Annual Financial Report

18 MAY 2009 NORTHERN 3 VCT PLC RESULTS FOR THE YEAR ENDED 31 MARCH 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 growth. Financial highlights - year ended 31 March 2009: (comparative figures as at 31 March 2008 (18 month accounting period)): 2009 2008 - Net assets £24.3m £28.6m - 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 Website: Lansons Communications 020 7294 3685 Karen Mignon NORTHERN 3 VCT PLC CHAIRMAN'S STATEMENT 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 £773,000. 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 £280,000, 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 Chairman The audited financial statements for the year ended 31 March 2009 are set out below. INCOME STATEMENT for the year ended 31 March 2009 Year ended 31 March 2009 18 mths ended 31 March 2008 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 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 - - - VAT Other expenses (213) - (213) (295) - (295) ----- ----- ----- ----- ----- ----- Return on ordinary activities 963 (3,853) (2,890) 1,674 1,151 2,825 before tax Tax on return on ordinary (208) 61 (147) (441) 271 (170) activities ----- ----- ----- ----- ----- ----- Return on ordinary 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 share Dividends paid/proposed in respect of 2.5p 1.5p 4.0p 4.2p 1.8p 6.0p the year RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 March 2009 Year ended 18 months ended 31 March 2009 31 March 2008 £000 £000 Equity shareholders' funds at 1 April 28,645 29,281 2008 Return on ordinary activities after (3,037) 2,655 tax 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 ------ ------ BALANCE SHEET as at 31 March 2009 31 March 2009 31 March 2008 £000 £000 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 CASH FLOW STATEMENT for the year ended 31 March 2009 Year ended 18 months ended 31 March 2009 31 March 2008 £000 £000 £000 £000 Cash flow statement Net cash inflow from operating activities 42 1,206 Taxation: 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) Financing: Issue of shares 72 293 Share issue expenses (9) (6) Purchase of shares for cancellation (773) (1,142) ------ ------ Net cash outflow from (710) (855) financing ------ ------ Increase/(decrease) in cash and 1,259 (2,080) deposits ------ ------ Reconciliation of return before tax to net cash flow from operating activities Return on ordinary activities before tax (2,890) 2,825 Gain on disposal of (814) (85) investments Movements in fair value of 4,460 (1,969) investments Decrease/(increase) in (583) 335 debtors Increase/(decrease) in (131) 118 creditors Expenses charged to capital - (18) reserve ------ ------ Net cash inflow from operating activities 42 1,206 ------ ------ Reconciliation of movement in net funds 1 April Cash flows 31 March 2009 2008 £000 £000 £000 Cash and deposits 1,526 1,259 2,785 ------ ------ ------ INVESTMENT PORTFOLIO SUMMARY as at 31 March 2009 Cost Valuation % of net £000 £000 assets by value Fifteen largest venture capital investments 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 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 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. 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. 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 jurisdictions. OTHER MATTERS 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 2009. 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, ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.