Announcements

Northern 2 VCT PLC.

12 JUNE 2017

NORTHERN 2 VCT PLC

RESULTS FOR THE YEAR ENDED 31 MARCH 2017

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 2016):

 

 
   2017   2016
Net assets£71.6m£71.3m
Net asset value per share76.6p77.9p
Return per share:  
Revenue 1.6p1.5p
Capital 7.7p6.5p
Total 9.3p8.0p
Dividend per share for the year:  
First interim dividend 2.0p2.0p
Second interim (special) dividend 5.0p5.0p
Proposed final dividend 3.5p3.5p
Total 10.5p10.5p
Cumulative return to shareholders since launch:    
Net asset value per share 76.6p77.9p
Dividends paid per share* 101.4p90.9p
Net asset value plus dividends paid per share 178.0p168.8p
Mid-market share price at end of year72.0p72.5p
Share price discount to net asset value6.0%6.9%
Tax-free dividend yield (based on mid-market share price at end of year):  
Excluding special dividend
Including special dividend
7.6%
14.6%
7.6%
14.5%

*Excluding second interim and proposed final dividend payable on 21 July 2017

For further information, please contact:

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

Website:  www.nvm.co.uk

NORTHERN 2 VCT PLC

CHAIRMAN'S STATEMENT

Northern 2 VCT has enjoyed another year of progress in which seven new investments were added to the venture capital portfolio and cash flows remained strong, supported by three significant realisations.  Those realised investments, which we held on average for over seven years, are excellent examples of how patient capital from venture capital trusts supports growing companies at an early stage in their development to enhance shareholder value whilst creating employment opportunities and contributing to the wider UK economy in many ways.

Results and dividend
Notwithstanding that our sector is experiencing unprecedented change, I am pleased to report consistently good results.  In the year ended 31 March 2017 the company achieved a return after tax of £8,615,000 (2016 £7,356,000), or 9.3p per share (2016 8.0p), before deducting dividends paid, representing a total return of 11.9% over the opening net asset value per share (NAV).  This excellent outcome reflected net gains on the sale of investments totalling £2.3 million and an uplift in the valuation of the continuing portfolio of £6.2 million, following a strong performance by a number of our venture capital holdings.

The NAV per share at 31 March 2017, after deducting dividends totalling 10.5p which were paid during the year, was 76.6p compared with 77.9p as at 31 March 2016.  An interim dividend of 2.0p per share was paid in January and the directors propose a final dividend of 3.5p per share in respect of the year ended 31 March 2017. This is the fourteenth consecutive year in which a dividend of at least 5.5p per share has been paid.  As indicated earlier, there has been a strong inflow of cash from investment realisations since we last paid a special dividend.  The VCT rules permit only six months for re-investment of such receipts before they become non-qualifying if retained by the company.  The directors have therefore also decided to declare a special dividend of 5.0p, which will be paid as a second interim dividend for the year ended 31 March 2017, making a total dividend of 10.5p for the year.  Both the final and special dividends will be paid on 21 July 2017 to shareholders on the register on 23 June 2017.

Whilst continuing to pay a predictable dividend remains a priority for your directors, the dividend policy does remain under review.  The new VCT rules require a shift in our portfolio towards earlier stage investments, which may have the effect of reducing the amount of income and realised gains available for early distribution, weighting returns to a later point in the investment cycle.

Investments
The cash proceeds from venture capital investments sold or repaid during the year amounted to £13.3 million, representing a surplus of £5.0 million over original cost.  Momentum has been maintained following the financial year end, with a significant investment sale completed in April 2017 and several other companies currently in discussions with a view to a realisation.

A total of £5.9 million was invested in new VCT-qualifying holdings during the year.  Our investment manager has reported a strong pipeline of activity currently which is expected to materialise into further investments during the year to 31 March 2018.

Shareholder issues
In February 2017 we completed a non-prospectus top-up offer of new ordinary shares, raising gross proceeds of £4.3 million, in conjunction with similar offers by Northern Venture Trust and Northern 3 VCT.  The offer was initially restricted to existing investors and owing to the extremely strong level of demand experienced, was closed in advance of becoming available to new shareholders.  Whilst we understand and regret the disappointment felt by unsuccessful applicants, we are encouraged by the level of interest shown in VCTs such as ours, with a well-established track record of sustained value creation.  We appreciate that some shareholders would welcome the opportunity to make a further investment in the company and will keep possible share offers under review, monitoring both the level of liquidity required by expected deal flow and the need for continuing support for portfolio investments in the longer term.

In addition to the top-up offer, 2,437,437 shares were issued during the year under our dividend investment scheme for consideration representing around one sixth of the total dividend payments during the year.  The scheme enables shareholders to efficiently re-invest some or all of their dividends in new shares attracting income tax relief and remains open to new participants.  Shareholders who wish to join the scheme or amend their current participation in the scheme may obtain an updated scheme mandate form from NVM's website at www.nvm.co.uk.

The company has maintained its policy of buying back its own shares in the market, at a discount of 5% to NAV.  During the year, a total of 485,000 shares were repurchased for cancellation, equivalent to approximately 0.5% of the opening share capital.

The company's annual general meeting will be held in London on Wednesday 12 July 2017 and the directors look forward to meeting and engaging with shareholders and discussing the issues facing the sector.

Board of directors
I am pleased to highlight that Simon Devonshire, a highly experienced investment professional and the current Entrepreneur-in-Residence at the Department for Business, Energy and Industrial Strategy, joined the board in January 2017 following a thorough process conducted by the nomination committee.   Simon brings a valuable fresh perspective to our board and we look forward to benefiting from his contribution during the years ahead.

All the directors except Chris Fletcher will be seeking re-election at the AGM, either in accordance with the AIC Code of Corporate Governance or voluntarily.  Chris has signalled his intention to retire from the board after the AGM.  I would like to take this opportunity to record your board's sincere thanks to him for his significant contribution to Northern 2 VCT since joining the board in 1999.  He has played a pivotal role as chairman of the board's audit committee.  Chris has had an extremely distinguished career in corporate finance, including currently as a non-executive director of the Association of Investment Companies.  The entire board will miss his expertise and guidance and I am sure you will join me in wishing him well for the future.

VCT legislation
The past two years have seen significant change in the legislative environment for VCTs as the Government has sought to channel more funds into relatively young companies requiring funding for development and growth.  As the practicalities of operating under the new rules have emerged, NVM has adapted to meet this challenge by supplementing its team, which already has a good track record of investing in early stage opportunities, with additional executives possessing relevant expertise.

We note with interest the announcement by the Government in November 2016 of its Patient Capital Review.  The key terms of reference of the review are to consider the availability of long-term finance for growing firms and to identify and address the root causes of factors which negatively affect the availability of long-term finance.  VCTs play a vital role in supporting entrepreneurial prosperity by providing growth capital to innovative growing businesses at an early stage in their development and we welcome the opportunity to engage in these crucial discussions.  We will continue to champion our work and highlight the considerable contribution that the VCT sector makes in supporting small and medium businesses, which are the lifeblood of our economy.

VCT qualifying status
The company has continued to meet the stringent and evolving qualifying conditions laid down by HM Revenue & Customs for maintaining its approval as a VCT.  Our investment manager, NVM, monitors the position closely and reports regularly to the board.  Philip Hare & Associates LLP has continued to act as independent adviser to the company on VCT taxation matters.

Outlook
We have been operating for some time in a period of change in the VCT market and against a background of political uncertainty, and it is likely that this will continue in the year ahead.  We are however encouraged by the consistency of our track record throughout this period and have confidence in the strength of our existing portfolio.  There is currently no lack of commercially attractive businesses that require capital to prosper and the challenge remains to identify those opportunities which are VCT-qualifying.  We continue to believe that our company and its manager are well placed to meet this challenge.

David Gravells
Chairman

The audited financial statements for the year ended 31 March 2017 are set out below.

INCOME STATEMENT
for the year ended 31 March 2017

 Year ended 31 March 2017Year ended 31 March 2016
   Revenue 
£000 
Capital 
£000 
Total 
£000 
  Revenue 
£000 
Capital 
£000 
Total 
£000 
Gain on disposal of investments 2,285  2,285  2,214  2,214 
Movements in fair value of investments  6,189  6,189  5,068  5,068 
  ----------  ----------  ----------  ----------  ----------  ---------- 
  8,474  8,474  7,282  7,282 
Income 2,556  2,556  2,334  2,334 
Investment management fee (370) (1,681) (2,051) (385) (1,524) (1,909)
Other expenses (364) (364) (351) (351)
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities before tax 1,822  6,793  8,615  1,598  5,758  7,356 
Tax on return on ordinary activities (313) 313  (205) 205 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary activities after tax 1,509  7,106  8,615  1,393  5,963  7,356 
  ----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.6p 7.7p 9.3p 1.5p 6.5p 8.0p

BALANCE SHEET
as at 31 March 2017

   31 March 2017 
£000 
  31 March 2016 
£000 
Fixed assets:    
 Investments 58,195  56,997 
  ----------  ---------- 
Current assets:    
 Debtors 591  270 
 Cash and cash equivalents 17,874  14,614 
  ----------  ---------- 
  18,465  14,884 
Creditors (amounts falling due within one year)  (5,013) (544)
  ----------  ---------- 
Net current assets 13,452  14,340 
  ----------  ---------- 
     
Net assets 71,647  71,337 
  ----------  ---------- 
     
     
Capital and reserves:    
Called-up equity share capital 4,678  4,580 
Share premium 3,029  1,464 
Capital redemption reserve 83  59 
Capital reserve 53,908  58,614 
Revaluation reserve 9,049  5,562 
Revenue reserve 900  1,058 
  ----------  ---------- 
Total equity shareholders' funds 71,647  71,337 
  ----------  ---------- 
Net asset value per share 76.6p 77.9p

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017

 ---------------Non-distributable reserves---------------Distributable reserves  Total 
  

Share 
  capital 
 

Share 
premium 
Capital 
redemption 
reserve 
 

Revaluation 
reserve 
 

Capital 
reserve 
 

Revenue 
reserve 
 
 £000 £000 £000 £000 £000 £000 £000 
At 1 April 2016 4,580  1,464  59  5,562  58,614  1,058  71,337 
Return on ordinary activities              
after tax for the year 3,487  3,619  1,509  8,615 
Dividends paid (7,987) (1,667) (9,654)
Net proceeds of share issues 122  1,565  1,687 
Re-purchase of shares (24) 24  (338) (338)
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 31 March 2017 4,678  3,029  83  9,049  53,908  900  71,647 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
         

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2016

 ---------------Non-distributable reserves---------------Distributable reserves  Total 
  

Share 
  capital 
 

Share 
premium 
Capital 
redemption 
reserve 
 

Revaluation 
reserve 
 

Capital 
reserve 
 

Revenue 
reserve 
 
 £000 £000 £000 £000 £000 £000 £000 
At 1 April 2015 4,609  1,464  30  292  71,234  1,047  78,676 
Return on ordinary activities              
after tax for the year 5,270  693  1,393  7,356 
Dividends paid (12,903) (1,382) (14,285)
Re-purchase of shares (29) 29  (410) (410)
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 31 March 2016 4,580  1,464  59  5,562  58,614  1,058  71,337 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
         

STATEMENT OF CASH FLOWS
for the year ended 31 March 2017

 Year ended Year ended 
   31 March 2017    31 March 2016 
 £000 £000 
Cash flows from operating activities:    
Return on ordinary activities before tax 8,615  7,356 
Adjustments for:    
Gain on disposal of investments (2,285) (2,214)
Movement in fair value of investments (6,189) (5,068)
Increase in debtors (321) (23)
Increase in creditors 172  341 
  ----------  ---------- 
Net cash inflow/(outflow) from operating activities  (8) 392 
  ----------  ---------- 
Cash flows from investing activities:    
Purchase of investments (6,082) (13,883)
Sale/repayment of investments 13,358  10,461 
  ----------  ---------- 
Net cash inflow/(outflow) from investing activities 7,276  (3,422)
  ----------  ---------- 
Cash flows from financing activities:    
Issue of shares 1,717 
Share issue expenses (30)
Share subscriptions held pending allotment 4,297 
Repurchase of ordinary shares for cancellation (338) (410)
Dividends paid on ordinary shares (9,654) (14,285)
  ----------  ---------- 
Net cash outflow from financing activities (4,008) (14,695)
  ----------  ---------- 
Net increase/(decrease) in cash/cash equivalents 3,260  (17,725)
Cash and cash equivalents at beginning of year 14,614  32,339 
  ----------  ---------- 
Cash and cash equivalents at end of year 17,874  14,614 
  ----------  ---------- 

INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2017

  

  Cost
£000
 

  Valuation
£000
% of
  net assets
by value
Venture capital investments:      
Entertainment Magpie Group 1,503 5,147 7.2
No 1 Lounges 1,977 3,962 5.5
Buoyant Upholstery 1,508 2,941 4.1
MSQ Partners Group 1,672 2,756 3.9
Lineup Systems 974 2,470 3.4
Optilan Group 1,000 2,196 3.1
Wear Inns 1,868 2,113 3.0
Agilitas IT Holdings 1,638 1,838 2.6
Closerstill Group 1,683 1,683 2.4
Volumatic Holdings 1,596 1,678 2.3
It's All Good 1,145 1,668 2.3
Biological Preparations Group 2,166 1,605 2.2
Graza 1,523 1,523 2.1
Customs Connect Group 1,322 1,322 1.8
Axial Systems Holdings 1,004 1,169 1.6
  ---------- ---------- --------
Fifteen largest venture capital investments  22,579 34,071 47.5
Other venture capital investments 18,713 15,299 21.4
  ---------- ---------- --------
Total venture capital investments 41,292 49,370 68.9
Listed equity investments 4,042 5,046 7.0
Listed interest-bearing investments 3,812 3,779 5.3
  ---------- ---------- --------
Total fixed asset investments 49,146 58,195 81.2
  ----------    
Net current assets   13,452 18.8
    ---------- --------
Net assets   71,647 100.0
    ---------- --------

BUSINESS RISKS

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 and the board keeps the portfolio 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 and its reports are reviewed by the board on a quarterly basis.  The board has also retained Philip Hare & Associates LLP to undertake an independent VCT status monitoring role.

DIRECTORS' RESPONSIBILITIES STATEMENT

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 including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".

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 directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

In relation to the financial statements for the year ended 31 March 2017, the directors confirm that to the best of their knowledge (i) taken as a whole 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;  and (ii) the strategic report and directors' 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 they face.  The directors consider that 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 position and performance, business model and strategy.

The directors of the company at the date of this announcement were Mr D P A Gravells (Chairman), Mr A M Conn, Mr S P Devonshire, Mr C G A Fletcher, Miss C A McAnulty and Mr F L G Neale.

OTHER MATTERS

The above summary of results for the year ended 31 March 2017 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, does not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the report 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 92,962,814 (2016 92,102,422) 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 2017 divided by the 93,560,667 (2016 91,608,230) ordinary shares in issue at that date.

The second interim dividend of 5.0p per share and, if approved by shareholders, the proposed final dividend of 3.5p per share for the year ended 31 March 2017 will be paid on 21 July 2017 to shareholders on the register at the close of business on 23 June 2017.

The full annual report including financial statements for the year ended 31 March 2017 is expected to be posted to shareholders on 16 June 2017 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, www.nvm.co.uk.

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.




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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