TIDMNRI
11 NOVEMBER 2015
NORTHERN INVESTORS COMPANY PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 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.
Financial highlights (comparative figures as at 30 September 2014 and 31
March 2015):
Six months to Six months to Year to
30 September 30 September 31 March
2015 2014 2015
Net assets GBP27.1m GBP40.1m GBP25.6m
No of shares in issue at end of period 4,900,000 8,728,440 4,900,000
Net asset value per share 553.6p 459.9p 522.7p
Cash distributions to shareholders
(dividends paid plus share buy-backs): GBP0.8m GBP0.9m GBP20.0m
During period GBP61.4m GBP41.5m GBP60.6m
Since change in investment policy (July 2011)
Return for the period:
Pence per share 47.9p 36.5p 92.2p
As % of opening net asset value 9.2% 8.4% 21.3%
Dividend per share declared
in respect of the period - - 17.0p
Mid-market share price at end of period 590.0p 395.0p 507.5p
Share price premium/(discount)
to net asset value 6.6% (14.1)% (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
HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS
Overview
Your directors and manager have continued to implement the orderly
realisation strategy adopted by shareholders in 2011. During the six
month period under review the number of holdings in the portfolio
reduced further from 15 to 12, with investment sales generating total
cash proceeds of GBP2.5 million. With cash deposits at 30 September
2015 standing at GBP7.5 million, it is expected that another return of
funds to shareholders will take place by 31 March 2016, although clearly
the quantum will be determined by the level of further exit activity in
the next few months.
The net asset value (NAV) per share increased by 5.9% during the half
year to a new high of 553.6 pence as at 30 September 2015, reflecting
positive performance by most of our remaining investee companies.
A final dividend of 17.0 pence per share for the year ended 31 March
2015 was paid in July, taking the total cash distributed to shareholders
since July 2011 to GBP61.4 million - equivalent to 104% of the net
assets at the time of the change in strategy.
Investment portfolio
No new investments were made during the period. The investments in
Direct Valeting and Wear Inns were sold for proceeds of GBP0.8 million
and GBP1.4 million respectively, and a further GBP0.3 million was
realised from loan repayments and deferred proceeds from earlier sales.
Warmseal Windows (Newcastle) went into administration after a long
period of difficult trading, but this had no impact on NAV as the
investment had been written down to nil value in 2011. Since 30
September 2015 the investment in Arleigh Group has been sold for cash
proceeds of GBP1.5 million.
The portfolio at 30 September 2015 comprised 12 holdings, with the
investments in Kitwave One and Control Risks Group Holdings together
representing some 50% of the company's net assets. The increasing
concentration of the portfolio is an inevitable feature of the
realisation process. Your directors review the exit prospects for each
investment with the manager on a regular basis and although there have
inevitably been some movements in the projected timing of individual
transactions, we are satisfied that the overall realisation process
continues to move in line with expectations.
Progress within the portfolio is satisfactory, although recent global
market turmoil initiated in China reminds us of the relative fragility
of confidence within the capital markets on which some prospective
purchasers of our investee companies may be reliant for funding.
Financial performance
Over the six month period to 30 September 2015 the company's NAV, after
deducting the 2014/15 final dividend of 17.0 pence per share paid in
July, rose from 522.7 pence to 553.6 pence. The return per share for
the half year was 47.9 pence, compared with 36.5 pence in the
corresponding period last year. Investment income from the portfolio
was lower than in the corresponding period, as expected given the
continuing reduction in the company's asset base. The management fee
payable to NVM Private Equity has continued to reduce as set out in the
management agreement.
A further GBP335,000 was accrued in the period in respect of the exit
performance fee which will be payable in due course to NVM subject to
the stipulated cash distributions hurdle being exceeded. The total
performance fee provision is now GBP4,227,000; the earliest point at
which an initial payment to the manager may become due is May 2016,
based on the audited accounts for the 2015/16 financial year, provided
that there is a further distribution of at least GBP9.8 million to
shareholders by 31 March 2016.
The mid-market share price increased from 507.5 pence to 590.0 pence
during the half year, with the result that at 30 September 2015 the
share price was at a premium of approximately 6.6% to NAV (31 March
2015: 2.9% discount).
Dividend
Since 2013 the company's annual dividend has been paid in the form of a
single final dividend, with no interim dividend being declared. The net
revenue available for distribution in respect of each year is likely to
decrease as the sale of income-producing investments continues and cash
is returned to shareholders. The directors intend to declare annual
dividends sufficient to maintain the company's authorised investment
trust status. The final dividend in respect of the current financial
year is expected to be paid in July 2016.
Corporate strategy
Since July 2011 a total of GBP61.4 million has been returned to
shareholders through four tender offers, priced at net asset value, and
a series of dividends. We currently expect that a further return of
funds to shareholders will take place before the end of the current
financial year; the precise amount to be distributed will depend on
exit activity over the next few months, but we envisage that in any case
it will be not less than GBP7.0 million.
It was indicated six months ago that we expected the liquidation of the
portfolio to be completed by the end of 2017, with the total cash
returned to shareholders projected to lie in the range between 155% and
170% of the original GBP59 million of net assets in 2011. Our latest
review with the manager suggests that this projection remains valid,
which would mean an ultimate return of funds in the range between GBP91
million and GBP100 million. Based on the present issued capital of
4,900,000 ordinary shares, and with GBP61.4 million already returned to
shareholders, the range of projected outcomes implies future
distributions of between approximately 605 pence and 785 pence per share
in total. However it should be noted that these figures are likely to
change as realisation proceeds continue to be distributed, firstly as
the projected amounts to be distributed change over time, and secondly
as the projected distributions may accrue to a reducing number of shares
in issue if shares are re-purchased by the company through tender
offers. The estimates also remain subject to inevitable uncertainties
including timing, market conditions, individual company performance and
the behaviour of other shareholders in investee companies.
Management agreement and smaller related party transaction
The change in the company's investment policy in 2011 was accompanied by
a review of the terms of the management agreement with NVM, with the
result that the annual management fee was reduced on a stepped basis
from GBP900,000 in the year ended 31 March 2012 to GBP300,000 in the
year ending 31 March 2016. Your board has now agreed with NVM that for
periods after 31 March 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. The total management fee will be capped at
GBP275,000 per annum. It has also been agreed that with effect from 1
April 2017 the manager's notice period will be reduced from twelve to
six months. This approach is consistent with our expectation that the
portfolio will reduce considerably over the period to the end of 2017.
The directors have been advised that the changes to the management
agreement fall within the definition of a 'smaller related party
transaction' for the purpose of the Listing Rules, such that the company
is not required to seek formal shareholder approval.
Outlook
The orderly realisation of the company's investments continues to make
good progress and your directors believe that the results to date
validate the strategy adopted in 2011. The next twelve months will be
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an important period as we seek to achieve our goal of completing the
process by the end of 2017.
On behalf of the Board
Nigel Guy
Chairman
The unaudited half-yearly financial statements for the six months ended
30 September 2015 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 30 September 2015
Six months ended Six months ended
30 September 2015 30 September 2014
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 240 240 - 5 5
Movements in
fair value
of
investments - 2,185 2,185 - 3,348 3,348
---------- ---------- ---------- ---------- ---------- ----------
- 2,425 2,425 - 3,353 3,353
Income 590 - 590 693 - 693
Investment
management
fee (30) (455) (485) (45) (635) (680)
Other
expenses (194) - (194) (194) - (194)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax 366 1,970 2,336 454 2,718 3,172
Tax on
return on
ordinary
activities (11) 24 13 (27) 38 11
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 355 1,994 2,349 427 2,756 3,183
---------- ---------- ---------- ---------- ---------- ----------
Return per 7.2p 40.7p 47.9p 4.9p 31.6p 36.5p
share
Year ended 31 March 2015
Revenue Capital Total
GBP000 GBP000 GBP000
Gain on disposal of investments - 5,870 5,870
Movements in fair value of investments - 2,464 2,464
---------- ---------- ----------
- 8,334 8,334
Income 1,546 - 1,546
Investment management fee (90) (1,474) (1,564)
Other expenses (313) - (313)
---------- ---------- ----------
Return on ordinary activities before
tax 1,143 6,860 8,003
Tax on return on ordinary activities (123) 155 32
---------- ---------- ----------
Return on ordinary activities after tax 1,020 7,015 8,035
---------- ---------- ----------
Return per share 11.7p 80.5p 92.2p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 30 September 2015
Six months ended Six months ended Year ended
30 September 2015 30 September 2014 31 March 2015
GBP000 GBP000 GBP000
Equity shareholders'
funds at 1 April
2015 25,611 37,831 37,831
Return on ordinary
activities after tax 2,349 3,183 8,035
Dividends recognised
in the period (833) (873) (873)
Shares re-purchased
for cancellation - - (19,382)
---------- ---------- ----------
Equity shareholders'
funds at 30 Sept
2015 27,127 40,141 25,611
---------- ---------- ----------
BALANCE SHEET
(unaudited) as at 30 September 2015
30 September 2015 30 September 2014 31 March 2015
GBP000 GBP000 GBP000
Fixed assets:
Investments 23,979 41,133 24,068
---------- ---------- ----------
Current assets:
Investments 56 56 56
Debtors 14 39 56
Cash and deposits 7,453 2,396 5,477
---------- ---------- ----------
7,523 2,491 5,589
Creditors (amounts
falling due
within one year) (4,375) (3,483) (4,046)
---------- ---------- ----------
Net current
assets/(liabilities) 3,148 (992) 1,543
---------- ---------- ----------
Net assets 27,127 40,141 25,611
---------- ---------- ----------
Capital and reserves:
Called-up equity share
capital 1,225 2,182 1,225
Capital redemption
reserve 3,930 2,973 3,930
Capital reserve 3,890 5,151 4,257
Special reserve 12,674 12,674 12,674
Revaluation reserve 3,707 15,575 1,346
Revenue reserve 1,701 1,586 2,179
---------- ---------- ----------
Total equity
shareholders' funds 27,127 40,141 25,611
---------- ---------- ----------
Net asset value per share 553.6p 459.9p 522.7p
CASH FLOW STATEMENT
(unaudited) for the six months ended 30 September 2015
Six months ended Six months ended Year ended
30 September 2015 30 September 2014 31 March 2015
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cash flow
statement
Net cash inflow
from operating
activities 295 499 916
Taxation:
Corporation tax
recovered/(paid) - - -
Financial
investment:
Purchase of
investments - - -
Sale/repayment of
investments 2,514 983 23,029
---------- ---------- ----------
Net cash inflow from
financial investment 2,514 983 23,029
Equity dividends
paid (833) (873) (873)
---------- ---------- ----------
Net cash inflow
before
financing 1,976 609 23,072
Financing:
Shares
re-purchased for
cancellation - - (19,382)
---------- ---------- ----------
Increase in cash
and deposits 1,976 609 3,690
---------- ---------- ----------
Reconciliation of revenue
return before tax
to net cash flow from
operating activities
Revenue return on ordinary
activities before tax 366 454 1,143
Decrease in
debtors 55 53 36
Increase in
creditors 329 627 1,211
Management
expenses charged
to capital (455) (635) (1,474)
---------- ---------- ----------
Net cash inflow
from operating
activities 295 499 916
---------- ---------- ----------
Reconciliation of
movement in net
funds
1 April 2015 Cash flows 30 September 2015
GBP000 GBP000 GBP000
Cash and deposits 5,477 1,976 7,453
Short-term
investments 56 - 56
---------- ---------- ----------
Net funds 5,533 1,976 7,509
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2015
Cost Valuation % of net assets
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