TIDMNTV
14 NOVEMBER 2017
NORTHERN 2 VCT PLC
UNAUDITED HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHSED 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 GBP69.3m GBP72.2m GBP71.6m
Net asset value per share 68.4p 77.3p 76.6p
Return per share:
Revenue 1.0p 0.7p 1.6p
Capital (0.6)p 7.3p 7.7p
Total 0.4p 8.0p 9.3p
Dividend per share declared/paid
in respect of the period
(31 March 2017 includes 5.0p special dividend) 2.0p 2.0p 10.5p
Cumulative returns to shareholders
since launch:
Net asset value per share 68.4p 77.3p 76.6p
Dividends paid per share* 109.9p 99.4p 101.4p
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 8.5% 8.3% 7.6%
Including special dividend 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 GBP2.7 million:
-- Velocity Composites (GBP97,000): an AIM-quoted manufacturer of material
kits for aircraft production, Burnley
-- Knowledgemotion (GBP979,000): an educational video aggregator and
distributor, London
-- Contego Fraud Solutions (GBP489,000): an identity verification system
provider, Oxford
-- Volo Commerce (GBP1,105,000): an enterprise resource planning platform
supporting online merchants, London
In addition, a follow-on investment of GBP812,000 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 GBP134,000, and
Soda Software Labs, a data analytics specialist of GBP1,332,000.
Proceeds of GBP5.9 million were received from investment sales and
repayments, resulting in a realised gain of GBP0.7 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 GBP2.2 million. A further GBP2.5 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 GBP20 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 Six months ended
30 September 2017 30 September 2016
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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 1.0p (0.6)p 0.4p 0.7p 7.3p 8.0p
share
Year ended 31 March 2017
Revenue Capital Total
GBP000 GBP000 GBP000
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 30 September 2016 31 March 2017
GBP000 GBP000 GBP000
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
Capital
Share Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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
Capital
Share Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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
Capital
Share Share redemption Revaluation Capital Revenue
capital premium reserve reserve reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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
GBP000 GBP000 GBP000
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
Cost Valuation % of net assets
Company GBP000 GBP000 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.
Source: Northern 2 VCT PLC via Globenewswire
http://www.nvm.co.uk/investorarea/northern_2_vct_plc.php
(END) Dow Jones Newswires
November 14, 2017 10:30 ET (15:30 GMT)
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