Northern 2 VCT PLC.

12 NOVEMBER 2015



Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity LLP.  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 as at 30 September 2014 and 31 March 2015)




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

Net asset value per share

Return per share:




Dividend per share declared/paid
in respect of the period

 (31 March 2015 includes 10.0p special dividend)




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

Share price discount to net asset value

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

*Excluding interim dividend not yet paid

For further information, please contact:

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


Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2015, after deducting the second interim and final dividends totalling 13.5p per share in respect of the 2014/15 financial year which were paid in July 2015, was 76.8p (31 March 2015 85.4p).  The payment of the second interim dividend of 10.0p per share was made possible by a series of excellent realisations from the venture capital portfolio in the three months to 31 March 2015.

The return per share for the six months ended 30 September 2015 before dividends, as shown in the income statement, was 4.9p compared with 0.3p in the corresponding period last year.  Your directors consider this is a satisfactory result.

The board has declared an interim dividend for the year ending 31 March 2016 of 2.0p per share, which will be paid on 29 January 2016 to shareholders on the register on 8 January 2016.  We expect that the total dividend for the year will be not less than 5.5p.

In July we suspended the dividend investment scheme (DRIS) under which shareholders had been able to re-invest their dividends in new ordinary shares in the company.  We reluctantly took this step because of the uncertainty caused by the Government's proposed changes to the VCT legislation.  Although we are making some progress in absorbing the implications of these changes, we do not yet feel that it is appropriate to re-instate the DRIS and so it remains suspended until further notice.

Total additions to the venture capital portfolio in the half year amounted to £11.9 million.  Two new holdings in unquoted trading companies and one AIM-quoted holding were acquired at a cost of £2.8 million, as follows:

  • Entertainment Magpie Group (£1,503,000) - operator of website for re-selling pre-owned entertainment media and electronic items, Manchester
  • Love Energy Savings (£1,124,000) - business-to-business energy cost comparison and procurement service, Bolton
  • Gear4music (Holdings) (£167,000) - AIM-quoted online retailer of musical instruments and music equipment, York

In addition £9.1 million was invested in six companies formed with a view to acquiring trading businesses.

Proceeds from investment sales and repayments amounted to £1.9 million, producing a gain of £0.6 million over 31 March 2015 carrying values.  The investment in Direct Valeting was sold to a trade purchaser for £0.8 million and we accepted an offer from the majority shareholder in Tinglobal Holdings to buy us out for £0.7 million, realising a satisfactory profit in each case.  Warmseal Windows (Newcastle) went into administration after a long period of difficult trading, but this had no impact on NAV as the investment had been held at nil value since 2011.  Several other investee companies are currently in discussions with a view to possible exits.

The venture capital portfolio continues to make good overall progress and the performance in the half year benefited from increases in the valuation of several holdings, including Buoyant Upholstery, MSQ Partners Group and Lineup Systems.  A small number of companies have performed less well than expected and are receiving close attention and support from our investment manager.

Share issues and buy-backs
Having raised £15 million through a public share offer in the 2013/14 tax year, following which there was a further inflow of cash from investment realisations, your board decided that it would not be appropriate to launch a further share issue in the 2014/15 year.  We still have ample funds available for future investment, with the possibility of more realisations over the next six months, so at this stage we do not envisage raising funds from investors in the 2015/16 tax year.

In May it was announced that the discount to NAV at which the company buys back shares in the market would be reduced from 10% to 5%.  50,000 shares were re-purchased during the six months ended 30 September 2015 at a cost of £34,000.

VCT qualifying status
The company has maintained its approved venture capital trust status with HM Revenue & Customs.  The company's compliance with the VCT qualifying conditions is closely monitored by the board, who receive regular reports from NVM and from our VCT taxation advisers Robertson Hare LLP.

VCT legislation
The Government introduced new legislation in the Summer Finance Bill 2015 which will have a significant impact on the investment activities of most VCTs.  I wrote to shareholders in July 2015 to inform you that the directors were assessing the effect of the new provisions, which at the time were subject to further clarification and amendment by the Government.

The Finance Bill is expected to receive Royal Assent shortly and it is clear that the range of potential investments open to generalist VCTs such as Northern 2 VCT will be reduced as the Government seeks to implement the European Commission's State aid guidelines, which require VCTs now to focus on the provision of growth capital to younger companies.  This may have an impact on investment returns and hence may make maintaining the level of future dividend distributions more challenging.

Your directors are working closely with NVM and our other professional advisers to understand the full implications of the new rules for our investment activities, and to adapt our approach to the new regime as we seek to maintain our strong long-term investment performance.  We will report the outcome of our review to shareholders in due course.

Board of directors
Michael Denny, one of the founding directors of the company in 1999 and a former chairman of NVM, retired from the board at the close of the annual general meeting in July 2015 and was thanked by his board colleagues and by shareholders for his distinguished contribution to the company.

Our company has a record of producing good long-term returns to shareholders despite changes in circumstances over time.  The venture capital portfolio is developing well and we will be seeking to achieve further profitable exits whilst maintaining a healthy flow of new investments complying with the new VCT criteria.

On behalf of the Board

David Gravells

The unaudited half-yearly financial statements for the six months ended 30 September 2015 are set out below.

(unaudited) for the six months ended 30 September 2015

 Six months ended
30 September 2015
Six months ended
30 September 2014
Gain on disposal of investments 622  622  277  277 
Movements in fair value of investments 3,733  3,733  (419) (419)
  ----------  ----------  ----------  ----------  ----------  ---------- 
  4,355  4,355  (142) (142)
Income 1,186  1,186  1,368  1,368 
Investment management fee (203) (608) (811) (197) (592) (789)
Other expenses (193) (193) (196) (196)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 790  3,747  4,537  975  (734) 241 
Tax on return on ordinary activities (107) 107  (150) 150 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 683  3,854  4,537  825  (584) 241 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 0.7p 4.2p 4.9p 0.9p (0.6)p 0.3p

  Year ended 31 March 2015
Gain on disposal of investments       4,401  4,401 
Movements in fair value of investments       (2,039) (2,039)
        ----------  ----------  ---------- 
        2,362  2,362 
Income       2,776  2,776 
Investment management fee       (397) (1,190) (1,587)
Other expenses       (430) (430)
        ----------  ----------  ---------- 
Return on ordinary activities before tax       1,949  1,172  3,121 
Tax on return on ordinary activities       (319) 319 
        ----------  ----------  ---------- 
Return on ordinary activities after tax       1,630  1,491  3,121 
        ----------  ----------  ---------- 
Return per share       1.8p 1.6p 3.4p

(unaudited) for the six months ended 30 September 2015

 Six months ended 
30 September 2015 
Six months ended 
30 September 2014 
Year ended 
31 March 2015 
Equity shareholders' funds at 1 April 2015 78,676  76,588  76,588 
Return on ordinary activities after tax 4,537  241  3,121 
Dividends recognised in the period (12,444) (1,840)
Net proceeds of share issues 921  1,157 
Shares re-purchased for cancellation (34) (236) (350)
  ----------  ----------  ---------- 
Equity shareholders' funds at 30 Sept 2015 70,735  77,514  78,676 
  ----------  ----------  ---------- 

(unaudited) as at 30 September 2015

 30 September 2015 
30 September 2014 
31 March 2015 
Fixed assets:      
Investments 60,681  55,532  46,293 
  ----------  ----------  ---------- 
Current assets:      
Debtors 214  338  247 
Cash and deposits 9,968  21,891  32,339 
  ----------  ----------  ---------- 
  10,182  22,229  32,586 
Creditors (amounts falling due      
 within one year) (128) (247) (203)
  ----------  ----------  ---------- 
Net current assets 10,054  21,982  32,383 
  ----------  ----------  ---------- 
Net assets 70,735  77,514  78,676 
  ----------  ----------  ---------- 
Capital and reserves:      
Called-up equity share capital 4,606  4,601  4,609 
Share premium 1,464  1,243  1,464 
Capital redemption reserve 32  22  30 
Capital reserve 59,393  60,287  71,234 
Revaluation reserve 4,247  10,199  292 
Revenue reserve 993  1,162  1,047
  ----------  ----------  ---------- 
Total equity shareholders' funds 70,735  77,514  78,676 
  ----------  ----------  ---------- 
Net asset value per share 76.8p 84.2p 85.4p

(unaudited) for the six months ended 30 September 2015

 Six months ended 
30 September 2015 
Six months ended 
30 September 2014 
Year ended 
31 March 2015 
 £000 £000 £000 £000 £000 £000 
Cash flow statement      
Net cash inflow/(outflow) from            
operating activities   140    (374)   50 
Corporation tax paid      
Financial investment:            
Purchase of investments (12,981)   (8,000)   (15,660)  
Sale/repayment of investments 2,948    4,163    23,565   
  ----------    ----------    ----------   
Net cash inflow/(outflow) from financial investment (10,033)   (3,837)   7,905 
Equity dividends paid   (12,444)     (1,840)
    ----------    ----------    ---------- 
Net cash inflow/(outflow) before financing (22,337)   (4,211)   6,115 
Issue of shares   939    1,187   
Share issue expenses   (18)   (30)  
Re-purchase of shares for cancellation (34)   (236)   (350)  
  ----------    ----------    ----------   
Net cash inflow/(outflow) from financing (34)   685    807 
    ----------    ----------    ---------- 
Increase/(decrease) in cash and deposits   (22,371)   (3,526)   6,922 
    ----------    ----------    ---------- 
Reconciliation of return before tax to      
net cash flow from operating activities      
Return on ordinary activities before tax   4,537    241    3,121 
Gain on disposal of investments   (622)   (277)   (4,401)
Movements in fair value of investments   (3,733)   419    2,039 
Decrease in debtors   33    24    116 
Decrease in creditors   (75)   (781)   (825)
    ----------    ----------    ---------- 
Net cash inflow/(outflow) from operating activities 140    (374)   50 
    ----------    ----------    ---------- 
Reconciliation of movements in net funds     
 1 April 2015 Cash flows 30 September 2015 
  £000  £000  £000 
Cash and deposits   32,339    (22,371)   9,968 
    ----------    ----------    ---------- 

as at 30 September 2015

% of net assets
by valuation
Fifteen largest private equity investments:      
Buoyant Upholstery 1,508 3,179 4.5
MSQ Partners Group 1,671 2,604 3.7
Lineup Systems 974 2,467 3.5
Biological Preparations Group 2,166 2,166 3.0
Kitwave One 1,247 2,014 2.8
Wear Inns 1,868 1,942 2.7
Volumatic Holdings 1,929 1,901 2.7
Silverwing 1,388 1,824 2.6
Arleigh Group 276 1,688 2.4
Closerstill Group 1,683 1,683 2.4
No 1 Traveller 1,630 1,644 2.3
Agilitas IT Holdings 1,638 1,643 2.3
Graza 1,522 1,522 2.2
Hunley 1,522 1,522 2.2
Seawise 1,522 1,522 2.2
  ---------- ---------- -------
  22,544 29,321 41.5
Other private equity investments 24,127 21,468 30.3
  ---------- ---------- -------
Total private equity investments 46,671 50,789 71.8
Listed equity investments 4,327 4,604 6.5
Listed fixed-interest investments 5,436 5,288 7.5
  ---------- ---------- -------
Total fixed asset investments 56,434 60,681 85.8
Net current assets   10,054 14.2
    ---------- -------
Net assets   70,735 100.0
    ---------- -------
*Quoted on AIM      


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 by maintaining a wide spread of holdings in terms of financing stage and industry sector.  The board reviews the investment portfolio with the investment 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 investment 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 investment 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 investment 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 unaudited half-yearly financial statements for the six months ended 30 September 2015 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 2015 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 2015.

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 statement were Mr D P A Gravells (Chairman), Mr A M Conn, 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 period and on 92,155,006 (2014 92,018,141) 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 2015 divided by the 92,128,230 (2014 92,026,038) ordinary shares in issue at that date.

The interim dividend of 2.0p per share for the year ending 31 March 2016 will be paid on 29 January 2016 to shareholders on the register at the close of business on 8 January 2016.

A copy of the half-yearly financial report for the six months ended 30 September 2015 is expected to be posted to shareholders by 23 November 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