Announcements

Northern 2 VCT PLC.

1 NOVEMBER 2011

NORTHERN 2 VCT PLC

UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity.  It invests 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.

Financial highlights (comparative figures are for the six months ended 31 July 2010):

            2011           2010
Net assets£45.1m£43.3m
Net asset value per share78.5p76.7p
Return per share after tax:
  Revenue
  Capital
  Total
1.3p
2.1p
3.4p
1.1p
1.0p
2.1p
Dividend per share declared in respect of the period2.0p2.0p
Cumulative return to shareholders since launch:
  Net asset value per share
  Dividends paid per share*
  Net asset value plus dividends paid per share
78.5p
56.9p
135.4p
76.7p
50.4p
127.1p
Mid-market share price at end of period67.5p64.5p
Share price discount to net asset value14.0%15.9%

*Excluding interim dividend payable on 6 January 2012

For further information, please contact:

NVM Private Equity Limited
Alastair Conn/Christopher Mellor                   0191 244 6000

Website:  www.nvm.co.uk

HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS

Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2011, after deducting the 2010/11 second interim and final dividends totalling 4.5p per share paid in July 2011, was 78.5p (31 March 2011 79.5p).  The return per share for the period before dividends, as shown in the income statement, was 3.4p compared with 2.1p in the six months to 31 July 2010.  In a period characterised by turbulence and erosion of value in the economy and financial markets, this may be seen as an encouraging result.  By comparison the FTSE All-Share index fell by 13.5% over the six months.

Investment income for the period amounted to £1.27 million, a 25% increase over the corresponding period, having benefitted from a non-recurring receipt of £0.5 million from Promanex Group Holdings as mentioned below.  The revenue return per share rose from 1.1p to 1.3p.

The board has declared an unchanged interim dividend of 2.0p per share, which will be paid on 6 January 2012 to shareholders on the register on 4 November 2011.  It remains the board's objective to maintain the total annual dividend at not less than 5.5p per share, a level of distribution which has now been achieved for seven successive financial years despite the steep drop in market interest rates, thus providing a highly attractive and consistent tax-free yield to our shareholders.

Investments
During the six months ended 30 September 2011 the company completed an investment of £988,000 in Tinglobal Holdings, a Cirencester-based supplier of refurbished mid-range computer equipment, as well as making small additional investments in two existing portfolio companies.  This took the amount invested since the beginning of 2011 to over £4 million, with further investments totalling £3 million approved and awaiting completion subject to due diligence.

It was announced in August 2011 that the company's investment in Promanex Group Holdings, the support services and facilities management contractor, had been sold to Costain Group PLC.  Cash totalling £2.6 million was received at completion, comprising £2.1 million for the sale of the investment and £0.5 million of accrued investment income not previously recognised in the financial statements.  Although the gain realised over the original cost of the holding was only some £0.4 million, this was ultimately a pleasing outcome to an investment which had faced considerable difficulties during our four year period of ownership.  A further £0.8 million was received by way of deferred proceeds from the sale of DxS in September 2009.

 

Many of the companies in the venture capital portfolio have made encouraging progress during the past six months, especially when viewed against the adverse market conditions.

Proposed tender offer and share issue
On 23 September 2011 your directors sent to shareholders a circular containing outline proposals for a tender offer to re-purchase 10% of the company's issued share capital and a public offer of new ordinary shares.  Enabling resolutions were passed at a general meeting of shareholders held on 20 October 2011, including a resolution extending the life of the company by postponing the next continuation vote until the 2017 annual general meeting.

It is expected that the following documents will be published during November 2011:

  • a circular to shareholders setting out details of the terms and conditions of the tender offer and the procedure to be followed by shareholders who wish to participate.  It is envisaged that the company will offer to re-purchase 10% of the company's issued ordinary shares at a price of 74.2p, representing a 3% discount to the unaudited NAV of 78.5p as at 30 September 2011, net of the interim dividend of 2.0p per share payable on 6 January 2012.  Shareholders will be entitled to have 10% (or such lesser proportion as they choose) of their shareholding purchased by the company, and may offer to sell in excess of 10% of their shares on the basis that some shareholders may not wish to participate in the tender offer, in which case any entitlements not taken up will be reallocated on a pro rata basis to shareholders making excess applications.  Applications under the tender offer must be made by 6 January 2012 and cash proceeds will be paid to shareholders by 13 January 2012.
     
  • a prospectus in relation to the proposed issue of new shares.  It is expected that up to £15 million (before expenses) will be raised through an offer of up to 20,000,000 new ordinary shares at a price initially of 81.0p per share, set at a small premium to the latest NAV so as to allow for issue expenses and avoid dilution to existing shareholders.  Shares will be available for subscription in both the 2011/12 and 2012/13 tax years.  Shareholders in Northern 2 VCT and other VCTs managed by NVM Private Equity who apply for new shares before 6 February 2012 will receive an incentive equivalent to 2% of their subscription in the form of additional shares at no extra cost.  Investors will be eligible for income tax relief at 30% on their subscriptions under the current legislation.

If the tender offer and the share issue are both fully subscribed, the resulting net increase in the company's capital base will be approximately £10 million.  This will take Northern 2 VCT's net assets to around £55 million, placing it amongst the largest VCTs in the market, and in recognition of the consequent economies of scale the cap on the company's annual running costs will be reduced from 3.5% to 3.0% of net assets.

Share buy-back policy
In order to assist in the provision of liquidity to shareholders, the company has maintained its policy of buying back its shares in the market at a 15% discount to the latest published NAV, subject to market conditions and the availability of cash resources and distributable reserves.  During the six months ended 30 September 2011 320,000 shares, representing 0.6% of the company's issued capital, were purchased at an average price of 66p per share.  The share price ranged between a low of 64p and a high of 68.5p during the period.

VCT qualifying status
The company has continued to meet the qualifying conditions laid down by HM Revenue & Customs for maintaining its approval as a VCT.  The board retains PricewaterhouseCoopers LLP as independent advisers on VCT taxation matters.

Board of directors
Professor Sir Fred Holliday retired from the board at the close of the annual general meeting on 19 July 2011.  We would like to reiterate our thanks to him for giving us the benefit of his wisdom, knowledge and experience over the past 12 years.

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 10 of the annual report for the 14 month period ended 31 March 2011, including those resulting from the size and relative illiquidity of the unquoted and AIM-quoted investments held by the company.

Prospects
The company's portfolio has demonstrated a high degree of resilience in the face of a market environment which is particularly testing for small growing companies.  Our robust balance sheet should be further strengthened by the inflow of cash from the forthcoming share issue, and our managers are currently seeing a steady flow of interesting new investment opportunities.  The progress made over the past six months confirms that the simple combination of careful selection and close monitoring can produce good investment performance in adverse as well as benign conditions.

On behalf of the Board

David Gravells
Chairman

The unaudited half-yearly financial statements for the six months ended 30 September 2011 are set out below.

INCOME STATEMENT
(unaudited) for the six months ended 30 September 2011

Six months ended
30 September 2011
Six months ended
31 July 2010
Revenue 
£000 
Capital 
£000 
Total 
£000 
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments 766  766  692  692 
Movements in fair value of investments 661  661  130  130 
----------  ----------  ----------  ----------  ----------  ---------- 
1,427  1,427  822  822 
Income 1,266  1,266  1,012  1,012 
Investment management fee (115) (346) (461) (114) (343) (457)
Recoverable VAT
Other expenses (161) (161) (155) (155)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 990  1,081  2,071  743  479  1,222 
Tax on return on ordinary activities (245) 112  (133) (134) 99  (35)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 745  1,193  1,938  609  578  1,187 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.3p 2.1p 3.4p 1.1p 1.0p 2.1p

14 months ended 31 March 2011
Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments 1,065  1,065 
Movements in fair value of investments 2,206  2,206 
----------  ----------  ---------- 
3,271  3,271 
Income 2,034  2,034 
Investment management fee (263) (983) (1,246)
Recoverable VAT 72  215  287 
Other expenses (329) (329)
----------  ----------  ---------- 
Return on ordinary activities before tax 1,514  2,503  4,017 
Tax on return on ordinary activities (321) 215  (106)
----------  ----------  ---------- 
Return on ordinary activities after tax 1,193  2,718  3,911 
----------  ----------  ---------- 
Return per share 2.1p 4.8p 6.9p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 30 September 2011

Six months ended 
30 September 2011 
£000 
Six months ended 
31 July 2010 
£000 
14 months ended 
31 March 2011 
£000 
Equity shareholders' funds at 1 April 2011 45,713  44,349  44,349 
Return on ordinary activities after tax 1,938  1,187  3,911 
Dividends recognised in the period (2,579) (1,983) (3,113)
Net proceeds of share issues 234  174  1,272 
Shares re-purchased for cancellation (213) (381) (706)
----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2011 45,093  43,346  45,713 
----------  ----------  ---------- 

BALANCE SHEET
(unaudited) as at 30 September 2011

30 September 2011 
£000 
31 July 2010 
£000 
31 March 2011 
£000 
Fixed asset investments 39,654  36,795  41,984 
----------  ----------  ---------- 
Current assets:
  Debtors 637  817  798 
  Cash and deposits 5,367  5,986  3,996 
----------  ----------  ---------- 
6,004  6,803  4,794 
Creditors (amounts falling due
  within one year) (565) (252) (1,065)
----------  ----------  ---------- 
Net current assets 5,439  6,551  3,729 
----------  ----------  ---------- 
Net assets 45,093  43,346  45,713 
----------  ----------  ---------- 
Capital and reserves
Called-up equity share capital 2,873  2,827  2,873 
Share premium 35,679  34,434  35,461 
Capital redemption reserve 426  385  410 
Capital reserve 3,262  7,079  6,167 
Revaluation reserve 1,850  (2,193) (31)
Revenue reserve 1,003  814  833 
----------  ----------  ---------- 
Total equity shareholders' funds 45,093  43,346  45,713 
----------  ----------  ---------- 
Net asset value per share 78.5p 76.7p 79.5p

CASH FLOW STATEMENT
(unaudited) for the six months ended 30 September 2011

Six months ended 
30 September 2011 
Six months ended 
31 July 2010 
14 months ended 
31 March 2011 
£000 £000 £000 £000 £000 £000 
Cash flow statement
Net cash inflow from operating activities 684  340  839 
Taxation:
Corporation tax paid (22)
Financial investment:
Purchase of investments (1,401) (7,906) (14,839)
Sale/repayment of investments 4,646  1,562  6,385 
----------  ----------  ---------- 
Net cash inflow/(outflow) from financial investment 3,245  (6,344) (8,454)
Equity dividends paid (2,579) (1,983) (3,113)
----------  ----------  ---------- 
Net cash inflow/(outflow) before financing 1,350  (7,987) (10,750)
Financing:
Issue of shares 240  184  1,340 
Share issue expenses (6) (10) (68)
Re-purchase of shares for cancellation (213) (381) (706)
----------  ----------  ---------- 
Net cash inflow/(outflow) from financing 21  (207) 566 
----------  ----------  ---------- 
Increase/(decrease) in cash and deposits 1,371  (8,194) (10,184)
----------  ----------  ---------- 
Reconciliation of return before tax to
net cash flow from operating activities
Return on ordinary activities before tax 2,071  1,222  4,017 
Gain on disposal of investments (766) (692) (1,065)
Movements in fair value of investments (661) (130) (2,206)
(Increase)/decrease in debtors 161  (159) (140)
Increase/(decrease) in creditors (121) 99  233 
----------  ----------  ---------- 
Net cash inflow from operating activities 684  340  839 
----------  ----------  ---------- 
Reconciliation of movements in net funds
1 April 2011 Cash flows 30 September 2011 
£000 £000 £000 
Cash and deposits 3,996  1,371  5,367 
----------  ----------  ---------- 

INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2011

CompanyCost
£000
Valuation
£000
% of net assets
by valuation
Fifteen largest venture capital investments:
Kerridge Commercial Systems 1,740 3,600 8.0
Closerstill Holdings 1,000 1,731 3.8
Envirotec 975 1,518 3.4
Alaric Systems 1,269 1,517 3.4
Paladin Group 1,538 1,442 3.2
Arleigh International 900 1,406 3.1
IG Doors 615 1,269 2.8
Kitwave One 1,246 1,246 2.7
Axial Systems Holdings 1,004 1,117 2.5
Wear Inns 1,116 1,116 2.5
Cawood Scientific 1,031 1,031 2.3
RCC Lifesciences 995 995 2.2
Evolve Investments 995 995 2.2
Tinglobal Holdings 988 988 2.2
Advanced Computer Software Group* 381 906 2.0
---------- ---------- -------
15,793 20,877 46.3
Other venture capital investments 14,126 11,261 25.0
---------- ---------- -------
Total venture capital investments 29,919 32,138 71.3
Listed fixed-interest investments 7,767 7,516 16.7
---------- ---------- -------
Total fixed asset investments 37,686 39,654 88.0
----------
Net current assets 5,439 12.0
---------- -------
Net assets 45,093 100.0
---------- -------
*Quoted on AIM

The above half-yearly financial statements for the six months ended 30 September 2011 do not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006, have not been reviewed or audited by the company's independent auditors and have not been delivered to the Registrar of Companies.  The figures for the 14 month period ended 31 March 2011 have been extracted from the audited financial statements for that period, which have been delivered to the Registrar of Companies;  the independent auditors' report on those financial statements was unqualified.  The half-yearly financial statements have been prepared on the basis of the accounting policies set out in the audited financial statements for the 14 month period ended 31 March 2011.

Each of the directors confirms that to the best of his 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 Rules 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 Rules 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 D P A Gravells (Chairman), Mr A M Conn, Mr E M P Denny, Mr C G A Fletcher and Mr F L G Neale.

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 2011 and on 57,442,400 (six months ended 31 July 2010 56,759,926) ordinary shares, being the weighted average number of shares in issue during the period.

The interim dividend of 2.0p per share for the year ending 31 March 2012 will be paid on 6 January 2012 to shareholders on the register at the close of business on 4 November 2011.

A copy of the half-yearly financial report for the six months ended 30 September 2011 is expected to be posted to shareholders on 11 November 2011 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.

Neither the contents of the NVM Private Equity Limited website nor the contents of any website accessible from hyperlinks on the NVM Private Equity Limited website (or any other website) is incorporated into, or forms part of, this announcement.




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Source: Northern 2 VCT PLC via Thomson Reuters ONE

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