Final Results

Northern 3 VCT PLC 21 November 2003 21 NOVEMBER 2003 NORTHERN 3 VCT PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2003 Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by Northern Venture Managers. The trust was launched in September 2001 and its public share offers have to date raised a total of £17.6 million. The trust intends to invest mainly in unquoted venture capital situations and aims to provide high long-term returns to shareholders through a combination of dividend yield and capital growth. Financial highlights - year ended 30 September 2003: (comparative figures as at 30 September 2002 in italics) • Net assets £16,701,000 £13,531,000 • Net asset value per share 94.9p 96.9p • Investment income £615,000 £269,000 • Net revenue before tax £376,000 £111,000 • Revenue return per share 1.8p 1.2p • Dividends per share 1.5p 0.6p For further information, please contact: Alastair Conn, Managing Director Northern Venture Managers Limited 0191 244 6000 Website: www.nvm.co.uk Lucy Copeman/Marlene Scott Polhill Communications 020 7655 0540 NORTHERN 3 VCT PLC CHAIRMAN'S STATEMENT The Chairman of Northern 3 VCT PLC, John Hustler, included the following points in his statement to shareholders: Northern 3 VCT's second financial year has passed against a background of fluctuating economic and market conditions. The brief stock market recovery in the last quarter of 2002 was followed by a sharp drop in investor confidence as a result of the conflict in the Middle East, with the low point reached in March 2003. Subsequently there has been a market rally, with the AIM index advancing particularly strongly. However the prospect of interest rate increases is unlikely to strengthen economic confidence in the short term. Net asset value The net asset value (NAV) at 30 September 2003 was 94.9p per share, down by 2.1% from the corresponding figure of 96.9p at 30 September 2002. The prospect of interest rate rises has had a mildly negative effect on the value of the listed fixed-interest portfolio in the short term, but your board is satisfied that its established policy of holding surplus funds in high-grade gilts and bonds remains appropriate. As reported in the investment manager's review in the annual report, we have seen gains in our listed venture capital portfolio. However the unquoted portfolio is still relatively immature and, reflecting our prudent valuation policy, we consider it is too early to recognise any uplift in value. Investments During the year nine new venture capital investments were completed, further details of which are given in the investment managers' review. The rate of new investment slowed noticeably during the second half of the financial year, reflecting the experience of the venture capital industry generally. However the current level of activity is encouraging and since the end of September new deals totalling £1.8 million have been completed or approved. We are pleased that the unquoted portfolio, generally, is making satisfactory progress, although one investment has under-performed sufficiently to require a partial provision against cost and has been receiving particularly close attention from our managers. Revenue and dividends Income from investments totalled £615,000 compared with £269,000 in the preceding year, and the revenue surplus before tax rose from £111,000 to £376,000. The revenue return per share was 1.8p (last year 1.2p). Comparisons between the two periods are significantly affected by the timing of receipt of share issue proceeds in each period. The directors propose a final dividend of 1.1p per share, making a total of 1.5p for the year (last year 0.6p). The final dividend will, if approved by shareholders, be paid on 5 February 2004 to shareholders on the register on 5 January 2004. As I have previously indicated, it is likely that in the short to medium term the dividends paid to shareholders will remain relatively low. As the venture capital portfolio matures we will be aiming to realise capital profits from investment disposals which, under the VCT rules, can be distributed to shareholders by way of tax free dividends. Share offers I reported at the interim stage on the disappointing outcome of our public share offers during the year. We had aimed to raise up to £15 million of additional capital for future investment, but in the event only £3.7 million was subscribed. Market conditions were very difficult for those VCTs which issued new shares this year, and it is estimated that the total raised was only £50 million compared to three times as much in the previous year. There is no doubt that the capital gains tax deferral relief available to VCT investors has become less attractive over the past three years, due to a general dearth of capital gains and also the effect of tapering relief on marginal CGT rates. The Government has been undertaking a consultation process on the future of VCTs, and it is to be hoped that this will lead to a re-focussing of the tax incentives in recognition of the significant role VCTs have played in providing funds for small enterprising companies in the UK over the past eight years. We still have it as a medium-term objective to increase the size of our company, believing that this is very much in the interests of existing shareholders, and we are currently reviewing the prospects of raising further funds over the next six months in the light of market conditions. VCT qualifying status PricewaterhouseCoopers LLP have been retained to monitor and report on the company's progress towards meeting the qualifying investment requirements laid down in the VCT legislation. The company has complied with all the relevant conditions so far. The next important deadline is 30 September 2004, when the requirement to have 70% of our investment portfolio in VCT qualifying holdings must be satisfied in respect of funds raised in the accounting period ended 30 September 2002. Although the rate of investment over the past year has been slower than expected, our managers currently report an increase in deal flow. The overall qualifying investment position is carefully managed in conjunction with our advisers and the board is satisfied that the company's VCT qualifying status will be maintained. Share price There continues to be little trading in the company's shares, as is to be expected at this stage. In line with the intention expressed when the company was launched, Court consent has been obtained to the cancellation of part of the share premium account, so creating a new balance sheet reserve which we are using to repurchase the small number of holdings which come onto the market. This marginally enhances the company's net asset value. A resolution will be proposed at the annual general meeting to renew the board's powers, to allow us to continue to purchase shares in the market. Northern Venture Managers Edinburgh Fund Managers Group plc, the parent company of Northern Venture Managers, was acquired by Aberdeen Asset Management PLC in October 2003. Your board does not expect that this will result in any adverse change to the arrangements for the management of Northern 3 VCT. Future prospects We wait to see how sustained the present modest economic recovery in the UK will be. The manufacturing sector has recently been weak, and the boom in the housing market has fuelled an unusually high level of consumer expenditure. Public sector spending however looks set to remain strong for some time to come. Our objective remains to build a diversified portfolio of later-stage development capital and buy-out investments, together with a modest exposure to earlier stage technology investments whose management can satisfy our demanding criteria. We believe this will create the profits to allow us to pay increasing dividends once we are fully invested. We continue to seek ways to promote awareness of the long term investment value of VCTs, so helping to ensure that the market value of our shares reflects their true value based on a progressive yield. John Hustler Chairman The audited financial statements for the year ended 30 September 2003 will show the results set out below. STATEMENT OF TOTAL RETURN (INCORPORATING THE REVENUE ACCOUNT) for the year ended 30 September 2003 Year ended 30 September 2003 Period ended 30 September 2002 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 Gains/(losses) on investments: Realised on disposals - 118 118 - - - Unrealised revaluation movements - (248) (248) - 344 344 ------ ------ ------ ------ ------ ------ - (130) (130) - 344 344 Income 615 - 615 269 - 269 Investment management fee (86) (258) (344) (34) (102) (136) Other expenses (153) (22) (175) (124) - (124) ------ ------ ------ ------ ------ ------ Return on ordinary activities before tax 376 (410) (34) 111 242 353 Tax on ordinary activities (81) 59 (22) (22) 20 (2) ------ ------ ------ ------ ------ ------ Return on ordinary activities after tax 295 (351) (56) 89 262 351 Dividends (251) - (251) (84) - (84) ------ ------ ------ ------ ------ ------ Transfer to/(from) reserves 44 (351) (307) 5 262 267 ------ ------ ------ ------ ------ ------ Return per share 1.8p (2.2)p (0.4)p 1.2p 3.4p 4.6p Dividend per share 1.5p - 1.5p 0.6p - 0.6p BALANCE SHEET as at 30 September 2003 30 September 2003 30 September 2002 £000 £000 Venture capital investments: Unlisted 2,685 1,138 Listed 441 176 ------- ------- 3,126 1,314 Listed fixed-interest 10,210 8,179 investments ------- ------- Total fixed asset 13,336 9,493 investments ------- ------- Current assets: Investments 2,371 2,867 Debtors 408 296 Cash at bank 836 990 ------- ------- 3,615 4,153 Creditors (amounts falling (250) (115) due within one year) ------- ------- Net current assets 3,365 4,038 ------- ------- Net assets 16,701 13,531 ------- ------- Capital and reserves: Called-up equity share 880 698 capital Share premium 9,622 12,566 Capital redemption reserve 1 - Special reserve 6,238 - Capital reserve: Realised (185) (82) Unrealised 96 344 Revenue reserve 49 5 ------- ------- Total equity shareholders' 16,701 13,531 funds ------- ------- Net asset value per share 94.9p 96.9p CASH FLOW STATEMENT for the year ended 30 September 2003 Year ended Period ended 30 September 30 September 2003 2002 £000 £000 £000 £000 Cash flow statement Net cash outflow from operating activities (10) (258) Taxation: Corporation tax paid - - Financial investment: Purchase of investments (8,191) (9,149) Sale of investments 4,218 - ------ ------ Net cash outflow from (3,973) (9,149) financial investment Equity dividends paid (144) - ------ ------ Net cash outflow before use of (4,127) (9,407) liquid resources and financing Net cash inflow/(outflow) from 496 (2,867) management of liquid resources Financing: Issue of preference shares - 50 Issue of ordinary shares 3,668 13,975 Share issue expenses (170) (698) Purchase of ordinary shares for cancellation (21) (13) Redemption of preference shares - (50) ------ ------ Net cash inflow from financing 3,477 13,264 ------ ------ Increase/(decrease) in cash at bank (154) 990 ------ ------ Reconciliation of revenue before tax to net cash flow from operating activities Net revenue before tax 376 111 (Increase) in debtors (112) (296) Increase in creditors 6 29 Management fees charged to capital (258) (102) Other expenses charged to capital (22) - ------ ------ Net cash outflow from operating activities (10) (258) ------ ------ Reconciliation of movement in net funds 1 October 2002 Cash flows 30 September 2003 £000 £000 £000 Cash at bank 990 (154) 836 Current asset investments 2,867 (496) 2,371 ------ ------ ------ Net funds 3,857 (650) 3,207 ------ ------ ------ INVESTMENT PORTFOLIO SUMMARY as at 30 September 2003 Valuation % of net assets £000 by valuation Venture capital investments: Horncastle Industries 438 2.6 Crantock Bakery 399 2.4 Longhirst Group 300 1.8 John Laing Partnership 300 1.8 Keith Prowse 280 1.7 PM Group** 266 1.6 RBF Industries 250 1.5 Arrow Industrial Group 245 1.5 Crabtree of Gateshead 219 1.3 Alizyme* 175 1.1 Liquidlogic 88 0.5 Survey Inspection Systems 73 0.4 GSM-Central 52 0.3 Oxonica 41 0.2 ------- ------ 3,126 18.7 Listed fixed-interest investments 10,210 61.2 ------- ------ Total fixed asset investments 13,336 79.9 Net current assets 3,365 20.1 ------- ------ Net assets 16,701 100.0 ------- ------ * Listed on the London Stock Exchange **Traded on the Alternative Investment Market The above summary of results for the year ended 30 September 2003 does not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985 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 auditors' report on those financial statements under Section 235 of the Companies Act 1985 is unqualified and does not contain a statement under Section 237(2) or (3) of the Companies Act 1985. The proposed final dividend of 1.1p per share for the year ended 30 September 2003 will, if approved by shareholders, be paid on 5 February 2004 to shareholders on the register at the close of business on 5 January 2004. The full annual report including financial statements for the year ended 30 September 2003 is expected to be posted to shareholders on 2 December 2003 and will be available to the public at the registered office of the company at Northumberland House, Princess Square, Newcastle upon Tyne NE1 8ER. ENDS This information is provided by RNS The company news service from the London Stock Exchange

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