Northern 2 VCT PLC.

30 MAY 2013



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 2012):

            2013             2012
Net assets£62.8m£55.1m
Net asset value per share84.9p80.3p
Return per share: 
Dividend per share proposed in respect 
of the year5.5p5.5p
Cumulative return to shareholders since launch: 
Net asset value per share84.9p80.3p
Dividends paid per share*64.4p58.9p
Net asset value plus dividends paid per share149.3p139.2p
Mid-market share price at end of year72p66.25p
Share price discount to net asset value15.2%17.5%

*Excluding proposed final dividend

For further information, please contact:

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




Your directors are pleased to be able to report that Northern 2 VCT has performed well over the past 12 months.  NAV per share has increased for the fourth successive year, while the annual dividend is maintained at the target level of 5.5p.  The strong and consistent performance of the three Northern VCTs was recognised when they were jointly declared winners of the Best VCT category at the Investment Week Investment Company of the Year Awards for 2012, sponsored by the Association of Investment Companies and Trustnet.

Results and dividend
The NAV per share at 31 March 2013 was 84.9p, an increase of 5.7% over the corresponding figure of 80.3p as at 31 March 2012.  The total return per share for the year as shown in the income statement was 10.3p, equivalent to 12.8% of the opening NAV.  This is a very satisfactory result, achieved against a continuing background of challenging conditions in the UK economy.

Investment income for the year fell to £1.7 million from £2.0 million in the preceding year (a period which included a one-off interest receipt of £0.5 million on the sale of Promanex Group Holdings in August 2011).  As a result the revenue return per share was 0.7p lower at 1.2p.

Ongoing charges (the new terminology for what used to be known as total expense ratio), excluding performance-related management fees, were lower than last year at 2.45% of average net assets compared to 2.50%.

An interim dividend of 2.0p per share was paid in January and the directors propose a final dividend of 3.5p, making a total of 5.5p per share for the year.  This is the ninth consecutive year in which the company has paid a dividend of at least 5.5p, your board's stated annual objective, and the final dividend will take the total dividend distributions since the company was launched in 1999 to over £34 million (67.9p per share).

Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 26 July 2013 to shareholders on the register on 5 July 2013.

Investment portfolio
The venture capital portfolio has generally made good progress during the year and we acknowledge the efforts and achievements of the management teams we have backed.  Three new unquoted holdings - Haystack Dryers, Intuitive and Silverwing - were acquired at a cost of £4.1 million, with a further £2.0 million invested in existing portfolio companies.  Outright exits were achieved from the unquoted holdings in Closerstill Holdings, Interlube Systems, Paladin Group and Spectrum Interactive, producing aggregate proceeds of £7.2 million compared with original cost of £2.9 million.  The AIM-quoted holding in Tikit Group was sold as the result of an agreed bid by BT Group.

In an era of very low interest rates it has become increasingly difficult to generate an acceptable income return on cash awaiting investment in venture capital opportunities, and so we have for the first time allocated some of our funds to a small portfolio of higher-yielding listed equities which has produced useful income as well as some capital appreciation.

Shareholder issues
We announced in January that the company would in future buy back its own shares in the market at a discount of 10% (previously 15%).  We consider this creates a reasonable balance between the interests of continuing shareholders and those of would-be sellers.  During the year 932,551 shares, equivalent to 1.4% of the opening issued capital, were bought back for cancellation at an average price of 69.3p.

In January we also launched a top-up offer of new ordinary shares to raise up to £4 million of new funds for investment, in conjunction with a similar top-up offer by Northern Venture Trust.  Both offers were over-subscribed and we are delighted to welcome our new shareholders.  Your directors are now considering possible share offer plans for the 2013/14 tax year and we will be writing to shareholders about this in the near future.  Enabling resolutions relating to the company's share capital and the date of the next continuation vote will be proposed at the annual general meeting on 19 July 2013.

NVM Private Equity held its annual seminar for VCT investors in January and your directors were pleased to have the opportunity to meet a number of shareholders.

Your company continues to comply with current best practice in corporate governance as set out in the AIC Code, a new edition of which was published in February.  The board aims to maintain a constructive relationship with the manager but with an appropriate degree of enquiry and challenge.

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.

VCT legislation and regulation
There has been a series of changes in the VCT legislation in recent years.  The 2012 Finance Act relaxed the size limits for VCT-qualifying investee companies, but also introduced a new £5 million cap on the amount of funding which a company can raise from VCTs within a 12 month period.  Management buy-outs can be VCT-qualifying investments only to the extent that they employ funds raised by VCTs prior to 6 April 2012.  These changes have been heavily influenced by European Commission State Aid rules, which do not always appear to be well attuned to market conditions in individual member states.

I reported at the half year stage that the Financial Services Authority, now the Financial Conduct Authority (FCA), had published a consultation paper on the retail distribution of unregulated collective investment schemes, apparently proposing the introduction of drastic restrictions on the marketing of VCT share offers to retail investors.  The measure was strongly opposed by VCTs and the Association of Investment Companies, and we now understand that the FCA no longer intends to proceed with it.

After an extended period of little or no growth, there currently seems to be a degree of cautious optimism in some quarters about the prospects for the UK economy.  It is too early to judge whether this signals an end to the difficult conditions which have dominated the business environment since the banking crisis of 2007/08, but any upturn should be good news for our portfolio companies and help to maintain your company's good performance record.

David Gravells

The audited financial statements for the year ended 31 March 2013 are set out below.

for the year ended 31 March 2013

Year ended 31 March 2013 Year ended 31 March 2012 
Gain on disposal of
  Investments 2,497  2,497  786  786 
Movements in fair value
  of investments 5,049  5,049  3,124  3,124 
----------  ----------  ----------  ----------  ----------  ---------- 
7,546  7,546  3,910  3,910 
Income 1,669  1,669  1,961  1,961 
Investment management fee (286) (1,339) (1,625) (231) (884) (1,115)
Other expenses (306) - (306) (327) (14) (341)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities before tax 1,077  6,207  7,284  1,403  3,012  4,415 
Tax on return on
  ordinary activities (195) 195  (288) 239  (49)
----------  ----------  ----------  ----------  ----------  ---------- 
Return on ordinary
  activities after tax 882  6,402  7,284  1,115  3,251  4,366 
----------  ----------  ----------  ----------  ----------  ---------- 
Return per share 1.2p 9.1p 10.3p 1.9p 5.5p 7.4p

for the year ended 31 March 2013

Year ended 
31 March 2013 
Year ended 
31 March 2012 
Equity shareholders' funds at 1 April 2012 55,128  45,713 
Return on ordinary activities after tax 7,284  4,366 
Dividends recognised in the year (3,845) (3,730)
Net proceeds of share issues 4,923  13,418 
Shares repurchased for cancellation (646) (4,639)
----------  ---------- 
Equity shareholders' funds at 31 March 2013 62,844  55,128 
----------  ---------- 

as at 31 March 2013

31 March 2013 
31 March 2012 
Fixed assets:
  Investments 45,402  41,160 
----------  ---------- 
Current assets:
  Debtors 557  311 
  Cash and deposits 18,088  15,116 
----------  ---------- 
18,645  15,427 
Creditors (amounts falling due within one year) (1,203) (1,459)
----------  ---------- 
Net current assets 17,442  13,968 
----------  ---------- 
Net assets 62,844  55,128 
----------  ---------- 
Capital and reserves:
Called-up equity share capital 3,700  3,432 
Share premium 27,618  23,009 
Capital redemption reserve 767  721 
Capital reserve 22,636  22,473 
Revaluation reserve 7,351  4,695 
Revenue reserve 772  798 
----------  ---------- 
Total equity shareholders' funds 62,844  55,128 
----------  ---------- 
Net asset value per share 84.9p 80.3p

for the year ended 31 March 2013

Year ended 
31 March 2013 
Year ended 
31 March 2012 
£000 £000 £000 £000 
Cash flow statement
Net cash inflow/(outflow) from operating activities (573) 1,931 
Corporation tax paid (74) (81)
Financial investment:
Purchase of investments (9,730) (3,691)
Sale/repayment of investments 12,917  7,912 
----------  ---------- 
Net cash inflow from financial investment 3,187  4,221 
Equity dividends paid (3,845) (3,730)
----------  ---------- 
Net cash inflow/(outflow) before financing (1,305) 2,341 
Issue of shares 5,086  14,185 
Share issue expenses (163) (767)
Shares re-purchased for cancellation (646) (4,639)
----------  ---------- 
Net cash inflow from financing 4,277  8,779 
----------  ---------- 
Increase in cash and deposits 2,972  11,120 
----------  ---------- 
Reconciliation of return before tax
to net cash flow from operating activities
Return on ordinary activities before tax 7,284  4,415 
Gain on disposal of investments (2,497) (786)
Movements in fair value of investments (5,049) (3,124)
(Increase)/decrease in debtors (246) 487 
Increase/(decrease) in creditors (65) 939 
----------  ---------- 
Net cash inflow/(outflow) from operating activities (573) 1,931 
----------  ---------- 
Reconciliation of movement in net funds
1 April 2012 Cash flows 31 March 2013 
£000 £000 £000 
Cash and deposits 15,116  2,972  18,088 
----------  ----------  ---------- 

as at 31 March 2013

% of
net assets
by value
Kerridge Commercial Systems 1,740 5,616 8.9
Volumatic 2,096 3,617 5.8
Alaric Systems 1,237 2,522 4.0
Wear Inns 1,868 2,365 3.8
Advanced Computer Software Group* 381 1,941 3.1
Tinglobal Holdings 1,988 1,750 2.8
Arleigh Group 738 1,541 2.5
Intuitive 1,508 1,508 2.4
Silverwing 1,388 1,388 2.2
Control Risks Group Holdings 746 1,315 2.1
IG Doors 101 1,273 2.0
Kitwave One 1,246 1,254 2.0
Haystack Dryers 1,157 1,157 1.8
Cawood Scientific 1,031 1,054 1.7
Promatic Group 987 985 1.5
---------- ---------- --------
Fifteen largest venture capital investments 18,212 29,286 46.6
Other venture capital investments 12,692 8,765 13.9
---------- ---------- --------
Total venture capital investments 30,904 38,051 60.5
Listed equity investments 3,651 4,025 6.4
Listed fixed-interest investments 3,496 3,326 5.3
---------- ---------- --------
Total fixed asset investments 38,051 45,402 72.2
Net current assets 17,442 27.8
---------- --------
Net assets 62,844 100.0
---------- --------

*Quoted on AIM


The board carries out a regular review of the risk environment in which the company operates.  The main areas of risk identified by the board are as follows:

Investment risk:  The majority 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. The directors aim to limit the risk attaching to the portfolio as a whole by careful selection and timely realisation of investments, by carrying out rigorous due diligence procedures and by maintaining a wide spread of holdings in terms of financing stage and industry sector.  The board reviews the investment portfolio with the investment manager on a regular basis.

Financial risk:  As most of the company's investments involve a medium to long-term commitment and are largely illiquid, 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 exposure to foreign currency risk and does not enter into derivative transactions.

Economic risk:  Events such as economic recession or general fluctuations 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.

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 and AIM is no exception to this.  In times of adverse sentiment there tends to be very little, if any, market demand for shares in the smaller companies quoted on AIM.

Credit risk:  the company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment.  The directors review the creditworthiness of the counterparties to these instruments and cash deposits in addition to ensuring no significant concentration of credit risk is with any one counterparty.

Liquidity risk:  The company's investments may be difficult to realise.  The fact that a stock is quoted on AIM does not guarantee its liquidity and there may be a large spread between bid and offer prices.  Unquoted investments are not traded on a recognised stock exchange and are inherently illiquid.

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 as well as 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.  The board and the manager monitor political developments and where appropriate seek to make representations either directly or through the relevant trade bodies.

Internal control risk:  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.  The manager keeps the company's VCT qualifying status under continual review and reports to the board on a quarterly basis.  The board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role.


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 and applicable law (UK Generally Accepted Accounting Practice).

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 period.  In preparing these 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, directors' remuneration report and corporate governance statement that comply with that law and those regulations.

The company's financial statements are published on the NVM website,  The maintenance and integrity of this website is the responsibility of NVM and not of the company.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors confirm that, to the best of their knowledge, 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 or loss of the company, and the directors' report includes 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 the company faces.

The directors of the company at the date of this announcement were Mr D P A Gravells (Chairman), Mr A M Conn, Mr E M P Denny, Mr C G A Fletcher and Mr F L G Neale.


The above summary of results for the year ended 31 March 2013 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 and does not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The proposed final dividend of 3.5p per share for the year ended 31 March 2013 will, if approved by shareholders, be paid on 26 July 2013 to shareholders on the register at the close of business on 5 July 2013.

The full annual report including financial statements for the year ended 31 March 2013 is expected to be posted to shareholders on 7 June 2013 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,

Neither the contents of the NVM Private Equity Limited website nor the contents of any website accessible from hyperlinks on the NVM Private Equity Limited website (or any other website) is incorporated into, or forms part of, this announcement.

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

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(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Northern 2 VCT PLC via Thomson Reuters ONE