Annual Financial Report
26 MAY 2011
NORTHERN 2 VCT PLC
RESULTS FOR THE 14 MONTHS ENDED 31 MARCH 2011
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 - 14 months ended 31 March 2011:
(comparative figures for the year ended 31 January 2010):
                              2011                     2010
Net assets  £45.7m  £44.3m
Net asset value  79.5p  77.9p
per share
Return per share
Revenue  2.1p  1.7p
Capital  4.8p  11.8p
Total  6.9p  13.5p
Dividend per
share proposed
in respect of the
period
Revenue  2.0p  2.0p
Capital  4.5p  3.5p
Total  6.5p  5.5p
Cumulative return
to
shareholders
since launch
Net asset value  79.5p  77.9p
per share
Dividends paid  52.4p  46.9p
per share*
Net asset value
plus dividends
paid per share  131.9p  124.8p
Share price at  65p  62p
end of period
*Excluding proposed final dividend
For further information, please contact:
NVM Private Equity Limited
Alastair Conn/Christopher Mellor 0191 244 6000
Website:Â www.nvm.co.uk
NORTHERN 2 VCT PLC
CHAIRMAN'S STATEMENT
Our company has continued to progress well during the 14 month period under
review, despite a continuation of difficult conditions in the UK economy and
financial markets. New investments in the venture capital portfolio were at a
record level, and solid performance by existing investee companies produced an
increase in net asset value (NAV) per share over the period. The dividend paid
to investors was again in line with our annual target rate of 5.5p per share.
NAV and return per share
The NAV per share as at 31 March 2011 was 79.5p, up from 77.9p as at 31 January
2010. The total return per share for the extended 14 month period to 31 March
2011 was 6.9p, equivalent to 8.9% of the opening net asset value. On an
annualised basis investment income was marginally up over the preceding year,
whilst total expenses charged to the revenue account were slightly down, which
led to a increase in the revenue return per share from 1.7p to 2.1p.
Dividend
An interim dividend of 2.0p per share was paid in December 2010. Â As indicated
in January 2011, the directors have declared a second interim dividend of 1.0p
per share to reflect the increased length of the last accounting period due to
the change of year end to 31 March. A final dividend of 3.5p per share is
proposed which will, if approved by shareholders at the annual general meeting,
be paid with the second interim dividend on 22 July 2011 to shareholders on the
register on 1 July 2011. This is the seventh successive accounting period in
which the annual rate of dividend has been 5.5p per share or more.
Following the change in year end, it is intended that in future years an interim
dividend will be paid each January with the final dividend being paid in July.
Investment portfolio
New investments in the venture capital portfolio totalled £11.0 million, an all-
time high for a single accounting period. With no major exits during the
period, sale proceeds were relatively low at £2.5 million, including £0.8
million in deferred proceeds from the sale of DxS in 2009.
The venture capital portfolio at 31 March 2011 comprised 45 holdings with an
aggregate value of £33.0 million. Despite the unhelpful environment for smaller
UK businesses, the portfolio as a whole has made encouraging progress and most
of our companies are well positioned to both withstand short-term challenges and
take advantage of longer-term opportunities.
At the annual general meeting in May 2010 shareholders approved a resolution to
amend the company's investment policy so as to permit the use of a wider range
of financial instruments, with a view to generating an improved return on funds
awaiting long-term investment. For the time being your directors have continued
to hold surplus funds in a range of fixed-income bonds and cash deposits, but
this is kept under regular review in the light of available returns.
Shareholder issues
It was announced a year ago that the company would follow a policy of
repurchasing its shares in the market at a discount of 15% to NAV, in order to
provide liquidity for shareholders wishing to realise their investment in the
company. During the 14 months to 31 March 2011 the company repurchased a total
of 1,100,000 shares at a cost of £0.7 million, an average price of 64.2p per
share.
In March 2011 1,278,565 new ordinary shares were issued at a price of 82p per
share through a small public offer in conjunction with a similar offer by
Northern 3 VCT, raising a total of £1.0 million net of expenses. I would like
to welcome our new shareholders to the company and thank both them and our
existing investors for their support.
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.
Board of directors
Professor Sir Frederick Holliday has indicated that he intends to retire from
the board at the close of the forthcoming annual general meeting. Fred has had
an immensely distinguished academic and business career and has served on the
boards of many public companies. We have been very fortunate to have had the
benefit of his involvement with Northern 2 VCT since the inception of the
company in 1999. On behalf of shareholders and Fred's board colleagues I would
like to thank him for his enormous contribution as a director and wish him a
long and happy retirement.
Prospects
Northern 2 VCT has continued to build on its sound long-term performance record
and we believe that our current investment portfolio represents a good
foundation for further growth in the future. The flow of potential new
investments has been strong in recent months, and we must seek to capitalise on
these opportunities whilst achieving satisfactory exits from existing
investments in order to generate funds for dividend payments to shareholders.
In the current economic climate this presents a considerable challenge, but one
which your board and managers face with confidence in the knowledge that our
investment policy and practice have been well tried and tested over many years.
David Gravells
Chairman
The audited financial statements for the 14 months ended 31 March 2011 are set
out below.
INCOME STATEMENT
for the 14 months ended 31 March 2011
 14 months ended 31 March 2011 Year ended 31 January 2010
 Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gain on
disposal of
  investments - 1,065 1,065 - 4,676 4,676
Movements in
fair value
  of - 2,206 2,206 - 2,505 2,505
investments
 ---------- ---------- ---------- ---------- ---------- ----------
 - 3,271 3,271 - 7,181 7,181
Income 2,034Â -Â 2,034Â 1,704Â -Â 1,704
Investment (263) (983) (1,246) (215) (647) (862)
management
fee
Recoverable 72Â 215Â 287Â -Â -Â -
VAT
Other (329) -Â (329) (303) -Â (303)
expenses
 ---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
  activities 1,514 2,503 4,017 1,186 6,534 7,720
before tax
Tax on return
on
  ordinary (321) 215 (106) (198) 185 (13)
activities
 ---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
  activities 1,193 2,718 3,911 988 6,719 7,707
after tax
 ---------- ---------- ---------- ---------- ---------- ----------
Return per 2.1p 4.8p 6.9p 1.7p 11.8p 13.5p
share
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the 14 months ended 31 March 2011
  14 months ended Year ended
31 March 2011Â 31 January 2010
£000 £000
Equity shareholders' funds
  at 1 February 2010  44,349 39,702
Return on ordinary
  activities after tax  3,911 7,707
Dividends recognised
  in the period  (3,113) (3,130)
Net proceeds of share issues  1,272 271
Shares purchased for
  cancellation  (706) (201)
  ---------- ----------
Equity shareholders' funds
  at 31 March 2011  45,713 44,349
  ---------- ----------
BALANCE SHEET
as at 31 March 2011
  31 March 31 January
2011Â 2010
£000 £000
Venture capital investments
  Unquoted  30,114 18,250
  Quoted  2,915 2,542
  ---------- ----------
Total venture capital investments  33,029 20,792
Listed fixed-interest investments  8,955 8,837
  ---------- ----------
Total fixed asset investments  41,984 29,629
  ---------- ----------
Current assets:
  Debtors  798 658
  Cash and deposits  3,996 14,180
  ---------- ----------
  4,794 14,838
Creditors (amounts falling due
  within one year)  (1,065) (118)
  ---------- ----------
Net current assets  3,729 14,720
  ---------- ----------
Net assets  45,713 44,349
  ---------- ----------
Capital and reserves:
Called-up equity share capital  2,873 2,845
Share premium  35,461 34,272
Capital redemption reserve  410 355
Capital reserve  6,167 8,348
Revaluation reserve  (31) (2,243)
Revenue reserve  833 772
  ---------- ----------
Total equity shareholders' funds  45,713 44,349
  ---------- ----------
Net asset value per share  79.5p 77.9p
CASH FLOW STATEMENT
for the 14 months ended 31 March 2011
  14 months ended Year ended
31 March 2011Â 31 January 2010
   £000 £000 £000 £000
Cash flow
statement
Net cash
inflow from
  operating    839  657
activities
Taxation:
Corporation    (22)  (409)
tax paid
Financial
investment:
Purchase of   (14,839)  (11,220)
investments
Sale/repayment
of
  Investments   6,385  16,321
   ----------  ----------
Net cash
inflow/(outflow)
  from financial   (8,454)  5,101
investment
Equity    (3,113)  (3,130)
dividends paid
    ----------  ----------
Net cash
inflow/(outflow)
  before financing   (10,750)  2,219
Financing:
Issue of   1,340  297
shares
Share issue   (68)  (26)
expenses
Purchase of
shares
  for   (706)  (201)
cancellation
   ----------  ----------
Net cash inflow from   566  70
financing
    ----------  ----------
Increase/(decrease) Â Â (10,184)Â Â 2,289
in cash and deposits
    ----------  ----------
Reconciliation of
return
before tax to net
cash flow from
operating
activities
Return on ordinary
  activities    4,017  7,720
before tax
Gain on disposal of   (1,065)  (4,676)
investments
Movements in fair   (2,206)  (2,505)
value of investments
(Increase)/decrease   (140)  155
in debtors
Increase/(decrease) Â Â 233Â Â (37)
in creditors
    ----------  ----------
Net cash
inflow from
  operating    839  657
activities
    ----------  ----------
Reconciliation of
movement
in net funds
 1 February 2010 Cash flows 31 March 2011
  £000  £000  £000
Cash at bank  14,180  (10,184)  3,996
  ----------  ----------  ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2011
 Cost Valuation % of net assets
£000 £000 by value
Fifteen largest venture capital
investments
Kerridge Commercial Systems 1,740 3,041 6.7
Promanex Group Holdings 1,694 2,135 4.7
CloserStill Holdings 1,001 1,521 3.3
Arleigh International 939 1,438 3.1
Envirotec 975 1,431 3.1
IG Doors 744 1,362 3.0
Crantock Bakery 1,107 1,359 3.0
Kitwave One 1,246 1,246 2.7
Paladin Group 1,307 1,209 2.6
Alaric Systems 1,269 1,200 2.6
Axial Systems Holdings 1,004 1,141 2.5
Wear Inns 1,116 1,116 2.4
Cawood Scientific 1,031 1,031 2.3
Evolve Investments 995 995 2.2
RCC Lifesciences 995 995 2.2
 ---------- ---------- ----------
 17,163 21,220 46.4
Other venture capital investments 15,146 11,809 25.8
 ---------- ---------- ----------
Total venture capital investments 32,309 33,029 72.2
Listed fixed-interest investments 9,076 8,955 19.6
 ---------- ---------- ----------
Total fixed asset investments 41,385 41,984 91.8
 ----------
Net current assets  3,729 8.2
  ---------- ----------
Net assets  45,713 100.0
  ---------- ----------
*Quoted on AIM
BUSINESS RISKS
The board carries out a regular review of the risk environment in which the
company operates. The principal risks and uncertainties identified by the board
are as follows:
Investment risk:Â The majority 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,
industry sector and geographical location. The board reviews the investment
portfolio with the investment managers on a regular basis.
Financial risk:Â 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 near-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:Â 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: Â Some of the company's investments are quoted on the AIM
market and will be subject to market fluctuations upwards and downwards.
 External factors such as terrorist activity can negatively impact stock markets
worldwide and the AIM market is no exception to this. In times of adverse
sentiment there tends to be very little, if any, market demand for shares in the
smaller companies quoted on AIM.
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.
Internal control risk:Â The board regularly reviews the system of internal
controls, both financial and non-financial, operated by the company and the
manager. Â These include controls designed to ensure that the company's assets
are safeguarded and that proper accounting records are maintained.
VCT qualifying status risk:Â 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. Â 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.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Â 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 period.
In preparing these financial statements, the directors are required to (i)
select suitable accounting policies and then apply them consistently;Â (ii) make
judgements and estimates that are reasonable and prudent;Â (iii) state whether
applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements; Â 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 also 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. Â 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, directors' remuneration report and corporate
governance statement that comply with that law and those regulations.
In relation to the financial statements for the 14 months ended 31 March 2011,
each of the directors has confirmed that to the best of his knowledge (i) the
financial statements, which have been prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the company;Â and (ii) the
directors' report includes 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 which it faces.
The company's financial statements are published on the NVM Private Equity
Limited website, www.nvm.co.uk. The maintenance and integrity of this website
is the responsibility of NVM and not of the company. Visitors to the website
should be aware that legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
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, Professor
Sir Frederick Holliday and Mr F L G Neale.
OTHER MATTERS
The above summary of results for the 14 month period ended 31 March 2011 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;Â the independent auditors' 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 second interim dividend of 1.0p per share and (if approved by shareholders)
the proposed final dividend of 3.5p per share in respect of the 14 month period
ended 31 March 2011 will be paid on 22 July 2011 to shareholders on the register
at the close of business on 1 July 2011.
The full annual report including financial statements for the 14 month period
ended 31 March 2011 is expected to be posted to shareholders on 7 June 2011 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.
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
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