Northern 2 VCT PLC Half-yearly report

21st September 2009





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

Financial highlights:
(comparative figures for the six months ended 31 July 2008)

2009 2008

Net assets GBP44.0m GBP47.3m

Net asset value per share 77.1p 83.3p

Return per share
Revenue 1.5p 1.6p
Capital 9.3p (4.4)p
Total 10.8p (2.8)p

Interim dividend per share
In respect of the period
Revenue 1.0p 1.0p
Capital 1.0p 1.0p
Total 2.0p 2.0p

Cumulative returns to
shareholders since launch
Net asset value per share 77.1p 83.3p
Dividends paid per share* 44.9p 39.4p
Net asset value plus dividends
paid per share 122.0p 122.7p

Share price at end of period 49.5p 76.5p

*Excluding proposed interim dividend

For further information, please contact:

NVM Private Equity Limited
Alastair Conn/Christopher Mellor 0191 244 6000



The six months to 31 July 2009 saw some recovery in the financial
markets, with the FTSE All-Share index rising by 13% over the period,
but there was relatively little evidence of a sustainable improvement
in the UK economy. The operating environment for small and
medium-sized companies has continued to be very difficult and seems
likely to remain so for some time to come. This presents significant
challenges to investors in such companies, and it is therefore
encouraging to report that over the past half year our portfolio has
demonstrated a measure of resilience against the effects of
recession. We are also pleased to announce today a highly successful
exit from the molecular diagnostics developer DxS, which was our
largest investment by value at 31 July 2009.

Results and dividend

The net asset value (NAV) per share at 31 July 2009, after deducting
the 2008/09 final dividend of 3.5p per share paid in June 2009, was
77.1p (31 January 2009 69.8p) - an increase of 10.5% during the half
year. The return per share for the period before dividends, as shown
in the income statement, was 10.8p compared with a negative return of
2.8p for the corresponding period last year. This is a good result
against the background of continuing uncertainty in the economy and
financial markets.

Investment income for the period remained steady at GBP1.4 million, and
the revenue return per share was down marginally from 1.6p to 1.5p.
These figures reflect the benefit of a significant one-off income
receipt from DxS, without which both income and revenue return per
share would have been considerably lower than in the corresponding
period. The principal factors affecting income generation have been
firstly the continuing reduction in interest rates, culminating in
base rate being reduced in March 2009 to 0.5% - a level which would
have seemed almost inconceivable twelve months earlier - and secondly
the fact that a number of our unquoted investee companies have come
under pressure from their bankers to defer interest and dividend
payments in order to reduce borrowings. We are likely to feel the
impact of this more keenly in the second half of the current
financial year. However the capital return per share recovered
strongly to 9.3p, from minus 4.4p in the corresponding period,
through a combination of realised gains and unrealised revaluation

The board has declared an unchanged interim dividend of 2.0p per
share, comprising 1.0p revenue and 1.0p capital distribution, which
will be paid on 4 December 2009 to shareholders on the register on 6
November 2009. Our stated objective is to maintain the annual
dividend at not less than 5.5p per share; in the current climate
this is a demanding target but we presently expect, in the light of
recent encouraging progress, to declare a final dividend of 3.5p per
share so as to match last year's total.


The rate of new investment has remained slow and one new unquoted
holding was added during the period: GBP995,000 was invested in
Ingleby (1817), a new company formed by an experienced pharmaceutical
industry entrepreneur to acquire high-potential drug development
businesses. At this stage in the economic cycle our managers expect
to see some interesting new opportunities at realistic valuations and
this should lead to an increase in investment activity.

During the period there were two significant realisations in the
portfolio. In March Pivotal Laboratories Holdings was sold to the
US-based clinical research services firm ACM, realising proceeds of
GBP1.6 million and a gain over original cost of GBP0.7 million, and in
July the public sector software developer Liquidlogic was sold to the
AIM-quoted System C Healthcare for proceeds of GBP1.2 million and a
gain of GBP1.0 million. In both cases there may be a further payment
to come depending on future performance.

Subsequent to 31 July 2009, as referred to above, the company's
investment in DxS has been sold for initial proceeds of GBP4.4 million
in cash. DxS, which provides molecular diagnostic products and
services to the healthcare sector, has achieved significant growth
since our original early-stage investment in 2001 and this is a very
satisfactory outcome, representing an overall cash return of over
seven times the money invested. The initial sale price has been
reflected in the directors' valuation of the investment at 31 July
2009 and we have also been able to recognise some GBP0.6 million of
accrued investment income which was paid at completion. Northern 2
VCT may become entitled to receive further capital payments of up to
GBP3.2 million over the next three years depending on the achievement
by DxS of specified objectives, but no account has been taken of
these in the financial statements at this stage.

The valuation of the continuing portfolio has as usual been subjected
to a careful review, based on a cautious perception of the current
economic outlook and an awareness that many companies are finding it
difficult to maintain their bank borrowing facilities at previous
levels. This has led to some further reductions in individual
company valuations but we have also been able to recognise a number
of cases where good progress is being made and value has been
enhanced. However the investment in Foreman Roberts Group, which was
written down to nil value at 31 January 2009, was radically
restructured in July and has now in effect been permanently written

The reserve of cash and near-cash assets available for future
investment remains strong, with approximately GBP17 million of liquid
resources on the balance sheet at 31 July 2009.

Shareholder issues

We reported six months ago on the difficulties which had been
experienced in relation to the provision of corporate broking and
market-making services to the company. In April 2009, following a
review of available options, the board appointed Singers Capital
Markets as brokers. The mid-market share price, which reached a low
point of 34.5p in April, has subsequently recovered to 49.5p at 31
July. This still represents a discount of over 30% to NAV, and a
tax-free income yield of 11.1% based on a 5.5p annual dividend.

The directors remain willing to use the company's powers to
re-purchase its own shares in order to support market liquidity. The
buy-back authority granted by shareholders caps the price at which we
can deal at a maximum of 105% of the latest mid-market share price,
which currently prevents us from buying shares at our target discount
to NAV of 10%. Given this restriction, and having regard to the
general volatility in the financial markets, we have concluded (as
have a number of other VCT boards) that maintaining a fixed 10%
discount is not currently feasible and that for the foreseeable
future we should be prepared to buy back at a wider discount, subject
to market conditions. This matter will be kept under continuing

At the same time our managers and their colleagues in the VCT sector
are continuing their efforts, supported by the Association of
Investment Companies, to promote the merits of acquiring and
retaining VCT shares as a means of generating substantial tax-free
yields in the long term, at a time when the higher rate of income tax
is about to increase and conventional methods of pension provision
have been proving less than wholly adequate. We believe that a wider
appreciation by investors of the attractions of VCT shares could help
to reduce discounts to NAV in the sector generally.

VAT on management fees

Following HM Revenue & Customs' acceptance that investment management
fees paid by VCTs should be exempt from VAT, a credit of GBP414,000 was
recognised in the financial statements for the year ended 31 January
2009 in respect of VAT recoverable for earlier periods. Discussions
are continuing with a view to possible further recoveries, but the
outcome is not yet sufficiently certain to be reflected in the
current financial statements.

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.

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 year
ended 31 January 2009, including those resulting from the size and
relative illiquidity of the unquoted and AIM-quoted investments held
by the company.


The recent upturn in the financial markets has been taken in some
quarters as an indicator of imminent recovery in the economy. At
this stage your board and managers consider it appropriate to take a
more cautious view, believing that a return to economic prosperity
may be only gradual while the effects of recent events work their way
through the system. This will inevitably have an impact on the
short-term prospects for our own investments. Nevertheless the
portfolio is showing some encouraging signs and this should lead to
further progress being made in the medium term.

On behalf of the Board


The unaudited half-yearly financial statements for the six months
ended 31 July 2009 are set out below.

(unaudited) for the six months ended 31 July 2009

Six mths ended 31 July 2009 Six mths ended 31 July
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gain on disposal
investments - 703 703 - 159 159
Movements in
value of
investments - 4,768 4,768 - (2,559) (2,559)
----- ----- ----- ----- ----- -----
- 5,471 5,471 - (2,400) (2,400)

Income 1,369 - 1,369 1,377 - 1,377
Investment (102) (307) (409) (129) (386) (515)
management fee
Recoverable VAT - - - 119 381 500
Other expenses (155) - (155) (150) - (150)
----- ----- ----- ----- ----- -----
Return on
before tax 1,112 5,164 6,276 1,217 (2,405) (1,188)
Tax on return on
ordinary (242) 89 (153) (321) 2 (319)
----- ----- ----- ----- ----- -----
Return on
after 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
GBP000 GBP000 GBP000
Gain on disposal of
investments - 784 784
Movements in fair value of
investments - (9,985) (9,985)
----- ----- -----
- (9,201) (9,201)

Income 2,456 - 2,456
Investment management fee (246) (740) (986)
Recoverable VAT 99 315 414
Other expenses (298) - (298)
----- ----- -----
Return on ordinary activities
before tax 2,011 (9,626) (7,615)
Tax on return on
ordinary activities (538) 120 (418)
----- ----- -----
Return on ordinary activities
after tax 1,473 (9,506) (8,033)
----- ----- -----

Return per share 2.6p (16.8)p (14.2)p

(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
GBP000 GBP000 GBP000

Equity shareholders'
funds at
1 February 2009 39,702 43,753 43,753
Return on ordinary
after tax 6,123 (1,507) (8,033)
Dividends recognised
in the period (1,990) (1,870) (3,005)
Net proceeds of share 173 7,466 7,573
Shares purchased for
cancellation (36) (586) (586)
------ -- --- ------
Equity shareholders'
funds at
31 July 2009 43,972 47,256 39,702
------ ------ ------

(unaudited) as at 31 July 2009

31 July 2009 31 July 2008 31 January
GBP000 GBP000 GBP000
Fixed asset investments held
at fair value:
Venture capital investments
Unquoted 23,577 25,779 21,090
Quoted 2,544 2,053 1,823
------ ------ ------
Total venture capital 26,121 27,832 22,913
Listed fixed-interest 5,018 17,548 4,636
------ ------ ------
Total fixed asset investments 31,139 45,380 27,549
------ ------ ------
Current assets:
Debtors 1,465 872 813
Cash and deposits 12,008 1,565 11,891
------ ------ ------
13,473 2,437 12,704
Creditors (amounts
falling 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 2,843
Share premium 34,181 33,922 34,021
Capital redemption reserve 341 337 337
Capital reserve 7,472 8,028 8,157
Revaluation 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 69.8p

(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
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000

Net cash inflow
operating 89 142 574
Corporation tax - - (108)
Purchase of (1,528) (22,619) (7,864)
Sale/repayment of
investments 3,409 11,580 7,855
------ ------ ------
Net cash
from financial 1,881 (11,039) (9)
Equity dividends (1,990) (1,870) (3,005)
------ ------ ------
Net cash outflow
before financing (20) (12,767) (2,548)
Issue of ordinary 189 7,886 7,999
Share issue (16) (420) (426)
Purchase of
ordinary shares
for cancellation (36) (586) (586)
------ ------ ------
Net cash inflow
financing 137 6,880 6,987
------ ------ ------
Increase/(decrease) in
cash and deposits 117 (5,887) 4,439
------ ------ ------

Reconciliation of return before tax
to net cash flow from operating
Return on ordinary
before tax 6,276 (1,188) (7,615)
Gain on disposal of
investments (703) (159) (784)
Movements in fair
of investments (4,768) 2,559 9,985
Increase in debtors (652) (517) (458)
Decrease in creditors (64) (553) (554)
------ ------ ------
Net cash inflow from
operating activities 89 142 574
------ ------ ------

Analysis of movement in
net funds
1 February Cash flows 31 July 2009

GBP000 GBP000 GBP000

Cash and deposits 11,891 117 12,008
------ ------ ------

as at 31 July 2009

Cost Valuation % of net assets
GBP000 GBP000 by valuation

15 largest investments:
DxS 685 4,395 10.0
Paladin Group 1,307 1,823 4.1
Envirotec 975 1,785 4.1
Crantock Bakery 1,107 1,412 3.2
Britspace Holdings 2,230 1,365 3.1
Axial Systems Holdings 1,004 1,164 2.6
Abermed 725 1,059 2.4
CloserStill Holdings 1,000 1,000 2.3
Ingleby (1817) 995 995 2.3
S&P Coil Products 620 994 2.3
Longhirst Venues 375 965 2.2
Arleigh International 435 888 2.0
Advanced Computer Software* 429 884 2.0
Optilan Group 1,000 821 1.9
IG Doors 1,000 750 1.7
------ ------ -----
13,887 20,300 46.2
Other venture capital investments 14,090 5,821 13.2
------ ------ -----
Total venture capital investments 27,977 26,121 59.4
Listed 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 AIM

The above summary of results for the six months ended 31 July 2009
does not constitute statutory financial statements within the meaning
of Section 240 of the Companies Act 1985, has not been audited or
reviewed by the company's independent auditors and has not been
delivered to the Registrar of Companies. The figures for the year
ended 31 January 2009 have been extracted from the audited financial
statements for that year, which have been delivered to the Registrar
of Companies; the independent auditors' report on those financial
statements under Section 235 of the Companies Act 1985 was
unqualified. The half-yearly financial statements have been prepared
on the basis of the accounting policies set out in the annual
financial statements for the year ended 31 January 2009.

The directors confirm that to the best of their 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 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 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 calculation of the revenue and capital return per share is based
on the return on ordinary activities after tax for the period and on
56,924,548 (2008 54,434,646) ordinary shares, being the weighted
average number of shares in issue during the period.

The proposed interim dividend of 2.0p per share for the year ending
31 January 2010 will be paid on 4 December 2009 to shareholders on
the register at the close of business on 6 November 2009.

A copy of the half-yearly financial report for the six months ended
31 July 2009 is expected to be posted to shareholders on 2 October
2009 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,


This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.

(END) Dow Jones Newswires

September 22, 2009 02:06 ET (06:06 GMT)