REG-Annual Financial Report <Origin Href="QuoteRef">NTV.L</Origin>
12/06/2017 16:35
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12 JUNE 2017
NORTHERN 2 VCT PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2017
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 2016):
2017 2016
Net assets £71.6m £71.3m
Net asset value per share 76.6p 77.9p
Return per share:
Revenue 1.6p 1.5p
Capital 7.7p 6.5p
Total 9.3p 8.0p
Dividend per share for the year:
First interim dividend 2.0p 2.0p
Second interim (special) dividend 5.0p 5.0p
Proposed final dividend 3.5p 3.5p
Total 10.5p 10.5p
Cumulative return to shareholders since launch:
Net asset value per share 76.6p 77.9p
Dividends paid per share* 101.4p 90.9p
Net asset value plus dividends paid per share 178.0p 168.8p
Mid-market share price at end of year 72.0p 72.5p
Share price discount to net asset value 6.0% 6.9%
Tax-free dividend yield (based on mid-market share price at end of year):
Excluding special dividend Including special dividend 7.6% 7.6%
14.6% 14.5%
*Excluding second interim and proposed final dividend payable on 21 July 2017
For further information, please contact:
NVM Private Equity LLP
Alastair Conn/Christopher Mellor 0191 244
6000
Website: www.nvm.co.uk
NORTHERN 2 VCT PLC
CHAIRMAN'S STATEMENT
Northern 2 VCT has enjoyed another year of progress in which seven new
investments were added to the venture capital portfolio and cash flows
remained strong, supported by three significant realisations. Those realised
investments, which we held on average for over seven years, are excellent
examples of how patient capital from venture capital trusts supports growing
companies at an early stage in their development to enhance shareholder value
whilst creating employment opportunities and contributing to the wider UK
economy in many ways.
Results and dividend
Notwithstanding that our sector is experiencing unprecedented change, I am
pleased to report consistently good results. In the year ended 31 March 2017
the company achieved a return after tax of £8,615,000 (2016 £7,356,000), or
9.3p per share (2016 8.0p), before deducting dividends paid, representing a
total return of 11.9% over the opening net asset value per share (NAV). This
excellent outcome reflected net gains on the sale of investments totalling
£2.3 million and an uplift in the valuation of the continuing portfolio of
£6.2 million, following a strong performance by a number of our venture
capital holdings.
The NAV per share at 31 March 2017, after deducting dividends totalling 10.5p
which were paid during the year, was 76.6p compared with 77.9p as at 31 March
2016. 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 2017. This is the fourteenth consecutive year in which a
dividend of at least 5.5p per share has been paid. As indicated earlier,
there has been a strong inflow of cash from investment realisations since we
last paid a special dividend. The VCT rules permit only six months for
re-investment of such receipts before they become non-qualifying if retained
by the company. The directors have therefore also decided to declare a
special dividend of 5.0p, which will be paid as a second interim dividend for
the year ended 31 March 2017, making a total dividend of 10.5p for the year.
Both the final and special dividends will be paid on 21 July 2017 to
shareholders on the register on 23 June 2017.
Whilst continuing to pay a predictable dividend remains a priority for your
directors, the dividend policy does remain under review. The new VCT rules
require a shift in our portfolio towards earlier stage investments, which may
have the effect of reducing the amount of income and realised gains available
for early distribution, weighting returns to a later point in the investment
cycle.
Investments
The cash proceeds from venture capital investments sold or repaid during the
year amounted to £13.3 million, representing a surplus of £5.0 million over
original cost. Momentum has been maintained following the financial year
end, with a significant investment sale completed in April 2017 and several
other companies currently in discussions with a view to a realisation.
A total of £5.9 million was invested in new VCT-qualifying holdings during
the year. Our investment manager has reported a strong pipeline of activity
currently which is expected to materialise into further investments during the
year to 31 March 2018.
Shareholder issues
In February 2017 we completed a non-prospectus top-up offer of new ordinary
shares, raising gross proceeds of £4.3 million, in conjunction with similar
offers by Northern Venture Trust and Northern 3 VCT. The offer was initially
restricted to existing investors and owing to the extremely strong level of
demand experienced, was closed in advance of becoming available to new
shareholders. Whilst we understand and regret the disappointment felt by
unsuccessful applicants, we are encouraged by the level of interest shown in
VCTs such as ours, with a well-established track record of sustained value
creation. We appreciate that some shareholders would welcome the opportunity
to make a further investment in the company and will keep possible share
offers under review, monitoring both the level of liquidity required by
expected deal flow and the need for continuing support for portfolio
investments in the longer term.
In addition to the top-up offer, 2,437,437 shares were issued during the year
under our dividend investment scheme for consideration representing around one
sixth of the total dividend payments during the year. 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.
Shareholders who wish to join the scheme or amend their current participation
in the scheme may obtain an updated scheme mandate form from NVM's website at
www.nvm.co.uk.
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 485,000
shares were repurchased for cancellation, equivalent to approximately 0.5% of
the opening share capital.
The company's annual general meeting will be held in London on Wednesday 12
July 2017 and the directors look forward to meeting and engaging with
shareholders and discussing the issues facing the sector.
Board of directors
I am pleased to highlight that Simon Devonshire, a highly experienced
investment professional and the current Entrepreneur-in-Residence at the
Department for Business, Energy and Industrial Strategy, joined the board in
January 2017 following a thorough process conducted by the nomination
committee. Simon brings a valuable fresh perspective to our board and we
look forward to benefiting from his contribution during the years ahead.
All the directors except Chris Fletcher will be seeking re-election at the
AGM, either in accordance with the AIC Code of Corporate Governance or
voluntarily. Chris has signalled his intention to retire from the board
after the AGM. I would like to take this opportunity to record your board's
sincere thanks to him for his significant contribution to Northern 2 VCT since
joining the board in 1999. He has played a pivotal role as chairman of the
board's audit committee. Chris has had an extremely distinguished career in
corporate finance, including currently as a non-executive director of the
Association of Investment Companies. The entire board will miss his
expertise and guidance and I am sure you will join me in wishing him well for
the future.
VCT legislation
The past two years have seen significant change in the legislative environment
for VCTs as the Government has sought to channel more funds into relatively
young companies requiring funding for development and growth. As the
practicalities of operating under the new rules have emerged, NVM has adapted
to meet this challenge by supplementing its team, which already has a good
track record of investing in early stage opportunities, with additional
executives possessing relevant expertise.
We note with interest the announcement by the Government in November 2016 of
its Patient Capital Review. The key terms of reference of the review are to
consider the availability of long-term finance for growing firms and to
identify and address the root causes of factors which negatively affect the
availability of long-term finance. VCTs play a vital role in supporting
entrepreneurial prosperity by providing growth capital to innovative growing
businesses at an early stage in their development and we welcome the
opportunity to engage in these crucial discussions. We will continue to
champion our work and highlight the considerable contribution that the VCT
sector makes in supporting small and medium businesses, which are the
lifeblood of our economy.
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, NVM, 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.
Outlook
We have been operating for some time in a period of change in the VCT market
and against a background of political uncertainty, and it is likely that this
will continue in the year ahead. We are however encouraged by the
consistency of our track record throughout this period and have confidence in
the strength of our existing portfolio. There is currently no lack of
commercially attractive businesses that require capital to prosper and the
challenge remains to identify those opportunities which are VCT-qualifying.
We continue to believe that our company and its manager are well placed to
meet this challenge.
David Gravells
Chairman
The audited financial statements for the year ended 31 March 2017 are set out
below.
INCOME STATEMENT
for the year ended 31 March 2017
Year ended 31 March 2017 Year ended 31 March 2016
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 2,285 2,285 - 2,214 2,214
Movements in fair value of investments - 6,189 6,189 - 5,068 5,068
---------- ---------- ---------- ---------- ---------- ----------
- 8,474 8,474 - 7,282 7,282
Income 2,556 - 2,556 2,334 - 2,334
Investment management fee (370) (1,681) (2,051) (385) (1,524) (1,909)
Other expenses (364) - (364) (351) - (351)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities before tax 1,822 6,793 8,615 1,598 5,758 7,356
Tax on return on ordinary activities (313) 313 - (205) 205 -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities after tax 1,509 7,106 8,615 1,393 5,963 7,356
---------- ---------- ---------- ---------- ---------- ----------
Return per share 1.6p 7.7p 9.3p 1.5p 6.5p 8.0p
BALANCE SHEET
as at 31 March 2017
31 March 2017 £000 31 March 2016 £000
Fixed assets:
Investments 58,195 56,997
---------- ----------
Current assets:
Debtors 591 270
Cash and cash equivalents 17,874 14,614
---------- ----------
18,465 14,884
Creditors (amounts falling due within one year) (5,013) (544)
---------- ----------
Net current assets 13,452 14,340
---------- ----------
Net assets 71,647 71,337
---------- ----------
Capital and reserves:
Called-up equity share capital 4,678 4,580
Share premium 3,029 1,464
Capital redemption reserve 83 59
Capital reserve 53,908 58,614
Revaluation reserve 9,049 5,562
Revenue reserve 900 1,058
---------- ----------
Total equity shareholders' funds 71,647 71,337
---------- ----------
Net asset value per share 76.6p 77.9p
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017
---------------Non-distributable reserves--------------- Distributable reserves Total
Share capital Share premium Capital redemption reserve Revaluation reserve Capital reserve Revenue reserve
£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
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2016
---------------Non-distributable reserves--------------- Distributable reserves Total
Share capital Share premium Capital redemption reserve Revaluation reserve Capital reserve Revenue reserve
£000 £000 £000 £000 £000 £000 £000
At 1 April 2015 4,609 1,464 30 292 71,234 1,047 78,676
Return on ordinary activities
after tax for the year - - - 5,270 693 1,393 7,356
Dividends paid - - - - (12,903) (1,382) (14,285)
Re-purchase of shares (29) - 29 - (410) - (410)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2016 4,580 1,464 59 5,562 58,614 1,058 71,337
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
for the year ended 31 March 2017
Year ended Year ended
31 March 2017 31 March 2016
£000 £000
Cash flows from operating activities:
Return on ordinary activities before tax 8,615 7,356
Adjustments for:
Gain on disposal of investments (2,285) (2,214)
Movement in fair value of investments (6,189) (5,068)
Increase in debtors (321) (23)
Increase in creditors 172 341
---------- ----------
Net cash inflow/(outflow) from operating activities (8) 392
---------- ----------
Cash flows from investing activities:
Purchase of investments (6,082) (13,883)
Sale/repayment of investments 13,358 10,461
---------- ----------
Net cash inflow/(outflow) from investing activities 7,276 (3,422)
---------- ----------
Cash flows from financing activities:
Issue of shares 1,717 -
Share issue expenses (30) -
Share subscriptions held pending allotment 4,297 -
Repurchase of ordinary shares for cancellation (338) (410)
Dividends paid on ordinary shares (9,654) (14,285)
---------- ----------
Net cash outflow from financing activities (4,008) (14,695)
---------- ----------
Net increase/(decrease) in cash/cash equivalents 3,260 (17,725)
Cash and cash equivalents at beginning of year 14,614 32,339
---------- ----------
Cash and cash equivalents at end of year 17,874 14,614
---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 31 March 2017
Cost £000 Valuation £000 % of net assets by value
Venture capital investments:
Entertainment Magpie Group 1,503 5,147 7.2
No 1 Lounges 1,977 3,962 5.5
Buoyant Upholstery 1,508 2,941 4.1
MSQ Partners Group 1,672 2,756 3.9
Lineup Systems 974 2,470 3.4
Optilan Group 1,000 2,196 3.1
Wear Inns 1,868 2,113 3.0
Agilitas IT Holdings 1,638 1,838 2.6
Closerstill Group 1,683 1,683 2.4
Volumatic Holdings 1,596 1,678 2.3
It's All Good 1,145 1,668 2.3
Biological Preparations Group 2,166 1,605 2.2
Graza 1,523 1,523 2.1
Customs Connect Group 1,322 1,322 1.8
Axial Systems Holdings 1,004 1,169 1.6
---------- ---------- --------
Fifteen largest venture capital investments 22,579 34,071 47.5
Other venture capital investments 18,713 15,299 21.4
---------- ---------- --------
Total venture capital investments 41,292 49,370 68.9
Listed equity investments 4,042 5,046 7.0
Listed interest-bearing investments 3,812 3,779 5.3
---------- ---------- --------
Total fixed asset investments 49,146 58,195 81.2
----------
Net current assets 13,452 18.8
---------- --------
Net assets 71,647 100.0
---------- --------
BUSINESS RISKS
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: many 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. 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. 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 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 can 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 and the board keeps the portfolio 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: 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. Mitigation: the 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.
DIRECTORS' RESPONSIBILITIES STATEMENT
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; 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, 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.
In relation to the financial statements for the year ended 31 March 2017, the
directors confirm 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 strategic report and
directors' 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, Mr C G A Fletcher, Miss
C A McAnulty and Mr F L G Neale.
OTHER MATTERS
The above summary of results for the year ended 31 March 2017 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 92,962,814 (2016
92,102,422) 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 2017 divided by the 93,560,667 (2016 91,608,230) ordinary shares in
issue at that date.
The second interim dividend of 5.0p per share and, if approved by
shareholders, the proposed final dividend of 3.5p per share for the year ended
31 March 2017 will be paid on 21 July 2017 to shareholders on the register at
the close of business on 23 June 2017.
The full annual report including financial statements for the year ended 31
March 2017 is expected to be posted to shareholders on 16 June 2017 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, www.nvm.co.uk.
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.
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