Northern Investors Co PLC – Annual Financial Report

Annual Financial Report

18 MAY 2011

 

NORTHERN INVESTORS COMPANY PLC

 

RESULTS FOR THE YEAR ENDED 31 MARCH 2011

 

 

Northern Investors Company PLC is an investment trust managed by NVM Private Equity.  Launched in 1984 and listed on the London Stock Exchange since 1990, the trust 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 – year ended 31 March 2011:
(comparative figures as at 31 March 2010)

 

		2011	2010
	Net assets	£59.0m	£52.9m
	Net asset value per share	304.1p	272.9p
	Revenue return per share	5.4p	7.7p
	Dividend per share declared
	in respect of the year	8.0p	7.7p
	Total return for the year:
	Pence per share	38.9p	36.3p
	As % of opening net asset value	14.3%	14.9%
	Share price at end of year	210p	165p
	Discount to net asset value	30.9%	39.5%

 

 

 

For further information, please contact:

 

NVM Private Equity
Peter Haigh/Christopher Mellor                0191 244 6000

 

Oriel Securities
Joe Winkley/Emma Griffin                       020 7710 7600

 

Website:  www.nvm.co.uk

 

 

NORTHERN INVESTORS COMPANY PLC

 

CHAIRMAN’S STATEMENT

 

 

Northern Investors has performed well during the year under review despite very challenging market conditions for small private companies in the UK.  Net asset value (NAV) per share reached an all-time high of over 300p at the end of the period, and the dividend has been increased for the fourteenth successive year.  The share price discount to NAV has fallen significantly from the levels of 2008/2009 and stood at just over 30% as at 31 March 2011.

 

Net asset value and share price
The NAV per share at 31 March 2011 was 304.1p, up by 11.4% from the corresponding figure of 272.9p at 31 March 2010.  The FTSE All-Share index rose by 5.4% over the same period.  The total return per share for the year as shown in the income statement was 38.9p, equivalent to 14.3% of the opening NAV.

 

The mid-market share price rose by 27.3% during the year, from 165p to 210p.  The share price discount to NAV fell from 39.5% to 30.9%, a further move in the right direction but still well above the levels experienced in the decade leading up to the financial crisis of 2008.

 

Revenue statement and dividend
The revenue return after tax for the year fell from £1.5 million to £1.0 million, the preceding year having benefitted from a recovery of VAT on management fees as well as an unusually low tax charge.  Investment income was approximately 10% lower than in 2009/10, reflecting high cash holdings during the year following recent successful investment disposals.  The revenue return per share fell from 7.7p per share to 5.4p.

 

The directors propose a final dividend of 5.8p per share (2010 5.5p), increasing the total dividend for the full year from 7.7p to 8.0p – continuing the long unbroken sequence of annual increases.  As indicated last year, the dividend will be funded partly by drawing on the accumulated revenue reserve.  Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 22 July 2011 to shareholders on the register on 1 July 2011.

 

Investment portfolio
The Business Review in the annual report gives detailed information about developments in the investment portfolio during the year.  New investments totalled £13.7 million, the highest annual figure on record, and the flow of new opportunities has continued to be strong.  Following the announcement referred to in the paragraphs below dealing with corporate strategy, no further new investments will be made except where considered necessary by the directors to protect or enhance the value of, or to facilitate the orderly realisation of, an existing investment.

 

The most significant exit in the year was from Weldex (International) Offshore, where our 1996 equity investment of £200,000 realised proceeds of £7.1 million (of which £3.3 million was re-invested in a successor company under new private equity ownership).  A further £1.4 million in deferred proceeds was received in respect of DxS, which was sold in 2009.

 

The companies in our portfolio have in most cases made good progress and should be capable of generating good returns in the realisation phase.

 

Board of directors
Two directors have informed the company that they will not be seeking re-election to the board at the annual general meeting.

 

Michael Denny played a central role in the formation of Northern Investors in 1984 and was managing director until 1988, when the company ceased to be a self-managed investment company.  He was then executive chairman of NVM Private Equity until his retirement in April 2008, also serving a term as chairman of the British Venture Capital Association.  Sarah Stewart has been a director since 2004 and has indicated that she now wishes to stand down.

 

We are sorry to see Michael and Sarah leave the board, and on behalf of shareholders I would like to express appreciation of their contribution to the company’s success.

 

Corporate strategy
Two years ago the directors sought and received a mandate from shareholders to continue the life of the company for a further three years, until the annual general meeting in June 2012.  The company’s investments have subsequently performed well against a difficult UK economic background, with NAV per share up by 25% over the two years from March 2009.  The share price, which in common with those of many other private equity investment trusts had reached a low point in the first half of 2009, has more than doubled over the past two years.  However the discount to NAV, although much reduced from its peak, is still at an unacceptably high level.

 

The company announced on 14 April 2011 that a general meeting had been requisitioned by a shareholder to consider resolutions requiring the directors to (a) bring forward proposals to address the lack of liquidity in the shares and the high discount to NAV and (b) make no further investments until the resolutions had been voted on by shareholders.

 

Your board has subsequently consulted with all of the company’s largest shareholders and has concluded as a result of these consultations that, rather than awaiting the scheduled continuation vote in 2012, it is the wish of a majority of shareholders that the company should now cease making new investments and proceed to realise the investment portfolio on an orderly basis with a view to returning the cash proceeds to shareholders over a period of time.  The board is currently formulating detailed proposals to implement this change in strategy, which we expect to bring to a general meeting of shareholders in the near future.  In the light of this the notice requisitioning a general meeting has been withdrawn.

 

Prospects
Our portfolio companies have continued to do well and the majority are well positioned to benefit from a continuation of the slow emergence of the UK economy from recession.  Longer-standing shareholders will be aware that realising value from a portfolio of minority interests in small unquoted companies is not a process that can be rushed, but our managers have a good record in identifying the right strategic time to exit from such holdings at prices in excess of book value.  Consequently we believe that there are good prospects for shareholders in due course, as a result of realising proceeds in excess of the present NAV per share.

 

Peter Haigh
Chairman

 

 

The audited financial statements for the year ended 31 March 2011 are set out below.

 

 

INCOME STATEMENT
for the year ended 31 March 2011

 

	Year ended 31 March 2011			Year ended 31 March 2010
	Revenue  £000	Capital  £000	Total  £000	Revenue  £000	Capital  £000	Total  £000
Gain on disposal of
investments	–	3,834	3,834	–	3,194	3,194
Movements in fair value
of investments	–	3,758	3,758	–	2,686	2,686
	———-	———-	———-	———-	———-	———-
	–	7,592	7,592	–	5,880	5,880
Income	1,915	–	1,915	2,138	–	2,138
Investment management fee	(185)	(1,410)	(1,595)	(248)	(580)	(828)
Recoverable VAT	–	–	–	69	124	193
Other expenses	(357)	–	(357)	(340)	–	(340)
	———-	———-	———-	———-	———-	———-
Return on ordinary
activities before tax	1,373	6,182	7,555	1,619	5,424	7,043
Tax on return on
ordinary activities	(330)	330	–	(125)	128	3
	———-	———-	———-	———-	———-	———-
Return on ordinary
activities after tax	1,043	6,512	7,555	1,494	5,552	7,046
	———-	———-	———-	———-	———-	———-
Return per share	5.4p	33.5p	38.9p	7.7p	28.6p	36.3p

 

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
for the year ended 31 March 2011

 

		Year ended  31 March 2011  £000	Year ended  31 March 2010  £000
Equity shareholders’ funds at 1 April 2010		52,927	47,297
Return on ordinary activities after tax		7,555	7,046
Dividends recognised in the year		(1,494)	(1,416)
		———-	———-
Equity shareholders’ funds at 31 March 2011		58,988	52,927
		———-	———-

 

 

BALANCE SHEET
as at 31 March 2011

 

	31 March 2011  £000	31 March 2010  £000
Fixed assets:
Investments	47,736	35,579
	———-	———-
Current assets:
Investments	42	1,037
Debtors	765	563
Cash and deposits	12,180	15,816
	———-	———-
	12,987	17,416
Creditors (amounts falling due within one year)	(1,735)	(68)
	———-	———-
Net current assets	11,252	17,348
	———-	———-
Net assets	58,988	52,927
	———-	———-
Capital and reserves:
Called-up equity share capital	4,849	4,849
Share premium	12,694	12,694
Capital redemption reserve	306	306
Capital reserve	38,986	31,374
Revaluation reserve	136	1,236
Revenue reserve	2,017	2,468
	———-	———-
Total equity shareholders’ funds	58,988	52,927
	———-	———-
Net asset value per share	304.1p	272.9p

 

 

CASH FLOW STATEMENT
for the year ended 31 March 2011

 

			Year ended  31 March 2011		Year ended  31 March 2010
			£000	£000	£000	£000
Cash flow statement
Net cash inflow from operating activities				511		1,290
Taxation:
Corporation tax paid				(1)		(176)
Financial investment:
Purchase of investments			(13,724)		(10,211)
Sale/repayment of investments			10,077		12,519
			———-		———-
Net cash inflow/(outflow) from financial investment				(3,647)		2,308
Equity dividends paid				(1,494)		(1,416)
				———-		———-
Net cash inflow/(outflow) before
use of liquid resources				(4,631)		2,006
Net cash inflow from
management of liquid resources				995		1,390
				———-		———-
Increase/(decrease) in cash at bank				(3,636)		3,396
				———-		———-
Reconciliation of revenue return before tax
to net cash flow from operating activities
Revenue return on ordinary activities before tax				1,373		1,619
(Increase)/decrease in debtors				(120)		165
Increase/(decrease) in creditors				668		(38)
Expenses charged to capital reserve				(1,410)		(456)
				———-		———-
Net cash inflow from operating activities				511		1,290
				———-		———-
Reconciliation of movement
in net funds
	1 April 2010		Cash flows		31 March 2011
		£000		£000		£000
Cash at bank		15,816		(3,636)		12,180
Short-term investments		1,037		(995)		42
		———-		———-		———-
Net funds		16,853		(4,631)		12,222
		———-		———-		———-

 

 

INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2011

 

	Cost £000	Valuation £000	% of net assets by value
Kerridge Commercial Systems	3,978	6,957	11.8
Promanex Group Holdings	3,346	4,217	7.1
Control Risks Group Holdings	3,731	4,163	7.1
Kitwave One	3,633	3,633	6.2
Weldex (International) Offshore Holdings	3,253	3,397	5.8
Axial Systems Holdings	2,311	2,627	4.4
Closerstill Holdings	1,234	1,942	3.3
IG Doors	880	1,728	2.9
Arleigh International	1,034	1,582	2.7
Alaric Systems	1,619	1,542	2.6
	———-	———-	——–
Ten largest investments	25,019	31,788	53.9
Envirotec	1,008	1,476	2.5
Crantock Bakery	1,061	1,304	2.2
Wear Inns	1,304	1,304	2.2
Paladin Group	1,407	1,303	2.2
Cawood Scientific	1,196	1,196	2.0
Promatic Group	1,195	1,195	2.0
CGI Group Holdings	1,723	1,063	1.8
S&P Coil Products	334	960	1.7
Optilan Group	1,900	950	1.6
Lanner Group	891	891	1.5
	———-	———-	——–
Twenty largest investments	37,038	43,430	73.6
Closer2 Investments	866	866	1.5
Direct Valeting	647	850	1.4
Longhirst Venues	397	645	1.1
Mantis Deposition Holdings	624	624	1.1
e-know.net	480	561	1.0
Astbury Marsden Holdings	2,899	309	0.5
Interlube Systems	62	222	0.4
Warmseal Windows (Newcastle)	818	205	0.3
RTC Group (AIM quoted)	388	24	–
Britspace Group	2,381	–	–
	———-	———-	——–
Total fixed asset investments	46,600	47,736	80.9
	———-
Net current assets		11,252	19.1
		———-	——–
Net assets		58,988	100.0
		———-	——–

 

 

BUSINESS RISKS

 

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 companies, 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 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.  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.

 

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.

 

Liquidity risk:  The company’s investments may be difficult to realise.  The fact that a stock is quoted on a recognised stock exchange 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.

 

 

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

 

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 (UK Generally Accepted Accounting Practice).  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.  Subsequent to 31 March 2011 the board has announced proposals to cease making new investments and to realise the investment portfolio on an orderly basis with a view to returning the cash proceeds to shareholders over a period of time.  If these proposals are approved by shareholders, there may be an impact on the going concern assessment and on the valuations placed on investments and other assets and liabilities in the accounting period in which such approval is given.

 

In relation to the financial statements for the year ended 31 March 2011, each of the directors has confirmed that to the best of his or her 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 are sufficient to show and explain the company’s transactions and 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 directors of the company at the date of this announcement were Mr P J Haigh (Chairman), Mr J C Barnsley, Mr E M P Denny, Mr F L G Neale, Mr M P Nicholls and Mrs S L Stewart.

 

 

OTHER MATTERS

 

The above summary of results for the year ended 31 March 2011 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 5.8p per share for the year ended 31 March 2011 will, if approved by shareholders, be paid on 22 July 2011 to shareholders on the register at the close of business on 1 July 2011.

 

The full annual report including financial statements for the year ended 31 March 2011 is expected to be posted to shareholders on 3 June 2011 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.

 

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 jurisdictions.

 

Neither the contents of the NVM Private Equity Limited website nor the contents of any website accessible from hyperlinks on the NVM Private Equity Limited website (or any other website) is incorporated into, or forms part of, this announcement.

---