REG-Half-year Report <Origin Href="QuoteRef">NTV.L</Origin>
14/11/2017 15:37
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14 NOVEMBER 2017
NORTHERN 2 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017
Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private
Equity LLP. 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 growth.
Financial highlights (comparative figures as at 30 September 2016 and 31 March
2017)
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
Net assets £69.3m £72.2m £71.6m
Net asset value per share 68.4p 77.3p 76.6p
Return per share: 1.0p 0.7p 1.6p
Revenue Capital Total (0.6)p 7.3p 7.7p
0.4p 8.0p 9.3p
Dividend per share declared/paid 2.0p 2.0p 10.5p
in respect of the period (31 March 2017 includes 5.0p special dividend)
Cumulative returns to shareholders 68.4p 77.3p 76.6p
since launch: 109.9p 99.4p 101.4p
Net asset value per share Dividends paid per share* Net asset value plus dividends paid per share 178.3p 176.7p 178.0p
Mid-market share price at end of period 64.5p 66.5p 72.0p
Share price discount to net asset value 5.7% 14.0% 6.0%
Tax-free dividend yield (based on mid-market
share price at end of period):
Excluding special dividend Including special dividend 8.5% 8.3% 7.6%
N/A N/A 14.6%
*Excluding interim dividend not yet paid
For further information, please contact:
NVM Private Equity LLP
Alastair Conn/Christopher Mellor 0191 244
6000
Website: www.nvm.co.uk
HALF-YEARLY MANAGEMENT REPORT TO SHAREHOLDERS
Results and dividend
The unaudited net asset value (NAV) per share at 30 September 2017 was 68.4
pence (76.6 pence (audited) at 31 March 2017). This is after deducting the
second interim and final dividends totalling 8.5 pence per share in respect of
the 2016/17 financial year which were paid in July 2017. The board declared
the second interim dividend due to the strong inflow of cash from investment
realisations during the year to 31 March 2017. Shareholders may recall that
the VCT rules permit only six months for re-investment of such receipts,
before they become non-qualifying if retained by the company.
The return per share as shown in the income statement for the six months ended
30 September 2017 was 0.4 pence, compared with 8.0 pence in the corresponding
period last year. This reflects a lower contribution from investment
revaluations and realisations during the particular period under review.
The board has declared an unchanged interim dividend for the year ending 31
March 2017 of 2.0 pence per share, which will be paid on 26 January 2018 to
shareholders on the register on 5 January 2018.
Portfolio
Four new holdings in VCT-qualifying companies were acquired for a total
consideration of £2.7 million:
* Velocity Composites (£97,000): an AIM-quoted manufacturer of material
kits for aircraft production, Burnley
* Knowledgemotion (£979,000): an educational video aggregator and
distributor, London
* Contego Fraud Solutions (£489,000): an identity verification system
provider, Oxford
* Volo Commerce (£1,105,000): an enterprise resource planning platform
supporting online merchants, London
In addition, a follow-on investment of £812,000 was made during the period in
Sorted Holdings (previously Myparceldelivery Holdings), an existing investee
company.
Since 30 September 2017, two new investments have been completed, in Angle, an
AIM-quoted medical diagnostics provider of £134,000, and Soda Software Labs,
a data analytics specialist of £1,332,000.
Proceeds of £5.9 million were received from investment sales and repayments,
resulting in a realised gain of £0.7 million over the 31 March 2017 carrying
values. Optilan Group was sold to Blue Water Energy by way of a secondary
buyout transaction, generating proceeds for Northern 2 VCT of £2.2 million.
A further £2.5 million was returned from five holding companies, which had
been seeking a VCT qualifying trade but which were ultimately unable to do
so. In the AIM-quoted portfolio, the remaining investment in Gear4music
(Holdings) was sold for over three times the original cost.
As shareholders will appreciate, the composition of the portfolio is gradually
changing with an increasing proportion of funds invested in earlier stage
investment opportunities, as required by the current VCT regulations.
Share issues and buy-backs
Based on the expected investment rate in the coming years both for new
investments and 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 are very pleased that strong demand was experienced for this
offer and on 8 November 2017 we announced that it was fully subscribed.
Priority was given to existing shareholders for a period of 21 days. All
applications received during that period were satisfied in full. I would
like to thank all applicants for their support in acquiring shares and believe
that our company is well placed to take advantage of attractive investment
opportunities as they arise.
Whilst the company has maintained its policy of buying back its own shares in
the market at a discount of 5% to NAV from time to time, there were no
repurchases during the period under review.
VCT qualifying status
The company has continued to meet the stringent 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.
VCT legislation
Having operated under the current iteration of the VCT rules for the last two
years, our manager NVM has continued to adapt its approach to maintain ongoing
compliance and has also continued to strengthen and supplement its team of
early stage investment professionals.
We have closely monitored the Government's Patient Capital Review, established
to consider the availability of long-term finance for growing firms. In
conjunction with NVM, we have continued to champion the work of the VCT
industry and to highlight the considerable contribution that the sector makes
in supporting small and medium-sized businesses. We await with interest the
detail of the Chancellor's Budget announcement on 22 November 2017, to
understand whether it will provide any clarity as to the future legislative
landscape for the VCT sector.
Prospects
In recent times we have operated against a background of political uncertainty
and that looks set to continue as the long-term impact of the UK's decision to
leave the EU unfolds. That notwithstanding, our manager continues to
identify an encouraging pipeline of investment opportunities and we have
confidence in the potential of our investment approach to produce good returns
for shareholders in the future.
On behalf of the Board
David Gravells
Chairman
The unaudited half-yearly financial statements for the six months ended 30
September 2017 are set out
below.
INCOME STATEMENT
(unaudited) for the six months ended 30 September 2017
Six months ended 30 September 2017 Six months ended 30 September 2016
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 376 376 - 562 562
Movements in fair value of investments - (560) (560) - 6,613 6,613
---------- ---------- ---------- ---------- ---------- ----------
- (184) (184) - 7,175 7,175
Income 1,526 - 1,526 1,181 - 1,181
Investment management fee (195) (586) (781) (184) (551) (735)
Other expenses (187) - (187) (183) - (183)
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities before tax 1,144 (770) 374 814 6,624 7,438
Tax on return on ordinary activities (186) 186 - (130) 130 -
---------- ---------- ---------- ---------- ---------- ----------
Return on ordinary activities after tax 958 (584) 374 684 6,754 7,438
---------- ---------- ---------- ---------- ---------- ----------
Return per share 1.0p (0.6)p 0.4p 0.7p 7.3p 8.0p
Year ended 31 March 2017
Revenue £000 Capital £000 Total £000
Gain on disposal of investments - 2,285 2,285
Movements in fair value of investments - 6,189 6,189
---------- ---------- ----------
- 8,474 8,474
Income 2,556 - 2,556
Investment management fee (370) (1,681) (2,051)
Other expenses (364) - (364)
---------- ---------- ----------
Return on ordinary activities before tax 1,822 6,793 8,615
Tax on return on ordinary activities (313) 313 -
---------- ---------- ----------
Return on ordinary activities after tax 1,509 7,106 8,615
---------- ---------- ----------
Return per share 1.6p 7.7p 9.3p
BALANCE SHEET
(unaudited) as at 30 September 2017
30 September 2017 £000 30 September 2016 £000 31 March 2017 £000
Fixed assets:
Investments 55,220 64,796 58,195
---------- ---------- ----------
Current assets:
Debtors 638 269 591
Cash and cash equivalents 13,590 7,288 17,874
---------- ---------- ----------
14,228 7,557 18,465
Creditors (amounts falling due
within one year) (100) (135) (5,013)
---------- ---------- ----------
Net current assets 14,128 7,422 13,452
---------- ---------- ----------
Net assets 69,348 72,218 71,647
---------- ---------- ----------
Capital and reserves:
Called-up equity share capital 5,070 4,670 4,678
Share premium 8,390 2,744 3,029
Capital redemption reserve 83 70 83
Capital reserve 47,028 53,794 53,908
Revaluation reserve 7,415 9,932 9,049
Revenue reserve 1,362 1,008 900
---------- ---------- ----------
Total equity shareholders' funds 69,348 72,218 71,647
---------- ---------- ----------
Net asset value per share 68.4p 77.3p 76.6p
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 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 2017 4,678 3,029 83 9,049 53,908 900 71,647
Return on ordinary activities
after tax for the period - - - (1,634) 1,050 958 374
Dividends paid - - - - (7,930) (496) (8,426)
Net proceeds of share issues 392 5,361 - - - - 5,753
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2017 5,070 8,390 83 7,415 47,028 1,362 69,348
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 30 September 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 2016 4,580 1,464 59 5,562 58,614 1,058 71,337
Return on ordinary activities
after tax for the period - - - 4,370 2,384 684 7,438
Dividends paid - - - - (7,054) (734) (7,788)
Net proceeds of share issues 101 1,280 - - - - 1,381
Shares re-purchased
for cancellation (11) - 11 - (150) - (150)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2016 4,670 2,744 70 9,932 53,794 1,008 72,218
---------- ---------- ---------- ---------- ---------- ---------- ----------
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 period - - - 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
Shares re-purchased
for cancellation (24) - 24 - (338) - (338)
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2017 4,678 3,029 83 9,049 53,908 900 71,647
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF CASH FLOWS
(unaudited) for the six months ended 30 September 2017
Six months ended Six months ended Year ended
30 September 2017 30 September 2016 31 March 2017
£000 £000 £000
Cash flows from operating activities:
Return on ordinary activities before tax 374 7,438 8,615
Adjustments for:
Gain on disposal of investments (376) (562) (2,285)
Movement in fair value of investments 560 (6,613) (6,189)
(Increase)/decrease in debtors (47) 1 (321)
Increase/(decrease) in creditors (616) (409) 172
---------- ---------- ----------
Net cash outflow from operating activities (105) (145) (8)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of investments (3,716) (5,103) (6,082)
Sale/repayment of investments 6,507 4,478 13,358
---------- ---------- ----------
Net cash inflow/(outflow) from investing activities 2,791 (625) 7,276
---------- ---------- ----------
Cash flows from financing activities:
Issue of ordinary shares 5,842 1,397 1,717
Share issue expenses (89) (15) (30)
Share subscriptions held pending allotment (4,297) - 4,297
Repurchase of ordinary shares for cancellation - (150) (338)
Dividends paid on ordinary shares (8,426) (7,788) (9,654)
---------- ---------- ----------
Net cash outflow from financing activities (6,970) (6,556) (4,008)
---------- ---------- ----------
Net increase/(decrease) in
cash and cash equivalents (4,284) (7,326) 3,260
Cash and cash equivalents at beginning of period 17,874 14,614 14,614
---------- ---------- ----------
Cash and cash equivalents at end of period 13,590 7,288 17,874
---------- ---------- ----------
INVESTMENT PORTFOLIO SUMMARY
as at 30 September 2017
Company Cost £000 Valuation £000 % of net assets by valuation
Fifteen largest venture capital investments:
No 1 Lounges 1,977 3,850 5.6
Entertainment Magpie Group 1,503 3,501 5.1
Buoyant Upholstery 1,508 2,941 4.2
MSQ Partners Group 1,672 2,596 3.7
Sorted Holdings 1,625 2,535 3.7
Lineup Systems 974 2,468 3.6
Wear Inns 1,868 2,113 3.1
Agilitas IT Holdings 1,638 1,951 2.8
Biological Preparations Group 2,166 1,891 2.7
Closerstill Group 1,683 1,837 2.6
It's All Good 1,145 1,668 2.4
Volumatic Holdings 1,423 1,555 2.2
Love Saving Group 1,124 1,546 2.2
Graza 1,522 1,522 2.2
Intuitive Holding 1,508 1,352 2.0
---------- ---------- -------
23,336 33,326 48.1
Other venture capital investments 16,953 13,954 20.1
---------- ---------- -------
Total venture capital investments 40,289 47,280 68.2
Listed equity investments 3,644 4,157 6.0
Listed fixed-interest investments 3,872 3,783 5.4
---------- ---------- -------
Total fixed asset investments 47,805 55,220 79.6
----------
Net current assets 14,128 20.4
---------- -------
Net assets 69,348 100.0
---------- -------
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: 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 investment 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 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 advisers 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 investment
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 investment 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: While 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.
OTHER MATTERS
The unaudited half-yearly financial statements for the six months ended 30
September 2017 do not constitute statutory financial statements within the
meaning of Section 434 of the Companies Act 2006, have not been reviewed or
audited by the company's independent auditor and have not been delivered to
the Registrar of Companies. The comparative figures for the year ended 31
March 2017 have been extracted from the audited financial statements for that
year, which have been delivered to the Registrar of Companies. The auditor's
report on those financial statements (i) was unqualified, (ii) did not include
any reference to matters to which the auditor drew attention by way of
emphasis without qualifying the report and (iii) did not contain a statement
under Section 498(2) or (3) of the Companies Act 2006. 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
March 2017.
Each of the directors confirms that to the best of his or her 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 Rules 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 Rules 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 directors of the company at the date of this statement 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 calculation of the revenue and capital return per share is based on the
return on ordinary activities after tax for the period and on 99,880,309 (2016
92,387,450) ordinary shares, being the weighted average number of shares in
issue during the period.
The calculation of the net asset value per share is based on the net assets at
30 September 2017 divided by the 101,400,355 (2016 93,394,459) ordinary shares
in issue at that date.
The interim dividend of 2.0 pence per share for the year ending 31 March 2018
will be paid on 26 January 2018 to shareholders on the register at the close
of business on 5 January 2018.
A copy of the half-yearly financial report for the six months ended 30
September 2017 is expected to be posted to shareholders by 24 November 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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