Northern 2 VCT PLC.

12 NOVEMBER 2013



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 2012):

       2013       2012
Net assets£63.3m£56.1m
Net asset value per share85.1p80.1p
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 period74.75p65.25p
Share price discount to net asset value12.2%18.5%
Tax-free dividend yield (based on 5.5p
annual dividend and mid-market share price
at end of period)



*Excluding interim dividend payable on 10 January 2014

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 2013, after deducting the 2012/13 final dividend of 3.5p per share paid in July 2013, was 85.1p (31 March 2013 84.9p).  The return per share for the period before dividends, as shown in the income statement, was 3.7p compared with 3.3p in the six months ended 30 September 2012).  This represents steady progress at a time when the UK economy still continues to present challenges to smaller companies.

Investment income for the period amounted to £1.2 million (corresponding period £0.8 million), reflecting an improved contribution from the venture capital portfolio.

The board has declared an unchanged interim dividend of 2.0p per share, which will be paid on 10 January 2014 to shareholders on the register on 29 November 2013.  Our objective is to maintain the total annual dividend at not less than 5.5p per share, a level which has been achieved or exceeded in each of the past nine financial years.  Against a background of low market interest rates and high marginal rates of tax for many investors, the attractions of a consistently strong tax-free dividend yield are considerable.


During the six months ended 30 September 2013 the following holdings were added to the venture capital portfolio:

  • Cleveland Biotech (Holdings) (£1,006,000) - manufacturer of environmentally friendly bacterial solutions for waste management, Stockton-on-Tees
  • Kirton Group (£1,041,000) - manufacturer of specialist seating and shower, toilet and commode chairs, Haverhill
  • Buoyant Upholstery (£1,508,000) - manufacturer of upholstered sofas and chairs, Nelson

The investment in IG Doors was sold to Hörmann Group in June for £1.6 million in cash, an uplift of £0.3 million over the carrying value at 31 March 2013.  Realisation proceeds from other venture capital investments totalled £0.8 million.  After a relatively quiet period there are signs of increasing activity in the mergers and acquisitions market, and three of our companies are currently at a well advanced stage of negotiations for sale.  Shareholders will appreciate that there can of course be no guarantee that these transactions will necessarily come to a successful conclusion.

We review the portfolio regularly with the managers and currently most of our holdings are making satisfactory progress.

Shareholder issues
In July 2013 the company launched a £15 million top-up offer of new ordinary shares for subscription in the 2013/14 and 2014/15 tax years, in conjunction with offers by Northern Venture Trust and Northern 3 VCT.  The response by investors was very enthusiastic and on 30 October 2013 we were delighted to announce that the Northern 2 VCT offer was fully subscribed and had therefore closed.  This excellent outcome provides us with a substantial pool of funds for future investment and will take our company's net assets to over £75 million, making it one of the largest generalist VCTs.  We believe that the enlargement of the company will benefit shareholders both through economies of scale and through a wider spread of investments in the portfolio.  We would like to welcome all of our new investors and we thank them and our existing investors for their support.

We have maintained an active share buy-back policy at a 10% discount to NAV, and in the six months to 30 September 2013 a total of 622,000 shares were repurchased at an average price of 74.8p.  With effect from 1 October 2013 Panmure Gordon were appointed as the company's broker, as well as making a market in the company's shares, and we look forward to working with them to promote secondary market liquidity.

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
In July 2013 HM Treasury and HM Revenue & Customs published a consultation document setting out proposals mainly aimed at prohibiting "enhanced" share buy-backs, where a VCT re-purchases existing shares from shareholders on favourable terms on condition that the proceeds are re-invested in new ordinary shares.  The proposals also include the possibility of restrictions, as yet unspecified, on the categories of reserves which VCTs may use to pay dividends in future.  Responses to the consultation have been submitted by our managers and the Association of Investment Companies, and we hope that the resulting legislation will be drafted so as to avoid unintended adverse consequences.

The European Commission is currently undertaking a periodic review of the rules relating to state aid for businesses in EC member countries, including the VCT scheme in the UK, and it is expected that the results will be announced in 2014.

The Commission's Alternative Investment Fund Managers Directive (AIFMD) became part of UK law in July 2013, with a 12 month transitional period to July 2014.  The Directive regulates the management of alternative investment funds, including venture capital funds such as VCTs.  Your board is currently considering the options available under the Directive but we do not expect any material impact on the operations of the company.

The FCA's Retail Distribution Review has brought about significant changes in the way VCTs raise funds through new share issues, as can be seen from our recent prospectus.  The FCA also concluded a consultation on the retail distribution of unregulated collective investment schemes.  We were pleased to learn that VCTs were excluded from a list of investment products whose distribution to retail investors is to be severely restricted.

The success of the recent share issue has provided a strong platform for the next phase of the company's development.  It appears that the UK economy may be starting to emerge from the difficulties of the past six years, and this should have a positive effect on the performance of our investments.  Your board and managers will continue to focus on delivering strong returns to investors.

On behalf of the Board

David Gravells

The unaudited half-yearly financial statements for the six months ended 30 September 2013 are set out below.

(unaudited) for the six months ended 30 September 2013

Six months ended
30 September 2013
Six months ended
30 September 2012
Gain on disposal of investments 416  416  551  551 
Movements in fair value of investments 1,947  1,947  1,655  1,655 
----------  ----------  ----------  ----------  ----------  ---------- 
2,363  2,363  2,206  2,206 
Income 1,207  1,207  798  798 
Investment management fee (162) (485) (647) (142) (426) (568)
Other expenses (193) (193) (154) (154)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 852  1,878  2,730  502  1,780  2,282 
Tax on return on ordinary activities (131) 131  (86) 86 
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 721  2,009  2,730  416  1,866  2,282 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.0p 2.7p 3.7p 0.6p 2.7p 3.3p

Year ended 31 March 2013
Gain on disposal of investments 2,497  2,497 
Movements in fair value of investments 5,049  5,049 
----------  ----------  ---------- 
7,546  7,546 
Income 1,669  1,669 
Investment management fee (286) (1,339) (1,625)
Other expenses (306) (306)
----------  ----------  ---------- 
Return on ordinary activities before tax 1,077  6,207  7,284 
Tax on return on ordinary activities (195) 195 
----------  ----------  ---------- 
Return on ordinary activities after tax 882  6,402  7,284 
----------  ----------  ---------- 
Return per share 1.2p 9.1p 10.3p

(unaudited) for the six months ended 30 September 2013

Six months ended 
30 September 2013 
Six months ended 
30 September 2012 
Year ended 
31 March 2013 
Equity shareholders' funds at 1 April 2013 62,844  55,128  55,128 
Return on ordinary activities after tax 2,730  2,282  7,284 
Dividends recognised in the period (2,608) (2,448) (3,845)
Net proceeds of share issues 828  1,372  4,923 
Shares re-purchased for cancellation (465) (211) (646)
----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2013 63,329  56,123  62,844 
----------  ----------  ---------- 

(unaudited) as at 30 September 2013

30 September 2013 
30 September 2012 
31 March 2013 
Fixed asset investments 49,986  43,027  45,402 
----------  ----------  ---------- 
Current assets:
  Debtors 290  320  557 
  Cash and deposits 22,860  13,126  18,088 
----------  ----------  ---------- 
23,150  13,446  18,645 
Creditors (amounts falling due
  within one year) (9,807) (350) (1,203)
----------  ----------  ---------- 
Net current assets 13,343  13,096  17,442 
----------  ----------  ---------- 
Net assets 63,329  56,123  62,844 
----------  ----------  ---------- 
Capital and reserves
Called-up equity share capital 3,721  3,505  3,700 
Share premium 28,395  24,293  27,618 
Capital redemption reserve 799  737  767 
Capital reserve 20,228  22,218  22,636 
Revaluation reserve 9,215  4,715  7,351 
Revenue reserve 971  655  772 
----------  ----------  ---------- 
Total equity shareholders' funds 63,329  56,123  62,844 
----------  ----------  ---------- 
Net asset value per share 85.1p 80.1p 84.9p

(unaudited) for the six months ended 30 September 2013

Six months ended 
30 September 2013 
Six months ended 
30 September 2012 
Year ended 
31 March 2013 
£000 £000 £000 £000 £000 £000 
Cash flow statement
Net cash outflow from
operating activities (491) (925) (573)
Corporation tax paid (74)
Financial investment:
Purchase of investments (5,106) (6,031) (9,730)
Sale/repayment of investments 2,885  6,252  12,917 
----------  ----------  ---------- 
Net cash inflow/(outflow) from financial investment (2,221) 221  3,187 
Equity dividends paid (2,608) (2,448) (3,845)
----------  ----------  ---------- 
Net cash outflow before financing (5,320) (3,152) (1,305)
Issue of shares 855  1,440  5,086 
Share issue expenses (27) (67) (163)
Share subscriptions held pending allotment 9,729 
Re-purchase of shares for cancellation (465) (211) (646)
----------  ----------  ---------- 
Net cash inflow from financing 10,092  1,162  4,277 
----------  ----------  ---------- 
Increase/(decrease) in cash and deposits 4,772  (1,990) 2,972 
----------  ----------  ---------- 
Reconciliation of return before tax to
net cash flow from operating activities
Return on ordinary activities before tax 2,730  2,282  7,284 
Gain on disposal of investments (416) (551) (2,497)
Movements in fair value of investments (1,947) (1,655) (5,049)
(Increase)/decrease in debtors 267  (9) (246)
Increase/(decrease) in creditors (1,125) (992) (65)
----------  ----------  ---------- 
Net cash outflow from operating activities (491) (925) (573)
----------  ----------  ---------- 
Reconciliation of movements in net funds
1 April 2013 Cash flows 30 September 2013 
£000 £000 £000 
Cash and deposits 18,088  4,772  22,860 
----------  ----------  ---------- 

as at 30 September 2013

% of net assets
by valuation
Fifteen largest venture capital investments:
Kerridge Commercial Systems 1,740 5,694 9.0
Volumatic Holdings 2,095 3,617 5.7
Alaric Systems 1,200 3,271 5.2
Wear Inns 1,868 2,050 3.2
Advanced Computer Software Group* 381 1,941 3.1
Silverwing 1,388 1,848 2.9
Tinglobal Holdings 1,812 1,828 2.9
Arleigh Group 698 1,516 2.4
Buoyant Upholstery 1,508 1,508 2.4
Intuitive Holding 1,508 1,508 2.4
Control Risks Group Holdings 746 1,363 2.1
Kitwave One 1,246 1,345 2.1
Cawood Scientific 1,031 1,211 1.9 435 1,174 1.9
Haystack Dryers 1,157 1,157 1.8
---------- ---------- -------
18,813 31,031 49.0
Other venture capital investments 13,846 10,612 16.8
---------- ---------- -------
Total venture capital investments 32,659 41,643 65.8
Listed equity investments 3,989 4,393 6.9
Listed fixed-interest investments 4,123 3,950 6.2
---------- ---------- -------
Total fixed asset investments 40,771 49,986 78.9
Net current assets 13,343 21.1
---------- -------
Net assets 63,329 100.0
---------- -------
*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:  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 and seek to ensure there is no undue concentration of credit risk 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 2013 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 2013 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 2013.

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 74,548,285 (2012 69,275,561) 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 2013 divided by the 74,422,079 (2012 70,102,784) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 31 March 2014 will be paid on 10 January 2014 to shareholders on the register at the close of business on 29 November 2013.

A copy of the half-yearly financial report for the six months ended 30 September 2013 is expected to be posted to shareholders by 22 November 2013 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