REG-Half-year Report <Origin Href="QuoteRef">NTN.L</Origin>
14/11/2017 15:43
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14 NOVEMBER 2017
NORTHERN 3 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017
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 2016 and 31 March
2017)
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
Net assets £68.7m £70.6m £69.9m
Net asset value per share 98.0p 107.1p 106.2p
Return per share: 1.5p 1.2p 2.6p
Revenue Capital Total (1.2)p 12.3p 12.0p
0.3p 13.5p 14.6p
Dividend per share declared/paid 2.0p 2.0p 10.5p
in respect of the period (31 March 2017 includes 5.0p special dividend)
Cumulative returns to shareholders 98.0p 107.1p 106.2p
since launch: 83.9p 73.4p 75.4p
Net asset value per share Dividends paid per share* Net asset value plus dividends paid per share 181.9p 180.5p 181.6p
Mid-market share price at end of period 93.0p 91.5p 101.0p
Share price discount to net asset value 5.1% 14.6% 4.9%
Tax-free dividend yield (based on mid-market
share price at end of period):
Excluding special dividend Including special dividend 5.9% 6.0% 5.4%
N/A N/A 10.4%
*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
The unaudited net asset value (NAV) per share at 30 September 2017 was 98.0
pence (31 March 2017 (audited) 106.2 pence). The September figure is stated
after deducting the second interim and final dividends totalling 8.5 pence per
share in respect of the year ended 31 March 2017, which were paid in July 2017
and therefore recognised in the September 2017 half-yearly accounts. The
second interim dividend of 5.0 pence was a special payment, following further
successful sales of holdings from the venture capital portfolio.
Taking account of the reduction in NAV resulting from the dividend payments,
the operating outcome for the six month period was marginally positive with
the income statement showing a return per share of 0.3p after a very strong
advance in the preceding 12 months.
The directors have declared an unchanged interim dividend of 2.0 pence per
share for the year ending 31 March 2018, which will be paid on 26 January 2018
to shareholders on the register at the close of business on 5 January 2018.
Investment portfolio
Four new holdings in VCT-qualifying unquoted companies were acquired during
the period at a cost of £2.6 million, as follows:
* Velocity Composites (£95,000) - AIM-quoted manufacturer of material kits
for aircraft production, Burnley
* Knowledgemotion (£958,000) - educational video aggregator and distributor,
London
* Contego Fraud Solutions (£481,000) - identity verification system provider,
Oxford
* Volo Commerce (£1,088,000) - enterprise resource planning platform for
online merchants, London
A second round of funding was provided for existing investee company Sorted
Holdings (£760,000).
Subsequent to 30 September 2017 new investments have been completed in Angle
(AIM-quoted, £131,000) and Soda Software Labs (£1,301,000).
Proceeds from investment sales and repayments amounted to £6.4 million,
producing a gain of £0.6 million over 31 March 2017 carrying values. The
investment in Optilan Group was sold in a secondary buy-out transaction to
Blue Water Energy for £2.8 million, and a further £2.2 million was released
on the liquidation of five companies which were originally set up in 2015 with
a view to commencing VCT-qualifying activities but as it turned out were not
able to do so. In the AIM-quoted portfolio the remaining investment in
Gear4music (Holdings) was sold, as was the investment in Hayward Tyler prior
to an agreed takeover by Avingtrans.
Our managers continue to monitor the venture capital portfolio closely. As
expected, the composition of the portfolio is changing gradually, reflecting
the earlier-stage nature of the new investments which are being completed
under the revised VCT regulations. This is likely to give rise to greater
fluctuations in valuations over time, and there have already been some
instances of movements in both directions. Overall the condition of the
portfolio remains satisfactory.
Share issues and buy-backs
In September 2017 we launched a public offer of new shares, our first
significant offer for over four years, to raise up to £20 million for the
next phase of the company's investment activities. Northern Venture Trust
and Northern 2 VCT launched similar offers in conjunction with ours. The
response from investors has been very good, despite a number of competing
issues from other VCT houses during the same period, and the offer is already
almost fully subscribed. Over 50% of the amount invested came from existing
shareholders in Northern 3 VCT, who were given priority in the offer, and we
would like to thank both them and our new shareholders for their support and
confidence in the company. We now have a very strong store of liquidity for
our future investment programme.
It remains our policy to buy back the company's shares in the market at a
discount of 5% to NAV, and 569,000 shares were re-purchased for cancellation
during the six months ended 30 September 2017 at a cost of £530,000.
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 Philip Hare &
Associates LLP.
VCT legislation
The Government has continued to consult on the subject of how best to provide
long-term financial investment for smaller unquoted companies in the UK, and
our managers and their colleagues in the VCT sector have played a full part in
making representations to HM Treasury concerning the key role played by VCTs
over the past 20 years. We wait to see whether the outcome of the
consultation leads to any changes in the VCT legislation when the Chancellor
makes his Budget announcement on 22 November 2017. In the meantime NVM has
continued to develop its investment resources to address the need to focus
activity on earlier-stage businesses. As previously indicated, the
VCT-qualifying investments made in previous years in later-stage companies are
not affected by the recent legislation, except that many of them are no longer
eligible for "follow-on" funding rounds.
Prospects
The financial markets have been remarkably buoyant over the past year despite
concerns about future prospects for the UK economy and the political situation
in Europe and further afield. We do not expect the recent marginal increase
in interest rates to have a significant impact on the companies we have
invested in, and the flow of potential new investments currently appears
healthy.
On behalf of the Board
James Ferguson
Chairman
The unaudited half-yearly financial statements for the six months ended 30
September 2017 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 30 September 2017
Six months ended 30 September 2017 Six months ended 30 September 2016
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 580 580 - 492 492
Movements in fair value of investments - (986) (986) - 7,975 7,975
---------- ---------- ---------- ---------- ---------- ----------
- (406) (406) - 8,467 8,467
Income 1,525 - 1,525 1,201 - 1,201
Investment management fee (187) (562) (749) (173) (517) (690)
Other expenses (156) - (156) (150) - (150)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities before tax 1,182 (968) 214 878 7,950 8,828
Tax on return on ordinary activities (152) 152 - (105) 105 -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities after tax 1,030 (816) 214 773 8,055 8,828
---------- ---------- ---------- ---------- ---------- ----------
Return per share 1.5p (1.2)p 0.3p 1.2p 12.3p 13.5p
Dividend per share for the period 1.0p 1.0p. 2.0p 1.0p 1.0p 2.0p
Year ended 31 March 2017
Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 1,775 1,775
Movements in fair value of investments - 7,785 7,785
---------- ---------- ----------
- 9,560 9,560
Income 2,626 - 2,626
Investment management fee (354) (1,951) (2,305)
Other expenses (306) - (306)
---------- ---------- ----------
Return on ordinary activities before tax 1,966 7,609 9,575
Tax on return on ordinary activities (274) 274 -
---------- ---------- ----------
Return on ordinary activities after tax 1,692 7,883 9,575
---------- ---------- ----------
Return per share 2.6p 12.0p 14.6p
Dividend per share for the period 2.0p 8.5p 10.5p
BALANCE SHEET
(unaudited) as at 30 September 2017
30 September 2017 £000 30 September 2016 £000 31 March 2017 £000
Fixed assets:
Investments 58,867 68,849 62,717
---------- ---------- ----------
Current assets:
Debtors 560 251 652
Cash and deposits 9,324 1,542 11,811
---------- ---------- ----------
9,884 1,793 12,463
Creditors (amounts falling due
within one year) (76) (85) (5,288)
---------- ---------- ----------
Net current assets 9,808 1,708 7,175
---------- ---------- ----------
Net assets 68,675 70,557 69,892
---------- ---------- ----------
Capital and reserves:
Called-up equity share capital 3,502 3,294 3,290
Share premium 7,011 2,074 2,223
Capital redemption reserve 141 100 113
Capital reserve 46,051 50,756 50,850
Revaluation reserve 10,345 13,300 12,124
Revenue reserve 1,625 1,033 1,292
---------- ---------- ----------
Total equity shareholders' funds 68,675 70,557 69,892
---------- ---------- ----------
Net asset value per share 98.0p 107.1p 106.2p
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 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 2017 3,290 2,223 113 12,124 50,850 1,292 69,892
Return on ordinary activities
after tax for the period - - - (1,779) 963 1,030 214
Dividends paid - - - - (5,232) (697) (5,929)
Net proceeds of share issues 240 4,788 - - - - 5,028
Shares re-purchased
for cancellation (28) - 28 - (530) - (530)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2017 3,502 7,011 141 10,345 46,051 1,625 68,675
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 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 2016 3,277 1,348 76 6,899 54,452 912 66,964
Return on ordinary activities
after tax for the period - - - 6,401 1,654 773 8,828
Dividends paid - - - - (4,900) (652) (5,552)
Net proceeds of share issues 41 726 - - - - 767
Shares re-purchased
for cancellation (24) - 24 - (450) - (450)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2016 3,294 2,074 100 13,300 50,756 1,033 70,557
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
(unaudited) 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 period - - - 5,225 2,658 1,692 9,575
Dividends paid - - - - (5,559) (1,312) (6,871)
Net proceeds of share issues 50 875 - - - - 925
Shares re-purchased
for cancellation (37) - 37 - (701) - (701)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2017 3,290 2,223 113 12,124 50,850 1,292 69,892
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
(unaudited) for the six months ended 30 September 2017
Six months ended Six months ended Year ended
30 September 2017 30 September 2016 31 March 2017
£000 £000 £000
Cash flows from operating activities:
Return on ordinary activities before tax 214 8,828 9,575
Adjustments for:
Gain on disposal of investments (580) (492) (1,775)
Movement in fair value of investments 986 (7,975) (7,785)
Decrease/(increase) in debtors 92 1 (400)
(Decrease)/increase in creditors (932) (535) 387
---------- ---------- ----------
Net cash inflow/(outflow) from operating activities (220) (173) 2
---------- ---------- ----------
Cash flows from investing activities:
Purchase of investments (3,703) (5,547) (6,856)
Sale/repayment of investments 7,146 3,860 12,394
---------- ---------- ----------
Net cash inflow/(outflow) from investing activities 3,443 (1,687) 5,538
---------- ---------- ----------
Cash flows from financing activities:
Issue of ordinary shares 5,117 775 951
Share issue expenses (87) (8) (26)
Share subscriptions held pending allotment (4,281) - 4,281
Repurchase of ordinary shares for cancellation (530) (450) (701)
Equity dividends paid (5,929) (5,552) (6,871)
---------- ---------- ----------
Net cash outflow from financing activities (5,710) (5,235) (2,366)
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalents (2,487) (7,095) 3,174
Cash and cash equivalents at beginning of period 11,811 8,637 8,637
---------- ---------- ----------
Cash and cash equivalents at end of period 9,324 1,542 11,811
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2017
Company Cost £000 Valuation £000 % of net assets by valuation
Fifteen largest venture capital investments:
No 1 Lounges 1,748 3,412 5.0
Entertainment Magpie Group 1,360 3,167 4.6
IDOX* 530 2,820 4.1
Buoyant Upholstery 1,294 2,518 3.7
Lineup Systems 974 2,468 3.6
Sorted Holdings 1,521 2,372 3.5
MSQ Partners Group 1,478 2,286 3.3
Agilitas IT Holdings 1,448 1,725 2.5
Biological Preparations Group 1,915 1,671 2.4
Closerstill Group 1,520 1,660 2.4
It's All Good 1,131 1,656 2.4
Wear Inns 1,406 1,589 2.3
Volumatic Holdings 1,423 1,555 2.3
ECO Animal Health Group* 497 1,426 2.1
Love Saving Group 1,017 1,399 2.0
---------- ---------- -------
19,262 31,724 46.2
Other venture capital investments 22,078 19,538 28.4
---------- ---------- -------
Total venture capital investments 41,340 51,262 74.6
Listed equity investments 7,182 7,605 11.1
---------- ---------- -------
Total fixed asset investments 48,522 58,867 85.7
----------
Net current assets 9,808 14.3
---------- -------
Net assets 68,675 100.0
---------- -------
*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: investment in smaller and unquoted companies,
such as those in which the company invests, involves a higher degree of risk
than investment in larger listed companies because they generally have limited
product lines, markets and financial resources and may be more dependent on
their management or key individuals. The securities of smaller companies in
which the company invests are typically unlisted, making them illiquid, and
this may cause difficulties in valuing and disposing of the securities. The
company may invest in businesses whose shares are quoted on AIM - the fact
that a share is quoted on AIM does not mean that it can be readily traded and
the spread between the buying and selling prices of such shares may be wide.
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 may 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 advisers 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: While it is the intention of the directors that
the company will be managed so as to continue to qualify as a VCT, there can
be no guarantee that this status will be maintained. A failure to continue
meeting the qualifying requirements could result in the loss of VCT tax
relief, the company losing its exemption from corporation tax on capital
gains, to shareholders being liable to pay income tax on dividends received
from the company and, in certain circumstances, to shareholders 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 Philip Hare & Associates LLP to undertake
an independent VCT status monitoring role.
OTHER MATTERS
The unaudited half-yearly financial statements for the six months ended 30
September 2017 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 2017 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 2017.
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 69,893,045 (2016
65,685,799) 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 2017 divided by the 70,043,146 (2016 65,880,055) ordinary shares
in issue at that date.
The interim dividend of 2.0 pence per share for the year ending 31 March 2018
will be paid on 26 January 2018 to shareholders on the register at the close
of business on 5 January 2018.
A copy of the half-yearly financial report for the six months ended 30
September 2017 is expected to be posted to shareholders by 1 December 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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