TIDMNTV
12 NOVEMBER 2013
NORTHERN 2 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013
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 are for the six months ended
30 September 2012):
2013 2012
Net assets GBP63.3m GBP56.1m
Net asset value per share 85.1p 80.1p
Return per share after tax:
Revenue 1.0p 0.6p
Capital 2.7p 2.7p
Total 3.7p 3.3p
Interim dividend per share declared
in respect of the period 2.0p 2.0p
Cumulative return to shareholders since launch:
Net asset value per share 85.1p 80.1p
Dividends paid per share* 67.9p 62.4p
Net asset value plus dividends paid per share 153.0p 142.5p
Mid-market share price at end of period 74.75p 65.25p
Share price discount to net asset value 12.2% 18.5%
Tax-free dividend yield (based on 5.5p
annual dividend and mid-market share price 7.4% 8.4%
at end of period)
*Excluding interim dividend payable on 10 January 2014
For further information, please contact:
NVM Private Equity Limited
Alastair Conn/Christopher Mellor 0191 244 6000
Website: www.nvm.co.uk
HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS
Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2013,
after deducting the 2012/13 final dividend of 3.5p per share paid in
July 2013, was 85.1p (31 March 2013 84.9p). The return per share for
the period before dividends, as shown in the income statement, was 3.7p
compared with 3.3p in the six months ended 30 September 2012). This
represents steady progress at a time when the UK economy still continues
to present challenges to smaller companies.
Investment income for the period amounted to GBP1.2 million
(corresponding period GBP0.8 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 10 January 2014 to shareholders on the register on
29 November 2013. Our objective is to maintain the total annual
dividend at not less than 5.5p per share, a level which has been
achieved or exceeded in each of the past nine financial years. Against
a background of low market interest rates and high marginal rates of tax
for many investors, the attractions of a consistently strong tax-free
dividend yield are considerable.
Investments
During the six months ended 30 September 2013 the following holdings
were added to the venture capital portfolio:
-- Cleveland Biotech (Holdings) (GBP1,006,000) - manufacturer of
environmentally friendly bacterial solutions for waste management,
Stockton-on-Tees
-- Kirton Group (GBP1,041,000) - manufacturer of specialist seating and
shower, toilet and commode chairs, Haverhill
-- Buoyant Upholstery (GBP1,508,000) - manufacturer of upholstered sofas and
chairs, Nelson
The investment in IG Doors was sold to Hörmann Group in June for
GBP1.6 million in cash, an uplift of GBP0.3 million over the carrying
value at 31 March 2013. Realisation proceeds from other venture capital
investments totalled GBP0.8 million. After a relatively quiet period
there are signs of increasing activity in the mergers and acquisitions
market, and three of our companies are currently at a well advanced
stage of negotiations for sale. Shareholders will appreciate that there
can of course be no guarantee that these transactions will necessarily
come to a successful conclusion.
We review the portfolio regularly with the managers and currently most
of our holdings are making satisfactory progress.
Shareholder issues
In July 2013 the company launched a GBP15 million top-up offer of new
ordinary shares for subscription in the 2013/14 and 2014/15 tax years,
in conjunction with offers by Northern Venture Trust and Northern 3 VCT.
The response by investors was very enthusiastic and on 30 October 2013
we were delighted to announce that the Northern 2 VCT offer was fully
subscribed and had therefore closed. This excellent outcome provides us
with a substantial pool of funds for future investment and will take our
company's net assets to over GBP75 million, making it one of the largest
generalist VCTs. We believe that the enlargement of the company will
benefit shareholders both through economies of scale and through a wider
spread of investments in the portfolio. We would like to welcome all of
our new investors and we thank them and our existing investors for their
support.
We have maintained an active share buy-back policy at a 10% discount to
NAV, and in the six months to 30 September 2013 a total of 622,000
shares were repurchased at an average price of 74.8p. With effect from
1 October 2013 Panmure Gordon were appointed as the company's broker, as
well as making a market in the company's shares, and we look forward to
working with them to promote secondary market liquidity.
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
retains PricewaterhouseCoopers LLP as independent advisers on VCT
taxation matters.
VCT legislation and regulation
In July 2013 HM Treasury and HM Revenue & Customs published a
consultation document setting out proposals mainly aimed at prohibiting
"enhanced" share buy-backs, where a VCT re-purchases existing shares
from shareholders on favourable terms on condition that the proceeds are
re-invested in new ordinary shares. The proposals also include the
possibility of restrictions, as yet unspecified, on the categories of
reserves which VCTs may use to pay dividends in future. Responses to
the consultation have been submitted by our managers and the Association
of Investment Companies, and we hope that the resulting legislation will
be drafted so as to avoid unintended adverse consequences.
The European Commission is currently undertaking a periodic review of
the rules relating to state aid for businesses in EC member countries,
including the VCT scheme in the UK, and it is expected that the results
will be announced in 2014.
The Commission's Alternative Investment Fund Managers Directive (AIFMD)
became part of UK law in July 2013, with a 12 month transitional period
to July 2014. The Directive regulates the management of alternative
investment funds, including venture capital funds such as VCTs. Your
board is currently considering the options available under the Directive
but we do not expect any material impact on the operations of the
company.
The FCA's Retail Distribution Review has brought about significant
changes in the way VCTs raise funds through new share issues, as can be
seen from our recent prospectus. The FCA also concluded a consultation
on the retail distribution of unregulated collective investment schemes.
We were pleased to learn that VCTs were excluded from a list of
investment products whose distribution to retail investors is to be
severely restricted.
Prospects
The success of the recent share issue has provided a strong platform for
the next phase of the company's development. It appears that the UK
economy may be starting to emerge from the difficulties of the past six
years, and this should have a positive effect on the performance of our
investments. Your board and managers will continue to focus on
delivering strong returns to investors.
On behalf of the Board
David Gravells
Chairman
The unaudited half-yearly financial statements for the six months ended
30 September 2013 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 30 September 2013
Six months ended Six months ended
30 September 2013 30 September 2012
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 416 416 - 551 551
Movements in
fair value
of
investments - 1,947 1,947 - 1,655 1,655
---------- ---------- ---------- ---------- ---------- ----------
- 2,363 2,363 - 2,206 2,206
Income 1,207 - 1,207 798 - 798
Investment
management
fee (162) (485) (647) (142) (426) (568)
Other
expenses (193) - (193) (154) - (154)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax 852 1,878 2,730 502 1,780 2,282
Tax on
return on
ordinary
activities (131) 131 - (86) 86 -
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 721 2,009 2,730 416 1,866 2,282
---------- ---------- ---------- ---------- ---------- ----------
Return per 1.0p 2.7p 3.7p 0.6p 2.7p 3.3p
share
Year ended 31 March 2013
Revenue Capital Total
GBP000 GBP000 GBP000
Gain on disposal of investments - 2,497 2,497
Movements in fair value of investments - 5,049 5,049
---------- ---------- ----------
- 7,546 7,546
Income 1,669 - 1,669
Investment management fee (286) (1,339) (1,625)
Other expenses (306) - (306)
---------- ---------- ----------
Return on ordinary activities before tax 1,077 6,207 7,284
Tax on return on ordinary activities (195) 195 -
---------- ---------- ----------
Return on ordinary activities after tax 882 6,402 7,284
---------- ---------- ----------
Return per share 1.2p 9.1p 10.3p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 30 September 2013
Six months ended Six months ended Year ended
30 September 2013 30 September 2012 31 March 2013
GBP000 GBP000 GBP000
Equity shareholders'
funds at 1 April
2013 62,844 55,128 55,128
Return on ordinary
activities after tax 2,730 2,282 7,284
Dividends recognised
in the period (2,608) (2,448) (3,845)
Net proceeds of share
issues 828 1,372 4,923
Shares re-purchased
for cancellation (465) (211) (646)
---------- ---------- ----------
Equity shareholders'
funds at 30 Sept
2013 63,329 56,123 62,844
---------- ---------- ----------
BALANCE SHEET
(unaudited) as at 30 September 2013
30 September 2013 30 September 2012 31 March 2013
GBP000 GBP000 GBP000
Fixed asset investments 49,986 43,027 45,402
---------- ---------- ----------
Current assets:
Debtors 290 320 557
Cash and deposits 22,860 13,126 18,088
---------- ---------- ----------
23,150 13,446 18,645
Creditors (amounts
falling due
within one year) (9,807) (350) (1,203)
---------- ---------- ----------
Net current assets 13,343 13,096 17,442
---------- ---------- ----------
Net assets 63,329 56,123 62,844
---------- ---------- ----------
Capital and reserves
Called-up equity share
capital 3,721 3,505 3,700
Share premium 28,395 24,293 27,618
Capital redemption
reserve 799 737 767
Capital reserve 20,228 22,218 22,636
Revaluation reserve 9,215 4,715 7,351
Revenue reserve 971 655 772
---------- ---------- ----------
Total equity
shareholders' funds 63,329 56,123 62,844
---------- ---------- ----------
Net asset value per share 85.1p 80.1p 84.9p
CASH FLOW STATEMENT
(unaudited) for the six months ended 30 September 2013
Six months ended Six months ended Year ended
30 September 2013 30 September 2012 31 March 2013
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cash flow statement
Net cash outflow
from
operating activities (491) (925) (573)
Taxation:
Corporation tax paid - - (74)
Financial
investment:
Purchase of
investments (5,106) (6,031) (9,730)
Sale/repayment of
investments 2,885 6,252 12,917
---------- ---------- ----------
Net cash inflow/(outflow) from
financial investment (2,221) 221 3,187
Equity dividends
paid (2,608) (2,448) (3,845)
---------- ---------- ----------
Net cash outflow before
financing (5,320) (3,152) (1,305)
Financing:
Issue of shares 855 1,440 5,086
Share issue expenses (27) (67) (163)
Share subscriptions
held pending
allotment 9,729 - -
Re-purchase of
shares for
cancellation (465) (211) (646)
---------- ---------- ----------
Net cash inflow from financing 10,092 1,162 4,277
---------- ---------- ----------
Increase/(decrease)
in cash and
deposits 4,772 (1,990) 2,972
---------- ---------- ----------
Reconciliation of
return before tax
to
net cash flow from
operating
activities
Return on ordinary
activities before
tax 2,730 2,282 7,284
Gain on disposal of
investments (416) (551) (2,497)
Movements in fair
value of
investments (1,947) (1,655) (5,049)
(Increase)/decrease
in debtors 267 (9) (246)
Increase/(decrease)
in creditors (1,125) (992) (65)
---------- ---------- ----------
Net cash outflow from operating
activities (491) (925) (573)
---------- ---------- ----------
Reconciliation of movements in
net funds
1 April 2013 Cash flows 30 September 2013
GBP000 GBP000 GBP000
Cash and deposits 18,088 4,772 22,860
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2013
Cost Valuation % of net assets
Company GBP000 GBP000 by valuation
Fifteen largest venture capital
investments:
Kerridge Commercial Systems 1,740 5,694 9.0
Volumatic Holdings 2,095 3,617 5.7
Alaric Systems 1,200 3,271 5.2
Wear Inns 1,868 2,050 3.2
Advanced Computer Software Group* 381 1,941 3.1
Silverwing 1,388 1,848 2.9
Tinglobal Holdings 1,812 1,828 2.9
Arleigh Group 698 1,516 2.4
Buoyant Upholstery 1,508 1,508 2.4
Intuitive Holding 1,508 1,508 2.4
Control Risks Group Holdings 746 1,363 2.1
Kitwave One 1,246 1,345 2.1
Cawood Scientific 1,031 1,211 1.9
e-know.net 435 1,174 1.9
Haystack Dryers 1,157 1,157 1.8
---------- ---------- -------
18,813 31,031 49.0
Other venture capital investments 13,846 10,612 16.8
---------- ---------- -------
Total venture capital investments 32,659 41,643 65.8
Listed equity investments 3,989 4,393 6.9
Listed fixed-interest investments 4,123 3,950 6.2
---------- ---------- -------
Total fixed asset investments 40,771 49,986 78.9
----------
Net current assets 13,343 21.1
---------- -------
Net assets 63,329 100.0
---------- -------
*Quoted on AIM
BUSINESS RISKS
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.
OTHER MATTERS
The above summary of results for the six months ended 30 September 2013
does not constitute statutory financial statements within the meaning of
Section 434 of the Companies Act 2006, has not been audited or reviewed
by the company's independent auditor and has not been delivered to the
Registrar of Companies. The figures for the year ended 31 March 2013
have been extracted from the audited financial statements for that year,
which have been delivered to the Registrar of Companies; the
independent auditor's report on those financial statements was
unqualified and 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 2013.
Each of the directors confirms that to the best of his 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
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
74,548,285 (2012 69,275,561) 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 2013 divided by the 74,422,079 (2012 70,102,784)
ordinary shares in issue at that date.
The interim dividend of 2.0p per share for the year ending 31 March 2014
will be paid on 10 January 2014 to shareholders on the register at the
close of business on 29 November 2013.
A copy of the half-yearly financial report for the six months ended 30
September 2013 is expected to be posted to shareholders by 22 November
2013 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.
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 Thomson Reuters on behalf of Thomson
Reuters clients.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other
applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the
information contained therein.
Source: Northern 2 VCT PLC via Thomson Reuters ONE
HUG#1742508
http://www.nvm.co.uk/investorarea/northern_2_vct_plc.php
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