Interim Results

Northern 2 VCT PLC 16 October 2001 16 OCTOBER 2001 NORTHERN 2 VCT PLC UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2001 Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by Northern Venture Managers. The trust was launched in 1999 through a public share issue which raised £22 million; a further £22 million was raised in a second public issue in 2001. The trust invests mainly in unquoted venture capital situations and aims to provide high long-term returns to shareholders through a combination of dividend yield and capital growth. Financial highlights (comparative figures as at 31 July 2000 in brackets): * Net assets £41,785,000 (£22,856,000) * Net asset value per share 92.5p (94.5p) * Investment income £903,000 (£603,000) * Net revenue before tax £695,000 (£445,000) * Revenue return per share 1.3p (1.4p) * Interim dividend per share 1.0p (1.0p) For further information, please contact: Alastair Conn, Managing Director Northern Venture Managers 0191 244 6000 Lucy Copeman/Louise Johnstone Polhill Communications 020 7655 0540 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 half year to 31 July has been a difficult period for the UK economy and the stock market. Against this background I am glad to be able to report that your company has generally continued to make progress towards achieving its long-term objectives. Net asset value The net asset value per share at 31 July 2001 was 92.5p per share, a slight reduction from the comparative figures at 31 January 2001 and 31 July 2000. Losses on investments in the period, mainly as a result of lower valuations in the worsening economic climate, amounted to approximately 4.7p per share, but this was largely offset by the impact of the new issue of shares at a premium to net asset value. The company's venture capital investment portfolio is still relatively immature and at this stage most of our unquoted holdings are valued at their original cost. During the six months to 31 July the FTSE All-Share index fell by 12.1% and the FTSE AIM index by 28.2%. Investments Investment activity during the period was at a low level; our managers maintained a cautious approach at a time when deteriorating economic and stock market conditions were not always reflected in acceptable deal valuations. The flow of new issues on the Alternative Investment Market was also significantly reduced. Five new venture capital investments were made in the period at a cost of £1.3 million; since the end of July, however, three investments totalling £2.7 million have been added, and with two more investments due to complete within the next month we are on track to meet the Inland Revenue's January 2002 deadline for reaching the required 70% level of VCT qualifying investments (the proceeds of the 2001 share issue are excluded from the requirement at this stage). The flow of new venture capital opportunities received by our managers has held up well and valuations have recently become markedly more realistic. The venture capital portfolio now comprises 31 holdings with an aggregate value of £10.2 million. Seven of these companies are listed on the London Stock Exchange or the Alternative Investment Market and have inevitably been affected by the downward movement in the markets. Alizyme and BioFocus in particular have seen their share prices fall to about one third of their recent peak, but we remain confident in their long-term prospects. In the unquoted portfolio we have several information technology sector holdings, such as Quadstone, PrismTech and Xtraserve, which have made good progress with product development but are coming up against customers' reluctance to confirm major orders as scheduled. Where appropriate we have reflected these uncertainties in the valuation of individual investments. On the credit side, we have seen the benefits of having a substantial proportion of our investments in 'old economy' businesses which have in most cases continued to make progress despite difficult conditions. The portfolio of fixed interest securities and bank deposits managed by Chiswell Associates has continued to perform steadily, and has been supplemented with the proceeds of the share issue during the period. Revenue and dividend The revenue return per share in the half year was 1.3p compared with 1.4p in the corresponding period, reflecting the impact of lower interest rates. An interim dividend of 1.0p per share, unchanged from last year, will be paid on 10 December 2001 to shareholders on the register on 9 November 2001. The level of the final dividend will depend on the results for the full year. At this stage it appears unlikely that we will be in a position this year to realise any capital profits from the investment portfolio for distribution by way of dividend. Share issue and buy-backs The company's top-up issue of new ordinary shares, launched in January 2001, closed on 28 June with a total of 20,993,010 shares subscribed and gross proceeds of over £22 million. This was a highly satisfactory outcome given the adverse stock market conditions during the period, which led to several other VCT share issues being withdrawn. I would like to take this opportunity to thank shareholders, both old and new, for their continuing support. No shares were re-purchased for cancellation during the period; however, since 31 July we have completed the process of obtaining Court consent to a reduction in the company's share premium account, creating a new distributable reserve which can be used to cancel re-purchased shares in the future. Prospects This report is written in the aftermath of the atrocities of 11 September, which have cast a long shadow over a stock market and economy already thought to be on the brink of recession. It would be wrong to strike an optimistic note in these circumstances. Nevertheless your company has maintained a sound defensive position, with a well-balanced investment portfolio and over £30 million in cash or near-cash assets at 31 July, and is well placed to take advantage of the opportunities which we expect to occur when the economic climate begins to improve. The unaudited interim financial statements for the six months ended 31 July 2001 are set out below. STATEMENT OF TOTAL RETURN (INCORPORATING THE REVENUE ACCOUNT) Six months ended 31 July Six months ended 31 July 2001 2000 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 Gains/(losses) on investments: Realised on disposal - (330) (330) - 109 109 Unrealised revaluation - (1,430) (1,430) - 101 101 movements ------ ------ ------ ------ ------ ------ - (1,760) (1,760) - 210 210 Income 903 - 903 603 - 603 Investment management fee (113) (340) (453) (60) (181) (241) Other expenses (95) - (95) (98) - (98) ------ ------ ------ ------ ------ ------ Return on ordinary activities before tax 695 (2,100) (1,405) 445 29 474 Tax on ordinary (190) 94 (96) (113) 46 (67) activities ------ ------ ------ ------ ------ ------ Return on ordinary activities 505 (2,006) (1,501) 332 75 407 after tax Interim dividend (452) - (452) (242) - (242) ------ ------ ------ ------ ------ ------ Transfer to/(from) 53 (2,006) (1,953) 90 75 165 reserves ------ ------ ------ ------ ------ ------ Return per share 1.3p (5.3)p (4.0)p 1.4p 0.3p 1.7p Interim dividend per 1.0p - 1.0p 1.0p - 1.0p share Year ended 31 January 2001 Revenue Capital Total £000 £000 £000 Gains/(losses) on investments: Realised on disposal - 96 96 Unrealised revaluation movements - 183 183 ------ ------ ------ - 279 279 Income 1,246 - 1,246 Investment management fee (128) (382) (510) Other expenses (186) - (186) ------ ------ ------ Return on ordinary activities before tax 932 (103) 829 Tax on ordinary activities (239) 98 (141) ------ ------ ------ Return on ordinary activities after tax 693 (5) 688 Dividend (581) - (581) ------ ------ ------ Transfer to/(from) reserves 112 (5) 107 ------ ------ ------ Return per share 2.9p - 2.9p Dividends per share 2.4p - 2.4p BALANCE SHEET 31 July 2001 31 July 2000 31 January 2001 £000 £000 £000 Fixed asset investments: Venture capital investments Unlisted 8,357 5,536 8,429 Listed 1,890 228 2,165 ------- ------- ------- 10,247 5,764 10,594 Listed fixed-interest investments 21,692 15,024 11,164 ------- ------- ------- Total fixed asset investments 31,939 20,788 21,758 Net current assets 9,846 2,068 1,040 ------- ------- ------- Net assets 41,785 22,856 22,798 ------- ------- ------- Capital and reserves: Called-up equity share capital 2,259 1,210 1,210 Share premium 41,785 21,894 21,894 Capital reserve: Realised (930) (192) (354) Unrealised (1,495) (147) (65) Revenue reserve 166 91 113 ------- ------- ------- Total equity shareholders' funds 41,785 22,856 22,798 ------- ------- ------- Net asset value per share 92.5p 94.5p 94.2p CASH FLOW STATEMENT Six months Six months Year ended ended ended 31 January 2001 31 July 2001 31 July 2000 £000 £000 £000 £000 £000 £000 Operating activities: Net revenue from ordinary activities before tax 695 445 932 Decrease/(increase) in (310) 31 11 debtors Increase/(decrease) in 156 20 5 creditors Management fees charged (340) (181) (382) to capital ------ ------ ------ Net cash inflow from operating activities 201 315 566 Taxation: Corporation tax paid (124) (137) (233) Financial investment: Purchase of investments (13,794) (4,545) (9,627) Sale/repayment of investments 1,786 2,792 6,990 ------ ------ ------ Net cash outflow from financial investment (12,008) (1,753) (2,637) Equity dividends paid (339) (485) (727) Financing: Issue of ordinary shares 21,519 2,266 2,266 Share issue proceeds in - - 523 advance Share issue expenses (1,102) (58) (67) Purchase of ordinary shares - (31) (31) for cancellation ------ ------ ------ Net cash inflow from 20,417 2,177 2,691 financing ------ ------ ------ (Decrease)/increase in cash 8,147 117 (340) at bank ------ ------ ------ Analysis of cash balance: At start of period 1,344 1,684 1,684 Net cash inflow/(outflow) for the period 8,147 117 (340) ------ ------ ------ At end of period 9,491 1,801 1,344 ------ ------ ------ TEN LARGEST VENTURE CAPITAL INVESTMENTS AT 31 JULY 2001 Valuation % of portfolio £000 by valuation T J Brent Limited 1,000 3.1 T&D Packaging Limited 800 2.5 TFB Group Limited 700 2.2 Tolwood Limited 673 2.1 Alaric Systems Limited 584 1.8 BioFocus plc* 514 1.6 Belcot Tool & Die Limited 500 1.6 Fitzhardinge plc* 500 1.6 Chorus Application Software Limited 455 1.4 Interlube Systems Limited 375 1.2 ------- ------ Ten largest venture capital investments 6,101 19.1 Other venture capital investments 4,146 13.0 ------- ------ Total venture capital investments 10,247 32.1 Listed fixed-interest investments 21,692 67.9 ------- ------ Total fixed asset investments 31,939 100.0 ------- ------ * Listed on Alternative Investment Market The above summary of results for the six months ended 31 July 2001 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. The proposed interim dividend for the year ending 31 January 2002 will be paid on 10 December 2001 to shareholders on the register at the close of business on 9 November 2001. A copy of the interim report is expected to be posted to shareholders on 26 October 2001 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

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