Earnings Release • Sep 30, 2012
Earnings Release
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Half-yearly financialreport September 2012
Itinvests mainly in unquoted venture capital holdings and aims to provide high long-term tax-free returns to shareholders through a combination of dividend yield and capital growth.
| Six months ended 30 September: |
2012 | 2011 |
|---|---|---|
| Net assets |
£47.2m | £43.2m |
| Net asset value pershare |
96.8p | 93.4p |
| Return pershare |
||
| Revenue | 1.0p | 1.9p |
| Capital | 1.9p | 1.8p |
| Total | 2.9p | 3.7p |
| Interim dividend declared in respect ofthe period |
2.0p | 2.0p |
| Cumulative return to shareholderssince launch |
||
| Net asset value pershare |
96.8p | 93.4p |
| Dividends paid pershare* |
36.4p | 31.4p |
| Net asset value plus dividends paid pershare |
133.2p | 124.8p |
| Mid-marketshare price at end of period |
82.1p | 78.1p |
| Share price discountto net asset value |
15.2% | 16.4% |
*Excluding interimdividend payable 11 January 2013
Shares quoted ex dividend 5December 2012
Interim dividend paid (to shareholders on register on 7 December 2012) 11 January 2013
forthe sixmonths ended 30 September 2012
The investmentportfolio continues to makegoodoverallprogressdespite the persistentdifficulties intheUKeconomy.
The unaudited net asset value (NAV) pershare at 30 September 2012, after deducting the 2011/12 final dividend of 3.0p pershare paid during the period, was 96.8p– anincreaseof 0.1poverthe auditedNAVof 96.7p as at 31 March 2012. The return pershare forthe period before dividends, asshown in the income statement, was 2.9p compared with 3.7p in the corresponding sixmonth period to 30 September 2011.
Investmentincome forthe period was £0.8million, compared with £1.2million in the corresponding period last year. The reduction was due to a nonrecurring receipt of £0.5million last year on the sale of PromanexGroupHoldings. The revenue return pershare was 1.0p (corresponding period 1.9p).
Your board has declared an unchanged interimdividend of 2.0p pershare, which will be paid on 11 January 2013 to shareholders on the register atthe close of business on 7December 2012. As announced in February 2012, we now aimtomaintain the annual dividend at not lessthan 5.0p pershare and so we expect,subjectto unforeseen circumstances,to propose in due course a final dividend forthe current year of atleast 3.0p, which will be payable in July 2013.
During the sixmonths ended 30 September 2012 the following holdings were acquired forthe venture capital portfolio:
• Advanced Computer SoftwareGroup (£273,000) – additional investmentin AIM-quoted developer of computersoftware forthe healthcaremarket, London
In May the company'sinvestmentin Closerstill Holdings,the business-to-business exhibition organiser, wassold to Phoenix Equity Partnersfor £2.2million in cash,realising a gain of £1.5million over original cost. The related investmentin Closer2 Investments was at the same time exchanged for a holding of equivalent value in CloserstillGroup, a new exhibitions group funded by Phoenix. There were a number ofsmaller disposals and loan stock repayments which took the total cash proceedsin the half yearto £3.6million.
Marketinterestratesseemlikely to remain low for the foreseeable future and we have continued with our policy of holding part ofthe company'sfundsin higheryielding blue-chip listed equities, which have returned a satisfactory yield as well assome capital appreciation.
In orderto assistin the provision ofliquidity to shareholders,the company hasmaintained its policy of buying back itssharesin themarket at a 15% discountto the latest publishedNAV,subjecttomarket conditions and the availability of cash resources and distributable reserves.During the sixmonths ended 30 September 2012, 637,000 shares(representing 1.3% ofthe company'sissued capital) were purchased at an average price of 80.9p pershare. Themid-market share price ranged between 78p and 82p,maintaining the discounttoNAV at around 15%.
The company has continued to comply with the conditionslaid down byHM Revenue&Customsfor themaintenance of approved venture capitaltrust status.Ourmanagersmonitorthe position closely and the board also receivesregularreportsfromour taxation advisers at PricewaterhouseCoopers LLP.
Reference wasmade in the March 2012 annualreport to theGovernment's 2012 Budget proposalsto relax the limits on the size of VCT-qualifying companies and increase the amount offunding which companies can raise fromVCTsto £10million per annum. The funding limitin any 12month period wassubsequently reduced from£10million to £5million atthe insistence ofthe European Commission. TheGovernment has also introduced potentially alarming penaltiesfor any VCT which investsin a company which exceedsthe fund-raising limit.Ourmanagers and their advisers are still working outthe practical implications ofthe new regime.
The FSA's RetailDistribution Review islikely to bring aboutsignificant changesin the way VCTsraise funds through new share issues. The FSA has also published a consultation paper on the retail distribution of unregulated collective investmentschemes, which hasthe unwelcome aimofrestricting the categories of retail investorsto whomfinancial advisers can promote VCT share offers. Aslisted companies, VCTs are already subjectto a wide range ofregulatory requirements and investorsafeguards, and your board believesthatthe proposed changes are inappropriate. We havemade a robustresponse to the consultation paperjointly with the otherNorthern VCTs andmust now await the outcome.
The investment portfolio continuestomake good overall progress despite the persistent difficulties in theUK economy.Overthe pastthree yearsit has been possible to increase the annual dividend whilst also achieving an increase in the underlying net asset value, and your board andmanagers are focussed on continuing to provide an attractive totalreturn to shareholders.
James Ferguson
Chairman 8 November 2012
as at 30 September 2012
| Cost £000 |
Valuation £000 |
% of net assets by value |
|
|---|---|---|---|
| Fifteen largest venture capital investments |
|||
| Kerridge Commercial Systems |
1,663 | 4,097 | 8.7 |
| Advanced Computer SoftwareGroup* |
1,034 | 2,262 | 4.8 |
| Volumatic | 2,096 | 2,096 | 4.4 |
| IDOX* | 660 | 2,072 | 4.4 |
| PaladinGroup | 1,013 | 1,864 | 4.0 |
| WearInns | 1,406 | 1,779 | 3.8 |
| TinglobalHoldings | 1,988 | 1,672 | 3.5 |
| Silverwing | 1,272 | 1,272 | 2.7 |
| Control RisksGroupHoldings |
746 | 1,173 | 2.5 |
| KitwaveOne | 1,000 | 1,014 | 2.1 |
| Lineup Systems |
974 | 974 | 2.1 |
| RCC Lifesciences |
995 | 965 | 2.0 |
| Cawood Scientific |
825 | 915 | 1.9 |
| Axial SystemsHoldings |
1,293 | 827 | 1.8 |
| SinclairIS Pharma* |
753 | 757 | 1.6 |
| 17,718 | 23,739 | 50.3 | |
| Other venture capital investments |
11,286 | 8,233 | 17.4 |
| Total venture capital investments |
29,004 | 31,972 | 67.7 |
| Listed equity investments |
5,000 | 5,508 | 11.7 |
| Listed fixed-interestinvestments |
2,594 | 2,646 | 5.6 |
| Totalfixed assetinvestments |
36,598 | 40,126 | 85.0 |
| Net current assets |
7,085 | 15.0 | |
| Net assets |
47,211 | 100.0 |
*Quoted on AIM
51.1% Venture capital – unquoted 48.5%
16.6% Venture capital – AIM quoted 14.0%
15.0% Cash and shorttermdeposits 15.8%
30 September 2011
(unaudited)forthe sixmonths ended 30 September 2012
| Sixmonths ended 30 September 2012 |
|||
|---|---|---|---|
| Revenue | Capital | Total | |
| £000 | £000 | £000 | |
| Gain on disposal ofinvestments |
– | 546 | 546 |
| Movementsin fair value ofinvestments |
– | 697 | 697 |
| – | 1,243 | 1,243 | |
| Income | 812 | – | 812 |
| Investmentmanagementfee | (126) | (378) | (504) |
| Other expenses |
(145) | – | (145) |
| Return on ordinary activities before tax Tax on return on ordinary activities |
541 (53) |
865 53 |
1,406 – |
| Return on ordinary activities aftertax |
488 | 918 | 1,406 |
| Return pershare |
1.0p | 1.9p | 2.9p |
| Dividends paid/proposed in respect ofthe period |
1.0p | 1.0p | 2.0p |
• The total column ofthisstatementisthe profit and loss account ofthe company. The supplementary revenue return and capitalreturn columns have been prepared under guidance published by the Association ofInvestment Companies.
(unaudited)forthe sixmonths ended 30 September 2012
| Sixmonths ended 30 September 2012 £000 |
|
|---|---|
| Equity shareholders'funds at 1April 2012 |
47,798 |
| Return on ordinary activities aftertax |
1,406 |
| Dividendsrecognised in the period |
(1,475) |
| Net proceeds ofshare issues |
– |
| Sharesissued onmerger |
– |
| Shares purchased for cancellation |
(518) |
| Equity shareholders'funds at 30 September 2012 |
47,211 |
| Sixmonths | ended 30 |
September 2011 |
Year ended 31 |
March 2012 |
||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| – | 610 | 610 | – | 628 | 628 | |
| – | 333 | 333 | – | 3 ,023 |
3 ,023 |
|
| – | 943 | 943 | – | 3,651 | 3,651 | |
| 1,178 | – | 1,178 | 1,746 | – | 1,746 | |
| (96) | (289) | (385) | (208) | (894) | (1,102) | |
| (150) | – | (150) | (283) | (11) | (294) | |
| 932 | 654 | 1,586 | 1,255 | 2,746 | 4,001 | |
| (180) | 90 | (90) | (210) | 210 | – | |
| 752 | 744 | 1,496 | 1,045 | 2,956 | 4,001 | |
| 1.9p | 1.8p | 3.7p | 2.4p | 6.8p | 9.2p | |
| 1.0p | 1.0p | 2.0p | 2.2p | 2.8p | 5.0p |
| Sixmonths ended |
Year ended |
|
|---|---|---|
| 30 September 2011 |
31 March 2012 |
|
| £000 | £000 | |
| 37,428 | 37,428 | |
| 1,496 | 4,001 | |
| (1,011) | (1,931) | |
| – | 3,418 | |
| 5,479 | 5,482 | |
| (211) | (600) | |
| 43,181 | 47,798 |
(unaudited) as at 30 September 2012
| 30 September 2012 £000 |
30 September 2011 £000 |
31March2012 £000 |
|
|---|---|---|---|
| Fixed assetinvestments |
40,126 | 36,547 | 39,606 |
| Current assets |
|||
| Debtors | 181 | 464 | 192 |
| Cash and deposits |
7,071 | 6,867 | 8,511 |
| 7,252 | 7,331 | 8,703 | |
| Creditors(amountsfalling | |||
| due within one year) |
(167) | (697) | (511) |
| Net current assets |
7,085 | 6,634 | 8,192 |
| Net assets |
47,211 | 43,181 | 47,798 |
| Capital and reserves Called-up equity share capital |
2,438 | 2,313 | 2,470 |
| Share premium |
3,220 | 26,560 | 3,219 |
| Capitalredemption reserve |
462 | 406 | 430 |
| Capitalreserve | 36,784 | 11,492 | 36,756 |
| Revaluation reserve |
3,528 | 1,361 | 4,042 |
| Revenue reserve |
779 | 1,049 | 881 |
| Total equity shareholders'funds |
47,211 | 43,181 | 47,798 |
| Net asset value pershare |
96.8p | 93.4p | 96.7p |
(unaudited)forthe sixmonths ended 30 September 2012
| Sixmonths ended 30 September 2012 £000 |
Sixmonths ended 30 September 2011 £000 |
Year ended 31 March 2012 £000 |
|
|---|---|---|---|
| Net cash(outflow)/inflow |
|||
| fromoperatingactivities | (105) | 645 | 528 |
| Taxation | |||
| Corporation tax paid |
– | – | – |
| Financial investment |
|||
| Purchase ofinvestments |
(3,460) | (2,243) | (4,798) |
| Sale/repayment ofinvestments |
4,118 | 5,225 | 7,429 |
| Net cash inflow from |
|||
| financial investment |
658 | 2,982 | 2,631 |
| Acquisitions | |||
| Cash and deposits acquired onmerger |
– | 604 | 604 |
| Equity dividends paid |
(1,475) | (1,011) | (1,931) |
| Net cash (outflow)/inflow |
|||
| before financing |
(922) | 3,220 | 1,832 |
| Financing | |||
| Issue ofshares |
– | – | 3,598 |
| Share issue expenses |
– | (82) | (259) |
| Purchaseofordinary sharesfor cancellation |
(518) | (211) | (600) |
| Net cash(outflow)/inflowfromfinancing |
(518) | (293) | 2,739 |
| (Decrease)/increaseincashanddeposits | (1,440) | 2,927 | 4,571 |
| Reconciliation ofreturn before tax |
|||
| tonet cashflowfromoperatingactivities |
|||
| Return on ordinary activities before tax |
1,406 | 1,586 | 4,001 |
| Gain on disposal ofinvestments |
(546) | (610) | (628) |
| Movementsin fair value ofinvestments |
(697) | (333) | (3,023) |
| Decrease/(increase)in debtors |
11 | (42) | 230 |
| (Decrease)/increase in creditors |
(279) | 44 | (52) |
| Net cash(outflow)/inflow |
|||
| fromoperatingactivities | (105) | 645 | 528 |
| Analysis of movementin netfunds |
1 April 2012 £000 |
Cash flows £000 |
30 September 2012 £000 |
| Cash and deposits |
8,511 | (1,440) | 7,071 |
(unaudited)forthe sixmonths ended 30 September 2012
The board carries out a regularreview ofthe risk environmentin which the company operates. The principal risks and uncertaintiesidentified by the board are asfollows:
Investmentrisk:many ofthe company'sinvestments are in small andmedium-sized unquoted and AIM-quoted companies which are VCT qualifying holdings and which by their nature entail a higherlevel ofrisk and lower liquidity than investmentsin large quoted companies. The directors aimto limitthe risk attaching to the portfolio as a whole by carefulselection and timely realisation ofinvestments, by carrying outrigorous due diligence procedures and bymaintaining a wide spread of holdingsin terms offinancing stage and industry sector. The board reviewsthe investment portfolio with the investmentmanagers on a regular basis.
Financialrisk: asmost ofthe company'sinvestmentsinvolve amediumto long-termcommitment andmany are relatively illiquid,the directors considerthatitisinappropriate to finance the company's activitiesthrough borrowing except on an occasionalshort-termbasis. Accordingly they seek tomaintain a proportion ofthe company's assetsin cash or cash equivalentsin orderto be in a position to take advantage of new unquoted investment opportunities. The company has very little exposure to foreign currency risk and does not enter into derivative transactions.
Economic risk: eventssuch as economic recession or generalfluctuationsin stockmarkets and interestrates may affectthe valuation ofinvestee companies and their ability to access adequate financialresources, as well as affecting the company's own share price and discountto net asset value.
Stock marketrisk:some ofthe company'sinvestments are quoted on the London Stock Exchange orthe AIM market and will be subjecttomarketfluctuations upwards and downwards. Externalfactorssuch asterrorist activity can negatively impactstockmarkets worldwide and the AIM marketis no exception to this. In times of adverse sentimentthere tendsto be very little, if any,market demand forsharesin the smaller companies quoted on AIM.
Creditrisk:the company holds a number offinancial instruments and cash deposits and is dependent on the counterparties discharging their commitment. The directorsreviewthe creditworthiness ofthe counterparties to these instruments and cash depositsin addition to ensuring no significant concentration of creditrisk is with any one counterparty.
Liquidity risk:the company'sinvestmentsmay be difficultto realise. The factthat a stock is quoted on AIM does not guarantee itsliquidity and theremay be a large spread between bid and offer prices.Unquoted investments are nottraded on a recognised stock exchange and are inherently illiquid.
Politicalrisk: in ordertomaintain its approval as a VCT,the company isrequired to comply with current VCT legislation in theUK as well asthe European Commission's State Aid rules. Politicallymotivated changesto the UK legislation orthe StateAid rulesin the future could have an adverse effect on the company's ability to achieve satisfactory investmentreturns whilstretaining its VCT approval. The board and themanagermonitor political developments and where appropriate seek tomake representations either directly orthrough the relevant trade bodies.
Internal controlrisk:the board regularly reviewsthe systemofinternal controls, both financial and non-financial, operated by the company and themanager. These include controls designed to ensure thatthe company's assets are safeguarded and that proper accounting records aremaintained.
VCT qualifying statusrisk:the company isrequired at alltimesto observe the conditionslaid down in the Income Tax Act 2007 forthemaintenance of approved VCT status. The loss ofsuch approval could lead to the company losing its exemption fromcorporation tax on capital gains,to investors being liable to pay income tax on dividends received fromthe company and, in certain circumstances,to investors being required to repay the initial income tax relief on theirinvestment. Themanager keepsthe company's VCT qualifying status under continualreview and reportsto the board on a quarterly basis. The board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT statusmonitoring role.
James Ferguson (Chairman) Chris Fleetwood TimLevett John Waddell
Secretary Christopher Mellor FCA MCSI
NorthumberlandHouse Princess Square Newcastle upon TyneNE1 8ER
T 0191 244 6000 E [email protected] www.nvm.co.uk
NVM Private Equity Limited NorthumberlandHouse Princess Square Newcastle upon TyneNE1 8ER
Equiniti Limited AspectHouse Spencer Road Lancing BN99 6DA
Equinitishareholder helpline: 0800 028 2349
and Newcastle Tyne
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