Northern 2 VCT PLC.

20 MAY 2015



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 2014):


 2015 2014
Net assets

Net asset value per share

Return per share:  

Dividend per share paid/proposed  
in respect of the year
 (2015 includes 10.0p special dividend)

Cumulative return to shareholders since launch:  
Net asset value per share85.4p83.9p
Dividends paid per share*75.4p73.4p
Net asset value plus dividends paid per share

Mid-market share price at end of year

Share price discount to net asset value

Tax-free dividend yield (based on mid-market share price at end of year):  
 Excluding special dividend
 Including special dividend

*Excluding second interim and proposed final dividends payable on 24 July 2015

For further information, please contact:

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




I am pleased to report on a year which has seen strong new investment activity as well as a record level of cash generation from investment realisations.  The successful sale of investments such as Kerridge Commercial Systems and Advanced Computer Software Group has enabled the directors to declare a special dividend of 10.0p per share, which together with the recurring annual dividend of 5.5p makes a total tax-free distribution of 15.5p in respect of the year.

Results and dividend
The NAV per share at 31 March 2015, after deducting the first interim dividend of 2.0p paid in January 2015, was 85.4p, compared with 83.9p as at 31 March 2014.  In comparing the NAV figures it should be remembered that the 3.5p dividend payment which would normally have been made in July 2014 was paid early in March 2014.  The total return per share for the year as shown in the income statement was 3.4p, equivalent to 4.1% of the opening NAV.  The income statement benefitted from a net gain of £4.4m on the investments which were sold, by comparison with the directors' valuation at 31 March 2014, but this was partly offset by a £2.0 million net reduction in the valuation of the continuing investment portfolio, reflecting a slower than expected start by some of our more recent investments.  As a consequence the total return for the year did not reach the level required to trigger the payment of a performance-related fee to the manager.

The board's aim is to maintain the annual dividend at not less than 5.5p per share, an objective which we have achieved in each of the last 11 financial years.  An interim dividend of 2.0p per share was paid in January 2015 and a final dividend of 3.5p is proposed by the directors, again taking the total for the year to 5.5p.  However in view of the exceptional investment realisations in the year under review, which have added to the company's already extremely strong cash reserves, the directors have decided to pay an additional special dividend of 10.0p per share, which will take the form of a second interim dividend for the year ended 31 March 2015, payable on 24 July 2015 to shareholders on the register on 26 June 2015.  The proposed final dividend of 3.5p per share will, subject to approval by shareholders at the annual general meeting, also be payable on 24 July to shareholders on the register on 26 June.  This means that the aggregate dividend payment on 24 July will be 13.5p per share.  Shareholders will appreciate that this distribution will have the effect of reducing the future reported NAV of the company.

Shareholders may wish to consider participating in the company's dividend investment scheme, through which dividends are re-invested in new ordinary shares in the company at a price equivalent to the latest NAV, with the benefit of the tax reliefs available on new subscriptions to VCTs.  Further details of the scheme are included with the annual report.

Investment portfolio
Six new holdings were added to the unquoted portfolio during the year at a cost of £10.3 million.  Several highly satisfactory exits were completed, including the sale of Kerridge Commercial Systems for cash proceeds of £8.6 million and a gain over original cost of £7.0 million, and the sale of CloserStill Group for cash proceeds of £2.5 million and a gain of £1.8 million.  The effect has been to reduce the overall maturity of the holdings in the portfolio and, as mentioned above, our valuation of the remaining holdings has taken account of the fact that a small number of investments are not currently performing as well as expected.  This is not unusual in the early stages of the investment life cycle and our manager is taking action where necessary to support the future development of these companies.

The AIM-quoted portfolio has had a good year, the highlight being the agreed bid for Advanced Computer Software Group which produced cash proceeds of £3.1 million from an original investment of £382,000.

Shareholder issues
During the year the company maintained its policy of buying back its own shares in the market, as an aid to market liquidity, at a 10% discount to NAV.  During the year a total of 460,000 shares were repurchased for cancellation at an average price of 75.8p.  The board regularly reviews its buy-back policy in the light of the company's cash resources and general market conditions, and we are pleased to announce that with immediate effect the discount to NAV at which shares are bought back will be reduced from 10% to 5%.

The company did not launch a public offer of shares during the 2014/15 tax year, given the substantial amount of cash raised in the 2013/14 offer and the prospect of strong investment realisations in the second half of the 2014/15 financial year.

The annual general meeting will be held in London on 14 July 2015 and the directors look forward to meeting as many shareholders as possible on that occasion.  We value the interest which shareholders take in the company and the feedback which they provide to the board, and we aim in our reports to shareholders to give as full a picture as possible of the company's activities and progress.

Board of directors
I am pleased to draw your attention to the fact that Cecilia McAnulty, who is an experienced investment professional and a former director of Barclays Capital, joined the board in September 2014 following a process in which the nomination committee interviewed a number of strong candidates.  Cecilia has already made a valuable contribution to our business.

All of the directors will be seeking re-election at the annual general meeting, either in accordance with the AIC Code of Corporate Governance or voluntarily, except for Michael Denny who has decided to retire from the board.  Michael was one of the co-founders of NVM and has had a most distinguished career in venture capital, including a term as chairman of the British Venture Capital Association;  he was also closely involved in the consultations which led to the establishment of VCTs as an asset class in 1995.  The board is extremely appreciative of his enormous contribution over many years.  We shall miss his wise counsel but wish him well in his retirement.

The board as presently constituted contains a wide range of skills and experience and will continue to refresh its membership over time.

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.  During the year Robertson Hare LLP were appointed as the company's independent advisers on VCT taxation matters.

VCT legislation and regulation
The Budget announcement in March 2015 contained several proposed changes to the VCT legislation, designed to secure continuing approval of VCT investments within the European Commission's state aid guidelines.  The changes set out in the Finance Bill are subject to detailed negotiation and agreement with the Commission.  In broad terms, the Government's objective appears to be to focus future investment increasingly on smaller, younger businesses, especially those engaged in "knowledge-based" activities.  As a result there is likely to be some change in the range of potential investments available to VCTs.

Pending agreement of the Budget proposals by the European Commission, the expected date of which is not known, investments made by VCTs on or after 6 April 2015 will be subject to some uncertainty as to whether they will be qualifying investments for the purposes of the legislation.  After taking advice your board and manager therefore decided, in conjunction with the other Northern VCTs, to invest in six new companies on 2 April 2015 each of which intends to acquire a trading business in the coming months.  These new qualifying investments were made under the pre-6 April 2015 regulations and Northern 2 VCT has invested a total of £9,134,000 in the companies.

It seems likely that the UK is entering a period of relative political stability, but whilst the prospects for the UK economy are generally positive, we expect conditions to remain challenging for smaller businesses over the next 12 months.  The marketplace in which our manager is seeking to source new investment opportunities is highly competitive, creating higher value expectations on the part of prospective investee companies, and I have already referred to the increasing restrictions placed on us by the VCT legislation.  Nonetheless our company has a strong balance sheet, we believe there is potential within the portfolio for further growth and we hope to be able to secure a continuing satisfactory flow of new investments.

David Gravells

The audited financial statements for the year ended 31 March 2015 are set out below.

for the year ended 31 March 2015

 Year ended 31 March 2015Year ended 31 March 2014
Gain on disposal of investments 4,401  4,401  2,695  2,695 
Movements in fair value of investments (2,039) (2,039) 3,970  3,970 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  2,362  2,362  6,665  6,665 
Income 2,776  2,776  2,517  2,517 
Investment management fee (397) (1,190) (1,587) (343) (1,391) (1,734)
Other expenses (430) (430) (396) (15) (411)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 1,949  1,172  3,121  1,778  5,259  7,037 
Tax on return on ordinary activities (319) 319  (328) 328 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 1,630  1,491  3,121  1,450  5,587  7,037 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.8p 1.6p 3.4p 1.8p 6.8p 8.6p

for the year ended 31 March 2015

 Year ended 
31 March 2015 
Year ended 
31 March 2014 
Equity shareholders' funds at 1 April 2014 76,588  62,844 
Return on ordinary activities after tax 3,121  7,037 
Dividends recognised in the year (1,840) (7,608)
Net proceeds of share issues 1,157  15,149 
Shares re-purchased for cancellation (350) (834)
  ----------  ---------- 
Equity shareholders' funds at 31 March 2015 78,676  76,588 
  ----------  ---------- 

as at 31 March 2015

 31 March 2015 
31 March 2014 
Fixed assets:    
 Investments 46,293  51,836 
  ----------  ---------- 
Current assets:    
 Debtors 247  363 
 Cash and deposits 32,339  25,417 
  ----------  ---------- 
  32,586  25,780 
Creditors (amounts falling due within one year) (203) (1,028)
  ----------  ---------- 
Net current assets 32,383  24,752 
  ----------  ---------- 
Net assets 78,676  76,588 
  ----------  ---------- 
Capital and reserves:    
Called-up equity share capital 4,609  4,562 
Share premium 1,464  377 
Capital redemption reserve 30 
Capital reserve 71,234  62,007 
Revaluation reserve 292  9,298 
Revenue reserve 1,047  337 
  ----------  ---------- 
Total equity shareholders' funds 78,676  76,588 
  ----------  ---------- 
Net asset value per share 85.4p 83.9p

for the year ended 31 March 2015

  Year ended 
31 March 2015 
Year ended 
31 March 2014 
   £000 £000 £000 £000 
Cash flow statement      
Net cash inflow from operating activities   50    391 
Corporation tax paid        
Financial investment:            
Purchase of investments     (15,660)   (9,933)  
Sale/repayment of investments 23,565    10,164   
      ----------    ----------   
Net cash inflow from financial investment   7,905    231 
Equity dividends paid       (1,840)   (7,608)
        ----------    ---------- 
Net cash inflow/(outflow) before financing   6,115    (6,986)
Issue of shares 1,186    15,505   
Share issue expenses (29)   (356)  
Shares re-purchased for cancellation (350)   (834)  
      ----------    ----------   
Net cash inflow from financing   807    14,315 
        ----------    ---------- 
Increase in cash and deposits     6,922    7,329 
        ----------    ---------- 
Reconciliation of return before tax    
to net cash flow from operating activities    
Return on ordinary activities before tax   3,121    7,037 
Gain on disposal of investments     (4,401)   (2,695)
Movements in fair value of investments     2,039    (3,970)
(Increase)/decrease in debtors     116    194 
Increase/(decrease) in creditors     (825)   (175)
        ----------    ---------- 
Net cash inflow from operating activities   50    391 
        ----------    ---------- 
Reconciliation of movement in net funds     
 1 April 2014 Cash flows 31 March 2015 
  £000  £000  £000 
Cash and deposits   25,417    6,922    32,339 
    ----------    ----------    ---------- 

as at 31 March 2015



% of
net assets
by value
Venture capital investments:      
Buoyant Upholstery 1,509 2,298 2.9
Biological Preparations Group 2,166 2,166 2.8
Wear Inns 1,869 2,071 2.6
Volumatic Holdings 2,095 2,027 2.6
MSQ Partners Group 1,671 1,984 2.5
Silverwing 1,388 1,873 2.4
CloserStill Media 1,683 1,683 2.1
Arleigh Group 376 1,640 2.1
Agilitas Holdings 1,638 1,638 2.1
Kitwave One 1,247 1,539 2.0
Control Risks Group Holdings 746 1,534 1.9
No 1 Traveller 1,629 1,222 1.6
It's All Good 1,145 1,200 1.5
Intuitive Holding 1,508 1,163 1.5
Cawood Scientific 1,031 1,150 1.5
  ---------- ---------- --------
Fifteen largest venture capital investments 21,701 25,188 32.1
Other venture capital investments 14,585 10,861 13.7
  ---------- ---------- --------
Total venture capital investments 36,286 36,049 45.8
Listed equity investments 4,148 4,709 6.0
Listed interest-bearing investments 5,567 5,535 7.0
  ---------- ---------- --------
Total fixed asset investments 46,001 46,293 58.8
Net current assets   32,383 41.2
    ---------- --------
Net assets   78,676 100.0
    ---------- --------


The board carries out a regular and robust review of the risk environment in which the company operates.  The principal risks and uncertainties identified by the board which might affect the company's business model and future performance, and the steps taken with a view to their mitigation, are as follows:

Investment and liquidity 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.  Mitigation: 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 maintaining a wide spread of holdings in terms of financing stage and industry sector.  The board reviews the investment portfolio with the manager on a regular basis.

Financial risk: most of the company's investments involve a medium- to long-term commitment and many are relatively illiquid.  Mitigation: 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 direct exposure to foreign currency risk and does not enter into derivative transactions.

Economic risk: events such as economic recession or general fluctuation 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.  Mitigation: the company invests in a diversified portfolio of investments spanning various industry sectors, and maintains sufficient cash reserves to be able to provide additional funding to investee companies where appropriate.

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 can be very little, if any, market demand for shares in smaller companies quoted on AIM.  Mitigation: the company's quoted investments are actively managed by specialist managers, including NVM in the case of AIM-quoted investments, and the board keeps the portfolio and the actions taken under ongoing review.

Credit risk: the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment.  Mitigation: 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 party.

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, which reflects 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.  Mitigation: The board and the manager monitor political developments and where appropriate seek to make representations either directly or through relevant trade bodies.

Internal control risk: the company's assets could be at risk in the absence of an appropriate internal control regime.  Mitigation: 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.  Mitigation: the manager keeps the company's VCT qualifying status under continual review, taking appropriate action to maintain it where required, and its reports are reviewed by the board on a quarterly basis.  The board has also retained Robertson Hare 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 LLP (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 2015 each of the directors has confirmed that, to the best of his or her 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, Miss C A McAnulty and Mr F L G Neale.


The above summary of results for the year ended 31 March 2015 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 92,068,505 (2014 82,045,163) 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 2015 divided by the 92,178,230 (2014 91,237,323) ordinary shares in issue at that date.

The second interim dividend of 10.0p per share and, if approved by shareholders, the proposed final dividend of 3.5p per share for the year ended 31 March 2015 will be paid on 24 July 2015 to shareholders on the register at the close of business on 26 June 2015.

The full annual report including financial statements for the year ended 31 March 2015 is expected to be posted to shareholders by 12 June 2015 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 LLP website,

Neither the contents of the NVM Private Equity LLP website nor the contents of any website accessible from hyperlinks on the NVM Private Equity LLP 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