Final Results

Northern 2 VCT PLC 09 March 2006 9 MARCH 2006 NORTHERN 2 VCT PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2006 Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by Northern Venture Managers. The trust was launched in 1999 and has to date raised a total of Â£47 million from private investors. The trust invests mainly in unquoted venture capital holdings and aims to provide high long-term returns to shareholders through a combination of dividend yield and capital growth. Financial highlights - year ended 31 January 2006: (comparative figures as at 31 January 2005 in italics) 2006 2005 Re-stated â€¢ Net assets* Â£38,675,000 Â£40,272,000 â€¢ Net asset value per share* 90.4p 91.0p â€¢ Investment income Â£2,226,000 Â£2,074,000 â€¢ Return on ordinary activities before tax: Revenue Â£1,736,000 Â£1,558,000 Capital Â£(984,000) Â£(729,000) Total Â£752,000 Â£829,000 â€¢ Return per share: Revenue 2.9p 2.5p Capital (1.4)p (0.9)p Total 1.5p 1.6p â€¢ Dividend per share: Revenue 2.5p 2.5p Capital 3.0p 6.3p Total 5.5p 8.8p â€¢ Cumulative return to shareholders since launch: Dividends per share** 27.9p 22.4p Net asset value plus dividends per share 113.8p 111.9p â€¢ Share price at end of year 80.0p 80.0p * Before deducting proposed final dividend **Including proposed final dividend For further information, please contact: Northern Venture Managers Limited Alastair Conn, Managing Director 0191 244 6000 Website: www.nvm.co.uk Lansons Communications Alison Boucher 020 7294 3616 NORTHERN 2 VCT PLC CHAIRMAN'S STATEMENT The Chairman of Northern 2 VCT PLC, Dr Matt Ridley, included the following points in his statement to shareholders: The past year has brought some successes and some disappointments. The reported net asset value per share fell slightly from last year's figure of 91.0p (re-stated from 89.7p as a result of changes in accounting policy) to 90.4p at 31 January 2006. Income generation from the investment portfolio was strong but the level of realised gains from investment sales was less than in the preceding year. The performance chart in the directors' remuneration report shows that over five years the company's net asset value and share price have continued to out-perform the FTSE All-Share index on a total return basis. Presentation of results The year under review has brought further changes in the way in which we present our financial statements, in response to the harmonisation of UK accounting practice with international standards. Full details of the changes and their implications are given in the notes to the financial statements in the annual report. The most prominent consequence is that the year-end net asset value is now stated before deducting the proposed final dividend for the year. I will leave it to shareholders to form their own view as to whether the new regime is more informative than the old. Investment portfolio During the year eight new venture capital investments were completed and the portfolio at 31 January 2006 comprised 54 holdings with a total value of almost Â£30 million. Exit activity was down on the previous year's high level, though satisfactory realisations were achieved by Omnico Plastics and Crabtree of Gateshead. Oxonica was successfully floated on the Alternative Investment Market. The overall performance of the portfolio was however adversely affected by the failure of VPTA and SMS Agencies. Developments in the portfolio are discussed in more detail in the Investment Manager's Review in the annual report. NVM has added considerable new resource to its investment team over the past 18 months and we expect to see this reflected in future results. Revenue and dividends Through a combination of increased investment income and lower running expenses, the revenue surplus before tax for the year increased by 11% to Â£1,736,000. As a result the revenue return per share rose from 2.5p to 2.9p. The revenue dividend has been maintained at 2.5p for the fifth year in succession. By realising gains from the venture capital portfolio we have also been able to declare capital dividends totalling 3.0p per share (last year 6.3p). The total dividend of 5.5p per share for the year comprises an interim dividend of 1.0p per share which was paid in December 2005 and a proposed final dividend of 4.5p per share which will, if approved by shareholders at the annual general meeting, be paid on 2 June 2006. The tax-free total dividend of 5.5p is equivalent to a 9.2% gross yield to a higher-rate taxpayer subscribing for shares at 100p, and 11.5% if the 20% income tax relief on subscriptions obtained by subscribers in 1999 is taken into account. The cumulative total of dividends declared by the company over seven years is 27.9p per share, which is an average of just under 4.0p per year. Continuation vote and proposed share issue In February 2006 shareholders received a circular from the company containing information about two resolutions to be considered at an extraordinary general meeting on 9 March 2006. The first resolution was to amend the Articles of Association so that the next shareholder vote on continuation of the company will take place in 2011 rather than at the annual general meeting in May 2006, thus in effect extending the life of the company for a further five years. The second resolution was to authorise the directors to allot up to 11,000,000 new ordinary shares, in order that we can launch a 'top-up' issue of ordinary shares which will be open for subscription in the 2005/06 tax year. As stated in the circular, the present tax reliefs on investment in VCTs are due to continue only until 5 April 2006 and the Chancellor of the Exchequer has not yet announced what, if any, changes will apply thereafter, so your directors felt it was important to be in a position to raise additional funds in the current tax year. It would clearly be inappropriate to proceed with this without certainty as to the future continuation of the company. I am pleased to report that at the extraordinary general meeting both resolutions were passed by a wide margin; a prospectus setting out details of for the share issue will be published in the near future and copies will be sent to all shareholders. If the share issue is fully subscribed the company's net assets will increase to approximately Â£48 million. Management arrangements The February 2006 shareholder circular also contained details of new management fee and performance incentive arrangements entered into between the company and NVM. Following a thorough review of the existing arrangements, your board decided to establish a co-investment scheme under which NVM executives are required to invest personally in the ordinary shares of companies, including those quoted on AIM, in which Northern 2 VCT invests. We believe this will benefit shareholders by enhancing NVM's ability to recruit and retain high-calibre investment executives in a competitive market environment. At the same time we took the opportunity to reduce the fixed element of NVM's annual management fee from 2.5% to 2.0% of net assets, whilst introducing a new performance-related element linked to future net asset growth and dividend generation. Share buy-backs and market liquidity During the year the company bought back for cancellation 1,583,148 shares, equivalent to approximately 3.6% of the issued capital at the start of the year, at an average price of 79p per share. A resolution will as usual be proposed at the annual general meeting to renew the board's authority to make market purchases of shares. The secondary market for VCT shares has remained depressed over the past year and it will be interesting to see what effect the Chancellor's forthcoming announcement on future tax reliefs has on the relative attractions of new and second-hand VCT shares. VCT qualifying status The company has continued to retain PricewaterhouseCoopers LLP as advisers on VCT taxation matters, and has throughout the year met the qualifying conditions laid down by HM Revenue & Customs for approval as a VCT. The future The future of the VCT sector is subject to some uncertainty as we await the Chancellor's Budget announcement on 22 March. VCTs have made a substantial contribution to business enterprise in the UK over the past decade and I hope that any changes to the VCT regulations will be gradual and judicious. Our company is now well established, and the forthcoming share issue should ensure that liquid resources are sufficient for our investment requirements for the foreseeable future. As we begin the next five year cycle in our corporate life, we remain focussed on producing a strong dividend flow and asset growth for shareholders. The audited financial statements for the year ended 31 January 2006 will show the results set out below. INCOME STATEMENT for the year ended 31 January 2006 Year ended 31 January 2006 Year ended 31 January 2005 Re-stated Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 (Loss)/gain on disposal of investments - (388) (388) - 1,164 1,164 held at fair value Unrealised adjustments to fair value of - 265 265 - (950) (950) investments Income 2,226 - 2,226 2,074 - 2,074 Investment management fee (287) (861) (1,148) (315) (943) (1,258) Other expenses (203) - (203) (201) - (201) ------ ------ ------ ------ ------ ------ Return on ordinary activities before tax 1,736 (984) 752 1,558 (729) 829 Tax on return on ordinary activities (455) 352 (103) (422) 301 (121) ------ ------ ------ ------ ------ ------ Return on ordinary activities after tax 1,281 (632) 649 1,136 (428) 708 ------ ------ ------ ------ ------ ------ Return per share 2.9p (1.4)p 1.5p 2.5p (0.9)p 1.6p RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 January 2006 Year ended 31 January Year ended 31 2006 January 2005 Re-stated Total Total Â£000 Â£000 Equity shareholders' funds at 1 February 2005 As previously reported 39,693 43,233 Prior year adjustment 579 1,289 ------- ------- As re-stated 40,272 44,522 Return on ordinary activities after tax 649 708 Dividends recognised in the year (1,092) (4,564) Net proceeds of share issues 97 305 Shares purchased for cancellation (1,251) (699) ------- ------- Equity shareholders' funds at 31 January 2006 38,675 40,272 ------- ------- BALANCE SHEET as at 31 January 2006 31 January 31 January 2006 2005 Re-stated Â£000 Â£000 Venture capital investments: Unquoted 25,259 25,391 Quoted 4,548 3,939 ------- ------- 29,807 29,330 Listed fixed-interest 6,029 6,965 investments ------- ------- Total fixed asset 35,836 36,295 investments ------- ------- Current assets: Debtors 409 420 Cash at bank 2,664 3,795 ------- ------- 3,073 4,215 Creditors (amounts falling due within one year) (234) (238) ------- ------- Net current assets 2,839 3,977 ------- ------- Net assets 38,675 40,272 ------- ------- Capital and reserves: Called-up equity share 2,139 2,212 capital Share premium 34,141 34,050 Capital redemption 142 63 reserve Capital reserve: Realised 351 2,263 Unrealised 977 948 Revenue reserve 925 736 ------- ------- Total equity 38,675 40,272 shareholders' funds ------- ------- Net asset value per 90.4p 91.0p share CASH FLOW STATEMENT for the year ended 31 January 2006 Year ended Year ended 31 January 2006 31 January 2005 Re-stated Â£000 Â£000 Â£000 Â£000 Net cash inflow from operating 972 539 activities Taxation: Corporation tax paid (115) (88) Financial investment: Purchase of (6,293) (10,341) investments Sale/repayment of 6,551 9,142 investments ------ ------ Net cash inflow/ (outflow) from financial 258 (1,199) investment Equity dividends paid (1,092) (4,563) ------ ------ Net cash inflow/ (outflow) before financing 23 (5,311) Financing: Issue of ordinary 112 305 shares Share issue expenses (15) - Purchase of ordinary shares for cancellation (1,251) (699) ------ ------ Net cash outflow from financing (1,154) (394) ------ ------ Decrease in cash at (1,131) (5,705) bank ------ ------ Reconciliation of return before tax to net cash flow from operating activities Return on ordinary activities before tax 752 829 Loss/(gain) on disposal of investments held at 388 (1,164) fair value Unrealised adjustments to fair value of (265) 950 investments Decrease/(increase) 89 (70) in debtors Increase/(decrease) 8 (6) in creditors ------ ------ Net cash inflow from operating 972 539 activities ------ ------ Analysis of movement in net funds 1 February Cash flows 31 January 2005 2006 Â£000 Â£000 Â£000 Cash at bank 3,795 (1,131) 2,664 ------ ------ ------ INVESTMENT PORTFOLIO SUMMARY as at 31 January 2006 Valuation % of net assets Â£000 by valuation Fifteen largest venture capital investments: DMN 1,600 4.1 Crantock Bakery 1,491 3.9 Longhirst Group 1,484 3.8 Computer Software Group* 1,337 3.5 IG Doors 1,316 3.4 Stainton Metal Company 1,118 2.9 Arrow Industrial Group 1,099 2.8 Warmseal Windows (Newcastle) 1,082 2.8 Envirotec 975 2.5 John Laing Partnership 925 2.4 Alaric Systems 921 2.4 Direct Valeting 915 2.4 Pivotal Laboratories Holdings 857 2.2 LEDA Holdings 825 2.1 Iris Technology 797 2.1 ------- ------ 16,742 43.3 Other venture capital investments 13,065 33.8 ------- ------ Total venture capital investments 29,807 77.1 Listed fixed-interest investments 6,029 15.6 ------- ------ Total fixed asset investments 35,836 92.7 Net current assets 2,839 7.3 ------- ------ Net assets 38,675 100.0 ------- ------ *Quoted on Alternative Investment Market The above summary of results for the year ended 31 January 2006 does not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985 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 auditors' report on those financial statements under Section 235 of the Companies Act 1985 is unqualified and does not contain a statement under Section 237(2) or (3) of the Companies Act 1985. The company is required to comply with a number of new UK Financial Reporting Standards (FRS), which now represent UK Generally Accepted Accounting Principles (UK GAAP), in presenting its financial statements for the year ended 31 January 2006. These Standards have been introduced as part of the process of aligning UK accounting principles with International Accounting Standards. The revised accounting policies differ from those used in preparing the annual financial statements for the year ended 31 January 2005 in the following respects: â€¢ The unrealised gain or loss resulting from the revaluation of fixed asset investments held at fair value is now recognised in the income statement, as required by FRS 25 'Financial Instruments: Disclosure and Presentation'; â€¢ Quoted investments are valued at bid price rather than mid-market price, as required by FRS 26 'Financial instruments: Measurement'; and â€¢ Dividends to shareholders are accounted for in the period in which the company is liable to pay them, rather than in the period in respect of which they are declared, as required by FRS 21 'Events after the Balance Sheet Date'. The comparative figures for the year ended 31 January 2005 have been re-stated accordingly. The effect of the above changes on the reported net assets and net asset value per share of the company is as follows: 31 January 2006 31 January 2005 31 January 2004 Net asset Net asset Net asset Net value per Net value per Net value per assets share assets share assets share Â£000 p Â£000 p Â£000 p As reported under previous UK 36,819 86.1 39,693 89.7 43,233 96.5 GAAP Less: adjustment in valuation (69) (0.2) (84) (0.2) (58) (0.1) of quoted investments to bid price Add: proposed dividends not 1,925 4.5 663 1.5 1,347 3.0 accounted for until declared and paid ------- ------- ------- ------- ------- ------- As reported under revised UK 38,675 90.4 40,272 91.0 44,522 99.4 GAAP ------- ------- ------- ------- ------- ------- The proposed final dividend of 4.5p per share for the year ended 31 January 2006 will, if approved by shareholders, be paid on 2 June 2006 to shareholders on the register at the close of business on 24 March 2006. The full annual report including financial statements for the year ended 31 January 2006 is expected to be posted to shareholders on 24 March 2006 and will be available to the public at the registered office of the company at Northumberland House, Princess Square, Newcastle upon Tyne NE1 8ER. ENDS This information is provided by RNS The company news service from the London Stock Exchange

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