Northern 2 VCT PLC. Half-yearly financial report 30 September 2018

Transcription

1 Northern 2 VCT PLC Half-yearly financial report 30 September

2 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. Contents 1 Financial summary 2 Half-yearly management report 4 Five year performance 5 Investment portfolio 6 Income statement 8 Balance sheet 9 Statement of changes in equity 10 Statement of cash flows 11 Notes to the financial statements 12 Risk management 13 Company information

3 Financial summary Six months ended Six months ended Year ended 30 September September March 2018 Net assets 85.0m 69.3m 87.0m Net asset value per share 64.9p 68.4p 66.9p Return per share Revenue 0.5p 1.0p 1.3p Capital 1.0p (0.6)p (0.4)p Total 1.5p 0.4p 0.9p Dividend per share declared in respect of the period 2.0p 2.0p 5.5p Cumulative return to shareholders since launch Net asset value per share 64.9p 68.4p 66.9p Dividends paid per share* 115.4p 109.9p 111.9p Net asset value plus dividends paid per share 180.3p 178.3p 178.8p Mid-market share price at end of period 60.0p 64.5p 63.5p Share price discount to net asset value 7.6% 5.7% 5.1% Tax-free dividend yield (based on net asset value per share)** 8.0% 7.1% 7.2% *Excluding interim dividend not yet paid **The annualised dividend yield is calculated by dividing the dividends in respect of the 12 month period ended on each reference date by the net asset value per share at the start of the period Key dates Half-yearly results announced 12 November 2018 Shares quoted ex dividend 3 January 2019 Interim dividend paid (to shareholders on register on 4 January 2019) 25 January 2019 Northern 2 VCT PLC Half-yearly financial report 30 September

4 Half-yearly management report for the six months ended 30 September 2018 The pipeline of investment opportunities is currently solid and we expect to complete further investments in the second half of the year which meet our key investment criteria. Results and dividend The unaudited net asset value (NAV) per share at 30 September 2018 was 64.9 pence (66.9 pence (audited) at 31 March 2018) and is stated after deducting the final dividend of 3.5 pence per share in respect of the 2017/18 financial year which was paid in July The return per share as shown in the income statement for the six months ended 30 September 2018 was 1.5 pence, compared with 0.4 pence in the corresponding period last year, reflecting a number of investment realisations completed during the period. The board has declared an unchanged interim dividend for the year ending 31 March 2019 of 2.0 pence per share, which will be paid on 25 January 2019 to shareholders who are on the register on 4 January We remain committed to building a portfolio of investments in innovative UK smaller companies across a diverse range of sectors with significant growth potential. As previously reported, these investments will generally be structured with a view to achieving capital growth rather than income generation and the timing and quantum of potential capital gains from realisations may be less predictable. Your directors believe it is important to set the annual dividend at a level which has regard to the company s changing asset base and to its recurring income, and which avoids as far as possible erosion of the net asset value per share. After careful consideration we have decided that in the absence of unforeseen circumstances we expect in due course to propose a final dividend also of 2.0 pence per share, making a total of 4.0 pence for the year. This is equivalent to a tax-free yield of approximately 6% by reference to the net asset value at the start of the year. Our aim in the medium term, subject to regular review, would be to generate a return on ordinary activities sufficient to support an annual dividend yield of 5%, whilst retaining the flexibility to declare additional special dividends where appropriate, for example in the event of a significant capital gain. Investment portfolio Further progress was made on the development of the portfolio during the period. Six new holdings were added to the venture capital portfolio for a total consideration of 4.2 million: Clarilis ( 1,012,000) automated document preparation solutions for the legal sector, Leamington Spa Grip-UK ( 964,000) indoor climbing wall facility operator, Liverpool Ridge Pharma ( 898,000) provider of branded generic prescription medicines, Reading Seahawk Bidco ( 479,000) businessto-business energy cost comparison and procurement service, Bolton Newcells Biotech ( 484,000) specialist testing services for the drug development sector, Newcastle upon Tyne Ablatus Therapeutics ( 322,000) developer of tissue ablation technology for the treatment of tumours, Cambridge 4 Northern 2 VCT PLC Half-yearly financial report 30 September 2018

5 In addition to the new investments, 0.8 million of capital was provided to three existing investee companies to support further growth. The proportion of investment activity directed to follow-on funding will increase in the coming years as early stage companies by their nature often require multiple rounds of finance in order to achieve their business plans. Additional third party investors may be introduced as part of subsequent funding rounds in order to broaden the shareholder and capital base of the investee. Proceeds from investment sales and repayments from the venture capital portfolio amounted to 6.1 million during the period, producing a realised gain of 1.7 million over the 31 March 2018 carrying values. Love Saving Group was the subject of a secondary management buy-out financed by Lloyds Development Capital (LDC), delivering a return of over 3.5 times the original cost over the life of the investment. The opportunity was taken to re-invest 0.5 million alongside LDC in the newly formed acquisition vehicle, Seahawk Bidco, which will continue the group s activities. Wear Inns was sold to Aprirose, a specialist investment fund, delivering over two times the original cost over the life of the investment. Both of the significant realisations during the period were of investments in mature private businesses originally acquired before November 2015, when the VCT rules were updated. Our remaining holdings of such investments still constitute over 60% by value of the venture capital portfolio and are expected to provide the main source of realisations in the coming years as the early stage portfolio grows and develops. Shareholder issues We have reviewed the current pipeline with NVM both in terms of new investment prospects and of opportunities to support existing portfolio companies as they continue to develop. The volume of attractive opportunities to deploy capital in the coming years is expected to grow and your board has therefore proposed a non-prospectus top-up share offer to launch early in 2019 to raise up to 6.6 million. Gross proceeds of 0.8 million were received during the period through the issue of new shares under our dividend investment scheme. The company has maintained its policy of buying back its own shares in the market from time to time, at a discount of 5% to NAV. During the period, 519,000 shares were repurchased for cancellation, for a total consideration of 313,000. 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 As previously reported, the VCT rules have continued to evolve to meet the UK Government s aim of driving investment towards the smaller companies most in need of capital to grow. The Finance Act 2018 was enacted in March 2018 and included measures to ensure that a greater proportion of the assets of each approved VCT are held in qualifying investments and that the proceeds of new share issues are invested in qualifying investments more quickly. Prospects Over the past two years, we have operated against a background of economic and legislative uncertainty and limited clarity has thus far been obtained as to the likely nature of the UK s future relationship with the European Union. Our manager, NVM, continues to ably navigate this period of change whilst working with portfolio companies to build their businesses and drive shareholder value. The pipeline of investment opportunities is currently solid and we expect to complete further investments in the second half of the year which meet our key investment criteria of good value, growth potential, strong management and an ability to generate cash in the medium to long term. We continue to have confidence that our portfolio and investment strategy will deliver good returns to shareholders in the years ahead. On behalf of the Board David Gravells Chairman 12 November 2018 Northern 2 VCT PLC Half-yearly financial report 30 September

6 Five year performance Comparative return to shareholders (assuming dividends re-invested) Five years to 30 September 2018 (30 September 2013 = 100) Northern 2 VCT NAV total return Northern 2 VCT share price total return UK equity market index total return Net asset value and cumulative dividends per share As at 30 September (pence per share) Cumulative dividends paid since launch Net asset value per share 6 Northern 2 VCT PLC Half-yearly financial report 30 September 2018

7 Investment portfolio as at 30 September 2018 Cost Valuation % of net assets by value Fifteen largest venture capital investments No 1 Lounges 1,977 3, Agilitas IT Holdings 1,638 3, Lineup Systems 975 2, MSQ Partners Group 1,672 2, Sorted Holdings 1,946 2, Closerstill Group 1,683 2, Entertainment Magpie Group 1,503 1, Biological Preparations Group 2,166 1, It s All Good 1,145 1, Volumatic Holdings 1,251 1, Graza 1,522 1, Medovate 1,450 1, Channel Mum 875 1, Intuitive Holding 1,508 1, Soda Software Labs 1,332 1, Fifteen largest venture capital investments 22,643 31, Other venture capital investments 25,326 23, Total venture capital investments 47,969 54, Listed equity investments 6,787 6, Listed interest-bearing investments 1,343 1, Total fixed asset investments 56,099 62, Net current assets 22, Net assets 84, Asset allocation 59.4% Venture capital unquoted 64.0% 4.5% Venture capital quoted 4.7% 8.0% Listed equity 6.0% 1.6% Listed interest-bearing 5.5% 26.5% Cash and short-term deposits 19.8% 30 September September 2017 Northern 2 VCT PLC Half-yearly financial report 30 September

8 Income statement (unaudited) for the six months ended 30 September 2018 Six months ended 30 September 2018 Revenue Capital Total Gain on disposal of investments 1,773 1,773 Movements in fair value of investments ,800 1,800 Income 1,194 1,194 Investment management fee (195) (584) (779) Other expenses (200) (200) Return on ordinary activities before tax 799 1,216 2,015 Tax on return on ordinary activities (125) 125 Return on ordinary activities after tax 674 1,341 2,015 Return per share 0.5p 1.0p 1.5p The total column of the income statement is the statement of total comprehensive income of the company prepared in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The supplemental revenue return and capital return columns have been prepared in accordance with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts issued in November 2014 and updated in February 2018 with consequential amendments by the Association of Investment Companies ( AIC SORP ). There are no recognised gains or losses other than those disclosed in the income statement. All items in the above statement derive from continuing operations. 8 Northern 2 VCT PLC Half-yearly financial report 30 September 2018

9 Six months ended 30 September 2017 Year ended 31 March 2018 Revenue Capital Total Revenue Capital Total (560) (560) (202) (202) (184) (184) ,526 1,526 2,482 2,482 (195) (586) (781) (393) (1,180) (1,573) (187) (187) (350) (11) (361) 1,144 (770) 374 1,739 (684) 1,055 (186) 186 (277) (584) 374 1,462 (407) 1, p (0.6)p 0.4p 1.3p (0.4)p 0.9p Northern 2 VCT PLC Half-yearly financial report 30 September

10 Balance sheet (unaudited) as at 30 September September September March Fixed assets Investments 62,450 55,220 61,432 Current assets Debtors Cash and cash equivalents 22,494 13,590 25,540 22,623 14,228 25,745 Creditors (amounts falling due within one year) (76) (100) (134) Net current assets 22,547 14,128 25,611 Net assets 84,997 69,348 87,043 Capital and reserves Called-up equity share capital 6,544 5,070 6,505 Share premium 1,132 8, Capital redemption reserve Capital reserve 69,916 47,028 71,629 Revaluation reserve 6,351 7,415 7,836 Revenue reserve 919 1, Total equity shareholders funds 84,997 69,348 87,043 Net asset value per share 64.9p 68.4p 66.9p 10 Northern 2 VCT PLC Half-yearly financial report 30 September 2018

11 Statement of changes in equity (unaudited) for the six months ended 30 September 2018 Non-distributable reserves Distributable reserves Total Called-up Capital share Share redemption Revaluation Capital Revenue capital premium reserve reserve reserve reserve At 1 April , ,836 71, ,043 Return on ordinary activities after tax (1,485) 2, ,015 Dividends paid (4,228) (326) (4,554) Net proceeds of share issues Shares purchased for cancellation (25) 25 (311) (311) At 30 September ,544 1, ,351 69, ,997 Six months ended 30 September 2017 At 1 April ,678 3, ,049 53, ,647 Return on ordinary activities after tax (1,634) 1, Dividends paid (7,930) (496) (8,426) Net proceeds of share issues 392 5,361 5,753 Shares purchased for cancellation At 30 September ,070 8, ,415 47,028 1,362 69,348 Year ended 31 March 2018 At 1 April ,678 3, ,049 53, ,647 Return on ordinary activities after tax (1,213) 806 1,462 1,055 Dividends paid (9,226) (1,791) (11,017) Net proceeds of share issues 1,854 23,853 25,707 Shares purchased for cancellation (27) 27 (349) (349) Cancellation of share premium reserve (26,490) 26,490 At 31 March , ,836 71, ,043 Northern 2 VCT PLC Half-yearly financial report 30 September

12 Statement of cash flows (unaudited) for the six months ended 30 September 2018 Six months ended Six months ended Year ended 30 September September March Cash flows from operating activities Return on ordinary activities before tax 2, ,055 Adjustments for: Gain on disposal of investments (1,773) (376) (709) Movements in fair value of investments (27) Decrease/(increase) in debtors 76 (47) 386 Decrease in creditors (58) (616) (582) Net cash inflow/(outflow) from operating activities 233 (105) 352 Cash flows from investing activities Purchase of investments (12,373) (3,716) (10,265) Sale/repayment of investments 13,155 6,507 7,535 Net cash inflow/(outflow) from investing activities 782 2,791 (2,730) Cash flows from financing activities Issue of ordinary shares 823 5,842 26,248 Share issue expenses (19) (89) (541) Share subscriptions held pending allotment (4,297) (4,297) Purchase of ordinary shares for cancellation (311) (349) Equity dividends paid (4,554) (8,426) (11,017) Net cash (outflow)/inflow from financing activities (4,061) (6,970) 10,044 Net (decrease)/increase in cash and cash equivalents (3,046) (4,284) 7,666 Cash and cash equivalents at beginning of period 25,540 17,874 17,874 Cash and cash equivalents at end of period 22,494 13,590 25, Northern 2 VCT PLC Half-yearly financial report 30 September 2018

13 Notes to the financial statements (unaudited) for the six months ended 30 September The financial statements have been prepared under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and in accordance with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued in November 2014 and updated in February 2018 with consequential amendments by the Association of Investment Companies ( AIC SORP ). 2 The calculation of return per share is based on the return on ordinary activities after tax for the six months ended 30 September 2018 and on 130,595,942 ( ,880,309) ordinary shares, being the weighted average number of shares in issue during the period. 3 The calculation of net asset value per share is based on the net assets at 30 September 2018 divided by the 130,872,145 ( ,400,355) ordinary shares in issue at that date. 4 The interim dividend of 2.0 pence per share for the year ending 31 March 2019 will be paid on 25 January 2019 to shareholders on the register at the close of business on 4 January The unaudited half-yearly financial statements for the six months ended 30 September 2018 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 2018 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies; the independent 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 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 Each of the directors confirms that to the best of their 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. 7 Copies of this half-yearly report have been mailed to shareholders and are available to the public at the company s registered office, and on the NVM Private Equity website, Northern 2 VCT PLC Half-yearly financial report 30 September

14 Risk management 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 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 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 pursue new unquoted investment opportunities and to make follow-on investments in existing portfolio companies. 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, exchange rates 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 managers, including NVM in the case of AIM-quoted investments, 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. 14 Northern 2 VCT PLC Half-yearly financial report 30 September 2018

15 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: 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. Company information Directors David Gravells (Chairman) Alastair Conn Simon Devonshire Cecilia McAnulty Frank Neale Secretary James Bryce LLB Registered office Time Central 32 Gallowgate Newcastle upon Tyne NE1 4SN T E n2vct@nvm.co.uk Investment manager NVM Private Equity LLP Time Central 32 Gallowgate Newcastle upon Tyne NE1 4SN Registrars Equiniti Limited Aspect House Spencer Road Lancing BN99 6DA Shareholder helpline: Northern 2 VCT PLC Half-yearly financial report 30 September

16 Northern 2 VCT PLC Time Central 32 Gallowgate Newcastle upon Tyne NE1 4SN T E n2vct@nvm.co.uk Designed and produced by The Roundhouse, Newcastle upon Tyne