TIDMNTV
17 MAY 2018
NORTHERN 2 VCT PLC
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 MARCH 2018
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 2017):
2018 2017
Net assets GBP87.0m GBP71.6m
Net asset value per share 66.9p 76.6p
Return per share:
Revenue 1.3p 1.6p
Capital (0.4)p 7.7p
Total 0.9p 9.3p
Dividend per share for the year:
First interim dividend 2.0p 2.0p
Second interim (special) dividend - 5.0p
Proposed final dividend 3.5p 3.5p
Total 5.5p 10.5p
Cumulative return to shareholders since launch:
Net asset value per share 66.9p 76.6p
Dividends paid per share* 111.9p 101.4p
Net asset value plus dividends paid per share 178.8p 178.0p
Mid-market share price at end of year 63.5p 72.0p
Share price discount to net asset value 5.1% 6.0%
Tax-free dividend yield (based on mid-market share
price at end of year):
Including special dividend N/A 14.6%
Excluding special dividend 8.7% 7.6%
*Excluding proposed final dividend payable on 20 July 2018
For further information, please contact:
NVM Private Equity LLP
Simon John/James Bryce 0191 244 6000
Website: www.nvm.co.uk
CHAIRMAN'S STATEMENT
I am pleased to report on another busy year for Northern 2 VCT, during
which ten new VCT qualifying investments were completed. Cash flows
remained strong, supported by a highly successful public share offer.
Our investment manager, NVM, continues to meet the twin challenges of
identifying new and compelling VCT-qualifying opportunities to support
small and medium businesses and working with existing portfolio
companies to realise their growth plans.
Results and dividend
The total return per share for the year as shown in the income statement
was 0.9p (last year 9.3p). The net asset value (NAV) per share at 31
March 2018, after deducting dividends totalling 10.5p which were paid
during the year, was 66.9p compared with 76.6p as at 31 March 2017. The
total return expressed as a percentage of the opening NAV was 1.2%,
which reflects a lower contribution from investment disposal activity
during the year.
Since 2004 our company has maintained an annual dividend payment of at
least 5.5p per share. Whilst the returns for the current year have not
been as high as in recent years, the company does have significant
distributable reserves brought forward from previous periods. The
directors therefore propose to maintain the total ordinary dividend at
5.5p. 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 2018, which if approved at the annual general
meeting, will be paid on 20 July 2018 to shareholders on the register on
22 June 2018. As previously highlighted, the Finance (No.2) Act 2015
contained significant changes to the criteria for VCT-qualifying
investments. Subsequent investment activity has necessarily focussed on
earlier stage businesses requiring capital to develop new products and
markets. This gradual shift in the portfolio may make the flow of
realised gains less predictable and so future dividends are likely to be
subject to fluctuation. However, paying regular tax-free dividends to
shareholders remains a priority for the directors.
Investment portfolio
Following careful selection, ten new VCT-qualifying investments were
added to the venture capital portfolio at a cost of GBP8.7 million. In
addition, follow-on investments totalling GBP1.4 million were made in
existing portfolio companies. I am pleased to note that the investment
rate of GBP10.1 million represents a marked increase from the prior year
(investments totalling GBP5.9m) and demonstrates our manager's continued
progress in adapting our investment approach to comply with the evolving
legislative landscape. Whilst we are still near the beginning of the
investment holding period for the 17 investments acquired to date under
the new rules, satisfactory progress is being made in the early stage
portfolio. Returns from early stage investments are expected to be more
volatile, which will have a bearing on the overall performance of the
company as this part of the portfolio grows. We are confident in our
manager's skills in selecting attractive opportunities in which to
invest shareholders' funds.
Approximately two thirds of the value of the venture capital portfolio
is currently represented by investments made under previous iterations
of the VCT rules. These investments are unaffected by the introduction
of the new rules, except in that we are prohibited from providing
follow-on funding to many of them. Strong underlying trading for many
of these investments has been balanced by more challenging economic
environments faced by a small number of others.
In a relatively subdued period for disposal activity, the cash proceeds
from venture capital investments sold or repaid during the year amounted
to GBP7.0 million, representing a surplus of GBP1.7 million over
original cost. Several investee companies are currently the subject of
discussions with a view to a realisation during the year to 31 March
2019.
Shareholder issues
Based on the expected investment rate in the coming years, both for new
investments and for follow-on funding rounds in early stage investee
companies, we announced a prospectus share offer in September 2017 to
raise up to GBP20 million. We were very pleased that strong demand was
experienced for this offer and that it was fully subscribed within six
weeks of being launched. Your directors would like to express their
appreciation of shareholders' continuing support.
In addition to the public offer, gross proceeds of GBP2 million were
received during the year through the issue of new shares under our
dividend investment scheme. 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.
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
537,000 shares were repurchased for cancellation, equivalent to
approximately 0.6% of the opening share capital.
The company's annual general meeting (AGM) will be held in London on
Thursday 12 July 2018 and the directors look forward to meeting and
engaging with shareholders.
Board of directors
All the directors will be seeking re-election at the AGM, either in
accordance with the AIC Code of Corporate Governance or voluntarily.
Our colleague Chris Fletcher retired from the board at the AGM in July
2017, when tributes were paid to his excellent service as a director and
chairman of the audit committee since 1999.
Company secretary
Chris Mellor retired as company secretary of Northern 2 VCT on 31 March
2018, having served in that role since the company was launched in 1999.
Many shareholders will have personal experience of Mr Mellor's knowledge
and expertise, and the directors would like to thank him for his sound
advice and support during his period in office. We welcome James Bryce,
NVM's new head of legal and compliance, as Mr Mellor's successor and
look forward to working with him.
VCT legislation and regulation
Having conducted its Patient Capital Review in 2017, with the aim of
considering the availability of long-term finance for growing firms, the
Government announced further changes to the VCT rules in the Autumn
Budget in November. The updates place additional restrictions on the
range of permitted investments and make the conditions for a VCT to
maintain its approved status somewhat more restrictive. We do
nonetheless welcome the preservation of the tax reliefs available to
shareholders and conditions for obtaining them. We also welcome the
stated intention of HM Revenue & Customs to improve the process for
providing advanced assurance for new VCT investments. The delays
experienced in the current year have on occasion been extreme and a
smoother process would enable the sector to deliver time critical
funding in a more efficient manner. VCTs continue to provide an
important source of capital to small and medium businesses and enable
investors to both support and share in their success. Apart from growth
generated in the financial metrics of portfolio companies, the wider
societal benefits are clear with our unquoted venture capital portfolio
collectively delivering growth of over 200 employees over the past year.
In January 2018, the Packaged Retail and Insurance-based Investment
Products (PRIIPs) Regulation was introduced with the aim of helping
investors to understand and compare the key features, risks, rewards and
costs of different investment products. Investment funds are now
required to publicly provide a Key Information Document (KID)
summarising a range of illustrative net returns to investors. Since its
introduction, your company has at all times complied with the PRIIPs
regulations, however it should be noted that the composition and
presentation of the KID is strictly prescribed and the inputs are based
on past performance only.
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 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
The past year has been another period of adapting as the company has
faced both economic and legislative uncertainty. These conditions look
set to continue for some time as the long-term impact of the UK's
decision to leave the EU unfolds and the Government evolves its approach
to the VCT industry as a whole. The company is currently well-funded to
capitalise on attractive investment opportunities and will continue to
maintain the highest standards in the selection and monitoring of
investments. We continue to have confidence that our portfolio and
investment strategy will deliver good returns to shareholders, taking a
medium to long-term perspective.
David Gravells
Chairman
Extracts from the audited financial statements for the year ended 31
March 2018 are set out below.
INCOME STATEMENT
for the year ended 31 March 2018
Year ended 31 March 2018 Year ended 31 March 2017
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on
disposal of
investments - 709 709 - 2,285 2,285
Movements in
fair value
of
investments - (202) (202) - 6,189 6,189
---------- ---------- ---------- ---------- ---------- ----------
- 507 507 - 8,474 8,474
Income 2,482 - 2,482 2,556 - 2,556
Investment
management
fee (393) (1,180) (1,573) (370) (1,681) (2,051)
Other
expenses (350) (11) (361) (364) - (364)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before tax 1,739 (684) 1,055 1,822 6,793 8,615
Tax on
return on
ordinary
activities (277) 277 - (313) 313 -
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after tax 1,462 (407) 1,055 1,509 7,106 8,615
---------- ---------- ---------- ---------- ---------- ----------
Return per 1.3p (0.4)p 0.9p 1.6p 7.7p 9.3p
share
BALANCE SHEET
as at 31 March 2018
31 March 2018 31 March 2017
GBP000 GBP000
Fixed assets:
Investments 61,432 58,195
---------- ----------
Current assets:
Debtors 205 591
Cash and cash equivalents 25,540 17,874
---------- ----------
25,745 18,465
Creditors (amounts falling due within one year) (134) (5,013)
---------- ----------
Net current assets 25,611 13,452
---------- ----------
Net assets 87,043 71,647
---------- ----------
Capital and reserves:
Called-up equity share capital 6,505 4,678
Share premium 392 3,029
Capital redemption reserve 110 83
Capital reserve 71,629 53,908
Revaluation reserve 7,836 9,049
Revenue reserve 571 900
---------- ----------
Total equity shareholders' funds 87,043 71,647
---------- ----------
Net asset value per share 66.9p 76.6p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2018
---------------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
2017 4,678 3,029 83 9,049 53,908 900 71,647
Return on
ordinary
activities
after tax for
the year - - - (1,213) 806 1,462 1,055
Dividends
paid - - - - (9,226) (1,791) (11,017)
Net proceeds
of share
issues 1,854 23,853 - - - - 25,707
Re-purchase
of shares (27) - 27 - (349) - (349)
Cancellation
of share
premium (26,490) - 26,490 -
reserve - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March
2018 6,505 392 110 7,836 71,629 571 87,043
---------- ---------- ---------- ---------- ---------- ---------- ----------
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 CASH FLOWS
for the year ended 31 March 2018
Year ended Year ended
31 March 2018 31 March 2017
GBP000 GBP000
Cash flows from operating activities:
Return on ordinary activities before tax 1,055 8,615
Adjustments for:
Gain on disposal of investments (709) (2,285)
Movement in fair value of investments 202 (6,189)
Decrease/(increase) in debtors 386 (321)
(Decrease)/increase in creditors (582) 172
---------- ----------
Net cash inflow/(outflow) from operating
activities 352 (8)
---------- ----------
Cash flows from investing activities:
Purchase of investments (10,265) (6,082)
Sale/repayment of investments 7,535 13,358
---------- ----------
Net cash (outflow)/inflow from investing
activities (2,730) 7,276
---------- ----------
Cash flows from financing activities:
Issue of ordinary shares 26,248 1,717
Share issue expenses (541) (30)
Share subscriptions held pending allotment (4,297) 4,297
Purchase of ordinary shares for
cancellation (349) (338)
Equity dividends paid (11,017) (9,654)
---------- ----------
Net cash inflow/(outflow) from financing
activities 10,044 (4,008)
---------- ----------
Net increase in cash/cash equivalents 7,666 3,260
Cash and cash equivalents at beginning of
year 17,874 14,614
---------- ----------
Cash and cash equivalents at end of year 25,540 17,874
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2018
% of
Cost Valuation net assets
GBP000 GBP000 by value
Venture capital investments:
No 1 Lounges 1,977 3,362 3.9
Lineup Systems 974 2,910 3.3
Entertainment Magpie Group 1,503 2,886 3.3
Agilitas IT Holdings 1,638 2,565 2.9
Sorted Holdings 1,625 2,535 2.9
MSQ Partners Group 1,672 2,516 2.9
Love Saving Group 1,124 2,309 2.7
Closerstill Group 1,683 2,198 2.5
Buoyant Upholstery 1,057 2,179 2.5
Wear Inns 1,868 2,113 2.4
Biological Preparations Group 2,166 1,790 2.1
Graza 1,523 1,523 1.7
It's All Good 1,145 1,458 1.7
Medovate 1,450 1,450 1.7
Volumatic Holdings 1,251 1,443 1.7
---------- ---------- --------
Fifteen largest venture capital
investments 22,656 33,237 38.2
Other venture capital investments 23,427 20,601 23.6
---------- ---------- --------
Total venture capital investments 46,083 53,838 61.8
Listed equity investments 3,644 3,800 4.4
Listed interest-bearing investments 3,868 3,794 4.4
---------- ---------- --------
Total fixed asset investments 53,595 61,432 70.6
----------
Net current assets 25,611 29.4
---------- --------
Net assets 87,043 100.0
---------- --------
RISK MANAGEMENT
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: investment in smaller and unquoted
companies, such as those in which the company invests, involves a higher
degree of risk than investment in larger listed companies because they
generally have limited product lines, markets and financial resources
and may be more dependent on their management or key individuals. The
securities of smaller companies in which the company invests are
typically unlisted, making them illiquid, and this may cause
difficulties in valuing and disposing of the securities. The company may
invest in businesses whose shares are quoted on AIM - the fact that a
share is quoted on AIM does not mean that it can be readily traded and
the spread between the buying and selling prices of such shares may be
wide. 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 and to make follow-on
investments in existing portfolio companies. 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, exchange rates 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 may 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, including NVM
in the case of AIM-quoted investments, and the board keeps the portfolio
and the actions taken 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: whilst it is the intention of the directors
that the company will be managed so as to continue to qualify as a VCT,
there can be no guarantee that this status will be maintained. A failure
to continue meeting the qualifying requirements could result in the loss
of VCT tax relief, the company losing its exemption from corporation tax
on capital gains, to shareholders being liable to pay income tax on
dividends received from the company and, in certain circumstances, to
shareholders being required to repay the initial income tax relief on
their investment. Mitigation: the investment 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
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; (iv) assess the company's ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern; and (v) prepare the financial statements on the going concern
basis unless they either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
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 are responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and 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.
The directors have confirmed 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 directors' report and strategic 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, Miss C A
McAnulty and Mr F L G Neale.
OTHER MATTERS
The above summary of results for the year ended 31 March 2018 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
112,186,377 (2017: 92,962,814) 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 2018 divided by the 130,089,490 (2017: 93,560,667)
ordinary shares in issue at that date.
If approved by shareholders, the proposed final dividend of 3.5p per
share for the year ended 31 March 2018 will be paid on 20 July 2018 to
shareholders on the register at the close of business on 22 June 2018.
The full annual report including financial statements for the year ended
31 March 2018 is expected to be posted to shareholders on 15 June 2018
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
May 17, 2018 10:30 ET (14:30 GMT)
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