Northern 2 Vct Regulatory News (NTV)

9 Mar 2006 16:21

Northern 2 VCT PLC09 March 2006 9 MARCH 2006 NORTHERN 2 VCT PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2006 Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by Northern VentureManagers. The trust was launched in 1999 and has to date raised a total of £47million from private investors. The trust invests mainly in unquoted venturecapital holdings and aims to provide high long-term returns to shareholdersthrough a combination of dividend yield and capital growth. Financial highlights - year ended 31 January 2006:(comparative figures as at 31 January 2005 in italics) 2006 2005 Re-stated• Net assets* £38,675,000 £40,272,000• Net asset value per share* 90.4p 91.0p• Investment income £2,226,000 £2,074,000• Return on ordinary activitiesbefore tax: Revenue £1,736,000 £1,558,000 Capital £(984,000) £(729,000) Total £752,000 £829,000• Return per share: Revenue 2.9p 2.5p Capital (1.4)p (0.9)p Total 1.5p 1.6p• Dividend per share: Revenue 2.5p 2.5p Capital 3.0p 6.3p Total 5.5p 8.8p• Cumulative return to shareholderssince launch: Dividends per share** 27.9p 22.4p Net asset value plus dividends per share 113.8p 111.9p• Share price at end of year 80.0p 80.0p * Before deducting proposed final dividend **Including proposed final dividend For further information, please contact:Northern Venture Managers LimitedAlastair Conn, Managing Director 0191 244 6000Website: www.nvm.co.uk Lansons CommunicationsAlison Boucher 020 7294 3616 NORTHERN 2 VCT PLC CHAIRMAN'S STATEMENT The Chairman of Northern 2 VCT PLC, Dr Matt Ridley, included the followingpoints in his statement to shareholders: The past year has brought some successes and some disappointments. The reportednet asset value per share fell slightly from last year's figure of 91.0p(re-stated from 89.7p as a result of changes in accounting policy) to 90.4p at31 January 2006. Income generation from the investment portfolio was strong butthe level of realised gains from investment sales was less than in the precedingyear. The performance chart in the directors' remuneration report shows that over fiveyears the company's net asset value and share price have continued toout-perform the FTSE All-Share index on a total return basis. Presentation of results The year under review has brought further changes in the way in which we presentour financial statements, in response to the harmonisation of UK accountingpractice with international standards. Full details of the changes and theirimplications are given in the notes to the financial statements in the annualreport. The most prominent consequence is that the year-end net asset value isnow stated before deducting the proposed final dividend for the year. I willleave it to shareholders to form their own view as to whether the new regime ismore informative than the old. Investment portfolio During the year eight new venture capital investments were completed and theportfolio at 31 January 2006 comprised 54 holdings with a total value of almost£30 million. Exit activity was down on the previous year's high level, thoughsatisfactory realisations were achieved by Omnico Plastics and Crabtree ofGateshead. Oxonica was successfully floated on the Alternative InvestmentMarket. The overall performance of the portfolio was however adversely affectedby the failure of VPTA and SMS Agencies. Developments in the portfolio are discussed in more detail in the InvestmentManager's Review in the annual report. NVM has added considerable new resourceto its investment team over the past 18 months and we expect to see thisreflected in future results. Revenue and dividends Through a combination of increased investment income and lower running expenses,the revenue surplus before tax for the year increased by 11% to £1,736,000. Asa result the revenue return per share rose from 2.5p to 2.9p. The revenuedividend has been maintained at 2.5p for the fifth year in succession. Byrealising gains from the venture capital portfolio we have also been able todeclare capital dividends totalling 3.0p per share (last year 6.3p). The totaldividend of 5.5p per share for the year comprises an interim dividend of 1.0pper share which was paid in December 2005 and a proposed final dividend of 4.5pper share which will, if approved by shareholders at the annual general meeting,be paid on 2 June 2006. The tax-free total dividend of 5.5p is equivalent to a 9.2% gross yield to ahigher-rate taxpayer subscribing for shares at 100p, and 11.5% if the 20% incometax relief on subscriptions obtained by subscribers in 1999 is taken intoaccount. The cumulative total of dividends declared by the company over sevenyears is 27.9p per share, which is an average of just under 4.0p per year. Continuation vote and proposed share issue In February 2006 shareholders received a circular from the company containinginformation about two resolutions to be considered at an extraordinary generalmeeting on 9 March 2006. The first resolution was to amend the Articles ofAssociation so that the next shareholder vote on continuation of the companywill take place in 2011 rather than at the annual general meeting in May 2006,thus in effect extending the life of the company for a further five years. Thesecond resolution was to authorise the directors to allot up to 11,000,000 newordinary shares, in order that we can launch a "top-up" issue of ordinary shareswhich will be open for subscription in the 2005/06 tax year. As stated in thecircular, the present tax reliefs on investment in VCTs are due to continue onlyuntil 5 April 2006 and the Chancellor of the Exchequer has not yet announcedwhat, if any, changes will apply thereafter, so your directors felt it wasimportant to be in a position to raise additional funds in the current tax year. It would clearly be inappropriate to proceed with this without certainty as tothe future continuation of the company. I am pleased to report that at the extraordinary general meeting bothresolutions were passed by a wide margin; a prospectus setting out details offor the share issue will be published in the near future and copies will be sentto all shareholders. If the share issue is fully subscribed the company's netassets will increase to approximately £48 million. Management arrangements The February 2006 shareholder circular also contained details of new managementfee and performance incentive arrangements entered into between the company andNVM. Following a thorough review of the existing arrangements, your boarddecided to establish a co-investment scheme under which NVM executives arerequired to invest personally in the ordinary shares of companies, includingthose quoted on AIM, in which Northern 2 VCT invests. We believe this willbenefit shareholders by enhancing NVM's ability to recruit and retainhigh-calibre investment executives in a competitive market environment. At thesame time we took the opportunity to reduce the fixed element of NVM's annualmanagement fee from 2.5% to 2.0% of net assets, whilst introducing a newperformance-related element linked to future net asset growth and dividendgeneration. Share buy-backs and market liquidity During the year the company bought back for cancellation 1,583,148 shares,equivalent to approximately 3.6% of the issued capital at the start of the year,at an average price of 79p per share. A resolution will as usual be proposed atthe annual general meeting to renew the board's authority to make marketpurchases of shares. The secondary market for VCT shares has remained depressedover the past year and it will be interesting to see what effect theChancellor's forthcoming announcement on future tax reliefs has on the relativeattractions of new and second-hand VCT shares. VCT qualifying status The company has continued to retain PricewaterhouseCoopers LLP as advisers onVCT taxation matters, and has throughout the year met the qualifying conditionslaid down by HM Revenue & Customs for approval as a VCT. The future The future of the VCT sector is subject to some uncertainty as we await theChancellor's Budget announcement on 22 March. VCTs have made a substantialcontribution to business enterprise in the UK over the past decade and I hopethat any changes to the VCT regulations will be gradual and judicious. Our company is now well established, and the forthcoming share issue shouldensure that liquid resources are sufficient for our investment requirements forthe foreseeable future. As we begin the next five year cycle in our corporatelife, we remain focussed on producing a strong dividend flow and asset growthfor shareholders. The audited financial statements for the year ended 31 January 2006 will showthe results set out below. INCOME STATEMENT for the year ended 31 January 2006 Year ended 31 January 2006 Year ended 31 January 2005 Re-stated Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000(Loss)/gain on disposal of investments - (388) (388) - 1,164 1,164held at fair valueUnrealised adjustments to fair value of - 265 265 - (950) (950)investments Income 2,226 - 2,226 2,074 - 2,074Investment management fee (287) (861) (1,148) (315) (943) (1,258)Other expenses (203) - (203) (201) - (201) ------ ------ ------ ------ ------ ------Return on ordinary activities before tax 1,736 (984) 752 1,558 (729) 829Tax on return on ordinary activities (455) 352 (103) (422) 301 (121) ------ ------ ------ ------ ------ ------Return on ordinary activities after tax 1,281 (632) 649 1,136 (428) 708 ------ ------ ------ ------ ------ ------Return per share 2.9p (1.4)p 1.5p 2.5p (0.9)p 1.6p RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 January 2006 Year ended 31 January Year ended 31 2006 January 2005 Re-stated Total Total £000 £000Equity shareholders' funds at 1 February 2005 As previously reported 39,693 43,233 Prior year adjustment 579 1,289 ------- ------- As re-stated 40,272 44,522 Return on ordinary activities after tax 649 708Dividends recognised in the year (1,092) (4,564)Net proceeds of share issues 97 305Shares purchased for cancellation (1,251) (699) ------- -------Equity shareholders' funds at 31 January 2006 38,675 40,272 ------- ------- BALANCE SHEET as at 31 January 2006 31 January 31 January 2006 2005 Re-stated £000 £000Venture capitalinvestments: Unquoted 25,259 25,391 Quoted 4,548 3,939 ------- ------- 29,807 29,330Listed fixed-interest 6,029 6,965investments ------- -------Total fixed asset 35,836 36,295investments ------- -------Current assets: Debtors 409 420 Cash at bank 2,664 3,795 ------- ------- 3,073 4,215Creditors (amountsfalling due within one year) (234) (238) ------- -------Net current assets 2,839 3,977 ------- ------- Net assets 38,675 40,272 ------- ------- Capital and reserves:Called-up equity share 2,139 2,212capitalShare premium 34,141 34,050Capital redemption 142 63reserveCapital reserve: Realised 351 2,263 Unrealised 977 948Revenue reserve 925 736 ------- -------Total equity 38,675 40,272shareholders' funds ------- -------Net asset value per 90.4p 91.0pshare CASH FLOW STATEMENT for the year ended 31 January 2006 Year ended Year ended 31 January 2006 31 January 2005 Re-stated £000 £000 £000 £000Net cash inflow from operating 972 539activitiesTaxation:Corporation tax paid (115) (88)Financial investment:Purchase of (6,293) (10,341)investmentsSale/repayment of 6,551 9,142investments ------ ------Net cash inflow/(outflow) from financial 258 (1,199)investmentEquity dividends paid (1,092) (4,563) ------ ------Net cash inflow/(outflow) before financing 23 (5,311)Financing:Issue of ordinary 112 305sharesShare issue expenses (15) -Purchase of ordinaryshares for cancellation (1,251) (699) ------ ------Net cash outflow from financing (1,154) (394) ------ ------Decrease in cash at (1,131) (5,705)bank ------ ------Reconciliation ofreturn beforetax to net cash flowfromoperating activitiesReturn on ordinaryactivities before tax 752 829Loss/(gain) ondisposal of investments held at 388 (1,164)fair valueUnrealisedadjustments to fair value of (265) 950investmentsDecrease/(increase) 89 (70)in debtorsIncrease/(decrease) 8 (6)in creditors ------ ------Net cash inflow from operating 972 539activities ------ ------ Analysis of movementin net funds 1 February Cash flows 31 January 2005 2006 £000 £000 £000Cash at bank 3,795 (1,131) 2,664 ------ ------ ------ INVESTMENT PORTFOLIO SUMMARY as at 31 January 2006 Valuation % of net assets £000 by valuationFifteen largest venture capital investments:DMN 1,600 4.1Crantock Bakery 1,491 3.9Longhirst Group 1,484 3.8Computer Software Group* 1,337 3.5IG Doors 1,316 3.4Stainton Metal Company 1,118 2.9Arrow Industrial Group 1,099 2.8Warmseal Windows (Newcastle) 1,082 2.8Envirotec 975 2.5John Laing Partnership 925 2.4Alaric Systems 921 2.4Direct Valeting 915 2.4Pivotal Laboratories Holdings 857 2.2LEDA Holdings 825 2.1Iris Technology 797 2.1 ------- ------ 16,742 43.3Other venture capital investments 13,065 33.8 ------- ------Total venture capital investments 29,807 77.1Listed fixed-interest investments 6,029 15.6 ------- ------Total fixed asset investments 35,836 92.7Net current assets 2,839 7.3 ------- ------Net assets 38,675 100.0 ------- ------*Quoted on Alternative Investment Market The above summary of results for the year ended 31 January 2006 does notconstitute statutory financial statements within the meaning of Section 240 ofthe Companies Act 1985 and has not been delivered to the Registrar of Companies. Statutory financial statements will be filed with the Registrar of Companiesin due course; the independent auditors' report on those financial statementsunder Section 235 of the Companies Act 1985 is unqualified and does not containa statement under Section 237(2) or (3) of the Companies Act 1985. The company is required to comply with a number of new UK Financial ReportingStandards (FRS), which now represent UK Generally Accepted Accounting Principles(UK GAAP), in presenting its financial statements for the year ended 31 January2006. These Standards have been introduced as part of the process of aligning UKaccounting principles with International Accounting Standards. The revised accounting policies differ from those used in preparing the annualfinancial statements for the year ended 31 January 2005 in the followingrespects: • The unrealised gain or loss resulting from the revaluation of fixedasset investments held at fair value is now recognised in the income statement,as required by FRS 25 "Financial Instruments: Disclosure and Presentation"; • Quoted investments are valued at bid price rather than mid-marketprice, as required by FRS 26 "Financial instruments: Measurement"; and • Dividends to shareholders are accounted for in the period in whichthe company is liable to pay them, rather than in the period in respect of whichthey are declared, as required by FRS 21 "Events after the Balance Sheet Date". The comparative figures for the year ended 31 January 2005 have been re-statedaccordingly. The effect of the above changes on the reported net assets and net asset valueper share of the company is as follows: 31 January 2006 31 January 2005 31 January 2004 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 pAs reported under previous UK 36,819 86.1 39,693 89.7 43,233 96.5GAAPLess: adjustment in valuation (69) (0.2) (84) (0.2) (58) (0.1)of quoted investments to bidpriceAdd: proposed dividends not 1,925 4.5 663 1.5 1,347 3.0accounted for until declaredand paid ------- ------- ------- ------- ------- -------As reported under revised UK 38,675 90.4 40,272 91.0 44,522 99.4GAAP ------- ------- ------- ------- ------- ------- The proposed final dividend of 4.5p per share for the year ended 31 January 2006will, if approved by shareholders, be paid on 2 June 2006 to shareholders on theregister at the close of business on 24 March 2006. The full annual report including financial statements for the year ended 31January 2006 is expected to be posted to shareholders on 24 March 2006 and willbe available to the public at the registered office of the company atNorthumberland House, Princess Square, Newcastle upon Tyne NE1 8ER. ENDS This information is provided by RNS The company news service from the London Stock Exchange