Northern Inv. Co PLC Annual Financial Report
May 29 2015 - 9:00AM
UK Regulatory
TIDMNRI
29 MAY 2015
NORTHERN INVESTORS COMPANY PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2015
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 GBP60.6
million to shareholders by way of tender offers and dividend
distributions.
Financial highlights (comparative figures as at 31 March 2014):
2015 2014
Net assets GBP25.6m GBP37.8m
Number of shares in issue at end of year 4,900,000 8,728,440
Net asset value per share 522.7p 433.4p
Cash distributions to shareholders
(dividends paid plus share buy-backs):
During year GBP20.0m GBP15.2m
Since change in investment policy in July 2011 GBP60.6m GBP40.6m
Total return for the year:
Pence per share 92.2p 77.3p
As % of opening net asset value 21.3% 21.2%
Proposed dividend per share for the year 17.0p 10.0p
Mid-market share price at end of year 507.5p 391.5p
Share price discount to net asset value 2.9% 9.7%
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 very pleased to report on another year of good progress towards
fulfilment of the company's orderly realisation strategy approved by
shareholders in July 2011. In March 2015 a further GBP19 million was
returned to shareholders through the latest in our series of tender
offers. The total cash distributed since July 2011 now exceeds GBP60
million - more than the net asset value of the company at the beginning
of the process four years ago - in addition to which the residual net
assets at 31 March 2015 amounted to a further GBP25 million. We have
continued with our declared strategy of striking an acceptable balance
between returning cash to shareholders efficiently and timing investment
disposals so as to achieve prices which reflect our view of the
underlying quality of the investment assets. As a result the value
inherent in the portfolio has been progressively released, and the
underlying net asset value (NAV) per share has risen accordingly.
Financial results
The NAV per share at 31 March 2015 was 522.7 pence, up by 20.6% from the
corresponding figure of 433.4 pence at 31 March 2014. Over the past
five financial years the NAV per share has increased in every year, and
the NAV total return for the five year period was 117.1% compared with
53.3% for the listed private equity sector (excluding funds of funds) as
a whole.
The total return per share for the year as shown in the income statement
was 92.2 pence, equivalent to 21.3% of the opening NAV. Investment
income was higher than in the preceding year, despite the reduced size
of the portfolio. The revenue return per share, calculated on the
weighted average number of shares in issue during the year, rose from
9.3 pence to 11.7 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 proposed
dividend for the year ended 31 March 2015 is 17.0 pence per share, a 70%
increase from last year's 10.0 pence. This is the nineteenth
consecutive year in which the dividend per share has been increased.
Subject to approval by shareholders at the annual general meeting on 7
July 2015, the final dividend will be paid on 24 July 2015 to
shareholders on the register on 3 July 2015.
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 reduced from 20 to 15 over the
year, following the successful realisation of the investments in
Envirotec, CloserStill Group, Kerridge Commercial Systems, Nasstar and
Promatic Group. The sale of Kerridge was a particular highlight,
returning a total of GBP20.6 million in income and capital proceeds over
the five year life of the investment from an original commitment of
GBP4.0 million. A total of GBP23.0 million was realised from sales
during the year, reflecting a strong enhancement of value by comparison
with the GBP17.2 million carrying value of the relevant investments at
the beginning of the year.
The directors' valuation of the 15 remaining holdings at 31 March 2015
was GBP24.1 million. Shareholders will understand that as the run-off
of investments continues, the remaining holdings will be less
diversified than would normally be the case, and as we approach the end
of the process it may become more difficult to achieve further
significant uplifts of value. The progress of each company is carefully
monitored by our manager, and the board regularly reviews updates on
both performance and exit prospects with the manager. We will continue
to pursue an orderly realisation strategy, but where necessary we will
take a pragmatic approach to the investments at the lower end of the
valuation range in order to keep the overall process on track.
Corporate strategy
Your board has always regarded March 2015 as a significant milestone in
the process of returning capital to shareholders. In 2011 we estimated
that cash equivalent to between 60% and 80% of the then GBP59 million
net assets of the company would be returned in cash to shareholders by
March 2015; it is pleasing that the actual outcome was 103%.
Looking further ahead, our original projections indicated that by 2017
the cumulative distributions would be in the range from 120% to 160% of
the opening net assets, by which time the realisation of the portfolio
would be substantially complete. We still hope to complete the process
by the end of 2017 and our current expectation is that the ultimate cash
multiple could be between 155% and 170%. However it should be
remembered that there is uncertainty around any estimate of future cash
flows, and individual company outcomes may have a disproportionate
effect as the size of the portfolio continues to reduce.
To date cash has been distributed by means of a series of tender offers
priced at NAV, a mechanism which has provided shareholders with the
flexibility to tender their proportionate entitlement or a greater or
lesser number of shares according to preference. The directors will
keep other possible methods of distribution under review with the
company's professional advisers.
Management
With effect from February 2015 NVM Private Equity transferred its
business to a new limited liability partnership, NVM Private Equity LLP,
and our contract with NVM was novated to the new entity on the same
terms as before.
At the outset of the realisation process, it was agreed that NVM's fixed
annual fee would be progressively reduced year by year, with the
emphasis moving to an incentive fee payable once cash distributions to
shareholders exceeded the equivalent of the March 2011 net assets plus a
compounded 7% annual hurdle rate. No incentive fee has become due as
yet, but in the light of the progress made to date the directors
consider that the conditions for payment of a fee are likely to be
satisfied in the foreseeable future. As in the two preceding years, a
provision has been made in the financial statements equivalent to the
fee which would have been payable if the value of the remaining net
assets as at the financial year end had been available for distribution
in cash to shareholders on that date. The provision as at 31 March 2015
was GBP3,892,000 (31 March 2014 GBP2,778,000), and we are mindful that
the eventual payment will need to be set aside from the cash generated
from the realisation programme. Our managers have shown a high level of
commitment and skill in implementing the realisation strategy over the
past four years and I would like to thank them for the excellent results
they have achieved to date.
Shares and share price
Following completion of the March 2015 tender offer, in which 3,828,440
shares were re-purchased at 500 pence per share, the number of shares
remaining in issue at the year end was 4,900,000 - representing just
under 25% of the original issued capital at the start of the realisation
process in 2011.
During the year the mid-market share price rose by 29.6%, from 391.5
pence to 507.5 pence. The share price discount to NAV at the year end
was 2.9% (31 March 2014 9.7%). Investors who subscribed for shares at a
price of 50 pence at the time of the company's flotation on the London
Stock Exchange in 1990 have seen a more than ten-fold increase in the
market value of their investment, as well as receiving dividends
totalling 114 pence per share.
Board of directors
At the annual general meeting on 7 July 2015, both Philip Marsden and I
will retire in accordance with the articles of association, having
served for three years since we were last re-elected, and John Barnsley
and Mark Nicholls will retire in accordance with the board's policy that
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