Northern 2 VCT PLC.

11 NOVEMBER 2014



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




Six months to
30 September
Six months to
30 September
Year to
31 March
Net assets

£77.5m £63.3m £76.6m
Net asset value per share

84.2p 85.1p 83.9p
Return per share:




Dividend per share declared
in respect of the period




Cumulative returns 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 period

77.00p 74.75p 75.38p
Share price discount to net asset value

8.6% 12.2% 10.1%
Tax-free dividend yield (based on mid-market
share price at end of period)





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 2014, after deducting the 2013/14 final dividend of 3.5p per share paid in July 2014, was 84.2p (31 March 2014 83.9p).  The return per share for the period before dividends, as shown in the income statement, was 0.3p compared with 3.7p in the six months ended 30 September 2013.  This outcome reflects both the relatively low level of investment sales in the period and our prudent approach to valuation in an uncertain economic climate.

Investment income for the period amounted to £1.4 million (corresponding period £1.2 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 16 January 2015 to shareholders on the register on 5 December 2014.  It remains our target to maintain the annual dividend at not less than 5.5p per share, a level which has now been achieved or exceeded in ten consecutive financial years.  This represents a substantial investment yield to shareholders in an era of persistently low interest rates, with the added benefit of being exempt from income tax.

There was a high level of investment activity during the six months to 30 September 2014, with the result that four new holdings totalling £6.1 million were added to the venture capital portfolio:

  • Arnlea Holdings (£1,287,000) - developer of asset management software for the oil and gas industry, Aberdeen
  • Agilitas Holdings (£1,638,000) - provider of outsourced IT inventory management services, Nottingham
  • Fresh Approach (UK) Holdings (£1,454,000) - creative events manager, Manchester
  • MSQ Partners (£1,671,000) - marketing and communications agency group, London

Proceeds from investment sales and repayments amounted to £2.7 million, generating a realised gain of £0.3 million compared with 31 March 2014 carrying values.  Tinglobal Holdings raised new equity funding from a strategic trade investor and was able to repay £1.6 million of our loan stock.  Altacor and Mantis Deposition Holdings, both of which had been written down in value at 31 March 2014 after periods of disappointing performance, were sold for aggregate proceeds of £0.5 million.  Our managers continue to seek profitable exit opportunities and several investee companies are currently the subject of offers from third parties.

Although the venture capital portfolio is generally making satisfactory progress, a small number of companies are currently having to deal with challenging market conditions and this has been reflected in our cautious approach to valuation.

Following the successful outcome of last year's share offer, the company has continued to hold a higher than usual level of liquid funds for future investment in the venture capital portfolio.  Cash balances reduced by £3.5 million during the half year, with new investments being partly offset by the proceeds of sales and repayments.  We expect a further gradual reduction in liquidity, and with the long-expected rise in interest rates still on hold we have continued to invest part of our assets in a portfolio of income-yielding blue-chip listed equities, pending investment in the venture capital portfolio, with the aim of achieving a better return whilst seeking to preserve capital value subject to market conditions.

Shareholder issues
The board has reviewed projected future cash requirements in the light of new investment activity and potential realisations of existing investments, and has concluded that it would not be appropriate to raise further funds by launching a share issue in the 2014/15 tax year.

We have maintained our policy of being prepared to buy back the company's shares in the market at a 10% discount to NAV.  In the half year under review a total of 310,000 shares, equivalent to 0.3% of the issued share capital, was repurchased at an average price of 75.8p.  The policy will be kept under review in the light of market conditions and peer group practice.

Earlier this year the opportunity was extended to shareholders to receive communications from the company electronically rather than by paper copy.  The take-up of this option has been encouraging and it remains open to any other shareholders who wish to join the scheme.

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 has retained PricewaterhouseCoopers LLP as independent advisers on VCT taxation matters.

VCT legislation and regulation
We have previously reported on the Government's proposals to introduce restrictions on investors who sell shares in a VCT within the period six months before and after subscribing for shares in the same VCT, and to restrict the ability of VCTs to pay dividends to shareholders out of distributable reserves created by cancelling the share premium arising where new shares are allotted after 6 April 2014.  The 2014 Finance Act containing the relevant legislation duly received Royal Assent in July 2014.  The company already has ample reserves available for distribution and we do not expect the new measures to have any impact on our dividend or share buy-back policies.

The Government has recently undertaken a consultation exercise on the future of VCTs and other tax-advantaged investment schemes, against the background of a European Commission review of the rules relating to state aid for businesses in member countries, which in the UK includes VCTs.  The outcome of this review is awaited;  we hope that there will be no significant change in the positioning of VCTs as an important part of the UK government's strategy for supporting small and medium-sized enterprises.

The Commission's Alternative Investment Fund Managers Directive (AIFMD) is now part of UK law.  The Directive regulates the management of alternative investment funds, including venture capital funds such as VCTs.  The directors have appointed the company's existing manager, NVM Private Equity, as our AIFM for the purposes of the Directive with effect from May 2014.

Board of directors
Cecilia McAnulty, who is an experienced investment professional and a former director of Barclays Capital, was appointed as a non-executive director on 18 September 2014.  We welcome Cecilia to the board and look forward to working with her.

The financial markets have recently shown signs of being affected by UK and global uncertainties, both political and economic, and this may have an impact on the performance of some investee companies.  However the flow of potential new investments is good and we expect to see some exits coming through in the second half of the year.  Our company is in a strong position to make further progress in the future.

On behalf of the Board

David Gravells

The unaudited half-yearly financial statements for the six months ended 30 September 2014 are set out below.

(unaudited) for the six months ended 30 September 2014

 Six months ended
30 September 2014
Six months ended
30 September 2013
Gain on disposal of investments 277  277  416  416 
Movements in fair value of investments (419) (419) 1,947  1,947 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  (142) (142) 2,363  2,363 
Income 1,368  1,368  1,207  1,207 
Investment management fee (197) (592) (789) (162) (485) (647)
Other expenses (196) (196) (193) (193)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 975  (734) 241  852  1,878  2,730 
Tax on return on ordinary activities (150) 150  (131) 131 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 825  (584) 241  721  2,009  2,730 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 0.9p (0.6)p 0.3p 1.0p 2.7p 3.7p

  Year ended 31 March 2014
Gain on disposal of investments       2,695  2,695 
Movements in fair value of investments       3,970  3,970 
        ----------  ----------  ---------- 
        6,665  6,665 
Income       2,517  2,517 
Investment management fee       (343) (1,391) (1,734)
Other expenses       (396) (15) (411)
        ----------  ----------  ---------- 
Return on ordinary activities before tax       1,778  5,259  7,037 
Tax on return on ordinary activities       (328) 328 
        ----------  ----------  ---------- 
Return on ordinary activities after tax       1,450  5,587  7,037 
        ----------  ----------  ---------- 
Return per share       1.8p 6.8p 8.6p

(unaudited) for the six months ended 30 September 2014

 Six months ended 
30 September 2014 
Six months ended 
30 September 2013 
Year ended 
31 March 2014 
Equity shareholders' funds at 1 April 2014 76,588  62,844  62,844 
Return on ordinary activities after tax 241  2,730  7,037 
Dividends recognised in the period (2,608) (7,608)
Net proceeds of share issues 921  828  15,149 
Shares re-purchased for cancellation (236) (465) (834)
  ----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2014 77,514  63,329  76,588 
  ----------  ----------  ---------- 

(unaudited) as at 30 September 2014

 30 September 2014 
30 September 2013 
31 March 2014 
Fixed assets:      
Investments 55,532  49,986  51,836 
  ----------  ----------  ---------- 
Current assets:      
Debtors 338  290  363 
Cash and deposits 21,891  22,860  25,417 
  ----------  ----------  ---------- 
  22,229  23,150  25,780 
Creditors (amounts falling due      
 within one year) (247) (9,807) (1,028)
  ----------  ----------  ---------- 
Net current assets 21,982  13,343  24,752 
  ----------  ----------  ---------- 
Net assets 77,514  63,329  76,588 
  ----------  ----------  ---------- 
Capital and reserves:      
Called-up equity share capital 4,601  3,721  4,562 
Share premium 1,243  28,395  377 
Capital redemption reserve 22  799 
Capital reserve 60,287  20,228  62,007 
Revaluation reserve 10,199  9,215  9,298 
Revenue reserve 1,162  971  337 
  ----------  ----------  ---------- 
Total equity shareholders' funds 77,514  63,329  76,588 
  ----------  ----------  ---------- 
Net asset value per share 84.2p 85.1p 83.9p

(unaudited) for the six months ended 30 September 2014

 Six months ended 
30 September 2014 
Six months ended 
30 September 2013 
Year ended 
31 March 2014 
 £000 £000 £000 £000 £000 £000 
Cash flow statement      
Net cash inflow/(outflow) from            
operating activities   (374)   (491)   391 
Corporation tax paid      
Financial investment:            
Purchase of investments (8,000)   (5,106)   (9,933)  
Sale/repayment of investments 4,163    2,885    10,164   
  ----------    ----------    ----------   
Net cash inflow/(outflow) from financial investment (3,837)   (2,221)   231 
Equity dividends paid     (2,608)   (7,608)
    ----------    ----------    ---------- 
Net cash outflow before financing (4,211)   (5,320)   (6,986)
Issue of shares 939    855    15,505   
Share issue expenses (18)   (27)   (356)  
Share subscriptions held pending allotment   9,729     
Re-purchase of shares for cancellation (236)   (465)   (834)  
  ----------    ----------    ----------   
Net cash inflow from financing 685    10,092    14,315 
    ----------    ----------    ---------- 
Increase/(decrease) in cash and deposits   (3,526)   4,772    7,329 
    ----------    ----------    ---------- 
Reconciliation of return before tax to      
net cash flow from operating activities      
Return on ordinary activities before tax   241    2,730    7,037 
Gain on disposal of investments   (277)   (416)   (2,695)
Movements in fair value of investments   419    (1,947)   (3,970)
Decrease in debtors   24    267    194 
Decrease in creditors   (781)   (1,125)   (175)
    ----------    ----------    ---------- 
Net cash outflow from operating activities (374)   (491)   391 
    ----------    ----------    ---------- 
Reconciliation of movements in net funds     
 1 April 2014 Cash flows 30 September 2014 
  £000  £000  £000 
Cash and deposits   25,417    (3,526)   21,891 
    ----------    ----------    ---------- 

as at 30 September 2014

% of net assets
by valuation
Fifteen largest venture capital investments:      
Kerridge Commercial Systems 1,593 7,874 10.2
Advanced Computer Software Group* 382 2,585 3.3
Wear Inns 1,868 2,349 3.0
Volumatic Holdings 2,095 2,307 3.0
Silverwing 1,388 2,019 2.6
Buoyant Upholstery 1,508 1,826 2.4
Arleigh Group 505 1,725 2.2
MSQ Partners 1,671 1,671 2.2
Agilitas Holdings 1,638 1,638 2.1
No 1 Traveller 1,629 1,629 2.1
Control Risks Group Holdings 746 1,534 2.0
Fresh Approach (UK) Holdings 1,454 1,454 1.9
Kitwave One 1,246 1,394 1.8
Intuitive Holding 1,508 1,352 1.7
Cawood Scientific 1,031 1,341 1.7
  ---------- ---------- -------
  20,262 32,698 42.2
Other venture capital investments 16,761 14,048 18.1
  ---------- ---------- -------
Total venture capital investments 37,023 46,746 60.3
Listed equity investments 4,048 4,548 5.9
Listed fixed-interest investments 4,262 4,238 5.4
  ---------- ---------- -------
Total fixed asset investments 45,333 55,532 71.6
Net current assets   21,982 28.4
    ---------- -------
Net assets   77,514 100.0
    ---------- -------
*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 unaudited half-yearly financial statements for the six months ended 30 September 2014 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 auditor and have not been delivered to the Registrar of Companies.  The comparative figures for the year ended 31 March 2014 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies.  The auditor's report on those financial statements (i) was unqualified, (ii) did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) 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 2014.

Each of the directors confirms that to the best of his or her 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, Miss C A McAnulty 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 2014 and on 92,018,141 (2013 74,548,285) 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 2014 divided by the 92,026,038 (2013 74,422,079) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 31 March 2015 will be paid on 16 January 2015 to shareholders on the register at the close of business on 5 December 2014.

A copy of the half-yearly financial report for the six months ended 30 September 2014 is expected to be posted to shareholders by 24 November 2014 and will be available to the public at the registered office of the company at Time Central, 32 Gallowgate, Newcastle upon Tyne NE1 4SN 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