Northern 2 VCT PLC.

18 MAY 2012



Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity.  The trust 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 as at 31 March 2011):

            2012             2011
(14 month period)
Net assets£55.1m£45.7m
Net asset value per share80.3p79.5p
Return per share: 
Dividend per share proposed in respect 
of the year (2011:  14 month period)5.5p6.5p
Cumulative return to shareholders since launch: 
Net asset value per share80.3p79.5p
Dividends paid per share*58.9p52.4p
Net asset value plus dividends paid per share139.2p131.9p
Mid-market share price at end of year66.25p65p
Share price discount to net asset value17.5%18.2%

*Excluding proposed final dividend

For further information, please contact:

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



I am pleased to report to shareholders on a year during which your company has achieved growth in NAV per share whilst maintaining its long-term dividend record, completed a fully-subscribed tender offer for 10% of the issued share capital and raised a further £15 million through a successful public share offer.

Results and dividend
The NAV per share at 31 March 2012 was 80.3p, compared with 79.5p as at 31 March 2011.  The total return per share for the year as shown in the income statement was 7.4p, equivalent to 9.3% of the opening NAV.  Over the same period the FTSE All-Share index (total return) increased by 1.4%.

Investment income was slightly down by comparison with the preceding period.  The total expense ratio (annual running expenses, excluding performance-related management fees, expressed as a percentage of average net assets) fell to 2.50% (preceding period 2.70%), reflecting the increased asset base of the company.

An interim dividend of 2.0p per share was paid in January 2012.  The directors propose a final dividend of 3.5p per share, making a total of 5.5p for the year which is in line with our stated objective.  This is the eighth successive year in which the company has paid a total dividend of at least 5.5p, despite the very low level of market interest rates over the past three years.  The total dividend paid in respect of the 14 month period ended 31 March 2011 was 6.5p, as an extra 1.0p was paid to reflect the extended accounting period.

Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 20 July 2012 to shareholders on the register on 29 June 2012.

Shareholder issues and corporate governance
In September 2011 we announced proposals for a tender offer to shareholders and a public offer of new ordinary shares in the company.  I am pleased to report that both were very successfully completed during the second half of the financial year.  As a result of the tender offer the company repurchased 5,746,834 ordinary shares, representing 10% of the company's issued share capital, at a 3% discount to the latest published NAV - a total payment to shareholders of £4.3 million.  The public offer of new ordinary shares, launched in November 2011, raised a total of £15.0 million (before expenses) and was fully subscribed by 14 February - an excellent outcome in a period when many other VCT share issues fell well short of their targets.  A substantial proportion of the funds raised came from existing Northern 2 VCT shareholders and I would like to take this opportunity to thank them, and all our investors, for their support.  The company's net assets now exceed £50 million and we have a strong reserve of cash for future investment.

Notwithstanding the tender offer the company has continued to follow a policy of repurchasing its shares in the market at a discount of 15% to NAV, in order to provide liquidity for shareholders wishing to realise their investment in the company.  During the year we repurchased a total of 475,000 shares in the market at a cost of £315,000, an average price of 66p per share.

NVM Private Equity's recent VCT investor seminar was well attended and well received, and your directors hope to meet as many shareholders as possible at the next seminar which will take place in January 2013.

Your company complies with current best practice in corporate governance, as set out in the AIC Code.

Investment portfolio
The venture capital portfolio has produced encouraging results against a difficult background in the UK economy and financial markets.  Three new holdings totalling £3.0 million were acquired and a satisfactory exit was achieved from the investment in Promanex Group Holdings, which was sold for cash proceeds of £2.1 million compared with an original cost of £1.7 million.  The new financial year has begun with a good level of activity in terms of potential new investments and exits and we expect to see further progress on both fronts in the coming months.

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.

VCT legislation
The Government announced at the time of the 2011 Budget over a year ago that the VCT rules would be changed with effect from April 2012, so as to relax the limits on the size of qualifying companies and increase the amount of funding which companies can raise from VCTs.  In July 2011 HM Treasury published a consultation paper confirming its intention to implement these reforms, with a new annual limit of £10 million on the amount any qualifying company could raise from VCTs, and also to refocus VCT investment on "genuine risk capital investments".

Subsequently a degree of uncertainty has been created by the draft legislation contained in the 2012 Finance Bill, published on 29 March, which included some significant changes to what had previously been proposed - in particular a reduction to £5 million in the annual investment limit per company.  The VCT industry is still awaiting clarification from HM Treasury and the European Commission in relation to several specific issues.  Your board believes that generalist VCTs such as Northern 2 VCT have been a highly effective catalyst to economic growth, corporate development, technological innovation, job creation and the generation of tax and other revenues for the Treasury.  This view is supported by research recently published by the AIC, to which our investment managers contributed, and it is to be hoped that the future legislative framework will reflect the important role which VCTs can play.

Our venture capital investments have continued to show resilience in a largely unfavourable environment.  There is no sign at present of an easing in the economic conditions and this emphasises the need to maintain high standards in the selection and monitoring of investments.  We have a strong balance sheet and a maturing portfolio and this gives us a good base from which to make further progress in the coming year.

David Gravells

The audited financial statements for the year ended 31 March 2012 are set out below.

for the year ended 31 March 2012

Year ended 31 March 2012 14 months ended 31 March 2011 
Gain on disposal of
  investments 786  786  1,065  1,065 
Movements in fair value
  of investments 3,124  3,124  2,206  2,206 
----------  ----------  ----------  ----------  ----------  ---------- 
3,910  3,910  3,271  3,271 
Income 1,961  1,961  2,034  2,034 
Investment management fee (231) (884) (1,115) (263) (983) (1,246)
Recoverable VAT 72  215  287 
Other expenses (327) (14) (341) (329) (329)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities before tax 1,403  3,012  4,415  1,514  2,503  4,017 
Tax on return on
  ordinary activities (288) 239  (49) (321) 215  (106)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities after tax 1,115  3,251  4,366  1,193  2,718  3,911 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.9p 5.5p 7.4p 2.1p 4.8p 6.9p

for the year ended 31 March 2012

Year ended 
31 March 2012 
14 months ended 
31 March 2011 
Equity shareholders' funds at 1 April 2011 45,713  44,349 
Return on ordinary activities after tax 4,366  3,911 
Dividends recognised in the year (3,730) (3,113)
Net proceeds of share issues 13,418  1,272 
Shares repurchased for cancellation (4,639) (706)
----------  ---------- 
Equity shareholders' funds at 31 March 2012 55,128  45,713 
----------  ---------- 

as at 31 March 2012

31 March 2012 
31 March 2011 
Fixed assets:
  Investments 41,160  41,984 
----------  ---------- 
Current assets:
  Debtors 311  798 
  Cash and deposits 15,116  3,996 
----------  ---------- 
15,427  4,794 
Creditors (amounts falling due within one year) (1,459) (1,065)
----------  ---------- 
Net current assets 13,968  3,729 
----------  ---------- 
Net assets 55,128  45,713 
----------  ---------- 
Capital and reserves:
Called-up equity share capital 3,432  2,873 
Share premium 23,009  35,461 
Capital redemption reserve 721  410 
Capital reserve 22,473  6,167 
Revaluation reserve 4,695  (31)
Revenue reserve 798  833 
----------  ---------- 
Total equity shareholders' funds 55,128  45,713 
----------  ---------- 
Net asset value per share 80.3p 79.5p

for the year ended 31 March 2012

Year ended 
31 March 2012 
14 months ended 
31 March 2011 
£000 £000 £000 £000 
Cash flow statement
Net cash inflow from operating activities 1,931  839 
Corporation tax paid (81) (22)
Financial investment:
Purchase of investments (3,691) (14,839)
Sale/repayment of investments 7,912  6,385 
----------  ---------- 
Net cash inflow/(outflow) from financial investment 4,221  (8,454)
Equity dividends paid (3,730) (3,113)
----------  ---------- 
Net cash inflow/(outflow) before financing 2,341  (10,750)
Issue of shares 14,185  1,340 
Share issue expenses (767) (68)
Shares re-purchased for cancellation (4,639) (706)
----------  ---------- 
Net cash inflow from financing 8,779  566 
----------  ---------- 
Increase/(decrease) in cash and deposits 11,120  (10,184)
----------  ---------- 
Reconciliation of return before tax
to net cash flow from operating activities
Return on ordinary activities before tax 4,415  4,017 
Gain on disposal of investments (786) (1,065)
Movements in fair value of investments (3,124) (2,206)
(Increase)/decrease in debtors 487  (140)
Increase/(decrease) in creditors 939  233 
----------  ---------- 
Net cash inflow from operating activities 1,931  839 
----------  ---------- 
Reconciliation of movement
in net funds
1 April 2011 Cash flows 31 March 2012 
£000 £000 £000 
Cash and deposits 3,996  11,120  15,116 
----------  ----------  ---------- 

as at 31 March 2012

% of
net assets
by value
Kerridge Commercial Systems 1,740 4,464 8.1
Closerstill Holdings 1,001 2,747 5.0
Volumatic 1,995 1,995 3.6
Paladin Group 1,538 1,914 3.5
Alaric Systems 1,269 1,651 3.0
Arleigh International 900 1,428 2.6
Wear Inns 1,116 1,357 2.5
Kitwave One 1,246 1,262 2.3
Control Risks Group Holdings 746 1,244 2.2
IG Doors 487 1,209 2.2
Cawood Scientific 1,031 1,179 2.1
Advanced Computer Software Group* 381 1,163 2.1
Axial Systems Holdings 1,004 1,008 1.8
Tinglobal Holdings 988 988 1.8
Lineup Systems 974 974 1.8
---------- ---------- --------
Fifteen largest venture capital investments 16,416 24,583 44.6
Other venture capital investments 14,047 10,933 19.9
---------- ---------- --------
Total venture capital investments 30,463 35,516 64.5
Listed fixed-interest investments 5,884 5,644 10.2
---------- ---------- --------
Total fixed asset investments 36,347 41,160 74.7
Net current assets 13,968 25.3
---------- --------
Net assets 55,128 100.0
---------- --------

*Quoted on AIM


The board carries out a regular review of the risk environment in which the company operates.  The main areas of risk identified by the board are as follows:

Investment risk:  The majority of the company's investments are in small and medium-sized unquoted and AIM-quoted companies which are VCT qualifying holdings, and which by their nature entail a higher level of risk and lower liquidity than investments in large quoted companies. The directors aim to limit the risk attaching to the portfolio as a whole by careful selection and timely realisation of investments, by carrying out rigorous due diligence procedures and by maintaining a wide spread of holdings in terms of financing stage and industry sector.  The board reviews the investment portfolio with the investment managers on a regular basis.

Financial risk:  As most of the company's investments involve a medium to long-term commitment and many are relatively illiquid, 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 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:  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.

Stock market risk:  Some of the company's investments are quoted on the London Stock Exchange or the AIM market and will be subject to market fluctuations upwards and downwards.  External factors such as terrorist activity can negatively impact stock markets worldwide and the AIM market is no exception to this.  In times of adverse sentiment there tends to be very little, if any, market demand for shares in the smaller companies quoted on AIM.

Credit risk:  the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment.  The directors review the creditworthiness of the counterparties to these instruments and cash deposits in addition to ensuring no significant concentration of credit risk is with any one counterparty.

Liquidity risk:  The company's investments may be difficult to realise.  The fact that a stock is quoted on AIM does not guarantee its liquidity and there may be a large spread between bid and offer prices.  Unquoted investments are not traded on a recognised stock exchange and are inherently illiquid.

Political risk:  in order to maintain its approval as a VCT, the company is required to comply with current VCT legislation in the UK as well as the European Commission's State Aid rules.  Politically motivated changes to the UK legislation or the State Aid rules in the future could have an adverse effect on the company's ability to achieve satisfactory investment returns whilst retaining its VCT approval.  The board and the manager monitor political developments and where appropriate seek to make representations either directly or through the relevant trade bodies.

Internal control risk:  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.

VCT qualifying status risk:  The company is required at all times to observe the conditions laid down in the Income Tax Act 2007 for the maintenance of approved VCT status.  The loss of such approval could lead to the company losing its exemption from corporation tax on capital gains, to investors being liable to pay income tax on dividends received from the company and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment.  The manager keeps the company's VCT qualifying status under continual review and reports to the board on a quarterly basis.  The board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role.


The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year.  Under that law the directors have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for the period.  In preparing these financial statements, the directors are required to (i) select suitable accounting policies and then apply them consistently;  (ii) make judgements and estimates that are reasonable and prudent;  (iii) state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;  and (iv) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that its financial statements comply with the Companies Act 2006.  They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a directors' report, directors' remuneration report and corporate governance statement that comply with that law and those regulations.

The company's financial statements are published on the NVM website,  The maintenance and integrity of this website is the responsibility of NVM and not of the company.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors confirm that, to the best of their knowledge, the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, and the directors' report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that the company faces.

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 above summary of results for the year ended 31 March 2012 does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006 and has not been delivered to the Registrar of Companies.  Statutory financial statements will be filed with the Registrar of Companies in due course;  the independent auditors' report on those financial statements under Section 495 of the Companies Act 2006 is unqualified and does not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The proposed final dividend of 3.5p per share for the year ended 31 March 2012 will, if approved by shareholders, be paid on 20 July 2012 to shareholders on the register at the close of business on 29 June 2012.

The full annual report including financial statements for the year ended 31 March 2012 is expected to be posted to shareholders on 8 June 2012 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,

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.

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Northern 2 VCT PLC via Thomson Reuters ONE