Northern Investors Company PLC Half-yearly report

9 NOVEMBER 2009
NORTHERN INVESTORS COMPANY PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

Northern Investors Company PLC is an investment trust managed by NVM Private Equity Limited. Launched in 1984 and listed on the London Stock Exchange since 1990, it invests mainly in unquoted venture capital holdings and aims to provide high long-term returns to shareholders through a combination of capital growth and dividend yield.

Financial highlights (comparative figures as at 30 September 2008):

2009 2008
Net assets
£50.3m £49.7m
Net asset value per share
259.6p 255.9p
Mid-market share price
186.0p 156.0p
Share price discount to
net asset value
28.4% 39.0%
Return per share after tax:
Revenue
Capital
Total

2.9p
17.9p
20.8p
3.9p
(40.3)p
(36.4)p
Interim dividend per share
declared in respect of the period 2.2p 2.2p


HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS

During the past six months our company has continued to operate against a background of economic recession and wide fluctuations in the financial markets. We are therefore pleased to be able to report an increase in net asset value (NAV) per share, a maintained interim dividend, a further strengthening of the company's cash reserves through several successful realisations and a strong recovery in the share price.

Net asset value and share price

The following table shows the NAV per share, mid-market share price and discount as at 30 September 2009 compared with the corresponding figures at 31 March 2009 and 30 September 2008:

30 September
2009 31 March
2009 30 September
2008
NAV per share 259.6p 243.9p 255.9p
Share price 186.0p 96.0p 156.0p
Share price discount to NAV 28.4% 60.6% 39.0%


The steep fall in the Northern Investors share price during late 2008 and early 2009 appears to have been largely due to a change in market sentiment towards private equity investment trusts, driven by concerns about investment valuations and unfunded investment commitments. Over the past six months, however, the share price has almost doubled, perhaps reflecting a better appreciation by the market of our conservative valuation methodology and strong cash position.

The directors have continued to take a cautious view in assessing the value of the unquoted investment portfolio, notwithstanding the remarkable upturn in the quoted markets over the past six months, and as a result the recent increase in NAV has been only modest. The following table shows the movement in NAV and share price over the latest six and 12 month periods compared with the movement in the FTSE All-Share index:

Periods to 30 Sept 2009 NAV per share Share price FTSE All-Share
Six months +6.4% +93.8% +32.8%
12 months +1.4% +19.2% +6.1%


Revenue and dividend

Investment income for the half year was lower than in the corresponding period, reflecting the continuing depressed level of interest rates as well as the present inability of some investee companies fully to service their loans whilst under pressure from severe bank lending covenants. Consequently the revenue return per share fell to 2.9p (corresponding period 3.9p). The interim dividend is maintained at 2.2p per share, payable on 8 January 2010 to shareholders on the register on 4 December 2009.

Investment portfolio

The period under review has seen a continuation of the strong flow of investment realisations which began in the preceding year, with sales proceeds in the period totalling £7.9 million. The most significant event was the sale of DxS, the Manchester-based molecular diagnostics business which NVM funds backed as an early-stage investment in 2001. The sale to Qiagen NV in September 2009 produced £5.9 million in cash from our original investment of £841,000, with the possibility of further payments over the next three years dependent on future performance - overall an outstanding result. Our holding in public sector software developer Liquidlogic was sold to the AIM-quoted System C Healthcare for £1.2 million, compared with an original cost (net of previous loan stock repayments) of £175,000. Subsequent to the period end we have also exited from the occupational healthcare group Abermed at a price reflected in the carrying value at 30 September 2009.

There were no significant additions to the portfolio during the period, although our managers report an upturn recently in the volume and quality of enquiries received. It has been our previous experience that attractively-priced investment opportunities can become available in the aftermath of recession, and following the recent series of realisations we expect the emphasis to turn over the next 12 months to making new additions to the portfolio. We are also prepared to provide additional funding to existing portfolio companies where appropriate, particularly in those cases where bank financing is not available on acceptable terms.

Corporate strategy

At the annual general meeting in June 2009, the directors asked shareholders to approve their strategy of postponing the next continuation vote until the 2012 meeting, with subsequent resolutions at the customary five-yearly interval. This proposal was strongly endorsed, giving us a helpful additional visibility at a time when long-term decision-making is inevitably subject to a measure of uncertainty. On behalf of the board I would like to thank shareholders for their ongoing support.

Risk management

The board carries out a regular review of the risk environment in which the company operates. There has been no significant change to the key risks discussed on page 9 of the annual report for the year ended 31 March 2009, including those resulting from the size and relative illiquidity of the unquoted and AIM-quoted investments held by the company.

Prospects

A year ago we noted that conditions in the UK economy would probably worsen further before any improvement became apparent. This expectation has subsequently been fulfilled and the search for the UK economy's green shoots continues to be largely frustrated. Nevertheless our managers have been successful in reaping some excellent gains. The next phase of the cycle is likely to see a move to re-stocking the portfolio with a new vintage of investments, carefully redeploying the substantial liquidity which has been built up over the past two years. There are few short cuts available in this process, but we believe that the consistent application of our established approach to selection and management of venture capital holdings will continue to produce good returns for shareholders in the future.


On behalf of the Board
Peter HaighChairman


The unaudited half-yearly financial statements for the six months ended 30 September 2009 are set out below.

INCOME STATEMENT
(unaudited) for the six months ended 30 September 2009

Six months ended
30 September 2009 Six months ended
30 September 2008
Revenue
£000 Capital
£000 Total
£000 Revenue
£000 Capital
£000 Total
£000
Gain on disposal
of investments - 1,766 1,766 - 1,679 1,679
Movements in fair value
of investments - 1,922 1,922 - (9,251) (9,251)
------ ------ ------ ------ ------ ------
- 3,688 3,688 - (7,572) (7,572)
Income 970 - 970 1,271 - 1,271
Investment management fee (124) (289) (413) (152) (354) (506)
Recoverable VAT - - - - - -
Other expenses (172) - (172) (178) - (178)
------ ------ ------ ------ ------ ------
Return on ordinary
activities before tax 674 3,399 4,073 941 (7,926) (6,985)
Tax on return on ordinary activities (117) 81 (36) (192) 99 (93)
------ ------ ------ ------ ------ ------
Return on ordinary
activities after tax 557 3,480 4,037 749 (7,827) (7,078)
------ ------ ------ ------ ------ ------
Return per share 2.9p 17.9p 20.8p 3.9p (40.3)p (36.4)p


Year ended 31 March 2009
Revenue
£000 Capital
£000 Total
£000
Gain on disposal
of investments - 2,483 2,483
Movements in fair value
of investments - (12,387) (12,387)
------ ------ ------
- (9,904) (9,904)
Income 2,267 - 2,267
Investment management fee (303) (707) (1,010)
Recoverable VAT 115 - 115
Other expenses (325) - (325)
------ ------ ------
Return on ordinary activities
before tax 1,754 (10,611) (8,857)
Tax on return on ordinary activities (370) 198 (172)
------ ------ ------
Return on ordinary activities
after tax 1,384 (10,413) (9,029)
------ ------ ------
Return per share 7.1p (53.6)p (46.5)p



RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 30 September 2009

Six months ended
30 September 2009 Six months ended
30 September 2008 Year ended
31 March 2009
£000 £000 £000
Equity shareholders' funds
at 1 April 2009 47,297 57,755 57,755
Return on ordinary
activities after tax 4,037 (7,078) (9,029)
Dividends recognised
in the period (989) (971) (1,399)
Shares purchased
for cancellation - - (30)
------ ------ ------
Equity shareholders' funds
at 30 September 2009 50,345 49,706 47,297
------ ------ ------



BALANCE SHEET
(unaudited) as at 30 September 2009

30 September 2009 30 September 2008 31 March 2009
£000 £000 £000
Fixed asset investments
Unquoted 28,279 36,462 32,079
Quoted 349 736 333
------ ------ ------
Total fixed asset investments 28,628 37,198 32,412
------ ------ ------
Current assets:
Investments 232 906 2,427
Debtors 50 675 323
Cash and deposits 21,770 11,214 12,420
------ ------ ------
22,052 12,795 15,170
Creditors (amounts falling
due within one year) (335) (287) (285)
------ ------ ------
Net current assets 21,717 12,508 14,885
------ ------ ------

Net assets 50,345 49,706 47,297
------ ------ ------
Capital and reserves
Called-up equity share capital 4,849 4,856 4,849
Share premium 12,694 12,694 12,694
Capital redemption reserve 306 299 306
Capital reserve 32,962 30,631 31,582
Revaluation reserve (2,424) (957) (4,524)
Revenue reserve 1,958 2,183 2,390
------ ------ ------
Total equity
shareholders' funds 50,345 49,706 47,297
------ ------ ------
Net asset value per share 259.6p 255.9p 243.9p



CASH FLOW STATEMENT
(unaudited) for the six months ended 30 September 2009

Six months ended
30 September 2009 Six months ended
30 September 2008 Year ended
31 March 2009
£000 £000 £000 £000 £000 £000

Cash flow statement
Net cash inflow from
operating activities 672 835 1,580

Taxation:
Corporation tax paid - - (98)

Financial investment:
Purchase of investments (379) (3,831) (5,701)
Sale/repayment of investments 7,851 11,504 15,912
------ ------ ------
Net cash inflow from
financial investment 7,472 7,673 10,211
Equity dividends paid (989) (971) (1,399)
------ ------ ------
Net cash inflow before
use of liquid resources
and financing 7,155 7,537 10,294

Financing:
Purchase of shares
for cancellation - - (30)
------ ------ ------
Net cash inflow before
use of liquid resources 7,155 7,537 10,264
Net cash inflow/(outflow)
from use of liquid resources 2,195 (45) (1,566)
------ ------ ------
Increase in cash at bank 9,350 7,492 8,698
------ ------ ------
Reconciliation of revenue
return before tax to net
cash flow from
operating activities
Revenue return on ordinary
activities before tax 674 941 1,754
Decrease in debtors 273 398 666
Increase/(decrease) in creditors 14 (150) (133)
Management fees charged to capital (289) (354) (707)
------ ------ ------
Net cash inflow from
operating activities 672 835 1,580
------ ------ ------
Reconciliation of movement
in net funds
1 April 2009 Cash flows 30 September 2009
£000 £000 £000
Short-term investments 2,427 (2,195) 232
Cash at bank 12,420 9,350 21,770
------ ------ ------
Net funds 14,847 7,155 22,002
------ ------ ------




INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2009

Company Cost Valuation % of net assets
£000 £000 by valuation

Weldex (International) Offshore 200 4,880 9.7
Axial Systems Holdings 2,311 2,542 5.1
Britspace Holdings 3,603 2,205 4.4
Paladin Group 1,407 2,066 4.1
Crantock Bakery 1,061 1,782 3.5
Envirotec 1,008 1,772 3.5
Optilan Group 1,900 1,558 3.1
Promanex Group Holdings 1,974 1,480 2.9
Abermed 800 1,432 2.8
Closerstill Holdings 1,234 1,234 2.5
------ ------ -----
Ten largest investments 15,498 20,951 41.6

Arleigh International 480 1,010 2.0
Longhirst Venues 397 998 2.0
IG Doors 1,185 889 1.8
S&P Coil Products 510 880 1.8
Promatic Group 968 726 1.4
Wear Inns 762 643 1.3
e-know.net 480 623 1.2
Direct Valeting 764 573 1.1
CGI Group Holdings 1,723 431 0.9
Alaric Systems 1,618 350 0.7
------ ------ -----
Twenty largest investments 24,385 28,074 55.8

Other investments 6,667 554 1.1
------ ------ -----
Total fixed asset investments 31,052 28,628 56.9
------
Net current assets 21,717 43.1
------ -----
Net assets 50,345 100.0
------ -----


The above half-yearly financial statements for the six months ended 30 September 2009 do not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 March 2009 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies; the independent auditors' report on those financial statements under Section 235 of the Companies Act 1985 was unqualified. 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 2009.

Each of the directors confirms that to the best of his or her knowledge the half-yearly financial statements have been prepared in accordance with the Statement "Half-yearly financial reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year, and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

The directors of the company at the date of this announcement were Mr P J Haigh (Chairman), Mr J C Barnsley, Mr E M P Denny, Mr F L G Neale, Mr M P Nicholls and Mrs S L Stewart.

The calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the period and on 19,395,440 (2008 19,425,440) ordinary shares, being the weighted average number of shares in issue during the period.

The interim dividend of 2.2p for the year ending 31 March 2010 will be paid on 8 January 2010 to shareholders on the register at the close of business on 4 December 2009.

A copy of the half-yearly financial report for the six months ended 30 September 2009 is expected to be posted to shareholders on 20 November 2009 and will be available to the public at the registered office of the company at Northumberland House, Princess Square, Newcastle upon Tyne NE1 8ER and on the NVM Private Equity Limited website, www.nvm.co.uk.


/HUGIN /Source: Northern Investors Co PLC /LSE: NRI /ISIN: GB00B08S4K30