Northern 2 VCT PLC.

27 NOVEMBER 2012



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 30 September 2011):

       2012       2011
Net assets£56.1m£45.1m
Net asset value per share80.1p78.5p
Return per share after tax: 
Interim dividend per share declared
in respect of the period


Cumulative return to shareholders since launch: 
Net asset value per share
Dividends paid per share*
Net asset value plus dividends paid per share
Mid-market share price at end of period65.25p67.50p
Share price discount to net asset value18.5%14.0%

*Excluding interim dividend payable on 11 January 2013

For further information, please contact:

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



Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2012, after deducting the 2011/12 final dividend of 3.5p per share paid in July 2012, was 80.1p (31 March 2012 80.3p).  The return per share for the period before dividends, as shown in the income statement, was 3.3p (3.4p in the six months to 30 September 2011).  Whilst not complacent, your board views this as a satisfactory outcome given the background of low interest rates and continuing difficulties in the UK economy.

Investment income for the period amounted to £0.80 million.  The corresponding period's figure of £1.27 million included a one-off income receipt of £0.5 million on the sale of Promanex Group Holdings.

The board has declared an unchanged interim dividend of 2.0p per share, which will be paid on 11 January 2013 to shareholders on the register on 14 December 2012.  Our objective is to maintain the total annual dividend at not less than 5.5p per share, and we have now achieved this in eight successive financial years.  Your board is well aware of the importance which shareholders attach to a strong and consistent dividend yield.

I am pleased to report that the strong record of Northern 2 VCT and the other Northern VCTs was recognised when they were named recently as winners of the VCT category at the Investment Week Investment Company of the Year Awards 2012, presented in association with the AIC and Trustnet.  The judges' key criteria included investment performance, shareholder communications and secondary market trading activity.


During the six months ended 30 September 2012 the following holdings were added to the venture capital portfolio:

Silverwing (£1,388,000) - developer of non-destructive testing solutions for the oil and gas industry, Swansea

Tinglobal Holdings (£1,000,000) - additional investment in supplier of refurbished mid-range computer equipment, Cirencester

Vectura Group (£102,000) - LSE-listed developer of therapies for the treatment of respiratory diseases, Chippenham

Volumatic (£100,000) - additional investment in manufacturer of intelligent cash-handling equipment, Birmingham

Wear Inns (£753,000) - additional investment in owner of an estate of community pubs in the North East and Yorkshire

Since the end of the period we have completed a new growth capital investment of £1.2m in Haystack Dryers, which manufactures specialised dryers for theme parks, swimming pools and hospitals.

A successful exit was achieved in May 2012 from Closerstill Holdings, the business-to-business exhibition organiser, which was sold to Phoenix Equity Partners for £3.0 million in cash, realising a gain of £2.0 million over original cost.  The related investment in Closer2 Investments was at the same time exchanged for a holding of equivalent value in Closerstill Group, a new exhibitions group funded by Phoenix.  Since 30 September 2012 our investment in Paladin Group has been sold to Places For People Group for £3.2 million, a gain of £1.6 million over cost and £0.2 million over the September 2012 valuation, and a recommended bid has been announced for AIM-quoted Tikit Group at a 30% premium to the September 2012 market value.

The portfolio overall continues to make good progress.  Inevitably some companies face difficult trading conditions and we have recognised this where appropriate in our updated assessment of valuations.  Part of our reserve of funds awaiting long-term investment has been allocated to a small portfolio of higher-yielding blue chip listed equities which is making a useful contribution to total return.

Shareholder issues
It is your company's policy to buy back its shares in the market at a 15% discount to the latest published NAV, subject to market conditions, in order to provide liquidity to shareholders.  During the six months ended 30 September 2012, 314,652 shares (representing approximately 0.5% of the company's issued capital) were re-purchased at an average price of 67p per share.

The 2012/13 element of the public share offer launched in November 2011 was completed during the period with 1,419,523 new ordinary shares allotted at 82p.  In addition 359,042 shares were allotted at 76.8p through the dividend investment scheme.  Demand for the company's shares is strong and we have recently announced a small top-up share offer to raise up to £4 million, opening in January 2013.

NVM Private Equity will be holding its annual seminar for investors in the Northern VCTs in London on 18 January 2013 and your directors look forward to meeting shareholders on that occasion.

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 and regulation
We expressed concern in the March 2012 annual report about the Government's plans to change the criteria for VCT investments.  The revised legislation is now in place;  the relaxation of the limits on the size of VCT-qualifying companies is welcome, but the intended increase to £10 million in the annual limit on the funding which a company can raise from VCTs was vetoed by the European Commission.  The limit has instead been set at £5 million, which is lower than we and our managers would have liked.

On the regulatory front the FSA's Retail Distribution Review is likely to bring about significant changes in the way VCTs raise funds through new share issues.  The FSA has also published a consultation paper on the retail distribution of unregulated collective investment schemes, which seeks to restrict the categories of retail investors to whom financial advisers can promote VCT share offers.  As listed companies, VCTs are already subject to a wide range of regulatory requirements and investor safeguards, and your board believes that the proposed changes are inappropriate.  We have responded accordingly to the FSA consultation paper, jointly with the other Northern VCTs, and have supported the representations made by the AIC on behalf of VCTs generally.

The outlook for the UK economy is uncertain but it seems unlikely that there will be a sustained improvement in the near future.  Your board and managers are focussed on producing the investment returns required to achieve our dividend objective whilst preserving the company's capital base, notwithstanding the challenging environment.  Our investment process is well established and emphasises the basic disciplines which are essential to successful venture capital investment.

On behalf of the Board

David Gravells

The unaudited half-yearly financial statements for the six months ended 30 September 2012 are set out below.

(unaudited) for the six months ended 30 September 2012

Six months ended
30 September 2012
Six months ended
30 September 2011
Gain on disposal of investments 551  551  766  766 
Movements in fair value of investments 1,655  1,655  661  661 
----------  ----------  ----------  ----------  ----------  ---------- 
2,206  2,206  1,427  1,427 
Income 798  798  1,266  1,266 
Investment management fee (142) (426) (568) (115) (346) (461)
Other expenses (154) (154) (161) (161)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 502  1,780  2,282  990  1,081  2,071 
Tax on return on ordinary activities (86) 86  (245) 112  (133)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 416  1,866  2,282  745  1,193  1,938 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 0.6p 2.7p 3.3p 1.3p 2.1p 3.4p

Year ended 31 March 2012
Gain on disposal of investments 786  786 
Movements in fair value of investments 3,124  3,124 
----------  ----------  ---------- 
3,910  3,910 
Income 1,961  1,961 
Investment management fee (231) (884) (1,115)
Other expenses (327) (14)  (341)
----------  ----------  ---------- 
Return on ordinary activities before tax 1,403  3,102  4,415 
Tax on return on ordinary activities (288) 239  (49)
----------  ----------  ---------- 
Return on ordinary activities after tax 1,115  3,251  4,366 
----------  ----------  ---------- 
Return per share 1.9p 5.5p 7.4p

(unaudited) for the six months ended 30 September 2012

Six months ended 
30 September 2012 
Six months ended 
30 September 2011 
Year ended 
31 March 2012 
Equity shareholders' funds at 1 April 2012 55,128  45,713  45,713 
Return on ordinary activities after tax 2,282  1,938  4,366 
Dividends recognised in the period (2,448) (2,579) (3,730)
Net proceeds of share issues 1,372  234  13,418 
Shares re-purchased for cancellation (211) (213) (4,639)
----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2012 56,123  45,093  55,128 
----------  ----------  ---------- 

(unaudited) as at 30 September 2012

30 September 2012 
30 September 2011 
31 March 2012 
Fixed asset investments 43,027  39,654  41,160 
----------  ----------  ---------- 
Current assets:
  Debtors 320  637  311 
  Cash and deposits 13,126  5,367  15,116 
----------  ----------  ---------- 
13,446  6,004  15,427 
Creditors (amounts falling due
  within one year) (350) (565) (1,459)
----------  ----------  ---------- 
Net current assets 13,096  5,439  13,968 
----------  ----------  ---------- 
Net assets 56,123  45,093  55,128 
----------  ----------  ---------- 
Capital and reserves
Called-up equity share capital 3,505  2,873  3,432 
Share premium 24,293  35,679  23,009 
Capital redemption reserve 737  426  721 
Capital reserve 22,218  3,262  22,473 
Revaluation reserve 4,715  1,850  4,695 
Revenue reserve 655  1,003  798 
----------  ----------  ---------- 
Total equity shareholders' funds 56,123  45,093  55,128 
----------  ----------  ---------- 
Net asset value per share 80.1p 78.5p 80.3p

(unaudited) for the six months ended 30 September 2012

Six months ended 
30 September 2012 
Six months ended 
30 September 2011 
Year ended 
31 March 2012 
£000 £000 £000 £000 £000 £000 
Cash flow statement
Net cash inflow/(outflow) from
operating activities (925) 684  1,931 
Corporation tax paid (81)
Financial investment:
Purchase of investments (6,031) (1,401) (3,691)
Sale/repayment of investments 6,252  4,646  7,912 
----------  ----------  ---------- 
Net cash inflow from financial investment 221  3,245  4,221 
Equity dividends paid (2,448) (2,579) (3,730)
----------  ----------  ---------- 
Net cash inflow/(outflow) before financing (3,152) 1,350  2,341 
Issue of shares 1,440  240  14,185 
Share issue expenses (67) (6) (767)
Re-purchase of shares for cancellation (211) (213) (4,639)
----------  ----------  ---------- 
Net cash inflow from financing 1,162  21  8,779 
----------  ----------  ---------- 
Increase/(decrease) in cash and deposits (1,990) 1,371  11,120 
----------  ----------  ---------- 
Reconciliation of return before tax to
net cash flow from operating activities
Return on ordinary activities before tax 2,282  2,071  4,415 
Gain on disposal of investments (551) (766) (786)
Movements in fair value of investments (1,655) (661) (3,124)
(Increase)/decrease in debtors (9) 161  487 
Decrease in creditors (992) (121) 939 
----------  ----------  ---------- 
Net cash inflow/(outflow)  from operating activities (925) 684  1,931 
----------  ----------  ---------- 
Reconciliation of movements in net funds
1 April 2012 Cash flows 30 September 2012 
£000 £000 £000 
Cash and deposits 15,116  (1,990) 13,126 
----------  ----------  ---------- 

as at 30 September 2012

% of net assets
by valuation
Fifteen largest venture capital investments:
Kerridge Commercial Systems 1,740 4,792 8.6
Paladin Group 1,538 2,916 5.2
Wear Inns 1,868 2,365 4.2
Volumatic 2,095 2,095 3.7
Alaric Systems 1,237 1,761 3.2
Tinglobal Holdings 1,988 1,688 3.0
Silverwing 1,388 1,388 2.5
Arleigh Group 817 1,370 2.4
Advanced Computer Software Group* 381 1,342 2.4
Kitwave One 1,246 1,261 2.3
Control Risks Group Holdings 746 1,199 2.1
Promatic Group 987 1,190 2.1
Cawood Scientific 1,031 1,145 2.0
Lineup Systems 974 974 1.7
RCC Lifesciences 995 965 1.7
---------- ---------- -------
19,031 26,451 47.1
Other venture capital investments 12,067 9,584 17.1
---------- ---------- -------
Total venture capital investments 31,098 36,035 64.2
Listed equity investments 2,686 2,750 4.9
Listed fixed-interest investments 4,529 4,242 7.6
---------- ---------- -------
Total fixed asset investments 38,313 43,027 76.7
Net current assets 13,096 23.3
---------- -------
Net assets 56,123 100.0
---------- -------
*Quoted on AIM


Investment risk:  Many 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 AIM and will be subject to market fluctuations upwards and downwards.  External factors such as terrorist activity can negatively impact stock markets worldwide.  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.

Legislative and regulatory 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.  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 legislative and regulatory 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 above summary of results for the six months ended 30 September 2012 does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006, has not been audited or reviewed by the company's independent auditor and has not been delivered to the Registrar of Companies.  The figures for the year ended 31 March 2012 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 was unqualified and 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 2012.

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 period and on 69,275,561 (2011 57,442,400) ordinary shares, being the weighted average number of shares in issue during the period.

The calculation of the net asset value per share is based on the net assets at 30 September 2012 divided by the 70,102,784 (2011 57,468,342) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 31 March 2013 will be paid on 11 January 2013 to shareholders on the register at the close of business on 14 December 2012.

A copy of the half-yearly financial report for the six months ended 30 September 2012 is expected to be posted to shareholders by 14 December 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.

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Source: Northern 2 VCT PLC via Thomson Reuters ONE