TIDMNRI
20 MAY 2016
NORTHERN INVESTORS COMPANY PLC
RESULTS FOR THE YEARED 31 MARCH 2016
Northern Investors Company PLC is a private equity investment trust
managed by NVM Private Equity LLP. The trust was launched in 1984 and
has been listed on the London Stock Exchange since 1990.
In July 2011 shareholders approved a change in investment strategy
whereby the trust ceased making new investments and began an orderly
realisation of its portfolio with a view to returning capital to
shareholders. The company has subsequently returned a total of GBP76.7
million to shareholders by way of tender offers and dividend
distributions.
Financial highlights (comparative figures as at 31 March 2015):
2016 2015
Net assets GBP17.1m GBP25.6m
Number of shares in issue at end of year 2,496,767 4,900,000
Net asset value per share 685.4p 522.7p
Cash distributions to shareholders
(dividends paid plus share buy-backs):
During year GBP16.1m GBP20.0m
Since change in investment policy in July 2011 GBP76.7m GBP60.6m
Total return for the year:
Pence per share 159.5p 92.2p
As % of opening net asset value 30.5% 21.3%
Proposed dividend per share for the year 24.0p 17.0p
Mid-market share price at end of year 635.0p 507.5p
Share price discount to net asset value 7.4% 2.9%
For further information, please contact:
Northern Investors Company PLC
Nigel Guy/Christopher Mellor 0191 244 6000
Stifel Nicolaus Europe Limited
Neil Winward/Mark Bloomfield/Gaudi Le Roux 020 7710 7600
Website: www.nvm.co.uk
NORTHERN INVESTORS COMPANY PLC
CHAIRMAN'S STATEMENT
Overview
I am delighted to report that the orderly realisation strategy adopted
by shareholders in 2011 has made significant progress over the past year,
with a continuing reduction in the number of remaining holdings in the
portfolio and significant further returns to investors. As previously
announced, in March 2016 the company completed its fifth tender offer to
shareholders, as a result of which GBP15.3 million was distributed.
This takes the total cash returns since July 2011 to GBP76.7 million,
with a further GBP17.1 million of net assets still on the balance sheet
at 31 March 2016. Our policy of developing a considered exit strategy
for each investment, and realising the inherent value at the optimum
time, has continued to deliver excellent results.
Financial results
The net asset value (NAV) per share at 31 March 2016 was 685.4 pence, an
increase of 31.1% from the corresponding figure of 522.7 pence at 31
March 2015. Over the past five financial years the NAV per share has
increased by 125%.
The total return per share for the year as shown in the income statement
was 159.5 pence, equivalent to 30.5% of the opening NAV. Gains realised
on investment sales during the year amounted to 103.6 pence per share,
as value continued to be unlocked by the run-off process. Dividend and
interest income from the much reduced investment portfolio fell by
approximately one third, but the revenue return per share, calculated on
the weighted average number of shares in issue during the year, rose
from 11.7 pence to 12.3 pence. It is likely that investment income will
continue to decline as the portfolio continues to reduce in size.
Dividend
Since 2013 the annual dividend has been paid in the form of a single
final dividend, with no interim dividend being declared. The directors
propose a dividend for the year ended 31 March 2016 of 24.0 pence per
share (last year 17.0 pence), equivalent to a total of GBP599,000 based
on the 2,496,767 shares now remaining in issue, thus distributing
substantially the whole of the available revenue surplus after tax for
the year. This is the twentieth consecutive year in which the dividend
per share has been increased. Subject to approval by shareholders at
the annual general meeting on 5 July 2016, the final dividend will be
paid on 22 July 2016 to shareholders on the register on 1 July 2016.
The directors will continue to recommend a dividend each year which
takes account of the level of investment income and expenses, subject to
observing the minimum amount necessary to maintain the company's
authorised investment trust status.
Investment portfolio
The number of holdings in the portfolio has continued to reduce, from 15
at the beginning of the financial year to eight at 31 March 2016.
Successful exits were achieved from Arleigh Group, Control Risks Group
Holdings, Direct Valeting, Kitwave One and Wear Inns. A total of
GBP20.8 million was realised from sales during the year, representing a
satisfactory uplift over the GBP15.8 million carrying value of the
relevant investments at the start of the year. Cumulatively, 22
investments have been exited since the change in investment policy in
July 2011, generating total capital proceeds of over GBP70 million.
The directors' valuation of the eight remaining holdings at 31 March
2016 was GBP11.7 million. The board reviews performance and exit
prospects for each holding with the manager on a regular basis. Now
that we are in the later stages of the realisation process, the degree
of diversification in the portfolio will continue to reduce. Our
orderly realisation strategy has produced excellent results to date, but
we recognise that it may be necessary to take a pragmatic approach to
the realisable value of some of the remaining investments in order to
maintain progress towards the final outcome.
Corporate strategy
Following the latest tender offer, the cumulative total of cash
distributed to shareholders since the change in investment policy is
GBP77 million, equivalent to 130% of the July 2011 net assets of GBP59
million. It is still our objective that the return of cash to
shareholders should be substantially completed by December 2017; our
latest review indicates that the further amount to be returned could be
in the range from GBP18 million to GBP23 million, making an ultimate
total of between GBP95 million and GBP100 million. This is equivalent
to between 160% and 170% of the net assets at the start of the
realisation process, and implies future cash distributions of between
720 pence and 920 pence for each share now in issue. As ever it must be
emphasised that estimates of future cash flows, and their timing, are
subject to considerable uncertainties, including general market
conditions, future investee company performance, the behaviour of other
shareholders in investee companies and, of course, M&A market sentiment.
To date, our preferred method of returning capital to shareholders has
been by tender offers priced at NAV, giving shareholders a choice as to
whether to tender their proportionate entitlement or a greater or lesser
number of shares according to their individual circumstances. The March
2016 tender offer was not fully taken up, with GBP15.3 million worth of
shares tendered compared with a maximum available of GBP20.0 million.
As a result those shareholders who wished to exit completely have been
able to do so. However we are left with over GBP10 million of cash on
the balance sheet at 31 March 2016, of which at least GBP5 million is
surplus to foreseeable requirements and available for distribution to
shareholders in accordance with our run-off policy.
Whilst further tender offers remain a possibility, your directors will
give careful consideration to the possibility of adopting an alternative
method of distribution which returns cash to all shareholders pro rata
to their holding. We are aware that the proportion of the company's
shares held by private investors has increased progressively over the
past five years and that, in the light of recent changes to the taxation
of dividend income and capital gains, some of these investors may have a
strong preference for returns to be taxable as capital rather than
income. The board will continue to liaise with its financial and legal
advisers in determining appropriate ways of distributing the realised
value in the portfolio. Should these methods require any form of
shareholder approval, then the relevant consent will be sought at the
appropriate time.
Contingent assets
As noted in the financial statements, at 31 March 2016 the company was
entitled to receive over the period to December 2017 up to GBP1.4
million of deferred proceeds from investment sales. These proceeds have
not yet been recognised in the financial statements as there is an
element of conditionality, and hence no reasonable certainty, attaching
to their eventual receipt.
The company has, in common with a number of other investment trust
companies, brought a claim against HM Revenue & Customs to recover VAT
paid on investment management fees in the period from 1990 to 2009, to
the extent not already recovered by the company, together with compound
interest. The claim has, by agreement with HMRC, been stayed pending
the outcome of similar litigation involving other investment trust
companies. At this stage the outcome of the claim is not foreseeable
and it is not practicable to estimate the possible recovery, if any.
Management
The change in the company's investment policy in 2011 was accompanied by
a review of the terms of the management agreement with NVM, in which the
board sought to move the emphasis from annual management fees towards an
incentive fee based on the generation of cash for distribution to
shareholders. It was agreed that the annual management fee would be
reduced on a stepped basis from GBP900,000 in the year ended 31 March
2012 to GBP300,000 in the year ended 31 March 2016. As we reported at
the half year stage, the board has agreed with NVM that with effect from
April 2016 the management fee will comprise two elements, a fixed fee at
the rate of GBP100,000 per annum and a variable fee equivalent to 1.0%
of the company's net assets calculated on a half-yearly basis, but
subject to an overall cap of GBP275,000 per annum. Also with effect
from April 2016, the manager's notice period has been reduced from
twelve to six months.
The directors have continued to make provision in each year's financial
statements for the additional fee expected to be payable in due course
under the performance incentive arrangement agreed with NVM in 2011.
The provision as at 31 March 2016 was GBP5.0 million (31 March 2015
GBP3.9 million); the minimum cash distribution target agreed at the
outset (GBP59 million plus a 7% annual hurdle) was exceeded when the
latest tender offer was completed, and so an initial payment of GBP2.8
million is due to NVM on the publication of the audited financial
statements for the year ended 31 March 2016. NVM have executed the
realisation programme with a high level of professional skill and
commitment and their performance fee, which ensures a close alignment of
their interests with those of shareholders, has been well earned.
Shares and share price
Following completion of the March 2016 tender offer, in which 2,403,233
shares were re-purchased at 635 pence per share, the number of shares
remaining in issue at the year end was 2,496,767 - representing
approximately 13% of the issued capital at the start of the realisation
process in 2011.
During the year the mid-market share price rose by 25%, from 507.5 pence
to 635.0 pence. The share price discount to NAV at the year end was
7.4% (31 March 2015 2.9%). The share price total return over the five
years to 31 March 2016, with dividends reinvested, was +247% compared
with +32% for the FTSE All-Share total return index.
Board of directors
John Barnsley and Mark Nicholls will retire and seek re-election at the
annual general meeting in accordance with the board's policy that
directors who have served for nine or more years should seek re-election
annually. I believe that the shareholders have benefitted greatly from
a stable board during the portfolio realisation programme and their
re-election to the board has my full support. In addition, I would like
to thank my fellow directors for the knowledge and insight they have
brought to the realisation process to date and I am sure that their
expertise will be valuable as we move towards the later stages of the
exercise.
Prospects
The remaining portfolio includes a number of holdings with good exit
potential, but there is no doubt that completion of the run-off
programme within the desired timescale will require hard work,
creativity and a stable economic environment. As I write this, the
uncertainty created by the UK/EU referendum, the US Presidential
election and global growth concerns is clearly dampening economic
progress as business leaders take stock of the various potential
outcomes. Whilst it is hoped that this is only a temporary phenomenon,
we are mindful of the longer term impact and the challenges and risks it
may present. However, your directors and manager will continue to focus
their efforts on achieving a successful conclusion to the process which
so far has produced excellent results.
Nigel Guy
Chairman
The audited financial statements for the year ended 31 March 2016 are
set out below.
INCOME STATEMENT
for the year ended 31 March 2016
Year ended 31 March 2016 Year ended 31 March 2015
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 5,067 5,067 - 5,870 5,870
Movements in
fair value of
investments - 3,413 3,413 - 2,464 2,464
---------- ---------- ---------- ---------- ---------- ----------
- 8,480 8,480 - 8,334 8,334
Income 1,025 - 1,025 1,546 - 1,546
Investment
management
fee (60) (1,324) (1,384) (90) (1,474) (1,564)
Other expenses (316) - (316) (313) - (313)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax,
being total
comprehensive
income 649 7,156 7,805 1,143 6,860 8,003
Tax on return
on ordinary
activities (45) 45 - (123) 155 32
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 604 7,201 7,805 1,020 7,015 8,035
---------- ---------- ---------- ---------- ---------- ----------
Return per 12.3p 147.2p 159.5p 11.7p 80.5p 92.2p
share
BALANCE SHEET
as at 31 March 2016
31 March 2016 31 March 2015
GBP000 GBP000
Fixed assets:
Investments 11,720 24,068
---------- ----------
Current assets:
Investments 56 56
Debtors 25 56
Cash and cash equivalents 10,408 5,477
---------- ----------
10,489 5,589
Creditors (amounts falling due within one year) (5,097) (4,046)
---------- ----------
Net current assets 5,392 1,543
---------- ----------
Net assets 17,112 25,611
---------- ----------
Capital and reserves:
Called-up equity share capital 624 1,225
Capital redemption reserve 4,531 3,930
Capital reserve (2,918) 4,257
Special reserve 12,674 12,674
Revaluation reserve 251 1,346
Revenue reserve 1,950 2,179
---------- ----------
Total equity shareholders' funds 17,112 25,611
---------- ----------
Net asset value per share 685.4p 522.7p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2016
------
Non-distributable
reserves ------ ------ Distributable reserves ------ Total
Capital
Share redemption Revaluation Capital Special Revenue
capital reserve reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2015 1,225 3,930 1,346 4,257 12,674 2,179 25,611
Return on
ordinary
activities
after tax
for the
year - - (1,095) 8,296 - 604 7,805
Re-purchase
of shares (601) 601 - (15,260) - - (15,260)
Share
re-purchase
expenses - - - (211) - - (211)
Dividends
paid - - - - - (833) (833)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2016 624 4,531 251 (2,918) 12,674 1,950 17,112
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2015
------
Non-distributable
reserves ------ ------ Distributable reserves ------ Total
Capital
Share redemption Revaluation Capital Special Revenue
capital reserve reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2014 2,182 2,973 12,495 5,475 12,674 2,032 37,831
Return on
ordinary
activities
after tax
for the
year - - (11,149) 18,164 - 1,020 8,035
Re-purchase
of shares (957) 957 - (19,142) - - (19,142)
Share
re-purchase
expenses - - - (240) - - (240)
Dividends
paid - - - - - (873) (873)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2015 1,225 3,930 1,346 4,257 12,674 2,179 25,611
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
for the year ended 31 March 2016
Year ended Year ended
31 March 2016 31 March 2015
GBP000 GBP000
Cash flows from operating activities:
Return on ordinary activities before tax 7,805 8,003
Adjustments for:
Gain on disposal of investments (5,067) (5,870)
Movement in fair value of investments (3,413) (2,464)
Decrease in debtors 31 36
Increase in creditors 1,051 1,211
---------- ----------
Net cash inflow from operating activities 407 916
---------- ----------
Cash flows from investing activities:
Purchase of investments - -
Sale/repayment of investments 20,828 23,029
---------- ----------
Net cash inflow from investing activities 20,828 23,029
---------- ----------
Cash flows from financing activities:
Repurchase of ordinary shares for cancellation (15,260) (19,142)
Share repurchase expenses (211) (240)
Dividends paid on ordinary shares (833) (873)
---------- ----------
Net cash outflow from financing activities (16,304) (20,255)
---------- ----------
Net increase in cash and cash equivalents 4,931 3,690
Cash and cash equivalents at beginning of year 5,533 1,843
---------- ----------
Cash and cash equivalents at end of year 10,464 5,533
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2016
% of
Cost Valuation net assets
GBP000 GBP000 by value
Axial Systems Holdings 2,311 3,519 20.6
Optilan Group 1,900 2,747 16.0
Cawood Scientific 1,196 1,984 11.6
Weldex (International) Offshore Holdings 3,252 1,921 11.2
CGI Group Holdings 1,908 819 4.8
Lanner Group 621 730 4.3
Crantock Bakery 215 - -
S&P Coil Products 66 - -
---------- ---------- --------
Total fixed asset investments 11,469 11,720 68.5
----------
Net current assets 5,392 31.5
---------- --------
Net assets 17,112 100.0
---------- --------
BUSINESS RISKS
The board carries out a regular and robust review of the risk
environment in which the company operates. The principal risks and
uncertainties identified by the board which might affect the company's
business model and future performance, and the steps taken with a view
to their mitigation, are as follows:
Investment and liquidity 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. Mitigation: the investment
manager aims to limit the risk attaching to the portfolio as a whole by
close monitoring of individual holdings, including the appointment of
investor directors where appropriate. The board reviews the portfolio,
including the schedule of projected exits, with the investment manager
on a regular basis with a view to ensuring that the orderly realisation
process remains on track.
Portfolio concentration risk: following the adoption of the company's
revised investment policy in July 2011, the portfolio has and will
continue to become more concentrated as investments are realised and
cash is returned to shareholders. This will increase the proportionate
impact of changes in the value of individual investments on the value of
the company as a whole. The directors' valuation of the company's
investments represents their best assessment of the fair value of the
investments as at the valuation date and the amounts eventually realised
from such investments may be more or less than the directors' valuation.
Mitigation: the directors and manager keep the changing composition of
the portfolio under review and focus closely on those holdings which
represent the largest proportions of total value.
Financial risk: most of the company's investments involve a medium- to
long-term commitment and many are relatively illiquid. Mitigation: 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 meet
expenditure commitments including any investments which may be made
under the company's revised investment policy. 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. Mitigation: the company invests in a
diversified portfolio of investments spanning various industry sectors,
and maintains sufficient cash reserves to be able to provide additional
funding to investee companies should this be necessary.
Credit risk: the company holds a number of financial instruments and
cash deposits and is dependent on the counterparties discharging their
commitment. Mitigation: the directors review the creditworthiness of
the counterparties to these instruments and cash deposits and seek to
ensure there is no undue concentration of credit risk with any one
party.
Internal control risk: the company's assets could be at risk in the
absence of an appropriate internal control regime. Mitigation: 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.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the annual report and the
financial statements 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, including FRS 102 "The Financial Reporting Standard
applicable in the UK and Republic of Ireland". Under company law the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of
the company and of the profit or loss of the company for the year.
In preparing the 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. As explained below, the directors do
not believe it is appropriate to prepare the financial statements for
the year ended 31 March 2016 on a going concern basis.
The directors are responsible for keeping adequate 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, strategic 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 LLP (NVM) website, www.nvm.co.uk. The maintenance and integrity
of this website is the responsibility of NVM and not of the company.
The work carried out by KPMG LLP as independent auditor of the company
does not involve consideration of the maintenance and integrity of the
website and accordingly they accept no responsibility for any changes
that have occurred to the financial statements since they were initially
presented on the website. Visitors to the website should be aware that
legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation in
their jurisdiction.
In relation to the financial statements for the year ended 31 March 2016
each of the directors has confirmed that, to the best of his knowledge,
(i) the financial statements, prepared in accordance with the applicable
accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit of the company; (ii) the
annual report and financial statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the company's performance, business model and
strategy; and (iii) the directors' report and strategic report include
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 that the company faces.
The directors of the company at the date of this announcement were Mr N
R A Guy (Chairman), Mr J C Barnsley, Mr P W F Marsden and Mr M P
Nicholls.
OTHER MATTERS
The above summary of results for the year ended 31 March 2016 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
auditor's report on those financial statements under Section 495 of the
Companies Act 2006 is unqualified, draws attention to the non-going
concern basis of preparing the accounts by way of emphasis without
qualifying the report and does not contain a statement under Section
498(2) or (3) of the Companies Act 2006.
In July 2011 shareholders approved a change in the investment policy of
the company, with the objective of conducting an orderly realisation of
the assets of the company in a manner that seeks to achieve a balance
between an efficient return of cash to shareholders and maximising the
value of the company's investments. As it is likely that this process
will ultimately lead to the liquidation of the company, the financial
statements have not been prepared on a going concern basis. No
adjustments were necessary to the investment valuations or other assets
and liabilities included in the financial statements as a consequence of
the change in the basis of preparation.
The calculation of the revenue and capital return per share is based on
the return on ordinary activities after tax for the year and on
4,893,434 (2015 8,717,951) ordinary shares, being the weighted average
number of shares in issue during the year.
The calculation of the net asset value per share is based on the net
assets at 31 March 2016 divided by the 2,496,767 (2015 4,900,000)
ordinary shares in issue at that date.
The proposed final dividend of 24.0 pence per share for the year ended
31 March 2016 will, if approved by shareholders, be paid on 22 July 2016
to shareholders on the register at the close of business on 1 July 2016.
The full annual report including financial statements for the year ended
31 March 2016 is expected to be posted to shareholders by 6 June 2016
and will be available to the public at the registered office of the
company at Time Central, 32 Gallowgate, Newcastle upon Tyne NE1 4SN and
on the NVM Private Equity LLP website, www.nvm.co.uk.
Neither the contents of the NVM Private Equity LLP website nor the
contents of any website accessible from hyperlinks on the NVM Private
Equity LLP website (or any other website) is incorporated into, or forms
part of, this announcement.
This announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Northern Investors Co PLC via Globenewswire
HUG#2014246
http://www.nvm.co.uk/investorarea/northern_investors_company_plc.php
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May 20, 2016 08:59 ET (12:59 GMT)
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