Company PLC and 30 2018 - nvm.co.uk · a proposal to place the company in members’ voluntary...

Northern Investors Company PLC Half‐yearly report and financial statements 30 September 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. Since then the trust has returned a total of £90.7 million to shareholders through dividends and capital distributions. The directors intend to convene a general meeting of shareholders in December 2018 to approve a proposal to place the company in members’ voluntary liquidation. Directors Nigel Guy (Chairman)

John Barnsley Philip Marsden

Secretary James Bryce LLB

Registered office Time Central 32 Gallowgate Newcastle upon Tyne NE1 4SN

T 0191 244 6000 E [email protected] www.nvm.co.uk

Registrars Equiniti Limited Aspect House Spencer Road Lancing BN99 6DA

Shareholder helpline: 0800 028 2349

Contents

1 Financial summary

2 Half‐yearly management report

4 Income statement

6 Balance sheet

7 Statement of changes in equity

8 Statement of cash flows

8 Investment portfolio

9 Notes to the financial statements

10 Risk management

Northern Investors Company PLC 1 Half‐yearly report 30 September 2018

Financial summary

Six months ended30 September 2018

Six months ended 30 September 2017

Year ended31 March 2018

Net assets £5.6m £5.8m £5.8m

Number of ordinary shares in issue 2,496,767 2,496,767 2,496,767

Net asset value per share 222.7p 233.4p 232.1p

Cash distributions to shareholders: During the period Since change in investment policy (July 2011)

– £90.7m

£7.2m

£90.7m £7.2m

£90.7m

Cash balances at end of period £3.2m £1.5m £1.9m

Total return/(loss) for the period: Pence per share As % of opening net asset value

(9.4)p(4.0)%

16.0p 3.1%

13.5p2.7%

Dividend per share declared for the period – – –

Mid‐market share price at end of the period 197p 236p 224p

Discount/(premium) to net asset value 11.5% (1.1)% 3.5%

12.8

22.9

37.0

56.1

71.4

77.6

84.0

84.0

1.5

2.5

3.6

4.5

5.3

5.9

6.7

6.7

59.0

49.2

44.1

37.8

25.6

17.1

12.7

5.8

5.6

59.0

63.5

69.5

78.4

86.2

93.8

96.2

96.5

96.3

0 10 20 30 40 50 60 70 80 90 100

31 March 2011

31 March 2012

31 March 2013

31 March 2014

31 March 2015

31 March 2016

31 March 2017

31 March 2018

30 September 2018

Net assets and cumulative distributions to shareholders since March 2011 (all figures £m)

Cumulative capital distributions Cumulative dividends paid Net assets at balance sheet date


Half‐yearly management report

Overview Our company is approaching the final stage of a process which began in July 2011, when a general meeting of shareholders approved a radical change in corporate strategy. As a result the company ceased making new investments and began an orderly realisation of its portfolio, with a view to returning capital to shareholders through a series of cash distributions. At the time of the change the company’s net assets were £59.0 million, comprising 30 venture capital investments with a carrying value of £47.7 million and net current assets of £11.3 million (including cash balances of £12.2 million). It was recognised that the task of realising the underlying value of a portfolio of minority holdings in small unquoted companies was challenging and would require patience and careful management, so it is pleasing to record that over the past seven years the company has been able to distribute over £90 million to shareholders, with now only three of the original 30 investments still to be sold. As a result of successful realisations and cash distributions, the company’s remaining net assets have been progressively reduced and stand at £5.6 million at 30 September 2018. Your directors believe that the point has now been reached where the expense of maintaining the present corporate form, including a Stock Exchange listing, is disproportionate in relation to the remaining asset base. Accordingly it is intended that on 16 November 2018 we will publish a circular convening a general meeting of shareholders to be held on 11 December 2018, at which a resolution will be proposed to appoint liquidators to carry out a members’ voluntary liquidation of the company. We believe this will be the most cost‐effective and tax‐efficient way of completing the final stages of the portfolio run‐off process and distributing the resulting funds to shareholders. This half‐yearly management report will therefore be the last report which your board will be making to shareholders. Following the appointment of the liquidators, the company’s directors will resign and its Stock Exchange listing will be cancelled. Results for the six months ended 30 September 2018 During the half year the company’s income statement showed a loss before tax of 9.4 pence per share, comprising a surplus of 1.8 pence per share on the revenue account and a deficit of 11.2 pence per share on the capital account. A capital profit of £0.1 million was realised on the sale of CGI Group Holdings, but this was more than offset by an overall reduction of £0.4 million in the directors’ valuation of the three remaining investments. Unfortunately global trade conflicts and rising US interest rates, whose effects have already been reflected in stock market weakness, and the continuing uncertainty around Britain’s proposed withdrawal from the European Union, are not particularly conducive to investee companies’ trading or exit prospects. The net asset value per share at 30 September 2018 was 222.7 pence, a reduction of 9.4 pence from the audited figure of 232.1 pence as at 31 March 2018. The directors’ valuation of the three remaining investments was £3.7 million. Cash balances at 30 September 2018 amounted to £3.2 million (31 March 2018 £1.9 million), of which we estimate that £3.0 million will be passed over to the liquidators on their appointment. The other significant balance sheet item is the provision of £1.3 million for the total incentive fee which will be payable to NVM if the remaining investments are realised at their current valuation and when the company’s cash balances (net of liquidation expenses) are distributed to shareholders. The corresponding provision at 31 March 2018 was £1.8 million, of which £0.5 million became due and was paid in June 2018. No dividend has been declared in respect of the period. Investment portfolio In September 2018 the company’s investment in CGI Group Holdings was sold for proceeds of £1.8 million, compared to an original cost of £1.9 million and a 31 March 2018 carrying value of £1.7 million. This was a satisfactory final outcome to an investment which had already returned significant amounts of cash through capital reconstructions in 2004 and 2008. Our manager, NVM Private Equity, has continued to seek appropriate exit opportunities for the three remaining investments, Axial Systems Holdings, Lanner Group and Weldex (International) Offshore Holdings. It is highly unlikely that any of these holdings will be sold prior to the general meeting, and NVM will be retained to work with the liquidators, once appointed, on the continuing realisation process. At this stage it is not possible to give a reliable indication as to the likely timing of future disposals.


Appointment of liquidators Shareholders are strongly recommended to read the circular which is expected to be published by the company on 16 November 2018, which will contain notice of the general meeting to be held on 11 December 2018 and will set out the background to, and implications of, the liquidators’ appointment, as well as a description of risk factors and tax considerations relevant to shareholders. The following paragraphs set out the directors’ understanding of certain key aspects but are not a substitute for reading the circular itself. The remit of the liquidators will be to oversee the realisation of the company’s remaining assets and to complete the process of distributing cash to shareholders. On the appointment of the liquidators, the directors will cease to have any powers or functions in relation to the affairs of the company and will therefore resign from the board. NVM’s responsibility to provide administrative and secretarial services to the company will also cease. However NVM will enter into a new agreement to provide advisory services in connection with the sale of the remaining investments. NVM will also retain its existing entitlement to receive an incentive fee based on cash distributions to shareholders. Details will be provided in the circular. It is envisaged that the company’s listing on the London Stock Exchange will be cancelled with effect from 12 December 2018. The share register will be closed at the close of business on 10 December 2018 and registration of transfers of shares will no longer be possible after that date without the prior consent of the liquidators. Shareholders who hold their shares through ISAs are therefore urged to check that their ISA provider will permit the shares to be retained once the company’s listing is cancelled. The production of audited annual and unaudited half‐yearly reports in their present form will cease, although the liquidators are required by statute to report to shareholders annually for as long as the liquidation continues. Since the adoption of the revised investment policy in 2011, your directors have from time to time provided shareholders with updated estimates of the range of possible outcomes in terms of cash distributions to shareholders. Our last such estimate, in May 2018, was that the total cash returned to shareholders would be equivalent to between 162% and 167% of the starting net assets of £59 million. We believe that this range remains valid, though it must be emphasised that the timing of further investment sales and the values realised will be at the discretion of the liquidators and will also depend on the companies’ trading performance and on market conditions at the relevant time. Nevertheless this points to a highly creditable outcome which validates the orderly realisation strategy maintained by the board over the past seven years. The liquidators have indicated that, based on the information currently available to them, they expect to make an initial distribution of not less than £1.8 million (equivalent to approximately 72 pence per share) to shareholders no later than 31 January 2019. The timing and amount of further distributions will depend on investment realisations, but it is currently estimated that it may take a further 24 months or more to complete the realisation process. The liquidators are obliged to settle all known liabilities and claims and seek tax clearance from HM Revenue & Customs before making any final distribution to shareholders and then concluding the liquidation. Based on the directors’ appraisal of the range of possible outcomes mentioned above, and allowing for the payment of estimated liquidation expenses and the NVM incentive fee, we believe that cash distributions to shareholders in the liquidation period, including the initial distribution by the liquidators, could be in the range from 215 pence to 295 pence per share. This information is provided for illustration purposes only and clearly is in no way binding on the company or the liquidators. Conclusion Northern Investors was launched in 1984 with an initial capital of £5 million and has been listed as an investment trust on the London Stock Exchange since 1990. The company’s impending demise is in some ways to be regretted, but it is a fact of life that modern investors, particularly institutions, have become increasingly reluctant to invest in listed private equity investment trusts which make direct investments in unquoted companies rather than in managed funds. I know that shareholders will want to join me in thanking the present board and their predecessors for their wise oversight of the company’s affairs, as well as our manager NVM whose investment executives have been consistent, professional and effective in their approach over the years. We have also been fortunate to have the benefit of long and productive relationships with our various professional advisers. On behalf of the board I would also like to thank those shareholders who have remained with us for their continued support.

Nigel Guy Chairman 12 November 2018


Income statement for the six months ended 30 September 2018 (unaudited)

Six months ended 30 September 2018 Revenue

£000 Capital £000

Total £000

Gain on disposal of investments Movements in fair value of investments

– –

97 (357)

97 (357)

– (260) (260)

Income Investment management fee Other expenses

180 (13)(123)

– (19) –

180 (32)(123)

Return/(loss) on ordinary activities before tax and total comprehensive income for the period

Tax on return/(loss) on ordinary activities

44

–

(279)

–

(235)

–

Return/(loss) on ordinary activities after tax 44 (279) (235)

Return/(loss) per share 1.8p (11.2)p (9.4)p

The total column of the income statement is the statement of total comprehensive income of the company prepared in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The supplementary revenue return and capital return columns have been prepared in accordance with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts issued in November 2014 and updated in February 2018 with consequential amendments by the Association of Investment Companies (AIC SORP).

There are no recognised gains or losses other than those included in the income statement.

All items included in the income statement derive from continuing operations.


Six months ended 30 September 2017 Year ended 31 March 2018 Revenue

£000 Capital £000

Total £000

Revenue £000

Capital £000

Total £000

– –

653 9

653 9

– –

776 26

776 26

– 662 662 – 802 802

65 (23) (171)

– (91) (42)

65 (114)(213)

130 (39)(319)

– (194)(42)

130 (233) (361)

(129)

–

529

–

400

–

(228)

–

566

–

338

–

(129) 529 400 (228) 566 338

(5.2)p 21.2p 16.0p (9.1)p 22.6p 13.5p


Balance sheet as at 30 September 2018 (unaudited)

30 September 2018 £000

30 September 2017 £000

31 March 2018 £000

Fixed assets Investments 3,663

5,810 5,737

Current assets Debtors Cash and cash equivalents

28 3,156

383

1,516 19

1,867

Creditors (amounts falling due within one year)

3,184

(1,286)

1,899

(1,881)

1,886

(1,827)

Net current assets 1,898 18 59

Net assets 5,561 5,828 5,796

Capital and reserves Called‐up equity share capital Capital reserve Special reserve Revaluation reserve Revenue reserve

624 6,263

– (2,310)

984

624

(10,688) 17,141 (2,288) 1,039

624 6,437

– (2,205)

940

Total equity shareholders’ funds 5,561 5,828 5,796

Net asset value per share 222.7p 233.4p 232.1p


Statement of changes in equity for the six months ended 30 September 2018 (unaudited)

Non‐distributable reserves Distributable reserves Total

Sharecapital£000

Capitalredemption

reserve£000

Re‐valuationreserve

£000

Capital reserve

£000

Special reserve

£000

Revenuereserve

£000 £000

At 1 April 2018 Return on ordinary activities after tax

624 –

– –

(2,205)(105)

6,437 (174)

– –

940 44

5,796 (235)

At 30 September 2018 624 – (2,310) 6,263 – 984 5,561

for the six months ended 30 September 2017 (unaudited)


Sharecapital£000

Capitalredemption

reserve£000


£000

Capital reserve

£000

Special reserve

£000

Revenuereserve

£000 £000

At 1 April 2017 Return on ordinary activities after tax Cancellation of capital redemption reserve Bonus issue of B shares Redemption of B shares B share redemption expenses Dividends paid

624 – – – – – –

6,242 –

(12,671)–

6,429 – –

(17)(2,271)

– – – – –

(7,018) 2,842

– –

(6,429) (83) –

10,941 (42)

12,671 (6,429)

– – –

1,921 (129)

– – – –

(753)

12,693 400

– (6,429)

– (83)(753)

At 30 September 2017 624 – (2,288) (10,688) 17,141 1,039 5,828

for the year ended 31 March 2018


Sharecapital£000

Capitalredemption

reserve£000


£000

Capital reserve

£000

Special reserve

£000

Revenuereserve

£000 £000

At 1 April 2017 Return on ordinary activities after tax Cancellation of capital redemption reserve Bonus issue of B shares Redemption of B shares B share redemption expenses Transfer to capital reserve Dividends paid

624 – – – – – – –

6,242 –

(12,671)–

6,429 – – –

(17)(2,188)

– – – – – –

(7,018) 2,796

– –

(6,429) (53)

17,141 –

10,941 (42)

12,671 (6,429)

– –

(17,141) –

1,921 (228)

– – – – –

(753)

12,693 338

– (6,429)

– (53)–

(753)

At 31 March 2018 624 – (2,205) 6,437 – 940 5,796


Statement of cash flows for the six months ended 30 September 2018 (unaudited)


£000


£000

Year ended 31 March 2018

£000

Cash flows from operating activities Return on ordinary activities before tax for the period Adjustments for: Gain on disposal of investments Movement in fair value of investments (Increase)/decrease in debtors Increase/(decrease) in creditors

(235)

(97)357 (9)

(541)

400

(653) (9)

783 (768)

338

(776)(26)772 (822)

Net cash outflow from operating activities (525) (247) (514)

Cash flows from investing activities Purchase of investments Sale/repayment of investments

– 1,814

–

4,458 –

5,046

Net cash inflow from investing activities 1,814 4,458 5,046

Cash flows from financing activities Redemption of B shares Expenses associated with redemption of B shares Dividends paid on ordinary and B shares

– – –

(6,429)

(83) (753)

(6,429)(53)(753)

Net cash outflow from financing activities – (7,265) (7,235)

Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period

1,289 1,867

(3,054) 4,570

(2,703)4,570

Cash and cash equivalents at end of period 3,156 1,516 1,867

Investment portfolio as at 30 September 2018 (unaudited)

Cost£000

Valuation £000

% of net assetsby value

Weldex (International) Offshore Holdings 3,252 1,921 34.6

Axial Systems Holdings 2,311 989 17.8

Lanner Group 410 753 13.5

Total fixed asset investments 5,973 3,663 65.9


Notes to the financial statements for the six months ended 30 September 2018 (unaudited)

1 Accounting basis

The financial statements have been prepared under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and in accordance with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued in November 2014 and updated in February 2018 with consequential amendments by The Association of Investment Companies (AIC SORP).

2 Going concern

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 intended that this process will lead to the liquidation of the company, the financial statements have not been prepared on the 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.

3 Return per share

The calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the six months ended 30 September 2018 and on 2,496,767 (2017 2,496,767) ordinary shares, being the weighted average number of shares in issue during the period.

4 Net asset value per share

The calculation of net asset value per share is based on the net assets at 30 September 2018 divided by the 2,496,767 (2017 2,496,767) ordinary shares in issue at that date.

5 Status of financial statements

The unaudited half‐yearly financial statements for the six months ended 30 September 2018 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006, have not been audited or reviewed by the company's independent auditor and have not been delivered to the Registrar of Companies. The comparative figures for the year ended 31 March 2018 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies. The independent auditor's report on those financial statements (i) was unqualified, (ii) drew attention by way of emphasis of matter to the fact that the financial statements had not been prepared on the going concern basis and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. The half‐yearly financial statements have been prepared on the basis of the accounting policies set out in the annual financial statements for the year ended 31 March 2018.

6 Half‐yearly report

Copies of this half‐yearly report have been mailed to shareholders and are available to the public at the company's registered office, and on the NVM Private Equity LLP website, www.nvm.co.uk.


Risk management

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 performance, and the steps taken with a view to their mitigation, are set out below.

Investment and liquidity risk: 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. The company’s ability to exert influence over these investments may be limited relative to other shareholders. 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 become more concentrated as investments are realised and cash is returned to shareholders. This has increased 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 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, the directors intend to propose that liquidators be appointed to carry out a members’ voluntary liquidation, following which the directors will resign and the company’s shares will cease to be listed on the London Stock Exchange. This will result in shareholders having a lesser degree of influence over the affairs of the company than previously and in a loss of liquidity as regards their shareholdings.

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.

It is expected that a circular to shareholders will be published on 16 November 2018 containing proposals for the appointment of liquidators and setting out the risk factors relating to such appointment.

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