Annual Financial Report
3 JUNE 2011
NORTHERN 3 VCT PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2011
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 - year ended 31 March 2011:
(comparative figures as at 31 March 2010)
                          2011               2010
Net assets  £37.4m  £32.4m
Net asset value per share  92.2p  90.2p
Return per share:
Revenue  1.4p  1.7p
Capital  4.5p  8.2p
Total  5.9p  9.9p
Dividend per share
proposed
in respect of the year:
Revenue  1.4p  1.5p
Capital  3.1p  2.5p
Total  4.5p  4.0p
Cumulative return to
shareholders since
launch:
Net asset value per share  92.2p  90.2p
Dividends paid per share*  28.9p  24.9p
Net asset value plus
dividends
paid per share  121.1p  115.1p
Share price at end of  75p  76p
year
*Excluding second interim dividend payable on 15 July 2011
For further information, please contact:
NVM Private Equity Limited        0191 244 6000
Alastair Conn/Christopher Mellor
Website:Â www.nvm.co.uk
NORTHERN 3 VCT PLC
CHAIRMAN'S STATEMENT
During the past year the UK stock market has continued its steady recovery from
the low point reached in early 2009, but the business environment has remained
difficult for many smaller companies. Although the UK economy is technically no
longer in recession, growth prospects appear modest and the full effect of
planned public sector spending cuts has yet to be felt. Against this
challenging background Northern 3 VCT has made further progress.
Results and dividend
The net asset value (NAV) per share at 31 March 2011 was 92.2p, compared with
90.2p 12 months earlier. The total return for the year as shown in the income
statement was 5.9p per share, equivalent to 6.5% of the opening NAV. Over the
same period the FTSE All-Share index (total return) increased by 8.7%.
An interim dividend of 2.0p per share was paid in January 2011. After careful
consideration the directors have decided to increase the total distribution for
the year to 4.5p, from 4.0p last year. The annual general meeting this year
will be held later than usual, on 14 September 2011, and in order to avoid
delaying receipt of funds by shareholders the directors have declared a second
interim dividend of 2.5p per share, which will be paid on 15 July 2011 to
shareholders on the register on 24 June 2011. Consequently no final dividend is
proposed this year.
It is our long-term objective, subject to the availability of distributable
reserves, to maintain the annual dividend at not less than the new annual level
of 4.5p per share.
Investment portfolio
The performance of the venture capital portfolio has been satisfactory given the
unhelpful conditions affecting many business sectors. Six new venture capital
investments totalling £4.5 million were completed and proceeds received from
investment sales amounted to £2.0 million. An encouraging number of companies
have reported improved trading results and this has resulted in an overall
increase in the valuation of the portfolio.
At the annual general meeting in July 2010 shareholders approved the board's
proposal to widen the company's policy in relation to the investment of funds
held for future venture capital investment. Subsequently some £4.0 million has
been invested in higher-yielding UK blue chip listed equities, which have shown
a modest increase in capital value whilst generating a better income yield than
our cash and fixed-income holdings.
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 retains
PricewaterhouseCoopers LLP as independent advisers on VCT taxation matters.
VAT on management fees
During the year a further £99,000 has been recovered in relation to VAT
previously paid on investment management fees, taking the cumulative total to
£379,000. Our managers continue to pursue a claim against HM Revenue & Customs
for the payment of compound rather than simple interest on VAT repayments, but
it seems likely that this will take a considerable time to resolve.
Shareholder issues
In response to market demand for new VCT share issues, the opportunity was taken
in February 2011 to launch a small top-up issue of new ordinary shares which
raised £2.1 million before expenses. We have maintained our policy of buying
back the company's shares in the market at a 15% discount to NAV, and during the
year 950,000 shares were re-purchased at a cost of £0.7 million.
It is pleasing to note that during the past three years the company has returned
over £7.5 million to shareholders in the form of dividends and share buy-backs
(including the March 2010 tender offer). Your directors intend as far as
possible to maintain a strong flow of funds to shareholders in the future, but
we also believe that it is in shareholders' interests that the asset base of the
company should be preserved from erosion and in the longer term increased. Good
investment performance plays an important part in the achievement of this
objective, but we will also keep other enlargement opportunities under review.
In this connection it has been announced today that discussions are taking place
with the board of Northern AIM VCT, a VCT with net assets of £6.5 million and
which is also managed by NVM Private Equity, with a view to a merger (subject to
shareholder approval) with Northern 3 VCT, which may or may not proceed. If the
merger does proceed then it will be by way of a scheme of reconstruction of
Northern AIM VCT under the Insolvency Act 1986, which would be outside the
provisions of the City Code on Takeovers and Mergers. The companies' portfolios
contain a number of common AIM-quoted and unquoted investments, and shareholders
in the enlarged company would stand to benefit not only from economies of scale
but also from a possible enhancement of the market liquidity of the company's
shares. A further announcement giving more details will be made in due course.
The company's 2011 annual general meeting will take place approximately two
months later than usual in order to coincide with the provisional timing of the
additional general meeting of shareholders that will be required on the
assumption that the merger proposal will proceed.
Outlook
Reference has already been made to the condition of the UK economy, which
reinforces the importance of careful selection of new investments, and effective
management of those we already own. The company's portfolio is maturing
steadily and we believe that it is well positioned to deliver good returns to
shareholders.
James Ferguson
Chairman
The audited financial statements for the year ended 31 March 2011 are set out
below.
INCOME STATEMENT
for the year ended 31 March 2011
 Year ended 31 March 2011 Year ended 31 March 2010
 Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gain on
disposal of
  investments - 778 778 - 1,651 1,651
Movements in
fair value
  of - 1,361 1,361 - 1,058 1,058
investments
 --------- --------- --------- --------- --------- ---------
 - 2,139 2,139 - 2,709 2,709
Income 1,100Â -Â 1,100Â 926Â -Â 926
Investment (173) (603) (776) (130) (390) (520)
management fee
Recoverable 25Â 74Â 99Â -Â -Â -
VAT
Other expenses (268) -Â (268) (217) -Â (217)
 --------- --------- --------- --------- --------- ---------
Return on
ordinary
  activities 684 1,610 2,294 579 2,319 2,898
before tax
Tax on return
on
  ordinary (148) 147 (1) (93) 93 -
activities
 --------- --------- --------- --------- --------- ---------
Return on
ordinary
  activities 536 1,757 2,293 486 2,412 2,898
after tax
 --------- --------- --------- --------- --------- ---------
Return per 1.4p 4.5p 5.9p 1.7p 8.2p 9.9p
share
Dividends
paid/proposed
in respect of 1.4p 3.1p 4.5p 1.5p 2.5p 4.0p
the year
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2011
 Year ended Year ended
31 March 2011Â 31 March 2010
£000 £000
Equity shareholders' funds at 1 April 2010 32,412Â 24,323
Return on ordinary activities after tax 2,293Â 2,898
Dividends recognised in the year (1,556) (1,157)
Net proceeds of share issues 5,002Â 9,073
Shares purchased for cancellation (723) (2,725)
 --------- ---------
Equity shareholders' funds at 31 March 2011 37,428Â 32,412
 --------- ---------
BALANCE SHEET
as at 31 March 2011
  31 March 2011 31 March 2010
£000 £000
Venture capital investments
  Unquoted  20,347 15,414
  Quoted  2,669 2,362
  --------- ---------
Total venture capital investments  23,016 17,776
Listed equity investments  4,237 -
Listed fixed-interest investments  6,493 5,002
  --------- ---------
Total fixed asset investments  33,746 22,778
  --------- ---------
Current assets:
  Debtors  397 317
  Cash and deposits  3,940 9,510
  --------- ---------
  4,337 9,827
Creditors (amounts falling due
  within one year)  (655) (193)
  --------- ---------
Net current assets  3,682 9,634
  --------- ---------
Net assets  37,428 32,412
  --------- ---------
Capital and reserves:
Called-up equity share capital  2,029 1,796
Share premium  21,378 16,656
Capital redemption reserve  392 345
Capital reserve  12,307 14,488
Revaluation reserve  743 (1,227)
Revenue reserve  579 354
  --------- ---------
Total equity shareholders' funds  37,428 32,412
  --------- ---------
Net asset value per share  92.2p 90.2p
CASH FLOW STATEMENT
for the year ended 31 March 2011
  Year ended Year ended
31 March 2011Â 31 March 2010
   £000 £000 £000 £000
Cash flow
statement
Net cash inflow
from
  operating    197  868
activities
Taxation:
Corporation tax    -  (174)
paid
Financial
investment:
Purchase of   (12,741)  (9,818)
investments
Sale/repayment of
  investments   4,251  10,658
   ---------  ---------
Net cash inflow/(outflow)
  from financial   (8,490)  840
investment
Equity dividends    (1,556)  (1,157)
paid
    ---------  ---------
Net cash inflow/(outflow)
  before financing   (9,849)  377
Financing:
Issue of shares   5,301  9,602
Share issue   (299)  (529)
expenses
Purchase of
shares
  for   (723)  (2,725)
cancellation
   ---------  ---------
Net cash inflow from   4,279  6,348
financing
    ---------  ---------
Increase/(decrease) in cash and  (5,570)  6,725
deposits
    ---------  ---------
Reconciliation of return
before tax to net cash
flow from
operating
activities
Return on ordinary
  activities    2,294  2,898
before tax
Gain on disposal of   (778)  (1,651)
investments
Movements in fair value   (1,361)  (1,058)
of investments
(Increase)/decrease in   (80)  531
debtors
Increase in creditors   122  148
    ---------  ---------
Net cash inflow
from
  operating    197  868
activities
    ---------  ---------
Reconciliation of
movement
in net funds
 1 April 2010 Cash flows 31 March 2011
  £000  £000  £000
Cash and deposits  9,510  (5,570)  3,940
  ---------  ---------  ---------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2011
 Cost Valuation % of net assets
£000 £000 by value
Fifteen largest venture capital investments
Kerridge Commercial Systems 1,244 2,168 5.8
Promanex Group Holdings 1,695 2,134 5.7
CloserStill Holdings 743 1,129 3.0
Axial Systems Holdings 1,004 1,141 3.0
Kitwave One 1,000 1,000 2.7
Evolve Investments 995 995 2.7
RCC Lifesciences 995 995 2.7
Wear Inns 839 839 2.2
Cawood Scientific 825 825 2.2
Paladin Group 861 797 2.1
Advanced Computer Software Group* 381 783 2.1
Control Risks Group Holdings 746 746 2.0
IG Doors 371 726 1.9
IDOX* 298 705 1.9
Promatic Group 701 701 1.9
 --------- --------- --------
 12,698 15,684 41.9
Other venture capital investments 9,506 7,331 19.6
 --------- --------- --------
Total venture capital investments 22,204 23,015 61.5
Listed equity investments 3,987 4,237 11.3
Listed fixed-interest investments 6,473 6,494 17.4
 --------- --------- --------
Total fixed asset investments 32,664 33,746 90.2
 ---------
Net current assets  3,682 9.8
  --------- --------
Net assets  37,428 100.0
  --------- --------
*Quoted on AIM
BUSINESS RISKS
The board carries out a regular review of the risk environment in which the
company operates. The principal risks and uncertainties identified by the board
are as follows:
Investment risk:Â The majority 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. The directors aim to limit
the risk attaching to the portfolio as a whole by careful selection and timely
realisation of investments, by carrying out rigorous due diligence procedures
and by maintaining a wide spread of holdings in terms of financing stage and
industry sector. The board reviews the investment portfolio with the investment
managers on a regular basis.
Financial risk:Â As most of the company's investments involve a medium to long-
term commitment and many are relatively illiquid, the directors consider that it
is inappropriate to finance the company's activities through borrowing except on
an occasional short-term basis. The company has very little exposure to foreign
currency risk and does not enter into derivative transactions.
Economic risk:Â Events such as economic recession or general fluctuations 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.
Stock market risk: Â Some of the company's investments are quoted on the AIM
market and will be subject to market fluctuations upwards and downwards.
 External factors such as terrorist activity can negatively impact stock markets
worldwide and the AIM market is no exception to this. In times of adverse
sentiment there tends to be very little, if any, market demand for shares in the
smaller companies quoted on AIM.
Liquidity risk: The company's investments may be difficult to realise. The
fact that a stock is quoted on AIM does not guarantee its liquidity and there
may be a large spread between bid and offer prices. Unquoted investments are
not traded on a recognised stock exchange and are inherently illiquid.
Internal control risk:Â The board regularly reviews the system of internal
controls, both financial and non-financial, operated by the company and the
manager. Â These include controls designed to ensure that the company's assets
are safeguarded and that proper accounting records are maintained.
VCT qualifying status risk:Â 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. Â The manager keeps the company's VCT qualifying
status under continual review and reports to the board on a quarterly basis.
 The board has also retained PricewaterhouseCoopers LLP to undertake an
independent VCT status monitoring role.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Â Under that law the directors have elected to prepare the
financial statements in accordance with UK Accounting Standards and applicable
law (UK Generally Accepted Accounting Practice).
Under company law the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the company and of the profit or loss of the company for the period.
In preparing these financial statements, the directors are required to (i)
select suitable accounting policies and then apply them consistently;Â (ii) make
judgements and estimates that are reasonable and prudent;Â (iii) state whether
applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements; Â 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 also 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. Â 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, directors' remuneration report and corporate
governance statement that comply with that law and those regulations.
In relation to the financial statements for the year ended 31 March 2011, each
of the directors has confirmed that to the best of his knowledge (i) the
financial statements, which have been prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the company;Â and (ii) the
directors' report includes 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 which it faces.
The company's financial statements are published on the NVM Private Equity
Limited website, www.nvm.co.uk. The maintenance and integrity of this website
is the responsibility of NVM and not of the company. Visitors to the website
should be aware that legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
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 2011 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;Â the independent auditors' report on those financial
statements under Section 495 of the Companies Act 2006 is unqualified and does
not contain a statement under Section 498(2) or (3) of the Companies Act 2006.
The second interim dividend of 2.5p per share which has been declared in respect
of the year ended 31 March 2011 will be paid on 15 July 2011 to shareholders on
the register at the close of business on 24 June 2011. The directors do not
propose the payment of a final dividend.
The full annual report including financial statements for the year ended 31
March 2011 is expected to be posted to shareholders on 24 June 2011 and will be
available to the public at the registered office of the company at
Northumberland House, Princess Square, Newcastle upon Tyne NE1 8ER and on the
NVM Private Equity Limited website.
Neither the contents of the NVM Private Equity Limited website nor the contents
of any website accessible from hyperlinks on the NVM Private Equity Limited
website (or any other website) is incorporated into, or forms part of, this
announcement.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Northern 3 VCT PLC via Thomson Reuters ONE
[HUG#1521162]
Latest directors dealings
- 10 hours ago Capricorn Energy
- 11 hours ago Manchester & London Investment Trust
- 11 hours ago Barclays
- 11 hours ago Phoenix Group Holdings
- 11 hours ago Shell