REG-Annual Financial Report <Origin Href="QuoteRef">NTN.L</Origin>
12/06/2017 16:35
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12 JUNE 2017
NORTHERN 3 VCT PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2017
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 2016):
2017 2016
Net assets £69.9m £67.0m
Net asset value per share 106.2p 102.2p
Return per share:
Revenue 2.6p 2.1p
Capital 12.0p 8.3p
Total 14.6p 10.4p
Dividend per share for the year:
First interim dividend 2.0p 2.0p
Second interim (special) dividend 5.0p 5.0p
Proposed final dividend 3.5p 3.5p
Total 10.5p 10.5p
Cumulative return to shareholders since launch:
Net asset value per share 106.2p 102.2p
Dividends paid per share* 75.4p 64.9p
Net asset value plus dividends paid per share 181.6p 167.1p
Mid-market share price at end of year 101.0p 95.75p
Share price discount to net asset value 4.9% 6.3%
Tax-free dividend yield (based on mid-market share price at end of year):
Excluding special dividend Including special dividend 5.4% 5.7%
10.4% 11.0%
*Excluding second interim and proposed final dividend payable on 21 July 2017
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
The company made good progress during the past year against a background of
global political and economic uncertainty, with the added complication of
major changes in the VCT legislation.
Results and dividend
The NAV per share at 31 March 2017, after deducting dividends totalling 10.5p
which were paid during the year, was 106.2p compared with 102.2p as at 31
March 2016. The total return per share for the year as shown in the income
statement was 14.6p (last year 10.4p), equivalent to 14.3% of the opening
NAV. These strong results reflect another creditable performance across the
investment portfolio. Northern 3 VCT has continued to outperform by a
comfortable margin the NAV total return index for the generalist VCT sector
published by the Association of Investment Companies.
The directors' policy is to pay a dividend which is sustainable from one year
to another, smoothing out the fluctuations in annual results. Since 2012,
this has resulted in an objective of maintaining the annual dividend at 5.5p
per share.
In the light of the results for the year ended 31 March 2017 we propose an
unchanged final dividend of 3.5p in respect of the year, which together with
the interim dividend of 2.0p paid in January takes us to our target of 5.5p.
In addition to this, we have again decided to recognise the strong generation
of cash from investment sales by declaring a special dividend of 5.0p per
share, so that the total payable in respect of the year will be 10.5p.
The special dividend will take the form of a second interim dividend for the
year ended 31 March 2017, which will be paid on 21 July 2017 to shareholders
on the register on 23 June 2017. The proposed final dividend will, subject
to approval by shareholders at the annual general meeting, be paid on the same
date.
The company's dividend investment scheme, under which dividends can be
re-invested in new ordinary shares free of dealing costs and with the benefit
of the tax reliefs available on new VCT share subscriptions, continues to
operate. Shareholders who wish to join the scheme or amend their current
participation in the scheme may obtain an updated scheme mandate form from
NVM's website at www.nvm.co.uk.
Investment portfolio
During the past year seven new VCT-qualifying investments have been completed
at a total cost of £5.6 million. Shareholders will be aware that last year
the Government introduced radical changes to the parameters for VCT-qualifying
investments, as a result of which management buyouts have been removed from
the permitted range and investment activity is instead focussed on
earlier-stage companies requiring capital for the development of new products
and markets. We are still coming to terms with some of the detailed
implications, as are HM Revenue & Customs whose advance clearance system for
new investments has been subject to unacceptably long delays. Our manager,
however, currently reports an encouraging level of new investment prospects,
and has strengthened its investment team to address the changes in the
investment requirements.
Cash proceeds from sales of investments in the unquoted venture capital
portfolio totalled £10.6 million, with satisfactory exits from Silverwing,
Arleigh Group and Cawood Scientific. Shortly after the year end a further
£2.8 million was received from the sale of Optilan Group.
The portfolio of AIM-quoted investments performed well and some profits were
taken on a rise in the share prices of IDOX and Gear4music (Holdings).
Shareholder issues
In February 2017 we raised £4.3 million of new capital through a top-up offer
of ordinary shares, launched in conjunction with similar offers by Northern
Venture Trust and Northern 2 VCT. The offer was rapidly subscribed by
existing Northern VCT shareholders, and we naturally regret the disappointment
felt by unsuccessful applicants. The resulting new shares were allotted on 3
April 2017 and therefore do not form part of the issued capital shown in our
31 March 2017 accounts. The possibility of future share issues will be kept
under review, and will depend on the rate of new investments and realisations
from the existing portfolio.
The company has maintained its policy of buying back its own shares in the
market, where necessary to maintain market liquidity, at a discount of 5% to
NAV. During the year 730,000 shares, equivalent to approximately 1.1% of the
opening share capital, were re-purchased for cancellation at an average cost
of 96p per share.
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 continues to act as independent adviser to the
company on VCT taxation matters.
VCT legislation
The recent changes to the VCT legislation were in part a response to
restrictions contained in the European Commission's State aid rules, but it is
apparent that the UK Government is also seeking to bring about some changes in
direction. In November 2016 the Government announced its Patient Capital
Review, with a remit to identify barriers to access to long-term finance for
growing firms in the UK and to assess what changes in government policy may be
needed to improve the supply of funding. It is to be hoped that this
exercise takes due note of the significant role which VCTs have played, and
continue to play, in the provision of growth capital to the smaller companies
whose future development is so important to the well-being of the UK economy.
Outlook
Northern 3 VCT is well positioned to meet the challenges presented both by the
new VCT investment regime and by the recent changes and current uncertainties
on the wider political and economic scene.
James Ferguson
Chairman
The audited financial statements for the year ended 31 March 2017 are set out
below.
INCOME STATEMENT
for the year ended 31 March 2017
Year ended 31 March 2017 Year ended 31 March 2016
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 1,775 1,775 - 1,796 1,796
Movements in fair value of investments - 7,785 7,785 - 5,037 5,037
---------- ---------- ---------- ---------- ---------- ----------
- 9,560 9,560 - 6,833 6,833
Income 2,626 - 2,626 2,201 - 2,201
Investment management fee (354) (1,951) (2,305) (354) (1,530) (1,884)
Other expenses (306) - (306) (314) - (314)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities before tax 1,966 7,609 9,575 1,533 5,303 6,836
Tax on return on ordinary activities (274) 274 - (145) 145 -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities after tax 1,692 7,883 9,575 1,388 5,448 6,836
---------- ---------- ---------- ---------- ---------- ----------
Return per share 2.6p 12.0p 14.6p 2.1p 8.3p 10.4p
Dividend per share 2.0p 8.5p 10.5p 2.0p 8.5p 10.5p
BALANCE SHEET
as at 31 March 2017
31 March 2017 £000 31 March 2016 £000
Fixed assets:
Investments 62,717 58,695
---------- ----------
Current assets:
Debtors 652 252
Cash and cash equivalents 11,811 8,637
---------- ----------
12,463 8,889
Creditors (amounts falling due within one year) (5,288) (620)
---------- ----------
Net current assets 7,175 8,269
---------- ----------
Net assets 69,892 66,964
---------- ----------
Capital and reserves:
Called-up equity share capital 3,290 3,277
Share premium 2,223 1,348
Capital redemption reserve 113 76
Capital reserve 50,850 54,452
Revaluation reserve 12,124 6,899
Revenue reserve 1,292 912
---------- ----------
Total equity shareholders' funds 69,892 66,964
---------- ----------
Net asset value per share 106.2p 102.2p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017
---------------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 2016 3,277 1,348 76 6,899 54,452 912 66,964
Return on ordinary activities
after tax for the year - - - 5,225 2,658 1,692 9,575
Dividends paid - - - - (5,559) (1,312) (6,871)
Net proceeds of share issues 50 875 - - - - 925
Re-purchase of shares (37) - 37 - (701) - (701)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2017 3,290 2,223 113 12,124 50,850 1,292 69,892
---------- ---------- ---------- ---------- ---------- ---------- ----------
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
Dividends paid - - - - (8,620) (1,653) (10,273)
Re-purchase of shares (41) - 41 - (754) - (754)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2016 3,277 1,348 76 6,899 54,452 912 66,964
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
for the year ended 31 March 2017
Year ended Year ended
31 March 2017 31 March 2016
£000 £000
Cash flows from operating activities:
Return on ordinary activities before tax 9,575 6,836
Adjustments for:
Gain on disposal of investments (1,775) (1,796)
Movement in fair value of investments (7,785) (5,037)
(Increase)/decrease in debtors (400) 3
Increase/(decrease) in creditors 387 423
---------- ----------
Net cash inflow from operating activities 2 429
---------- ----------
Cash flows from investing activities:
Purchase of investments (6,856) (12,320)
Sale/repayment of investments 12,394 10,829
---------- ----------
Net cash inflow/(outflow) from investing activities 5,538 (1,491)
---------- ----------
Cash flows from financing activities:
Issue of shares 951 -
Share issue expenses (26) -
Share subscriptions held pending allotment 4,281 -
Repurchase of ordinary shares for cancellation (701) (754)
Dividends paid on ordinary shares (6,871) (10,273)
---------- ----------
Net cash outflow from financing activities (2,366) (11,027)
---------- ----------
Net increase/(decrease) in cash/cash equivalents 3,174 (12,089)
Cash and cash equivalents at beginning of year 8,637 20,726
---------- ----------
Cash and cash equivalents at end of year 11,811 8,637
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2017
Cost £000 Valuation £000 % of net assets by value
Venture capital investments:
Entertainment Magpie Group 1,360 4,657 6.7
No 1 Lounges 1,748 3,511 5.0
IDOX* 530 3,060 4.4
Optilan Group 1,125 2,751 3.9
MSQ Partners Group 1,478 2,628 3.8
Buoyant Upholstery 1,294 2,518 3.6
Lineup Systems 974 2,470 3.5
Volumatic Holdings 1,595 1,678 2.4
It's All Good 1,131 1,656 2.4
Agilitas IT Holdings 1,448 1,625 2.3
Wear Inns 1,406 1,589 2.2
Closerstill Group 1,520 1,520 2.2
Axial Systems Holdings 1,293 1,463 2.1
Biological Preparations Group 1,915 1,412 2.0
Graza 1,375 1,375 2.0
---------- ---------- --------
Fifteen largest venture capital investments 20,192 33,913 48.5
Other venture capital investments 22,534 20,356 29.1
---------- ---------- --------
Total venture capital investments 42,726 54,269 77.6
Listed equity investments 7,867 8,448 12.1
---------- ---------- --------
Total fixed asset investments 50,593 62,717 89.7
----------
Net current assets 7,175 10.3
---------- --------
Net assets 69,892 100.0
---------- --------
*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 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.
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 directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
In relation to the financial statements for the year ended 31 March 2017, the
directors confirm that to the best of their knowledge (i) taken as a whole 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; and (ii) the strategic report and
directors' 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 they face. The directors consider
that 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 position and performance, business model
and strategy.
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 2017 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 65,796,762 (2016
65,999,656) 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 2017 divided by the 65,797,970 (2016 65,533,399) 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 2017 will be paid on 21 July 2017 to shareholders on the register at
the close of business on 23 June 2017.
The full annual report including financial statements for the year ended 31
March 2017 is expected to be posted to shareholders on 16 June 2017 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 Corporate Solutions on behalf of
Nasdaq 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.
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