23 MAY 2018
NORTHERN INVESTORS COMPANY PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2018
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 £90.7 million to shareholders by way of tender offers and dividend distributions.
Financial highlights (comparative figures as at 31 March 2017):
| | 2018 | 2017 |
| Net assets | £5.8m | £12.7m |
| Number of shares in issue at end of year | 2,496,767 | 2,496,767 |
| Net asset value per share (2018 stated after 257.5p per share distribution in June 2017) | 232.1p | 508.4p |
| Cash distributions to shareholders: | ||
| During year | £7.2m | £6.8m |
| Since change in investment policy in July 2011 | £90.7m | £83.5m |
| Total return for the year: | ||
| Pence per share | 13.5p | 99.6p |
| As % of opening net asset value | 2.7% | 14.5% |
| Proposed dividend per share for the year | - | 30.0p |
| Mid-market share price at end of year | 224p | 525p |
| Share price discount/(premium) to net asset value | 3.5% | (3.3)% |
For further information, please contact:
Northern Investors Company PLC
Nigel Guy/James Bryce 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
We have continued to implement the phased run-off of the investment portfolio which was initiated in 2011. During the financial year to 31 March 2018 a further £7.2 million was returned to shareholders, taking the cumulative total since 2011 to £90.7 million. This represents a significant uplift on the £59 million of net assets at the start of the realisation programme. The residual investment portfolio now comprises only four unquoted investments, two of which have reasonable prospects of being realised during 2018.
We are still working towards the eventual appointment of a liquidator to complete the winding-up process through a members' voluntary liquidation of the company. Whilst your directors would ideally prefer to take this step only when all the remaining investments have been sold, we are conscious that maintaining listed investment trust status for a further period of time has cost implications and we need to take a realistic view of the two investments whose sale is unlikely to take place before 2019. Although clearly dependent on progress with realisations, and indeed on the general economic and political climate which has become less favourable over the past six months, in the absence of unforeseen circumstances we envisage that proposals for the appointment of a liquidator will be put to shareholders for approval before the end of 2018, enabling the liquidator to make an early distribution of such funds as are immediately available, with further payments following as the remaining investments are sold.
Financial results
The residual net assets at 31 March 2018 totalled £5.8 million, comprising investments at directors' valuation of £5.7 million and net current assets of £0.1 million. The net asset value (NAV) per share at 31 March 2018 was 232.1 pence which, after adding back the 257.5 pence per share returned to shareholders through a B share redemption in June 2017 and the 30.0 pence per share dividend paid in July 2017, represents a marginal uplift from the corresponding figure of 508.4 pence at 31 March 2017.
The return per share for the year as reported in the income statement was 13.5 pence (preceding year 99.6 pence). Income from the reduced investment portfolio is now running at a much lower level than in previous years, and is no longer sufficient to cover annual running costs. Consequently the return for the year comprises a deficit on the revenue account of 9.1 pence per share, offset by a positive return of 22.6 pence on the capital account.
Dividend
In recent years the annual dividend has been paid in the form of a single final dividend, with no interim dividend being declared. A dividend of 30.0 pence per share was paid in July 2017 in respect of the year ended 31 March 2017. As flagged in the interim report, the directors, having taken into account the low level of investment income received in the year and the relative tax inefficiency for many shareholders of dividend payments now compared with future distributions from the liquidator, have decided not to propose a dividend in respect of the year ended 31 March 2018. No further dividends are likely to be declared unless it becomes necessary to do so in order to preserve the company's authorised investment trust status.
Investment portfolio
During the year the investments in Optilan Group and S&P Coil Products were sold. Optilan Group realised a total of £4.2 million in cash, a highly satisfactory outcome, but S&P Coil Products, which had been carried at nil value for a number of years, was sold for a token consideration with only a limited prospect of further payments in the future. A further £0.8 million was received during the year in deferred proceeds from investments sold in earlier years, principally Kitwave One and Alaric Systems. Since adoption of the portfolio run-off strategy in July 2011, 26 of the original 30 investments have been sold outright and almost £83 million in cash has been realised from the portfolio.
Following the board's latest portfolio review with the managers, we believe that there are good prospects of achieving exits from two of the four remaining holdings within the next nine months. This leaves two investments where a sale is unlikely to be achieved before 2019. Northern Investors is a minority investor in each of these companies and does not have the power to compel an early sale, although we have a good relationship with the other investors and will continue to work with them to obtain an exit on terms satisfactory to all parties.
Corporate strategy
As a result of distributions totalling £7.2 million over the past 12 months, the total cash returned to shareholders since our change of investment policy in July 2011 now exceeds £90 million. This is already an excellent outcome from a portfolio originally valued (together with cash balances) at £59 million in 2011.
Distributions have taken the form of revenue dividends (£6.7 million), tender offers (£71.3 million) and most recently two bonus issues and redemptions of B shares (£12.7 million). The company's capital base is now too small for further tender offers to be practicable, and we have exhausted those balance sheet reserves which could be tax-efficiently paid out in the form of capital by way of B share redemptions. We have been advised that once the company is in members' voluntary liquidation, distributions by the liquidator will be treated as capital receipts in the hands of shareholders. In the circumstances it seems right that the company should now move towards the liquidation stage, and we expect to write to shareholders with our proposals later in the year.
In the meantime your directors have taken steps to reduce ongoing running costs where possible, so as to minimise any erosion of the company's remaining assets. In particular we have agreed a lower base level for NVM's management and administration fees with effect from 1 April 2018; we have also reduced board and other operating costs and will not be replacing Mark Nicholls when he retires from the board as mentioned below.
Shareholders may recall that in 2011 we estimated that the eventual cash return to shareholders from the realisation process would be in the range from 120% to 160% of the initial net assets of £59 million. Having already exceeded 150%, we are now projecting a total outcome (including distributions from the liquidator, and net of all costs) in the range from 162% to 167%. In cash terms this implies further returns of between £4.9 million and £7.6 million, equivalent to between 196 pence and 304 pence per share. These estimates are given for illustrative purposes and are subject to various uncertainties, including actions that may be taken by the liquidator once appointed, so reliance should not be placed on them.
It is likely that the company's Stock Exchange listing will be cancelled on or shortly after the appointment of a liquidator, and shareholders should be aware that the share register will be frozen at the date of liquidation, with any requests for shares to be transferred needing to be authorised by the liquidator. Those shareholders whose shares are held in ISAs or other investment wrappers should consult with their plan manager in good time so as to determine whether they need to take any action prior to the company going into liquidation.
Manager's remuneration and performance incentive
In recognition of the reduced size of the company, it has been agreed with NVM Private Equity that with effect from 1 April 2018 the fixed element of their management fee will reduce from £100,000 to £75,000 and their secretarial/administration fee will reduce from £35,000 to £25,000.
A further performance incentive fee instalment of £0.7 million was paid to NVM in May 2017 on the basis of cash generated for distribution up to 31 March 2017. The balance sheet as at 31 March 2018 includes a provision of £1.8 million for amounts expected to become payable in the future, of which £0.5 million is due shortly after publication of the 31 March 2018 financial statements.
Board of directors
Mark Nicholls, who joined the board in 2006, has indicated that he does not wish to seek re-election as a director at the annual general meeting on 10 July 2018. Mark's knowledge and experience of corporate financial matters have been invaluable to our company through a period of strategic change, and I would like to thank him on behalf of shareholders and board colleagues for his important contribution.
Company secretary
Chris Mellor retired as company secretary on 31 March 2018, having served in that role since 1989. I would like to thank Chris for his excellent service to the company and wish him well in his retirement. We welcome James Bryce, NVM's new head of legal and compliance, as our new company secretary and look forward to working with him.
Outlook
Your directors and manager will continue to focus on the investment realisation process with a view to resolving as many issues as possible before the company goes into liquidation. It is now almost seven years since the run-off process commenced; we believe that shareholders' patience over that period has been well rewarded and we look forward to a very satisfactory final result.
Nigel Guy
Chairman
Extracts from the audited financial statements for the year ended 31 March 2018 are set out below.
INCOME STATEMENT
for the year ended 31 March 2018
| Year ended 31 March 2018 | Year ended 31 March 2017 | |||||
| Revenue £000 | Capital £000 | Total £000 | Revenue £000 | Capital £000 | Total £000 | |
| Gain on disposal of investments | - | 776 | 776 | - | 2,056 | 2,056 |
| Movements in fair value of investments | - | 26 | 26 | - | 305 | 305 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| - | 802 | 802 | - | 2,361 | 2,361 | |
| Income | 130 | - | 130 | 1,093 | - | 1,093 |
| Investment management fee | (39) | (194) | (233) | (55) | (568) | (623) |
| Other expenses | (319) | (42) | (361) | (322) | (22) | (344) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return on ordinary activities before tax, | ||||||
| being total comprehensive income | (228) | 566 | 338 | 716 | 1,771 | 2,487 |
| Tax on return on ordinary activities | - | - | - | (143) | 143 | - |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return on ordinary activities after tax | (228) | 566 | 338 | 573 | 1,914 | 2,487 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | |
| Return per share | (9.1)p | 22.6p | 13.5p | 22.9p | 76.7p | 99.6p |
BALANCE SHEET
as at 31 March 2018
| 31 March 2018 £000 | 31 March 2017 £000 | |
| Fixed assets: | ||
| Investments | 5,737 | 9,981 |
| ---------- | ---------- | |
| Current assets: | ||
| Debtors | 19 | 791 |
| Cash and cash equivalents | 1,867 | 4,570 |
| ---------- | ---------- | |
| 1,886 | 5,361 | |
| Creditors (amounts falling due within one year) | (1,827) | (2,649) |
| ---------- | ---------- | |
| Net current assets | 59 | 2,712 |
| ---------- | ---------- | |
| Net assets | 5,796 | 12,693 |
| ---------- | ---------- | |
| Capital and reserves: | ||
| Called-up equity share capital | 624 | 624 |
| Capital redemption reserve | - | 6,242 |
| Capital reserve | 6,437 | (7,018) |
| Special reserve | - | 10,941 |
| Revaluation reserve | (2,205) | (17) |
| Revenue reserve | 940 | 1,921 |
| ---------- | ---------- | |
| Total equity shareholders' funds | 5,796 | 12,693 |
| ---------- | ---------- | |
| Net asset value per share | 232.1p | 508.4p |
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2018
| ------ Non-distributable reserves ------ | ------ Distributable reserves ------ | Total | ||||||
| Share capital | Capital redemption reserve | Revaluation reserve | Capital reserve | Special reserve | Revenue reserve | |||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
| At 1 April 2017 | 624 | 6,242 | (17) | (7,018) | 10,941 | 1,921 | 12,693 | |
| Return on ordinary activities | ||||||||
| after tax for the year | - | - | (2,188) | 2,796 | (42) | (228) | 338 | |
| Cancellation of capital | ||||||||
| redemption reserve | - | (12,671) | - | - | 12,671 | - | - | |
| Bonus issue of B shares | - | - | - | - | (6,429) | - | (6,429) | |
| Redemption of B shares | - | 6,429 | - | (6,429) | - | - | - | |
| B share redemption expenses | - | - | - | (53) | - | - | (53) | |
| Transfer to capital reserve | - | - | - | 17,141 | (17,141) | - | - | |
| Dividends paid | - | - | - | - | - | (753) | (753) | |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ||
| At 31 March 2018 | 624 | - | (2,205) | 6,437 | - | 940 | 5,796 | |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ||
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017
| ------ Non-distributable reserves ------ | ------ Distributable reserves ------ | Total | ||||||
| Share capital | Capital redemption reserve | Revaluation reserve | Capital reserve | Special reserve | Revenue reserve | |||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
| 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 CASH FLOWS
for the year ended 31 March 2018
| Year ended 31 March 2018 £000 | Year ended 31 March 2017 £000 | |
| Cash flows from operating activities: | ||
| Return on ordinary activities before tax | 338 | 2,487 |
| Adjustments for: | ||
| Gain on disposal of investments | (776) | (2,056) |
| Movement in fair value of investments | (26) | (305) |
| (Increase)/decrease in debtors | 772 | (766) |
| Increase/(decrease) in creditors | (822) | (2,448) |
| ---------- | ---------- | |
| Net cash inflow/(outflow) from operating activities | (514) | (3,088) |
| ---------- | ---------- | |
| Cash flows from investing activities: | ||
| Purchase of investments | - | - |
| Sale/repayment of investments | 5,046 | 4,100 |
| ---------- | ---------- | |
| Net cash inflow from investing activities | 5,046 | 4,100 |
| ---------- | ---------- | |
| Cash flows from financing activities: | ||
| Redemption of B shares | (6,429) | (6,242) |
| Expenses associated with redemption/repurchase of shares | (53) | (62) |
| Dividends paid on ordinary shares and B shares | (753) | (602) |
| ---------- | ---------- | |
| Net cash outflow from financing activities | (7,235) | (6,906) |
| ---------- | ---------- | |
| Net increase/(decrease) in cash and cash equivalents | (2,703) | (5,894) |
| Cash and cash equivalents at beginning of year | 4,570 | 10,464 |
| ---------- | ---------- | |
| Cash and cash equivalents at end of year | 1,867 | 4,570 |
| ---------- | ---------- |
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2018
| Cost £000 | Valuation £000 | % of net assets by value | |
| Weldex (International) Offshore Holdings | 3,252 | 1,921 | 33.1 |
| CGI Group Holdings | 1,908 | 1,656 | 28.6 |
| Axial Systems Holdings | 2,311 | 1,483 | 25.6 |
| Lanner Group | 471 | 677 | 11.7 |
| ---------- | ---------- | -------- | |
| Total fixed asset investments | 7,942 | 5,737 | 99.0 |
| ---------- | |||
| Net current assets | 59 | 1.0 | |
| ---------- | -------- | ||
| Net assets | 5,796 | 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: the company's investments 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.
Liquidation risk: in order to complete the implementation of the company's corporate strategy it is envisaged that a liquidator will be appointed and that the company's shares will cease to be listed on the London Stock Exchange. This may result in shareholders having a lesser degree of influence over the affairs of the company than previously and to a loss of liquidity as regards their shareholdings. Mitigation: the directors will keep shareholders informed as to intended strategic developments and will liaise with the prospective liquidator with a view to ensuring a smooth transition.
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 2018 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 directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
In relation to the financial statements for the year ended 31 March 2018, the directors confirm 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 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, is fair, balanced and understandable and provides 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 2018 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 (2017 2,496,767) 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 2018 divided by the 2,496,767 (2017 2,496,767) ordinary shares in issue at that date.
The full annual report including financial statements for the year ended 31 March 2018 is expected to be posted to shareholders by 8 June 2018 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.