Northern 2 VCT PLC.

30 MAY 2014



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 2013):

            2014             2013
Net assets£76.6m£62.8m
Net asset value per share83.9p84.9p
Return per share:
Dividend per share declared/proposed
in respect of the year5.5p5.5p
Cumulative return to shareholders since launch:
Net asset value per share83.9p84.9p
Dividends paid per share*73.4p64.4p
Net asset value plus dividends paid per share157.3p149.3p
Mid-market share price at end of year75.38p72.0p
Share price discount to net asset value10.2%15.2%
Tax-free dividend yield (based on mid-market
share price at end of year)7.3%7.6%

*2013 excludes proposed final dividend

For further information, please contact:

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



Northern 2 VCT has enjoyed a year of continued good progress in which a successful £15 million share issue was completed, investment activity was at a satisfactory level and the dividend paid to shareholders was again in line with target.

Results and dividend
The NAV per share at 31 March 2014, after deducting dividends totalling 9.0p per share paid during the year, was 83.9p, compared with 84.9p as at 31 March 2013.  When comparing these figures it should be remembered that the 3.5p dividend payment which would normally have been made in July 2014 was brought forward to 28 March 2014.  The total return per share for the year as shown in the income statement was 8.6p, equivalent to 10.1% of the opening NAV.  Investment income increased to £2.5 million from £1.7 million in the preceding year, including a one-off receipt of £0.3 million of loan interest on the sale of Alaric Systems.  The revenue return per share rose from 1.2p to 1.8p.

A first interim dividend of 2.0p per share was paid in January 2014 and a second interim of 3.5p per share was paid in March 2014, making a total of 5.5p per share for the year.  No final dividend is proposed.  Our stated objective is to pay an annual dividend of 5.5p, whilst endeavouring to avoid erosion of the underlying NAV.  This is the tenth consecutive year in respect of which a dividend of at least the target level has been paid.

Investment portfolio
The venture capital portfolio has continued to make broadly positive progress.  Five new unquoted holdings were added to the portfolio during the year at a cost of £6.3 million, with a further £0.9 million invested in existing portfolio companies.  Successful exits were achieved from the unquoted investments in IG Doors, Alaric Systems and  The AIM-quoted investment in Andor Technology was acquired by Oxford Instruments through an agreed bid at a 40% premium to the market price at 31 March 2013.  Total realisation proceeds from the venture capital portfolio in the year amounted to almost £9 million.

As a result of the successful share offer and investment sales, our company has a higher than usual level of surplus liquidity awaiting investment.  With the Bank of England seemingly intent on maintaining interest rates at a very low level, we have continued our policy of investing part of our assets in a portfolio of income-yielding blue-chip listed equities with the aim of achieving a higher return (by a combination of capital growth and dividends) than is available on cash.  Clearly our medium term priority is to redeploy funds into the venture capital portfolio, and it is encouraging to note that our manager currently has four potential new investments in the later stages of due diligence and legal negotiation, and a steady flow of other opportunities under review.

Shareholder issues
In July 2013 the company launched a £15 million top-up offer of new ordinary shares, alongside offers by Northern Venture Trust and Northern 3 VCT.  All three offers were well received by investors and were fully subscribed several months before the closing date.  We appreciate our investors' support and as ever we will be working with our managers to ensure that the company's good long-term performance record is maintained.

It remains our policy to buy the company's shares in the market at a 10% discount to NAV in order to provide liquidity to shareholders.  During the year we appointed Panmure Gordon as the company's broker, with a remit to make a market in the company's shares, and this relationship has begun well.  In total 1,109,000 shares were bought back for cancellation during the year at an average price of 74.8p.

Your company continues to comply with current best practice in corporate governance as set out in the AIC Code.  The composition of the board is considered regularly by the nomination committee.

Following a review of the company's method of communicating with its shareholders, your board has decided to make available an option to receive information from the company electronically rather than by paper copy.  Details are set out in a separate letter which shareholders will be receiving with the annual report.

Performance fees
In 2006 your board took the initiative in seeking a reduction in NVM's basic management fee from 2.5% to 2.0% of net assets whilst introducing a new performance-related element designed to reward the manager for achieving results in excess of a specified hurdle.  Over the past eight financial years the total fees payable to NVM have been less than would have been the case on the previous basis.  Following a periodic review of the scheme arrangements, we now propose to change the detailed terms so that a higher level of overall return is required to trigger payment of a performance fee for a given financial year, but with a higher rate of fee payable on the return in excess of the hurdle.  Shareholders' approval of the proposed change will be sought at the forthcoming annual general meeting, and further information will be contained in the circular setting out the AGM business.

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 reviews the company's compliance position on a regular basis with the manager and retains PricewaterhouseCoopers LLP as independent advisers on VCT taxation matters.

VCT legislation and regulation
The 2014 Finance Bill, published following the Chancellor's Budget announcement in March, includes measures to prevent "enhanced" share buy-backs, where a VCT offers to buy back shares from investors at a narrow discount on condition that the proceeds are applied in subscribing for a fresh issue of shares.  This was widely expected.  The Government also proposes that where new VCT shares are allotted on or after 6 April 2014, VCTs will be prevented for a specified period from paying dividends to shareholders out of distributable reserves created by cancelling the share premium account arising on the allotment of the shares.  We have a policy of maintaining ample distributable reserves on the company's balance sheet and the new rules are not expected to affect our future dividend distributions.

The European 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.  After due consideration your directors have decided to appoint our existing managers, NVM Private Equity, as Northern 2 VCT's AIFM for the purposes of the Directive.  This is not expected to make a significant difference to the way in which the company is managed.

The performance of the UK economy appears to be improving gradually and the level of general corporate activity has picked up.  Our manager believes that new investment opportunities are still available at acceptable prices, and we expect to see further exits by portfolio companies in the coming months.  Against this background we believe that future prospects are good.

David Gravells

The audited financial statements for the year ended 31 March 2014 are set out below.

for the year ended 31 March 2014

Year ended 31 March 2014Year ended 31 March 2013
Gain on disposal of investments 2,695  2,695  2,497  2,497 
Movements in fair value of investments 3,970  3,970  5,049  5,049 
----------  ----------  ----------  ----------  ----------  ---------- 
6,665  6,665  7,546  7,546 
Income 2,517  2,517  1,669  1,669 
Investment management fee (343) (1,391) (1,734) (286) (1,339) (1,625)
Other expenses (396) (15) (411) (306) (306)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 1,778  5,259  7,037  1,077  6,207  7,284 
Tax on return on ordinary activities (328) 328  (195) 195 
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 1,450  5,587  7,037  882  6,402  7,284 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.8p 6.8p 8.6p 1.2p 9.1p 10.3p

for the year ended 31 March 2014

Year ended 
31 March 2014 
Year ended 
31 March 2013 
Equity shareholders' funds at 1 April 2013 62,844  55,128 
Return on ordinary activities after tax 7,037  7,284 
Dividends recognised in the year (7,608) (3,845)
Net proceeds of share issues 15,149  4,923 
Shares re-purchased for cancellation (834) (646)
----------  ---------- 
Equity shareholders' funds at 31 March 2014 76,588  62,844 
----------  ---------- 

as at 31 March 2014

31 March 2014 
31 March 2013 
Fixed assets:
  Investments 51,836  45,402 
----------  ---------- 
Current assets:
  Debtors 363  557 
  Cash and deposits 25,417  18,088 
----------  ---------- 
25,780  18,645 
Creditors (amounts falling due within one year) (1,028) (1,203)
----------  ---------- 
Net current assets 24,752  17,442 
----------  ---------- 
Net assets 76,588  62,844 
----------  ---------- 
Capital and reserves:
Called-up equity share capital 4,562  3,700 
Share premium 377  27,618 
Capital redemption reserve 767 
Capital reserve 62,007  22,636 
Revaluation reserve 9,298  7,351 
Revenue reserve 337  772 
----------  ---------- 
Total equity shareholders' funds 76,588  62,844 
----------  ---------- 
Net asset value per share 83.9p 84.9p

for the year ended 31 March 2014

Year ended 
31 March 2014 
Year ended 
31 March 2013 
£000 £000 £000 £000 
Cash flow statement
Net cash inflow/(outflow) from operating activities 391  (573)
Corporation tax paid (74)
Financial investment:
Purchase of investments (9,933) (9,730)
Sale/repayment of investments 10,164  12,917 
----------  ---------- 
Net cash inflow from financial investment 231  3,187 
Equity dividends paid (7,608) (3,845)
----------  ---------- 
Net cash outflow before financing (6,986) (1,305)
Issue of shares 15,505  5,086 
Share issue expenses (356) (163)
Shares re-purchased for cancellation (834) (646)
----------  ---------- 
Net cash inflow from financing 14,315  4,277 
----------  ---------- 
Increase in cash and deposits 7,329  2,972 
----------  ---------- 
Reconciliation of return before tax
to net cash flow from operating activities
Return on ordinary activities before tax 7,037  7,284 
Gain on disposal of investments (2,695) (2,497)
Movements in fair value of investments (3,970) (5,049)
(Increase)/decrease in debtors 194  (246)
Decrease in creditors (175) (65)
----------  ---------- 
Net cash inflow/(outflow) from operating activities 391  (573)
----------  ---------- 
Reconciliation of movement in net funds
1 April 2013 Cash flows 31 March 2014 
£000 £000 £000 
Cash and deposits 18,088  7,329  25,417 
----------  ----------  ---------- 

as at 31 March 2014

% of
net assets
by value
Venture capital investments:
Kerridge Commercial Systems 1,593 7,605 9.9
Volumatic Holdings 2,095 3,187 4.2
Advanced Computer Software Group* 382 2,691 3.5
Wear Inns 1,868 2,386 3.1
Silverwing 1,388 2,025 2.6
Tinglobal Holdings 1,812 1,941 2.5
No 1 Traveller 1,629 1,629 2.1
Arleigh Group 619 1,573 2.1
Intuitive Holding 1,508 1,533 2.0
Buoyant Upholstery 1,509 1,509 2.0
Control Risks Group Holdings 746 1,363 1.8
Cawood Scientific 1,031 1,348 1.8
Kitwave One 1,246 1,288 1.7
It's All Good 1,145 1,145 1.5
Haystack Dryers 1,497 1,103 1.4
---------- ---------- --------
Fifteen largest venture capital investments 20,068 32,326 42.2
Other venture capital investments 14,567 11,117 14.5
---------- ---------- --------
Total venture capital investments 34,635 43,443 56.7
Listed equity investments 4,048 4,567 6.0
Listed fixed-interest investments 3,855 3,826 5.0
---------- ---------- --------
Total fixed asset investments 42,538 51,836 67.7
Net current assets 24,752 32.3
---------- --------
Net assets 76,588 100.0
---------- --------

*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, close monitoring 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 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 and seek to ensure there is no significant 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 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 year.

In preparing the 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, strategic 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 Private Equity Limited (NVM) website,  The maintenance and integrity of this website is the responsibility of NVM and not of the company.  The work carried out by KPMG LLP as independent auditor of the company does not involve consideration of the maintenance and integrity of the website and accordingly they accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website.  Visitors to the website should be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

In relation to the financial statements for the year ended 31 March 2014 each of the directors has confirmed that, to the best of his knowledge, (i) 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 of the company;  (ii) the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance, business model and strategy;  and (iii) the directors' report and strategic report include 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 2014 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 auditor's 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 calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the year and on 82,045,163 (2013 70,652,873) ordinary shares, being the weighted average number of shares in issue during the year.

The calculation of the net asset value per share is based on the net assets at 31 March 2014 divided by the 91,237,323 (2013 73,990,871) ordinary shares in issue at that date.

The full annual report including financial statements for the year ended 31 March 2014 is expected to be posted to shareholders by 13 June 2014 and will be available to the public at the registered office of the company at St Ann's Wharf, 112 Quayside, Newcastle upon Tyne NE1 3DX 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 NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Northern 2 VCT PLC via Globenewswire