Half-yearly report
23 SEPTEMBER 2010
NORTHERN 2 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 31 JULY 2010
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 for the six months ended 31 July 2009 in italics)
     2010     2009
 ·    Net assets £43.3m £44.0m
 ·    Net asset value per share 76.7p 77.1p
 ·    Return per share
    Revenue 1.1p 1.5p
    Capital     1.0p     9.3p
    Total     2.1p     10.8p
 ·    Interim dividend per share
    in respect of the period
    Revenue 1.0p 1.0p
    Capital     1.0p     1.0p
    Total     2.0p     2.0p
 ·    Cumulative return to
    shareholders since launch
    Net asset value per share 76.7p 77.1p
    Dividends paid per share* 50.4p 44.9p
    Net asset value plus dividends
    paid per share 127.1p 122.0p
 ·    Share price at end of period 64.5p 49.5p
* Excluding proposed interim 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
HALF-YEARLY MANAGEMENT REPORT
FOR THE SIX MONTHS ENDED 31 JULY 2010
The operating environment for small and medium-sized companies in the UK has
continued to be difficult. The financial markets have been relatively stable,
with the FTSE All-Share index rising by 2% over the six months to 31 July 2010,
but it remains to be seen whether the recent modest recovery in the economy can
be sustained. Against this background our portfolio has continued to make
encouraging progress.
Results and dividend
The net asset value (NAV) per share at 31 July 2010, after deducting the
2009/10 final dividend of 3.5p per share paid in June 2010, was 76.7p (31
January 2010 77.9p) - a fall of 1.5% over the six month period. The return per
share for the period before dividends, as shown in the income statement, was
2.1p compared with 10.8p in the corresponding period last year, reflecting a
relatively low level of investment sales and the cautious view taken on
investment valuations in the current economic climate.
Investment income for the period amounted to just over £1.0 million, a 26%
reduction from the corresponding period last year - a period which included a
significant non-recurring income receipt from DxS just prior to the sale of that
investment. As a result the revenue return per share fell from 1.5p to 1.1p.
The level of income continues to be affected by the low level of interest rates.
The board has declared an unchanged interim dividend of 2.0p per share,
comprising 1.0p revenue and 1.0p capital distribution, which will be paid on 3
December 2010 to shareholders on the register on 5 November 2010. It remains
the board's objective to maintain the total annual dividend at not less than
5.5p per share, a level of distribution which has been achieved in each of the
last six financial years.
Investments
The rate of new venture capital investment has improved after a relatively quiet
year to 31 January 2010, and four new holdings totalling £4.5 million were
completed during the half year:
 ·        Lanner Group (£772,000) - developer of business process simulation
software, Redditch
 ·        Kerridge Commercial Systems (£1,740,000) - developer of software for
the distribution sector, Hungerford
 ·        RCC Lifesciences (£995,000) - acquisition vehicle for lifesciences
businesses, Manchester
 ·        Evolve Investments (£995,000) - acquisition vehicle for
under-performing and undercapitalised businesses, Tunbridge Wells
A further £2.1 million was invested in six existing portfolio companies.
There were no significant investment disposals during the period, but we have
been able to recognise in the income statement a further £480,000 of deferred
proceeds from the sale of DxS in September 2009. It was pleasing to hear
recently that this highly successful exit led to NVM Private Equity receiving
the Deal of the Year accolade at the BVCA/Real Deals Private Equity Awards for
2010.
The valuation of the unquoted portfolio has been carried out with due regard to
the continuing economic uncertainty and the possible impact of public sector
spending cuts. There have been no individually significant value movements,
either upwards or downwards, but we are conscious that many companies may be
vulnerable to sudden changes in circumstance and accordingly we have continued
to take a prudent view of valuations generally.
The reserve of liquidity available for future investment remains strong, with
approximately £16 million of listed fixed-interest investments and cash on the
balance sheet at 31 July 2010.
Shareholder issues
In May 2010 your board announced that the company had adopted a policy of buying
back its shares in the market at a 15% discount to the latest published NAV,
subject to applicable legislation, market conditions, shareholder authority and
the availability of liquid funds and distributable reserves. Subsequently
400,000 shares have been re-purchased for cancellation at a price of 64p per
share. The share price has continued its steady recovery from the low point
reached in the first half of 2009 and at 31 July 2010 stood at 64.5p, a discount
to NAV of just over 15%.
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.
Risk management
The board carries out a regular review of the risk environment in which the
company operates. There has been no significant change to the key risks
discussed on page 10 of the annual report for the year ended 31 January 2010,
including those resulting from the size and relative illiquidity of the unquoted
and AIM-quoted investments held by the company.
Prospects
The adverse conditions prevailing in the UK economy and financial markets are
unlikely to be relieved in the near future, and this will inevitably have an
impact on the company's performance in the short to medium term. However the
companies in our portfolio have continued to demonstrate the benefits of good
management and sound financial structuring, and we are currently seeing a
promising flow of potential new investments for appraisal by our managers.
On behalf of the Board
DAVID GRAVELLS
Chairman
The unaudited half-yearly financial statements for the six months ended 31 July
2010 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 31 July 2010
 Six months ended 31 July 2010 Six months ended 31 July 2009
 Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gain on -Â 692Â 692Â -Â 703Â 703
disposal of
investments
Movements -Â 130Â 130Â -Â 4,768Â 4,768
in value of
investments
 ---------- ---------- ---------- ---------- ---------- ----------
 - 822 822 - 5,471 5,471
Income 1,012Â -Â 1,012Â 1,369Â -Â 1,369
Investment (114) (343) (457) (102) (307) (409)
management
fee
Other (155) -Â (155) (155) -Â (155)
expenses
 ---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
 before tax 743 479 1,222 1,112 5,164 6,276
Tax on (134) 99Â (35) (242) 89Â (153)
return on
ordinary
activities
 ---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
 after tax 609 578 1,187 870 5,253 6,123
 ---------- ---------- ---------- ---------- ---------- ----------
Return per 1.1p 1.0p 2.1p 1.5p 9.3p 10.8p
share
 Year ended 31 January 2010
    Revenue Capital Total
   £000 £000 £000
Gain on disposal of investments    - 4,676 4,676
Movements in fair value of investments    - 2,505 2,505
    ---------- ---------- ----------
    - 7,181 7,181
Income    1,704 - 1,704
Investment management fee    (215) (647) (862)
Other expenses    (303) - (303)
    ---------- ---------- ----------
Return on ordinary activities
 before tax    1,186 6,534 7,720
Tax on return on ordinary activities    (198) 185 (13)
    ---------- ---------- ----------
Return on ordinary activities
 after tax    988 6,719 7,707
    ---------- ---------- ----------
Return per share    1.7p 11.8p 13.5p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 31 July 2010
 Six months ended Six months ended Year ended
31 July 2010Â 31 July 2009Â 31 January 2010
 £000 £000 £000
Equity shareholders' funds
at
 1 February 2010 44,349 39,702 39,702
Return on ordinary 1,187Â 6,123Â 7,707
activities after tax
Dividends recognised in the (1,983) (1,990) (3,130)
period
Net proceeds of share 174Â 173Â 271
issues
Shares purchased for (381) (36) (201)
cancellation
 ---------- ---------- ----------
Equity shareholders' funds
at
 31 July 2010 43,346 43,972 44,349
 ---------- ---------- ----------
BALANCE SHEET
(unaudited) as at 31 July 2010
 31 July 2010 31 July 2009 31 January 2010
 £000 £000 £000
Fixed asset investments held at
fair value:
Venture capital investments
 Unquoted 24,204 23,577 18,250
 Quoted 2,312 2,544 2,542
 ---------- ---------- ----------
Total venture capital investments 26,516Â 26,121Â 20,792
Listed fixed-interest investments 10,279Â 5,018Â 8,837
 ---------- ---------- ----------
Total fixed asset investments 36,795Â 31,139Â 29,629
 ---------- ---------- ----------
Current assets:
 Debtors 817 1,465 658
 Cash and deposits 5,986 12,008 14,180
 ---------- ---------- ----------
 6,803 13,473 14,838
Creditors (amounts falling due (252) (640) (118)
within one year)
 ---------- ---------- ----------
Net current assets 6,551Â 12,833Â 14,720
 ---------- ---------- ----------
Net assets 43,346Â 43,972Â 44,349
 ---------- ---------- ----------
Capital and reserves:
Called-up equity share capital 2,827Â 2,852Â 2,845
Share premium 34,434Â 34,181Â 34,272
Capital redemption reserve 385Â 341Â 355
Capital reserve 7,079Â 7,472Â 8,348
Revaluation reserve (2,193) (2,098) (2,243)
Revenue reserve 814Â 1,224Â 772
 ---------- ---------- ----------
Total equity shareholders' funds 43,346Â 43,972Â 44,349
 ---------- ---------- ----------
Net asset value per share 76.7p 77.1p 77.9p
CASH FLOW STATEMENT
(unaudited) for the six months ended 31 July 2010
 Six months ended Six months ended Year ended
31 July 2010Â 31 July 2009Â 31 January 2010
 £000 £000 £000 £000 £000 £000
Net cash inflow
from
 operating  340  89  657
activities
Taxation:
Corporation tax  -  -  (409)
paid
Financial
investment:
Purchase of (7,906) Â (1,528) Â (11,220)
investments
Sale/repayment of 1,562Â Â 3,409Â Â 16,321
investments
 ----------  ----------  ----------
Net cash
inflow/(outflow)
 from financial  (6,344)  1,881  5,101
investment
Equity dividends  (1,983)  (1,990)  (3,130)
paid
  ----------  ----------  ----------
Net cash
inflow/(outflow)
 before financing  (7,987)  (20)  2,219
Financing:
Issue of ordinary 184Â Â 189Â Â 297
shares
Share issue (10) Â (16) Â (26)
expenses
Purchase of
ordinary shares
 for cancellation (381)  (36)  (201)
 ----------  ----------  ----------
Net cash  (207)  137  70
inflow/(outflow)
from financing
  ----------  ----------  ----------
Increase/(decrease) in cash and (8,194) Â 117Â Â 2,289
deposits
  ----------  ----------  ----------
Reconciliation of
return before tax
to net cash flow
from operating
activities
Return on ordinary
activities
 before tax  1,222  6,276  7,720
Gain on disposal of  (692)  (703)  (4,676)
investments
Movements in fair
value
 of investments  (130)  (4,768)  (2,505)
(Increase)/decrease  (159)  (652)  155
in debtors
Increase/(decrease) Â 99Â Â (64) Â (37)
in creditors
  ----------  ----------  ----------
Net cash inflow
from
 operating  340  89  657
activities
  ----------  ----------  ----------
Analysis of
movement in net
funds
 1 February 2010 Cash flows 31 July 2010
 £000 £000 £000
Cash and deposits  14,180  (8,194)  5,986
  ----------  ----------  ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 July 2010
 Cost Valuation % of net assets
£000 £000 by valuation
15 largest investments:
Kerridge Commercial Systems 1,740 1,740 4.0
Crantock Bakery 1,107 1,718 4.0
Promanex Group Holdings 1,695 1,695 3.9
Arleigh International 939 1,353 3.1
Envirotec 975 1,290 3.0
CloserStill Holdings 1,000 1,274 2.9
Axial Systems Holdings 1,004 1,141 2.6
Paladin Group 1,307 1,132 2.6
Wear Inns 1,116 1,116 2.6
IG Doors 872 1,083 2.5
Evolve Investments 995 995 2.3
RCC Lifesciences 995 995 2.3
Longhirst Venues 375 888 2.1
Optilan Group 1,000 821 1.9
S&P Coil Products 409 793 1.8
 ---------- ---------- --------
 15,529 18,034 41.6
Other venture capital investments 13,065 8,482 19.6
 ---------- ---------- --------
Total venture capital investments 28,594 26,516 61.2
Listed fixed-interest investments 10,394 10,279 23.7
 ---------- ---------- --------
Total fixed asset investments 38,988 36,795 84.9
 ----------
Net current assets  6,551 15.1
  ---------- --------
Net assets  43,346 100.0
  ---------- --------
The above summary of results for the six months ended 31 July 2010 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 auditors and has not been delivered to the Registrar of Companies.
The figures for the year ended 31 January 2010 have been extracted from the
audited financial statements for that year, which have been delivered to the
Registrar of Companies;Â the independent auditors' 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 January 2010.
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 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 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 E M P Denny, Mr C G A Fletcher, Professor
Sir Frederick Holliday 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 56,759,926 (2009
56,924,548) ordinary shares, being the weighted average number of shares in
issue during the period.
The proposed interim dividend of 2.0p per share for the year ending 31 January
2011 will be paid on 3Â December 2010 to shareholders on the register at the
close of business on 5 November 2010.
A copy of the half-yearly financial report for the six months ended 31 July
2010 is expected to be posted to shareholders on 6 October 2010 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.
[HUG#1446311]
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(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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