TIDMNTV
20 MAY 2015
NORTHERN 2 VCT PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 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 GBP78.7m GBP76.6m
Net asset value per share 85.4p 83.9p
Return per share:
Revenue 1.8p 1.8p
Capital 1.6p 6.8p
Total 3.4p 8.6p
Dividend per share paid/proposed
in respect of the year
(2015 includes 10.0p special dividend) 15.5p 5.5p
Cumulative return to shareholders since launch:
Net asset value per share 85.4p 83.9p
Dividends paid per share* 75.4p 73.4p
Net asset value plus dividends paid per share 160.8p 157.3p
Mid-market share price at end of year 77.5p 75.4p
Share price discount to net asset value 9.3% 10.2%
Tax-free dividend yield (based on mid-market share
price at end of year):
Excluding special dividend 7.1% 7.3%
Including special dividend 20.0% N/A
*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
Website: www.nvm.co.uk
NORTHERN 2 VCT PLC
CHAIRMAN'S STATEMENT
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
GBP4.4m on the investments which were sold, by comparison with the
directors' valuation at 31 March 2014, but this was partly offset by a
GBP2.0 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 GBP10.3 million. Several highly satisfactory exits were
completed, including the sale of Kerridge Commercial Systems for cash
proceeds of GBP8.6 million and a gain over original cost of GBP7.0
million, and the sale of CloserStill Group for cash proceeds of GBP2.5
million and a gain of GBP1.8 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 GBP3.1 million from an original investment of GBP382,000.
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
GBP9,134,000 in the companies.
Outlook
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
Chairman
The audited financial statements for the year ended 31 March 2015 are
set out below.
INCOME STATEMENT
for the year ended 31 March 2015
Year ended 31 March 2015 Year ended 31 March 2014
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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 1.8p 1.6p 3.4p 1.8p 6.8p 8.6p
share
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2015
Year ended Year ended
31 March 2015 31 March 2014
GBP000 GBP000
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
---------- ----------
BALANCE SHEET
as at 31 March 2015
31 March 2015 31 March 2014
GBP000 GBP000
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 7
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
CASH FLOW STATEMENT
for the year ended 31 March 2015
Year ended Year ended
31 March 2015 31 March 2014
GBP000 GBP000 GBP000 GBP000
Cash flow statement
Net cash inflow from operating
activities 50 391
Taxation:
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)
Financing:
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
GBP000 GBP000 GBP000
Cash and deposits 25,417 6,922 32,339
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2015
% of
Cost Valuation net assets
GBP000 GBP000 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
---------- --------
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, 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.
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 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, www.nvm.co.uk. 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.
OTHER MATTERS
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, 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.
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
HUG#1922910
http://www.nvm.co.uk/investorarea/northern_2_vct_plc.php
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