Interim Results
Northern 2 VCT PLC
26 September 2005
26 SEPTEMBER 2005
NORTHERN 2 VCT PLC
UNAUDITED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 JULY 2005
Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by Northern Venture
Managers. The trust was launched in 1999 and has to date raised a total of £46
million from private investors. The trust invests mainly in unquoted venture
capital holdings and aims to provide high long-term returns to shareholders
through a combination of dividend yield and capital growth.
Financial highlights (comparative figures as at 31 July 2004):
2005 2004
Re-stated
• Net assets £38,867,000 £44,149,000
• Net asset value per share 89.0p 99.7p
• Investment income £948,000 £1,138,000
• Profit/(loss) on ordinary
activities before tax:
Revenue £694,000 £874,000
Capital £(1,038,000) £527,000
• Earnings/(loss) per share:
Revenue 1.2p 1.4p
Capital (1.9)p 1.5p
• Interim dividend per share
proposed in respect of the period:
Revenue 1.0p 1.0p
Capital Nil 3.0p
• Cumulative return to shareholders since
launch*:
Dividends per share 23.4p 17.6p
Net asset value plus dividends 112.4p 117.3p
• Share price 78p 85p
*Including dividends proposed in respect of the period
For further information, please contact:
Northern Venture Managers Limited
Alastair Conn, Managing Director 0191 244 6000
Website: www.nvm.co.uk
Lansons Communications
Alison Boucher 020 7294 3616
CHAIRMAN'S STATEMENT
The Chairman of Northern 2 VCT PLC, Dr Matt Ridley, included the following
points in his statement to shareholders:
The half year to 31 July 2005 has seen a continuing high level of new investment
activity, with the result that venture capital investments now represent 80% of
the company's net assets. The portfolio overall is making good progress,
although we have continued to take a conservative approach to determining the
fair value of individual investments. Over the past 12 months shareholders have
received tax-free dividends totalling 8.8p per share, mainly as a result of
successful investment realisations.
Net asset value
The net asset value per share at 31 July 2005, before providing for the proposed
interim dividend of 1.0p per share, was 89.0p. This represents a slight fall
from the re-stated figure of 91.0p at 31 January 2005, largely due to a
reduction in the valuation of two investments whose results are currently behind
expectations.
Investments
Six new venture capital investments were completed during the half year:
• e-know.net (£435,000) - application service provider, Telford
• Daniolabs (£145,000) - evaluation of therapeutics for
neurological and ophthalmological diseases, Cambridge
• Spectrum Interactive (£166,000) - AiM-quoted operator of
payphones and public access internet terminals, Hemel Hempstead
• Penton Media Europe (£595,000) - integrated
business-to-business media and exhibitions company, London
• Abermed Industrial Doctors (£725,000) - provider of medical and
occupational heath services, Aberdeen
• KCS Global Holdings (£702,000) - developer of human resources
and payroll software and outsourcing services, London
In addition a follow-on investment of £265,000 was made in Computer Software
Group as part of a share placing on AiM to finance an acquisition.
There were no major realisations in the unquoted portfolio during the half year.
The investment in PrismTech, acquired in 2000 at a cost of £743,000 but fully
provided against for most of its life because of poor trading performance, was
sold to a management buy-out vehicle for £120,000 in cash plus warrants to
subscribe for a small amount of equity in the new company.
There were relatively few movements in the quoted venture capital portfolio,
which currently comprises one fully listed and 14 AiM quoted companies. Part of
the investment in BBI Holdings, which floated on AiM in April 2004, was sold,
realising a gain of £108,000. The nanomaterials developer Oxonica, a new
unquoted investment in 2002, floated on AiM in July 2005 and its shares are
currently trading at approximately twice our original cost; however the venture
capital investors are 'locked in' until July 2006 and in line with our usual
practice a discount has been applied to the valuation.
Revenue and dividend
The revenue element of earnings per share for the half year was 1.2p, down from
1.4p in the corresponding period to 31 July 2004. Investment income was down by
17% to £948,000, mainly due to there being some large non-recurring items of
income in the corresponding period from investments which have subsequently been
sold or floated. Your board has declared an unchanged interim revenue dividend
of 1.0p per share, which will be paid on 2 December 2005 to shareholders on the
register on 4 November 2005. This takes the cumulative total of dividends
declared by the company since launch to 23.4p per share.
As there were no significant investment realisations during the period, no
interim capital dividend is proposed (corresponding period 3.0p). Our managers
are currently working on two strong exit prospects and we hope to be in a
position to declare a capital dividend at the year end, although it is not
possible to give an indication of the amount at this stage.
The company continues to operate its dividend investment scheme, which enables
shareholders to re-invest their dividends in new ordinary shares in the company
with the benefit of zero transaction costs plus income tax relief (currently
40%) on the amount re-invested. Further details can be obtained from the
secretary at the company's registered office.
Share price
The mid-market share price fell slightly from 80p to 78p during the period.
75,994 new shares were issued in June under the company's dividend re-investment
scheme, adding £68,000 to our funds available for investment. A total of
652,560 shares, representing approximately 1.5% of the issued share capital,
were bought in the market for cancellation at an average price of 76p. Whilst
secondary demand for VCT shares remains low, we recognise that it is important
for shareholders to have an exit route should they wish to realise their
investment and we have set an objective, subject to market conditions, of buying
back shares at a discount to net asset value of not more than 10% in future.
VCT qualifying status
The company has continued to retain PricewaterhouseCoopers LLP as advisers on
matters relating to VCT status, and the directors are satisfied that the
qualifying conditions laid down by the Inland Revenue for VCT approval have been
met.
Accounting policies
The company's accounting policies have been revised for the current financial
year in order to comply with new UK Financial Reporting Standards introduced for
accounting periods beginning on or after 1 January 2005. The main changes are
that
• all gains and losses (whether realised or unrealised)
relating to investments are now included in the profit and loss account
• quoted investments are valued at bid rather than mid-market
prices
• dividends payable to shareholders no longer appear in the
profit and loss account, and
• dividends are not recognised as a balance sheet liability
until they have been formally declared (dividends are usually declared after
the end of the period to which they relate).
We have continued to present the profit and loss account in a three-column
format so that a clear distinction is made between revenue and capital items. A
detailed explanation of the accounting changes and their financial impact is set
out later in this announcement.
Management
Your directors have recently commenced a review of Northern Venture Managers'
management fees and performance incentive arrangements, with the objective of
ensuring that their remuneration is structured so as to reward success in
achieving results for shareholders. This review is still in progress and I will
report further to shareholders once it has been completed.
Prospects
The process of building the investment portfolio is now well advanced, and as
the underlying investments mature we expect to see further realisations. This
will not only release funds for new investment opportunities but also generate
realised gains for distribution to shareholders.
In my year-end chairman's statement six months ago, I reminded shareholders that
a continuation vote is scheduled for the annual general meeting in 2006. Your
directors presently intend to recommend that the company's life be extended for
a further five years. We are also conscious that the attractive tax reliefs
currently available on new investments in VCTs are due to be phased out at the
end of the 2005/06 tax year and we will be considering whether your company
should seek to raise further funds while this window of opportunity remains
open.
The unaudited interim financial statements for the six months ended 31 July 2005
are set out below.
PROFIT AND LOSS ACCOUNT
(unaudited) for the six months ended 31 July 2005
Six months ended Six months ended
31 July 2005 31 July 2004 (re-stated)
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on disposal of investments
held at fair value - 117 117 - 107 107
Unrealised adjustments to fair value
of investments - (718) (718) - 896 896
Income 948 - 948 1,138 - 1,138
Investment management fee (146) (437) (583) (159) (476) (635)
Other expenses (108) - (108) (105) - (105)
------ ------ ------ ------ ------ ------
Profit/(loss) on ordinary activities
before tax 694 (1,038) (344) 874 527 1,401
Tax on ordinary activities (170) 218 48 (250) 151 (99)
------ ------ ------ ------ ------ ------
Profit/(loss) on ordinary activities
after tax 524 (820) (296) 624 678 1,302
------ ------ ------ ------ ------ ------
Earnings/(loss) per share 1.2p (1.9)p (0.7)p 1.4p 1.5p 2.9p
Year ended
31 January 2005 (re-stated)
Revenue Capital Total
£000 £000 £000
Gains on disposal of investments
held at fair value - 1,164 1,164
Unrealised adjustments to fair value
of investments - (1,008) (1,008)
Income 2,074 - 2,074
Investment management fee (315) (943) (1,258)
Other expenses (201) - (201)
------ ------ ------
Profit/(loss) on ordinary activities
before tax 1,558 (787) 771
Tax on ordinary activities (422) 301 (121)
------ ------ ------
Profit/(loss) on ordinary activities
after tax 1,136 (486) 650
------ ------ ------
Earnings/(loss) per share 2.6p (1.1)p 1.5p
BALANCE SHEET
(unaudited) as at 31 July 2005
31 July 31 July 2004 31 January
2005 2005
(re-stated) (re-stated)
£000 £000 £000
Fixed asset investments
held at fair value
Venture capital
investments:
Unquoted 26,854 24,834 25,391
Quoted 4,364 2,810 3,938
------- ------- -------
31,218 27,644 29,329
Listed fixed-interest 6,508 6,856 6,965
investments
------- ------- -------
Total fixed asset 37,726 34,500 36,294
investments
------- ------- -------
Current assets:
Debtors 418 353 420
Cash at bank 917 9,604 3,795
------- ------- -------
1,335 9,957 4,215
Creditors (amounts falling
due
within one year) (194) (308) (237)
------- ------- -------
Net current assets 1,141 9,649 3,978
------- ------- -------
Net assets 38,867 44,149 40,272
------- ------- -------
Capital and reserves:
Called-up equity share 2,183 2,214 2,212
capital
Share premium 34,104 33,761 34,050
Capital redemption reserve 96 45 63
Revaluation reserve 775 2,572 948
Profit and loss account 1,709 5,557 2,999
------- ------- -------
Total equity shareholders' 38,867 44,149 40,272
funds
------- ------- -------
Net asset value per share 89.0p 99.7p 91.0p
STATEMENT OF CHANGES IN EQUITY
(unaudited) for the six months ended 31 July 2005
Capital Revalu- Profit
Share Share redemption ation and loss
capital premium reserve reserve account Total
£000 £000 £000 £000 £000 £000
At 1 February 2005 2,212 34,050 63 948 2,999 40,272
(re-stated)
Loss after tax for the - - - - (296) (296)
period
Equity dividends - - - - (664) (664)
Shares purchased for (33) - 33 - (503) (503)
cancellation
Issue of ordinary 4 54 - - - 58
shares
Net decrease in
unrealised
revaluation surplus - - - (718) 718 -
Previously recognised
gains/losses
now realised - - - 545 (545) -
------- ------- ------- ------- ------- ------
-
At 31 July 2005 2,183 34,104 96 775 1,709 38,867
------- ------- ------- ------- ------- ------
CASH FLOW STATEMENT
(unaudited) for the six months ended 31 July 2005
Six months ended Six months ended Year ended
31 July 2005 31 July 2004 31 January 2005
(re-stated) (re-stated)
£000 £000 £000 £000 £000 £000
Cash flow statement
Net cash inflow from
operating 264 395 539
activities
Taxation:
Corporation tax paid - - (88)
Financial investment:
Purchase of (4,196) (4,915) (10,341)
investments
Sale of investments 2,163 6,358 9,142
------- ------- -------
Net cash inflow/
(outflow) from
financial (2,033) 1,443 (1,199)
investment
Equity dividends paid (664) (1,335) (4,563)
------- ------- -------
Net cash inflow/
(outflow)
before financing (2,433) 503 (5,311)
Financing:
Issue of ordinary 68 - 305
shares
Share issue costs (10) - -
Shares purchased for (503) (399) (699)
cancellation
------- ------- -------
Net cash outflow from (445) (399) (394)
financing
------- ------- -------
Increase/(decrease) (2,878) 104 (5,705)
in cash at bank
------- ------- -------
Reconciliation of
profit before
tax to net cash flow
from
operating activities
Profit on ordinary activities (344) 1,401 771
before tax
Gains on disposal of
investments
held at fair value (117) (107) (1,164)
Unrealised
adjustments to fair
value
of investments 718 (896) 1,008
Decrease/(increase) 2 (3) (70)
in debtors
Increase/(decrease) 5 - (6)
in creditors
------- ------- -------
Net cash inflow from 264 395 539
operating activities
------- ------- -------
Analysis of cash at
bank
1 February 2005 Cash flows 31 July 2005
£000 £000 £000
Cash at bank 3,795 (2,878) 917
----- ------- -------
INVESTMENT PORTFOLIO SUMMARY
as at 31 July 2005
Valuation % of net assets
£000 by valuation
Fifteen largest venture capital investments
DMN Installations 1,901 4.9
Omnico Plastics 1,546 4.0
Longhirst Group 1,484 3.8
Crantock Bakery 1,107 2.8
Arrow Industrial Group 1,010 2.6
Stainton Metal Company 1,002 2.6
IG Doors 1,000 2.6
Computer Software Group* 994 2.6
Envirotec 975 2.5
VPTA 942 2.4
Direct Valeting 915 2.4
LEDA Holdings 825 2.1
Warmseal Windows (Newcastle) 818 2.1
RBF Industries 783 2.0
Crabtree of Gateshead 775 2.0
------- ------
16,077 41.4
Other venture capital investments 15,141 39.0
------- ------
Total venture capital investments 31,218 80.4
Listed fixed-interest investments 6,508 16.7
------- ------
Total fixed asset investments 37,726 97.1
Net current assets 1,141 2.9
------- ------
Net assets 38,867 100.0
------- ------
* Quoted on Alternative Investment Market
The above summary of results for the six months ended 31 July 2005 does not
constitute statutory financial statements within the meaning of Section 240 of
the Companies Act 1985 and has not been delivered to the Registrar of Companies.
The figures for the year ended 31 January 2005 have been extracted from the
financial statements for that year, which have been delivered to the Registrar
of Companies; the independent auditors' report on those financial statements
under Section 235 of the Companies Act 1985 was unqualified.
The company is required to comply with the requirements of a number of new UK
Financial Reporting Standards (FRS), which now represent UK Generally Accepted
Accounting Principles (UK GAAP), in presenting its financial statements for the
year ending 31 January 2006. These Standards have been introduced as part of
the process of aligning UK accounting principles with International Accounting
Standards. The unaudited interim financial statements for the six months ended
31 July 2005 have been prepared in compliance with the new Standards, with the
result that the accounting policies differ from those used in preparing the
annual financial statements for the year ended 31 January 2005 in the following
respects:
• The unrealised gain or loss resulting from the revaluation
of fixed asset investments held at fair value is now recognised in the profit
and loss account, as required by FRS 25 'Financial Instruments: Disclosure and
Presentation'
• Quoted investments are valued at bid price rather than
mid-market price, as required by FRS 26 'Financial instruments: Measurement'
• Dividends to shareholders are accounted for in the period
in which the company is liable to pay them, rather than in the period in respect
of which they are declared, as required by FRS 21 'Events after the Balance
Sheet Date'.
The comparative figures for the six months ended 31 July 2004 and the year ended
31 January 2005 have been re-stated accordingly.
The effect of the above changes on the reported net assets and net asset value
per share of the company is as follows:
31 July 2005 31 July 2004 31 January 2005
Net asset Net asset Net asset
Net value per Net value per Net value per
assets share assets share assets share
£000 p £000 p £000 p
As reported under previous UK GAAP 38,506 88.2 42,442 95.8 39,693 89.7
Adjustment in valuation of
quoted investments to bid price (76) (0.2) (65) (0.1) (84) (0.2)
Proposed dividends not accounted for
until declared and paid 437 1.0 1,772 4.0 663 1.5
------- ------ ------- ------ ------- ------
As reported under revised UK GAAP 38,867 89.0 44,149 99.7 40,272 91.0
------- ------ ------- ------ ------- ------
The interim dividend of 1.0p per share in respect of the year ending 31 January
2006 will be paid on 2 December 2005 to shareholders on the register at the
close of business on 4 November 2005.
A copy of the interim report for the six months ended 31 July 2005 is expected
to be posted to shareholders on 7 October 2005 and will be available to the
public at the registered office of the company at Northumberland House, Princess
Square, Newcastle upon Tyne NE1 8ER.
END
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