RNS Number : 5294D
Northern 2 VCT PLC
16 September 2008
16 SEPTEMBER 2008
NORTHERN 2 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 31 JULY 2008
Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity. 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 for the six months ended 31 July 2007 in italics)
2008 2007
* Net assets �47.3m �43.1m
* Net asset value per share 83.3p 90.1p
* Return per share
Revenue 1.6p 1.2p
Capital (4.4)p 4.4p
Total (2.8)p 5.6p
* Interim dividend per share
in respect of the period
Revenue 1.0p 1.0p
Capital 1.0p 1.0p
Total 2.0p 2.0p
* Cumulative returns to
shareholders since launch
Net asset value per share 83.3p 90.1p
Dividends paid per share 39.4p 33.4p
Net asset value plus dividends
paid per share 122.7p 123.5p
* Share price at end of period 76.5p 77.0p
For further information, please contact:
NVM Private Equity Limited
Alastair Conn/Christopher 0191 244 6000
Mellor
Website: www.nvm.co.uk
Lansons Communications
Karen Mignon 020 7294 3685
NORTHERN 2 VCT PLC
HALF-YEARLY MANAGEMENT REPORT
FOR THE SIX MONTHS ENDED 31 JULY 2008
I am pleased to submit my first report to shareholders following my appointment as chairman on 30 April 2008. In so doing I would like
to begin by thanking my predecessor, Matt Ridley, for his outstanding contribution to the company over the first nine years of its life.
The past half year has been a period of turmoil in the UK economy and world financial markets. The prevailing conditions have inevitably
had an effect on the level of new investment activity, on company valuations and on the availability of exit opportunities. This situation
is likely to persist for some time. Nonetheless your directors believe that the company has continued to make encouraging progress.
Results and dividend
The net asset value per share at 31 July 2008, after deducting the 2007/08 final dividend of 4.0p per share paid in June 2008, was 83.3p
(31 January 2008 89.1p). The cumulative return to shareholders (net asset value plus dividends paid since launch) fell back marginally
during the half year from 124.5p to 122.7p.
The revenue return per share for the half year rose from 1.2p to 1.6p. This was due in part to the exceptional VAT credit referred to
below and in part to the fact that investment income was higher than in the corresponding period, even after allowing for the effect of the
increase in the issued share capital. However the half year capital return was minus 4.4p compared with a positive return of 4.4p per share
in the corresponding period, reflecting the impact on our portfolio valuation of declining price-earnings ratios and, in some cases, reduced
profitability in the underlying companies.
The board has declared an interim revenue dividend of 1.0p per share (last year 1.0p) and an interim capital dividend of 1.0p (last year
1.0p), making a total interim dividend of 2.0p per share which will be paid on 5 December 2008 to shareholders on the register on 7 November
2008. A year ago we announced that it was our objective to maintain an annual dividend of not less than 5.5p per share and this remains our
policy notwithstanding current market conditions. It is therefore envisaged that a final dividend of not less than 3.5p will be proposed in
due course.
Investments
Our managers have taken a cautious approach to new investment. Three new venture capital investments totalling �2.5 million were
completed during the half year:
* Optilan Group (�1,000,000) - telecommunications systems integrator, Coventry
* Axial Systems Holdings (�1,000,000) - supplier of IT network management systems, Maidenhead
* Tikit Group (�525,000) - AIM-quoted provider of IT solutions and support services to legal and accounting firms, London (acquired
in part exchange for the previous holding in TFB Group).
Since 31 July an investment of �429,000 has been made in Advanced Computer Software, an AIM-quoted acquisition vehicle managed by a team
who have achieved successful results for us elsewhere in the past.
During the period there were two significant realisations in the portfolio. In April the legal software developer TFB Group was sold to
Tikit Group plc for �1.5 million in shares and cash, realising a gain of �0.9 million over cost. In May Product Support (Holdings) was
acquired by Wincanton plc in an all-cash deal from which we realised �2.0 million from an original investment of �1.0 million, with the
possibility of a small further payment to come depending on future performance. Profitable exits for cash were also achieved from the
investments in Arrow Industrial Group and Inspicio. However there was a disappointing outcome to our long-standing investment in DMN, which
was sold for a nominal consideration after continuing difficulties with a major contract. The investment had been substantially written down
in value in our last annual accounts but a further loss of �0.5 million was crystallised in the current period.
A number of companies in the portfolio are suffering from challenging trading conditions and your directors have as always taken a
conservative approach to the valuation of the unquoted holdings. The AIM-quoted part of the portfolio has also fallen in value, with the
FTSE AIM index down by over 15% during the half year. Whilst our primary concern must be to protect the value of the existing portfolio as
far as possible, we are also conscious that difficult markets can produce good investment opportunities.
Shareholder issues
As previously reported, the company's public offer of new ordinary shares for subscription in the 2007/08 and 2008/09 tax years closed
in April 2008 having raised a total of �9.5 million before expenses. This was a highly satisfactory outcome in difficult market conditions.
The mid-market share price fell from 80�p to 76�p during the six months to 31 July. The company has continued its policy of buying back
shares in the market at a 10% discount to net asset value and during the period 742,786 shares, representing approximately 1.3% of the
issued share capital at the end of the period, were purchased for cancellation at an average price of 78p. 229,923 new shares were issued in
June under the company's dividend re-investment scheme.
VAT on management fees
The Government announced in the 2008 Budget that, with effect from 1 October 2008, investment management fees paid by VCTs would be
exempt from VAT. HM Revenue & Customs has subsequently accepted that under European Union VAT law this exemption should have applied from 1
January 1990 onwards, and has indicated that claims may be made for repayment of VAT previously paid by VCTs on management fees, subject to
certain restrictive time limits.
At this stage the directors are reasonably certain that the amount of VAT recoverable by Northern 2 VCT will be at least �500,000 and an
asset of this amount has been recognised in the half-yearly accounts as an exceptional credit in the income statement. A further update will
be given in due course.
VCT qualifying status
The company has continued to satisfy the qualifying conditions laid down by HM Revenue & Customs for approval as a VCT. We retain
PricewaterhouseCoopers LLP to advise the board in relation to VCT taxation matters.
The future
There is no indication that the UK economy has reached its low point in the current cycle and the general outlook for the immediate
future is not good. Your board and managers continue to monitor the company's portfolio closely with the objective of ensuring that it
emerges from the present downturn in an overall sound position, but it is possible that there may be some casualties among our holdings
along the way. However our company has a strong balance sheet with ample liquidity to take advantage of opportunities on a selective basis
as they arise, and we continue to take a positive view of medium to long term prospects.
On behalf of the Board
DAVID GRAVELLS
Chairman
The unaudited half-yearly financial statements for the six months ended 31 July 2008 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 31 July 2008
Six months ended Six months ended
31 July 2008 31 July 2007
Revenue Capital Total Revenue Capital Total
�000 �000 �000 �000 �000 �000
Gain on disposal of - 159 159 - 553 553
investments
Adjustments to fair value of - (2,559) (2,559) - 1,815 1,815
investments
------ ------ ------ ------ ------ ------
- (2,400) (2,400) - 2,368 2,368
Income 1,377 - 1,377 1,005 - 1,005
Investment management fee (129) (386) (515) (126) (378) (504)
Recoverable VAT 119 381 500 - - -
Other expenses (150) - (150) (125) - (125)
------ ------ ------ ------ ------ ------
Return on ordinary activities
before tax 1,217 (2,405) (1,188) 754 1,990 2,744
Tax on return on ordinary (321) 2 (319) (179) 119 (60)
activities
------ ------ ------ ------ ------ ------
Return on ordinary activities
after tax 896 (2,403) (1,507) 575 2,109 2,684
------ ------ ------ ------ ------ ------
Return per share 1.6p (4.4)p (2.8)p 1.2p 4.4p 5.6p
Year ended 31 January 2008
Revenue Capital Total
�000 �000 �000
Gain on disposal of investments - 1,759 1,759
Adjustments to fair value of investments - 802 802
------ ------ ------
- 2,561 2,561
Income 2,111 - 2,111
Investment management fee (253) (968) (1,221)
Recoverable VAT - - -
Other expenses (266) - (266)
------ ------ ------
Return on ordinary activities
before tax 1,592 1,593 3,185
Tax on return on ordinary activities (416) 303 (113)
------ ------ ------
Return on ordinary activities
after tax 1,176 1,896 3,072
------ ------ ------
Return per share 2.5p 3.9p 6.4p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 31 July 2008
Six months ended Six months ended Year ended
31 July 2008 31 July 2007 31 January
2008
�000 �000 �000
Equity shareholders' funds at
1 February 2008 43,753 42,909 42,909
Return on ordinary activities (1,507) 2,684 3,072
after tax
Dividends recognised in the (1,870) (2,160) (3,109)
period
Net proceeds of share issues 7,466 211 2,038
Shares purchased for (586) (591) (1,157)
cancellation
------ ------ ------
Equity shareholders' funds at
31 July 2008 47,256 43,053 43,753
------ ------ ------
BALANCE SHEET
(unaudited) as at 31 July 2008
31 July 2008 31 July 2007 31 January 2008
�000 �000 �000
Fixed asset investments held
at fair value:
Venture capital investments
Unquoted 25,779 32,739 29,326
Quoted on AIM 2,053 3,370 2,349
------ ------ ------
Total venture capital 27,832 36,109 31,675
investments
Listed fixed-interest 17,548 5,073 5,066
investments
------ ------ ------
Total fixed asset investments 45,380 41,182 36,741
------ ------ ------
Current assets:
Debtors 872 468 355
Cash at bank 1,565 1,642 7,452
------ ------ ------
2,437 2,110 7,807
Creditors (amounts falling due (561) (239) (795)
within one year)
------ ------ ------
Net current assets 1,876 1,871 7,012
------ ------ ------
Net assets 47,256 43,053 43,753
------ ------ ------
Capital and reserves:
Called-up equity share capital 2,835 2,389 2,456
Share premium 33,922 25,147 26,872
Capital redemption reserve 337 265 300
Capital reserve - realised 8,028 8,868 8,727
Capital reserve - unrealised 937 5,507 4,396
Revenue reserve 1,197 877 1,002
------ ------ ------
Total equity shareholders' 47,256 43,053 43,753
funds
------ ------ ------
Net asset value per share 83.3p 90.1p 89.1p
CASH FLOW STATEMENT
(unaudited) for the six months ended 31 July 2008
Six months ended Six months ended Year ended
31 July 2008 31 July 2007 31 January 2008
�000 �000 �000 �000 �000 �000
Net cash inflow from
operating activities 142 313 1,283
Taxation:
Corporation tax paid - - (106)
Financial investment:
Purchase of investments (22,619) (6,730) (8,066)
Sale/repayment of investments 11,580 8,189 14,159
------ ------ ------
Net cash inflow/(outflow)
from financial investment (11,039) 1,459 6,093
Equity dividends paid (1,870) (2,160) (3,109)
------ ------ ------
Net cash inflow/(outflow)
before financing (12,767) (388) 4,161
Financing:
Issue of ordinary shares 7,886 215 2,146
Share issue expenses (420) (4) (108)
Purchase of ordinary shares
for cancellation (586) (591) (1,157)
------ ------ ------
Net cash inflow/(outflow) from 6,880 (380) 881
financing
------ ------ ------
Increase/(decrease) in cash at (5,887) (768) 5,042
bank
------ ------ ------
Reconciliation of return
before
tax to net cash flow from
operating activities
Return on ordinary activities
before tax (1,188) 2,744 3,185
Gain on disposal of
investments
held at fair value (159) (553) (1,759)
Adjustments to fair value
of investments 2,559 (1,815) (802)
(Increase)/decrease in debtors (517) 3 116
Increase/(decrease) in (553) (66) 543
creditors
------ ------ ------
Net cash inflow from
operating activities 142 313 1,283
------ ------ ------
Analysis of movement in net
funds
1 February 2008 Cash flows 31 July 2008
�000 �000 �000
Cash at bank 7,452 (5,887) 1,565
------ ------ ------
INVESTMENT PORTFOLIO SUMMARY
as at 31 July 2008
Cost Valuation % of net assets
�000 �000 by valuation
15 largest investments:
Stainton Metal Company 1,002 2,176 4.6
Envirotec 975 2,159 4.6
Paladin Group 1,307 1,984 4.2
Liquidlogic 282 1,497 3.2
Pivotal Laboratories Holdings 857 1,319 2.8
Longhirst Venues 353 1,295 2.7
Crantock Bakery 1,107 1,267 2.7
Abermed 725 1,154 2.5
S&P Coil Products 620 1,083 2.3
Promanex Group Holdings 1,000 1,000 2.1
Optilan Group 1,000 1,000 2.1
Axial Systems Holdings 1,000 1,000 2.1
DxS 684 963 2.0
Arleigh International 435 916 1.9
Britspace Holdings 1,091 884 1.9
------ ------ -----
12,438 19,697 41.7
Other venture capital investments 14,457 8,135 17.2
------ ------ -----
Total venture capital investments 26,895 27,832 58.9
Listed fixed-interest investments 17,674 17,548 37.1
------ ------ -----
Total fixed asset investments 44,569 45,380 96.0
------
Net current assets 1,876 4.0
------ -----
Net assets 47,256 100.0
------ -----
The above half-yearly financial statements for the six months ended 31 July 2008 do not constitute statutory financial statements within
the meaning of Section 240 of the Companies Act 1985 and have not been delivered to the Registrar of Companies. The figures for the year
ended 31 January 2008 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of
Companies; the independent auditors' report on those financial statements under Section 235 of the Companies Act 1985 was unqualified. 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 January 2008.
The directors confirm that to the best of their 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 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 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 calculation of the revenue and capital return per share is based on the return on ordinary activities after tax for the period and
on 54,434,646 (2007 48,020,971) ordinary shares, being the weighted average number of shares in issue during the period.
The proposed interim dividend of 2.0p per share for the year ending 31 January 2009 will be paid on 5 December 2008 to shareholders on
the register at the close of business on 7 November 2008.
A copy of the half-yearly financial report for the six months ended 31 July 2008 is expected to be posted to shareholders on 3 October
2008 and will be available to the public at the registered office of the company at Northumberland House, Princess Square, Newcastle upon
Tyne NE1 8ER and on the NVM Private Equity Limited website, www.nvm.co.uk.
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
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