12 MAY 2009
NORTHERN INVESTORS COMPANY PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2009
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 2009:
(comparative figures as at 31 March 2008)
2009 2008
- Net assets £47.3m £57.8m
- Net asset value per share 243.9p 297.3p
- Cash and near cash investments
included in net assets £14.8m £4.6m
- Revenue return per share 7.1p 8.0p
- Dividend per share declared
in respect of the year 7.3p 7.2p
- Total return for the year:
Pence per share (46.5)p 23.8p
As % of opening net asset value (15.6)% 8.5%
- Share price at end of year 96.0p 195.0p
- Discount to net asset value 60.6% 34.4%
For further information, please contact:
NVM Private Equity Limited 0191 244 6000
Alastair Conn/Christopher Mellor
Website: www.nvm.co.uk
Lansons Communications 020 7294 3685
Karen Mignon
NORTHERN INVESTORS COMPANY PLC
CHAIRMAN'S STATEMENT
As shareholders will know only too well, the past year has seen
difficulties in the economy and financial markets which could hardly
have been imagined twelve months ago. The operating environment for
small and medium-sized businesses in the UK has been extremely
challenging and there is no compelling reason to believe that there
will be a significant improvement in the near future, with the
recession now firmly established. Against this background our
company has inevitably felt some adverse effects, but the investment
portfolio has demonstrated a measure of resilience and your board
believes that the company is in a good position to move forward when
market conditions improve. The past year has seen a strong inflow of
cash from successful investment realisations which will enable us to
take advantage of new opportunities at the appropriate time.
Net asset value and share price
The net asset value (NAV) per share at 31 March 2009 was 243.9p, down
by 18.0% from the corresponding figure of 297.3p at 31 March 2008.
Over the same period the FTSE All-Share index fell by 32.2%. The
company's NAV has outperformed the index in each of the last three
years.
Northern Investors, in common with many other private equity
investment trusts, has experienced a steep fall in share price over
the past year. Market sentiment towards the sector has been impacted
by concern about possible unfunded investment commitments as well as
scepticism about the robustness of investment valuations. The
company's mid-market share price fell to a 12-year low point of 96p
as at 31 March 2009 - down by more than 50% over the past 12 months.
This disproportionate movement has caused the share price discount to
NAV to widen to 60.6%, compared with 34.4% a year earlier. Adjusting
for the substantial cash and near-cash assets on the balance sheet,
the implied discount to the directors' valuation of the venture
capital portfolio is over 88%. As we have a very strong balance
sheet and no commitments to invest in third party funds, the fall in
the share price seems greatly overdone even when the undoubtedly
difficult economic environment is taken into account. It is
encouraging to note that since 31 March there has been a modest
upward movement in the share price, although at the date of this
report the discount remains at over 45%.
Revenue statement and dividend
The revenue return before tax for the year fell from £2.14 million to
£1.75 million, a fall of 17.9%. Management expenses were slightly
lower than in the previous year, but investment income suffered from
the dramatic movement in interest rates which saw base rate reduced
to 0.5% in March 2009. The revenue return per share was 7.1p
compared with 8.0p last year.
The directors propose a final dividend of 5.1p per share (last year
5.0p), increasing the total for the year from 7.2p to 7.3p. Subject
to approval by shareholders at the annual general meeting, the final
dividend will be paid on 3 July 2009 to shareholders on the register
on 12 June 2009.
Investment portfolio
The Business Review in the annual report gives detailed information
about developments in the investment portfolio during the year. The
amount committed to new investments was well down from last year's
record level, reflecting a general slowdown in deal activity in the
private company market in response to the onset of recession and the
limited availability of bank finance. Given the recent fluctuations
in the economy and the financial markets, this has undoubtedly been a
year in which to be cautious about making new commitments. It is
however pleasing to report that a number of our portfolio holdings
have come to fruition during the period - the total proceeds of
investment sales amounted to almost £16 million, equivalent to over
one quarter of the company's net assets at the beginning of the
year. The resulting net inflow of cash during the year has left us
with a very strong reserve of liquidity. Based on our experience of
previous recessions in the UK we expect to see some realistically
priced investment opportunities over the next two years, and our
balance sheet puts us in a good position to capitalise on these.
However it is also to be expected that in the short term it will be
more difficult to achieve realisations at attractive valuations.
Your board has taken its usual prudent approach to the valuation of
the portfolio as at 31 March 2009. Individual company valuations
have been affected not only by the general decline in quoted sector
price/earnings ratios, which (suitably discounted) we use in valuing
our unquoted holdings, but also in some cases by reduced
profitability. Several holdings have been substantially written down
to reflect short-term uncertainty about prospects. However there are
also instances of strong progress to report and it is particularly
encouraging to note the advance of DxS, which has achieved a step
change in the revenues and profitability derived from its range of
diagnostic products.
VAT on management fees
Following the recognition of an asset of £600,000 in the March 2008
accounts, a further £115,000 has been credited in the income
statement this year in respect of VAT paid on management fees in
earlier periods and now recoverable following recent court
decisions. 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.
Corporate strategy
As has already been stated, the directors believe that the company is
well positioned to make good progress in the medium term. In the
normal course of events the five-yearly resolution for the
continuation of the company would be proposed at the annual general
meeting in June 2010, just over one year from now, and (assuming a
favourable vote from shareholders) again in 2015. After careful
consideration, and after consulting the company's brokers JPMorgan
Cazenove, we have concluded that the present circumstances call for
an adjustment to these timings. Given our view that the investment
environment over the next two years is likely to be more conducive to
new investment than to realisations, we believe that it is unlikely
to be in the interests of shareholders to begin a winding-up of the
company in 2010. However we believe that it would also be
inappropriate to ask shareholders then to wait another five years for
a further opportunity to consider the company's future. It is
therefore intended that a resolution will be proposed at the
forthcoming annual general meeting, on 24 June 2009, to amend the
articles of association so that the next continuation resolution will
be required to be proposed at the annual general meeting in 2012.
Further details of this and other annual general meeting resolutions
are contained in a separate circular which is being sent to
shareholders with this annual report, and I hope that shareholders
will feel able to support the board's proposals.
Outlook
Northern Investors began life in October 1984 as a £5 million fund
focussing on small unquoted investments in the North East of
England. Over the ensuing 25 years the investment remit has been
steadily widened and the asset base has increased considerably, but
your board and managers have consistently aimed to follow the key
principles of careful investment selection, close (and where
necessary hands-on) monitoring of subsequent progress and timely
execution of realisation opportunities. The benefits of this
approach have been demonstrated through more than one previous
recession, and we believe that our company has the potential to
generate good returns for shareholders in the medium term.
Peter Haigh
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 Year ended 31 March 2008
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gain on disposal
of
investments - 2,483 2,483 - 830 830
Movements in
fair value
of investments - (12,387) (12,387) - 2,596 2,596
----- ----- ----- ----- ----- -----
- (9,904) (9,904) - 3,426 3,426
Income 2,267 - 2,267 2,626 - 2,626
Investment (303) (707) (1,010) (327) (896) (1,223)
management fee
Recoverable VAT 115 - 115 166 434 600
Other expenses (325) - (325) (329) - (329)
----- ----- ----- ----- ----- -----
Return on
ordinary
activities 1,754 (10,611) (8,857) 2,136 2,964 5,100
before tax
Tax on return on
ordinary (370) 198 (172) (559) 139 (420)
activities
----- ----- ----- ----- ----- -----
Return on
ordinary
activities 1,384 (10,413) (9,029) 1,577 3,103 4,680
after tax
----- ----- ----- ----- ----- -----
Return per share 7.1p (53.6)p (46.5)p 8.0p 15.8p 23.8p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2009
Year ended Year ended
31 March 2009 31 March 2008
£000 £000
Equity shareholders' funds
at 1 April 2008 57,755 55,043
Return on ordinary
activities after tax (9,029) 4,680
Dividends recognised
in the year (1,399) (1,354)
Shares purchased for cancellation (30) (614)
------ ------
Equity shareholders' funds
at 31 March 2009 47,297 57,755
------ ------
BALANCE SHEET
as at 31 March 2009
31 March 2009 31 March 2008
£000 £000
Fixed assets:
Investments 32,412 52,443
------ ------
Current assets:
Investments 2,427 861
Debtors 323 1,073
Cash at bank 12,420 3,722
------ ------
15,170 5,656
Creditors (amounts falling due
within one year) (285) (344)
------ ------
Net current assets 14,885 5,312
------ ------
Net assets 47,297 57,755
------ ------
Capital and reserves:
Called-up equity share capital 4,849 4,856
Share premium 12,694 12,694
Capital redemption reserve 306 299
Capital reserve - realised 31,582 27,177
Capital reserve - unrealised (4,524) 10,324
Revenue reserve 2,390 2,405
------ ------
Total equity shareholders' funds 47,297 57,755
------ ------
Net asset value per share 243.9p 297.3p
CASH FLOW STATEMENT
for the year ended 31 March 2009
Year ended Year ended
31 March 2009 31 March 2008
£000 £000 £000 £000
Cash flow statement
Net cash inflow from
operating activities 1,580 1,407
Taxation:
Corporation tax paid (98) -
Financial investment:
Purchase of investments (5,701) (13,336)
Sale/repayment of
Investments 15,912 11,367
------ ------
Net cash inflow/(outflow)
from financial investment 10,211 (1,969)
Equity dividends paid (1,399) (1,354)
------ ------
Net cash inflow/(outflow)
before use
of liquid resources and 10,294 (1,916)
financing
Financing:
Purchase of shares
for cancellation (30) (614)
------ ------
Net cash inflow/(outflow)
before use
of liquid resources 10,264 (2,530)
Net cash inflow/(outflow)
from
management of liquid (1,566) 5,112
resources
------ ------
Increase in cash at bank 8,698 2,582
------ ------
Reconciliation of revenue
return
before tax to net cash flow
from
operating activities
Revenue return on ordinary
activities before tax 1,754 2,136
(Increase)/decrease in 666 (232)
debtors
Increase/(decrease) in (133) (35)
creditors
Expenses charged to capital (707) (462)
reserve
------ ------
Net cash inflow from
operating activities 1,580 1,407
------ ------
Reconciliation of movement
in net funds
1 April Cash flows 31 March 2009
2008
£000 £000 £000
Cash at bank 3,722 8,698 12,420
Short-term investments 861 1,566 2,427
------ ------ ------
Net funds 4,583 10,264 14,847
------ ------ ------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2009
% of
Cost Valuation net assets
£000 £000 by value
DxS 841 4,803 10.1
Weldex (International) Offshore 200 4,568 9.7
Axial Systems Holdings 2,311 2,533 5.3
Britspace Holdings 3,603 2,205 4.7
Paladin Group 1,407 1,833 3.9
Envirotec 1,008 1,824 3.8
Optilan Group 1,900 1,558 3.3
Crantock Bakery 1,061 1,419 3.0
CloserStill Holdings 1,234 1,234 2.6
Abermed 800 1,127 2.4
------ ------ -----
Ten largest investments 14,365 23,104 48.8
Longhirst Venues 374 1,009 2.1
Liquidlogic 175 992 2.1
Promanex Group Holdings 1,974 987 2.1
S&P Coil Products 660 942 2.0
Arleigh International 480 927 2.0
e-know.net 480 653 1.4
Wear Inns 600 598 1.3
IG Doors 1,185 593 1.3
Direct Valeting 788 591 1.2
Promatic Group 968 484 1.0
------ ------ -----
Twenty largest investments 22,049 30,880 65.3
Other investments 14,887 1,532 3.2
------ ------ -----
Total fixed asset investments 36,936 32,412 68.5
------
Net current assets 14,885 31.5
------ -----
Net assets 47,297 100.0
------ -----
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, 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.
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.
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 5.1p per share for the year ended 31
March 2009 will, if approved by shareholders, be paid on 3 July 2009
to shareholders on the register at the close of business on 12 June
2009.
The full annual report including financial statements for the year
ended 31 March 2009 is expected to be posted to shareholders on 22
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,
www.nvm.co.uk.
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