Source - GNW

17 MAY 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£87.0m£71.6m
Net asset value per share66.9p76.6p
Return per share:  
Revenue 1.3p1.6p
Capital (0.4)p7.7p
Total 0.9p9.3p
Dividend per share for the year:  
First interim dividend 2.0p2.0p
Second interim (special) dividend -5.0p
Proposed final dividend 3.5p3.5p
Total 5.5p10.5p
Cumulative return to shareholders since launch:  
Net asset value per share 66.9p76.6p
Dividends paid per share* 111.9p101.4p
Net asset value plus dividends paid per share 178.8p178.0p
Mid-market share price at end of year63.5p72.0p
Share price discount to net asset value5.1%6.0%
Tax-free dividend yield (based on mid-market share price at end of year):  
Including special dividend
Excluding special dividend

*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



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 £8.7 million. In addition, follow-on investments totalling £1.4 million were made in existing portfolio companies.  I am pleased to note that the investment rate of £10.1 million represents a marked increase from the prior year (investments totalling £5.9m) 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 £7.0 million, representing a surplus of £1.7 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 £20 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 £2 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.

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

Extracts from the audited financial statements for the year ended 31 March 2018 are set out below.

for the year ended 31 March 2018

 Year ended 31 March 2018Year ended 31 March 2017
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 share 1.3p (0.4)p 0.9p 1.6p 7.7p 9.3p

as at 31 March 2018

 31 March 2018 
31 March 2017 
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

for the year ended 31 March 2018

 ---------------Non-distributable reserves---------------Distributable reservesTotal 





 £000 £000 £000 £000 £000 £000 £000 
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 reserve  







  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
At 31 March 2018 6,505 392 110 7,836 71,629 571 87,043  
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 

for the year ended 31 March 2017

 ---------------Non-distributable reserves---------------Distributable reservesTotal 





 £000 £000 £000 £000 £000 £000 £000 
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 
  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 

for the year ended 31 March 2018

 Year ended Year ended   
 31 March 2018 31 March 2017   
 £000 £000   
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   
  ----------  ----------   

as at 31 March 2018



% of
net assets
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
    ---------- --------


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.


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.


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,

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

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