UK - Northern 2 VCT results show fall in NAV

Guy
10 March 2006

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NVM has recently released the preliminary results of Northern 2 VCT Plc for the year ending 31 January 2006. The reported net asset value per share fell slightly from last yearтs figure of 91.0p (re-stated from 89.7p as a result of changes in accounting policy) to 90.4p at 31 January 2006. Income generation from the investment portfolio was strong but the level of realised gains from investment sales was less than in the preceding year.

During the year eight new venture capital investments were completed and the portfolio at 31 January 2006 comprised 54 holdings with a total value of almost £30m. Exit activity was down on the previous year’s high level, though satisfactory realisations were achieved by Omnico Plastics and Crabtree of Gateshead. Oxonica was successfully floated on AIM. The overall performance of the portfolio was, however, adversely affected by the failure of VPTA and SMS Agencies.

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. As a result the revenue return per share rose from 2.5p to 2.9p. The revenue dividend has been maintained at 2.5p for the fifth year in succession. By realising gains from the venture capital portfolio the trust has also been able to declare capital dividends totalling 3.0p per share (last year 6.3p). The total dividend of 5.5p per share for the year comprises an interim dividend of 1.0p per share which was paid in December 2005 and a proposed final dividend of 4.5p per share which will, if approved by shareholders at the annual general meeting, be paid on 2 June 2006.

In February 2006 shareholders received a circular from the company containing information about two resolutions to be considered at an extraordinary general meeting on 9 March 2006. The first resolution was to amend the Articles of Association so that the next shareholder vote on continuation of the company will 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. The second resolution was to authorise the directors to allot up to 11,000,000 new ordinary shares, in order that a 'top-up' issue of ordinary shares which will be open for subscription in the 2005/06 tax year can be launched.

Both resolutions were passed by a wide margin. If the share issue is fully subscribed the company’s net assets will increase to approximately £48m.

The February 2006 shareholder circular also contained details of new management fee and performance incentive arrangements entered into between the company and NVM. Following a thorough review of the existing arrangements, the board decided to establish a co-investment scheme under which NVM executives are required to invest personally in the ordinary shares of companies, including those quoted on AIM, in which Northern 2 VCT invests. It believes this will benefit shareholders by enhancing NVM’s ability to recruit and retain high-calibre investment executives in a competitive market environment. At the same time the board took the opportunity to reduce the fixed element of NVM’s annual management fee from 2.5% to 2.0% of net assets, whilst introducing a new performance-related element linked to future net asset growth and dividend generation.

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 at the annual general meeting to renew the board’s authority to make market purchases of shares.