Half-yearly report
(Thomson Reuters ONE) - 22 SEPTEMBER 2009NORTHERN 2 VCT PLCUNAUDITED HALF-YEARLY FINANCIAL REPORTFOR THE SIX MONTHS ENDED 31 JULY 2009Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVMPrivate Equity. It invests mainly in unquoted venture capitalholdings and aims to provide high long-term tax-free returns toshareholders through a combination of dividend yield and capitalgrowth.Financial highlights:(comparative figures for the six months ended 31 July 2008) 2009 2008Net assets £44.0m £47.3mNet asset value per share 77.1p 83.3pReturn per shareRevenue 1.5p 1.6pCapital 9.3p (4.4)pTotal 10.8p (2.8)pInterim dividend per shareIn respect of the periodRevenue 1.0p 1.0pCapital 1.0p 1.0pTotal 2.0p 2.0pCumulative returns toshareholders since launchNet asset value per share 77.1p 83.3pDividends paid per share* 44.9p 39.4pNet asset value plus dividendspaid per share 122.0p 122.7pShare price at end of period 49.5p 76.5p*Excluding proposed interim dividendFor further information, please contact:NVM Private Equity LimitedAlastair Conn/Christopher Mellor 0191 244 6000Website: www.nvm.co.ukNORTHERN 2 VCT PLCHALF-YEARLY MANAGEMENT REPORTFOR THE SIX MONTHS ENDED 31 JULY 2009The six months to 31 July 2009 saw some recovery in the financialmarkets, with the FTSE All-Share index rising by 13% over the period,but there was relatively little evidence of a sustainable improvementin the UK economy. The operating environment for small andmedium-sized companies has continued to be very difficult and seemslikely to remain so for some time to come. This presents significantchallenges to investors in such companies, and it is thereforeencouraging to report that over the past half year our portfolio hasdemonstrated a measure of resilience against the effects ofrecession. We are also pleased to announce today a highly successfulexit from the molecular diagnostics developer DxS, which was ourlargest investment by value at 31 July 2009.Results and dividendThe net asset value (NAV) per share at 31 July 2009, after deductingthe 2008/09 final dividend of 3.5p per share paid in June 2009, was77.1p (31 January 2009 69.8p) - an increase of 10.5% during the halfyear. The return per share for the period before dividends, as shownin the income statement, was 10.8p compared with a negative return of2.8p for the corresponding period last year. This is a good resultagainst the background of continuing uncertainty in the economy andfinancial markets.Investment income for the period remained steady at £1.4 million, andthe revenue return per share was down marginally from 1.6p to 1.5p.These figures reflect the benefit of a significant one-off incomereceipt from DxS, without which both income and revenue return pershare would have been considerably lower than in the correspondingperiod. The principal factors affecting income generation have beenfirstly the continuing reduction in interest rates, culminating inbase rate being reduced in March 2009 to 0.5% - a level which wouldhave seemed almost inconceivable twelve months earlier - and secondlythe fact that a number of our unquoted investee companies have comeunder pressure from their bankers to defer interest and dividendpayments in order to reduce borrowings. We are likely to feel theimpact of this more keenly in the second half of the currentfinancial year. However the capital return per share recoveredstrongly to 9.3p, from minus 4.4p in the corresponding period,through a combination of realised gains and unrealised revaluationincreases.The board has declared an unchanged interim dividend of 2.0p pershare, comprising 1.0p revenue and 1.0p capital distribution, whichwill be paid on 4 December 2009 to shareholders on the register on 6November 2009. Our stated objective is to maintain the annualdividend at not less than 5.5p per share; in the current climatethis is a demanding target but we presently expect, in the light ofrecent encouraging progress, to declare a final dividend of 3.5p pershare so as to match last year's total.InvestmentsThe rate of new investment has remained slow and one new unquotedholding was added during the period: £995,000 was invested inIngleby (1817), a new company formed by an experienced pharmaceuticalindustry entrepreneur to acquire high-potential drug developmentbusinesses. At this stage in the economic cycle our managers expectto see some interesting new opportunities at realistic valuations andthis should lead to an increase in investment activity.During the period there were two significant realisations in theportfolio. In March Pivotal Laboratories Holdings was sold to theUS-based clinical research services firm ACM, realising proceeds of£1.6 million and a gain over original cost of £0.7 million, and inJuly the public sector software developer Liquidlogic was sold to theAIM-quoted System C Healthcare for proceeds of £1.2 million and again of £1.0 million. In both cases there may be a further paymentto come depending on future performance.Subsequent to 31 July 2009, as referred to above, the company'sinvestment in DxS has been sold for initial proceeds of £4.4 millionin cash. DxS, which provides molecular diagnostic products andservices to the healthcare sector, has achieved significant growthsince our original early-stage investment in 2001 and this is a verysatisfactory outcome, representing an overall cash return of overseven times the money invested. The initial sale price has beenreflected in the directors' valuation of the investment at 31 July2009 and we have also been able to recognise some £0.6 million ofaccrued investment income which was paid at completion. Northern 2VCT may become entitled to receive further capital payments of up to£3.2 million over the next three years depending on the achievementby DxS of specified objectives, but no account has been taken ofthese in the financial statements at this stage.The valuation of the continuing portfolio has as usual been subjectedto a careful review, based on a cautious perception of the currenteconomic outlook and an awareness that many companies are finding itdifficult to maintain their bank borrowing facilities at previouslevels. This has led to some further reductions in individualcompany valuations but we have also been able to recognise a numberof cases where good progress is being made and value has beenenhanced. However the investment in Foreman Roberts Group, which waswritten down to nil value at 31 January 2009, was radicallyrestructured in July and has now in effect been permanently writtenoff.The reserve of cash and near-cash assets available for futureinvestment remains strong, with approximately £17 million of liquidresources on the balance sheet at 31 July 2009.Shareholder issuesWe reported six months ago on the difficulties which had beenexperienced in relation to the provision of corporate broking andmarket-making services to the company. In April 2009, following areview of available options, the board appointed Singers CapitalMarkets as brokers. The mid-market share price, which reached a lowpoint of 34.5p in April, has subsequently recovered to 49.5p at 31July. This still represents a discount of over 30% to NAV, and atax-free income yield of 11.1% based on a 5.5p annual dividend.The directors remain willing to use the company's powers tore-purchase its own shares in order to support market liquidity. Thebuy-back authority granted by shareholders caps the price at which wecan deal at a maximum of 105% of the latest mid-market share price,which currently prevents us from buying shares at our target discountto NAV of 10%. Given this restriction, and having regard to thegeneral volatility in the financial markets, we have concluded (ashave a number of other VCT boards) that maintaining a fixed 10%discount is not currently feasible and that for the foreseeablefuture we should be prepared to buy back at a wider discount, subjectto market conditions. This matter will be kept under continuingreview.At the same time our managers and their colleagues in the VCT sectorare continuing their efforts, supported by the Association ofInvestment Companies, to promote the merits of acquiring andretaining VCT shares as a means of generating substantial tax-freeyields in the long term, at a time when the higher rate of income taxis about to increase and conventional methods of pension provisionhave been proving less than wholly adequate. We believe that a widerappreciation by investors of the attractions of VCT shares could helpto reduce discounts to NAV in the sector generally.VAT on management feesFollowing HM Revenue & Customs' acceptance that investment managementfees paid by VCTs should be exempt from VAT, a credit of £414,000 wasrecognised in the financial statements for the year ended 31 January2009 in respect of VAT recoverable for earlier periods. Discussionsare continuing with a view to possible further recoveries, but theoutcome is not yet sufficiently certain to be reflected in thecurrent financial statements.VCT qualifying statusThe company has continued to meet the qualifying conditions laid downby HM Revenue & Customs for maintaining its approval as a VCT. Theboard retains PricewaterhouseCoopers LLP as independent advisers onVCT taxation matters.Risk managementThe board carries out a regular review of the risk environment inwhich the company operates. There has been no significant change tothe key risks discussed on page 10 of the annual report for the yearended 31 January 2009, including those resulting from the size andrelative illiquidity of the unquoted and AIM-quoted investments heldby the company.ProspectsThe recent upturn in the financial markets has been taken in somequarters as an indicator of imminent recovery in the economy. Atthis stage your board and managers consider it appropriate to take amore cautious view, believing that a return to economic prosperitymay be only gradual while the effects of recent events work their waythrough the system. This will inevitably have an impact on theshort-term prospects for our own investments. Nevertheless theportfolio is showing some encouraging signs and this should lead tofurther progress being made in the medium term.On behalf of the BoardDAVID GRAVELLSChairmanThe unaudited half-yearly financial statements for the six monthsended 31 July 2009 are set out below.INCOME STATEMENT(unaudited) for the six months ended 31 July 2009 Six mths ended 31 July 2009 Six mths ended 31 July 2008 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000Gain on disposalofinvestments - 703 703 - 159 159Movements invalue ofinvestments - 4,768 4,768 - (2,559) (2,559) ----- ----- ----- ----- ----- ----- - 5,471 5,471 - (2,400) (2,400)Income 1,369 - 1,369 1,377 - 1,377Investment (102) (307) (409) (129) (386) (515)management feeRecoverable VAT - - - 119 381 500Other expenses (155) - (155) (150) - (150) ----- ----- ----- ----- ----- -----Return onordinaryactivitiesbefore tax 1,112 5,164 6,276 1,217 (2,405) (1,188)Tax on return onordinary (242) 89 (153) (321) 2 (319)activities ----- ----- ----- ----- ----- -----Return onordinaryactivitiesafter tax 870 5,253 6,123 896 (2,403) (1,507) ----- ----- ----- ----- ----- -----Return per share 1.5p 9.3p 10.8p 1.6p (4.4)p (2.8)p Year ended 31 January 2009 Revenue Capital Total £000 £000 £000Gain on disposal ofinvestments - 784 784Movements in fair value ofinvestments - (9,985) (9,985) ----- ----- ----- - (9,201) (9,201)Income 2,456 - 2,456Investment management fee (246) (740) (986)Recoverable VAT 99 315 414Other expenses (298) - (298) ----- ----- -----Return on ordinary activitiesbefore tax 2,011 (9,626) (7,615)Tax on return onordinary activities (538) 120 (418) ----- ----- -----Return on ordinary activitiesafter tax 1,473 (9,506) (8,033) ----- ----- -----Return per share 2.6p (16.8)p (14.2)pRECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS(unaudited) for the six months ended 31 July 2009 Six months Six months Year ended ended ended 31 January 31 July 2009 31 July 2008 2009 £000 £000 £000Equity shareholders'funds at1 February 2009 39,702 43,753 43,753Return on ordinaryactivitiesafter tax 6,123 (1,507) (8,033)Dividends recognisedin the period (1,990) (1,870) (3,005)Net proceeds of share 173 7,466 7,573issuesShares purchased forcancellation (36) (586) (586) ------ -- --- ------Equity shareholders'funds at31 July 2009 43,972 47,256 39,702 ------ ------ ------BALANCE SHEET(unaudited) as at 31 July 2009 31 July 2009 31 July 2008 31 January 2009 £000 £000 £000Fixed asset investments heldat fair value:Venture capital investmentsUnquoted 23,577 25,779 21,090Quoted 2,544 2,053 1,823 ------ ------ ------Total venture capital 26,121 27,832 22,913investmentsListed fixed-interest 5,018 17,548 4,636investments ------ ------ ------Total fixed asset investments 31,139 45,380 27,549 ------ ------ ------Current assets:Debtors 1,465 872 813Cash and deposits 12,008 1,565 11,891 ------ ------ ------ 13,473 2,437 12,704Creditors (amountsfalling due within one year) (640) (561) (551) ------ ------ ------Net current assets 12,833 1,876 12,153 ------ ------ ------Net assets 43,972 47,256 39,702 ------ ------ ------Capital and reserves:Called-up equity share capital 2,852 2,835 2,843Share premium 34,181 33,922 34,021Capital redemption reserve 341 337 337Capital reserve 7,472 8,028 8,157Revaluation reserve (2,098) 937 (6,863)Revenue reserve 1,224 1,197 1,207 ------ ------ ------Total equity shareholders' funds 43,972 47,256 39,702 ------ ------ ------Net asset value per share 77.1p 83.3p 69.8pCASH FLOW STATEMENT(unaudited) for the six months ended 31 July 2009 Six months ended Six months ended Year ended 31 July 2009 31 July 2008 31 January 2009 £000 £000 £000 £000 £000 £000Net cash inflowfromoperating 89 142 574activitiesTaxation:Corporation tax - - (108)paidFinancialinvestment:Purchase of (1,528) (22,619) (7,864)investmentsSale/repayment ofinvestments 3,409 11,580 7,855 ------ ------ ------Net cashinflow/(outflow)from financial 1,881 (11,039) (9)investmentEquity dividends (1,990) (1,870) (3,005)paid ------ ------ ------Net cash outflowbefore financing (20) (12,767) (2,548)Financing:Issue of ordinary 189 7,886 7,999sharesShare issue (16) (420) (426)expensesPurchase ofordinary sharesfor cancellation (36) (586) (586) ------ ------ ------Net cash inflowfromfinancing 137 6,880 6,987 ------ ------ ------Increase/(decrease) incash and deposits 117 (5,887) 4,439 ------ ------ ------Reconciliation of return before taxto net cash flow from operatingactivitiesReturn on ordinaryactivitiesbefore tax 6,276 (1,188) (7,615)Gain on disposal ofinvestments (703) (159) (784)Movements in fairvalueof investments (4,768) 2,559 9,985Increase in debtors (652) (517) (458)Decrease in creditors (64) (553) (554) ------ ------ ------Net cash inflow fromoperating activities 89 142 574 ------ ------ ------Analysis of movement innet funds 1 February Cash flows 31 July 2009 2009 £000 £000 £000Cash and deposits 11,891 117 12,008 ------ ------ ------INVESTMENT PORTFOLIO SUMMARYas at 31 July 2009 Cost Valuation % of net assets £000 £000 by valuation15 largest investments:DxS 685 4,395 10.0Paladin Group 1,307 1,823 4.1Envirotec 975 1,785 4.1Crantock Bakery 1,107 1,412 3.2Britspace Holdings 2,230 1,365 3.1Axial Systems Holdings 1,004 1,164 2.6Abermed 725 1,059 2.4CloserStill Holdings 1,000 1,000 2.3Ingleby (1817) 995 995 2.3S&P Coil Products 620 994 2.3Longhirst Venues 375 965 2.2Arleigh International 435 888 2.0Advanced Computer Software* 429 884 2.0Optilan Group 1,000 821 1.9IG Doors 1,000 750 1.7 ------ ------ ----- 13,887 20,300 46.2Other venture capital investments 14,090 5,821 13.2 ------ ------ -----Total venture capital investments 27,977 26,121 59.4Listed fixed-interest investments 5,260 5,018 11.4 ------ ------ -----Total fixed asset investments 33,237 31,139 70.8 ------Net current assets 12,833 29.2 ------ -----Net assets 43,972 100.0 ------ -----*Quoted on AIMThe above summary of results for the six months ended 31 July 2009does not constitute statutory financial statements within the meaningof Section 240 of the Companies Act 1985, has not been audited orreviewed by the company's independent auditors and has not beendelivered to the Registrar of Companies. The figures for the yearended 31 January 2009 have been extracted from the audited financialstatements for that year, which have been delivered to the Registrarof Companies; the independent auditors' report on those financialstatements under Section 235 of the Companies Act 1985 wasunqualified. The half-yearly financial statements have been preparedon the basis of the accounting policies set out in the annualfinancial statements for the year ended 31 January 2009.The directors confirm that to the best of their knowledge thehalf-yearly financial statements have been prepared in accordancewith the Statement "Half-yearly financial reports" issued by the UKAccounting Standards Board and the half-yearly financial reportincludes a fair review of the information required by (a) DTR 4.2.7Rof the Disclosure and Transparency Rules, being an indication ofimportant events that have occurred during the first six months ofthe financial year and their impact on the condensed set of financialstatements, and a description of the principal risks anduncertainties for the remaining six months of the year, and (b) DTR4.2.8R of the Disclosure and Transparency Rules, being related partytransactions that have taken place in the first six months of thecurrent financial year and that have materially affected thefinancial position or performance of the entity during that period,and any changes in the related party transactions described in thelast annual report that could do so.The calculation of the revenue and capital return per share is basedon the return on ordinary activities after tax for the period and on56,924,548 (2008 54,434,646) ordinary shares, being the weightedaverage number of shares in issue during the period.The proposed interim dividend of 2.0p per share for the year ending31 January 2010 will be paid on 4 December 2009 to shareholders onthe register at the close of business on 6 November 2009.A copy of the half-yearly financial report for the six months ended31 July 2009 is expected to be posted to shareholders on 2 October2009 and will be available to the public at the registered office ofthe company at Northumberland House, Princess Square, Newcastle uponTyne NE1 8ER and on the NVM Private Equity Limited website,www.nvm.co.uk.---END OF MESSAGE---This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 22.09.2009 - 08:06 Uhr
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