Northern 3 Vct Regulatory News (NTN)

17 Nov 2006 12:56

Northern 3 VCT PLC17 November 2006 17 NOVEMBER 2006 NORTHERN 3 VCT PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2006 Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by Northern VentureManagers. The trust invests mainly in unquoted venture capital holdings andaims to provide high long-term tax-free returns to shareholders through acombination of dividend yield and capital growth. Financial highlights - year ended 30 September 2006: (comparative figures as at 30 September 2005, re-stated where appropriate, initalics) 2006 2005• Net assets £29.3m £30.1m• Net asset value per share 95.2p 95.8p• Return per share: Revenue 2.4p 2.4p Capital 0.5p 0.7p Total 2.9p 3.1p • Dividend per share declared in respect of the year: Revenue 2.0p 2.0p Capital 2.0p 0.4p Total 4.0p 2.4p• Cumulative return to shareholders since launch: Net asset value per share 95.2p 95.8p Dividends paid per share* 10.9p 7.2p Net asset value plus dividends paid per share 106.1p 103.0p• Share price at end of year 83.0p 87.0p * Excluding proposed dividend not yet paid For further information, please contact:Northern Venture Managers LimitedAlastair Conn, Managing Director 0191 244 6000Website: www.nvm.co.ukLansons CommunicationsAlison Boucher 020 7294 3616 NORTHERN 3 VCT PLC CHAIRMAN'S STATEMENT The chairman of Northern 3 VCT PLC, John Hustler, included the following pointsin his statement to shareholders: I am pleased to report that the company has been able to declare an increaseddividend of 4.0p per share in respect of the year ended 30 September 2006. Theincrease in the company's size as a result of the share issues in the precedingyear has allowed us to take a larger share of the unquoted investmentopportunities developed by our managers, and has led to a welcome reduction inthe total expense ratio. Your board views the future with confidence. Financial results There have been some changes in the way in which the company's annual financialstatements are presented, as a result of new UK accounting standards. Lastyear's Profit and Loss Account, Statement of Total Recognised Gains and Lossesand Note of Historical Cost Profits and Losses have been replaced by an IncomeStatement which includes all recognised gains and losses and, I believe, gives abetter overall picture of the results for the year. Quoted investments are nowvalued at bid rather than mid-market price and proposed dividends are no longerincluded in the year-end balance sheet. The comparative figures for the yearended 30 September 2005 have been re-stated accordingly. The net asset value (NAV) per share at 30 September 2006 was 95.2p, a slightreduction from the re-stated figure of 95.8p as at 30 September 2005. The NAVis stated after dividends of 3.7p per share which were charged to reservesduring the year. The revenue return after tax was 2.4p, unchanged from theprevious year. The directors have declared a second interim dividend ratherthan a final dividend, for reasons explained below; the second interim dividendwill be 2.0p per share, of which 1.0p represents revenue and 1.0p a distributionof capital gains. This makes a total of 4.0p for the year (2.0p revenue and2.0p capital), compared with 2.4p (2.0p revenue and 0.4p capital) last year.The second interim dividend will be paid on 19 January 2007 to shareholders onthe register on 15 December 2006. Investment portfolio The Business Review in the annual report gives details of developments in theinvestment portfolio during the year. Eight new venture capital investmentswere completed during the year at a total cost of £2.8 million. The rate of newinvestment was lower than expected, reflecting competitive market conditionsfollowing the large inflow of cash into the VCT sector generally over the pasttwo years. Our managers have maintained an appropriate quality threshold inassessing new investments and have strengthened their investment team in orderto increase the flow of opportunities. I am pleased to report that entering thenew financial year we currently have two proposed new investments each of £1million at an advanced stage of due diligence, with an encouraging list offurther work in progress. Your directors and managers are conscious of the needto maintain a strong flow of new investments in order to satisfy the VCTqualifying conditions. During the year successful exits were achieved from the investments in OmnicoPlastics and AFI Aerial Platforms, generating capital profits for distributionto shareholders. As I reported at the interim stage, we also suffered thewrite-off of our investment in SMS Agencies which went into administrationfollowing a period of poor trading results. Shareholder issues The company has continued to buy back shares in the market for cancellation at a10% discount to net asset value. During the year to 30 September 2006 a totalof 857,930 shares, representing approximately 2.7% of the issued ordinarycapital at the beginning of the year, were re-purchased at a cost of £745,000 -an average of 86.8p per share. The introduction of 40% income tax relief on new VCT investment in the 2004/05tax year appears to have resulted in a reduction in the secondary market demandfor VCT shares. We believe that in the longer term it is important that anactive market in VCT shares should be encouraged, and with a view to improvingthe way in which the benefits of VCT investment are communicated to theinvesting public we have recently (together with approximately 70 other VCTs)joined the Association of Investment Companies. The dividend investment scheme introduced two years ago has continued tooperate, enabling shareholders to re-invest their dividend in new ordinaryshares with the benefit of VCT tax reliefs at the current rates. A number ofVCTs have announced the suspension of dividend schemes in response to VCT rulechanges in the Finance Act 2006, but your board believes that the scheme remainsviable under the new legislation and intends to continue it. Shareholdersinterested in joining the scheme should contact the company secretary forfurther information. VCT qualifying status Your board, advised by PricewaterhouseCoopers LLP, has continued to monitorclosely the company's progress towards meeting the qualifying investmentrequirements laid down in the VCT legislation, and we are satisfied that thecompany's VCT qualifying status has been maintained. Under the VCT rules the proceeds of the share issues in our financial year ended30 September 2005 are required to be at least 70% invested in qualifyingholdings by 30 September 2007, the date on which the company's third financialyear end following the issue falls. This means that in practice the companywill have had only 21/2 years to achieve the required investment level. Inorder to increase the time available to as near three years as possible, it isthe directors' intention to extend the company's financial year ending 30September 2007 by changing the accounting year end to 31 March, so that the nextaudited accounts will be drawn up for the 18 months ending 31 March 2008.Unaudited interim accounts will be published for the six months ending 31 March2007 and the 12 months ending 30 September 2007. In order to comply with theCompanies Act rules relating to the timing and frequency of annual generalmeetings, it is proposed that the 2007 annual general meeting will be held inApril 2007 and the 2008 meeting in July 2008. So as to avoid a delay in receiptby shareholders, the dividend scheduled to be paid in January 2007 will take theform of a second interim dividend for the year ended 30 September 2006, whichdoes not require the approval of shareholders in general meeting, and there willbe no final dividend. It is intended that dividends for future periods willcontinue to be paid half-yearly in July and January. Management performance incentive Last year I reported that the directors had decided, after consultation with theboards of the other funds managed by Northern Venture Managers, to introduce anew performance incentive scheme under which NVM's investment executivesco-invest alongside the funds in new venture capital investments. The schemecame into effect in April 2006 and we will keep its operation under regularreview. We also took the opportunity to reduce NVM's annual management fee from2.5% to 2.0% of net assets, but with a mechanism for an additionalperformance-related fee of up to 1.0% depending on the margin by which annualtargets set by the board are exceeded. The minimum target for the year underreview was a total return equivalent to 3.5% of opening net asset value pershare; only 3.2% was achieved and accordingly no performance fee is payable.The target for the year ending 30 September 2007 is a total return of 4.5%. Future prospects The priority for our managers in the next 18 months is to achieve an increase inthe rate of new investment whilst maintaining a satisfactory quality standard.The number of new opportunities currently under review is encouraging. At thesame time the portfolio of existing investments is becoming increasingly matureand this should present opportunities for the realisation of gains fordistribution by way of dividend, so enhancing the tax-free dividend yield whichyour directors believe should in the medium term help to improve the marketliquidity of the company's shares. John Hustler Chairman The audited financial statements for the year ended 30 September 2006 will showthe results set out below. INCOME STATEMENTfor the year ended 30 September 2006 Year ended 30 September 2006 Year ended 30 September 2005 Re-stated Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 (Loss)/gain on disposal of investments - (106) (106) - 29 29Unrealised adjustments to fair value of - 605 605 - 491 491investments ----------- ----------- ----------- ----------- ----------- ----------- - 499 499 - 520 520Income 1,372 - 1,372 1,232 - 1,232Investment management fee (167) (502) (669) (158) (475) (633)Other expenses (180) - (180) (180) - (180) ----------- ----------- ----------- ----------- ----------- ----------- Return on ordinary activities before tax 1,025 (3) 1,022 894 45 939Tax on return on ordinary activities (265) 160 (105) (233) 152 (81) ----------- ----------- ----------- ----------- ----------- ----------- Return on ordinary activities after tax 760 157 917 661 197 858 ----------- ----------- ----------- ----------- ----------- ----------- Return per share 2.4p 0.5p 2.9p 2.4p 0.7p 3.1p RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSfor the year ended 30 September 2006 Year ended 30 Year ended 30 September 2006 September 2005 Re-stated Total Total £000 £000Equity shareholders' funds at 1 October 2005 As previously reported 29,610 20,802 Prior year adjustment 526 865 ----------- ----------- As re-stated 30,136 21,667 Return on ordinary activities after tax 917 858Dividends recognised in the year (1,153) (1,098)Net proceeds of share issues 126 9,208Shares purchased for cancellation (745) (499) ----------- -----------Equity shareholders' funds at 30 September 2006 29,281 30,136 ----------- ----------- BALANCE SHEETas at 30 September 2006 30 September 30 September 2006 2005 Re-stated £000 £000Venture capitalinvestments: Unquoted 10,012 8,433 Quoted 1,997 1,301 ----------- ----------- 12,009 9,734Listed fixed-interest 13,229 14,308investments ----------- -----------Total fixed asset 25,238 24,042investments ----------- -----------Current assets: Debtors 600 617 Cash at bank 3,606 5,631 ----------- ----------- 4,206 6,248Creditors (amountsfalling due within one year) (163) (154) ----------- -----------Net current assets 4,043 6,094 ----------- ----------- Net assets 29,281 30,136 ----------- ----------- Capital and reserves:Called-up equity share 1,538 1,573capitalShare premium 22,759 22,641Capital redemption 77 34reserveCapital reserve: Realised 3,703 5,031 Unrealised 629 324Revenue reserve 575 533 ----------- -----------Total equity 29,281 30,136shareholders' funds ----------- -----------Net asset value per 95.2p 95.8pshare CASH FLOW STATEMENTfor the year ended 30 September 2006 Year ended Year ended 30 September 2006 30 September 2005 Re-stated £000 £000 £000 £000Net cash inflow from operating activities 525 204Taxation:Corporation tax paid (81) (24)Financial investment:Purchase of (9,740) (17,372)investmentsSale/repayment of 9,043 6,028investments ----------- ----------- Net cash outflow from financial investment (697) (11,344)Equity dividends paid (1,153) (1,098) ----------- ----------- Net cash outflowbefore financing (1,406) (12,262)Financing:Issue of ordinary 145 9,698sharesShare issue expenses (19) (490)Purchase of ordinaryshares for cancellation (745) (499) ----------- ----------- Net cash (outflow)/inflow from financing (619) 8,709 ----------- ----------- Decrease in cash at (2,025) (3,553)bank ----------- ----------- Reconciliation ofreturn beforetax to net cash flowfromoperating activitiesReturn on ordinaryactivities before tax 1,022 939Loss/(gain) ondisposal of investments 106 (29)Unrealised adjustmentsto fair value of (605) (491)investmentsDecrease/(increase) in 17 (222)debtors(Decrease)/increase in (15) 7creditors ----------- ----------- Net cash inflow from operating activities 525 204 ----------- ----------- Analysis of movementin net funds 1 October 2005 Cash flows 30 September 2006 £000 £000 £000Cash at bank 5,631 (2,025) 3,606 ----------- ----------- ----------- INVESTMENT PORTFOLIO SUMMARYas at 30 September 2006 Valuation % of net assets £000 by valuationFifteen largest venture capital investments:John Laing Partnership 1,014 3.5Nightingales Holdings 992 3.4IG Doors 683 2.3Pivotal Laboratories Holdings 679 2.3Envirotec 658 2.2Touchstone Asset Management 593 2.0Longhirst Group 547 1.9Crantock Bakery 442 1.5Abermed Group 375 1.3Arleigh International 346 1.2Arrow Industrial Group 344 1.2KCS Global Holdings 338 1.2Direct Valeting 320 1.1Cello Group* 319 1.1Ithaca Holdings 307 1.0 ----------- ----------- 7,957 27.2Other venture capital investments 4,052 13.8 ----------- -----------Total venture capital investments 12,009 41.0Listed fixed-interest investments 13,229 45.2 ----------- -----------Total fixed asset investments 25,238 86.2Net current assets 4,043 13.8 ----------- -----------Net assets 29,281 100.0 ----------- -----------*Quoted on Alternative Investment Market The above summary of results for the year ended 30 September 2006 does notconstitute statutory financial statements within the meaning of Section 240 ofthe Companies Act 1985 and has not been delivered to the Registrar of Companies. Statutory financial statements will be filed with the Registrar of Companiesin due course; the independent auditors' report on those financial statementsunder Section 235 of the Companies Act 1985 is unqualified and does not containa statement under Section 237(2) or (3) of the Companies Act 1985. The company is required to comply with a number of new UK Financial ReportingStandards (FRS), which now represent UK Generally Accepted Accounting Practice(UK GAAP), in presenting its financial statements for the year ended 30September 2006. These Standards have been introduced as part of the process ofaligning UK accounting principles with International Accounting Standards. The revised accounting policies differ from those used in preparing the annualfinancial statements for the year ended 30 September 2005 in the followingrespects: • The unrealised gain or loss resulting from the revaluation of fixedasset investments held at fair value is now recognised in the income statement,as required by FRS 26 "Financial Instruments: Measurement"; • Quoted investments are valued at bid price rather than mid-marketprice, as required by FRS 26 "Financial instruments: Measurement"; and • Dividends to shareholders are accounted for in the period in whichthe company is liable to pay them, rather than in the period in respect of whichthey are declared, as required by FRS 21 "Events after the Balance Sheet Date".Dividends payable are treated as a charge on reserves and accounted for throughthe reconciliation of movements in shareholders' funds rather than in the profitand loss account as previously. The comparative figures for the year ended 30 September 2005 have been re-statedaccordingly. The effect of the above changes on the reported net assets and net asset valueper share of the company is as follows: 30 September 2005 1 October 2004 Net asset Net asset Net value per Net value per assets share assets share £000 p £000 pAs reported under previous UK GAAP 29,610 94.1 20,802 93.4Less: adjustment in valuation of quoted (9) - (3) -investments to bid priceAdd: proposed dividends not accounted for 535 1.7 868 3.9until declared and paid ----------- ----------- ----------- -----------As reported under revised UK GAAP 30,136 95.8 21,667 97.3 ----------- ----------- ----------- ----------- The second interim dividend of 2.0p per share for the year ended 30 September2006 will be paid on 19 January 2007 to shareholders on the register at theclose of business on 15 December 2006. The full annual report including financial statements for the year ended 30September 2006 is expected to be posted to shareholders on 15 December 2006 andwill be available to the public at the registered office of the company atNorthumberland House, Princess Square, Newcastle upon Tyne NE1 8ER. ENDS This information is provided by RNS The company news service from the London Stock Exchange