DJ Northern 3 VCT plc Annual Financial Report

19th May 2010


20 MAY 2010



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 2010:
(comparative figures as at 31 March 2009)

2010 2009

- Net assets ÂGBP32.4m ÂGBP24.3m

- Net asset value per share 90.2p 84.0p

- Return per share:

Revenue 1.7p 2.6p

Capital 8.2p (13.0)p

Total 9.9p (10.4)p

- Dividend per share proposed

in respect of the year:

Revenue 1.5p 2.5p

Capital 2.5p 1.5p

Total 4.0p 4.0p

- Cumulative return to

shareholders since launch:

Net asset value per share 90.2p 84.0p

Dividends paid per share* 24.9p 20.9p

Net asset value plus dividends

paid per share 115.1p 104.9p

- Share price at end of year 76.0p 45.5p

*Excluding proposed final dividend

For further information, please contact:

NVM Private Equity Limited 0191 244 6000
Alastair Conn/Christopher Mellor
Website: <>



I am glad to report that Northern 3 VCT has made good progress over the past
year, despite the challenges posed by the economic and financial climate.

Results and dividend
The net asset value (NAV) per share at 31 March 2010 was 90.2p, an increase of
7.4% from the corresponding figure of 84.0p at 31 March 2009. The total return
for the year as shown in the income statement was 9.9p per share, equivalent to
11.8% of the opening NAV.

An interim dividend of 2.0p per share was paid in January 2010 and the directors
propose a final dividend also of 2.0p per share, making a total of 4.0p for the
year - unchanged from the previous year. This is in line with the board's
stated minimum dividend objective and we will aim to maintain a satisfactory
flow of dividends to shareholders in future periods, though the income from our
investments continues to be adversely affected by low interest rates.

Investment portfolio
The business review in the annual report gives details of recent developments in
the investment portfolio. The rate of new investment activity showed a welcome
increase over the previous year, and we also made additional investments in
several existing portfolio companies in order to finance growth and where
appropriate reduce exposure to bank lending.

Some of our investments have continued to be affected by adverse market
conditions but despite this the portfolio has generally proved resilient, with
some encouraging successes. The sale of the diagnostics company DxS in
September 2009 has been widely recognised as an excellent result, which led to
our colleague Tim Levett being presented with the prestigious BVCA/Real Deals
Deal of the Year Award for 2010 on behalf of NVM Private Equity - a splendid
accolade won in competition with the entire UK venture capital industry.
Satisfactory exits were also achieved from the investments in Liquidlogic and

Investment policy
Investment returns on cash and near-cash assets have continued to be very low
over the past year. The directors have reviewed the company's approach to the
short-term deployment of funds held for future investment in qualifying venture
capital holdings and have decided to bring a resolution to the 2010 annual
general meeting which would amend the company's investment policy so as to
permit the use of a wider range of financial instruments, with a view to
generating a better return on funds.

Shareholder issues
The company's latest public offer of new ordinary shares closed on 12 May 2010
with a total of ÂGBP12.7 million (before deducting issue costs) raised. This is a
satisfactory outcome and I would like to thank our new shareholders for their

A year ago your directors felt it appropriate, in the light of the very
difficult market conditions then prevailing, to suspend the company's policy of
buying back shares in the market at a fixed discount of 10% to NAV. Following a
further review, it was announced in November 2009 that the company would in
future buy back shares at a 15% discount, and we have subsequently purchased a
total of 200,000 shares in the market for cancellation. We also made a special
tender offer to purchase up to 10% of the company's issued capital at a 1%
discount to NAV, on the basis that the proceeds would be re-invested in new
shares under the public share offer mentioned above. The tender offer was taken
up in respect of 2,858,255 shares, representing 9.9% of the issued capital, and
the shares were duly re-purchased by the company on 1 March 2010 at a cost of
ÂGBP2.5 million.

We continue to support efforts to promote the secondary market in VCT shares,
whose attractions can only be enhanced by the current UK regime of low interest
rates, high personal tax rates and restrictions on pension contributions.

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
Following HM Revenue & Customs' announcement in 2008 that investment management
fees paid by VCTs should have been exempt from VAT, repayment has been obtained
of ÂGBP280,000 of VAT paid on management fees for the period from 2005 to 2008.
Our managers have not at this stage been able to obtain repayment in respect of
earlier periods, where claims are subject to time limits, but discussions are

Board of directors
John Hustler, who was chairman of the company for the first seven years of its
existence, has indicated that he will be retiring from the board in September
2010. Regrettably this is necessary in order to avoid a deemed conflict with
his role as chairman of Northern Venture Trust PLC, following the introduction
of new FSA rules relating to the independence of listed company chairmen. On
behalf of shareholders and the board, I thank John for his valuable service and
wise counsel, which we shall miss.

Any assessment of the future prospects for small and medium-sized businesses
must take into account the poor state of the public finances, as a result of
which higher taxation and reduced public sector spending can be expected.
Recent economic data suggest that the UK may now be slowly emerging from
recession, though a relapse seems entirely possible. This is a climate in which
a highly selective approach to new investments will remain essential, whilst our
managers continue their supportive monitoring of the existing portfolio.
Nevertheless it has been a feature of past economic cycles that attractive
opportunities can become available following a time of recession, and we would
therefore expect to see some upturn in investment activity over the next 12

James Ferguson

The audited financial statements for the year ended 31 March 2010 are set out

for the year ended 31 March 2010

Year ended 31 March 2010 Year ended 31 March 2009

Revenue Capital Total Revenue Capital Total

Gain on
disposal of

investments - 1,651 1,651 - 814 814

Movements in
fair value

of - 1,058 1,058 - (4,460) (4,460)

--------- --------- --------- --------- --------- ---------

- 2,709 2,709 - (3,646) (3,646)

Income 926 - 926 1,249 - 1,249

Investment (130) (390) (520) (140) (420) (560)
management fee

Recoverable - - - 67 213 280

Other expenses (217) - (217) (213) - (213)

--------- --------- --------- --------- --------- ---------

Return on

activities 579 2,319 2,898 963 (3,853) (2,890)
before tax

Tax on return

ordinary (93) 93 - (208) 61 (147)

--------- --------- --------- --------- --------- ---------

Return on

activities 486 2,412 2,898 755 (3,792) (3,037)
after tax

--------- --------- --------- --------- --------- ---------

Return per 1.7p 8.2p 9.9p 2.6p (13.0)p (10.4)p


in respect of 1.5p 2.5p 4.0p 2.5p 1.5p 4.0p
the year

for the year ended 31 March 2010

Year ended Year ended
31 March 2010 31 March 2009

Equity shareholders' funds at 1 April 2009 24,323 28,645

Return on ordinary activities after tax 2,898 (3,037)

Dividends recognised in the year (1,157) (575)

Net proceeds of share issues 9,073 63

Shares purchased for cancellation (2,725) (773)

--------- ---------

Equity shareholders' funds at 31 March 2010 32,412 24,323

--------- ---------

as at 31 March 2010

31 March 2010 31 March 2009

Venture capital investments

Unquoted 15,414 13,606

Quoted 2,362 1,603

--------- ---------

Total venture capital investments 17,776 15,209

Listed fixed-interest investments 5,002 5,700

--------- ---------

Total fixed asset investments 22,778 20,909

--------- ---------

Current assets:

Debtors 317 848

Cash and deposits 9,510 2,785

--------- ---------

9,827 3,633

Creditors (amounts falling due

within one year) (193) (219)

--------- ---------

Net current assets 9,634 3,414

--------- ---------

Net assets 32,412 24,323

--------- ---------

Capital and reserves:

Called-up equity share capital 1,796 1,447

Share premium 16,656 8,089

Capital redemption reserve 345 188

Capital reserve 14,488 16,432

Revaluation reserve (1,227) (2,424)

Revenue reserve 354 591

--------- ---------

Total equity shareholders' funds 32,412 24,323

--------- ---------

Net asset value per share 90.2p 84.0p

for the year ended 31 March 2010

Year ended Year ended
31 March 2010 31 March 2009


Cash flow

Net cash inflow

operating 868 42


Corporation tax (174) (143)


Purchase of (9,818) (2,234)

Sale/repayment of

Investments 10,658 4,879

--------- ---------

Net cash inflow

from financial 840 2,645

Equity dividends (1,157) (575)

--------- ---------

Net cash inflow

before financing 377 1,969


Issue of shares 9,602 72

Share issue (529) (9)

Purchase of

for (2,725) (773)

--------- ---------

Net cash inflow/(outflow) 6,348 (710)
from financing

--------- ---------

Increase in cash and deposits 6,725 1,259

--------- ---------

Reconciliation of return

before tax to net cash
flow from


Return on ordinary

activities 2,898 (2,890)
before tax

Gain on disposal of (1,651) (814)

Movements in fair value (1,058) 4,460
of investments

(Increase)/decrease in 531 (583)

Increase/(decrease) in 148 (131)

--------- ---------

Net cash inflow

operating 868 42

--------- ---------

Reconciliation of

in net funds

1 April 2009 Cash flows 31 March 2010


Cash and deposits 2,785 6,725 9,510

--------- --------- ---------

as at 31 March 2010

Cost Valuation % of net assets
ÂGBP000 ÂGBP000 by value

Fifteen largest venture capital investments

Promanex Group Holdings 1,595 1,595 4.9

Kerridge Commercial Systems 1,244 1,244 3.8

Axial Systems Holdings 1,004 1,023 3.2

Phusion Healthcare 995 995 3.1

RCC Lifesciences 995 995 3.1

CloserStill Holdings 743 946 2.9

Advanced Computer Software* 381 872 2.7

Wear Inns 839 839 2.6

Paladin Group 861 831 2.6

Optilan Group 1,000 821 2.5

Crantock Bakery 442 772 2.4

Envirotec 456 708 2.2

Arleigh International 452 677 2.1

IG Doors 500 600 1.8

Britspace Group 794 583 1.8

--------- --------- --------

12,301 13,501 41.7

Other venture capital investments 6,741 4,275 13.2

--------- --------- --------

Total fixed asset investments 19,042 17,776 54.9

Listed fixed-interest investments 4,963 5,002 15.4

--------- --------- --------

Total fixed asset investments 24,005 22,778 70.3


Net current assets 9,634 29.7

--------- --------

Net assets 32,412 100.0

--------- --------

*Quoted on AIM


The board carries out a regular review of the risk environment in which the
company operates. The main areas of risk identified by the board are as

Investment risk: 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: 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: 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: 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: The board regularly reviews the system of internal
controls, both financial and non-financial, operated by the company and the
manager. These include controls designed to ensure that the company's assets
are safeguarded and that proper accounting records are maintained.

VCT qualifying status risk: 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. 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.


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. Under that
law the directors have elected to prepare the financial statements in accordance
with UK Accounting Standards. The financial statements are required by law to
give a true and fair view of the state of affairs of the company at the end of
the financial period and of the return of the company for that period. In
preparing these financial statements, the directors are required to (i) select
suitable accounting policies and then apply them consistently; (ii) make
judgements and estimates that are reasonable and prudent; (iii) state whether
applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements; and (iv)
prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.

In relation to the financial statements for the year ended 31 March 2010 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; 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 directors are also responsible for keeping proper accounting records that
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. 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.

The company's financial statements are published on the NVM Private Equity
Limited website, 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


The above summary of results for the year ended 31 March 2010 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; 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 proposed final dividend of 2.0p per share for the year ended 31 March 2010
will, if approved by shareholders, be paid on 9 July 2010 to shareholders on the
register at the close of business on 18 June 2010.

The full annual report including financial statements for the year ended 31
March 2010 is expected to be posted to shareholders on 28 May 2010 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.


(END) Dow Jones Newswires

May 20, 2010 09:06 ET (13:06 GMT)