Northern 3 VCT plc Annual Financial Report

17th May 2009


18 MAY 2009



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

Financial highlights - year ended 31 March 2009:
(comparative figures as at 31 March 2008 (18 month accounting

2009 2008

- Net assets GBP24.3m GBP28.6m

- Net asset value per share 84.0p 96.3p

- Return per share:
Revenue 2.6p 4.1p
Capital (13.0)p 4.7p
Total (10.4)p 8.8p

- Dividend per share proposed
in respect of the year:
Revenue 2.5p 4.2p
Capital 1.5p 1.8p
Total 4.0p 6.0p

- Cumulative return to
shareholders since launch:
Net asset value per share 84.0p 96.3p
Dividends paid per share* 20.9p 18.9p
Net asset value plus dividends
paid per share 104.9p 115.2p

- Share price at end of year 45.5p 84.5p

*Excluding proposed final dividend

For further information, please contact:

NVM Private Equity Limited 0191 244 6000
Alastair Conn/Christopher Mellor
Lansons Communications 020 7294 3685
Karen Mignon



The past year has seen investment companies operating in a severe
environment, with extreme fluctuations in the financial markets
accompanied by recession in the UK economy. The performance of many
small companies has been adversely affected by low confidence, weak
demand and restrictions on the availability of bank finance. The
financial results of Northern 3 VCT inevitably reflect this
unfavourable background.

Results and dividend
The net asset value (NAV) per share at 31 March 2009 was 84.0p, a
fall of 12.8% from the corresponding figure of 96.3p as at 31 March
2008. The total return for the year as shown in the income statement
was minus 10.4p, equivalent to 10.8% of the opening net asset value.
Over the same period the FTSE All-share index (on a total return
basis) fell by 29.3%.

An interim dividend of 2.0p per share was paid in January 2009 and
the directors propose a final dividend also of 2.0p per share, making
a total of 4.0p for the year. On an annualised basis, this is at the
same rate as the total dividend of 6.0p per share paid in respect of
the 18 month period ended 31 March 2008 following the change in
financial year end. The dividend per share for the year comprises a
2.5p revenue distribution and 1.5p paid out of capital gains realised
from venture capital investments.

Your board continues to attach a high degree of importance to
maintaining a satisfactory flow of dividends to shareholders. The
achievability of this depends on the amount of revenue derived from
our investments, which is likely to be affected over the coming year
by the low level of interest rates as well as the inability of some
investee companies to meet scheduled interest payments.

Investment portfolio
The business review in the annual report gives details of recent
developments in the investment portfolio. The level of new
investment activity has been slow and a number of our companies have
suffered from the prevailing business climate. Your board has as
usual been realistic in its approach to valuing the portfolio and
this is reflected in a number of downward adjustments to carrying
values. However there have also been some successes, in particular
the sales of our investments in Product Support (Holdings) and
Pivotal Laboratories Holdings. DxS, which develops molecular
diagnostic products to aid doctors and drug companies in selecting
therapies for patients, has continued to make strong progress and is
now our largest investment by value.

Corporate brokers
At the half-year stage we reported the failure of our corporate
brokers and market-makers, Landsbanki Securities (UK), in October
2008. A successor firm, Teathers, was appointed by your company but
regrettably in March 2009 this firm in turn was obliged to cease
trading due to the financial difficulties of its parent group.
Following a further review of the provision of corporate broking
services we are now pleased to announce the appointment of Singer
Capital Markets, an independent UK-based firm which acts as corporate
broker to a number of VCTs.

Share buy-backs
It has been the board's policy to buy back the company's ordinary
shares in the market at a 10% discount to NAV, subject to market
conditions and the terms of the authority granted by shareholders.
During the year to 31 March 2009 the company purchased for
cancellation 894,966 ordinary shares, equivalent to approximately
3.0% of the issued capital at the start of the year, at a total cost
of GBP773,000. We have reviewed our policy in the light of recent
developments and current market conditions and have concluded that
whilst we should maintain our ability to re-purchase shares, for the
time being it would not be appropriate to seek to maintain a fixed
10% discount. However we are highly conscious of the importance
which shareholders attach to having a readily available means of
realising their investment and we will, with our newly appointed
brokers, be giving further consideration to this subject in the near
future. Based on an annual dividend of 4.0p and the present
mid-market price of 45p, the company's shares yield 8.9% tax-free and
we believe that the proposed increase in the higher rate of income
tax next year will make VCT dividends even more attractive to
investors in future.

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 the Chancellor of the Exchequer's announcement in the 2008
Budget that investment management fees paid by VCTs were to become
exempt from VAT, HM Revenue & Customs has acknowledged that under
European Union VAT law this exemption should have applied from 1990
onwards. Our managers had already submitted a claim for repayment of
VAT previously paid and your company has so far recovered GBP280,000,
which has been recognised as a separate credit in the income
statement. Our managers are in negotiation with HM Revenue & Customs
with a view to pursuing a further repayment but this is not
sufficiently certain or quantifiable to be recognised in the
financial statements at this stage.

Board of directors
As previously reported, John Hustler retired as chairman of the
company in January 2009 and I would like to thank him on behalf of
shareholders and his board colleagues for his guidance since the
formation of the company in 2001. We are delighted that he has
agreed to continue as a non-executive director.

Future prospects
The present difficulties in the markets and the economy seem likely
to persist for some time to come. We have retained a high level of
cash and near-cash assets on the balance sheet, whilst remaining
within the investment requirements of the VCT legislation, and we are
in a good position to provide further support to our existing
investee companies where appropriate, at a time when banks are
reluctant to lend. For the time being the rate of new investment
completions has slowed and we will continue to take a cautious
approach to adding to the portfolio. We believe that opportunities
will emerge to acquire good businesses with solid long-term prospects
at attractive valuations.

James Ferguson

The audited financial statements for the year ended 31 March 2009 are
set out below.

for the year ended 31 March 2009

Year ended 31 March 2009 18 mths ended 31 March 2008
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000

Gain on
disposal of
investments - 814 814 - 85 85
Movements in
fair value
of investments - (4,460) (4,460) - 1,969 1,969
----- ----- ----- ----- ----- -----
- (3,646) (3,646) - 2,054 2,054

Income 1,249 - 1,249 2,228 - 2,228

Investment (140) (420) (560) (259) (903) (1,162)
management fee
Recoverable 67 213 280 - - -
Other expenses (213) - (213) (295) - (295)
----- ----- ----- ----- ----- -----
Return on
activities 963 (3,853) (2,890) 1,674 1,151 2,825
before tax
Tax on return
ordinary (208) 61 (147) (441) 271 (170)
----- ----- ----- ----- ----- -----
Return on
activities 755 (3,792) (3,037) 1,233 1,422 2,655
after tax
----- ----- ----- ----- ----- -----

Return per 2.6p (13.0)p (10.4)p 4.1p 4.7p 8.8p


in respect of 2.5p 1.5p 4.0p 4.2p 1.8p 6.0p
the year

for the year ended 31 March 2009

Year ended 18 months ended
31 March 2009 31 March 2008
GBP000 GBP000

Equity shareholders' funds at 1 April 28,645 29,281

Return on ordinary activities after (3,037) 2,655

Dividends recognised in the year (575) (2,418)

Net proceeds of share issues 63 287

Shares purchased for cancellation (773) (1,142)

Expenses charged to capital reserve - (18)
------ ------
Equity shareholders' funds at 31 24,323 28,645
March 2009
------ ------

as at 31 March 2009

31 March 2009 31 March 2008
GBP000 GBP000

Venture capital investments
Unquoted 13,606 17,852
Quoted 1,603 1,851
------ ------
Total venture capital investments 15,209 19,703

Listed fixed-interest investments 5,700 7,497
------ ------
Total fixed asset investments 20,909 27,200
------ ------

Current assets:
Debtors 848 265
Cash and deposits 2,785 1,526
------ ------
3,633 1,791
Creditors (amounts falling due
within one year) (219) (346)
------ ------
Net current assets 3,414 1,445
------ ------

Net assets 24,323 28,645
------ ------

Capital and reserves:
Called-up equity share capital 1,447 1,487
Share premium 8,089 8,031
Capital redemption reserve 188 143
Capital reserve 16,432 15,997
Revaluation reserve (2,424) 2,749
Revenue reserve 591 238
------ ------
Total equity shareholders' funds 24,323 28,645
------ ------

Net asset value per share 84.0p 96.3p

for the year ended 31 March 2009

Year ended 18 months ended
31 March 2009 31 March 2008
GBP000 GBP000 GBP000 GBP000

Cash flow statement

Net cash inflow from
operating activities 42 1,206

Corporation tax paid (143) (105)

Financial investment:
Purchase of investments (2,234) (16,041)
Sale/repayment of
Investments 4,879 16,133
------ ------
Net cash inflow
from financial investment 2,645 92

Equity dividends paid (575) (2,418)
------ ------
Net cash inflow/(outflow)
before financing 1,969 (1,225)

Issue of shares 72 293
Share issue expenses (9) (6)
Purchase of shares
for cancellation (773) (1,142)
------ ------
Net cash outflow from (710) (855)
------ ------
Increase/(decrease) in cash and 1,259 (2,080)
------ ------
Reconciliation of return
before tax to net cash flow
operating activities

Return on ordinary
activities before tax (2,890) 2,825
Gain on disposal of (814) (85)
Movements in fair value of 4,460 (1,969)
Decrease/(increase) in (583) 335
Increase/(decrease) in (131) 118
Expenses charged to capital - (18)
------ ------
Net cash inflow from
operating activities 42 1,206
------ ------
Reconciliation of movement
in net funds

1 April Cash flows 31 March 2009
GBP000 GBP000 GBP000

Cash and deposits 1,526 1,259 2,785
------ ------ ------

as at 31 March 2009

Cost Valuation % of net
GBP000 GBP000 assets
by value

Fifteen largest venture capital

DxS 327 2,587 10.6
Paladin Group 861 1,127 4.6
Axial Systems Holdings 1,004 1,101 4.5
Envirotec 456 822 3.4
Optilan Group 1,000 821 3.4
CloserStill Holdings 743 743 3.1
Britspace Holdings 1,201 735 3.0
Crantock Bakery 442 557 2.3
Frontier Foods 542 542 2.2
Abermed 375 527 2.2
Advanced Computer Software* 429 505 2.1
Promanex Group Holdings 1,000 500 2.0
Arleigh International 210 405 1.7
Wear Inns 386 384 1.6
IDOX* 298 367 1.5
------ ------ -----
9,274 11,723 48.2

Other venture capital investments 7,946 3,486 14.4
------ ------ -----
Total venture capital investments 17,220 15,209 62.6

Listed fixed-interest investments 6,113 5,700 23.4
------ ------ -----
Total fixed asset investments 23,333 20,909 86.0
Net current assets 3,414 14.0
------ -----
Net assets 24,323 100.0
------ -----

*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 follows:

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,
industry sector and geographical location. 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. Accordingly they seek to maintain a proportion of the
company's assets in cash or cash equivalents in order to be in a
position to take advantage of new unquoted investment opportunities.
The company has very little exposure to foreign currency risk and
does not enter into derivative transactions.

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
2009, 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 1985. 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 2009 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 2.0p per share for the year ended 31
March 2009 will, if approved by shareholders, be paid on 10 July 2009
to shareholders on the register at the close of business on 19 June

The full annual report including financial statements for the year
ended 31 March 2009 is expected to be posted to shareholders on 29
May 2009 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,


This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.

(END) Dow Jones Newswires

May 18, 2009 10:06 ET (14:06 GMT)