TIDMNTV
12 JUNE 2017
NORTHERN 2 VCT PLC
RESULTS FOR THE YEARED 31 MARCH 2017
Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM
Private Equity. The trust 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 as at 31 March 2016):
2017 2016
Net assets GBP71.6m GBP71.3m
Net asset value per share 76.6p 77.9p
Return per share:
Revenue 1.6p 1.5p
Capital 7.7p 6.5p
Total 9.3p 8.0p
Dividend per share for the year:
First interim dividend 2.0p 2.0p
Second interim (special) dividend 5.0p 5.0p
Proposed final dividend 3.5p 3.5p
Total 10.5p 10.5p
Cumulative return to shareholders since launch:
Net asset value per share 76.6p 77.9p
Dividends paid per share* 101.4p 90.9p
Net asset value plus dividends paid per share 178.0p 168.8p
Mid-market share price at end of year 72.0p 72.5p
Share price discount to net asset value 6.0% 6.9%
Tax-free dividend yield (based on mid-market share
price at end of year):
Excluding special dividend 7.6% 7.6%
Including special dividend 14.6% 14.5%
*Excluding second interim and proposed final dividend payable on 21 July
2017
For further information, please contact:
NVM Private Equity LLP
Alastair Conn/Christopher Mellor 0191 244 6000
Website: www.nvm.co.uk
NORTHERN 2 VCT PLC
CHAIRMAN'S STATEMENT
Northern 2 VCT has enjoyed another year of progress in which seven new
investments were added to the venture capital portfolio and cash flows
remained strong, supported by three significant realisations. Those
realised investments, which we held on average for over seven years, are
excellent examples of how patient capital from venture capital trusts
supports growing companies at an early stage in their development to
enhance shareholder value whilst creating employment opportunities and
contributing to the wider UK economy in many ways.
Results and dividend
Notwithstanding that our sector is experiencing unprecedented change, I
am pleased to report consistently good results. In the year ended 31
March 2017 the company achieved a return after tax of GBP8,615,000 (2016
GBP7,356,000), or 9.3p per share (2016 8.0p), before deducting dividends
paid, representing a total return of 11.9% over the opening net asset
value per share (NAV). This excellent outcome reflected net gains on
the sale of investments totalling GBP2.3 million and an uplift in the
valuation of the continuing portfolio of GBP6.2 million, following a
strong performance by a number of our venture capital holdings.
The NAV per share at 31 March 2017, after deducting dividends totalling
10.5p which were paid during the year, was 76.6p compared with 77.9p as
at 31 March 2016. An interim dividend of 2.0p per share was paid in
January and the directors propose a final dividend of 3.5p per share in
respect of the year ended 31 March 2017. This is the fourteenth
consecutive year in which a dividend of at least 5.5p per share has been
paid. As indicated earlier, there has been a strong inflow of cash from
investment realisations since we last paid a special dividend. The VCT
rules permit only six months for re-investment of such receipts before
they become non-qualifying if retained by the company. The directors
have therefore also decided to declare a special dividend of 5.0p, which
will be paid as a second interim dividend for the year ended 31 March
2017, making a total dividend of 10.5p for the year. Both the final and
special dividends will be paid on 21 July 2017 to shareholders on the
register on 23 June 2017.
Whilst continuing to pay a predictable dividend remains a priority for
your directors, the dividend policy does remain under review. The new
VCT rules require a shift in our portfolio towards earlier stage
investments, which may have the effect of reducing the amount of income
and realised gains available for early distribution, weighting returns
to a later point in the investment cycle.
Investments
The cash proceeds from venture capital investments sold or repaid during
the year amounted to GBP13.3 million, representing a surplus of GBP5.0
million over original cost. Momentum has been maintained following the
financial year end, with a significant investment sale completed in
April 2017 and several other companies currently in discussions with a
view to a realisation.
A total of GBP5.9 million was invested in new VCT-qualifying holdings
during the year. Our investment manager has reported a strong pipeline
of activity currently which is expected to materialise into further
investments during the year to 31 March 2018.
Shareholder issues
In February 2017 we completed a non-prospectus top-up offer of new
ordinary shares, raising gross proceeds of GBP4.3 million, in
conjunction with similar offers by Northern Venture Trust and Northern 3
VCT. The offer was initially restricted to existing investors and owing
to the extremely strong level of demand experienced, was closed in
advance of becoming available to new shareholders. Whilst we understand
and regret the disappointment felt by unsuccessful applicants, we are
encouraged by the level of interest shown in VCTs such as ours, with a
well-established track record of sustained value creation. We
appreciate that some shareholders would welcome the opportunity to make
a further investment in the company and will keep possible share offers
under review, monitoring both the level of liquidity required by
expected deal flow and the need for continuing support for portfolio
investments in the longer term.
In addition to the top-up offer, 2,437,437 shares were issued during the
year under our dividend investment scheme for consideration representing
around one sixth of the total dividend payments during the year. The
scheme enables shareholders to efficiently re-invest some or all of
their dividends in new shares attracting income tax relief and remains
open to new participants. Shareholders who wish to join the scheme or
amend their current participation in the scheme may obtain an updated
scheme mandate form from NVM's website at www.nvm.co.uk.
The company has maintained its policy of buying back its own shares in
the market, at a discount of 5% to NAV. During the year, a total of
485,000 shares were repurchased for cancellation, equivalent to
approximately 0.5% of the opening share capital.
The company's annual general meeting will be held in London on Wednesday
12 July 2017 and the directors look forward to meeting and engaging with
shareholders and discussing the issues facing the sector.
Board of directors
I am pleased to highlight that Simon Devonshire, a highly experienced
investment professional and the current Entrepreneur-in-Residence at the
Department for Business, Energy and Industrial Strategy, joined the
board in January 2017 following a thorough process conducted by the
nomination committee. Simon brings a valuable fresh perspective to our
board and we look forward to benefiting from his contribution during the
years ahead.
All the directors except Chris Fletcher will be seeking re-election at
the AGM, either in accordance with the AIC Code of Corporate Governance
or voluntarily. Chris has signalled his intention to retire from the
board after the AGM. I would like to take this opportunity to record
your board's sincere thanks to him for his significant contribution to
Northern 2 VCT since joining the board in 1999. He has played a pivotal
role as chairman of the board's audit committee. Chris has had an
extremely distinguished career in corporate finance, including currently
as a non-executive director of the Association of Investment Companies.
The entire board will miss his expertise and guidance and I am sure you
will join me in wishing him well for the future.
VCT legislation
The past two years have seen significant change in the legislative
environment for VCTs as the Government has sought to channel more funds
into relatively young companies requiring funding for development and
growth. As the practicalities of operating under the new rules have
emerged, NVM has adapted to meet this challenge by supplementing its
team, which already has a good track record of investing in early stage
opportunities, with additional executives possessing relevant expertise.
We note with interest the announcement by the Government in November
2016 of its Patient Capital Review. The key terms of reference of the
review are to consider the availability of long-term finance for growing
firms and to identify and address the root causes of factors which
negatively affect the availability of long-term finance. VCTs play a
vital role in supporting entrepreneurial prosperity by providing growth
capital to innovative growing businesses at an early stage in their
development and we welcome the opportunity to engage in these crucial
discussions. We will continue to champion our work and highlight the
considerable contribution that the VCT sector makes in supporting small
and medium businesses, which are the lifeblood of our economy.
VCT qualifying status
The company has continued to meet the stringent and evolving qualifying
conditions laid down by HM Revenue & Customs for maintaining its
approval as a VCT. Our investment manager, NVM, monitors the position
closely and reports regularly to the board. Philip Hare & Associates
LLP has continued to act as independent adviser to the company on VCT
taxation matters.
Outlook
We have been operating for some time in a period of change in the VCT
market and against a background of political uncertainty, and it is
likely that this will continue in the year ahead. We are however
encouraged by the consistency of our track record throughout this period
and have confidence in the strength of our existing portfolio. There is
currently no lack of commercially attractive businesses that require
capital to prosper and the challenge remains to identify those
opportunities which are VCT-qualifying. We continue to believe that our
company and its manager are well placed to meet this challenge.
David Gravells
Chairman
The audited financial statements for the year ended 31 March 2017 are
set out below.
INCOME STATEMENT
for the year ended 31 March 2017
Year ended 31 March 2017 Year ended 31 March 2016
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 2,285 2,285 - 2,214 2,214
Movements in
fair value
of
investments - 6,189 6,189 - 5,068 5,068
---------- ---------- ---------- ---------- ---------- ----------
- 8,474 8,474 - 7,282 7,282
Income 2,556 - 2,556 2,334 - 2,334
Investment
management
fee (370) (1,681) (2,051) (385) (1,524) (1,909)
Other
expenses (364) - (364) (351) - (351)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax 1,822 6,793 8,615 1,598 5,758 7,356
Tax on
return on
ordinary
activities (313) 313 - (205) 205 -
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 1,509 7,106 8,615 1,393 5,963 7,356
---------- ---------- ---------- ---------- ---------- ----------
Return per 1.6p 7.7p 9.3p 1.5p 6.5p 8.0p
share
BALANCE SHEET
as at 31 March 2017
31 March 2017 31 March 2016
GBP000 GBP000
Fixed assets:
Investments 58,195 56,997
---------- ----------
Current assets:
Debtors 591 270
Cash and cash equivalents 17,874 14,614
---------- ----------
18,465 14,884
Creditors (amounts falling due within one
year) (5,013) (544)
---------- ----------
Net current assets 13,452 14,340
---------- ----------
Net assets 71,647 71,337
---------- ----------
Capital and reserves:
Called-up equity share capital 4,678 4,580
Share premium 3,029 1,464
Capital redemption reserve 83 59
Capital reserve 53,908 58,614
Revaluation reserve 9,049 5,562
Revenue reserve 900 1,058
---------- ----------
Total equity shareholders' funds 71,647 71,337
---------- ----------
Net asset value per share 76.6p 77.9p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017
---------------Non-distributable
reserves--------------- Distributable reserves Total
Capital
Share Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2016 4,580 1,464 59 5,562 58,614 1,058 71,337
Return on
ordinary
activities
after tax
for the
year - - - 3,487 3,619 1,509 8,615
Dividends
paid - - - - (7,987) (1,667) (9,654)
Net proceeds
of share
issues 122 1,565 - - - - 1,687
Re-purchase
of shares (24) - 24 - (338) - (338)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2017 4,678 3,029 83 9,049 53,908 900 71,647
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2016
---------------Non-distributable
reserves--------------- Distributable reserves Total
Capital
Share Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 April
2015 4,609 1,464 30 292 71,234 1,047 78,676
Return on
ordinary
activities
after tax
for the
year - - - 5,270 693 1,393 7,356
Dividends
paid - - - - (12,903) (1,382) (14,285)
Re-purchase
of shares (29) - 29 - (410) - (410)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2016 4,580 1,464 59 5,562 58,614 1,058 71,337
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
for the year ended 31 March 2017
Year ended Year ended
31 March 2017 31 March 2016
GBP000 GBP000
Cash flows from operating activities:
Return on ordinary activities before tax 8,615 7,356
Adjustments for:
Gain on disposal of investments (2,285) (2,214)
Movement in fair value of investments (6,189) (5,068)
Increase in debtors (321) (23)
Increase in creditors 172 341
---------- ----------
Net cash inflow/(outflow) from operating
activities (8) 392
---------- ----------
Cash flows from investing activities:
Purchase of investments (6,082) (13,883)
Sale/repayment of investments 13,358 10,461
---------- ----------
Net cash inflow/(outflow) from investing
activities 7,276 (3,422)
---------- ----------
Cash flows from financing activities:
Issue of shares 1,717 -
Share issue expenses (30) -
Share subscriptions held pending allotment 4,297 -
Repurchase of ordinary shares for cancellation (338) (410)
Dividends paid on ordinary shares (9,654) (14,285)
---------- ----------
Net cash outflow from financing activities (4,008) (14,695)
---------- ----------
Net increase/(decrease) in cash/cash
equivalents 3,260 (17,725)
Cash and cash equivalents at beginning of year 14,614 32,339
---------- ----------
Cash and cash equivalents at end of year 17,874 14,614
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2017
% of
Cost Valuation net assets
GBP000 GBP000 by value
Venture capital investments:
Entertainment Magpie Group 1,503 5,147 7.2
No 1 Lounges 1,977 3,962 5.5
Buoyant Upholstery 1,508 2,941 4.1
MSQ Partners Group 1,672 2,756 3.9
Lineup Systems 974 2,470 3.4
Optilan Group 1,000 2,196 3.1
Wear Inns 1,868 2,113 3.0
Agilitas IT Holdings 1,638 1,838 2.6
Closerstill Group 1,683 1,683 2.4
Volumatic Holdings 1,596 1,678 2.3
It's All Good 1,145 1,668 2.3
Biological Preparations Group 2,166 1,605 2.2
Graza 1,523 1,523 2.1
Customs Connect Group 1,322 1,322 1.8
Axial Systems Holdings 1,004 1,169 1.6
---------- ---------- --------
Fifteen largest venture capital
investments 22,579 34,071 47.5
Other venture capital investments 18,713 15,299 21.4
---------- ---------- --------
Total venture capital investments 41,292 49,370 68.9
Listed equity investments 4,042 5,046 7.0
Listed interest-bearing investments 3,812 3,779 5.3
---------- ---------- --------
Total fixed asset investments 49,146 58,195 81.2
----------
Net current assets 13,452 18.8
---------- --------
Net assets 71,647 100.0
---------- --------
BUSINESS RISKS
The board carries out a regular and robust review of the risk
environment in which the company operates. The principal risks and
uncertainties identified by the board which might affect the company's
business model and future performance, and the steps taken with a view
to their mitigation, are as follows:
Investment and liquidity risk: many of the company's investments are in
small and medium-sized unquoted and AIM-quoted companies which are VCT
qualifying holdings, and which by their nature entail a higher level of
risk and lower liquidity than investments in large quoted companies.
Mitigation: the directors aim to limit the risk attaching to the
portfolio as a whole by careful selection, close monitoring and timely
realisation of investments, by carrying out rigorous due diligence
procedures and maintaining a wide spread of holdings in terms of
financing stage and industry sector. The board reviews the investment
portfolio with the manager on a regular basis.
Financial risk: most of the company's investments involve a medium- to
long-term commitment and many are relatively illiquid. Mitigation: the
directors consider that it is inappropriate to finance the company's
activities through borrowing except on an occasional short-term basis.
Accordingly they seek to maintain a proportion of the company's assets
in cash or cash equivalents in order to be in a position to take
advantage of new unquoted investment opportunities. The company has
very little direct exposure to foreign currency risk and does not enter
into derivative transactions.
Economic risk: events such as economic recession or general fluctuation
in stock markets and interest rates may affect the valuation of investee
companies and their ability to access adequate financial resources, as
well as affecting the company's own share price and discount to net
asset value. Mitigation: the company invests in a diversified portfolio
of investments spanning various industry sectors, and maintains
sufficient cash reserves to be able to provide additional funding to
investee companies where appropriate.
Stock market risk: some of the company's investments are quoted on the
London Stock Exchange or AIM and will be subject to market fluctuations
upwards and downwards. External factors such as terrorist activity can
negatively impact stock markets worldwide. In times of adverse
sentiment there can be very little, if any, market demand for shares in
smaller companies quoted on AIM. Mitigation: the company's quoted
investments are actively managed by specialist managers and the board
keeps the portfolio under ongoing review.
Credit risk: the company holds a number of financial instruments and
cash deposits and is dependent on the counterparties discharging their
commitment. Mitigation: the directors review the creditworthiness of
the counterparties to these instruments and cash deposits and seek to
ensure there is no undue concentration of credit risk with any one
party.
Legislative and regulatory risk: in order to maintain its approval as a
VCT, the company is required to comply with current VCT legislation in
the UK, which reflects the European Commission's State aid rules.
Changes to the UK legislation or the State aid rules in the future could
have an adverse effect on the company's ability to achieve satisfactory
investment returns whilst retaining its VCT approval. Mitigation: The
board and the manager monitor political developments and where
appropriate seek to make representations either directly or through
relevant trade bodies.
Internal control risk: the company's assets could be at risk in the
absence of an appropriate internal control regime. Mitigation: the
board regularly reviews the system of internal controls, both financial
and non-financial, operated by the company and the manager. These
include controls designed to ensure that the company's assets are
safeguarded and that proper accounting records are maintained.
VCT qualifying status risk: the company is required at all times to
observe the conditions laid down in the Income Tax Act 2007 for the
maintenance of approved VCT status. The loss of such approval could
lead to the company losing its exemption from corporation tax on capital
gains, to investors being liable to pay income tax on dividends received
from the company and, in certain circumstances, to investors being
required to repay the initial income tax relief on their investment.
Mitigation: the manager keeps the company's VCT qualifying status under
continual review and its reports are reviewed by the board on a
quarterly basis. The board has also retained Philip Hare & Associates
LLP to undertake an independent VCT status monitoring role.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for
each financial year. Under that law the directors have elected to
prepare the financial statements in accordance with UK Accounting
Standards including FRS 102 "The Financial Reporting Standard applicable
in the UK and Republic of Ireland".
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the company and of the profit or loss of the
company for the year. In preparing the financial statements, the
directors are required to (i) select suitable accounting policies and
then apply them consistently; (ii) make judgements and estimates that
are reasonable and prudent; (iii) state whether applicable UK
Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements; and
(iv) prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in
business.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the company's transactions and
disclose with reasonable accuracy at any time the financial position of
the company and enable them to ensure that its financial statements
comply with the Companies Act 2006. They have general responsibility
for taking such steps as are reasonably open to them to safeguard the
assets of the company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the directors are also responsible
for preparing a directors' report, strategic report, directors'
remuneration report and corporate governance statement that comply with
that law and those regulations.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
In relation to the financial statements for the year ended 31 March
2017, the directors confirm that to the best of their knowledge (i)
taken as a whole the financial statements, prepared in accordance with
the applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit of the company; and
(ii) the strategic report and directors' report include a fair review of
the development and performance of the business and the position of the
company, together with a description of the principal risks and
uncertainties that they face. The directors consider that the annual
report and financial statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders
to assess the company's position and performance, business model and
strategy.
The directors of the company at the date of this announcement were Mr D
P A Gravells (Chairman), Mr A M Conn, Mr S P Devonshire, Mr C G A
Fletcher, Miss C A McAnulty and Mr F L G Neale.
OTHER MATTERS
The above summary of results for the year ended 31 March 2017 does not
constitute statutory financial statements within the meaning of Section
435 of the Companies Act 2006 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
auditor's report on those financial statements under Section 495 of the
Companies Act 2006 is unqualified, does not include any reference to
matters to which the auditor drew attention by way of emphasis without
qualifying the report and does not contain a statement under Section
498(2) or (3) of the Companies Act 2006.
The calculation of the revenue and capital return per share is based on
the return on ordinary activities after tax for the year and on
92,962,814 (2016 92,102,422) ordinary shares, being the weighted average
number of shares in issue during the year.
The calculation of the net asset value per share is based on the net
assets at 31 March 2017 divided by the 93,560,667 (2016 91,608,230)
ordinary shares in issue at that date.
The second interim dividend of 5.0p per share and, if approved by
shareholders, the proposed final dividend of 3.5p per share for the year
ended 31 March 2017 will be paid on 21 July 2017 to shareholders on the
register at the close of business on 23 June 2017.
The full annual report including financial statements for the year ended
31 March 2017 is expected to be posted to shareholders on 16 June 2017
and will be available to the public at the registered office of the
company at Time Central, 32 Gallowgate, Newcastle upon Tyne NE1 4SN and
on the NVM Private Equity LLP website, www.nvm.co.uk.
Neither the contents of the NVM Private Equity LLP website nor the
contents of any website accessible from hyperlinks on the NVM Private
Equity LLP website (or any other website) is incorporated into, or forms
part of, this announcement.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Northern 2 VCT PLC via Globenewswire
http://www.nvm.co.uk/investorarea/northern_2_vct_plc.php
(END) Dow Jones Newswires
June 12, 2017 11:30 ET (15:30 GMT)
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