Interim Results

Northern 2 VCT PLC 28 September 2004 28 SEPTEMBER 2004 NORTHERN 2 VCT PLC UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2004 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 £46 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 (comparative figures as at 31 July 2003): 2004 2003 • Net assets £42,442,000 £42,925,000 • Net asset value per share 95.8p 95.5p • Investment income £1,138,000 £1,067,000 • Return on ordinary activities before tax: Revenue £874,000 £813,000 Capital £593,000 £106,000 • Return per share: Revenue 1.4p 1.3p Capital 1.7p 0.6p • Interim dividend per share: Revenue 1.0p 1.0p Capital 3.0p Nil • Cumulative return to shareholders since launch: Dividends per share 17.6p 10.6p Net asset value plus dividends 113.4p 106.1p • Share price 85p 80p For further information, please contact: Northern Venture Managers Limited Alastair Conn, Managing Director 0191 244 6000 Website: www.nvm.co.uk Polhill Communications Lucy Copeman/Marlene Scott 020 7655 0540 CHAIRMAN'S STATEMENT The Chairman of Northern 2 VCT PLC, Dr Matt Ridley, included the following points in his statement to shareholders: Northern 2 VCT has made good progress in the half year to 31 July 2004 and has maintained its position as the top-performing generalist VCT launched in the 1998/99 tax year. The highlight was the successful exit from the investment in T J Brent through a trade sale, which has enabled us to declare an interim capital dividend of 3.0p per share in respect of the period, on top of an interim revenue dividend of 1.0p per share. Two of our unquoted investments, BBI Holdings and Vectura Group, were successfully floated on the Alternative Investment Market. Three new venture capital investments were completed and although the rate of new investment in the period was lower than expected, there has been increased activity in the second half of 2004 with several new investments currently in the later stages of due diligence investigation. I am also pleased to report that since the end of the half year the sale of Keith Prowse has been completed, realising a capital gain which we intend to distribute by means of a second interim capital dividend of 3.3p per share. Shareholders in Northern 2 VCT will therefore receive dividends totalling 7.3p per share in December 2004. Net asset value The net asset value per share at 31 July 2004, after providing for the proposed first interim dividend of 4.0p per share, was 95.8p - up by 0.3% over the past 12 months but 0.7% lower than at 31 January 2004. The following table shows the movements in the company's net asset value and share price compared with the FTSE All-Share and Small Cap indices. Movement to 31 July 2004 over: Past 6 months Past 12 months Northern 2 VCT net asset value -0.7% +0.3% Northern 2 VCT share price +3.7% +6.3% FTSE All-Share index +0.2% +7.2% FTSE Small Cap index (excluding investment trusts) -6.1% +9.1% Investments Three new venture capital investments were completed during the half year: • S&P Coil Products (£620,000) - manufacturer of coil heat exchangers, Leicester • Fountains (£166,000) - AiM-quoted provider of environmental management services, Banbury • AFI Aerial Platforms (£248,000) - provider of powered aerial access equipment, Wakefield Significant additional funding was provided for Longhirst Group (£540,000), Crantock Bakery (£107,000) and DxS (£87,000). In the unquoted portfolio, the sale of T J Brent to May Gurney in April 2004 generated cash proceeds of £2.2 million from our December 2000 investment of £1.0 million. Loan stock repayments by BBI Holdings (£248,000) and Crabtree of Gateshead (£173,000) also produced positive cash flow. BBI Holdings and Vectura Group both completed successful initial public offerings on the Alternative Investment Market, in April and July respectively. Although no investments failed during the period, the board has taken a cautious view on valuation in those cases where profitability has been less strong than expected and this led to downward value adjustments for DMN Installations and John Fredericks Plastics. The second half of the year has begun well with the trade sale of the Keith Prowse holding in September for £2.3 million in cash compared with an original cost in March 2002 of £790,000. In the quoted venture capital portfolio, Alizyme and BioFocus both suffered from adverse market sentiment and the holdings were reduced further during the period. Widney and Computer Software Group made excellent progress, with share prices up by 115% and 32% respectively. Fitzhardinge also performed well, up by 15%, and the opportunity was taken to reduce the holding. Revenue and dividend The revenue return per share for the half year was 1.4p, compared with 1.3p in the corresponding period to 31 July 2003. As I indicated in my statement six months ago, in January 2004 it was necessary to place some funds temporarily on non-interest bearing deposit in order to comply with the Inland Revenue's 70% qualifying investment requirement. However the generation of income from the unquoted venture capital portfolio has been strong, and total investment income was actually up by 6.7% over the corresponding period, to £1,138,000. Your board has declared an unchanged interim revenue dividend of 1.0p per share, which when added to the capital distribution of 3.0p per share for the six months to 31 July makes a total first interim dividend of 4.0p per share. As previously mentioned, we are also able to declare a second interim capital dividend of 3.3p per share out of gains realised subsequent to 31 July. Both dividends, totalling 7.3p per share, will be paid on 3 December 2004 to shareholders on the register on 8 October 2004. A number of shareholders have enquired about the possibility of re-investing their dividends by way of subscription for new shares in Northern 2 VCT, so taking advantage of the new 40% income tax relief on VCT subscriptions announced in the March 2004 Budget. We are presently looking into the feasibility of this and I hope to write to shareholders soon with more information. Share price The mid-market share price increased marginally from 82p to 85p during the period. A total of 519,200 shares, representing approximately 1.2% of the issued share capital, were bought in the market for cancellation at an average price of 76p. VCT qualifying status Your board has continued to monitor closely the company's compliance with the Inland Revenue's VCT rules, with the assistance of its professional advisers at PricewaterhouseCoopers. At present we are still holding some funds on non-interest bearing deposit, which falls outside the definition of an investment for VCT purposes, pending investment in qualifying holdings. With five new qualifying investments currently approved and awaiting completion, and substantial dividends due to be paid to shareholders in the near future, we expect a substantial improvement in the position before the end of the financial year in January 2005. The board remains satisfied that the company's VCT qualifying status has been and will be maintained. Format of accounts In April 2004 Northern 2 VCT revoked its status as an investment company under the Companies Act 1985 in order to allow the payment of dividends out of realised capital gains. This means we are now legally obliged to include a Profit and Loss Account and Statement of Total Recognised Gains and Losses in our financial statements, and these are set out below. In order to provide some continuity of financial reporting we have, with the agreement of our auditors, retained the familiar Statement of Total Return which I hope will be helpful to shareholders. Further changes in accounting presentation lie ahead with the scheduled introduction of International Accounting Standards in 2006 and we will keep this under review. Prospects Over the 12 months to 31 July 2004 Northern 2 VCT has declared tax-free dividends totalling 7.0p per share whilst still achieving a small increase in net asset value, and a further 3.3p per share is to be distributed in respect of a capital gain arising subsequently. It is pleasing that we have been able to take advantage of VCTs' distinctive capability to distribute capital gains to shareholders by way of dividend, and we will seek further opportunities to do so in the future. We still have substantial funds available for investment and our venture capital portfolio is generally making satisfactory progress. Although there are some question marks over prevailing economic conditions in the UK in the short and medium term, your directors continue to have confidence in the company's future prospects. MATT RIDLEY Chairman The unaudited interim financial statements for the six months ended 31 July 2004 are set out below. PROFIT AND LOSS ACCOUNT (unaudited) for the six months ended 31 July 2004 Six months ended Six months ended Year ended 31 July 2004 31 July 2003 31 January 2004 £000 £000 £000 Profit/(loss) realised on disposal Of investments 1,291 (406) 177 Revaluation (gains)/losses previously recognised (1,184) 502 525 ------- ------- ------- Profit recognised in the period on disposal of 107 96 702 investments Investment income 1,138 1,067 2,015 Investment management fee (635) (626) (1,256) Other expenses (105) (98) (195) ------- ------- ------- Profit on ordinary 505 439 1,266 activities before tax Tax on profit on ordinary (99) (60) (87) activities ------- ------- ------- Profit on ordinary 406 379 1,179 activities after tax Dividends (1,760) (449) (1,793) ------- ------- ------- Retained loss for the (1,354) (70) (614) period ------- ------- ------- Earnings per share 0.9p 0.8p 2.8p Dividend per share 4.0p 1.0p 4.0p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (unaudited) for the six months ended 31 July 2004 Six months ended Six months ended Year ended 31 July 2004 31 July 2003 31 January 2004 £000 £000 £000 Profit on ordinary 406 379 1,179 activities after tax Unrealised gain on revaluation Of investments 962 480 1,423 ------- ------- ------- Total recognised gains and losses during the period 1,368 859 2,602 ------- ------- ------- STATEMENT OF TOTAL RETURN (unaudited) for the six months ended 31 July 2004 Six months ended Six months ended 31 July 2004 31 July 2003 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 Gains/(losses) on investments: Realised on disposals - 1,291 1,291 - (406) (406) Unrealised revaluation movements - (222) (222) - 982 982 ------ ------ ------ ------ ------ ------ - 1,069 1,069 - 576 576 Income 1,138 - 1,138 1,067 - 1,067 Investment management fee (159) (476) (635) (156) (470) (626) Other expenses (105) - (105) (98) - (98) ------ ------ ------ ------ ------ ------ Return on ordinary activities before tax 874 593 1,467 813 106 919 Tax on ordinary activities (250) 151 (99) (208) 148 (60) ------ ------ ------ ------ ------ ------ Return on ordinary activities after tax 624 744 1,368 605 254 859 Dividends (436) (1,324) (1,760) (449) - (449) ------ ------ ------ ------ ------ ------ Transfer to/(from) reserves 188 (580) (392) 156 254 410 ------ ------ ------ ------ ------ ------ Return per share 1.4p 1.7p 3.1p 1.3p 0.6p 1.9p Dividend per share 1.0p 3.0p 4.0p 1.0p - 1.0p Year ended 31 January 2004 Revenue Capital Total £000 £000 £000 Gains/(losses) on investments: Realised on disposals - 177 177 Unrealised revaluation movements - 1,948 1,948 ------ ------ ------ - 2,125 2,125 Income 2,015 - 2,015 Investment management fee (314) (942) (1,256) Other expenses (195) - (195) ------ ------ ------ Return on ordinary activities before tax 1,506 1,183 2,689 Tax on ordinary activities (385) 298 (87) ------ ------ ------ Return on ordinary activities after tax 1,121 1,481 2,602 Dividends (1,121) (672) (1,793) ------ ------ ------ Transfer to/(from) reserves - 809 809 ------ ------ ------ Return per share 2.5p 3.3p 5.8p Dividend per share 2.5p 1.5p 4.0p BALANCE SHEET (unaudited) as at 31 July 2004 31 July 2004 31 July 2003 31 January 2004 £000 £000 £000 Venture capital investments: Unquoted 24,834 21,641 25,018 Quoted 2,876 1,736 2,684 ------- ------- ------- 27,710 23,377 27,702 Listed fixed-interest 6,856 15,830 7,238 investments ------- ------- ------- Total fixed asset 34,566 39,207 34,940 investments ------- ------- ------- Current assets: Debtors 353 741 350 Cash at bank 9,604 3,671 9,500 ------- ------- ------- 9,957 4,412 9,850 Creditors (amounts falling due within one year) (2,081) (694) (1,557) ------- ------- ------- Net current assets 7,876 3,718 8,293 ------- ------- ------- Net assets 42,442 42,925 43,233 ------- ------- ------- Capital and reserves: Called-up equity share 2,214 2,247 2,241 capital Share premium 33,761 33,761 33,761 Capital redemption 45 12 18 reserve Revaluation reserve 2,638 1,894 2,860 Profit and loss account 3,784 5,011 4,353 ------- ------- ------- Total equity 42,442 42,925 43,233 shareholders' funds ------- ------- ------- Net asset value per 95.8p 95.5p 96.5p share CASH FLOW STATEMENT (unaudited) for the six months ended 31 July 2004 Six months ended Six months ended Year ended 31 July 2004 31 July 2003 31 January 2004 £000 £000 £000 £000 £000 £000 Cash flow statement Net cash inflow from operating 395 306 934 activities Taxation: Corporation tax paid - - (58) Financial investment: Purchase of (4,915) (4,218) (9,081) investments Sale of investments 6,358 5,751 16,412 ------- ------- ------- Net cash inflow from financial 1,443 1,533 7,331 investment Equity dividends paid (1,335) (675) (1,123) ------- ------- ------- Cash inflow before use of liquid resources 503 1,164 7,084 and financing Net cash flow from management of - (1,300) - liquid resources Financing: Shares purchased for (399) (107) (198) cancellation ------- ------- ------- Increase/(decrease) 104 (243) 6,886 in cash at bank ------- ------- ------- Reconciliation of profit before Tax to net cash flow from operating activities Profit on ordinary 505 439 1,266 activities before tax Decrease/(increase) (3) (9) 381 in debtors Increase/(decrease) - (28) (11) in creditors Profit recognised on (107) (96) (702) disposal of investments ------- ------- ------- Net cash inflow from 395 306 934 operating activities ------- ------- ------- Analysis of cash at bank 1 February Cash flows 31 July 2004 2004 £000 £000 £000 Cash at bank 9,500 104 9,604 ------- ------- ------- INVESTMENT PORTFOLIO SUMMARY as at 31 July 2004 Valuation % of net assets £000 by valuation Fifteen largest venture capital investments Keith Prowse 2,300 5.4 DMN Installations 2,255 5.4 Stainton Metal Company 2,123 5.0 TFB Group 1,547 3.6 Longhirst Group 1,484 3.5 John Fredericks Plastics 1,206 2.8 Crabtree of Gateshead 1,203 2.8 RBF Industries 1,169 2.7 Crantock Bakery 1,107 2.6 IG Doors 1,000 2.4 Arrow Industrial Group 926 2.2 Omnico Plastics 846 2.0 Warmseal Windows (Newcastle) 818 1.9 S&P Coil Products 620 1.5 Widney* 593 1.4 ------- ------ 19,197 45.2 Other venture capital investments 8,513 20.0 ------- ------ Total venture capital investments 27,710 65.2 Listed fixed-interest investments 6,856 16.2 ------- ------ Total fixed asset investments 34,566 81.4 Net current assets 7,876 18.6 ------- ------ Net assets 42,442 100.0 ------- ------ * Quoted on Alternative Investment Market The above summary of results for the six months ended 31 July 2004 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 figures for the year ended 31 January 2004 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the independent auditors' report on those financial statements under Section 235 of the Companies Act 1985 was unqualified. The first interim dividend of 4.0p and the second interim dividend of 3.3p in respect of the year ending 31 January 2005 will be paid on 3 December 2004 to shareholders on the register at the close of business on 8 October 2004. A copy of the interim report for the six months ended 31 July 2004 is expected to be posted to shareholders on 6 October 2004 and will be available to the public at the registered office of the company at Northumberland House, Princess Square, Newcastle upon Tyne NE1 8ER. END This information is provided by RNS The company news service from the London Stock Exchange

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