Northern 2 VCT PLC : Half-yearly report
1 NOVEMBER 2011
NORTHERN 2 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011
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 are for the six months ended 31 July
2010):
             2011            2010
Net assets £45.1m £43.3m
Net asset value per share 78.5p 76.7p
Return per share after tax:
  Revenue 1.3p 1.1p
  Capital 2.1p 1.0p
  Total 3.4p 2.1p
Dividend per share declared in respect of the 2.0p 2.0p
period
Cumulative return to shareholders since launch:
  Net asset value per share 78.5p 76.7p
  Dividends paid per share* 56.9p 50.4p
  Net asset value plus dividends paid per share 135.4p 127.1p
Mid-market share price at end of period 67.5p 64.5p
Share price discount to net asset value 14.0% 15.9%
*Excluding interim dividend payable on 6 January 2012
For further information, please contact:
NVM Private Equity Limited
Alastair Conn/Christopher Mellor                  0191 244 6000
Website:Â www.nvm.co.uk
HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS
Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2011, after
deducting the 2010/11 second interim and final dividends totalling 4.5p per
share paid in July 2011, was 78.5p (31 March 2011 79.5p). The return per share
for the period before dividends, as shown in the income statement, was 3.4p
compared with 2.1p in the six months to 31 July 2010. In a period characterised
by turbulence and erosion of value in the economy and financial markets, this
may be seen as an encouraging result. By comparison the FTSE All-Share index
fell by 13.5% over the six months.
Investment income for the period amounted to £1.27 million, a 25% increase over
the corresponding period, having benefitted from a non-recurring receipt of £0.5
million from Promanex Group Holdings as mentioned below. The revenue return per
share rose from 1.1p to 1.3p.
The board has declared an unchanged interim dividend of 2.0p per share, which
will be paid on 6 January 2012 to shareholders on the register on 4 November
2011. 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 now been
achieved for seven successive financial years despite the steep drop in market
interest rates, thus providing a highly attractive and consistent tax-free yield
to our shareholders.
Investments
During the six months ended 30 September 2011 the company completed an
investment of £988,000 in Tinglobal Holdings, a Cirencester-based supplier of
refurbished mid-range computer equipment, as well as making small additional
investments in two existing portfolio companies. This took the amount invested
since the beginning of 2011 to over £4 million, with further investments
totalling £3 million approved and awaiting completion subject to due diligence.
It was announced in August 2011 that the company's investment in Promanex Group
Holdings, the support services and facilities management contractor, had been
sold to Costain Group PLC. Cash totalling £2.6 million was received at
completion, comprising £2.1 million for the sale of the investment and £0.5
million of accrued investment income not previously recognised in the financial
statements. Although the gain realised over the original cost of the holding
was only some £0.4 million, this was ultimately a pleasing outcome to an
investment which had faced considerable difficulties during our four year period
of ownership. A further £0.8 million was received by way of deferred proceeds
from the sale of DxS in September 2009.
Many of the companies in the venture capital portfolio have made encouraging
progress during the past six months, especially when viewed against the adverse
market conditions.
Proposed tender offer and share issue
On 23 September 2011 your directors sent to shareholders a circular containing
outline proposals for a tender offer to re-purchase 10% of the company's issued
share capital and a public offer of new ordinary shares. Enabling resolutions
were passed at a general meeting of shareholders held on 20 October 2011,
including a resolution extending the life of the company by postponing the next
continuation vote until the 2017 annual general meeting.
It is expected that the following documents will be published during November
2011:
* a circular to shareholders setting out details of the terms and conditions
of the tender offer and the procedure to be followed by shareholders who
wish to participate. It is envisaged that the company will offer to re-
purchase 10% of the company's issued ordinary shares at a price of 74.2p,
representing a 3% discount to the unaudited NAV of 78.5p as at 30 September
2011, net of the interim dividend of 2.0p per share payable on 6 January
2012. Shareholders will be entitled to have 10% (or such lesser proportion
as they choose) of their shareholding purchased by the company, and may
offer to sell in excess of 10% of their shares on the basis that some
shareholders may not wish to participate in the tender offer, in which case
any entitlements not taken up will be reallocated on a pro rata basis to
shareholders making excess applications. Applications under the tender
offer must be made by 6 January 2012 and cash proceeds will be paid to
shareholders by 13 January 2012.
* a prospectus in relation to the proposed issue of new shares. It is
expected that up to £15 million (before expenses) will be raised through an
offer of up to 20,000,000 new ordinary shares at a price initially of 81.0p
per share, set at a small premium to the latest NAV so as to allow for issue
expenses and avoid dilution to existing shareholders. Shares will be
available for subscription in both the 2011/12 and 2012/13 tax years.
Shareholders in Northern 2 VCT and other VCTs managed by NVM Private Equity
who apply for new shares before 6 February 2012 will receive an incentive
equivalent to 2% of their subscription in the form of additional shares at
no extra cost. Investors will be eligible for income tax relief at 30% on
their subscriptions under the current legislation.
If the tender offer and the share issue are both fully subscribed, the resulting
net increase in the company's capital base will be approximately £10 million.
This will take Northern 2 VCT's net assets to around £55 million, placing it
amongst the largest VCTs in the market, and in recognition of the consequent
economies of scale the cap on the company's annual running costs will be reduced
from 3.5% to 3.0% of net assets.
Share buy-back policy
In order to assist in the provision of liquidity to shareholders, the company
has maintained its policy of buying back its shares in the market at a 15%
discount to the latest published NAV, subject to market conditions and the
availability of cash resources and distributable reserves. During the six
months ended 30 September 2011 320,000 shares, representing 0.6% of the
company's issued capital, were purchased at an average price of 66p per share.
The share price ranged between a low of 64p and a high of 68.5p during the
period.
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 Fred Holliday retired from the board at the close of the annual
general meeting on 19 July 2011. We would like to reiterate our thanks to him
for giving us the benefit of his wisdom, knowledge and experience over the past
12 years.
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 14 month period ended 31 March
2011, including those resulting from the size and relative illiquidity of the
unquoted and AIM-quoted investments held by the company.
Prospects
The company's portfolio has demonstrated a high degree of resilience in the face
of a market environment which is particularly testing for small growing
companies. Our robust balance sheet should be further strengthened by the
inflow of cash from the forthcoming share issue, and our managers are currently
seeing a steady flow of interesting new investment opportunities. The progress
made over the past six months confirms that the simple combination of careful
selection and close monitoring can produce good investment performance in
adverse as well as benign conditions.
On behalf of the Board
David Gravells
Chairman
The unaudited half-yearly financial statements for the six months ended 30
September 2011 are set out below.
INCOME STATEMENT
(unaudited) for the six months ended 30 September 2011
 Six months ended Six months ended
30 September 2011 31 July 2010
 Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gain on -Â 766Â 766Â -Â 692Â 692
disposal of
investments
Movements -Â 661Â 661Â -Â 130Â 130
in fair
value of
investments
 ---------- ---------- ---------- ---------- ---------- ----------
 - 1,427 1,427 - 822 822
Income 1,266Â -Â 1,266Â 1,012Â -Â 1,012
Investment (115) (346) (461) (114) (343) (457)
management
fee
Recoverable -Â -Â -Â -Â -Â -
VAT
Other (161) -Â (161) (155) -Â (155)
expenses
 ---------- ---------- ---------- ---------- ---------- ----------
Return on 990Â 1,081Â 2,071Â 743Â 479Â 1,222
ordinary
activities
before tax
Tax on (245) 112Â (133) (134) 99Â (35)
return on
ordinary
activities
 ---------- ---------- ---------- ---------- ---------- ----------
Return on 745Â 1,193Â 1,938Â 609Â 578Â 1,187
ordinary
activities
after tax
 ---------- ---------- ---------- ---------- ---------- ----------
Return per 1.3p 2.1p 3.4p 1.1p 1.0p 2.1p
share
  14 months ended 31 March 2011
    Revenue Capital Total
£000 £000 £000
Gain on disposal of investments    - 1,065 1,065
Movements in fair value of investments    - 2,206 2,206
    ---------- ---------- ----------
    - 3,271 3,271
Income    2,034 - 2,034
Investment management fee    (263) (983) (1,246)
Recoverable VAT Â Â Â 72Â 215Â 287
Other expenses    (329) - (329)
    ---------- ---------- ----------
Return on ordinary activities before    1,514 2,503 4,017
tax
Tax on return on ordinary activities    (321) 215 (106)
    ---------- ---------- ----------
Return on ordinary activities after    1,193 2,718 3,911
tax
    ---------- ---------- ----------
Return per share    2.1p 4.8p 6.9p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited) for the six months ended 30 September 2011
 Six months ended Six months ended 14 months ended
30 September 2011Â 31 July 2010Â 31 March 2011
£000 £000 £000
Equity shareholders' funds 45,713Â 44,349Â 44,349
at 1 April 2011
Return on ordinary 1,938Â 1,187Â 3,911
activities after tax
Dividends recognised in (2,579) (1,983) (3,113)
the period
Net proceeds of share 234Â 174Â 1,272
issues
Shares re-purchased for (213) (381) (706)
cancellation
 ---------- ---------- ----------
Equity shareholders' funds 45,093Â 43,346Â 45,713
at 30 Sept 2011
 ---------- ---------- ----------
BALANCE SHEET
(unaudited) as at 30 September 2011
 30 September 2011 31 July 2010 31 March 2011
£000 £000 £000
Fixed asset investments 39,654Â 36,795Â 41,984
 ---------- ---------- ----------
Current assets:
  Debtors 637 817 798
  Cash and deposits 5,367 5,986 3,996
 ---------- ---------- ----------
 6,004 6,803 4,794
Creditors (amounts falling due
  within one year) (565) (252) (1,065)
 ---------- ---------- ----------
Net current assets 5,439Â 6,551Â 3,729
 ---------- ---------- ----------
Net assets 45,093Â 43,346Â 45,713
 ---------- ---------- ----------
Capital and reserves
Called-up equity share capital 2,873Â 2,827Â 2,873
Share premium 35,679Â 34,434Â 35,461
Capital redemption reserve 426Â 385Â 410
Capital reserve 3,262Â 7,079Â 6,167
Revaluation reserve 1,850Â (2,193) (31)
Revenue reserve 1,003Â 814Â 833
 ---------- ---------- ----------
Total equity shareholders' funds 45,093Â 43,346Â 45,713
 ---------- ---------- ----------
Net asset value per share 78.5p 76.7p 79.5p
CASH FLOW STATEMENT
(unaudited) for the six months ended 30 September 2011
 Six months ended Six months ended 14 months ended
30 September 2011Â 31 July 2010Â 31 March 2011
 £000 £000 £000 £000 £000 £000
Cash flow statement
Net cash inflow  684  340  839
from operating
activities
Taxation:
Corporation tax  -  -  (22)
paid
Financial
investment:
Purchase of (1,401) Â (7,906) Â (14,839)
investments
Sale/repayment of 4,646Â Â 1,562Â Â 6,385
investments
 ----------  ----------  ----------
Net cash inflow/(outflow) from 3,245Â Â (6,344) Â (8,454)
financial investment
Equity dividends  (2,579)  (1,983)  (3,113)
paid
  ----------  ----------  ----------
Net cash inflow/(outflow) 1,350Â Â (7,987) Â (10,750)
before financing
Financing:
Issue of shares 240Â Â 184Â Â 1,340
Share issue (6) Â (10) Â (68)
expenses
Re-purchase of (213) Â (381) Â (706)
shares for
cancellation
 ----------  ----------  ----------
Net cash inflow/(outflow) from 21Â Â (207) Â 566
financing
  ----------  ----------  ----------
Increase/(decrease) Â 1,371Â Â (8,194) Â (10,184)
in cash and
deposits
  ----------  ----------  ----------
Reconciliation of
return before tax
to
net cash flow from
operating
activities
Return on ordinary  2,071  1,222  4,017
activities before
tax
Gain on disposal of  (766)  (692)  (1,065)
investments
Movements in fair  (661)  (130)  (2,206)
value of
investments
(Increase)/decrease  161  (159)  (140)
in debtors
Increase/(decrease) Â (121) Â 99Â Â 233
in creditors
  ----------  ----------  ----------
Net cash inflow from operating 684Â Â 340Â Â 839
activities
  ----------  ----------  ----------
Reconciliation of movements in
net funds
 1 April 2011 Cash flows 30 September 2011
  £000  £000  £000
Cash and deposits  3,996  1,371  5,367
  ----------  ----------  ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2011
Company Cost Valuation % of net assets
£000 £000 by valuation
Fifteen largest venture capital
investments:
Kerridge Commercial Systems 1,740 3,600 8.0
Closerstill Holdings 1,000 1,731 3.8
Envirotec 975 1,518 3.4
Alaric Systems 1,269 1,517 3.4
Paladin Group 1,538 1,442 3.2
Arleigh International 900 1,406 3.1
IG Doors 615 1,269 2.8
Kitwave One 1,246 1,246 2.7
Axial Systems Holdings 1,004 1,117 2.5
Wear Inns 1,116 1,116 2.5
Cawood Scientific 1,031 1,031 2.3
RCC Lifesciences 995 995 2.2
Evolve Investments 995 995 2.2
Tinglobal Holdings 988 988 2.2
Advanced Computer Software Group* 381 906 2.0
 ---------- ---------- -------
 15,793 20,877 46.3
Other venture capital investments 14,126 11,261 25.0
 ---------- ---------- -------
Total venture capital investments 29,919 32,138 71.3
Listed fixed-interest investments 7,767 7,516 16.7
 ---------- ---------- -------
Total fixed asset investments 37,686 39,654 88.0
 ----------
Net current assets  5,439 12.0
  ---------- -------
Net assets  45,093 100.0
  ---------- -------
*Quoted on AIM
The above half-yearly financial statements for the six months ended 30 September
2011 do not constitute statutory financial statements within the meaning of
Section 434 of the Companies Act 2006, have not been reviewed or audited by the
company's independent auditors and have not been delivered to the Registrar of
Companies. The figures for the 14 month period ended 31 March 2011 have been
extracted from the audited financial statements for that period, which have been
delivered to the Registrar of Companies; Â the independent auditors' report on
those financial statements was unqualified. The half-yearly financial
statements have been prepared on the basis of the accounting policies set out in
the audited financial statements for the 14 month period ended 31 March 2011.
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 Rules 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 Rules 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 announcement were Mr D P A
Gravells (Chairman), Mr A M Conn, Mr E M P Denny, Mr C G A Fletcher 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 six months ended 30 September
2011 and on 57,442,400 (six months ended 31 July 2010 56,759,926) ordinary
shares, being the weighted average number of shares in issue during the period.
The interim dividend of 2.0p per share for the year ending 31 March 2012 will be
paid on 6 January 2012 to shareholders on the register at the close of business
on 4 November 2011.
A copy of the half-yearly financial report for the six months ended 30 September
2011 is expected to be posted to shareholders on 11 November 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, www.nvm.co.uk.
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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