Northern 2 VCT PLC – Final Results

17th April 2008

RNS Number:6812S
Northern 2 VCT PLC
18 April 2008

18 APRIL 2008



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. It was launched in 1999 and has recently
closed a #9 million top-up share issue, taking its net assets to over #50

Financial highlights – year ended 31 January 2008:

(comparative figures as at 31 January 2007 in italics):

2008 2007

* Net assets #43.8m #42.9m

* Net asset value per share 89.1p 88.9p

* Return per share:
Revenue 2.5p 2.5p
Capital 3.9p 1.2p
Total 6.4p 3.7p

* Dividend per share declared
in respect of the year:
Revenue 2.5p 2.5p
Capital 3.5p 3.0p
Total 6.0p 5.5p

* Cumulative return to shareholders
since launch:
Net asset value per share 89.1p 88.9p
Dividends paid per share* 35.4p 28.9p
Net asset value plus dividends
paid per share 124.5p 117.8p

* Mid-market share price at year end 80.5p 75.0p

*Excluding proposed final dividend

For further information, please contact:

NVM Private Equity Limited
Alastair Conn, Managing Director 0191 244 6000
Lansons Communications
Karen Mignon 020 7294 3685



I would like to take this opportunity to welcome for the first time those who
have become shareholders in Northern 2 VCT through the recent public share
offer, as well as thanking existing shareholders for their continuing support.
The company is in good shape, having achieved a total return of 6.4p per share
which is equivalent to 7.2% of the opening net asset value. Over the same
period the FTSE All-Share index produced a negative total return of 3.6%. Net
assets at 31 January 2008 were #43.8 million, and I am pleased to report that
this figure has subsequently increased to over #50 million as a result of the
issue of new shares.

Investment portfolio

The venture capital portfolio at 31 January 2008 comprised 48 holdings with a
total value of #31.7 million. During the year eight new venture capital
investments were completed at a cost of #4.6 million. Our managers were also
able to take a number of exit opportunities with the result that sale proceeds
from venture capital investments reached a record level of #9.2 million.

Revenue and dividends

In October 2007 shareholders received a letter from the board in which, amongst
other things, we reported on our review of policy in relation to dividends. It
is worth repeating the key points of that statement here. We said that we
intended to maintain the company’s annual dividend at not less than 5.5p per
share, subject to the availability of sufficient distributable profits, with a
view to reinforcing the attraction not only of holding the shares but also of
acquiring them by secondary market purchase. The indicated figure of 5.5p per
share is not intended to be a maximum and the board may declare a higher
dividend when circumstances permit. Dividends paid by VCTs are of course free
of tax in the hands of UK shareholders.

By way of illustration, an annual dividend of 5.5p is equivalent to an 8.6%
gross yield to a higher-rate taxpayer subscribing for shares in the recent
public offer at 95p, and 12.3% if the 30% initial income tax relief on
subscriptions is taken into account.

In the year ended 31 January 2008 the company’s revenue return per share was
unchanged at 2.5p, enabling us to maintain the revenue dividend at 2.5p per
share for the seventh year in succession. In addition we propose to distribute
realised gains from the venture capital portfolio, increasing the capital
dividend from 3.0p to 3.5p per share. The total dividend for the year is
therefore 6.0p per share, exceeding our stated objective. An interim dividend
of 2.0p per share was paid in December 2007 and the proposed final dividend of
4.0p per share will, if approved by shareholders at the annual general meeting,
be paid on 6 June 2008. Subscribers in the recent share issue do not rank for
this final dividend, but will be entitled to receive the interim dividend for
the year ending 31 January 2009 (expected to be paid in December 2008) and all
subsequent dividends.

The cumulative total of dividends declared by the company has reached 39.4p per

Shareholder issues

In November 2007 we launched a public offer of new ordinary shares for
subscription in the 2007/08 and 2008/09 tax years. The offer closed on 17 April
2008, having raised a total of #9.5 million before expenses. I consider this a
satisfactory outcome given the conditions prevailing in the economy and the
financial markets.

During the year the company bought back for cancellation 1,444,364 shares,
equivalent to approximately 3% of the issued capital at the start of the year,
at an average price of 80p per share. A resolution will be proposed at the
annual general meeting to renew the board’s authority to make market purchases
of shares and it remains our policy, subject to periodic review, to buy back
shares at a discount of 10% to net asset value, as a means of assisting
shareholders who need to dispose of their shares.

Following a review of the provision of corporate broking services, we appointed
Landsbanki Securities (UK) Limited as brokers to the company in October 2007.
It is our long-term objective to stimulate a greater level of secondary market
demand for the company’s shares, and our new dividend policy should help us
towards this goal.

VAT on management fees

The Government’s Budget proposals in March 2008 included the exemption of VCTs
from paying VAT on management fees with effect from 1 October 2008. This
follows a European Court judgment against the Government in a case relating to
VAT payable by investment trusts. Exemption from VAT will be a useful benefit
to your company: we incurred #182,000 in VAT on management fees in the year
ended 31 January 2008, equivalent (before tax relief) to approximately 0.4p per
share. Our advisers are currently looking into the possibility of obtaining a
repayment of VAT paid in respect of previous years, but the process is still at
an early stage.

VCT qualifying status

The company has continued to meet the qualifying conditions laid down by HM
Revenue & Customs for approval as a VCT. With a large and actively managed
portfolio it is important that our compliance is closely monitored, and in
addition to continuous review by our managers we retain PricewaterhouseCoopers
LLP to advise the board on VCT status.

Board of directors

In April 2008 Michael Denny retired as chairman of NVM Private Equity after a
distinguished career in venture capital, including a term of office as chairman
of the British Venture Capital Association. I am delighted to say that Michael
will remain a non-executive director of Northern 2 VCT so we will continue to
have the benefit of his knowledge and experience.

As I reported at the half year stage, David Gravells joined the board in July
2007. David has wide and deep experience in venture capital and he has already
made an outstanding contribution to the board.

After serving nine years as chairman, I have indicated that I will be retiring
from the board on 30 April 2008. I am delighted to report that David Gravells
has accepted the directors’ invitation to take over as chairman on my retirement
and I wish him, the board and the company every success in the future.


The period since 31 January 2008 has seen encouraging progress, with the
completion of two substantial new investments and three profitable exits – plus
the closing of our public share offer. Widespread pessimism about the
short-term prospects for the world economy cannot be ignored, and we expect to
see the defensive qualities of the company’s portfolio put to the test, but it
is our belief that our company has established a firm foundation for future

Dr Matt Ridley


The audited financial statements for the year ended 31 January 2008 are set out


for the year ended 31 January 2008

Year ended 31 January 2008 Year ended 31 January 2007
Revenue Capital Total Revenue Capital Total

#000 #000 #000 #000 #000 #000
Gain on disposal of
investments – 1,759 1,759 – 168 168
Changes in fair value
of investments – 802 802 – 957 957
—– —– —– —– —– —–
– 2,561 2,561 – 1,125 1,125
Income 2,111 – 2,111 2,036 – 2,036
Investment management fee (253) (968) (1,221) (247) (784) (1,031)
Other expenses (266) – (266) (224) – (224)

—– —– —– —– —– —–
Return on ordinary
activities before tax 1,592 1,593 3,185 1,565 341 1,906
Tax on return on
ordinary activities (416) 303 (113) (343) 243 (100)
—– —– —– —– —– —–
Return on ordinary
activities after tax 1,176 1,896 3,072 1,222 584 1,806
—– —– —– —– —– —–
Return per share 2.5p 3.9p 6.4p 2.5p 1.2p 3.7p


for the year ended 31 January 2008

Year ended Year ended
31 January 2008 31 January 2007
#000 #000
Equity shareholders’ funds
at 1 February 2007 42,909 38,675
Return on ordinary
activities after tax 3,072 1,806
Dividends recognised
in the year (3,109) (2,403)
Net proceeds of share issues 2,038 6,168
Shares purchased for
cancellation (1,157) (1,322)
Expenses charged to capital reserve – (15)
—— ——
Equity shareholders’ funds
at 31 January 2008 43,753 42,909
—— ——


as at 31 January 2008

31 January 31 January
2008 2007
#000 #000
Venture capital investments
Unquoted 29,326 28,406
Quoted 2,349 4,706
—— ——
Total venture capital investments 31,675 33,112
Listed fixed-interest investments 5,066 7,161
—— ——
Total fixed asset investments 36,741 40,273
—— ——
Current assets:
Debtors 355 471
Cash at bank 7,452 2,410
—— ——
7,807 2,881
Creditors (amounts falling due
within one year) (795) (245)
—— ——
Net current assets 7,012 2,636
—— ——

Net assets 43,753 42,909
—— ——

Capital and reserves:
Called-up equity share capital 2,456 2,414
Share premium 26,872 24,949
Capital redemption reserve 300 227
Capital reserve – realised 8,727 10,779
Capital reserve – unrealised 4,396 3,519
Revenue reserve 1,002 1,021
—— ——
Total equity shareholders’ funds 43,753 42,909
—— ——
Net asset value per share 89.1p 88.9p


for the year ended 31 January 2008

Year ended Year ended

31 January 2008 31 January 2007
#000 #000 #000 #000
Cash flow statement
Net cash inflow from
operating activities 1,283 799
Corporation tax paid (106) (184)
Financial investment:
Purchase of investments (8,066) (10,365)
Sale/repayment of
investments 14,159 7,053
—– —–
Net cash inflow/(outflow)
from financial investment 6,093 (3,312)
Equity dividends paid (3,109) (2,403)
—– —–
Net cash inflow/(outflow)
before financing 4,161 (5,100)
Issue of shares 2,146 6,525
Share issue expenses (108) (357)
Purchase of shares
for cancellation (1,157) (1,322)
—– —–
Net cash inflow from financing 881 4,846
—– —–
Increase/(decrease) in
cash at bank 5,042 (254)
—– —–
Reconciliation of return
before tax to net cash flow from
operating activities
Return on ordinary
activities before tax 3,185 1,906
Gain on disposal of investments (1,759) (168)
Changes in fair value of investments (802) (957)
Decrease/(increase) in debtors 116 (62)
Increase in creditors 543 95
Expenses charged to capital – (15)
—– —–
Net cash inflow from
operating activities 1,283 799
—– —–
Reconciliation of movement
in net funds
1 February 2007 Cash flows 31 January 2008
#000 #000 #000
Cash at bank 2,410 5,042 7,452
—– —– —–


as at 31 January 2008

Valuation % of net assets

#000 by value
Fifteen largest venture capital investments

Crantock Bakery 1,939 4.4
Envirotec 1,692 3.9
Liquidlogic 1,556 3.6
TFB Group 1,543 3.5
Britspace Holdings 1,507 3.4
Paladin Group 1,500 3.4
Product Support (Holdings) 1,412 3.2
Longhirst Venues 1,296 3.0
Stainton Metal Company 1,257 2.9
Pivotal Laboratories Holdings 1,187 2.7
IG Doors 1,186 2.7
Arrow Industrial Group 1,092 2.5
Astbury Marsden Holdings 1,000 2.3
Foreman Roberts Group 1,000 2.3
Promanex Group Holdings 1,000 2.3
—— —–
20,167 46.1
Other venture capital investments 11,508 26.3
—— —–
Total venture capital investments 31,675 72.4
Listed fixed-interest investments 5,066 11.6
—— —–
Total fixed asset investments 36,741 84.0
Net current assets 7,012 16.0
—— —–
Net assets 43,753 100.0
—— —–

The above summary of results for the year ended 31 January 2008 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.
Statutory financial statements will be filed with the Registrar of Companies
in due course; the independent auditors’ report on those financial statements
under Section 235 of the Companies Act 1985 is unqualified and does not contain
a statement under Section 237(2) or (3) of the Companies Act 1985.

The proposed final dividend of 4.0p per share for the year ended 31 January 2008
will, if approved by shareholders, be paid on 6 June 2008 to shareholders on the
register at the close of business on 2 May 2008.

The full annual report including financial statements for the year ended 31
January 2008 is expected to be posted to shareholders on 24 April 2008 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,


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The company news service from the London Stock Exchange