Interim Results
Northern 3 VCT PLC
23 May 2006
23 MAY 2006
NORTHERN 3 VCT PLC
UNAUDITED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Northern 3 VCT PLC is a Venture Capital Trust (VCT) managed by Northern Venture
Managers. It invests mainly in unquoted venture capital holdings and aims to
provide high long-term returns to shareholders through a combination of dividend
yield and capital growth.
Financial highlights:
(comparative figures as at 31 March 2005 in italics)
2006 2005
Re-stated
• Net assets* £30,294,000 £25,945,000
• Net asset value per share* 97.2p 94.6p
• Investment income £770,000 £437,000
• Return on ordinary activities
before tax
Revenue £594,000 £280,000
Capital £425,000 £(23,000)
Total £1,019,000 £257,000
• Return per share
Revenue 1.4p 0.9p
Capital 1.7p 0.1p
Total 3.1p 1.0p
• Interim dividend per share
proposed in respect of the period
Revenue 1.0p 0.7p
Capital 1.0p -
Total 2.0p 0.7p
• Cumulative return to
shareholders since launch
Dividends per share** 10.9p 7.2p
Net asset value plus dividends 106.1p 101.1p
• Share price at end of period 85.0p 87.0p
* Before deducting proposed interim dividend
**Including proposed interim dividend
For further information, please contact:
Northern Venture Managers Limited 0191 244 6000
Alastair Conn, Managing Director
Website: www.nvm.co.uk
Lansons Communications 020 7294 3616
Alison Boucher
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:
During 2005 we achieved our initial objective of increasing the company's asset
base to £30 million. The emphasis is now on building up the portfolio of
VCT-qualifying investments in order to ensure that the company continues to
comply with the conditions for maintaining VCT status. Although the rate of new
investment in the six months to 31 March 2006 was lower than expected, the flow
of potential new deals is currently strong and we expect an upturn in activity
in the second half of the year.
Net asset value
The unaudited net asset value per share at 31 March 2006 was 97.2p, up by 1.5%
from the re-stated figure of 95.8p at 30 September 2005. As explained below,
net asset value is now stated before deducting proposed dividends.
Revenue and dividend
The revenue return per share for the half year was 1.4p, compared with 0.9p for
the corresponding six month period to 31 March 2005. The directors have
declared an increased interim revenue dividend of 1.0p per share (corresponding
period 0.7p), and an interim capital dividend of 1.0p (corresponding period
nil). The total interim dividend of 2.0p per share will be paid on 21 July 2006
to shareholders on the register on 23 June 2006. This brings the cumulative
total of dividends declared by the company to 10.9p per share.
Shareholders may be aware that some VCTs have already announced the suspension
of dividend reinvestment schemes following the changes announced in the March
2006 Budget, which include a reduction in the size limits for VCT-qualifying
investments made using funds raised after 6 April 2006. We would like to keep
the dividend reinvestment facility available to shareholders and will await
further guidance from HM Revenue & Customs on the practical implications of the
proposed legislation. Shares issued after 6 April 2006 will be subject to the
new conditions announced in the Budget, including 30% income tax relief and a
five year holding period.
Investments
During the half year a total of £1.1 million was invested in the following
companies:
• Inspicio (£100,000) - AIM-quoted provider of inspection and testing
services, London
• Intercytex Group (£250,000) - AIM-quoted drug development company
specialising in human cell therapy, Cambridge
• Adept Telecom (£235,000) - AIM-quoted provider of telecommunications
services, Tunbridge Wells
• Wear Inns (£282,000) - managed public houses, Newcastle upon Tyne
• Twenty (£198,000) - AIM-quoted marketing services provider, Hertford
Although only one new unquoted investment was completed during the half year,
the underlying level of activity in developing and appraising new opportunities
has remained high and we expect an increased number of completions in the second
half. In early April we completed an investment of £993,000 in Nightingales, a
retailer of ladies clothing through mail order and retail outlets, and two
further investments totalling £756,000 have been approved and are awaiting
completion of due diligence.
Most of the companies in the unquoted portfolio are making good progress and in
a number of cases this has resulted in increases in valuation. The investment
in Omnico Plastics was sold to SIG plc in November 2005 for approximately twice
its original cost of £333,000. I reported at the last year end that SMS
Agencies was trading behind expectations; regrettably the position deteriorated
further and in February 2006 administrators were appointed, resulting in full
provision being made against our investment of £500,000.
Presentation of financial statements
We have adopted the revised Statement of Recommended Practice for investment
trust accounting published by the Association of Investment Trust Companies, as
a result of which we now publish an Income Statement which is similar in format
and content to the Statement of Total Return presented in earlier years.
Several new accounting policies have been implemented in order to comply with
new UK Financial Reporting Standards. The main consequences are that quoted
investments are valued at bid rather than mid-market price; dividends payable
to shareholders no longer appear in the Income Statement but are charged
directly to reserves; and dividends are not recognised in the accounts until a
formal liability to pay has been established. A more detailed explanation of
the accounting changes and their financial impact is set out in the notes below.
Comparative figures in the financial statements have where appropriate been
re-stated on the new basis.
Share buybacks
At the annual general meeting in January 2006 shareholders renewed the
directors' authority to make market purchases of shares for cancellation.
During the half year to 31 March 2006 the company bought back for cancellation
377,018 shares, representing approximately 1.2% of the issued capital. The
level of secondary market trading in our shares, like those of most VCTs,
remains low; our managers are working with their colleagues in the sector to
increase investor awareness of the attractions of VCT shares, particularly the
tax-free dividend yield.
VCT qualifying status
Your board continues to monitor progress towards the Inland Revenue qualifying
targets, with the help of PricewaterhouseCoopers LLP who have been retained to
advise on this and other tax matters. We are satisfied that the company has
continued to fulfil the conditions for maintaining VCT status. The Government
has made proposals in its 2006 Finance Bill which could adversely affect the way
in which VCTs manage their investments to comply with the VCT legislation, and
representations are being made to the Government with the objective of ensuring
that the resulting legislation does not impact on the commercial operation of
our company.
Prospects
The recent setback to the world's stock markets has interrupted a growth trend
which had perhaps run too far. The outlook for the UK economy appears to be
generally positive but the road ahead will be bumpy at times. Our company has a
good store of liquidity for future investment and the venture capital portfolio
is developing well, though not without its challenging moments. The key
objective for the next 18 months is to ensure that the 70% qualifying investment
target is attained in respect of the funds raised in 2004 and 2005, whilst
managing the portfolio carefully with a view to capital growth and dividend
generation.
On behalf of the board I would like to thank shareholders for their continuing
interest and support. We have decided to hold our January 2007 annual general
meeting in London and hope this will enable a greater number of shareholders to
attend and take part in the meeting.
JOHN HUSTLER
Chairman
The unaudited interim financial statements for the six months ended 31 March
2006 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 31 March 2006
Six months ended 31 March 2006 Six months ended 31 March 2005
Re-stated
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
(Loss)/gain on disposal of
investments held at fair value - (185) (185) - 9 9
Unrealised adjustments to fair value
of investments - 926 926 - 169 169
------ ------ ------ ------ ------ ------
- 741 741 - 178 178
Income 770 - 770 437 - 437
Investment management fee (80) (316) (396) (67) (201) (268)
Other expenses (96) - (96) (90) - (90)
------ ------ ------ ------ ------ ------
Return on ordinary activities
before tax 594 425 1,019 280 (23) 257
Tax on return on ordinary activities (158) 100 (58) (65) 54 (11)
------ ------ ------ ------ ------ ------
Return on ordinary activities
after tax 436 525 961 215 31 246
------ ------ ------ ------ ------ ------
Return per share 1.4p 1.7p 3.1p 0.9p 0.1p 1.0p
Year ended 30 September 2005
Re-stated
Revenue Capital Total
£000 £000 £000
Gain on disposal of investments
held at fair value - 29 29
Unrealised adjustments to fair value
of investments - 491 491
------ ------ ------
- 520 520
Income 1,232 - 1,232
Investment management fee (158) (475) (633)
Other expenses (180) - (180)
------ ------ ------
Return on ordinary activities
before tax 894 45 939
Tax on return on ordinary activities (233) 152 (81)
------ ------ ------
Return on ordinary activities
after tax 661 197 858
------ ------ ------
Return per share 2.4p 0.7p 3.1p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 31 March 2006
Six months Six months Year ended
ended ended 30
31 March 2006 31 March 2005 September
2005
Re-stated Re-stated
£000 £000 £000
Equity shareholders' funds at
1 October 2005
As previously reported 29,610 20,802 20,802
Prior year adjustment 526 865 865
------- ------- -------
As re-stated 30,136 21,667 21,667
Return on ordinary activities 961 246 858
after tax
Dividends recognised in the (535) (868) (1,098)
period
Net proceeds of share issues 56 5,077 9,208
Shares purchased for (324) (177) (499)
cancellation
------- ------- -------
Equity shareholders' funds at
31 March 2006 30,294 25,945 30,136
------- ------- -------
BALANCE SHEET
(unaudited) as at 31 March 2006
31 March 31 March 30
2006 2005 September
2005
Re-stated Re-stated
£000 £000 £000
Fixed asset investments held at
fair value:
Venture capital investments
Unquoted 8,665 6,760 8,433
Quoted 2,228 1,071 1,301
------- ------- -------
Total venture capital 10,893 7,831 9,734
investments
Quoted fixed-interest 15,466 12,000 14,308
investments
------- ------- -------
Total fixed asset investments 26,359 19,831 24,042
------- ------- -------
Current assets:
Debtors 480 400 617
Cash at bank 3,657 5,878 5,631
------- ------- -------
4,137 6,278 6,248
Creditors (amounts falling due (202) (164) (154)
within one year)
------- ------- -------
Net current assets 3,935 6,114 6,094
------- ------- -------
Net assets 30,294 25,945 30,136
------- ------- -------
Capital and reserves:
Called-up equity share capital 1,558 1,371 1,573
Share premium 22,693 18,731 22,641
Capital redemption reserve 53 15 34
Capital reserve - realised 4,291 5,425 5,031
Capital reserve - unrealised 1,139 86 324
Revenue reserve 560 317 533
------- ------- -------
Total equity shareholders' 30,294 25,945 30,136
funds
------- ------- -------
Net asset value per share 97.2p 94.6p 95.8p
CASH FLOW STATEMENT
(unaudited) for the six months ended 31 March 2006
Six months ended Six months ended Year ended
31 March 2005 30 September 2005
31 March 2006 Re-stated Re-stated
£000 £000 £000 £000 £000 £000
Net cash inflow from
operating activities 486 146 204
Taxation:
Corporation tax paid (81) - (24)
Financial investment:
Purchase of investments (4,399) (12,616) (17,372)
Sale/repayment of investments 2,823 5,141 6,028
------ ------ ------
Net cash outflow from
financial investment (1,576) (7,475) (11,344)
Equity dividends paid (535) (877) (1,098)
------ ------ ------
Net cash outflow before (1,706) (8,206) (12,262)
financing
Financing:
Issue of ordinary shares 70 5,332 9,698
Share issue expenses (14) (255) (490)
Purchase of ordinary shares
for cancellation (324) (177) (499)
------ ------ ------
Net cash (outflow)/inflow
from financing (268) 4,900 8,709
------ ------ ------
Decrease in cash at bank (1,974) (3,306) (3,553)
------ ------ ------
Reconciliation of return
before tax to net cash
flow from operating activities
Return on ordinary activities
before tax 1,019 257 939
Loss/(gain) on disposal of
investments held at fair value 185 (9) (29)
Unrealised adjustments to
fair value of investments (926) (169) (491)
Decrease/(increase) in debtors 137 (5) (222)
Increase in creditors 71 72 7
------ ------ ------
Net cash inflow from
operating activities 486 146 204
------ ------ ------
Analysis of movement in net
funds
1 October 2005 Cash flows 31 March 2006
£000 £000 £000
Cash at bank 5,631 (1,974) 3,657
------ ------ ------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2006
Cost Valuation % of net assets
£000 £000 by valuation
Venture capital investments:
Pivotal Laboratories Holdings 679 679 2.2
IG Doors 500 672 2.2
Envirotec 455 655 2.2
John Laing Partnership 304 639 2.1
Crantock Bakery 442 536 1.8
Longhirst Group 480 495 1.6
Warmseal Windows (Newcastle) 339 440 1.5
Arrow Industrial Group 245 375 1.2
Abermed Group 375 375 1.2
Arleigh International 210 344 1.1
Adept Telecom* 235 340 1.1
KCS Global Holdings 338 338 1.1
Cello Group* 251 321 1.1
Direct Valeting 427 320 1.1
AFI Aerial Platforms 116 313 1.0
------- ------- ------
Fifteen largest venture capital investments 5,396 6,842 22.5
Other venture capital investments 4,232 4,051 13.4
------- ------- ------
Total venture capital investments 9,628 10,893 35.9
Quoted fixed-interest investments 15,591 15,466 51.1
------- ------- ------
Total fixed asset investments 25,219 26,359 87.0
-------
Net current assets 3,935 13.0
------- ------
Net assets 30,294 100.0
------- ------
*Quoted on Alternative Investment Market
The above summary of results for the six months ended 31 March 2006 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.
The figures for the year ended 30 September 2005 have been extracted from the
financial statements for that year, which have been delivered to the Registrar
of Companies, adjusted in respect of the changes in accounting policies as
stated below; the independent auditors' report on those financial statements
under Section 235 of the Companies Act 1985 was unqualified.
The company is required to comply with a number of new UK Financial Reporting
Standards (FRS), which now represent UK Generally Accepted Accounting Principles
(UK GAAP), in presenting its financial statements for the year ending 30
September 2006. These Standards have been introduced as part of the process of
aligning UK accounting principles with International Accounting Standards.
The revised accounting policies differ from those used in preparing the annual
financial statements for the year ended 30 September 2005 in the following
respects:
• The company's investments have been designated as fair value through
profit and loss and accordingly the unrealised gain or loss resulting from
the revaluation of 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-market price,
as required by FRS 26 'Financial Instruments: Measurement'.
• Dividends to shareholders are accounted for in the period in which the
company is liable to pay them, rather than in the period in respect of which
they 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 through the reconciliation of movements in shareholders' funds rather
than in the profit and loss account as previously.
The comparative figures for the year ended 30 September 2005 and the six months
ended 31 March 2005 have been re-stated accordingly.
The effect of the above changes on the reported net assets and net asset value
per share of the company is as follows:
30 September 2005 31March 2005
Net assets Net asset Net assets Net asset
£000 value £000 value
per share per share
p p
As reported under previous 29,610 94.1 25,736 93.8
UK GAAP
Less: adjustment in valuation of (9) - (21) -
quoted investments to bid price
Add: proposed dividends not 535 1.7 230 0.8
accounted for until declared
and paid
------- ------- ------- -------
As reported under revised 30,136 95.8 25,945 94.6
UK GAAP
------- ------- ------- -------
The proposed interim dividend of 2.0p per share for the year ending 30 September
2006 will be paid on 21 July 2006 to shareholders on the register at the close
of business on 23 June 2006.
A copy of the interim report for the six months ended 31 March 2006 is expected
to be posted to shareholders on 2 June 2006 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
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