Northern Inv. Co PLC – Interim Results

10 NOVEMBER 2008

NORTHERN INVESTORS COMPANY PLC

UNAUDITED HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008

Northern Investors Company PLC is an investment trust managed by NVM Private Equity Limited. Launched in 1984 and listed on the London Stock Exchange since 1990, it invests mainly in unquoted venture capital holdings and aims to provide high long-term returns to shareholders through a combination of capital growth and dividend yield. 

Financial highlights (comparative figures as at 30 September 2007 in italics):

	2008	2007
Net assets	£49.7m	£56.1m
Net asset value per share	255.9p	286.3p
Mid-market share price	156.0p	226.5p
Share price discount to
net asset value	39.0%	20.9%
Return per share after tax:   Revenue   Capital   Total	3.9p (40.3)p (36.4)p	3.5p 7.9p 11.4p
Interim dividend per share declared in respect of the period	2.2p	2.2p

For further information, please contact:

NVM Private Equity Limited Alastair Conn/Christopher Mellor Website:  www.nvm.co.uk	0191 244 6000
Lansons Communications Karen Mignon	020 7294 3685

HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS

The period since 31 March 2008 has seen the onset of almost unprecedented turmoil in the world’s financial markets, and this has inevitably had some impact on our half-yearly results. Net asset value per share fell by 13.9% over the six months to 30 September 2008, although this compares favourably with the fall of 15.1% in the FTSE All-Share index over the same period.  New investment activity has been at a low level but several significant realisations have been achieved, resulting in a net cash inflow from operations of over £7.5 million during the half year. This has further enhanced the strength of the company’s balance sheet and accordingly the interim dividend has been maintained at 2.2p per share.

Net asset value and share price

The following table shows the net asset value (NAV) per share, mid-market share price and discount as at 30 September 2008 compared with the corresponding figures at 31 March 2008 and 30 September 2007:

	30 September 2008	31 March 2008	30 September 2007
NAV per share	255.9p	297.3p	286.3p
Share price	156.0p	195.0p	226.5p
Share price discount to NAV	39.0%	34.4%	20.9%

The increase in the discount to NAV reflects the general trend in the private equity investment trust sector, where many other companies have experienced steep declines in share price over the past six months.  Subsequent to 30 September 2008 the stock market has continued its downward movement and our share price has fallen further, to the point where the discount to NAV is almost 50% and (adjusting for cash and quoted investments) the implied discount to the unquoted investment portfolio is well over 60%.

The percentage movement in NAV and share price compared with the movement in the FTSE All-Share index over the six and 12 month periods to 30 September 2008 is as follows:

	NAV per share	Share price	FTSE All-Share
Past six months	-13.9%	-20.0%	-15.1%
Past 12 months	-10.6%	-31.1%	-25.1%

Revenue and dividend

Investment income for the half year was at a slightly higher level than in the corresponding period and, with the benefit of VAT exemption on management fees, the revenue return per share rose from 3.5p to 3.9p. The directors have declared an unchanged interim dividend of 2.2p per share, payable on 9 January 2009 to shareholders on the register on 5 December 2008. In the absence of unforeseen circumstances it is envisaged that the dividend for the full year will be at least maintained at last year’s level of 7.2p.

Investment portfolio

New investment activity in the half year was subdued, reflecting the increasingly difficult economic and market background. An initial investment of £1.2 million was made in CloserStill Holdings, a new vehicle formed by the management team responsible for the success of the business-to-business exhibitions group Ithaca Holdings from which we exited in 2007. The other significant new holdings, in Tikit Group and CGI Group Holdings, resulted from the sale or re-structuring of existing investments.

Investment sale proceeds amounted to £11.5 million, generating a net surplus of £1.7 million over carrying value and £3.7 million over original cost. The outstanding success in the period was the sale of the logistics contractor Product Support (Holdings) to Wincanton plc, which generated cash proceeds of £7.4 million and a surplus of £1.6 million over the 31 March 2008 carrying value.  Over a holding period of only 18 months the cash return was more than twice our original investment.  TFB Group, which develops software for professional practice management, was sold to the AIM-quoted IT company Tikit Group plc for a total of £1.5 million in cash and shares, and CGI Group was re-structured under a new holding company, CGI Group Holdings, in a transaction which realised £0.5 million in cash and left us with a slightly enhanced equity stake in the new company. Several other companies have been in discussions with a view to possible exit, some of which may yet come to fruition despite the general slowdown in the corporate transactions market.

The uncertainty as to the immediate prospects for the UK economy has made it unusually difficult to determine the fair value of the company’s portfolio of unquoted investments, against a background of falling price/earnings ratios in the stock markets and revisions to the expectations of individual businesses. In a number of cases we have felt it appropriate to make significant provisions against holdings where we nevertheless believe the long-term outlook is good provided that short-term trading conditions can be overcome. Examples of this include Astbury Marsden Holdings, Foreman Roberts Group and Promanex Group Holdings. Companies with a direct involvement in the construction industry, such as John Laing Partnership, Britspace Holdings and IG Doors, are inevitably finding the environment challenging. However our long-standing investment in Weldex (International) Offshore is performing very well and more recent additions such as Axial Systems Holdings, Envirotec and Optilan Group are making encouraging progress.

In the current climate the attitude of the UK clearing banks to their corporate customers’ requirements is not invariably supportive, and it is likely that in a number of cases we will have to provide further funding either to supplement bank facilities or in some cases to replace the bank altogether. This will require both a steady nerve and a careful distinction between those companies which have a sustainable business model and those which may find it difficult to survive in a harsher economic climate.

VAT on management fees

The management fees payable to NVM Private Equity have been exempt from VAT since 1 January 2008 and this represents a cost saving of approximately £175,000 in the current financial year. An asset of £600,000 was recognised in the financial statements as at 31 March 2008 in respect of VAT expected to be recovered in respect of prior periods, and the process of obtaining repayment is well advanced.

Prospects

We expect that conditions in the UK economy will worsen before there is any significant improvement, and this calls for an essentially defensive approach to portfolio management in the short to medium term. This will not be the first recession which your company and managers have experienced. A highly selective approach is being taken to assessing potential new investment opportunities, whilst existing investee companies will continue to be closely monitored and supported, if appropriate, with additional funding. We have a strong reserve of liquidity to assist us in this process and although performance in the short term is likely to remain depressed, the company is well placed to make further progress when conditions eventually become more favourable.

On behalf of the Board

Peter Haigh

Chairman

The unaudited half-yearly financial statements for the six months ended 30 September 2008 are set out below.

INCOME STATEMENT

(unaudited) for the six months ended 30 September 2008

	Six months ended 30 September 2008			Six months ended 30 September 2007
	Revenue  £000	Capital  £000	Total  £000	Revenue  £000	Capital  £000	Total  £000
Gain on disposal of investments	–	1,679	1,679	–	630	630
Movements in fair value
of investments	–	(9,251)	(9,251)	–	1,279	1,279
	——	——	——	——	——	——
	–	(7,572)	(7,572)	–	1,909	1,909
Income	1,271	–	1,271	1,158	–	1,158
Investment management fee	(152)	(354)	(506)	(169)	(396)	(565)
Recoverable VAT	–	–	–	–	–	–
Other expenses	(178)	–	(178)	(182)	–	(182)
	——	——	——	——	——	——
Return on ordinary activities
before tax	941	(7,926)	(6,985)	807	1,513	2,320
Tax on return on ordinary activities	(192)	99	(93)	(120)	48	(72)
	——	——	——	——	——	—–—
Return on ordinary activities
after tax	749	(7,827)	(7,078)	687	1,561	2,248
	——	——	——	——	——	——
Return per share	3.9p	(40.3)p	(36.4)p	3.5p	7.9p	11.4p

				Year ended 31 March 2008
				Revenue  £000	Capital  £000	Total  £000
Gain on disposal of investments				–	830	830
Movements in fair value
of investments				–	2,596	2,596
				——	——	——
				–	3,426	3,426
Income				2,626	–	2,626
Investment management fee				(327)	(896)	(1,223)
Recoverable VAT				166	434	600
Other expenses				(329)	–	(329)
				——	——	——
Return on ordinary activities
before tax				2,136	2,964	5,100
Tax on return on ordinary activities				(559)	139	(420)
				——	——	——
Return on ordinary activities
after tax				1,577	3,103	4,680
				——	——	——
Return per share				8.0p	15.8p	23.8p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

(unaudited) for the six months ended 30 September 2008

	Six months ended  30 September 2008  £000	Six months ended  30 September 2007  £000	Year ended  31 March 2008  £000
Equity shareholders’ funds
at 1 April 2008	57,755	55,043	55,043
Return on ordinary activities after tax	(7,078)	2,248	4,680
Dividends recognised in the period	(971)	(923)	(1,354)
Shares purchased for cancellation	–	(281)	(614)
	——	——	——
Equity shareholders’ funds
at 30 September 2008	49,706	56,087	57,755
	——	——	——

BALANCE SHEET

(unaudited) as at 30 September 2008

	30 September 2008  £000	30 September 2007  £000	31 March 2008  £000
Fixed asset investments
Unquoted	36,462	51,406	52,114
Quoted	736	593	329
	——	——	——
Total fixed asset investments	37,198	51,999	52,443
	——	——	——
Current assets:
Investments	906	2,222	861
Debtors	675	854	1,073
Cash at bank	11,214	1,113	3,722
	——	——	——
	12,795	4,189	5,656
Creditors (amounts falling due
within one year)	(287)	(101)	(344)
	——	——	——
Net current assets	12,508	4,088	5,312
	——	——	——
Net assets	49,706	56,087	57,755
	——	——	——
Capital and reserves
Called-up equity share capital	4,856	4,898	4,856
Share premium	12,694	12,694	12,694
Capital redemption reserve	299	257	299
Capital reserve:
Realised	30,631	27,010	27,177
Unrealised	(957)	9,282	10,324
Revenue reserve	2,183	1,946	2,405
	——	——	——
Total equity shareholders’ funds	49,706	56,087	57,755
	——	——	——
Net asset value per share	255.9p	286.3p	297.3p

CASH FLOW STATEMENT

(unaudited) for the six months ended 30 September 2008

	Six months ended  30 September 2008		Six months ended  30 September 2007		Year ended  31 March 2008
	£000	£000	£000	£000	£000	£000
Cash flow statement
Net cash inflow from
operating activities		835		468		1,407
Taxation:
Corporation tax paid		–		–		–
Financial investment:
Purchase of investments	(3,831)		(8,035)		(13,336)
Sale/repayment of investments	11,504		4,993		11,367
	——		——		——
Net cash inflow/(outflow) from
financial investment		7,673		(3,042)		(1,969)
Equity dividends paid		(971)		(923)		(1,354)
		——		——		——
Net cash inflow/(outflow) before
use of liquid resources and financing		7,537		(3,497)		(1,916)
Financing:
Purchase of shares for cancellation		–		(281)		(614)
		——		——		——
Net cash inflow/(outflow) before
use of liquid resources		7,537		(3,778)		(2,530)
Net cash inflow/(outflow) from
use of liquid resources		(45)		3,751		5,112
		——		——		——
Increase/(decrease) in cash at bank		7,492		(27)		2,582
		——		——		——
Reconciliation of revenue return
before tax to net cash flow from
operating activities
Revenue return on ordinary
activities before tax		941		807		2,136
(Increase)/decrease in debtors		398		229		(232)
Decrease in creditors		(150)		(172)		(35)
Management fees charged to capital		(354)		(396)		(462)
		——		——		——
Net cash inflow from
operating activities		835		468		1,407
		——		——		——
Reconciliation of movement
in net funds
	1 April 2008		Cash flows		30 September 2008
		£000		£000		£000
Short-term investments		861		45		906
Cash at bank		3,722		7,492		11,214
		——		——		——
Net funds		4,583		7,537		12,120
		——		——		——

INVESTMENT PORTFOLIO SUMMARY

as at 30 September 2008

Company	Cost £000	Valuation £000	% of net assets by valuation
Weldex (International) Offshore	200	3,832	7.7
Axial Systems Holdings	2,301	2,301	4.6
Envirotec	1,008	1,926	3.9
Optilan Group	1,900	1,900	3.8
Paladin Group	1,407	1,862	3.7
Stainton Metal Company	1,100	1,855	3.7
CGI Group Holdings	1,723	1,723	3.5
Pivotal Laboratories Holdings	1,000	1,542	3.1
Longhirst Venues	374	1,432	2.9
Britspace Holdings	1,763	1,425	2.9
	——	——	—–
Ten largest investments	12,776	19,798	39.8
Crantock Bakery	1,061	1,384	2.8
Liquidlogic	292	1,353	2.7
DxS	841	1,306	2.6
Astbury Marsden Holdings	2,590	1,295	2.6
CloserStill Holdings	1,234	1,234	2.5
Arleigh International	480	1,082	2.2
Abermed	800	1,073	2.1
S&P Coil Products	660	1,039	2.1
Promanex Group Holdings	1,974	987	2.0
Foreman Roberts Group	3,914	978	2.0
	——	——	—–
Twenty largest investments	26,622	31,529	63.4
Other investments	11,533	5,669	11.4
	——	——	—–
Total fixed asset investments	38,155	37,198	74.8
	——
Net current assets		12,508	25.2
		——	—–
Net assets		49,706	100.0
		——	—–

The above half-yearly financial statements for the six months ended 30 September 2008 do not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 March 2008 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies;  the independent auditors’ report on those financial statements under Section 235 of the Companies Act 1985 was unqualified.  The half-yearly financial statements have been prepared on the basis of the accounting policies set out in the annual financial statements for the year ended 31 March 2008.

The directors confirm that to the best of their knowledge the half-yearly financial statements have been prepared in accordance with the Statement “Half-yearly financial reports” issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year, and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

The calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the period and on 19,425,440 (2007 19,640,134) ordinary shares, being the weighted average number of shares in issue during the period.

The interim dividend of 2.2p for the year ending 31 March 2009 will be paid on 9 January 2009 to shareholders on the register at the close of business on 5 December 2008.

A copy of the half-yearly financial report for the six months ended 30 September 2008 is expected to be posted to shareholders on 21 November 2008 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, www.nvm.co.uk.

ENDS

END

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