Final Results

Northern 3 VCT PLC 17 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 Venture Managers. 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 30 September 2006: (comparative figures as at 30 September 2005, re-stated where appropriate, in italics) 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 Limited Alastair Conn, Managing Director 0191 244 6000 Website: www.nvm.co.uk Lansons Communications Alison Boucher 020 7294 3616 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: I am pleased to report that the company has been able to declare an increased dividend of 4.0p per share in respect of the year ended 30 September 2006. The increase in the company's size as a result of the share issues in the preceding year has allowed us to take a larger share of the unquoted investment opportunities developed by our managers, and has led to a welcome reduction in the 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 financial statements are presented, as a result of new UK accounting standards. Last year's Profit and Loss Account, Statement of Total Recognised Gains and Losses and Note of Historical Cost Profits and Losses have been replaced by an Income Statement which includes all recognised gains and losses and, I believe, gives a better overall picture of the results for the year. Quoted investments are now valued at bid rather than mid-market price and proposed dividends are no longer included in the year-end balance sheet. The comparative figures for the year ended 30 September 2005 have been re-stated accordingly. The net asset value (NAV) per share at 30 September 2006 was 95.2p, a slight reduction from the re-stated figure of 95.8p as at 30 September 2005. The NAV is stated after dividends of 3.7p per share which were charged to reserves during the year. The revenue return after tax was 2.4p, unchanged from the previous year. The directors have declared a second interim dividend rather than a final dividend, for reasons explained below; the second interim dividend will be 2.0p per share, of which 1.0p represents revenue and 1.0p a distribution of capital gains. This makes a total of 4.0p for the year (2.0p revenue and 2.0p 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 on the register on 15 December 2006. Investment portfolio The Business Review in the annual report gives details of developments in the investment portfolio during the year. Eight new venture capital investments were completed during the year at a total cost of £2.8 million. The rate of new investment was lower than expected, reflecting competitive market conditions following the large inflow of cash into the VCT sector generally over the past two years. Our managers have maintained an appropriate quality threshold in assessing new investments and have strengthened their investment team in order to increase the flow of opportunities. I am pleased to report that entering the new financial year we currently have two proposed new investments each of £1 million at an advanced stage of due diligence, with an encouraging list of further work in progress. Your directors and managers are conscious of the need to maintain a strong flow of new investments in order to satisfy the VCT qualifying conditions. During the year successful exits were achieved from the investments in Omnico Plastics and AFI Aerial Platforms, generating capital profits for distribution to shareholders. As I reported at the interim stage, we also suffered the write-off of our investment in SMS Agencies which went into administration following a period of poor trading results. Shareholder issues The company has continued to buy back shares in the market for cancellation at a 10% discount to net asset value. During the year to 30 September 2006 a total of 857,930 shares, representing approximately 2.7% of the issued ordinary capital 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 2004/05 tax year appears to have resulted in a reduction in the secondary market demand for VCT shares. We believe that in the longer term it is important that an active market in VCT shares should be encouraged, and with a view to improving the way in which the benefits of VCT investment are communicated to the investing 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 to operate, enabling shareholders to re-invest their dividend in new ordinary shares with the benefit of VCT tax reliefs at the current rates. A number of VCTs have announced the suspension of dividend schemes in response to VCT rule changes in the Finance Act 2006, but your board believes that the scheme remains viable under the new legislation and intends to continue it. Shareholders interested in joining the scheme should contact the company secretary for further information. VCT qualifying status Your board, advised by PricewaterhouseCoopers LLP, has continued to monitor closely the company's progress towards meeting the qualifying investment requirements laid down in the VCT legislation, and we are satisfied that the company's VCT qualifying status has been maintained. Under the VCT rules the proceeds of the share issues in our financial year ended 30 September 2005 are required to be at least 70% invested in qualifying holdings by 30 September 2007, the date on which the company's third financial year end following the issue falls. This means that in practice the company will have had only 21/2 years to achieve the required investment level. In order to increase the time available to as near three years as possible, it is the directors' intention to extend the company's financial year ending 30 September 2007 by changing the accounting year end to 31 March, so that the next audited 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 March 2007 and the 12 months ending 30 September 2007. In order to comply with the Companies Act rules relating to the timing and frequency of annual general meetings, it is proposed that the 2007 annual general meeting will be held in April 2007 and the 2008 meeting in July 2008. So as to avoid a delay in receipt by shareholders, the dividend scheduled to be paid in January 2007 will take the form of a second interim dividend for the year ended 30 September 2006, which does not require the approval of shareholders in general meeting, and there will be no final dividend. It is intended that dividends for future periods will continue to be paid half-yearly in July and January. Management performance incentive Last year I reported that the directors had decided, after consultation with the boards of the other funds managed by Northern Venture Managers, to introduce a new performance incentive scheme under which NVM's investment executives co-invest alongside the funds in new venture capital investments. The scheme came into effect in April 2006 and we will keep its operation under regular review. We also took the opportunity to reduce NVM's annual management fee from 2.5% to 2.0% of net assets, but with a mechanism for an additional performance-related fee of up to 1.0% depending on the margin by which annual targets set by the board are exceeded. The minimum target for the year under review was a total return equivalent to 3.5% of opening net asset value per share; 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 in the rate of new investment whilst maintaining a satisfactory quality standard. The number of new opportunities currently under review is encouraging. At the same time the portfolio of existing investments is becoming increasingly mature and this should present opportunities for the realisation of gains for distribution by way of dividend, so enhancing the tax-free dividend yield which your directors believe should in the medium term help to improve the market liquidity of the company's shares. John Hustler Chairman The audited financial statements for the year ended 30 September 2006 will show the results set out below. INCOME STATEMENT for 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 29 Unrealised adjustments to fair value of - 605 605 - 491 491 investments ----------- ----------- ----------- ----------- ----------- ----------- - 499 499 - 520 520 Income 1,372 - 1,372 1,232 - 1,232 Investment 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 45 939 Tax 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' FUNDS for the year ended 30 September 2006 Year ended 30 Year ended 30 September 2006 September 2005 Re-stated Total Total £000 £000 Equity 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 917 858 Dividends recognised in the year (1,153) (1,098) Net proceeds of share issues 126 9,208 Shares purchased for cancellation (745) (499) ----------- ----------- Equity shareholders' funds at 30 September 2006 29,281 30,136 ----------- ----------- BALANCE SHEET as at 30 September 2006 30 September 30 September 2006 2005 Re-stated £000 £000 Venture capital investments: Unquoted 10,012 8,433 Quoted 1,997 1,301 ----------- ----------- 12,009 9,734 Listed fixed-interest 13,229 14,308 investments ----------- ----------- Total fixed asset 25,238 24,042 investments ----------- ----------- Current assets: Debtors 600 617 Cash at bank 3,606 5,631 ----------- ----------- 4,206 6,248 Creditors (amounts falling 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 1,573 capital Share premium 22,759 22,641 Capital redemption 77 34 reserve Capital reserve: Realised 3,703 5,031 Unrealised 629 324 Revenue reserve 575 533 ----------- ----------- Total equity 29,281 30,136 shareholders' funds ----------- ----------- Net asset value per 95.2p 95.8p share CASH FLOW STATEMENT for the year ended 30 September 2006 Year ended Year ended 30 September 2006 30 September 2005 Re-stated £000 £000 £000 £000 Net cash inflow from operating activities 525 204 Taxation: Corporation tax paid (81) (24) Financial investment: Purchase of (9,740) (17,372) investments Sale/repayment of 9,043 6,028 investments ----------- ----------- Net cash outflow from financial investment (697) (11,344) Equity dividends paid (1,153) (1,098) ----------- ----------- Net cash outflow before financing (1,406) (12,262) Financing: Issue of ordinary 145 9,698 shares Share issue expenses (19) (490) Purchase of ordinary shares for cancellation (745) (499) ----------- ----------- Net cash (outflow)/ inflow from financing (619) 8,709 ----------- ----------- Decrease in cash at (2,025) (3,553) bank ----------- ----------- Reconciliation of return before tax to net cash flow from operating activities Return on ordinary activities before tax 1,022 939 Loss/(gain) on disposal of investments 106 (29) Unrealised adjustments to fair value of (605) (491) investments Decrease/(increase) in 17 (222) debtors (Decrease)/increase in (15) 7 creditors ----------- ----------- Net cash inflow from operating activities 525 204 ----------- ----------- Analysis of movement in net funds 1 October 2005 Cash flows 30 September 2006 £000 £000 £000 Cash at bank 5,631 (2,025) 3,606 ----------- ----------- ----------- INVESTMENT PORTFOLIO SUMMARY as at 30 September 2006 Valuation % of net assets £000 by valuation Fifteen largest venture capital investments: John Laing Partnership 1,014 3.5 Nightingales Holdings 992 3.4 IG Doors 683 2.3 Pivotal Laboratories Holdings 679 2.3 Envirotec 658 2.2 Touchstone Asset Management 593 2.0 Longhirst Group 547 1.9 Crantock Bakery 442 1.5 Abermed Group 375 1.3 Arleigh International 346 1.2 Arrow Industrial Group 344 1.2 KCS Global Holdings 338 1.2 Direct Valeting 320 1.1 Cello Group* 319 1.1 Ithaca Holdings 307 1.0 ----------- ----------- 7,957 27.2 Other venture capital investments 4,052 13.8 ----------- ----------- Total venture capital investments 12,009 41.0 Listed fixed-interest investments 13,229 45.2 ----------- ----------- Total fixed asset investments 25,238 86.2 Net 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 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 company is required to comply with a number of new UK Financial Reporting Standards (FRS), which now represent UK Generally Accepted Accounting Practice (UK GAAP), in presenting its financial statements for the year ended 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 unrealised gain or loss resulting from the revaluation of fixed asset 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'; and • 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 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 1 October 2004 Net asset Net asset Net value per Net value per assets share assets share £000 p £000 p As reported under previous UK GAAP 29,610 94.1 20,802 93.4 Less: adjustment in valuation of quoted (9) - (3) - investments to bid price Add: proposed dividends not accounted for 535 1.7 868 3.9 until 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 September 2006 will be paid on 19 January 2007 to shareholders on the register at the close of business on 15 December 2006. The full annual report including financial statements for the year ended 30 September 2006 is expected to be posted to shareholders on 15 December 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 This information is provided by RNS The company news service from the London Stock Exchange

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