TIDMNTV
12 NOVEMBER 2019
NORTHERN 2 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 30 SEPTEMBER 2019
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 2018 and 31
March 2019)
Six months ended Six months ended Year ended
30 September 30 September 31 March
2019 2018 2019
---------------- ---------------- ------------
Net assets GBP88.0m GBP85.0m GBP84.1m
Net asset value per share 63.0p 64.9p 64.7p
Return per share:
Revenue 0.1p 0.5p 1.2p
Capital 0.3p 1.0p 2.0p
Total 0.4p 1.5p 3.2p
Dividend per share declared
in respect of the period 2.0p 2.0p 4.0p
Cumulative returns to shareholders
since launch:
Net asset value per share 63.0p 64.9p 64.7p
Dividends paid per share* 119.4p 115.4p 117.4p
Net asset value plus dividends paid per share 182.4p 180.3p 182.1p
Mid-market share price at end of period 59.0p 60.0p 59.0p
Share price discount to net asset value 6.3% 7.6% 8.8%
Tax-free dividend yield (based on net asset value
per share)** 6.2% 8.0% 6.0%
*Excluding interim dividend not yet paid
**The annualised dividend yield is calculated by dividing the dividends
in respect of the 12 month period ended on each reference date by the
net asset value per share at the start of the period
For further information, please contact:
NVM Private Equity LLP
Simon John/James Bryce 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 2019 was
63.0 pence (64.7 pence (audited) at 31 March 2019) and is stated after
deducting the final dividend of 2.0 pence per share in respect of the
2018/19 financial year which was paid in July 2019.
The return per share as shown in the income statement for the six months
ended 30 September 2019 was 0.4 pence, compared with 1.5 pence in the
corresponding period last year.
In keeping with the latest VCT rules, the companies we select for
investment require development capital to deliver their growth plans.
Our early stage investee companies have collectively created over 300
jobs since March 2018 and have helped to deliver innovation in a range
of sectors. The progress charted by a typical portfolio of venture
capital investments is rarely linear and whilst the total return for the
first six months of the year has been broadly flat, your directors take
confidence from the overall diversification of the portfolio across many
attractive sectors. Just under half of the value of the venture capital
portfolio is currently represented by investments made under previous
iterations of the VCT rules, which tend to be in more mature, profitable
businesses. We expect that these mature investments will continue to
provide an income yield and series of profitable exits in the years to
come, supporting the overall returns of the company whilst the
earlier-stage portfolio matures.
After careful consideration, the board has declared an unchanged interim
dividend for the year ending 31 March 2020 of 2.0 pence per share, which
will be paid on 24 January 2020 to shareholders who are on the register
on 3 January 2020.
Portfolio
Further progress was made on the development of the portfolio during the
period. Three new investments were added to the venture capital
portfolio for a total consideration of GBP2.0 million:
-- Voxpopme (GBP891,000) -- video based consumer insight software,
Birmingham
-- Quotevine (GBP706,000) -- asset and automotive management software
platform provider, Bedford
-- Duke & Dexter (GBP388,000) -- supplier of premium men's footwear, London
In addition, GBP2.6 million of capital was provided to nine existing
investee companies to support further growth ambitions, representing
around 57% by value of investment activity during the period.
Proceeds from investment sales and repayments from the venture capital
portfolio amounted to GBP4.6 million during the period,
producing a realised gain over cost of GBP1.9 million. The most
significant transaction related to MSQ Partners Group which was the
subject of a secondary management buy-out financed by LDC. This
represented an excellent result for Northern 2 VCT, delivering a return
of over 2.5 times the original cost over the life of the investment.
The transaction was close to completion at the date of announcement of
our last annual report and consequently the level of exit proceeds was
reflected in the valuation which had been marked up as at 31 March 2019.
Shareholder issues
As a result of the top-up share offer launched in January 2019,
10,259,000 shares were issued during the period for gross proceeds of
GBP6.6 million. In addition a total of GBP0.5 million was received
during the period through the issue of new shares under our dividend
investment scheme.
Most of the earlier stage businesses we are backing will require further
capital in order to mature and we continue to channel an increasing
proportion of our investment activity into follow-on funding rounds. In
addition to the capital requirements of the existing portfolio, we have
also reviewed the pipeline of new investments with NVM and expect that
the volume of attractive investment opportunities will be sustained in
the near term. Having carefully considered the current level of liquid
resources available to the company and the potential investment demand
in the coming years, the board proposes to launch a prospectus share
offer in January 2020 in order to raise up to GBP13.3 million. If
approved, it is intended that all shares to be issued under the offer
will be allotted in the 2019-20 tax year.
Your directors are mindful of the potential drag on overall returns
caused by holding liquidity and have weighed this cost against the
benefit of securing sufficient funding to support our early stage
investee companies to realise their potential. NVM has agreed that the
reduced management fee we pay on liquid assets in excess of a specified
level will continue for at least another 12 months after the new shares
are allotted.
The company has maintained its policy of buying back its own shares in
the market from time to time, at a discount of 5% to NAV. During the
period, 1,527,000 shares were repurchased for cancellation, for a total
consideration of GBP901,000.
VCT qualifying status
The company has continued to meet the stringent 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.
VCT legislation
As previously reported, the VCT rules have continued to evolve to meet
the UK Government's aim of driving investment towards the smaller
companies most in need of capital to grow. One of the most significant
changes still being phased into practice is the increase in the minimum
proportion of investments required to be held by a VCT in VCT-qualifying
holdings, from 70% to 80%. This will first apply to your company from
31 March 2020 and both the board and NVM are monitoring progress towards
this target closely.
Prospects
Financial markets rarely react well to political instability and the
extended process of implementing the UK's decision to leave the EU has
caused much uncertainty. Whilst limited clarity has thus far been
obtained as to the likely nature of the UK's future relationship with
the European Union, NVM continues to work closely with portfolio
companies in order to plan for a range of potential outcomes.
In addition to planning for the proposed share offer, NVM is also
working with several investee companies with a view to achieving a
profitable exit in the next 12 months. Access to capital is one of the
most important factors contributing to the success of early stage
businesses and your board believes that the company is well placed to
provide that vital support with a view to increasing long term
shareholder value.
On behalf of the Board
David Gravells
Chairman
The unaudited half-yearly financial statements for the six months ended
30 September 2019 are set out
below.
INCOME STATEMENT
(unaudited) for the six months ended 30 September 2019
Six months ended Six months ended
30 September 2019 30 September 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 46 46 - 1,773 1,773
Movements in
fair value
of
investments - 954 954 - 27 27
---------- ---------- ---------- ---------- ---------- ----------
- 1,000 1,000 - 1,800 1,800
Income 609 - 609 1,194 - 1,194
Investment
management
fee (206) (617) (823) (195) (584) (779)
Other
expenses (191) - (191) (200) - (200)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax 212 383 595 799 1,216 2,015
Tax on
return on
ordinary
activities (15) 15 - (125) 125 -
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 197 398 595 674 1,341 2,015
---------- ---------- ---------- ---------- ---------- ----------
Return per 0.1p 0.3p 0.4p 0.5p 1.0p 1.5p
share
Year ended 31 March 2019
Revenue Capital Total
GBP000 GBP000 GBP000
Gain on disposal of investments - 2,827 2,827
Movements in fair value of investments - 762 762
---------- ---------- ----------
- 3,589 3,589
Income 2,638 - 2,638
Investment management fee (399) (1,198) (1,597)
Other expenses (393) - (393)
---------- ---------- ----------
Return on ordinary activities before
tax 1,846 2,391 4,237
Tax on return on ordinary activities (275) 275 -
---------- ---------- ----------
Return on ordinary activities after tax 1,571 2,666 4,237
---------- ---------- ----------
Return per share 1.2p 2.0p 3.2p
BALANCE SHEET
(unaudited) as at 30 September 2019
30 September 2019 30 September 2018 31 March 2019
GBP000 GBP000 GBP000
Fixed assets:
Investments 65,040 62,450 64,125
---------- ---------- ----------
Current assets:
Debtors 1,088 129 221
Cash and cash
equivalents 21,890 22,494 26,431
---------- ---------- ----------
22,978 22,623 26,652
Creditors (amounts
falling due
within one year) (64) (76) (6,668)
---------- ---------- ----------
Net current assets 22,914 22,547 19,984
---------- ---------- ----------
Net assets 87,954 84,997 84,109
---------- ---------- ----------
Capital and reserves:
Called-up equity share
capital 6,980 6,544 6,502
Share premium 7,958 1,132 1,555
Capital redemption
reserve 291 135 215
Capital reserve 66,054 69,916 67,341
Revaluation reserve 6,061 6,351 6,679
Revenue reserve 610 919 1,817
---------- ---------- ----------
Total equity
shareholders' funds 87,954 84,997 84,109
---------- ---------- ----------
Net asset value per share 63.0p 64.9p 64.7p
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 2019
-----------------Non-distributable
reserves----------------- Distributable reserves Total
Capital
Called up share Share redemption Revaluation Capital Revenue
capital premium reserve reserve* reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2019 6,502 1,555 215 6,679 67,341 1,817 84,109
Return on
ordinary
activities
after tax - - - (618) 1,016 197 595
Dividends
paid - - - - (1,404) (1,404) (2,808)
Net proceeds
of share
issues 554 6,403 - - - - 6,957
Shares
purchased for
cancellation (76) - 76 - (899) - (899)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30
September
2019 6,980 7,958 291 6,061 66,054 610 87,954
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 2018
-----------------Non-distributable
reserves----------------- Distributable reserves Total
Capital
Called up share Share redemption Revaluation Capital Revenue
capital premium reserve reserve* reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2018 6,505 392 110 7,836 71,629 571 87,043
Return on
ordinary
activities
after tax - - - (1,485) 2,826 674 2,015
Dividends
paid - - - - (4,228) (326) (4,554)
Net proceeds
of share
issues 64 740 - - - - 804
Shares
purchased for
cancellation (25) - 25 - (311) - (311)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30
September
2018 6,544 1,132 135 6,351 69,916 919 84,997
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2019
-----------------Non-distributable
reserves----------------- Distributable reserves Total
Capital
Called up share Share redemption Revaluation Capital Revenue
capital premium reserve reserve* reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2018 6,505 392 110 7,836 71,629 571 87,043
Return on
ordinary
activities
after tax - - - (1,157) 3,823 1,571 4,237
Dividends
paid - - - - (6,831) (325) (7,156)
Net proceeds
of share
issues 102 1,163 - - - - 1,265
Shares
purchased
for
cancellation (105) - 105 - (1,280) - (1,280)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2019 6,502 1,555 215 6,679 67,341 1,817 84,109
---------- ---------- ---------- ---------- ---------- ---------- ----------
*The revaluation reserve is generally non-distributable other than that
part of the reserve relating to gains/losses on readily realisable
quoted investments, which is distributable.
STATEMENT OF CASH FLOWS
(unaudited) for the six months ended 30 September 2019
Six months ended Six months ended Year ended
30 September 2019 30 September 2018 31 March 2019
GBP000 GBP000 GBP000
Cash flows from operating
activities:
Return on ordinary
activities before tax 595 2,015 4,237
Adjustments for:
Gain on disposal of
investments (46) (1,773) (2,827)
Movement in fair value of
investments (954) (27) (762)
(Increase)/decrease in
debtors (867) 76 (16)
(Decrease)/increase in
creditors (136) (58) 66
---------- ---------- ----------
Net cash (outflow)/inflow
from operating
activities (1,408) 233 698
---------- ---------- ----------
Cash flows from investing
activities:
Purchase of investments (5,985) (12,373) (17,730)
Sale/repayment of
investments 6,072 13,155 18,626
---------- ---------- ----------
Net cash inflow from
investing activities 87 782 896
---------- ---------- ----------
Cash flows from financing
activities:
Issue of ordinary shares 7,072 823 1,304
Share issue expenses (115) (19) (39)
Share subscriptions held
pending allotment (6,468) - 6,468
Purchase of ordinary
shares for cancellation (905) (311) (1,280)
Equity dividends paid (2,804) (4,554) (7,156)
---------- ---------- ----------
Net cash outflow from
financing activities (3,220) (4,061) (703)
---------- ---------- ----------
Net (decrease)/increase
in cash and cash
equivalents (4,541) (3,046) 891
Cash and cash equivalents
at beginning of period 26,431 25,540 25,540
---------- ---------- ----------
Cash and cash equivalents
at end of period 21,890 22,494 26,431
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2019
Cost Valuation % of net assets
GBP000 GBP000 by valuation
Lineup Systems 975 4,504 5.1
Agilitas IT Holdings 1,284 4,317 4.9
Sorted Holdings 2,715 3,625 4.1
Currentbody.com 1,286 2,140 2.4
SHE Software Group 1,873 2,109 2.4
Volumatic Holdings 906 2,038 2.3
No 1 Lounges 1,977 1,906 2.2
Knowledgemotion 1,778 1,905 2.2
Entertainment Magpie Group 1,503 1,730 2.0
Biological Preparations Group 2,166 1,698 1.9
It's All Good 1,145 1,648 1.9
AVID Technology Group 1,287 1,647 1.9
Intelling Group 1,142 1,541 1.8
Soda Software Labs 1,499 1,499 1.7
Medovate 1,450 1,450 1.6
---------- ---------- -------
Fifteen largest venture capital
investments 22,986 33,757 38.4
Other venture capital investments 27,391 23,252 26.4
---------- ---------- -------
Total venture capital investments 50,377 57,009 64.8
Listed equity investments 6,392 6,683 7.6
Listed interest-bearing investments 1,242 1,348 1.5
---------- ---------- -------
Total fixed asset investments 58,011 65,040 73.9
----------
Net current assets 22,914 26.1
---------- -------
Net assets 87,954 100.0
---------- -------
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: investment in smaller and unquoted
companies, such as those in which the company invests, involves a higher
degree of risk than investment in larger listed companies because they
generally have limited product lines, markets and financial resources
and may be more dependent on key individuals. The securities of smaller
companies in which the company invests are typically unlisted, making
them illiquid, and this may cause difficulties in valuing and disposing
of the securities. The company may invest in businesses whose shares
are quoted on AIM - the fact that a share is quoted on AIM does not mean
that it can be readily traded and the spread between the buying and
selling prices of such shares may be wide. 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,
within the range permitted by the VCT scheme rules. 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 pursue new
unquoted investment opportunities and to make follow-on investments in
existing portfolio companies. 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, exchange rates 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 may 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: while it is the intention of the directors
that the company will be managed so as to continue to qualify as a VCT,
there can be no guarantee that this status will be maintained. A
failure to continue meeting the qualifying requirements could result in
the loss of VCT tax relief, the company losing its exemption from
corporation tax on capital gains, to shareholders being liable to pay
income tax on dividends received from the company and, in certain
circumstances, to shareholders 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
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.
OTHER MATTERS
The unaudited half-yearly financial statements for the six months ended
30 September 2019 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 2019 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 2019.
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 S P Devonshire, 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
140,139,010 (2018: 130,595,942) 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 2019 divided by the 139,594,502 (2018:
130,872,145) ordinary shares in issue at that date.
The interim dividend of 2.0 pence per share for the year ending 31 March
2020 will be paid on 24 January 2020 to shareholders on the register at
the close of business on 3 January 2020.
A copy of the half-yearly financial report for the six months ended 30
September 2019 is expected to be posted to shareholders by 27 November
2019 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.
(END) Dow Jones Newswires
November 12, 2019 11:00 ET (16:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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