TIDMNTN
17 MAY 2018
NORTHERN 3 VCT PLC
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 MARCH 2018
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 2017):
2018 2017
Net assets GBP84.3m GBP69.9m
Net asset value per share 94.0p 106.2p
Return per share:
Revenue 1.9p 2.6p
Capital (4.0)p 12.0p
Total (2.1)p 14.6p
Dividend per share for the year:
First interim dividend 2.0p 2.0p
Second interim (special) dividend - 5.0p
Proposed final dividend 3.5p 3.5p
Total 5.5p 10.5p
Cumulative return to shareholders since launch:
Net asset value per share 94.0p 106.2p
Dividends paid per share* 85.9p 75.4p
Net asset value plus dividends paid per share 179.9p 181.6p
Mid-market share price at end of year 89.5p 101.0p
Share price discount to net asset value 4.8% 4.9%
Tax-free dividend yield (based on mid-market share
price at end of year):
Including special dividend N/A 10.4%
Excluding special dividend 6.1% 5.4%
*Excluding proposed final dividend payable on 20 July 2018
For further information, please contact:
NVM Private Equity LLP
Simon John/James Bryce 0191 244 6000
Website: www.nvm.co.uk
CHAIRMAN'S STATEMENT
Northern 3 VCT has had a productive year during which ten new
VCT-qualifying investments were completed and a successful public share
offer was launched and fully subscribed. As a result, your company is
well positioned to pursue further investment opportunities and to
support its evolving portfolio.
Results and dividend
The net asset value (NAV) per share at 31 March 2018, after deducting
dividends paid during the year, was 94.0p compared with 106.2p as at 31
March 2017. The change in NAV over the year reflects amongst other items,
a revenue return per share of 1.9p, realised gains on investment
disposals of 0.9p per share and a net downward unrealised revaluation
change equivalent to 3.7p per share, as well as the dividends paid of
10.5p per share. The company's NAV total return over five years remains
ahead of the UK equity market total return index which we use as a
comparator.
The directors' policy is to set the annual dividend at a level which is
sustainable, seeking to smooth out the inevitable fluctuations in annual
results. Since 2012, this has resulted in an annual base dividend of
5.5p per share. Your company has significant distributable reserves
brought forward from previous periods and is therefore able to maintain
the dividend for the year under review. 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 makes a total of 5.5p. The proposed
final dividend will, subject to approval by shareholders at the annual
general meeting, be paid on 20 July 2018 to shareholders on the register
on 22 June 2018.
Changes in the VCT rules which came into effect from November 2015 have
meant that the company is required to invest mainly in relatively young
businesses which need funding for growth and development. Typically,
this funding will include a greater proportion of equity rather than
income-yielding debt instruments, which will make future returns to the
company more dependent on the timing of investment sales. As a result,
future dividend payments by the company may be subject to fluctuation,
however we remain conscious of the importance which shareholders attach
to a regular flow of tax-free income.
Investment portfolio
The net unrealised revaluation change for the year across our venture
capital portfolio was a reduction of GBP1.8 million, largely driven by
the performance of a single AIM-quoted investment, Idox, which more than
halved in value during the last five months of our financial year after
announcing contract delays. The company has subsequently made
management and organisational changes which we expect to lead to a
recovery in the share price as market confidence is rebuilt. We
continue to take a long term view of the potential of our AIM-quoted
investments and expect that in some cases, there may be take-overs. For
example, subsequent to the year end an agreed bid has been made for
Cityfibre Infrastructure Holdings at approximately twice the 31 March
2018 market price.
Overall, the valuation of the portfolio of unquoted investments has
increased modestly during the period. Excellent progress has been made
by many companies and positive underlying trading trends have been
reported. A small number of investments with an exposure to the UK
retail and consumer sectors have faced a more challenging environment
and our valuation reflects this.
The rate of new investment has been encouraging over the past year with
ten new VCT-qualifying investments completed at a total cost of GBP8.6
million. Taken with follow-on investments totalling GBP1.2 million, the
overall venture capital investment rate approached GBP10 million for the
year. As mentioned above, the composition of the portfolio is shifting
towards earlier stage investments. This is expected to generate greater
fluctuations in valuations over time given the nature of early stage
investments.
Cash proceeds from the realisation of venture capital investments
totalled GBP7.1 million, much of which was represented by investment
redemptions at or close to cost. Optilan Group was sold in April 2017
and consequently the valuation had been marked up in the previous year.
In the AIM-quoted portfolio, the modest remaining investment in
Gear4music (Holdings) was sold in the market for over four times the
original cost and the holding in Hayward Tyler was sold following an
agreed take-over bid.
Shareholder issues
In November 2017, the company raised GBP20 million of new capital
through a public offer of ordinary shares, launched in conjunction with
similar offers by Northern Venture Trust and Northern 2 VCT. The offer
was fully subscribed in a matter of weeks and we thank all investors for
the vote of confidence shown in Northern 3 VCT.
We have maintained our policy of buying back our shares in the market,
where necessary to maintain market liquidity, at a discount of 5% to
NAV. During the year 1,165,000 shares, equivalent to approximately 1.8%
of the opening share capital, were re-purchased for cancellation at an
average cost of 93p per share.
Our 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
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 and regulation
Frequent legislative change has unfortunately come to be expected by the
VCT industry and the Government again took the opportunity to introduce
amendments to the VCT rules as part of the most recent Autumn Budget
Statement. The rules governing permitted investment structures will
make the provision of debt finance by VCTs to investee companies more
difficult as the Government attempts to ensure that VCT capital is
genuinely at risk. Barriers to accessing capital for so-called
knowledge intensive companies may be reduced with a doubling of the
annual and lifetime investment limits for these businesses. VCTs will
be required to invest 30% of new funds by the end of the year following
the year they are raised, which is likely to encourage smaller and more
frequent share issues in future. We welcome the authorities' declared
intention to speed up the advanced assurance process and hope to see a
tangible difference in this regard.
The company is required to comply with the Packaged Retail and
Insurance-based Investment Products (PRIIPs) Regulation, which came into
effect from January 2018. A key information document (KID) has been
prepared to summarise the purpose, costs and illustrative performance of
Northern 3 VCT for interested market participants. Investment managers
have very little discretion to amend the basis of preparation of the KID,
which is strictly mandated by the relevant regulations. We welcome
increased transparency across the sector but note the risks of basing
future expectations on past performance.
Company secretary
Chris Mellor retired as company secretary of Northern 3 VCT on 31 March
2018, having held that position since the company's formation in 2001.
I would like to thank him on your behalf for the expert and unobtrusive
manner in which he has carried out his duties; we are very grateful to
him. James Bryce, who has joined NVM as head of legal and compliance,
is our new company secretary and we look forward to working with him.
Outlook
Our manager's reaction to the recent changes to the VCT legislation has
been constructive. They have recruited additional members to their
investment team and they will continue to apply the rigorous investment
principles established over many years. Whilst there was a reduction in
investment realisations for the year under review, our manager is
currently considering several promising opportunities for sales and we
remain confident in their ability to deliver good results for
shareholders in the medium to long term.
James Ferguson
Chairman
Extracts from the audited financial statements for the year ended 31 March 2018 are set out below.
INCOME STATEMENT
for the year ended 31 March 2018
Year ended 31 March 2018 Year ended 31 March 2017
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 698 698 - 1,775 1,775
Movements in
fair value
of
investments - (2,892) (2,892) - 7,785 7,785
---------- ---------- ---------- ---------- ---------- ----------
- (2,194) (2,194) - 9,560 9,560
Income 2,436 - 2,436 2,626 - 2,626
Investment
management
fee (384) (1,150) (1,534) (354) (1,951) (2,305)
Other
expenses (335) (11) (346) (306) - (306)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax 1,717 (3,355) (1,638) 1,966 7,609 9,575
Tax on
return on
ordinary
activities (209) 209 - (274) 274 -
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 1,508 (3,146) (1,638) 1,692 7,883 9,575
---------- ---------- ---------- ---------- ---------- ----------
Return per
share 1.9p (4.0)p (2.1)p 2.6p 12.0p 14.6p
Dividend per 1.5p 4.0p 5.5p 2.0p 8.5p 10.5p
share
BALANCE SHEET
as at 31 March 2018
31 March 2018 31 March 2017
GBP000 GBP000
Fixed assets:
Investments 62,770 62,717
---------- ----------
Current assets:
Debtors 167 652
Cash and cash equivalents 21,458 11,811
---------- ----------
21,625 12,463
Creditors (amounts falling due within one year) (135) (5,288)
---------- ----------
Net current assets 21,490 7,175
---------- ----------
Net assets 84,260 69,892
---------- ----------
Capital and reserves:
Called-up equity share capital 4,483 3,290
Share premium 214 2,223
Capital redemption reserve 171 113
Capital reserve 69,721 50,850
Revaluation reserve 8,463 12,124
Revenue reserve 1,208 1,292
---------- ----------
Total equity shareholders' funds 84,260 69,892
---------- ----------
Net asset value per share 94.0p 106.2p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2018
---------------Non-distributable
reserves--------------- Distributable reserves Total
Capital
Share Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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 year - - - (3,661) 515 1,508 (1,638)
Dividends
paid - - - - (6,127) (1,592) (7,719)
Net proceeds
of share
issues 1,251 23,560 - - - - 24,811
Re-purchase
of shares (58) - 58 - (1,086) - (1,086)
Cancellation
of share
premium (25,569) - - 25,569 - -
reserve -
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2018 4,483 214 171 8,463 69,721 1,208 84,260
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017
---------------Non-distributable
reserves--------------- Distributable reserves Total
Capital
Share Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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 CASH FLOWS
for the year ended 31 March 2018
Year ended Year ended
31 March 2018 31 March 2017
GBP000 GBP000
Cash flows from operating activities:
Return on ordinary activities before
tax (1,638) 9,575
Adjustments for:
Gain on disposal of investments (698) (1,775)
Movement in fair value of investments 2,892 (7,785)
Decrease/(increase) in debtors 485 (400)
(Decrease)/increase in creditors (872) 387
---------- ----------
Net cash inflow from operating
activities 169 2
---------- ----------
Cash flows from investing activities:
Purchase of investments (10,117) (6,856)
Sale/repayment of investments 7,870 12,394
---------- ----------
Net cash (outflow)/inflow from
investing activities (2,247) 5,538
---------- ----------
Cash flows from financing activities:
Issue of ordinary shares 25,357 951
Share issue expenses (546) (26)
Share subscriptions held pending
allotment (4,281) 4,281
Purchase of ordinary shares for
cancellation (1,086) (701)
Equity dividends paid (7,719) (6,871)
---------- ----------
Net cash inflow/(outflow) from
financing activities 11,725 (2,366)
---------- ----------
Net increase in cash/cash equivalents 9,647 3,174
Cash and cash equivalents at
beginning of year 11,811 8,637
---------- ----------
Cash and cash equivalents at end of
year 21,458 11,811
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2018
% of
Cost Valuation net assets
GBP000 GBP000 by value
Venture capital investments:
No 1 Lounges 1,748 2,977 3.5
Lineup Systems 974 2,910 3.5
Entertainment Magpie Group 1,360 2,611 3.1
Sorted Holdings 1,521 2,372 2.8
Agilitas IT Holdings 1,448 2,268 2.7
MSQ Partners Group 1,478 2,226 2.6
Love Saving Group 1,017 2,089 2.5
Closerstill Group 1,520 1,985 2.4
Buoyant Upholstery 907 1,866 2.2
Ideagen* 541 1,695 2.0
Wear Inns 1,406 1,589 1.9
Biological Preparations Group 1,915 1,579 1.9
It's All Good 1,131 1,446 1.7
Volumatic 1,251 1,443 1.7
Medovate 1,432 1,432 1.7
---------- ---------- --------
Fifteen largest venture capital
investments 19,649 30,488 36.2
Other venture capital investments 27,476 25,408 30.1
---------- ---------- --------
Total venture capital investments 47,125 55,896 66.3
Listed equity investments 7,182 6,874 8.2
---------- ---------- --------
Total fixed asset investments 54,307 62,770 74.5
----------
Net current assets 21,490 25.5
---------- --------
Net assets 84,260 100.0
---------- --------
*Quoted on AIM
RISK MANAGEMENT
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 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 and to make follow-on
investments in existing portfolio companies. 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, exchange rates 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 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: whilst 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.
DIRECTORS' RESPONSIBILITIES
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; (iv) assess the company's ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern; and (v) prepare the financial statements on the going concern
basis unless they either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
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 are responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and 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.
The directors have confirmed 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 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 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 2018 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
77,868,025 (2017: 65,796,762) 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 2018 divided by the 89,662,373 (2017: 65,797,970)
ordinary shares in issue at that date.
If approved by shareholders, the proposed final dividend of 3.5p per
share for the year ended 31 March 2018 will be paid on 20 July 2018 to
shareholders on the register at the close of business on 22 June 2018.
The full annual report including financial statements for the year ended
31 March 2018 is expected to be posted to shareholders on 8 June 2018
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.
Source: Northern 3 VCT PLC via Globenewswire
http://www.nvm.co.uk/investorarea/northern_3_vct_plc.php
(END) Dow Jones Newswires
May 17, 2018 10:35 ET (14:35 GMT)
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