796) (3,429)
Movement in fair value of investments (5,037) 1,693
(Increase)/decrease in debtors 3 33
Increase/(decrease) in creditors 423 (805)
---------- ----------
Net cash inflow from operating activities 429 70
---------- ----------
Cash flows from investing activities:
Purchase of investments (12,320) (12,986)
Sale/repayment of investments 10,829 22,794
---------- ----------
Net cash inflow/(outflow) from investing activities (1,491) 9,808
---------- ----------
Cash flows from financing activities:
Issue of shares - 1,463
Share issue expenses - (47)
Repurchase of ordinary shares for cancellation (754) (482)
Dividends paid on ordinary shares (10,273) (3,654)
---------- ----------
Net cash outflow from financing activities (11,027) (2,720)
---------- ----------
Net increase/(decrease) in cash/cash equivalents (12,089) 7,158
Cash and cash equivalents at beginning of year 20,726 13,568
---------- ----------
Cash and cash equivalents at end of year 8,637 20,726
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2016
Cost £000 Valuation £000 % of net assets by value
Venture capital investments:
Buoyant Upholstery 1,294 3,119 4.7
IDOX* 600 2,476 3.7
Lineup Systems 974 2,470 3.7
MSQ Partners Group 1,478 2,275 3.4
Axial Systems Holdings 1,293 2,147 3.2
No 1 Traveller 1,893 2,063 3.1
Silverwing 1,272 1,954 2.9
Entertainment Magpie Group 1,360 1,830 2.7
Volumatic Holdings 1,762 1,695 2.5
Wear Inns 1,406 1,681 2.5
It's All Good 1,131 1,642 2.4
Closerstill Group 1,520 1,520 2.3
Agilitas IT Holdings 1,448 1,469 2.2
Biological Preparations Group 1,915 1,412 2.1
Cawood Scientific 825 1,375 2.1
---------- ---------- --------
Fifteen largest venture capital investments 20,171 29,128 43.5
Other venture capital investments 24,287 22,029 32.9
---------- ---------- --------
Total venture capital investments 44,458 51,157 76.4
Listed equity investments 7,337 7,538 11.3
---------- ---------- --------
Total fixed asset investments 51,795 58,695 87.7
----------
Net current assets 8,269 12.3
---------- --------
Net assets 66,964 100.0
---------- --------
*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 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 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 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 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 Philip Hare &
Associates LLP to undertake an independent VCT status monitoring role.
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 and applicable
law (UK Generally Accepted Accounting Practice). Under company law the
directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the company and
of the profit or loss of the company for the 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.
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 J G D
Ferguson (Chairman), Mr C J Fleetwood, Mr T R Levett and Mr J M O Waddell.
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, does not include any reference to matters to which the auditor
drew attention 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.
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 65,999,656 (2015
66,416,764) 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 65,533,399 (2015 66,353,399) ordinary shares
in issue at that date.
The second interim dividend of 5.0p per share and, if approved by
shareholders, the proposed final dividend of 3.5p per share for the year ended
31 March 2016 will be paid on 15 July 2016 to shareholders on the register at
the close of business on 17 June 2016.
The full annual report including financial statements for the year ended 31
March 2016 is expected to be posted to shareholders by 10 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 3 VCT PLC via Globenewswire
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