TIDMNRI
19 MAY 2017
NORTHERN INVESTORS COMPANY PLC
RESULTS FOR THE YEARED 31 MARCH 2017
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 GBP83.5
million to shareholders by way of tender offers and dividend
distributions.
Financial highlights (comparative figures as at 31 March 2016):
2017 2016
Net assets GBP12.7m GBP17.1m
Number of shares in issue at end of year 2,496,767 2,496,767
Net asset value per share
(2017 stated after 250p per share distribution in
January 2017) 508.4p 685.4p
Cash distributions to shareholders:
During year GBP6.8m GBP16.1m
Since change in investment policy in July 2011 GBP83.5m GBP76.7m
Total return for the year:
Pence per share 99.6p 159.5p
As % of opening net asset value 14.5% 30.5%
Proposed dividend per share for the year 30.0p 24.0p
Mid-market share price at end of year 525p 635p
Share price (premium)/discount to net asset value (3.3)% 7.4%
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
Over the past year your board and manager have continued to progress the
orderly realisation strategy adopted by shareholders in 2011. There has
been a further reduction in the number of holdings remaining in the
portfolio, and cash totalling GBP6.8 million was returned to
shareholders during the year, taking the cumulative total to GBP83.5
million. A further GBP7.1 million will be distributed in June and July
2017 through a GBP0.7 million final dividend (30.0 pence per ordinary
share) and a GBP6.4 million B share redemption (257.5 pence per ordinary
share), bringing the total of cash distributions to over GBP90 million
from a starting point of GBP59 million of net assets in 2011.
The residual net assets at 31 March 2017, before deducting the impending
distributions, totalled GBP12.7 million and our efforts are now focused
on exiting from the small number of remaining investments. As ever we
will be seeking to strike the right balance between speed of exit and
realisation of fair value. In order to achieve this without
compromising our negotiating position in relation to our remaining
holdings, we intend to extend our original target of completing the
process by December 2017 by up to a further 12 months. I believe that
both the board and our manager, NVM, have demonstrated a strong track
record of realising the assets for best value at the appropriate time,
and the extension should be seen in that context.
Financial results
The net asset value (NAV) per share at 31 March 2017 was 508.4 pence
which, when adding back the 250 pence per share returned to shareholders
through a B share redemption in January 2017, represents an increase of
10.7% from the corresponding figure of 685.4 pence at 31 March 2016.
The total return per share for the year as shown in the income statement
was 99.6 pence, equivalent to 14.5% of the opening NAV. Investment
income generally continues to reduce as investments are sold, but the
total for the year was boosted by a one-off credit of GBP0.7 million in
respect of accrued loan interest paid by Optilan Group. As a result the
revenue return per share, calculated on the weighted average number of
shares in issue during the year, rose from 12.3 pence to 22.9 pence.
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 2017 of 30.0 pence per
share (last year 24.0 pence), equivalent to a total of GBP749,000 based
on the 2,496,767 shares remaining in issue. This is the 21st successive
year in which the dividend per share has been increased; Northern
Investors now appears on the Association of Investment Companies' select
"Dividend Heroes" list, comprising the 20 UK investment trusts which
have achieved an increase in their dividend for at least 20 consecutive
years. Subject to approval by shareholders at the annual general
meeting on 11 July 2017, the final dividend will be paid on 21 July 2017
to shareholders on the register on 30 June 2017.
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
During the year exits were achieved from Crantock Bakery and Cawood
Scientific, and in total the proceeds from investment sales amounted to
GBP4.1 million. Shortly after the year end we sold our investment in
Optilan Group, for proceeds of GBP4.2 million. Since the adoption of
the portfolio run-off strategy in July 2011, 25 investments have been
realised for a total of over GBP81 million.
Following the sale of Optilan Group the number of holdings in the
portfolio has reduced to five, with an aggregate carrying value at 31
March 2017 of GBP5.8 million. At this stage in the realisation process
the remaining holdings are, by definition, those which are the most
difficult to sell - whether through under-performance, through being at
a low point in a cyclical industry sector or perhaps simply due to being
too small to be of serious interest to potential acquirers. In two
cases we are syndicate partners in investments led by another private
equity house and whilst our interests are currently aligned, our ability
to influence or control matters is inevitably much reduced.
We have previously indicated that it may be necessary to take a
pragmatic approach to the realisable value of these unquoted minority
holdings, in the interests of maintaining the overall momentum of the
run-off project. The board has reviewed the remaining investments in
detail with the manager and it is clear that in some cases a realistic
exit opportunity is unlikely to occur within the next 12 months. Given
the size of the portfolio we began with, comprising some 30 holdings,
this is not a surprising situation; we will continue to work towards
identifying the best possible outcome for each investment, and as
previously mentioned we have extended our realisation time horizon in
order to avoid finding our negotiating position compromised.
Corporate strategy
In January 2017 shareholders gave their approval to the establishment of
a mechanism for returning funds to them by means of the allotment by
bonus issue, and subsequent redemption for cash, of new B shares,
following which an initial distribution of GBP6.2 million was made. We
have announced today that we intend to return a further GBP6.4 million,
equivalent to 257.5 pence per ordinary share, through a B share
redemption in June 2017, as well as paying in July the proposed final
dividend for the year ended 31 March 2017 totalling GBP0.7 million. At
this point the cumulative distributions to shareholders will reach
GBP90.7 million, equivalent to 154% of the July 2011 net assets of GBP59
million. As a reference point, we estimated in 2011 that the ultimate
cash return to shareholders by 2017 from the realisation process would
be in the range from 120% to 160%, so it is pleasing to have achieved
the upper end of the range within that timescale whilst still having
some further residual value to secure.
Our original objective was that the return of funds to shareholders
would be completed in 2017. As explained above, we now expect the task
of realising the portfolio to continue into 2018, and your board
believes that this will be best progressed under the existing management
arrangements with NVM. However we recognise that at some point in the
future a line must be drawn. It is likely that the final stage of the
phased wind-down will involve the company being placed in members'
voluntary liquidation, with the liquidators completing the formalities
of dissolving the company and distributing residual funds to
shareholders. Our present expectation is that liquidators will be
appointed during 2018. We have been advised that subsequent cash
distributions by the liquidator should be treated as capital rather than
income receipts in the hands of shareholders.
We have updated our projection of the final outcome of the realisation
process and this indicates that the total eventually returned to
shareholders is likely to be in the range from GBP96 million to GBP100
million - ie a further GBP6 million to GBP10 million over and above the
GBP90 million which will have been returned by the end of July 2017.
The indicated range is equivalent to between 162% and 170% of the net
assets at the start of the process in 2011. Assuming no further change
in the issued share capital, these further payments would be equivalent
to between approximately 240 pence and 400 pence per share, in addition
to the impending final dividend and B share redemption. As usual, we
emphasise that such estimates of future cash flows are subject to
various uncertainties and are for illustration only.
Contingent assets
As noted in the financial statements, at 31 March 2017 the company was
entitled to receive up to GBP0.6 million of deferred proceeds from past
investment sales over the period to December 2017. A further GBP0.6
million may be receivable in the future as a result of the sale of
Optilan Group in April 2017. None of these proceeds has been recognised
in the financial statements at this stage as their eventual receipt
cannot be regarded as reasonably certain. However they have been taken
into account in arriving at the range of possible realisation outcomes
referred to above.
The claims brought by our company and a number of other investment
companies against HM Revenue & Customs, to recover VAT paid on
investment management fees in the period from 1990 to 2009, were
rejected by the Supreme Court in April 2017. No credit had been taken
in the company's financial statements for any possible recovery under
the claim.
Prospects
The realisation process is now in its final stages and progress to date
has been good, but the exit from each of the remaining investments will
present its own challenge. Your directors will continue to work closely
with the manager to bring about a conclusion and we believe there is
still some potential value to be unlocked given a favourable combination
of circumstances. The prevailing air of political and economic
uncertainty is not an ideal backdrop, but the end is almost in sight and
we look forward to delivering a highly satisfactory overall outcome to
shareholders.
Nigel Guy
Chairman
The audited financial statements for the year ended 31 March 2017 are
set out below.
INCOME STATEMENT
for the year ended 31 March 2017
Year ended 31 March 2017 Year ended 31 March 2016
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 2,056 2,056 - 5,067 5,067
Movements in
fair value of
investments - 305 305 - 3,413 3,413
---------- ---------- ---------- ---------- ---------- ----------
- 2,361 2,361 - 8,480 8,480
Income 1,093 - 1,093 1,025 - 1,025
Investment
management
fee (55) (568) (623) (60) (1,324) (1,384)
Other expenses (322) (22) (344) (316) - (316)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax,
being total
comprehensive
income 716 1,771 2,487 649 7,156 7,805
Tax on return
on ordinary
activities (143) 143 - (45) 45 -
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 573 1,914 2,487 604 7,201 7,805
---------- ---------- ---------- ---------- ---------- ----------
Return per 22.9p 76.7p 99.6p 12.3p 147.2p 159.5p
share
BALANCE SHEET
as at 31 March 2017
31 March 2017 31 March 2016
GBP000 GBP000
Fixed assets:
Investments 9,981 11,720
---------- ----------
Current assets:
Investments - 56
Debtors 791 25
Cash and cash equivalents 4,570 10,408
---------- ----------
5,361 10,489
Creditors (amounts falling due within one year) (2,649) (5,097)
---------- ----------
Net current assets 2,712 5,392
---------- ----------
Net assets 12,693 17,112
---------- ----------
Capital and reserves:
Called-up equity share capital 624 624
Capital redemption reserve 6,242 4,531
Capital reserve (7,018) (2,918)
Special reserve 10,941 12,674
Revaluation reserve (17) 251
Revenue reserve 1,921 1,950
---------- ----------
Total equity shareholders' funds 12,693 17,112
---------- ----------
Net asset value per share 508.4p 685.4p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017
------
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
2016 624 4,531 251 (2,918) 12,674 1,950 17,112
Return on
ordinary
activities
after tax for
the year - - (268) 2,204 (22) 573 2,487
Cancellation
of capital
redemption
reserve - (4,531) - - 4,531 - -
Bonus issue
of B shares - - - - (6,242) - (6,242)
Redemption of
B shares - 6,242 - (6,242) - - -
B share
redemption
expenses - - (62) - - (62)
Dividends
paid - - - - - (602) (602)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2017 624 6,242 (17) (7,018) 10,941 1,921 12,693
---------- ---------- ---------- ---------- ---------- ---------- ----------
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 CASH FLOWS
for the year ended 31 March 2017
Year ended Year ended
31 March 2017 31 March 2016
GBP000 GBP000
Cash flows from operating activities:
Return on ordinary activities before tax 2,487 7,805
Adjustments for:
Gain on disposal of investments (2,056) (5,067)
Movement in fair value of investments (305) (3,413)
(Increase)/decrease in debtors (766) 31
Increase/(decrease) in creditors (2,448) 1,051
---------- ----------
Net cash inflow/(outflow) from operating
activities (3,088) 407
---------- ----------
Cash flows from investing activities:
Purchase of investments - -
Sale/repayment of investments 4,100 20,828
---------- ----------
Net cash inflow from investing activities 4,100 20,828
---------- ----------
Cash flows from financing activities:
Repurchase of ordinary shares for cancellation - (15,260)
Redemption of B shares (6,242) -
Expenses associated with redemption/repurchase of
shares (62) (211)
Dividends paid on ordinary shares and B shares (602) (833)
---------- ----------
Net cash outflow from financing activities (6,906) (16,304)
---------- ----------
Net increase/(decrease) in cash and cash
equivalents (5,894) 4,931
Cash and cash equivalents at beginning of year 10,464 5,533
---------- ----------
Cash and cash equivalents at end of year 4,570 10,464
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2017
% of
Cost Valuation net assets
GBP000 GBP000 by value
Optilan Group 1,900 4,180 32.9
Axial Systems Holdings 2,311 2,668 21.0
Weldex (International) Offshore Holdings 3,252 1,921 15.1
Lanner Group 561 630 5.0
CGI Group Holdings 1,908 582 4.6
S&P Coil Products 66 - -
---------- ---------- --------
Total fixed asset investments 9,998 9,981 78.6
----------
Net current assets 2,712 21.4
---------- --------
Net assets 12,693 100.0
---------- --------
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 comprise minority holdings 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 they 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 2017 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 the 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 directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
DIRECTORS' RESPONSIBILITY STATEMENT IN RELATION TO THE ANNUAL REPORT AND
FINANCIAL STATEMENTS FOR THE YEARED 31 MARCH 2017
The directors have confirmed that to the best of their knowledge (i)
taken as a whole 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 or loss of the
company, and (ii) the strategic report and directors' 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 they face. The directors consider that the
annual report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the company's position and performance, business
model and strategy.
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 2017 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
2,496,767 (2016 4,893,434) 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 2017 divided by the 2,496,767 (2016 2,496,767)
ordinary shares in issue at that date.
The proposed final dividend of 30.0 pence per share for the year ended
31 March 2017 will, if approved by shareholders, be paid on 21 July 2017
to shareholders on the register at the close of business on 30 June
2017.
The full annual report including financial statements for the year ended
31 March 2017 is expected to be posted to shareholders by 9 June 2017
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 Corporate Solutions on behalf
of Nasdaq 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
http://www.nvm.co.uk/investorarea/northern_investors_company_plc.php
(END) Dow Jones Newswires
May 19, 2017 08:00 ET (12:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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