Northern 2 VCT PLC - NVM · Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM...

Northern 2 VCT PLCAnnual report and financial statements 31 March 2018

2018

Northern 2 VCT PLC is a Venture Capital Trust (VCT) managed by NVM Private Equity.

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 Chairman’s statement

4 Directors and advisers

5 Shareholderinformation

6 Strategic report

11 Investmentportfolio

12 Fifteenlargestventurecapitalinvestments

16 Directors’ report

18 Directors’remunerationreport

20 Corporate governance

25 Directors’responsibilitiesstatement

26 Independent auditor’s report

28 Income statement

29 Balance sheet

30 Statement of changes in equity

31 Statementofcashflows

32 Notestothefinancialstatements

Financial summary

Year ended 31 March: 2018 2017

Net assets £87.0m £71.6m

Net asset value per share 66.9p 76.6p

Return per shareRevenue 1.3p 1.6pCapital (0.4)p 7.7pTotal 0.9p 9.3p

Dividend per share for the year First interim dividend 2.0p 2.0p Second interim (special) dividend – 5.0pProposedfinaldividend 3.5p 3.5pTotal 5.5p 10.5p

Cumulative return to shareholders since launchNet asset value per share 66.9p 76.6pDividends paid per share* 111.9p 101.4p Net asset value plus dividends paid per share 178.8p 178.0p

Mid-market share price at end of year 63.50p 72.00p

Share price discount to net asset value 5.1% 6.0%

Tax-free dividend yield (based on mid-market share price at the end of the year)Including special dividend N/A 14.6%Excluding special dividend 8.7% 7.6%

*Excludingproposedfinaldividendpayableon20July2018

Key dates

Results announced17 May 2018

Shares quoted ex dividend21June2018

Record date for final dividend22June2018

Annual general meeting12July2018,12.00noon,RoyalCollegeofGeneralPractitioners, 30EustonSquare,LondonNW12FB

Final dividend paid 20July2018

Northern 2 VCT PLC Annual Report and Financial Statements 2018 1

2 Northern 2 VCT PLC Annual Report and Financial Statements 2018

I am pleased to report on another busy year forNorthern2VCT,duringwhichtennew VCTqualifyinginvestmentswerecompleted.Cashflowsremainedstrong,supported byahighlysuccessfulpublicshareoffer. Ourinvestmentmanager,NVM,continues tomeetthetwinchallengesofidentifying newandcompellingVCT-qualifyingopportunitiestosupportsmallandmediumbusinessesandworkingwithexistingportfoliocompaniestorealisetheirgrowthplans.

Results and dividendThetotalreturnpersharefortheyearasshownintheincomestatementwas0.9p(lastyear9.3p). The net asset value (NAV) per share at31March2018,afterdeductingdividendstotalling10.5pwhichwerepaidduringthe year,was66.9pcomparedwith76.6pasat 31 March 2017. The total return expressed asapercentageoftheopeningNAVwas1.2%,whichreflectsalowercontributionfrominvestmentdisposalactivityduringtheyear.

Since 2004 our company has maintained an annual dividend payment of at least 5.5p per share.Whilstthereturnsforthecurrentyearhavenotbeenashighasinrecentyears,thecompanydoeshavesignificantdistributablereservesbroughtforwardfrompreviousperiods. The directors therefore propose to maintain the total ordinary dividend at 5.5p. Aninterimdividendof2.0ppersharewaspaidinJanuaryandthedirectorsproposeafinaldividend of 3.5p per share in respect of the year ended31March2018,whichifapprovedattheannualgeneralmeeting,willbepaidon20July2018toshareholdersontheregisteron22June2018.Aspreviouslyhighlighted,theFinance(No.2)Act2015containedsignificantchangesto the criteria for VCT–qualifying investments. Subsequentinvestmentactivityhasnecessarilyfocussed on earlier stage businesses requiring capitaltodevelopnewproductsandmarkets.Thisgradualshiftintheportfoliomaymaketheflowofrealisedgainslesspredictableandsofuturedividendsarelikelytobesubjecttofluctuation.However,payingregulartax-freedividends to shareholders remains a priority for the directors.

Investment portfolioFollowingcarefulselection,tennewVCT-qualifyinginvestmentswereaddedtotheventurecapitalportfolioatacostof£8.7million.Inaddition,follow-oninvestmentstotalling£1.4millionweremadeinexistingportfoliocompanies. I am pleased to note that the investment rate of£10.1millionrepresentsamarkedincreasefrom the prior year (investments totalling £5.9 million) and demonstrates our manager’s continuedprogressinadaptingourinvestmentapproachtocomplywiththeevolving legislativelandscape.Whilstwearestillnear the beginning of the investment holding period for the 17 investments acquired to date under thenewrules,satisfactoryprogressisbeingmadeintheearlystageportfolio.Returns from early stage investments are expected tobemorevolatile,whichwillhaveabearingon the overall performance of the company asthispartoftheportfoliogrows.Weareconfidentinourmanager’sskillsinselectingattractiveopportunitiesinwhichtoinvestshareholders’ funds.

Approximatelytwothirdsofthevalueofthe venturecapitalportfolioiscurrentlyrepresented byinvestmentsmadeunderpreviousiterationsoftheVCTrules.Theseinvestmentsareunaffected bytheintroductionofthenewrules,exceptinthatweareprohibitedfromprovidingfollow-onfunding to many of them. Strong underlying trading for many of these investments has been balanced by more challenging economic environments faced by a small number of others.

Inarelativelysubduedperiodfordisposalactivity,thecashproceedsfromventure capital investments sold or repaid during the yearamountedto£7.0million,representing a surplus of £1.7 million over original cost. Several investee companies are currently thesubjectofdiscussionswithaviewtoarealisationduringtheyearto31March2019.

Shareholder issuesBased on the expected investment rate in the comingyears,bothfornewinvestmentsandforfollow-onfundingroundsinearlystageinvesteecompanies,weannouncedaprospectusshareofferinSeptember2017toraiseupto£20million. Wewereverypleasedthatstrongdemandwas experiencedforthisofferandthatitwasfully subscribedwithinsixweeksofbeinglaunched.Yourdirectorswouldliketoexpresstheirappreciationofshareholders’continuingsupport.

Inadditiontothepublicoffer,grossproceedsof£2millionwerereceivedduringtheyearthroughtheissueofnewsharesunderourdividend investment scheme. The scheme enablesshareholderstoefficientlyre-investsomeoralloftheirdividendsinnewsharesattractingincometaxreliefandremainsopen tonewparticipants.

The company has maintained its policy of buyingbackitsownsharesinthemarket, atadiscountof5%toNAV.Duringtheyear, atotalof537,000shareswererepurchased forcancellation,equivalenttoapproximately0.6% of the opening share capital.

Thecompany’sannualgeneralmeeting(AGM)willbeheldinLondononThursday12July2018andthedirectorslookforwardtomeetingandengagingwithshareholders.

Chairman’s statement

Our investment manager, NVM, continues to meet the twin challenges of identifying new and compelling VCT-qualifying opportunities to support small and medium businesses and working with existing portfolio companies to realise their growth plans.


Board of directorsAllthedirectorswillbeseekingre-electionattheAGM,eitherinaccordancewiththeAICCodeofCorporateGovernanceorvoluntarily.

OurcolleagueChrisFletcherretiredfrom theboardattheAGMinJuly2017,whentributeswerepaidtohisexcellentservice as a director and chairman of the audit committeesince1999.

Company secretaryChrisMellorretiredascompanysecretary ofNorthern2VCTon31March2018,havingservedinthatrolesincethecompanywaslaunchedin1999.Manyshareholderswill have personal experience of Mr Mellor’s knowledgeandexpertise,andthedirectorswouldliketothankhimforhissoundadvice andsupportduringhisperiodinoffice. WewelcomeJamesBryce,NVM’snewheadoflegalandcompliance,asMrMellor’ssuccessorandlookforwardtoworkingwithhim.

VCT legislation and regulationHavingconducteditsPatientCapitalReviewin2017,withtheaimofconsideringtheavailabilityoflong-termfinanceforgrowingfirms,theGovernmentannouncedfurtherchanges to the VCT rules in the Autumn Budget inNovember.TheupdatesplaceadditionalrestrictionsontherangeofpermittedinvestmentsandmaketheconditionsforaVCTtomaintainitsapprovedstatussomewhatmorerestrictive.Wedononethelesswelcomethepreservationofthetaxreliefsavailabletoshareholdersandconditionsforobtainingthem.WealsowelcomethestatedintentionofHMRevenue & Customs to improve the process forprovidingadvancedassurancefornewVCTinvestments. The delays experienced in the current year have on occasion been extreme andasmootherprocesswouldenablethesector todelivertimecriticalfundinginamoreefficient manner.VCTscontinuetoprovideanimportantsource of capital to small and medium businesses and enable investors to both support and share intheirsuccess.Apartfromgrowthgeneratedinthefinancialmetricsofportfoliocompanies,thewidersocietalbenefitsareclearwithourunquotedventurecapitalportfoliocompaniescollectivelydeliveringgrowthofover200employees over the past year.

InJanuary2018,thePackagedRetailandInsurance-basedInvestmentProducts(PRIIPs) Regulationwasintroducedwiththeaimofhelping investorstounderstandandcomparethekeyfeatures,risks,rewardsandcostsofdifferentinvestmentproducts.InvestmentfundsarenowrequiredtopubliclyprovideaKeyInformationDocument (KID) summarising a range of illustrativenetreturnstoinvestors.Sinceitsintroduction,yourcompanyhasatalltimescompliedwiththePRIIPsregulations,howeveritshouldbenotedthatthecompositionandpresentationoftheKIDisstrictlyprescribedandthe inputs are based on past performance only.

VCT qualifying statusThecompanyhascontinuedtomeetthestringentandevolvingqualifyingconditions laiddownbyHMRevenue&Customs for maintaining its approval as a VCT. Our investmentmanagermonitorsthepositionclosely and reports regularly to the board. PhilipHare&AssociatesLLPhascontinued to act as independent adviser to the company onVCTtaxationmatters.

OutlookThe past year has been another period of adaptingasthecompanyhasfacedbotheconomicandlegislativeuncertainty.Theseconditionslooksettocontinueforsometimeasthelong-termimpactoftheUK’sdecisiontoleavetheEUunfoldsandtheGovernmentevolves its approach to the VCT industry as a whole.Thecompanyiscurrentlywell-funded tocapitaliseonattractiveinvestmentopportunitiesandwillcontinuetomaintainthehigheststandardsintheselectionandmonitoringofinvestments.Wecontinuetohaveconfidencethatourportfolioandinvestmentstrategywilldelivergoodreturnstoshareholders, takingamediumtolongtermperspective.

David Gravells Chairman 17 May 2018

David Gravells Chairman

Directors and advisers

David Gravells MSc JP (Chairman) aged68,isanexperiencedentrepreneurwithawideexperienceofprivateequity-financedbusinesses.Heisanon-executivedirectorofa number of companies including the Student LoansCompany.Hewasappointedtotheboardin 2007 and became chairman in 2008.

Alastair Conn FCA aged62,co-foundedNVMin1988andwasmanagingdirectorandthenfinancialdirectorbeforeretiringfromthefirminMarch2018,continuingasaconsultant.Heisamember oftheAssociationofInvestmentCompanies’VCTTechnicalCommittee.Hewasappointed to the board in 1999.

Simon Devonshire OBE aged50,hasextensivebusinessexperience incorporateleadership,financialgovernance,strategy,communicationsandsalesandmarketing.Hehasaportfolioofbusinessinterests including currently serving as a non-executivedirectoroftheStudentLoansCompanyandwaspreviouslyanentrepreneur inresidenceattheDepartmentforBusiness,EnergyandIndustrialStrategy.HewasappointedtotheboardinJanuary2017.

Cecilia McAnulty CA aged55,wasformerlyapartnerand portfoliomanagerwithCentaurusCapital, aLondonbasedhedgefund,headof structuredfinanceatRoyalBankofScotlandandadirectorofBarclaysCapital.Shewasappointed to the board in 2014.

Frank Neale MBA aged67,isapartnerinIRRfc,aprivateequityadvisorybusiness.Heisapastvice-chairman oftheBritishPrivateEquityandVenture CapitalAssociation.Hewasappointedto the board in 1999.

Secretary and registered office JamesBryceLLB Time Central 32Gallowgate NewcastleuponTyneNE14SN Telephone: 0191 244 6000 Fax: 0191 244 6001 E-mail:[email protected]

Registered number 03695071

Investment managerNVMPrivateEquityLLP Time Central 32Gallowgate NewcastleuponTyneNE14SN

Listed investment advisersSpeirs&JeffreyLimited 50GeorgeSquare GlasgowG21EH

Independent auditor KPMGLLP SaltireCourt 20 Castle Terrace EdinburghEH12EG

Taxation advisersPhilipHare&AssociatesLLP 4–6 Staple Inn LondonWC1V7QH

Solicitors ReedSmithLLP BroadgateTower 20 Primrose Street LondonEC2A2RS

StockbrokersPanmureGordon(UK)Limited OneNewChange LondonEC4M9AF

Bankers BarclaysBankPLC BarclaysHouse 5 St Ann’s Street NewcastleuponTyneNE13DX

Registrars EquinitiLimited AspectHouse Spencer Road LancingBN996DA Shareholder helpline: 0800 028 2349


Shareholder information

The trust invests mainly in unquoted venture capital holdings.

The companyNorthern2VCTPLCisaVentureCapitalTrust(VCT)launchedinJanuary1999.Thecompanyinvests mainly in unquoted venture capital holdings,withitsremainingassetsinvestedinaportfoliooflistedinterest-bearingandequityinvestmentsandbankdeposits.

Northern 2 VCT is managed by NVM Private EquityLLP(NVM),anindependentspecialistfirm ofventurecapitalmanagersbasedinNewcastle uponTyne,Reading,ManchesterandBirmingham. NVM also acts as manager or adviser of three otherlistedinvestmentcompanies,NorthernInvestorsCompanyPLC,NorthernVentureTrustPLCandNorthern3VCTPLC,andthreelimitedpartnerships,NV1LP,NV2LPandNVMPrivateEquityVintageIIILP.NVMhasatotalofover£350 million under management.

Northern2VCTisamemberoftheAssociationof Investment Companies (AIC).

Venture Capital TrustsVentureCapitalTrusts(VCTs)wereintroducedby the Chancellor of the Exchequer in the November1994Budget,therelevantlegislationnowbeingcontainedintheIncomeTaxAct2007. VCTs are intended to provide a means wherebyprivateindividualscaninvestinsmallunquotedtradingcompaniesintheUK,withanincentiveintheformofarangeoftaxbenefits.Witheffectfrom6April2006,thebenefitstoeligible investors include:

incometaxreliefatupto30%onnewsubscriptionsofupto£200,000pertax year,providedthesharesareheldfor atleastfiveyears;

exemptionfromincometaxondividends paid by VCTs (such dividends may include the VCT’scapitalgainsaswellasitsincome);and

exemptionfromcapitalgainstaxondisposalsof shares in VCTs.

SubscribersforsharesinVCTsbetween6April2004and5April2006wereentitledtoincometax relief at 40% rather than 30% and the shares had to be held for at least three years rather thanfiveyears.Priorto6April2004,subscribersforsharesinVCTswereentitledtoincometaxrelief at 20% and could also obtain capital gains deferralrelief.Capitalgainsdeferredbypre- 6April2004subscriptionsarenotaffected by the subsequent changes in VCT tax reliefs.

Inordertomaintainapprovedstatus,aVCTmust complyonacontinuingbasiswiththeprovisions ofSection274oftheIncomeTaxAct2007;inparticular,aVCTisrequiredatalltimestoholdat least70%byvalueofitsinvestments(asdefinedinthelegislation)inqualifyingholdings,ofwhich at least 70% (for investments made by funds raised after5April2011andforallinvestmentsmadeafter5April2018)mustcompriseeligibleshares.

For this purpose a “qualifying holding” is aninvestmentinnewsharesorsecuritiesofanunquotedcompany(whichmayhoweverbequotedonAIM)whichhasapermanentestablishmentintheUK,iscarryingonaqualifyingtrade,andwhosegrossassets andnumberofemployeesatthetimeofinvestment do not exceed prescribed limits.

Thedefinitionof“qualifyingtrade”excludescertainactivitiessuchaspropertyinvestmentanddevelopment,financialservicesandassetleasing. The Finance (No 2) Act 2015 contained anumberofsignificantchangestotheVCTrules forinvestmentscompletedafteritsintroduction, designed to secure approval of the VCT scheme bytheEuropeanCommission.Acompanywhose trade is more than seven years old (ten years for ‘knowledgeintensive’companies)willgenerallyonly qualify for VCT investment if it has previously receivedState-aidedriskfinancebeforetheendoftheinitialinvestingperiodorifthenewinvestment exceeds 10% of the total turnover forthepastfiveyearsandthefundsareusedfornewproductsand/orgeographicalmarkets;thereisalifetimelimitof£12million(£20million for‘knowledgeintensive’companies)ontheamountofState-aidfundingreceivablebyacompany;andVCTfundsmaynotbeusedbyacompany to acquire shares in another company or to acquire a business. A breach of the requirements may lead to a loss of VCT status.

The recently introduced Finance Act 2018 containedfurtherchangestotheconditionsfor a VCT to maintain its approved status. The changes are designed to increase the level of qualifying investments made by VCTs and are beingintroducedonaphasedbasis.Anon-exhaustivelistofthemainpointsisasfollows:

investmentsmadefrom15March2018willonly bequalifyingiftheymeettherisk-to-capitalcondition.Thisprinciplesbasedconditionbroadly requires the investee to be an early stage,higherrisk,entrepreneurialcompanywhichhasthepotentialtogrowinthelongterm;

debtfinanceprovidedbyVCTsmustnowbemadeonanunsecuredbasis;

a VCT must invest at least 30% of any funds raisedinanaccountingperiodcommencingonorafter6April2018inqualifyingholdingswithin12monthsoftheperiodend;

investments made from 6 April 2018 in qualifying holdings must comprise at least 70%ofeligibleshares,regardlessofwhen the money used to fund the investment wasraised;and

theproportionofthetotalvalueofinvestmentsrequiredtocomprisequalifyingholdingswillbeincreasedfrom70%to80%foraccountingperiodsbeginningonorafter6April2019.

Financial calendarThecompany’sfinancialcalendarfortheyearending31March2019isasfollows:

November 2018 Half-yearlyfinancialreportforsixmonthsending 30 September 2018 published

January 2019 Interim dividend paid

May 2019Final dividend and results for year ending 31 March 2019 announced

June 2019 Annualreportandfinancialstatementspublished

July 2019Annualgeneralmeeting;finaldividendpaid

Share price The company’s share price is carried daily in theFinancialTimes,theDailyTelegraphandthe NewcastleJournal.Thecompany’sFTSEActuaries classificationis“InvestmentCompanies–VCTs”.

Arangeofshareholderinformationisprovidedon the internet at www.shareview.co.uk by the company’sregistrars,EquinitiLimited,includingdetailsofshareholdings,indicativesharepricesandinformationonrecentdividends(seepage4 forcontactdetailsforEquinitiLimited).

Sharepriceinformationcanalsobeobtained viatheNVMwebsiteatwww.nvm.co.uk.

Dividend investment scheme The company operates a dividend investment scheme,givingshareholderstheoptionofreinvestingtheirdividendsinnewordinarysharesinthecompanywiththebenefitofthetax reliefs currently available to VCT subscribers. Informationaboutthedividendinvestmentscheme can be obtained from the Company Secretary (see page 4 for contact details).

Electronic communicationsThecompanycontinuestoprovidetheoption toshareholderstoreceivecommunicationsfrom the company electronically rather than bypapercopy.Shareholderswhowishtojointhescheme,whichisoperatedbythecompany’sregistrars,EquinitiLimited,shouldvisit www.shareview.co.uk,registerfor aShareviewportfolioandselect‘Email’ as their preferred method of delivery of companycommunications.



Strategic report

The company’s objective is to provide high long-term tax-free returns to investors through a combination of dividend yield and capital growth.

This report has been prepared by the directors inaccordancewiththerequirementsofSection414 of the Companies Act 2006. The company’s independentauditorisrequiredbylawtoreportonwhethertheinformationgiveninthe strategic report and directors’ report is consistentwiththefinancialstatements.Theauditor’s report is set out on pages 26 and 27.

Corporate objectiveThecompany’sobjectiveistoprovidehighlong-termtax-freereturnstoinvestorsthroughacombinationofdividendyieldandcapitalgrowth,byinvestingprimarilyinunquotedUKmanufacturing,serviceandtechnologybusinesseswhichmeetthemanagers’keycriteriaofgoodvalue,growthpotential, strong management and ability to generate cash in the medium to long term.

Investment policyThe company’s investment policy has been designed to enable the company to achieve its objectivewhilstcomplyingwiththequalifyingconditionssetoutintheVCTrules,asamendedbyHMGovernmentfromtimetotime.

Thedirectorsintendthatthelong-termdispositionofthecompany’sassetswillbeapproximately80%inaportfolioofVCT-qualifyingunquotedandAIM-quotedinvestments and 20% in other investments selectedwithaviewtoproducinganenhancedreturnwhileavoidingunduecapitalvolatility,toprovideareserveofliquiditywhichwillmaximisethecompany’sflexibilityastothetimingofinvestmentacquisitionsanddisposals,dividendpaymentsandsharebuy-backs.

WithintheVCT-qualifyingportfolio,investmentswillbestructuredusingvariousinvestmentinstruments,includingordinaryandpreferenceshares,loanstocksandconvertiblesecurities,to achieve an appropriate balance of income andcapitalgrowth.TheselectionofnewinvestmentswillnecessarilyhaveregardtotheVCTrules,whicharedesignedtofocusinvestment on early stage and development capitalopportunities.

Theportfoliowillbediversifiedbyinvesting inabroadrangeofVCT-qualifyingindustrysectors and by holding investments in companiesatdifferentstagesofmaturityinthe corporate development cycle. The normal investment holding period is expected to be in the range from three to ten years.

Nosingleinvestmentwillnormallyrepresentin excess of 3% of the company’s total assets atthetimeofacquisition.Asinvestmentsareheldwithaviewtolong-termcapitalgrowthaswellasincome,itispossiblethatindividualholdingsmaygrowinvaluetothepointwheretheyrepresentasignificantlyhigherproportionoftotalassetspriortoarealisationopportunitybeing available.

Investmentswillnormallybemadeusingthecompany’s equity shareholders’ funds and it isnotintendedthatthecompanywilltakeonanylong-termborrowings.

Co-investment arrangementsThecompanyisentitledtoparticipateproratatonetassetsinallVCT-qualifyinginvestmentopportunitiesdevelopedbyNVMandregularlyinvests alongside other funds managed by NVM. Underaco-investmentschemeintroducedin2006,NVMexecutivesarerequiredtoinvestpersonallyalongsidethefundsineachVCT-qualifying investment on a predetermined basis.

Investment management NVM has acted as the company’s investment managersinceinception.NVMhasanexperiencedteamofventurecapitalexecutivesbasedinitsofficesinNewcastleuponTyne,Reading,Manchester and Birmingham and currently has over £350 million under management.

The board’s management engagement committeereviewsthetermsofNVM’sappointment as investment manager on a regularbasis.FurtherinformationaboutthetermsofthemanagementagreementwithNVMandtheremunerationpayabletoNVMisset out in the directors’ report on pages 16 and 17andinNote3tothefinancialstatements.

Overview of the year DuringtheyearunderreviewNorthern2VCT achievedatotalreturntoordinaryshareholders, beforedividends,of0.9ppershare,equivalentto 1.2% of the opening net asset value per share of 76.6p. The movement in total net assets and net asset value per share is summarised in Table 2.

Totalincomefrominvestmentswasbroadly flatat£2.5million,comparedwith£2.6million in the preceding year. The basic investment managementfeepayabletoNVMwasslightlyhigher than in the previous year due to an increase in the net assets under management. Therewasnoperformance-relatedmanagement fee payable in respect of the current year (precedingyear£571,000).

Thenetcashoutflowfromtheventurecapitalportfoliowas£3.1million,comprisingnewinvestments of £10.1 million less disposal proceedsof£7.0million.Portfoliocashflowover thepastfiveyearsissummarisedinTable1.

Aftertakingaccountofothercashflows, the company’s total cash balances increased over the year by £7.7 million to £25.5 million. Inadditionthecompanyholdslistedequityinvestmentsandinterest-bearinginvestmentsvaluedat£7.6million,comparedwith£8.8million at 31 March 2017.

Dividends The directors have declared or proposed dividends totalling 5.5p per share in respect oftheyear,comprisinga1.25prevenue dividendanda4.25pcapitaldistribution.

Investment portfolio Duringtheyearended31March2018,ten newholdingswereaddedtotheventurecapitalportfolioatacostof£8.7million,inadditiontofollow-oninvestmentsforexistingholdingstotalling£1.4million.Theportfolioat31March2018comprised47holdingswithanaggregatevalue of £53.8 million.

A summary of the venture capital holdings at31March2018isgivenonpage11,withinformationonthefifteenlargestinvestments on pages 12 to 15.


New investments Thenewinvestmentscompletedduring theyearwere:

Medovate (£1,450,000) – medical devicesdeveloper,Cambridge

Soda Software Labs (£1,332,000) – data analyticsservicesprovider,Manchester

Currentbody.com (£1,286,000) – onlinemarketplaceforhomeuse beautydevices,Manchester

Volo Commerce (£1,105,000) – enterprise resourceplanningplatformsupporting onlinemerchants,London

Knowledgemotion (£979,000)–educationalvideoaggregatoranddistributor,London

Primal Food (£967,000) – protein and clean-labelsnacksproducer,Maidenhead

SHE Software Group (£906,000) – cloudbasedhealth&safetysoftwareprovider,Glasgow

Contego Solutions (£489,000)–identityverificationsoftwareandsolutions,Oxford

Angle (£134,000)–AIM-quoted medicaldiagnosticsprovider,Guildford

Velocity Composites (£97,000) – AIM-quotedmanufacturerofmaterial kitsforaircraftproduction,Burnley

Investment realisations Details of investment disposals during the year are given in Note 9 on page 36. Themostsignificantdisposals(original cost or proceeds in excess of £0.5 million) are summarised in Table 3.

Optilan Groupwasthesubjectofasecondarybuy-outtransactionfundedbyBlueWaterEnergy. The sale generated a total return of overthreetimestheoriginalinvestmentcostandgiventhetimingofexitinApril2017,thevaluationhadbeenmarkedupinthepreviousperiod accordingly. A J Way Group Holdings (previouslyKirtonGroup)redeemedloannotesof£0.8millionfollowingthedisposalofasignificanttradingdivisionandfurtherloannotestotalling£0.8millionwereredeemedbyBuoyant Upholstery and Volumatic Holdings. Atotalof£2.5millionwasreturnedupontheliquidationoffiveholdingcompaniesHunley,Oceanos, Saluda,Seawise and Turbinia.

Havingreturnedapproximately1.8times theoriginalinvestmentduringpriorperiods, the remaining holding of S&P Coil Products,whichhadbeenwrittendowntonil,wassold fornominalproceeds.Inaddition£0.3millionwasreceivedandrecognisedduringtheyear inrespectofdeferredconsiderationfromthesales of Alaric Systems and Kitwave One in previous periods.

IntheAIM-quotedportfolio,followinga sharpincreaseinvaluationsinceitsoriginalflotationonAIM,theremaininginvestment in Gear4music (Holdings)wassoldduringtheyearforoverfourtimestheoriginalcost.

Pence per ordinary £000 share

Netassetvalueat31March2017 71,647 76.6

Netrevenue(investmentincomelessrevenueexpensesandtax) 1,462 1.3

Capital surplus arising on investments:

Realised net gains on disposals 709 0.6

Movements in fair value of investments (202) (0.2)

Expenses allocated to capital account (net of tax relief) (914) (0.8)

Totalreturnfortheyearasshownintheincomestatement 1,055 0.9

Proceedsofissuesofnewshares(netofexpenses) 25,707 (0.1)

Sharesre-purchasedforcancellation (349) –

Netmovementfortheyearbeforedividends 26,413 0.8

Netassetvalueat31March2018beforedividendsrecognised 98,060 77.4

Dividendsrecognisedinthefinancialstatementsfortheyear (11,017) (10.5)

Net asset value at 31 March 2018 87,043 66.9

Table 2: Movements in net assets and net asset value per share

Table 1: Venture capital portfolio cash flow

New Disposal Netcash investment proceeds inflow/(outflow) Year ended 31 March £000 £000 £000

2014 7,806 8,734 928

2015 10,368 19,964 9,596

2016 12,276 7,362 (4,914)

2017 5,934 13,284 7,350

2018 10,060 6,975 (3,085)

Total 46,444 56,319 9,875

5.0

5.0

10.0

Portfolio review Thepiechartsaboveshowthecompositionoftheventurecapitalportfolioat31March2018byvalueaccordingtoage,industrysector,financingstageandwhetherquotedor unquoted. The management buyout investmentswerecompletedbefore updatestotheVCTrulesprohibitingthis typeofinvestmentactivitywereenacted, in November 2015.

The underlying trend in trading results for many of the unquoted venture capital portfoliocompanieshasbeenpositiveandtheoverallvaluationofthisportfolioincreased by £0.9 million during the year. Closerstill Group,Love Saving Group and Agilitas IT Holdings inparticularmadegoodprogressandtherespectivevaluations havebeenmarkedupaccordingly.Thispositiveperformancehasbeenbalanced by a small number of companies in the portfoliowheretradingconditionshavebeenmorechallenginginthecurrentyear,particularlyEntertainment Magpie,which hasanexposuretotheUKretailsector. Ourinvestmentvaluationpolicyintheseinstancesiscautious.


Net asset value (p) Net asset value plus cumulative dividends paid per share (p)*excludesdividendsproposed,notyetpaid

Dividend per share (p) Special dividends

Realised Dateof Original surplus/ original cost Proceeds (deficit) Company investment £000 £000 £000

AJWayGroupHoldings–redemptionofloannotes 2013 774 774 –

Hunley,Oceanos,Saluda,SeawiseandTurbinia 2015 2,510 2,470 (40)

OptilanGroup–secondarybuyout 2008 1,000 2,196 1,196

Table 3: Significant investment realisations

Table 4: Venture capital investment valuation by category

% of Numberof Valuation portfolio Category investments £000 by value

Unquotedinvestmentsatdirectors’valuation

Earnings/revenuemultiple 16 30,444 56.6

Priceoflatestfundinground 2 3,035 5.6

Originalcost 15 16,139 30.0

Original cost less provision 3 970 1.8

Quotedinvestmentsatbidprice

ListedonLondonStockExchange 1 392 0.7

QuotedonAIM 10 2,858 5.3

Total 47 53,838 100.0

Strategic report continued

Age of investment Upto1year 16.3% 1-3years 26.9% 3-5years 33.8% 5-7years 9.7% Over 7 years 13.3%

Industry sector Technology 33.9% Consumer 26.6% Industrial/manufacturing 5.8% Services 25.6% Healthcare/biotechnology 5.3% Other 2.8%

2014 2015 2016 2017 2018

83.9

85.4

77.9

76.6

66.9

2014 2015 2016 2017 2018*

157.

3

160.

8

168.

8

178.

0

178.

8

2014 2015 2016 2017 2018

5.5

5.5

5.5

5.5

5.5


Cumulative dividends per share (p)

Ongoing charges excluding performance fees

(% of average net assets)

Ongoing charges including performance fees

(% of average net assets)

Inthequotedventurecapitalportfolio,themarketpriceofVectura Group reduced during the year as a result of delays experienced forkeyproductlaunches.Thiscontributed toanetdownwardsrevaluationmovement of £0.5 million across the quoted venture capitalportfolio.

Theportfoliosoflistedequitiesandfixed-interest bearing investments produced a satisfactorycontributiontoincome,howeveraswidelyobservedacrossfinancialmarkets,capitalvaluationscameundersomepressureduringthefinalquarteroftheyear.

Valuation policy Unquotedinvestmentsarevaluedinaccordancewiththeaccountingpolicysetoutonpage32, whichtakesaccountofcurrentindustryguidelines forthevaluationofventurecapitalportfolios.Provisionagainstcostismadewhereaninvestmentisunder-performingsignificantly.Wherevaluationsarebasedoncompanyearnings,auditedhistoricresultswillbetakenintoaccountalongwithmorerecentunauditedinformationandprojectionswheretheseareconsideredsufficientlyreliable.

As at 31 March 2018 the number of venture capitalinvestmentsfallingintoeachvaluationcategorywasasshowninTable4.

Key performance indicators Thedirectorsregardthefollowingasthekeyindicatorspertainingtothecompany’sperformance:

Net asset value and total return to shareholders:thechartsatthebottom ofthepageoppositeshowthemovement in net asset value and total return (netassetvaluepluscumulativedividends) pershareoverthepastfivefinancialyears.

Dividend distributions: the charts at the bottomofthisandtheoppositepageshow thedividends(includingproposedfinaldividend) declared in respect of each ofthepastfivefinancialyearsandon acumulativebasissinceinception.

Ongoing charges:thechartsatthebottom ofthispageshowtotalannualrunning expenses as a percentage of the average netassetsattributabletoshareholders foreachofthepastfivefinancialyears.

Maintenance of VCT qualifying status: the directors believe that the company hasatalltimessinceinceptioncomplied withtheVCTqualifyingconditionslaid downbyHMRevenue&Customs.

Risk management The board carries out a regular and robust reviewoftheriskenvironmentinwhichthecompanyoperates.Theprincipalrisksanduncertaintiesidentifiedbytheboardwhichmightaffectthecompany’sbusinessmodel andfutureperformance,andthestepstakenwithaviewtotheirmitigation,areasfollows:

Investment and liquidity risk: investment insmallerandunquotedcompanies,suchasthoseinwhichthecompanyinvests,involves ahigherdegreeofriskthaninvestmentin larger listed companies because they generally havelimitedproductlines,marketsandfinancialresourcesandmaybemoredependentontheirmanagementorkeyindividuals.Thesecuritiesofsmallercompaniesinwhichthecompanyinvestsaretypicallyunlisted,makingthemilliquid,andthismaycausedifficulties invaluinganddisposingofthesecurities. Thecompanymayinvestinbusinesseswhoseshares are quoted on AIM – the fact that a share is quoted on AIM does not mean that it canbereadilytradedandthespreadbetweenthe buying and selling prices of such shares maybewide.

Financing stage Early stage 32.2% Expansion 34.2% MBO/MBI 33.6%

Quotation Unquoted 94.0% AIM 5.3% LSE 0.7%

2014 2015 2016 2017 2018

73.4

88.9

99.4

109.

9

115.

4

2014 2015 2016 2017 2018

2.55

2.60

2.52

2.58

2.39

2014 2015 2016 2017 2018

3.08

2.60

3.01

3.38

2.39

Strategic report continued

Mitigation: the directors aim to limit the riskattachingtotheportfolioasawholebycarefulselection,closemonitoringandtimelyrealisationofinvestments,bycarryingout rigorous due diligence procedures and maintainingawidespreadofholdingsintermsoffinancingstageandindustrysector.Theboardreviewstheinvestmentportfolio withthemanageronaregularbasis.

Financial risk: most of the company’s investments involve a medium to long term commitmentandmanyarerelativelyilliquid.Mitigation: the directors consider that it isinappropriatetofinancethecompany’sactivitiesthroughborrowingexceptonanoccasionalshort-termbasis.Accordingly theyseektomaintainaproportionofthecompany’s assets in cash or cash equivalents inordertobeinapositiontopursueofnewunquotedinvestmentopportunitiesandtomakefollow-oninvestmentsinexistingportfoliocompanies.Thecompanyhasverylittledirectexposuretoforeigncurrencyriskanddoesnotenterintoderivativetransactions.

Economic risk: events such as economic recessionorgeneralfluctuationinstockmarkets,exchangeratesandinterestratesmayaffectthevaluationofinvesteecompaniesandtheirabilitytoaccessadequatefinancialresources,aswellasaffectingthecompany’sownsharepriceand discount to net asset value. Mitigation: thecompanyinvestsinadiversifiedportfolio of investments spanning various industry sectors,andmaintainssufficientcashreservestobeabletoprovideadditionalfundingtoinvesteecompanieswhereappropriate.

Stock market risk: some of the company’s investmentsarequotedontheLondonStockExchangeorAIMandwillbesubjecttomarketfluctuationsupwardsanddownwards.Externalfactorssuchasterroristactivitycannegativelyimpactstockmarketsworldwide.Intimesofadversesentimenttheremaybeverylittle,ifany, marketdemandforsharesinsmallercompaniesquoted on AIM. Mitigation: the company’s quotedinvestmentsareactivelymanagedbyspecialistmanagers,includingNVMinthecaseofAIM-quotedinvestments,andtheboardkeepstheportfolioandtheactionstakenunderongoingreview.

Credit risk: the company holds a number of financialinstrumentsandcashdepositsandis dependentonthecounterpartiesdischargingtheir commitment. Mitigation: the directors reviewthecreditworthinessofthecounterparties to these instruments and cash deposits and seektoensurethereisnoundueconcentrationofcreditriskwithanyoneparty.

Legislative and regulatory risk: in order to maintainitsapprovalasaVCT,thecompanyisrequiredtocomplywithcurrentVCTlegislationintheUK,whichreflectstheEuropeanCommission’sState-aidrules.Changestothe UKlegislationortheState-aidrulesinthefuturecouldhaveanadverseeffectonthecompany’sabilitytoachievesatisfactoryinvestmentreturns whilstretainingitsVCTapproval.Mitigation: theboardandthemanagermonitorpoliticaldevelopmentsandwhereappropriateseektomakerepresentationseitherdirectlyorthroughrelevant trade bodies.

Internal control risk: the company’s assets couldbeatriskintheabsenceofanappropriateinternal control regime. Mitigation: the board regularlyreviewsthesystemofinternalcontrols, bothfinancialandnon-financial,operatedbythe company and the manager. These include controls designed to ensure that the company’s assets are safeguarded and that proper accountingrecordsaremaintained.

VCT qualifying status risk: whileitistheintentionofthedirectorsthatthecompanywillbemanagedsoastocontinuetoqualifyasaVCT,therecanbenoguaranteethatthisstatuswillbemaintained.AfailuretocontinuemeetingthequalifyingrequirementscouldresultinthelossofVCTtaxrelief,thecompanylosingitsexemptionfromcorporationtaxoncapitalgains,toshareholdersbeingliabletopay income tax on dividends received from thecompanyand,incertaincircumstances,to shareholders being required to repay the initialincometaxreliefontheirinvestment.Mitigation:theinvestmentmanagerkeepsthe company’s VCT qualifying status under continualreviewanditsreportsarereviewedby the board on a quarterly basis. The board hasalsoretainedPhilipHare&AssociatesLLPtoundertakeanindependentVCTstatusmonitoring role.

Additional disclosures required by the Companies Act The company had no employees during the yearandtherearefivedirectors,fourofwhomare male.

Asanexternallymanagedinvestmentcompany,the company is not directly responsible for any greenhouse gas emissions.

Future prospects Thecompanycurrentlyhassubstantialcashresourcesasaresultofthesuccessfulshareofferlaunched in September 2017 and our manager is meetingthechallengesofmaintainingtheflowofnewinvestmentopportunitieswhilstworkingwithexistingportfoliocompaniestorealisetheirgrowthplans.Webelievetheportfolioiswellpositionedtodeliverfurthergrowthinfuture.

By order of the Board

J K Bryce Secretary 17 May 2018


Investment portfolio as at 31 March 2018

Cost Valuation %ofnetassets £000 £000 by value

Fifteen largest venture capital investments (see pages 12 to 15) No1Lounges 1,977 3,362 3.9 LineupSystems 974 2,910 3.3 EntertainmentMagpieGroup 1,503 2,886 3.3 AgilitasITHoldings 1,638 2,565 2.9 SortedHoldings 1,625 2,535 2.9 MSQPartnersGroup 1,672 2,516 2.9 LoveSavingGroup 1,124 2,309 2.7 CloserstillGroup 1,683 2,198 2.5 BuoyantUpholstery 1,057 2,179 2.5 WearInns 1,868 2,113 2.4 BiologicalPreparationsGroup 2,166 1,790 2.1 Graza 1,523 1,523 1.7 It’sAllGood 1,145 1,458 1.7 Medovate 1,450 1,450 1.7 VolumaticHoldings 1,251 1,443 1.7 22,656 33,237 38.2

Other venture capital investments IntuitiveHolding 1,508 1,352 1.6 SodaSoftwareLabs 1,332 1,332 1.5 CustomsConnectGroup 1,322 1,322 1.5 Currentbody.com 1,286 1,286 1.5 IntellingGroup 1,142 1,142 1.3 VoloCommerce 1,105 1,105 1.3 Knowledgemotion 979 979 1.1 Primal Food 967 967 1.1 Rockar 940 940 1.1 HaystackDryers 1,497 938 1.1 SHESoftwareGroup 906 906 1.0 AxialSystemsHoldings 1,004 859 1.0 Nasstar* 390 818 0.9 Channel Mum 674 674 0.8 AVIDTechnologyGroup 673 673 0.8 LannerGroup 408 597 0.7 ArnleaHoldings 1,287 577 0.7 Adept Telecom* 235 537 0.6 LendingWorks 769 500 0.6 ContegoSolutions 489 489 0.5 Gentronix 683 393 0.5 VecturaGroup** 272 392 0.4 FreshApproach(UK)Holdings 1,454 320 0.4 Sinclair Pharma* 425 287 0.3 CelloGroup* 251 279 0.3 Ideagen* 83 276 0.3 Brady* 314 270 0.3 Angle* 134 176 0.2 CollagenSolutions* 299 120 0.1 Velocity Composites* 97 79 0.1 SummitCorporation* 236 16 – AJWayGroupHoldings 266 – – Total venture capital investments 46,083 53,838 61.8 Totallistedequityinvestments 3,644 3,800 4.4 Totallistedinterest-bearinginvestments 3,868 3,794 4.4 Total fixed asset investments 53,595 61,432 70.6 Netcurrentassets 25,611 29.4 Net assets 87,043 100.0

*QuotedonAIM **ListedonLondonStockExchange


Lineup Systems

Cost £974,000

Valuation £2,910,000

Basisofvaluation Revenuemultiple

Equity held 17.4% (NVM funds total 52.2%)

Business/location Multi-channeladvertisingandmedia software,London

History Developmentcapitalfinancing,December2011, led by NVM Private Equity

OtherNVM NorthernVentureTrust,Northern3VCT fundsinvesting

Incomeinyear Dividendsnil,loanstockinterest£26,000

Audited financial information:

Yearended30June 2017 2016 £m £m

Sales 8.6 7.3Operatingprofit 0.1 0.2(Loss)/profitbeforetax (0.1) 0.1Profitaftertax – 0.1Netliabilities (0.2) (0.2)


Fifteen largest venture capital investments

No 1 Lounges

Cost £1,977,000


Basisofvaluation Earningsmultiple


Business/location Operatorofairportloungesandrelated services,London

History Developmentcapitalfinancing,March2014, led by NVM Private Equity

OtherNVM NorthernVentureTrust,Northern3VCT,NV1LP fundsinvesting



Year ended 31 December 2016 2015 £m £m

Sales 22.9 15.0Operatingprofit/(loss) 1.0 (0.8)Lossbeforetax (0.1) (1.9)Profit/(loss)aftertax 0.5 (1.9)Netliabilities – (0.3)

Entertainment Magpie Group

Cost £1,503,000




Business/location Re-commercewebsiteforpre-owned entertainment media and electronic items,Manchester

History Managementbuy-out,September2015, led by NVM Private Equity




Year ended 31 May 2017 2016* £m £m

Sales 101.1 52.6Operatingprofit 0.9 1.3Lossbeforetax (1.0) (0.2)Lossaftertax (1.0) (0.2)Net assets 0.5 1.5

*8 month period

Agilitas IT Holdings

Cost £1,638,000




Business/location ProviderofoutsourcedITinventory managementservices,Nottingham

History Managementbuy-outfinancing,June2014, led by NVM Private Equity




Year ended 31 March 2017 2016 £m £m

Sales 7.7 7.2 Operatingprofit 0.7 0.6Lossbeforetax (0.1) (0.2)Lossaftertax (0.1) (0.2)Net assets 0.4 0.5

Note:“Operatingprofit”isdefinedasearningsbeforeinterest,taxandamortisationofgoodwill.


Sorted Holdings

Cost £1,625,000


Basisofvaluation Priceoflastfundinground


Business/location Deliverymanagementsoftwareplatform servingthee-commercemarket,Manchester

History Developmentcapitalfinancing,May2016, led by NVM Private Equity


Incomeinyear Dividendsnil,loanstockinterestnil


Year ended 31 May 2016 2015 £m £m

Sales 2.4 2.5Operatingloss (1.5) (0.4)Lossbeforetax (1.7) (0.5)Lossaftertax (1.7) (0.5)Net assets 3.0 1.7

MSQ Partners Group

Cost £1,672,000




Business/location Marketingandcommunicationsagency group,London

History Managementbuy-outfinancing,July2014, led by NVM Private Equity




Year ended 28 February 2017 2016 £m £m

Sales 87.0 77.6Operatingprofit 1.4 1.6Profitbeforetax 0.3 0.6Profitaftertax 0.3 1.4Net assets 0.1 0.6

Closerstill Group

Cost £1,683,000




Business/location Promoterofinternationalbusiness-to-business events,London

History Secondarybuy-outfromprivateequity ownership,March2015,ledbyInflexion Private Equity




Year ended 31 December 2016 2015* £m £m

Sales 36.5 28.5Operatingprofit 0.6 0.7Lossbeforetax (18.8) (16.0)Lossaftertax (17.7) (15.1)Net assets 146.5 155.7

*10 month period

Love Saving Group

Cost £1,124,000




Business/location Businesstobusinessenergycomparison andprocurement,Bolton

History Developmentcapitalfinancing,September 2015,ledbyNVMPrivateEquity





Sales 13.2 2.4Operatingprofit/(loss) 0.1 (0.2)Lossbeforetax (0.5) (0.4)Lossaftertax (0.4) (0.3)Net assets 1.4 1.8

*3 month period


Fifteen largest venture capital investments continued

Biological Preparations Group

Cost £2,166,000




Business/location Developerandsupplierofproductsbased onmicrobial,antimicrobial,plantextract andenzymetechnology,Cardiff

History Managementbuy-outfinancing,March2015, led by NVM Private Equity


Incomeinyear Dividends£20,000,loanstockinterest£180,000



Sales 5.4 4.4Operatingprofit 0.3 0.2Lossbeforetax (1.1) (0.9)Lossaftertax (1.0) (1.0)Net(liabilities)/assets (0.6) 0.4

*15 month period

Note:“Operatingprofit”isdefinedasearningsbeforeinterest,taxandamortisationofgoodwill.

Wear Inns

Cost £1,868,000




Business/location Ownerofmanagedpublichouses, NewcastleuponTyne

History Acquisitioncapitalfinancing,February2006, led by NVM Private Equity





Sales 14.2 13.6 Operatingprofit 1.5 1.2Lossbeforetax – (0.4)Lossaftertax (0.4) (0.5)Net assets 3.6 3.9

Graza

Cost £1,523,000


Basisofvaluation Cost


Business/location HoldingcompanyseekingVCTqualifyingtrade, NewcastleuponTyne

History InvestmentinApril2015,ledbyNVM Private Equity

OtherNVMfunds NorthernVentureTrust,Northern3VCT investing



N/A

Buoyant Upholstery

Cost £1,057,000




Business/location Manufacturerofupholsteredfurniture,Nelson

History Managementbuy-outfinancing,July2013, led by NVM Private Equity




Year ended 2 October 2016 2015 £m £m

Sales 51.7 53.6Operatingprofit 4.9 5.2Profitbeforetax 3.0 3.1Profitaftertax 2.2 2.3Net assets 6.7 5.5


It’s All Good

Cost £1,145,000




Business/location Manufacturerofpremiumsavoury snackproducts,Gateshead

History Developmentcapitalfinancing,February2014, led by NVM Private Equity




Year ended 31 December 2016 2015 £m £m

Sales 18.0 12.2 Operatingprofit 1.5 1.1Profitbeforetax 1.1 0.7Profitaftertax 0.9 0.7Net assets 1.3 0.4

Medovate

Cost £1,450,000


Basisofvaluation Cost


Business/location Developerofmedicaldevices,Cambridge

History Developmentcapitalfinancing,November2017, led by NVM Private Equity




Thecompanywasestablishedduringtheyear andisyettoproduceitsfirstauditedaccounts.

Volumatic Holdings

Cost £1,251,000




Business/location Manufacturerofintelligentcashhandling equipment,Coventry

History Managementbuy-out,March2012, led by NVM Private Equity





Sales 6.3 4.9 Operatingprofit 0.9 0.4Lossbeforetax – (0.5)Lossaftertax – (0.4)Net assets 1.8 1.8


Directors’ report

The directors have managed the affairs of the company with the intention of maintaining its status as an approved venture capital trust.

The directors present their report and the auditedfinancialstatementsfortheyear ended 31 March 2018.

Activities and status Theprincipalactivityofthecompanyduringthe yearwasthemakingoflong-termequityandloan investments,mainlyinunquotedcompanies.

Thedirectorshavemanagedtheaffairsofthecompanywiththeintentionofmaintainingits status as an approved venture capital trust for thepurposesofSection274oftheIncomeTax Act 2007. The directors consider that the company wasnotatanytimeuptothedateofthisreportaclosecompanywithinthemeaningofChapter2ofPart10oftheCorporationTaxAct2010.The company’s registered number is 03695071.

Thedirectorsarerequiredbythearticlesofassociationtoproposeanordinaryresolution atthecompany’sannualgeneralmeetingin2023thatthecompanyshouldcontinueasaventurecapitaltrustforafurtherfiveyearperiod,andateachfifthsubsequentannualgeneralmeetingthereafter.Ifanysuchresolutionisnotpassed,thedirectorsshallwithinfourmonthsconveneanextraordinarygeneralmeetingtoconsiderproposalsforthereorganisationorwinding-upofthecompany.

Corporate governance The statement on corporate governance set out on pages 20 to 24 is included in the directors’ report by reference.

Results and dividend Thereturnonordinaryactivitiesaftertax fortheyearof£1,055,000hasbeentransferredto reserves.

Thesecondinterimandfinaldividendsfor the year ended 31 March 2017 totalling 8.5p and an interim dividend of 2.0p per share in respectoftheyearended31March2018werepaidduringtheyearatacostof£11,017,000and have been charged to reserves.

Thedirectorshaveproposedafinaldividend of 3.5p per share for the year ended 31 March 2018.Subjecttoapprovalofthefinaldividendattheannualgeneralmeeting,thedividend willbepaidon20July2018toshareholders ontheregisteron22June2018.

Provision of information to the auditor Eachofthedirectorswhoheldofficeatthedate of approval of this directors’ report confirmsthat,sofarashe/sheisaware,thereisnorelevantauditinformationofwhichthecompany’sauditorisunawareandthathe/shehastakenallthestepsthathe/sheoughttohavetakenasadirectorinordertomakehimself/herselfawareofanyrelevantauditinformationandtoestablishthatthecompany’sauditorisawareofthatinformation.

Statement on long-term viabilityInaccordancewithprinciple21oftheAICCodeofCorporateGovernance,thedirectorshaveassessed the prospects of the company over the three year period to March 2021. The directors consider that for the purpose of this exercise it isnotpracticalormeaningfultolookforwardover a period of more than three years and that the period is appropriate for a business of the company’snatureandsize.

Inmakingtheirassessmentthedirectorshavecarriedoutarobustreviewoftheriskenvironmentinwhichthecompanyoperates,includingthoseriskswhichmightthreatenitsbusiness model or future performance and the stepstakenwithaviewtotheirmitigation(see page10forfurtherdetailsonriskmanagement). The directors have also considered the nature ofthecompany’sbusiness,includingitssubstantialreserveofcashandnear-cashinvestments,thepotentialofitsventurecapitalportfoliotogeneratefutureincomeandcapital proceeds and the ability of the directors tocontroltheleveloffuturecashoutflowsarisingfromshare-buybacks,dividendsandinvestments.Asdetailedonpage22,themanagementengagementcommitteehasalsoconsideredthecompany’srelationshipwith theinvestmentmanager,NVM,byreference to the performance of the venture capital portfolioandtheexpertisedemonstrated by NVM in venture capital investment.

Takingintoaccountthecompany’scurrentpositionandprincipalrisks,thedirectorshave concluded that there is a reasonable expectationthatthecompanywillbeabletocontinueinoperationoverthethreeyearperiodandmeetitsliabilitiesastheyfalldueover that period.

Going concern Aftermakingthenecessaryenquiries, includingthosemadeduringthepreparationofthestatementonlong-termviabilityabove,the directors believe that it is appropriate to continuetoapplythegoingconcernbasisinpreparingthefinancialstatements.

Directors None of the directors has a contract of service withthecompanyand,exceptasmentionedbelowundertheheading“Management”,nocontract or arrangement subsisted during or at theendoftheyearinwhichanydirectorwasmateriallyinterestedandwhichwassignificantinrelationtothecompany’sbusiness.

Directors’ and officers’ liability insurance Thecompanyhas,aspermittedbytheCompaniesAct2006,maintainedinsurancecoveronbehalfof the directors and secretary indemnifying them againstcertainliabilitieswhichmaybeincurred byanyoftheminrelationtothecompany.

Management NVM has acted as investment adviser and managertothecompanysinceincorporation.The principal terms of the company’s managementagreementwithNVMareset outinNote3tothefinancialstatements. MrAMConn,whoisadirectorofNorthern2VCT,wasalsoanequitypartnerinNVM during the year ended 31 March 2018.

ThemanagementengagementcommitteecarriesoutaregularreviewofthetermsofNVM’s appointmentwithaviewtoensuringthatNVM’sremunerationissetatanappropriatelevel,havingregardtothenatureoftheworkcarriedoutandgeneralmarketpractice.

AsrequiredbytheListingRules,thedirectorsconfirmthatintheiropinionthecontinuingappointment of NVM as investment manager on the terms agreed is in the interests of the company’sshareholdersasawhole.Inreachingthisconclusionthedirectorshavetakenintoaccount the performance of the investment portfolioandtheefficientandeffectiveserviceprovided by NVM to the company.

Remuneration receivable by NVMTheremunerationreceivablebyNVManditsexecutivesbyvirtueofNVM’smanagementagreementwithNorthern2VCTcomprises thefollowing:


Remuneration payable by Northern 2 VCTBasic management fee: NVMisentitledto receive a basic annual management fee equivalentto2.06%ofnetassets,calculatedhalf-yearlyasat31Marchand30September.Thefeearrangementswereamendedduringthe current year such that the fee due in relationtothenetproceedsoftheprospectusshareofferlaunchedinSeptember2017isreducedto1%perannumuntil30September2018. In the year ended 31 March 2018 the basicannualmanagementfeewas£1,573,000(precedingyear:£1,480,000).

Performance-related management fee: NVM isentitledtoreceiveanannualperformancerelated management fee equivalent to 12% of thetotalreturninexcessofaformula-drivenhurdlerate,detailsofwhosecompositionaresetoutinNote3tothefinancialstatements.The hurdle rate for the year ended 31 March 2018 was5.9%(precedingyear:6.0%).Therewasnoperformance-relatedmanagementfeedueforthe year ended 31 March 2018 (preceding year: performancefeedueof£571,000).

Accounting and secretarial fee: NVM provides accounting,administrativeandsecretarialservicestothecompanyforafeeof£56,000perannum,linkedtothemovementintheRPI.The fee payable in respect of the preceding yearwas£55,000.

ThetotalremunerationpayabletoNVMbyNorthern2VCTinrespectoftheyear,comprising the basic management fee and theaccountingandsecretarialfee,was£1,629,000(precedingyear£2,106,000).

UndercurrenttaxlegislationthefeespaidbythecompanytoNVMarenotsubjecttoVAT.Thetotalannualrunningcostsofthecompany,including the basic management fee and the accountingandsecretarialfeebutexcluding theperformance-relatedmanagementfee, are capped at 2.9% of average net assets and anyexcesswillberefundedtothecompanybywayofareductioninNVM’sbasicmanagementfee. The annual running costs of the company fortheyearended31March2018wereequivalent to 2.39% of average net assets (preceding year: 2.58%).

Remuneration payable by investee companies Underthemanagementagreement,NVMisentitledtoreceivefeesfrominvesteecompanies in respect of the arrangement of investmentsandtheprovisionofnon-executive

directors and other advisory services. NVM is responsible for paying the due diligence andothercostsincurredinconnectionwithproposedinvestmentswhichforwhateverreasondonotproceedtocompletion.Intheyear ended 31 March 2018 the arrangement fees receivable by NVM from investee companies whichwereattributabletoinvestmentsmadebyNorthern2VCTamountedto£252,000(precedingyear:£152,000),anddirectors’andmonitoringfeesamountedto£286,000(precedingyear:£282,000).

Executive co-investment schemeSince2006thecompanyhas,togetherwith theotherfundsmanagedbyNVM,participatedinaco-investmentschemewiththeobjectiveofenablingNVMtorecruit,retainandincentiviseitskeyinvestmentexecutives.Underthescheme,executivesarerequiredtoinvestpersonally (and on the same terms as the company and other funds managed by NVM) in the ordinary share capital of every unquoted investeecompanyinwhichthecompanyinvests.ThesharesheldbyexecutivescanonlybesoldatsuchtimeasthefundsmanagedbyNVMselltheirsharesandanypriorrankingloannotes or preference shares held by the funds havingbeenrepaid.Theexecutivesparticipatingintheschemejointlysubscribefor5.0%ofthenon-yieldingordinarysharesavailabletotheNVMfunds,exceptinthecaseofinvestmentswherethereisnoclassofyieldingsecurities,inwhichcasetheexecutivesjointlysubscribefor1.0%ofthenon-yieldingordinarysharesavailable to the NVM funds. At 31 March 2018NVMexecutivesheldinvestmentsin41investee companies acquired at a total cost of £991,000,ofwhich£293,000wasattributableto investments made by Northern 2 VCT.

Share capital – purchase of shares During the year the company purchased forcancellation537,000ofitsownshares,representing0.6%ofthecalled-upsharecapitalofthecompanyatthebeginningoftheyear,foraconsiderationof£349,000.Purchasesweremadeinlinewiththecompany’spolicyof purchasing available shares at a discount to net asset value. At the 2017 annual general meeting,heldinJuly2017,shareholdersauthorised the company to purchase in the marketupto9,913,100ordinaryshares(equivalent to approximately 10% of the then issued ordinary share capital) at a minimum price of 5p per share and a maximum price per share of not more than 105% of the

averagemarketvaluefortheordinaryshares inthecompanyforthefivebusinessdays priortothedateonwhichtheordinaryshareswerepurchased.Asat31March2018thisauthorityremainedeffectiveinrespectof9,376,100shares;theauthoritywilllapse at the conclusion of the 2018 annual general meetingofthecompanyon12July2018.

Share capital – issue of shares Duringtheyearthecompanyissued2,936,333newordinarysharesforacashconsideration of£1,989,000pursuanttothecompany’sdividendinvestmentschemeand5,570,393newordinaryshareswereissuedforacashconsiderationof£4,297,000throughatop-upshareofferlaunchedinFebruary2017.

AprospectusshareofferwaslaunchedinSeptember2017,whichwasfullysubscribedduringtheyearto31March2018,resulting in28,559,097newordinarysharesbeingissued in November 2017 for a gross cash considerationof£19,962,000.

Fixed assets Movementsinfixedassetinvestments during the year are set out in Note 8 to thefinancialstatements.

Annual general meeting Noticeofthe2018annualgeneralmeetingtobeheldon12July2018issetoutinaseparatecirculartoshareholdersalongwithexplanatorycommentsontheresolutions.

Substantial shareholdings Nodisclosuresofmajorshareholdingshadbeenmade to the company under Disclosure and TransparencyRule5(VoteHolderandIssuerNotificationRules)asatthedateofthisreport.

Independent auditor KPMGLLPhaveindicatedtheirwillingnesstocontinueasauditorofthecompanyandresolutionstore-appointthemandtoauthorisetheauditcommitteetofixtheirremunerationwillbeproposedattheannualgeneralmeeting.




Directors’ remuneration report

The board currently comprises five directors, all of whom are non-executive.

This report has been prepared by the directors inaccordancewiththerequirementsofSection410 of the Companies Act 2006.

Thecompany’sindependentauditor,KPMGLLP,isrequiredtogiveitsopiniononcertaininformationincludedinthisreport,asindicatedbelow.Theauditor’sreportontheseandothermattersissetoutonpages26and27.

Directors’ remuneration policy The company is required by the Companies Act2006toseekshareholders’approvalofthedirectors’remunerationpolicyatleasteverythreeyears,orintheeventofachangeinthepolicyifsooner.Thedirectors’remunerationpolicyhasremainedunchangedsinceitwasapproved by shareholders at the annual general meetingheldon12July2017and,unlessthereisachangeinthepolicy,itisthecurrentintentionofthedirectorsthataresolutionfortheapprovalofthedirectors’remunerationpolicywillnextbeconsideredattheannualgeneralmeetingtobeheldinJuly2020.

Theboardcurrentlycomprisesfivedirectors,allofwhomarenon-executive.Theboarddoesnothaveaseparateremunerationcommittee,asthecompanyhasnoemployeesorexecutivedirectors.Theboardhasestablishedanominationcommittee,chairedbyMrDPAGravellsandcomprisingallofthedirectors,whichmeetsannually (or more frequently if required) to considertheselectionandappointmentofdirectorsandtomakerecommendationsto the board as to the level of directors’ fees. The board has not retained external advisers in relationtoremunerationmattersbuthasaccesstoinformationaboutdirectors’feespaidbyothercompaniesofasimilarsizeandtype.Noviewswhicharerelevanttotheformulationofthedirectors’remunerationpolicyhavebeenexpressedtothecompanybyshareholders,whetheratageneralmeetingorotherwise.

The board considers that directors’ fees should reflectthetimecommitmentrequiredandthehighlevelofresponsibilitybornebydirectors,and should be broadly comparable to those paid by similar companies. It is not considered appropriatethatdirectors’remunerationshould beperformance-related,andnoneofthedirectors iseligibleforbonuses,pensionbenefits,shareoptions,long-termincentiveschemesorotherbenefitsinrespectoftheirservicesasnon-executivedirectorsofthecompany.

(MrAMConn,whowasanequitypartnerinNVMduringtheyearto31March2018,hasaninterestintheco-investmentschemereferredto in the directors’ report on page 17.)

Thearticlesofassociationplaceanoveralllimit(currently£150,000perannum)ondirectors’remuneration.Thearticlesofassociationprovide thatdirectorsshallretireandbesubjecttore-electionatthefirstannualgeneralmeetingaftertheirappointmentandthatanydirectorwhowasnotappointedorre-appointedatoneoftheprecedingtwoannualgeneralmeetingsshallretireandbesubjecttore-electionateachannualgeneralmeeting.Noneofthedirectorshasaservicecontractwiththecompany.Onbeingappointedorre-elected,directorsreceivealetterfromthecompanysettingoutthetermsoftheirappointmentandtheirspecificdutiesandresponsibilities.Adirector’sappointmentmaybeterminatedonthreemonths’noticebeing given by the company and in certain other circumstances.Adirectorwhoceasestoholdofficeisnotentitledtoreceiveanypaymentother than accrued fees (if any) for past services.

Directors’ remuneration for the year ended 31 March 2018 (audited information) The fees paid to individual directors in respect of the years ended 31 March 2018 and31March2017,whichrepresentthe entireremunerationpayabletodirectors, areshowninTable1.

Directors’ share interests (audited information) The interests of the directors of the company (including the interests of their connected persons) in the issued ordinary shares of the company,atthebeginningoftheyear,attheendoftheyearandatthedateofthisreport,areshowninTable2.

Allofthedirectors’shareinterestswere heldbeneficially.

The company has not set out any formal requirements or guidelines to directors concerning theirownershipofsharesinthecompany.

Relative importance of spend on pay Asthecompanyhasnoemployees,thedirectorsdo not consider it appropriate to present a table comparingremunerationpaidtoemployeeswithdistributionstoshareholders.

Company performance The graph opposite compares the total return (assumingre-investmentofalldividends)toshareholdersinthecompanyoverthefiveyearsended31March2018withthetotalreturnfromabroadUKequitymarketindexoverthesame period.

Statement of voting at annual general meeting Attheannualgeneralmeetingon12July2017theresolutiontoapprovethedirectors’remunerationreportfortheyearended31March2017wasapprovedbyashowofhands.95.1%oftheproxyvotesreceivedinrelationtotheresolutionwereeitherforordiscretionary.

Statement by the chairman of the nomination committee Inaccordancewiththedirectors’remunerationpolicy,directors’feeswerereviewedbythenominationcommitteeduringitsmeetingon 15February2018,whenitwasrecommendedthatfeesshouldbeincreasedto£26,000perannumforthechairmanoftheboard,£22,000perannumforthechairoftheauditcommittee and£20,000perannumforotherdirectors witheffectfrom1April2018,toreflectinflationandtherespectiveroles.


D P A Gravells Chairman of the Nomination Committee 17 May 2018


17 May 2018 31 March 2018 31 March 2017

DPAGravells(Chairman) 35,288 35,288 18,925

A M Conn 460,719 460,719 446,355

S P Devonshire (appointed3January2017) – – –

CGAFletcher (retired12July2017) N/A N/A 99,416

C A McAnulty 66,284 66,284 26,000

FLGNeale 140,848 140,848 105,030

Table 2: Directors’ interests in ordinary shares

Return to shareholders in Northern 2 VCT PLC

Five years to 31 March 2018 (March 2013 = 100)

Year ended Year ended 31 March 2018 31 March 2017

DPAGravells(Chairman) 24,000 24,000

A M Conn* – –

SPDevonshire(appointed3January2017) 18,500 4,625

CGAFletcher(retired12July2017) 5,233 18,500

C A McAnulty 18,500 18,500

FLGNeale 18,500 18,500

Total 84,733 84,125

*MrAMConnwaivedhisentitlementtodirectors’feesinrespectofbothyears.

Table 1: Directors’ fees

2013

120

110

140

150

100

2014 2015 2016 2017 2018

130

170

180

160

Northern 2 VCT NAV total return Northern 2 VCT share price total return UKequitymarketindextotalreturn


Corporate governance

The company is committed to maintaining high standards in corporate governance.

TheboardofNorthern2VCTPLChasconsideredtheprinciplesandrecommendationsoftheAssociationofInvestmentCompaniesCodeofCorporateGovernance(AICCode)byreferencetotherelatedAssociationofInvestmentCompaniesCorporateGovernanceGuideforInvestmentCompanies(AICGuide).TheAICCode,asexplainedbytheAICGuide,addressesalltheprinciplessetoutintheUKCorporateGovernanceCode,aswellassettingoutadditionalprinciplesandrecommendationsonissuesthatareofspecificrelevancetothecompany.TheAICCodecanbeviewedatwww.theaic.co.uk/aic-code-of-corporate-governance-0.

Theboardconsidersthatreportinginaccordancewiththeprinciplesandrecommendationsofthe AICCode,andbyreferencetotheAICGuide(which incorporatestheUKCorporateGovernanceCode), willprovidebetterinformationtoshareholders.

Thecompanyiscommittedtomaintaining high standards in corporate governance and during the year ended 31 March 2018 complied withtherecommendationsoftheAICCodeandtherelevantprovisionsoftheUKCorporateGovernanceCode,exceptassetoutbelow.

TheUKCorporateGovernanceCodeincludesprovisionsrelatingtotheroleofthechiefexecutive,executivedirectors’remuneration andtheneedforaninternalauditfunction. ForthereasonssetoutintheAICGuide,andinthepreambletotheUKCorporateGovernanceCode,theboardconsiderstheseprovisionsarenotrelevanttothepositionofNorthern2VCTPLC,whichisanexternallymanagedventurecapital trust. The company has therefore not reported further in respect of these provisions.

Board of directors Thecompanyhasaboardoffivenon-executivedirectors,fourofwhomareconsideredtobeindependent of the company’s investment manager,NVMPrivateEquityLLP(NVM).The board meets regularly in person or by conference callquarterly,andonotheroccasionsasrequired. The board is responsible to shareholders for the effectivestewardshipofthecompany’saffairsandhasaformalscheduleofmattersspecificallyreservedforitsdecisionwhichinclude:

considerationoflong-termstrategicissues;

valuationoftheunquotedinvestmentportfolio;and

ensuringthecompany’scompliancewithgoodpracticeincorporategovernancematters.

A brief biographical summary of each director is given on page 4.

Thechairman,MrDPAGravells,leadstheboardinthedeterminationofitsstrategyandintheachievementofitsobjectives.Thechairmanis responsible for organising the business of the board,ensuringitseffectivenessandsettingitsagenda,andhasnoinvolvementinthedaytodaybusinessofthecompany.Hefacilitatestheeffectivecontributionofthedirectorsandensuresthattheyreceiveaccurate,timelyandclearinformationandthattheycommunicateeffectivelywithshareholders.

Theboardhasestablishedaformalprocess,ledbythechairman,fortheannualevaluationoftheperformanceoftheboard,itsprincipalcommitteesandindividualdirectors.Thedirectorsaremadeawareonappointmentthattheirperformancewillbesubjecttoregularevaluation.TheperformanceofthechairmanisevaluatedbyameetingoftheotherboardmembersundertheleadershipofMrFLGNeale, the senior independent director of the company.

Thecompanysecretary,MrJKBryce,isresponsible for advising the board through thechairmanonallgovernancematters. MrJKBrycewasappointedon1April2018followingtheretirementofthepreviouscompanysecretary,MrCDMellor.

All of the directors have access to the advice andservicesofthecompanysecretary,whohasadministrativeresponsibilityforthemeetings oftheboardanditscommittees.Directors mayalsotakeindependentprofessionaladviceatthecompany’sexpensewherenecessary intheperformanceoftheirduties.

Thecompany’sarticlesofassociationandthescheduleofmattersreservedtotheboardfordecision provide that the appointment and removalofthecompanysecretaryisamatterfor the board.

Thearticlesofassociationprovidethatdirectorsshallretireandbesubjecttore-electionatthefirstannualgeneralmeetingaftertheirappointmentandthatanydirectorwhowasnotappointedorre-appointedatoneoftheprecedingtwoannualgeneralmeetingsshallretireandbesubjecttore-electionateachannualgeneralmeeting.

Independence of directors Theboardregularlyreviewstheindependenceofitsmembersandissatisfiedthatthecompany’s directors are independent in characterandjudgementandtherearenorelationshipsorcircumstanceswhichcouldaffecttheirobjectivity(withtheexception ofMrAMConnwhowasanequitypartnerinNVM,thecompany’sinvestmentmanager,during the year ended 31 March 2018).

TheAICCoderecommendsthatwhereadirectorhasservedformorethannineyears,the board should state its reasons for believing that the individual remains independent. The boardisoftheviewthatatermofserviceinexcessofnineyearsisnotinitselfprejudicialtoadirector’sabilitytocarryouthis/herduties effectivelyandfromanindependentperspective; the nature of the company’s business is such that individualdirector’sexperienceandcontinuityofboardmembershipcansignificantlyenhancetheeffectivenessoftheboardasawhole.HowevertheboardhasasamatterofgoodpracticeadoptedtheAICCoderecommendationthatdirectorswhohaveservedformorethannineyearsshouldseekannualre-election,andacknowledgesthatregularrefreshmentofitsmembership is desirable.


Board committees The board has appointed three standing committeestomakerecommendationstotheboardinspecificareas.Theboarddoesnothaveaseparateremunerationcommittee,asthecompanyhasnoemployeesorexecutivedirectors.Detailedinformationrelatingtotheremunerationofdirectorsisgiveninthedirectors’remunerationreportonpages18 and 19.

Audit Committee Duringtheyeartheauditcommitteecomprised:

MissCAMcAnulty(Chairfrom12July2017) MrCGAFletcher(Chairuntilretirement on12July2017) Mr S P Devonshire MrDPAGravells MrFLGNeale

Theauditcommittee’stermsofreferenceincludethefollowingrolesandresponsibilities:

monitoringandmakingrecommendationstotheboardinrelationtothecompany’spublishedfinancialstatementsandotherformalannouncementsrelatingtothecompany’sfinancialperformance;

monitoringandmakingrecommendations totheboardinrelationtothevaluation ofthecompany’sunquotedinvestments;

monitoringandmakingrecommendationstotheboardinrelationtothecompany’sinternalcontrol(includinginternalfinancialcontrol)andriskmanagementsystems;

periodically considering the need for an internalauditfunction;

makingrecommendationstotheboardinrelationtotheappointment,re-appointmentand removal of the external auditor and approvingtheremunerationandterms ofengagementoftheexternalauditor;

reviewingandmonitoringtheexternalauditor’sindependenceandobjectivity andtheeffectivenessoftheauditprocess,takingintoconsiderationrelevantUKprofessionalandregulatoryrequirements;

monitoringtheextenttowhichtheexternalauditorisengagedtosupplynon-auditservices;and

ensuring that the investment manager has arrangementsinplacefortheinvestigationandfollow-upofanyconcernsraisedconfidentiallybystaffinrelationtotheproprietyoffinancialreportingorothermatters.

Thecommitteereviewsitstermsofreferenceanditseffectivenessannuallyandrecommendsto the board any changes required as a result of thereview.Thetermsofreferenceareavailableon request from the company secretary and ontheNVMwebsite,www.nvm.co.uk. The auditcommitteeordinarilymeetsthreetimesperyearandhasdirectaccesstoKPMGLLP,the company’s external auditor. The board considersthatthemembersofthecommitteeareindependentandhavecollectivelytheskillsand experience required to discharge their dutieseffectively,andthatthechairmanofthecommitteemeetstherequirementsoftheUKCorporateGovernanceCodeastorecentandrelevantfinancialexperience.

The company does not have an independent internalauditfunctionasitisnotdeemedappropriategiventhesizeofthecompany and the nature of the company’s business. However,thecommitteeconsidersannuallywhetherthereisaneedforsuchafunction andifsowouldrecommendthistotheboard.

During the year ended 31 March 2018 the audit committeedischargeditsresponsibilitiesby:

reviewingandapprovingtheexternalauditor’stermsofengagement,remunerationandindependence;

reviewingtheexternalauditor’splanfortheauditofthecompany’sfinancialstatements,includingidentificationofkeyrisksandconfirmationofauditorindependence;

reviewingNVM’sstatementofinternalcontrolsoperatedinrelationtothecompany’sbusinessandassessingtheeffectiveness of those controls in minimising the impact ofkeyrisks;

reviewingperiodicreportsontheeffectivenessofNVM’scomplianceprocedures;

reviewingtheappropriatenessofthecompany’saccountingpolicies;

reviewingthecompany’sdraftannualfinancialstatementsandhalf-yearlyresultsstatementpriortoboardapproval,includingtheproposedfairvalueofinvestments;

reviewingtheexternalauditor’sdetailedreportstothecommitteeontheannualfinancialstatements;

reviewingthetaxationadvisers’VCTstatusmonitoringandcompliancereports;

consideringtheeffectivenessoftheexternalauditprocess;and

recommending to the board and shareholders thereappointmentofKPMGLLPastheindependent auditor of the company.

Thekeyareasofriskthathavebeenidentifiedandconsideredbytheauditcommitteeinrelationtothebusinessactivitiesandfinancialstatementsofthecompanyareasfollows:

valuationandexistenceofunquotedinvestments;and

compliancewithHMRevenue&Customsconditionsformaintenanceofapprovedventure capital trust status.

Theseissueswerediscussedwiththeinvestmentmanagerandtheauditoratthepre-yearendauditplanningmeetingandattheconclusion oftheauditofthefinancialstatements.


Corporate governance continued

Valuation of unquoted investments: the investmentmanagerconfirmedtotheauditcommitteethattheinvestmentvaluationshadbeencarriedoutconsistentlywithpriorperiodsandinaccordancewithpublishedindustryguidelines,takingaccountofthelatestavailableinformationaboutinvesteecompaniesandcurrentmarketdata.Theauditcommitteereviewedtheestimatesandjudgementsmadeintheinvestmentvaluationsandwassatisfiedthatthefinalvaluationsareappropriate.

Venture capital trust status: the investment managerconfirmedtotheauditcommitteethattheconditionsformaintainingthecompany’sstatus as an approved venture capital trust hadbeencompliedwiththroughouttheyear.ThepositionwasalsoconfirmedandreportedonbyPhilipHare&AssociatesLLPinitscapacityasadvisertothecompanyontaxationmattersandtherelevantreportwasreviewedbytheauditcommittee.

Theinvestmentmanagerandauditorconfirmedtotheauditcommitteethattheywerenotawareofanymaterialmisstatements.Havingreviewedthereportsreceivedfromthemanagerandauditor,theauditcommitteeissatisfiedthatthekeyareasofriskandjudgementhavebeenappropriatelyaddressedinthefinancialstatementsandthatthesignificantassumptionsused in determining the value of assets and liabilitieshavebeenproperlyappraisedandaresufficientlyrobust.ThecommitteeconsidersthatKPMGLLPhascarriedoutitsdutiesasauditor in a diligent and professional manner.

Thecommitteeregularlyreviewsandmonitorstheauditor’seffectivenessandindependence.KPMGLLPhasconfirmedthatitisindependentofthecompanyandhascompliedwiththeapplicableauditingstandards.KPMGLLPtogetherwithitspredecessorKPMGAuditPlchasheldofficeasauditorforfifteenyears;inaccordancewithprofessionalguidelinestheengagementleaderisrotatedafteratmostfiveyears,andthecurrentdirectorhasservedforthreeyears.Aspartofitsreview,thecommitteeconsidersthenatureandextentofnon-auditservicessuppliedbytheauditor,allofwhichmustbeapprovedbythecommittee.Thenon-audit services contracted for during the year weretaxcomplianceservices(iXBRLtagging).Thenatureoftheservicesprovidedwastoassistthecompanywiththelogisticsofdigitallysubmittingtheannualreportandfinancialstatementstotherelevanttaxauthoritiesandnoinputwasprovidedrelatingtothecontents,estimatesordisclosuresincludedwithintheannualreportandfinancialstatements.Thefees forthenon-auditserviceswererelativelysmallcompared to those for the audit services and theserviceswereprovidedbyaseparateteam.

Assuch,thecommitteeconsidersthatprovisionofthenon-auditservicesdidnotimpair the independence of the auditor during the year.Theauditcommitteealsoconsiderstherequirements and deadlines for mandatory audit tenderingandrotation;undercurrentregulations thelastperiodforwhichKPMGLLPwillbepermittedtoactasauditorofthecompany willbetheyearending31March2023.

Nomination Committee Duringtheyearthenomination committeecomprised:

MrDPAGravells(Chairman) Mr S P Devonshire MrCGAFletcher(retired12July2017) Miss C A McAnulty MrFLGNeale

Thenominationcommitteeconsiderstheselectionandappointmentofdirectorsandmakesannualrecommendationstotheboardastothelevelofdirectors’fees.Thecommitteemonitorsthebalanceofskills,knowledge,diversityandexperienceofferedbyboardmembers,andsatisfiesitselfthattheyareabletodevotesufficienttimetocarryouttheirroleefficientlyandeffectively.Whenrecommendingnewappointmentstotheboardthecommitteedrawsonitsmembers’extensivebusinessexperienceandrangeofcontactstoidentifysuitablecandidates,andwouldconsidertheuseofformaladvertisementsandexternalconsultantswhereappropriate.Newdirectorsareprovidedwithbriefingmaterialrelatingtothecompany,itsinvestmentmanagerandtheventurecapitalindustryaswellastotheirownlegalresponsibilitiesasdirectors.Thecommitteehaswrittentermsofreference whicharereviewedannuallyandareavailableon request from the company secretary and ontheNVMwebsite,www.nvm.co.uk.

Management Engagement Committee During the year the management engagementcommitteecomprised:

MrDPAGravells(Chairman) Mr S P Devonshire MrCGAFletcher(retired12July2017) Miss C A McAnulty MrFLGNeale

Themanagementengagementcommitteeundertakesaperiodicreviewoftheperformanceoftheinvestmentmanager,NVM,andofthetermsofthemanagementagreement including the level of fees payable andthelengthofthenoticeperiod.Theprincipal terms of the agreement are set out in Note3tothefinancialstatementsonpage33.

Followingthelatestreviewbythecommittee,theboardconcludedthatthecontinuingappointmentofNVMwasintheinterestsof thecompanyanditsshareholdersasawhole.NVM has demonstrated its commitment to andexpertiseinventurecapitalinvestment overanextendedperiod,asaresultofwhichthe company has established a consistent long-termperformancerecord.NVMhasalso performed its company secretarial and accountingdutiesefficientlyandeffectively.

Attendance at board and committee meetings Table1setsoutthenumberofsubstantiveboardandcommitteemeetingsheldduring the year ended 31 March 2018 and the numberattendedbyeachdirectorcomparedwiththemaximumpossibleattendance.

Corporate responsibility The board aims to ensure that the company takesapositiveapproachtocorporateresponsibility,inrelationbothtoitselfandto the companies it invests in. This entails maintainingaresponsibleattitudetoethical,environmental,governanceandsocialissues,andtheencouragementofgoodpracticeininvesteecompanies.Theboardseekstoavoidinvestingincompanieswhichdonotoperatewithinrelevantethical,environmentalandsociallegislationorotherwisefailtocomplywithappropriateindustrystandards.

Investor relations InfulfilmentoftheChairman’sobligationsundertheUKCorporateGovernanceCode,theChairmangivesfeedbacktotheboardonanyissuesraisedwithhimbyshareholderswithaviewtoensuringthatmembersoftheboarddevelopanunderstandingoftheviewsofshareholders about their company. The board recognises the value of maintaining regular communicationswithshareholders.Formalreportsaresenttoshareholdersatthehalf-yearandyear-endstages,andanopportunityisgiven to shareholders at the annual general meetingtoquestiontheboardandtheinvestmentmanageronmattersrelatingtothecompany’soperationandperformance.Themanager holds an annual VCT investor seminar towhichshareholdersareinvited.Proxyvotingfiguresforeachresolutionareannouncedatgeneralmeetingsandaremadeavailablepubliclyfollowingtherelevantmeeting.

Furtherinformationcanalsobeobtained viatheNVMwebsiteatwww.nvm.co.uk.


Internal control The directors have overall responsibility for ensuring that there are in place robust systemsofinternalcontrol,bothfinancialandnon-financial,andforreviewingtheireffectiveness.Thepurposeoftheinternalfinancialcontrolsistoensurethatproperaccountingrecordsaremaintained,thecompany’s assets are safeguarded and the financialinformationusedwithinthebusinessandforpublicationisaccurateandreliable;such a system can provide only reasonable and not absolute assurance against material misstatement or loss. The board regularly reviewsfinancialperformanceandresultswiththe investment manager. Responsibility for accountingandsecretarialserviceshasbeencontractually delegated to NVM under the management agreement. NVM has established itsownsystemofinternalcontrolsinrelationtothesematters,detailsofwhichhavebeenreviewedbytheauditcommittee.

Non-financialinternalcontrolsincludethesystemsofoperationalandcompliancecontrolsmaintained by the investment manager in relationtothecompany’sbusinessaswellasthemanagementofkeyrisksasreferredtointhesectionheaded“Riskmanagement”below.

Thedirectorsconfirmthatbymeansoftheproceduressetoutabove,andinaccordancewith“Internal Controls: Guidance for Directors on the Combined Code”,publishedbytheInstituteofCharteredAccountantsinEnglandandWales,theyhaveestablishedacontinuingprocessforidentifying,evaluatingandmanagingthesignificantpotentialrisksfacedbythecompanyandhavereviewedtheeffectivenessoftheinternalcontrolsystems.This process has been in place throughout andsubsequenttotheaccountingperiod underreview.

Risk management Riskmanagementisdiscussedinthestrategicreport on page 10.

Share capital, rights attaching to the shares and restrictions on voting and transfer Asat31March2018therewere130,089,490ordinary shares in issue (as at that date none oftheissuedshareswereheldbythecompanyastreasuryshares).Subjecttoanysuspensionorabrogationofrightspursuanttorelevant laworthecompany’sarticlesofassociation, the shares confer on their holders (other than the company in respect of any treasury shares) thefollowingprincipalrights:

(a)therighttoreceiveoutofprofitsavailablefordistributionsuchdividendsasmaybeagreedtobepaid(inthecaseofafinaldividend in an amount not exceeding the amount recommended by the board as approved by shareholders in general meetingorinthecaseofaninterimdividendin an amount determined by the board). All dividends unclaimed for a period of 12yearsafterhavingbecomedueforpaymentareforfeitedautomaticallyandceasetoremainowingbythecompany;

(b)theright,onareturnofassetsonaliquidation,reductionofcapitalorotherwise,to share in the surplus assets of the companyremainingafterpaymentofitsliabilitiesparipassuwiththeotherholdersofordinaryshares;and

(c)therighttoreceivenoticeofandtoattendandspeakandvoteinpersonorbyproxy atanygeneralmeetingofthecompany. Onashowofhandseverymemberpresentorrepresentedandvotinghasonevoteand on a poll every member present or representedandvotinghasonevoteforeveryshareofwhichthatmemberistheholder;theappointmentofaproxymustbereceived not less than 48 hours before the timeoftheholdingoftherelevantmeetingoradjournedmeetingor,inthecaseofapolltakenotherwisethanatoronthesamedayastherelevantmeetingoradjournedmeeting,bereceivedafterthepollhasbeendemanded and not less than 24 hours before thetimeappointedforthetakingofthepoll.

Theserightscanbesuspended.Ifamember,or any other person appearing to be interested insharesheldbythatmember,hasfailedtocomplywithinthetimelimitsspecifiedinthecompany’sarticlesofassociationwithanoticepursuanttoSection793oftheCompaniesAct2006(noticebycompanyrequiringinformationaboutinterestsinitsshares),thecompanycanuntilthedefaultceasessuspendtherighttoattendandspeakandvoteatageneralmeetingand if the shares represent at least 0.25% of theirclassthecompanycanalsowithholdanydividend or other money payable in respect oftheshares(withoutanyobligationtopayinterest) and refuse to accept certain transfers of the relevant shares.

Shareholders,eitheraloneorwithothershareholders,haveotherrightsassetout inthecompany’sarticlesofassociationand in the Companies Act 2006.

Table 1: Directors’ attendance at meetings

Management Audit Nomination engagement Board committee committee committee

Numberofmeetingsheld 5 3 1 1 Attendance(actual/possible):

DPAGravells(Chairman) 5/5 3/3 1/1 1/1

AMConn 5/5 N/A N/A N/A

SPDevonshire 5/5 3/3 1/1 1/1

CGAFletcher(retired12July2017) 2/2 1/1 N/A N/A

CAMcAnulty 5/5 3/3 1/1 1/1

FLGNeale 5/5 3/3 1/1 1/1


Corporate governance continued

Amembermaychoosewhetherhissharesareevidencedbysharecertificates(certificatedshares)orheldinelectronic(uncertificated)forminCREST(theUKelectronicsettlementsystem). Any member may transfer all or anyofhisshares,subjectinthecaseofcertificatedsharestotherulessetoutinthecompany’sarticlesofassociationorinthecaseofuncertificatedsharestotheregulationsgoverningtheoperationofCREST(whichallowthe directors to refuse to register a transfer asthereinsetout);thetransferorremainstheholderofthesharesuntilthenameofthe transferee is entered in the register of members. The directors may refuse to register atransferofcertificatedsharesinfavourofmorethanfourpersonsjointlyorwherethereisnoadequateevidenceofownershiporthetransfer is not duly stamped (if so required). The directors may also refuse to register a sharetransferifitisinrespectofacertificatedsharewhichisnotfullypaiduporonwhichthecompanyhasalienprovidedthat,wherethe share transfer is in respect of any share admittedtotheOfficialListmaintainedbytheUKListingAuthority,anysuchdiscretionmaynot be exercised so as to prevent dealings takingplaceonanopenandproperbasis,orifintheopinionofthedirectors(andwiththeconcurrenceoftheUKListingAuthority)exceptionalcircumstancessowarrant,providedthattheexerciseofsuchpowerwillnotdisturbthemarketinthoseshares.Whilsttherearenosqueeze-outandsell-outrulesrelatingtothesharesinthecompany’sarticlesofassociation,shareholdersaresubjecttothecompulsoryacquisitionprovisionsinSections974to991 of the Companies Act 2006.

Amendment of articles of association Thecompany’sarticlesofassociationmay be amended by the members of the company byspecialresolution(requiringamajority ofatleast75%ofthepersonsvotingontherelevantresolution).

Appointment and replacement of directors A person may be appointed as a director of the company by the shareholders in general meetingbyordinaryresolution(requiring asimplemajorityofthepersonsvotingon therelevantresolution)orbythedirectors; noperson,otherthanadirectorretiringbyrotationorotherwise,shallbeappointedorreappointedadirectoratanygeneralmeetingunlessheisrecommendedbythedirectorsor,not less than seven or more than 42 clear days beforethedateappointedforthemeeting,noticeisgiventothecompanyoftheintentionto propose that person for appointment or re-appointmentintheformandmannerset outinthecompany’sarticlesofassociation.

Eachdirectorwhoisappointedbythe directors(andwhohasnotbeenelectedas a director of the company by the members atageneralmeetingheldintheintervalsincehis appointment as a director of the company) istobesubjecttoelectionasadirectorofthecompanybythemembersatthefirstannualgeneralmeetingofthecompanyfollowing his appointment. At each annual general meetingofthecompany,anydirectorwho wasnotappointedorre-appointedatoneoftheprecedingtwoannualgeneralmeetingsshallretireandbesubjecttore-election.

TheCompaniesAct2006allowsshareholdersingeneralmeetingbyordinaryresolution(requiringasimplemajorityofthepersonsvotingontherelevantresolution)toremoveanydirectorbeforetheexpirationofhisor herperiodofoffice,butwithoutprejudicetoanyclaimfordamageswhichthedirectormay have for breach of any contract of service betweenhimorherandthecompany.

A person also ceases to be a director if he or sheresignsinwriting,ceasestobeadirectorby virtue of any provision of the Companies Act,becomesprohibitedbylawfrombeingadirector,becomesbankruptoristhesubjectofarelevantinsolvencyprocedure,orbecomesofunsoundmind,oriftheboardsodecidesfollowingatleastsixmonths’absencewithoutleaveorifheorshebecomessubjecttorelevantproceduresunderthementalhealthlaws,as setoutinthecompany’sarticlesofassociation.

Powers of the directors Thecompany’sarticlesofassociation specifythat,subjecttotheprovisionsoftheCompaniesAct2006andarticlesofassociationofthecompanyandanydirectionsgiven byshareholdersbyspecialresolution,thebusiness of the company is to be managed bythedirectors,whomayexerciseallthepowersofthecompany,whetherrelating tothemanagementofthebusinessornot,exceptwheretheCompaniesAct2006orthearticlesofassociationofthecompanyotherwiserequire.Inparticularthedirectorsmay exercise on behalf of the company its powerstopurchaseitsownsharestothe extentpermittedbyshareholders.Authoritywasgivenatthecompany’s2017annualgeneralmeetingtomakemarketpurchases ofupto9,913,100ordinarysharesatanytimeuptothe2018annualgeneralmeetingandotherwiseonthetermssetoutintherelevantresolution,andauthorityisbeingsoughtat theannualgeneralmeetingtobeheldon 12July2018assetoutinaseparatecircular.



The directors are responsible for preparing the annualreportandthefinancialstatementsinaccordancewithapplicablelawandregulations.

Companylawrequiresthedirectorstopreparefinancialstatementsforeachfinancialyear.Underthatlawtheyhaveelectedtoprepare thefinancialstatementsinaccordancewith UKAccountingStandards,includingFRS102“The Financial Reporting Standard applicable in the UK and Republic of Ireland”.

Undercompanylawthedirectorsmustnotapprovethefinancialstatementsunlessthey aresatisfiedthattheygiveatrueandfairviewofthestateofaffairsofthecompanyandof itsprofitorlossfortheyear.

Inpreparingthefinancialstatements, the directors are required to:

selectsuitableaccountingpolicies andthenapplythemconsistently;

makejudgementsandestimatesthat arereasonableandprudent;

statewhetherapplicableUKaccountingstandardshavebeenfollowed,subject to any material departures disclosed and explainedinthefinancialstatements;

assessthecompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcern;and

preparethefinancialstatementsonthe goingconcernbasisofaccountingunlessthey either intend to liquidate the company ortoceaseoperations,orhavenorealisticalternativebuttodoso.

Thedirectorsareresponsibleforkeepingadequateaccountingrecordsthataresufficienttoshowandexplainthecompany’stransactionsanddisclosewithreasonableaccuracyatanytimethefinancialpositionofthecompanyandenablethemtoensurethatthefinancialstatementscomplywiththeCompaniesAct2006. They are responsible for such internal control as they determine is necessary to enable the preparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror,andhavegeneralresponsibilityfor takingsuchstepsasarereasonablyopentothem to safeguard the assets of the company and to preventanddetectfraudandotherirregularities.

Underapplicablelawandregulations,thedirectors are also responsible for preparing astrategicreport,directors’report,directors’remunerationreportandcorporategovernancestatementthatcomplywiththatlawand thoseregulations.

The directors are responsible for the maintenance and integrity of the corporate andfinancialinformationincludedonthecompany’swebsite.LegislationintheUKgoverningthepreparationanddissemination offinancialstatementsmaydifferfromlegislationinotherjurisdictions.

Responsibility statement of the directors in respect of the annual report and financial statements for the year ended 31 March 2018Weconfirmthattothebestofourknowledge:

thefinancialstatements,preparedinaccordancewiththeapplicablesetofaccountingstandards,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossofthecompany;and

the directors’ report and strategic report includeafairreviewofthedevelopment and performance of the business and the positionofthecompany,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheyface.

Weconsidertheannualreportandaccounts,takenasawhole,isfair,balancedandunderstandableandprovidestheinformationnecessary for shareholders to assess the company’spositionandperformance, business model and strategy.




Directors’ responsibilities statement


To the members of Northern 2 VCT PLC only

Opinions and conclusions arising from our audit

1. Our opinion is unmodified Wehaveauditedthefinancialstatements ofNorthern2VCTPLC(“thecompany”) fortheyearended31March2018whichcomprisetheincomestatement,balance sheet,statementofchangesinequity,statementofcashflows,andtherelatednotes,includingtheaccountingpoliciesinnote1.

Inouropinionthefinancialstatements:

giveatrueandfairviewofthestateofcompany’saffairsasat31March2018 andofitsprofitfortheyearthenended;

have been properly prepared in accordance withUKaccountingstandards,includingFRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland;and

havebeenpreparedinaccordancewiththerequirements of the Companies Act 2006.

Basis for opinion WeconductedourauditinaccordancewithInternationalStandardsonAuditing(UK)(“ISAs(UK)”)andapplicablelaw.Ourresponsibilitiesaredescribedbelow.Webelievethattheauditevidencewehaveobtainedisasufficientandappropriate basis for our opinion. Our audit opinionisconsistentwithourreporttotheauditcommittee.

Wewereappointedasauditorbythe directors on 14 February 2003. The period of total uninterrupted engagement is for the15financialyearsended31March2018. Wehavefulfilledourethicalresponsibilitiesunder,andweremainindependentofthecompanyinaccordancewith,UKethicalrequirements including the FRC Ethical Standard asappliedtolistedpublicinterestentities. Nonon-auditservicesprohibitedbythatstandardwereprovided.

2. Key audit matters: our assessment of risks of material misstatementKey auditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceintheauditofthefinancialstatementsandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)identifiedbyus,includingthosewhichhadthegreatesteffecton:theoverallauditstrategy;theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.Wesummarisebelowthekeyauditmatter(unchangedfrom2017) inarrivingatourauditopinionabove,togetherwithourkeyauditprocedurestoaddressthatmatterand,asrequiredforpublicinterestentities,ourresultsfromthoseprocedures.

Thismatterwasaddressed,andourresultsarebasedonproceduresundertaken,inthecontextof,andsolelyforthepurposeof,ourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andconsequentlyareincidentaltothatopinion,andwedonotprovideaseparateopiniononthesematters.

Valuation of unquoted investments – (£50.6 million; 2017: £45.7 million) – Refer topage21(auditcommitteesectionofthecorporategovernancestatement),page32(accountingpolicies)andpages28to41 (financialdisclosures).

The risk:Subjectivevaluation–58%ofthecompany’s total assets (by value) is held in investmentswherenoquotedmarketprice isavailable.Unquotedinvestmentsaremeasuredatfairvalue,whichisestablished inaccordancewiththeInternationalPrivateEquityandVentureCapitalValuationGuidelinesby using measurements of value such as pricesofrecentorderlytransactions,earningsmultiplesandnetassets.Thereisasignificantriskoverthevaluationoftheseinvestments.

Our response: Our procedures included:

Historicalcomparisons:Assessmentofinvestmentrealisationsintheperiod,comparing actual sales proceeds to prior year endvaluationstounderstandthereasons forsignificantvariancesanddeterminewhethertheyareindicativeofbiasorerror inthecompany’sapproachtovaluations;

Methodology choice: In the context of observedindustrybestpracticeandtheprovisionsoftheInternationalPrivateEquityandVentureCapitalValuationGuidelines,wechallengedtheappropriatenessofthevaluationbasisselected;

Ourvaluationsexperience:Challengingtheinvestmentmanageronkeyjudgementsaffectinginvesteecompanyvaluations,suchas thechoiceofearningsmultiples.Wecomparedkeyunderlyingfinancialdatainputstoexternalsources,investeecompanyauditedaccountsandmanagementinformationasapplicable.Wechallengedtheassumptionsaround sustainability of earnings based on the plans of the investee companies and whethertheseareachievableandweobtainedanunderstandingofexistingandprospectiveinvesteecompanycashflowstounderstandwhetherborrowingscanbeservicedorwhetherrefinancingmayberequired.Ourworkincludedconsiderationofeventswhichoccurredsubsequenttotheyearendupuntilthedateofthisauditreport;

Comparingvaluations:Wherearecenttransactionhasbeenusedtovalueaholding,weobtainedanunderstandingofthecircumstancessurroundingthetransactionandwhetheritwasconsideredtobeonanarms-lengthbasisandsuitableasaninputintoavaluation;and

Assessingtransparency:Considerationoftheappropriateness,inaccordancewithrelevantaccountingstandards,ofthedisclosuresinrespectofunquotedinvestmentsandtheeffect of changing one or more inputs to reasonably possiblealternativevaluationassumptions.

Our results:Wefoundthecompany’svaluationof unquoted investments to be acceptable (2017: acceptable).

3. Our application of materiality and an overview of the scope of our auditMaterialityforthefinancialstatementsasawholewassetat£871,700(2017:£758,000),determinedwithreferencetoabenchmarkoftotalassets,ofwhichitrepresents1%(2017:1%).

Weagreedtoreporttotheauditcommitteeany correctedoruncorrectedidentifiedmisstatementsexceeding£43,453(2017:£35,700),inadditiontootheridentifiedmisstatementsthatwarranted reportingonqualitativegrounds.

OurauditofthecompanywasundertakentothematerialitylevelspecifiedaboveandwasperformedattheheadofficeofthemanagerNVMPrivateEquityLLP,inNewcastleuponTyne,andKPMGLLPinEdinburgh.

4. We have nothing to report on going concernWearerequiredtoreporttoyouif:

wehaveanythingmaterialtoaddordrawattentiontoinrelationtothedirectors’statementinnote1atothefinancialstatements on the use of the going concern basis of accountingwithnomaterialuncertaintiesthatmaycastsignificantdoubtoverthecompany’s use of that basis for a period ofatleasttwelvemonthsfromthedate ofapprovalofthefinancialstatements;or

iftherelatedstatementundertheListingRules set out on page 16 is materially inconsistentwithourauditknowledge.

Wehavenothingtoreportintheserespects.

5. We have nothing to report on the other information in the annual reportThe directors are responsible for the other informationpresentedintheannualreporttogetherwiththefinancialstatements. Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,accordingly,wedonotexpressanaudit opinionor,exceptasexplicitlystatedbelow, any form of assurance conclusion thereon.

Our responsibility is to read the other informationand,indoingso,considerwhether,basedonourfinancialstatementsauditwork,theinformationthereinismateriallymisstatedorinconsistentwiththefinancialstatements orourauditknowledge.Basedsolelyonthatworkwehavenotidentifiedmaterialmisstatementsintheotherinformation.

Independent auditor’s report


Strategic report and directors’ report Basedsolelyonourworkonthe otherinformation:

wehavenotidentifiedmaterialmisstatements in the strategic report andthedirectors’report;

inouropiniontheinformationgiveninthosereportsforthefinancialyearisconsistentwiththefinancialstatements;and

in our opinion those reports have beenpreparedinaccordancewith the Companies Act 2006.

Directors’ remuneration report In our opinion the part of the directors’ remunerationreporttobeauditedhas been properly prepared in accordance withtheCompaniesAct2006.

Disclosures of principal risks and longer-term viability Basedontheknowledgeweacquiredduringourfinancialstatementsaudit,wehavenothingmaterialtoaddordrawattentiontoinrelationto:

thedirectors’confirmationwithinthedirectors’report,page16,thattheyhavecarried out a robust assessment of the principalrisksfacingthecompany,includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyandliquidity;

theriskmanagementdisclosuresdescribingtheserisksandexplaininghowtheyarebeingmanagedandmitigated;and

thedirectors’explanationinthestatementonlong-termviabilityofhowtheyhaveassessedtheprospectsofthecompany,overwhatperiodtheyhavedonesoandwhytheyconsideredthatperiodtobeappropriate,andtheirstatementastowhethertheyhaveareasonableexpectationthatthecompanywillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.

UndertheListingRuleswearerequiredtoreviewthestatementoflong-termviability. Wehavenothingtoreportinthisrespect.

Corporate governance disclosures Wearerequiredtoreporttoyouif:

wehaveidentifiedmaterialinconsistenciesbetweentheknowledgeweacquiredduringourfinancialstatementsauditandthedirectors’ statement that they consider that theannualreportandfinancialstatementstakenasawholeisfair,balancedandunderstandableandprovidestheinformationnecessary for shareholders to assess the company’spositionandperformance,businessmodelandstrategy;or

thesectionoftheannualreportdescribingtheworkoftheauditcommitteedoesnotappropriatelyaddressmatterscommunicatedbyustotheauditcommittee.

Wearerequiredtoreporttoyouifthecorporate governance statement does not properly disclose a departure from theelevenprovisionsoftheUKCorporateGovernanceCodespecifiedbytheListing Rulesforourreview.


6. We have nothing to report on the other matters on which we are required to report by exceptionUndertheCompaniesAct2006,weare requiredtoreporttoyouif,inouropinion:

adequateaccountingrecordshavenot beenkept,orreturnsadequateforour audit have not been received from branchesnotvisitedbyus;or

thefinancialstatementsandthepart ofthedirectors’remunerationreport tobeauditedarenotinagreementwith theaccountingrecordsandreturns;or

certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or

wehavenotreceivedalltheinformation andexplanationswerequireforouraudit.


7. Respective responsibilitiesDirectors’ responsibilities As explained more fully in their statement set outonpage25,thedirectorsareresponsiblefor:thepreparationofthefinancialstatementsincludingbeingsatisfiedthattheygiveatrueandfairview;suchinternalcontrolasthey determine is necessary to enable the preparationoffinancialstatementsthatare freefrommaterialmisstatement,whetherduetofraudorerror;assessingthecompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcern;andusingthegoingconcernbasisofaccountingunlesstheyeitherintendtoliquidatethecompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.

Auditor’s responsibilities Ourobjectivesaretoobtainreasonableassurance aboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorotherirregularities (seebelow),orerror,andtoissueouropinion in an auditor’s report. Reasonable assurance is a highlevelofassurance,butdoesnotguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraud,otherirregularitiesorerrorandareconsideredmaterialif,individuallyorinaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthefinancialstatements.

Afullerdescriptionofourresponsibilities isprovidedontheFRC’swebsiteat www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detect Weidentifiedareasoflawsandregulationsthat could reasonably be expected to have a material effectonthefinancialstatementsfromoursector experienceandthroughdiscussionwiththedirectors(asrequiredbyauditingstandards).

Wehadregardtolawsandregulationsinareasthatdirectlyaffectthefinancialstatementsincludingfinancialreporting(includingrelatedcompanylegislation)aswellasthecompany’squalificationasaVentureCapitalTrustunderUKtaxlegislation,anybreachofwhichcouldleadtothecompanylosingvariousdeductionsandexemptionsfromUKcorporationtax.Weconsideredtheextentofcompliancewiththoselawsandregulationsaspartofourproceduresontherelatedfinancialstatementitems.

Withtheexceptionofanyknownorpossiblenon-compliance,andasrequiredbyauditingstandards,ourworkinrespectofthesewaslimited to enquiry of the directors.

Wecommunicatedidentifiedlawsandregulationsthroughoutourteamandremainedalerttoanyindicationsofnon-compliancethroughout the audit.

Aswithanyaudit,thereremainedahigherriskofnon-detectionofnon-compliancewithrelevantlawsandregulations(irregularities),asthesemayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideof internal controls.

8. The purpose of our audit work and to whom we owe our responsibilitiesThis report is made solely to the company’s members,asabody,inaccordancewithChapter 3 of Part 16 of the Companies Act 2006. Ourauditworkhasbeenundertakensothat wemightstatetothecompany’smembersthosematterswearerequiredtostatetothemin an auditor’s report and for no other purpose. Tothefullestextentpermittedbylaw,wedonot accept or assume responsibility to anyone other than the company and the company’s members,asabody,forourauditwork,for thisreport,orfortheopinionswehaveformed.

Philip Merchant (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants KPMG LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EG 17 May 2018


Income statementfor the year ended 31 March 2018

Year ended 31 March 2018 Year ended 31 March 2017 Revenue Capital Total Revenue Capital Total Notes £000 £000 £000 £000 £000 £000

Gain on disposal of investments 8 – 709 709 – 2,285 2,285Movements in fair value of investments 8 – (202) (202) – 6,189 6,189

– 507 507 – 8,474 8,474 Income 2 2,482 – 2,482 2,556 – 2,556Investment management fee 3 (393) (1,180) (1,573) (370) (1,681) (2,051)Other expenses 4 (350) (11) (361) (364) – (364)

Return on ordinary activities before tax 1,739 (684) 1,055 1,822 6,793 8,615Taxonreturnonordinaryactivities 5 (277) 277 – (313) 313 –

Return on ordinary activities after tax 1,462 (407) 1,055 1,509 7,106 8,615

Return per share 7 1.3p (0.4)p 0.9p 1.6p 7.7p 9.3p

ThetotalcolumnofthisstatementisthestatementoftotalcomprehensiveincomeofthecompanypreparedinaccordancewithFRS102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. The supplementary revenue return and capital return columns havebeenpreparedinaccordancewiththeStatementofRecommendedPractice“Financial Statements of Investment Trust Companies and Venture Capital Trusts”issuedinNovember2014andupdatedinFebruary2018withconsequentialamendmentsbytheAssociation of Investment Companies (“AIC SORP”).

There are no recognised gains or losses other than those disclosed in the income statement.

Allitemsintheabovestatementderivefromcontinuingoperations.

The accompanying notes are an integral part of this statement.


Balance sheetas at 31 March 2018

31 March 2018 31 March 2017 Notes £000 £000

Fixed assets Investments 8 61,432 58,195

Current assets Debtors 12 205 591 Cash and cash equivalents 25,540 17,874

25,745 18,465 Creditors (amounts falling due within one year) 13 (134) (5,013)

Net current assets 25,611 13,452

Net assets 87,043 71,647

Capital and reserves Called-upequitysharecapital 14 6,505 4,678Share premium 15 392 3,029Capitalredemptionreserve 15 110 83Capital reserve 15 71,629 53,908Revaluationreserve 15 7,836 9,049Revenue reserve 15 571 900

Total equity shareholders’ funds 87,043 71,647

Net asset value per share 16 66.9p 76.6p


Thefinancialstatementsonpages28to41wereapprovedbythedirectorson17May2018andaresignedontheirbehalfby:

D P A Gravells Director


Statement of changes in equityfor the year ended 31 March 2018

Non-distributablereserves Distributable reserves Total

Capital Called-up Share redemption Revaluation Capital Revenue share capital premium reserve reserve reserve reserve Notes £000 £000 £000 £000 £000 £000 £000

At 1 April 2017 4,678 3,029 83 9,049 53,908 900 71,647Returnonordinaryactivitiesaftertax – – – (1,213) 806 1,462 1,055Dividends paid 6 – – – – (9,226) (1,791) (11,017)Net proceeds of share issues 15 1,854 23,853 – – – – 25,707Sharespurchasedforcancellation 15 (27) – 27 – (349) – (349) Cancellationofsharepremiumreserve 15 – (26,490) – – 26,490 – –

At 31 March 2018 6,505 392 110 7,836 71,629 571 87,043

Year ended 31 March 2017 Non-distributablereserves Distributablereserves Total

Capital Called-up Share redemption Revaluation Capital Revenue share capital premium reserve reserve reserve reserve Notes £000 £000 £000 £000 £000 £000 £000

At 1 April 2016 4,580 1,464 59 5,562 58,614 1,058 71,337 Returnonordinaryactivitiesaftertax – – – 3,487 3,619 1,509 8,615 Dividendspaid 6 – – – – (7,987) (1,667) (9,654) Netproceedsofshareissues 15 122 1,565 – – – – 1,687 Sharespurchasedforcancellation 15 (24) – 24 – (338) – (338)

At 31 March 2017 4,678 3,029 83 9,049 53,908 900 71,647



Statement of cash flowsfor the year ended 31 March 2018

Year ended Year ended 31 March 2018 31 March 2017 £000 £000

Cash flows from operating activitiesReturnonordinaryactivitiesbeforetax 1,055 8,615Adjustmentsfor:Gainondisposalofinvestments (709) (2,285)Movements in fair value of investments 202 (6,189)Decrease/(increase)indebtors 386 (321) (Decrease)/increaseincreditors (582) 172

Net cash inflow/(outflow) from operating activities 352 (8)

Cash flows from investing activitiesPurchase of investments (10,265) (6,082)Sale/repaymentofinvestments 7,535 13,358

Net cash (outflow)/inflow from investing activities (2,730) 7,276

Cash flows from financing activitiesIssue of ordinary shares 26,248 1,717Share issue expenses (541) (30)Sharesubscriptionsheldpendingallotment (4,297) 4,297Purchaseofordinarysharesforcancellation (349) (338)Equity dividends paid (11,017) (9,654)

Net cash inflow/(outflow) from financing activities 10,044 (4,008)

Increase in cash and cash equivalents 7,666 3,260

Cash and cash equivalents at beginning of year 17,874 14,614

Cash and cash equivalents at end of year 25,540 17,874


Notes to the financial statementsfor the year ended 31 March 2018

1. Accounting policiesAsummaryoftheprincipalaccountingpolicies,allofwhichhavebeenconsistentlyappliedthroughouttheyearandtheprecedingyear, issetoutbelow.

(a) Basis of accountingThefinancialstatementshavebeenpreparedunder FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” andinaccordancewiththeStatementofRecommendedPractice“Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in November 2014 and updatedinFebruary2018withconsequentialamendmentsbytheAssociationofInvestmentCompanies (“AIC SORP”).

The company has adopted “Amendments to FRS 102 – Fair value hierarchy disclosures” issuedbytheFinancialReportingCouncilinMarch 2016.

Thefinancialstatementsarepreparedinsterlingwhichisthefunctionalcurrencyofthecompany and rounded to the nearest £000.

Thefinancialstatementshavebeenpreparedon a going concern basis.

(b) Valuation of investmentsPurchases and sales of investments are recognisedinthefinancialstatements atthedateoftransaction(tradedate).

The company’s investments have been designated by the directors as fair value throughprofitandlossatthetimeofacquisitionandaremeasuredatsubsequentreportingdatesatfairvalue.Inthecaseofinvestmentsquotedonarecognisedstockexchange,fairvalueisestablishedbyreferenceto the closing bid price on the relevant date orthelasttradedprice,dependingontheconventionoftheexchangeonwhichtheinvestment is quoted. In the case of unquoted investments,fairvalueisestablishedinaccordancewiththeInternationalPrivateEquityandVentureCapitalValuationguidelinesby using measurements of value such as price ofrecenttransaction,earningsmultipleandnetassets;wherenoreliablefairvaluecanbeestimatedusingsuchtechniques,unquotedinvestmentsarecarriedatcostsubjecttoprovisionforimpairmentwherenecessary.

Gainsandlossesarisingfromchangesinfairvalue of investments are recognised as part of thecapitalreturnwithintheincomestatementandallocatedtotherevaluationreserve.Transactioncostsattributabletotheacquisitionor disposal of investments are charged to capitalreturnwithintheincomestatement.

Those venture capital investments that may betermedassociatedundertakingsarecarriedat fair value as determined by the directors in accordancewiththecompany’snormalpolicyand are not equity accounted as required by the CompaniesAct2006.Thedirectorsconsiderthat, as these investments are held as part of the company’sportfoliowithaviewtotheultimaterealisationofcapitalgains,equityaccountingwouldnotgiveatrueandfairviewofthecompany’s interests in these investments. Quantificationoftheeffectofthisdepartureisnotpracticable.CarryinginvestmentsatfairvalueisspecificallypermittedunderFRS102(Section14.4B),whereventurecapitalentitiesholdinvestmentsaspartofaportfolio.

(c) IncomeDividends receivable on quoted equity shares arebroughtintoaccountontheex-dividenddate. Dividends receivable on unquoted equity sharesarebroughtintoaccountwhenthe company’s right to receive payment is established and there is no reasonable doubt that payment willbereceived.Fixedincomereturnsonnon-equitysharesanddebtsecuritiesarerecognisedonaneffectiveinterestratebasis,provided there is no reasonable doubt that paymentwillbereceivedinduecourse.

(d) ExpensesAll expenses are accounted for on an accruals basis. Expenses are charged to revenue return withintheincomestatementexceptthat:

expenseswhichareincidentaltotheacquisitionordisposalofaninvestmentareallocatedtocapitalreturnasincurred;and

expenses are split and allocated partly to capitalreturnwhereaconnectionwiththemaintenance or enhancement of the value oftheinvestmentsheldcanbedemonstrated, and accordingly the basic element of the investment management fee has been allocated 25% to revenue return and 75% tocapitalreturn,inordertoreflectthedirectors’expectedlong-termviewofthenature of the investment returns of the company.Theperformance-relatedelementof the investment management fee has been charged 100% to capital return.

(e) Revenue and capitalThe revenue column of the income statement includes all income and revenue expenses of the company. The capital column includes realised and unrealised gains and losses on investments and that part of the investment managementfeewhichisallocatedto capital return.

(f) TaxationUKcorporationtaxpayableisprovidedontaxableprofitsatthecurrentrate.Thetaxchargefortheyearisallocatedbetweenrevenue return and capital return on the “marginal basis” as recommended in the SORP.Provisionismadefordeferredtaxationonalltimingdifferencescalculatedatthecurrent rateoftaxrelevanttothebenefitorliability.

(g) Dividends payableDividends payable are recognised as distributionsinthefinancialstatements whenthecompany’sliabilitytomake payment has been established.

(h) ProvisionsA provision is recognised in the balance sheet whenthecompanyhasalegalorconstructiveobligationasaresultofapasteventanditisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Noprovisionisestablishedwhereareliableestimate oftheobligationcannotbemade.Provisionsare allocated to revenue or capital depending on the nature of the circumstances.

(i) Capital reserveThefollowingareaccountedforinthecapitalreserve:gainsorlossesontherealisationofinvestments;realisedandunrealisedexchangedifferencesofacapitalnature;thecostofrepurchasingordinaryshares,includingstampdutyandtransactioncosts;andothercapitalcharges and credits charged to this account inaccordancewiththeabovepolicies.

(j) Revaluation reserveChanges in fair value of investments are dealtwithinthisreserve.

(k) Significant estimates and judgementsDisclosureisrequiredofjudgementsandestimatesmadebymanagementinapplyingtheaccountingpoliciesthathaveasignificanteffectonthefinancialstatements.Theareainvolvingahigherdegreeofjudgementandestimatesisthevaluationofunquotedinvestments as explained in Note 1(b).


2. Income Year ended Year ended 31 March 2018 31 March 2017 £000 £000

Investment income: Dividends from unquoted companies 15 20 Dividends from quoted companies 262 237 Propertyincomedistributions 13 11 Interest receivable: Bankdeposits* 30 20 Loanstounquotedcompanies 2,008 2,130Listedinterest-bearinginvestments 154 138

2,482 2,556

*Denotesincomearisingfrominvestmentsnotdesignatedasfairvaluethroughprofitorlossatthetimeofacquisition.

3. Investment management fee Year ended 31 March 2018 Year ended 31 March 2017 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000

Investment management fee: Basic 393 1,180 1,573 370 1,110 1,480 Performance-related – – – – 571 571

393 1,180 1,573 370 1,681 2,051

NVMPrivateEquity(NVM)providesinvestmentmanagement,secretarialandadministrativeservicestothecompanyunderanagreement dated20December1999,whichmaybeterminatedatanytimebynotlessthantwelvemonths’noticebeinggivenbyeitherparty.

NVMreceivesabasicmanagementfee,payablequarterlyinadvance,attherateof2.06%perannumofnetassetscalculatedhalf-yearlyas at31Marchand30September.NVMbearsthecostofthefeesofSpeirs&JeffreyLimitedformanagingthelistedinterest-bearingandequityportfolios.NVMalsoprovidesadministrativeandsecretarialservicestothecompanyforafeeof£56,000perannum(linkedtothemovement in the RPI). This fee is included in other expenses (see Note 4).

NVMisalsoentitledtoreceiveaperformance-relatedmanagementfeeequivalentto12%oftheamount,ifany,bywhichthetotalreturnineachfinancialyear(expressedasapercentageofopeningnetassetvalue)exceedsaperformancehurdle.Thehurdleisacompositeratebasedon(a)7%on averagelong-terminvestments,(b)thehigherof(i)baserateplus1%and(ii)2.5%onaveragecashandinterestbearinginvestments,(c)baserateplus4% onaveragelistedequityinvestmentsduringtheyear.Thehurdleratefortheyearended31March2018was5.9%(yearended31March2017:6.0%).

Followingaperiodinwhichnetassetsdecline,a“highwatermark”willapplytothecalculationoftheperformance-relatedfeebutwillbethenadjusteddownwardstotheextentthatapositivereturnisachievedinthefollowingfinancialyear.Theperformance-relatedmanagementfeeissubjecttoanoverallcapof2.25%ofnetassets.Anyperformance-relatedelementoftheinvestmentmanagementfeeischarged100%tocapitalreturn.Therewasnoperformancefeedueinrespectoftheyearended31March2018(2017:£571,000).

Thetotalrunningcostsofthecompany,excludingperformance-relatedmanagementfees,arecappedat2.9%ofitsnetassetsandNVM hasagreedthatanyexcesswillberefundedbywayofareductioninitsfees.

4. Other expenses Year ended Year ended 31 March 2018 31 March 2017 £000 £000

Administrativeandsecretarialservices 56 55Directors’remuneration 85 84 Auditor’sremuneration–auditservices 20 19 –non-auditservices 1 1 Legalandprofessionalexpenses 25 16Share issue promoter’s commission 39 64Irrecoverable VAT 22 23Other expenses 113 102

361 364

Informationondirectors’remunerationisgiveninthedirectors’remunerationreportonpages18and19.


Notes to the financial statements continuedfor the year ended 31 March 2018

5. Tax on return on ordinary activities

Year ended 31 March 2018 Year ended 31 March 2017 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000

(a) Analysis of charge/(credit) for the year UKcorporationtaxpayable/(recoverable) on the return for the year 277 (277) – 313 (313) –

(b) Tax reconciliation Returnonordinaryactivitiesbeforetax 1,739 (684) 1,055 1,822 6,793 8,615

Returnonordinaryactivitiesmultiplied bythestandardrateofUKcorporationtax of 19.0% (2016 20.0%) 330 (130) 200 364 1,359 1,723 Effectof: UKdividendsnotsubjecttotax (53) – (53) (51) – (51) Capitalreturnsnotsubjecttotax – (135) (135) – (457) (457) Movements in fair value of investments notsubjecttotax – 38 38 – (1,238) (1,238) (Decrease)/increaseinsurplus management expenses – (50) (50) – 23 23

Taxcharge/(credit)fortheyear 277 (277) – 313 (313) –

(c) Factors which may affect future tax charges

Thecompanyhasnotrecognisedadeferredtaxassetinrespectofsurplusmanagementexpensescarriedforwardof£491,000(31March2017£760,000),asthecompanymaynotgeneratesufficienttaxableincomeintheforeseeablefuturetoutilisetheseexpenses.Thereisnootherunprovideddeferredtaxation.

Approvedventurecapitaltrustsareexemptfromtaxoncapitalgainswithinthecompany.Sincethedirectorsintendthatthecompanywillcontinue toconductitsaffairssoastomaintainitsapprovalasaventurecapitaltrust,nocurrentordeferredtaxhasbeenprovidedinrespectofanycapitalgainsorlossesarisingontherevaluationordisposalofinvestments.

6. Dividends

Year ended 31 March 2018 Year ended 31 March 2017 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000

(a) Recognised as distributions in the financial statements for the yearPrevious year’s second interim dividend – 4,957 4,957 – 4,580 4,580Previousyear’sfinaldividend 496 2,974 3,470 733 2,473 3,206Current year’s interim dividend 1,295 1,295 2,590 934 934 1,868

1,791 9,226 11,017 1,667 7,987 9,654

(b) Paid and proposed in respect of the year First interim paid – 2.0p (2017 2.0p) per share 1,295 1,295 2,590 934 934 1,868Second interim declared – nil (2017 5.0p) per share – – – – 4,678 4,678Final proposed – 3.5p (2017 3.5p) per share 325 4,228 4,553 467 2,807 3,274

1,620 5,523 7,143 1,401 8,419 9,820

TherevenuedividendspaidandproposedinrespectoftheyearformthebasisfordeterminingwhetherthecompanyhascompliedwiththerequirementsofSection274oftheIncomeTaxAct2007astothedistributionofinvestmentincome.

7. Return per shareThecalculationofthereturnpershareisbasedonthereturnonordinaryactivitiesaftertaxfortheyearof£1,055,000(2017£8,615,000)andon112,186,377(201792,962,814)shares,beingtheweightedaveragenumberofsharesinissueduringtheyear.


8. InvestmentsAllinvestmentsaredesignatedasfairvaluethroughprofitorlossoninitialrecognition,thereforeallgainsandlossesariseoninvestmentsdesignatedatfairvaluethroughprofitorloss.

FRS102(includingsubsequentamendmentsissuedinMarch2016)requiresanentitytoclassifyfairvaluemeasurementsusingafairvaluehierarchythatreflectsthesignificanceoftheinputsusedinmakingthemeasurements.Thefairvaluehierarchyshallhavethefollowingclassifications:

Level1–unadjustedquotedpricesinanactivemarketforidenticalassetsorliabilitiesthattheentitycanaccessatthemeasurementdate.

Level2–inputsotherthanquotedpricesincludedwithinLevel1thatareobservable(iedevelopedusingmarketdata)fortheassetorliability, either directly or indirectly.

Level3–inputsareunobservable(ieforwhichmarketdataisunavailable)fortheassetorliability.

31 March 2018 31 March 2017 £000 £000

Level 1 Quotedventurecapitalinvestments 3,250 3,693 Listedequityinvestments 3,800 5,046Level 2 Listedinterest-bearinginvestments 3,794 3,779Level 3 Unquotedventurecapitalinvestments 50,588 45,677

61,432 58,195

Movementsininvestmentsduringtheyeararesummarisedasfollows:

Venturecapital Venturecapital Listed Listedinterest –unquoted –quoted equity -bearing Level3 Level1 Level1 Level2 Total £000 £000 £000 £000 £000

Bookcostat31March2017 38,740 2,552 4,042 3,812 49,146Fairvalueadjustmentat31March2017 6,937 1,141 1,004 (33) 9,049

Fair value at 31 March 2017 45,677 3,693 5,046 3,779 58,195

Movements in the year: Purchases at cost 9,829 231 149 56 10,265 Disposals – proceeds (6,741) (234) (560) – (7,535) –netrealisedgains/(losses)ondisposal 966 55 (312) – 709 Movements in fair value 857 (495) (523) (41) (202)

Fair value at 31 March 2018 50,588 3,250 3,800 3,794 61,432

Comprising: Bookcostat31March2018 43,347 2,736 3,644 3,868 53,595 Fairvalueadjustmentat31March2018 7,241 514 156 (74) 7,837

50,588 3,250 3,800 3,794 61,432

Equity shares 22,393 3,250 3,800 – 29,443Preference shares 2,556 – – – 2,556 Interest-bearingsecurities 25,639 – – 3,794 29,433

50,588 3,250 3,800 3,794 61,432

The gains and losses included in the above table have all been recognised in the income statement on page 28.

FRS102requiresdisclosure,byclassoffinancialinstrument,iftheeffectofchangingoneormoreinputstoreasonablypossiblealternativeassumptionswouldresultinasignificantchangetothefairvaluemeasurement.TheinformationusedindeterminationofthefairvalueofLevel3investmentsischosenwithreferencetothespecificunderlyingcircumstancesandpositionofeachinvesteecompany.OnthatprudentbasisthedirectorsconsiderthattheimpactofchangingoneormoreoftheinputstoreasonablypossiblealternativeassumptionswouldbeunlikelytoincreaseordecreasethefairvalueofLevel3investmentsbymorethan5%,seenote17fordetailsoftheimpactthiswouldhaveonthefinancialstatements.

At31March2018therewerenocommitments(31March2017:none)inrespectofinvestmentsapprovedbythemanagerbutnotyetcompleted.



9. Investment disposalsDisposalsofventurecapitalinvestmentsduringtheyearwereasfollows:

Carryingvalueat Realisedgain/(loss) Original cost 31 March 2017 Disposal proceeds against carrying value £000 £000 £000 £000

Alaric Systems – deferred proceeds – – 175 175 BuoyantUpholstery–loanstockredemption 452 452 452 –Gear4music(Holdings)–disposalofentireholding 47 179 234 55Hunley–returnofinvestmentonliquidation 502 502 494 (8)AJWayGroupHoldings–loanstockredemption 774 193 774 581 KitwaveOne–deferredproceeds – – 137 137LannerGroup–loanstockredemption 78 78 78 – Oceanos–returnofinvestmentonliquidation 502 502 494 (8)OptilanGroup–outrightsale 1,000 2,196 2,196 –Saluda–returnofinvestmentonliquidation 502 502 494 (8)Seawise–returnofinvestmentonliquidation 502 502 494 (8)Turbinia–returnofinvestmentonliquidation 502 502 494 (8)VolumaticHoldings–loanstockredemption 345 345 345 –Other disposals 62 – 114 114

5,268 5,953 6,975 1,022

10. Unquoted investmentsThecostandcarryingvalueofmaterialinvestmentsinunquotedcompaniesheldat31March2018areshownbelow.Forthispurposeany investmentincludedinthetableofthefifteenlargestventurecapitalinvestmentsonpage11,orinthecorrespondingtableintheprevious year’sannualreport,isregardedasmaterial.

31 March 2018 31 March 2017 Total Carrying Total Carrying cost value cost value £000 £000 £000 £000

No 1 Lounges Ordinary shares 178 1,563 178 2,163 Loanstock 1,799 1,799 1,799 1,799

1,977 3,362 1,977 3,962

Lineup Systems Ordinary shares 174 2,110 174 1,670 Loanstock 800 800 800 800

974 2,910 974 2,470

Entertainment Magpie Group Ordinary shares 168 1,551 168 3,770 Preference shares 277 277 277 319 Loanstock 1,058 1,058 1,058 1,058

1,503 2,886 1,503 5,147

Agilitas IT Holdings Ordinary shares 221 1,148 221 421 Loanstock 1,417 1,417 1,417 1,417

1,638 2,565 1,638 1,838

Sorted Holdings Ordinary shares 1,461 2,371 650 650 Loanstock 164 164 164 164

1,625 2,535 814 814


10. Unquoted investments continued


MSQ Partners Group Ordinary shares 206 1,050 206 1,290 Loanstock 1,466 1,466 1,466 1,466

1,672 2,516 1,672 2,756

Love Saving Group Ordinary shares 198 1,383 198 198 Preference shares 132 132 132 132 Loanstock 794 794 794 794

1,124 2,309 1,124 1,124

Closerstill Group Ordinary shares 1 516 1 1 Preference shares 322 322 322 322 Loanstock 1,360 1,360 1,360 1,360

1,683 2,198 1,683 1,683

Buoyant Upholstery Ordinary shares 153 1,276 153 1,586 Loanstock 904 903 1,355 1,355

1,057 2,179 1,508 2,941

Wear Inns Ordinary shares 272 – 272 – Preference shares 117 578 117 578 Loanstock 1,479 1,535 1,479 1,535

1,868 2,113 1,868 2,113

Biological Preparations Group Ordinary shares 221 – 221 – Preference shares 340 185 340 – Loanstock 1,605 1,605 1,605 1,605

2,166 1,790 2,166 1,605

Graza Ordinary shares 146 146 146 146 Preference shares 357 357 357 357 Loanstock 1,020 1,020 1,020 1,020

1,523 1,523 1,523 1,523

It’s All Good Ordinary shares 117 430 117 640 Loanstock 1,028 1,028 1,028 1,028

1,145 1,458 1,145 1,668

Medovate Ordinary shares 802 802 – – Loanstock 648 648 – –

1,450 1,450 – –

Volumatic Holdings Ordinary shares 216 408 215 297 Loanstock 1,035 1,035 1,381 1,381

1,251 1,443 1,596 1,678



10. Unquoted investments continued


Customs Connect Group Ordinary shares 185 185 185 185 Preference shares 205 205 205 205 Loanstock 932 932 932 932

1,322 1,322 1,322 1,322

Axial Systems Holdings Ordinary shares 145 – 145 310 Loanstock 859 859 859 859

1,004 859 1,004 1,169

Optilan Group Ordinary shares – – 179 1,375 Loanstock – – 821 821

– – 1,000 2,196

Additionalinformationrelatingtomaterialinvestmentsinunquotedcompaniesisgivenonpages12to15.

11. Significant interestsDetailsofshareholdingsinthosecompanieswherethecompany’sholdingat31March2018represents(1)morethan20%oftheallottedequity sharecapitalofanyclass,(2)morethan20%ofthetotalallottedsharecapitalor(3)morethan20%oftheassetsofthecompanyitself,aregivenbelow.ThecompanynamedisincorporatedinEngland.

Classofshares Proportionof Company (nominal value £0.0001 unless stated) Number held class held

Graza Ordinary 145,350 32.3%

12. Debtors 31 March 2018 31 March 2017 £000 £000

Prepayments and accrued income 205 591

13. Creditors (amounts falling due within one year)

31 March 2018 31 March 2017 £000 £000

Accruals and deferred income 134 716 Sharesubscriptionsheldpendingallotment – 4,297

134 5,013


14. Called-up equity share capital

31 March 2018 31 March 2017 £000 £000

Allottedandfullypaid:130,089,490(201793,560,667)ordinarysharesof5.0p 6,505 4,678

Thecapitalofthecompanyismanagedinaccordancewithitsinvestmentpolicywithaviewtotheachievementofitsinvestmentobjective, assetoutonpage6.Thecompanyisnotsubjecttoexternallyimposedcapitalrequirements.

Duringtheyearthecompanyissued37,065,823ordinarysharesof5.0pforcashatanaveragepremiumof65.8ppershare.537,000ordinary shareswerere-purchasedforcancellationduringtheyearatacostof£349,000.

15. Reserves

Capital Share redemption Capital Revaluation Revenue premium reserve reserve reserve reserve £000 £000 £000 £000 £000

At 1 April 2017 3,029 83 53,908 9,049 900

Premium on issue of ordinary shares 24,394 – – – –Share issue expenses (541) – – – –Sharespurchasedforcancellation – 27 (349) – –Cancellationofthesharepremiumreserve (26,490) – 26,490 – –Sharepremiumreservecancellationexpenses – – (11) – –Realised on disposal of investments – – 709 – – Transfer on disposal of investments – – 1,011 (1,011) – Movements in fair value of investments – – – (202) –Management fee charged to capital net of associated tax – – (903) – –Revenuereturnonordinaryactivitiesaftertax – – – – 1,462 Dividends recognised in the year – – (9,226) – (1,791)

At 31 March 2018 392 110 71,629 7,836 571

At31March2018distributablereservesamountedto£72,282,000(2017£55,779,000),comprisingthecapitalreserve,therevenuereserve andthatpartoftherevaluationreserverelatingtoholdinggains/lossesonreadilyrealisablelistedinterest-bearingandlistedequityinvestments.

16. Net asset value per shareThecalculationofnetassetvaluepershareasat31March2018isbasedonnetassetsof£87,043,000(2017£71,647,000)dividedbythe 130,089,490(201793,560,667)ordinarysharesinissueatthatdate.

17. Financial instrumentsThecompany’sfinancialinstrumentscompriseequityandfixed-interestinvestments,cashbalancesandliquidresourcesincludingdebtorsandcreditors.ThecompanyholdsfinancialassetsinaccordancewithitsinvestmentpolicyofinvestingmainlyinaportfolioofVCT-qualifyingunquoted andAIM-quotedsecuritieswhilstholdingaproportionofitsassetsincashornear-cashinvestmentsinordertoprovideareserveofliquidity.

Fixedassetinvestments(seenote8)arevaluedatfairvalue.Forquotedinvestmentsthisiseitherbidpriceorthelatesttradedprice,dependingon theconventionoftheexchangeonwhichtheinvestmentisquoted.Unquotedinvestmentsarecarriedatfairvalueasdeterminedbythedirectors inaccordancewithcurrentventurecapitalindustryguidelines.Thefairvalueofallotherfinancialassetsandliabilitiesisrepresentedbytheircarryingvalue in the balance sheet.

Incarryingonitsinvestmentactivities,thecompanyisexposedtovarioustypesofriskassociatedwiththefinancialinstrumentsandmarketsinwhichitinvests.Themostsignificanttypesoffinancialriskfacingthecompanyaremarketrisk,creditriskandliquidityrisk.Thecompany’sapproachtomanagingtheserisksissetoutbelowtogetherwithadescriptionofthenatureandamountofthefinancialinstrumentsheldatthebalancesheetdate.



17. Financial instruments continuedMarket risk

Thecompany’sstrategyformanaginginvestmentriskisdeterminedwithregardtothecompany’sinvestmentobjective,asoutlinedinthestrategicreportonpage6.Themanagementofmarketriskispartoftheinvestmentmanagementprocessandisacentralfeatureofventurecapitalinvestment.Thecompany’sportfolioismanagedinaccordancewiththepoliciesandproceduresdescribedinthecorporategovernancestatementonpages20to24,havingregardtothepossibleeffectsofadversepricemovements,withtheobjectiveofmaximisingoverallreturnstoshareholders.Investmentsinunquotedcompanies,bytheirnature,usuallyinvolveahigherdegreeofriskthaninvestmentsincompaniesquotedonarecognisedstockexchange,thoughtheriskcanbemitigatedtoacertainextentbydiversifyingtheportfolioacrossbusinesssectorsandassetclasses.Theoveralldispositionofthecompany’sassetsismonitoredbytheboardonaquarterlybasis.

Detailsofthecompany’sinvestmentportfolioatthebalancesheetdatearesetoutonpage11.Ananalysisofinvestmentsbetweendebtandequityinstruments is given in Note 8.

8.1%(201712.2%)byvalueofthecompany’snetassetscomprisesequitysecuritieslistedontheLondonStockExchangeorquotedonAIM. A5%increaseinthebidpriceofthesesecuritiesasat31March2018wouldhaveincreasednetassetsandthetotalreturnfortheyearby £353,000(31March2017£437,000);acorrespondingfallwouldhavereducednetassetsandthetotalreturnfortheyearbythesameamount.

58.1%(201763.8%)byvalueofthecompany’snetassetscomprisesinvestmentsinunquotedcompaniesheldatfairvalue.Thevaluationmethodsusedbythecompanyincludetheapplicationofaprice/earningsratioderivedfromlistedcompanieswithsimilarcharacteristics,andconsequentlythevalueoftheunquotedelementoftheportfoliocanbeindirectlyaffectedbypricemovementsontheLondonStockExchange.A5%increase inthevaluepriceofthesesecuritiesasat31March2018wouldhaveincreasednetassetsandthetotalreturnfortheyearby£2,529,000 (31March2017£2,284,000);acorrespondingfallwouldhavereducednetassetsandthetotalreturnfortheyearbythesameamount.

Interest rate risk

Someofthecompany’sfinancialassetsareinterest-bearing,ofwhichsomeareatfixedratesandsomevariable.Asaresult,thecompanyisexposedtofairvalueinterestrateriskduetofluctuationsintheprevailinglevelsofmarketinterestrates.

(a) Fixed rate investments

Thetablebelowsummarisesweightedaverageeffectiveinterestratesforthecompany’sfixedrateinterest-bearingfinancialinstruments:

31 March 2018 31 March 2017 Weighted Weighted Weighted average Weighted average Total average period for Total average period for fixedrate interest whichrate fixedrate interest whichrate portfolio rate isfixed portfolio rate isfixed £000 % Years £000 % Years

Listedfixed-interestinvestments 1,173 5.4% 3.4 1,164 5.4% 4.4 Fixed-rateinvestmentsinunquotedcompanies 12,771 9.6% 2.8 11,076 10.9% 2.9

13,944 12,240

Duetotherelativelyshortperiodtomaturityofthefixedrateinvestmentsheldwithintheportfolio,itisconsideredthatanincreaseordecreaseof 25basispointsininterestratesasatthereportingdatewouldnothavehadasignificanteffectonthecompany’snetassetsortotalreturnfortheyear.

(b) Floating rate investments

Thecompany’sfloatingrateinvestmentscomprisefloating-rateloanstounquotedcompaniesandcashheldininterest-bearingdepositaccounts. ThebenchmarkratewhichdeterminestherateofinterestreceivableistheUKbankbaserateforinterestbearingdepositaccounts,whichwas 0.50%at31March2018(31March20170.25%)andtheLIBORthreemonthGBPrateforfloatingrateloanstounquotedcompanies,whichwas0.72%at31March2018(31March20170.34%).Itisconsideredthatanincreaseordecreaseof25basispointsininterestratesasatthereportingdatewouldnothaveasignificanteffectonthecompany’snetassetsortotalreturnfortheyear.Theamountsheldinfloatingrateinvestmentsatthebalancesheetdatewereasfollows:

31 March 2018 31 March 2017 £000 £000

Floatingrateloanstounquotedcompanies 12,869 12,579Interest-bearinginvestmentfunds 2,620 2,615Interest-bearingdepositaccounts 25,540 17,874

41,029 33,068

17. Financial instruments continuedCredit risk

Creditriskistheriskthatacounterpartytoafinancialinstrumentwillfailtodischargeanobligationorcommitmentthatithasenteredinto withthecompany.

At31March2018thecompany’sfinancialassetsexposedtocreditriskcomprisedthefollowing:

31 March 2018 31 March 2017 £000 £000

Listedfixed-interestinvestments 1,173 1,164Fixed-rateinvestmentsinunquotedcompanies 12,771 11,076Floatingrateloanstounquotedcompanies 12,869 12,579Interest-bearinginvestmentfunds 2,620 2,615Interest-bearingdepositaccounts 25,540 17,874Accrued dividends and interest receivable 189 578

55,162 45,886

Creditriskrelatingtolistedfixed-interestandfloatingrateinvestmentsismitigatedbyinvestinginaportfolioofinvestmentinstrumentsofhigh creditquality,comprisingsecuritiesissuedbymajorUKandinternationalcompaniesandinstitutions.Creditriskrelatingtoloanstoandpreferencesharesinunquotedcompaniesisconsideredtobepartofmarketrisk.

Thoseassetsofthecompanywhicharetradedonrecognisedstockexchangesareheldonthecompany’sbehalfbythirdpartycustodians (Speirs&JeffreyLimitedinthecaseoflistedinterest-bearinginvestmentsandnomineecompaniesofBrewinDolphinLimitedorSpeirs&JeffreyLimitedinthecaseofquotedequitysecurities).Bankruptcyorinsolvencyofacustodiancouldcausethecompany’srightswithrespecttosecuritiesheld by the custodian to be delayed or limited.

Creditriskarisingontransactionswithbrokersrelatestotransactionsinquotedsecuritiesawaitingsettlement.Riskrelatingtounsettledtransactionsisconsideredtobelowduetotheshortsettlementperiodinvolvedandthehighcreditqualityofthebrokersused.Theboardfurthermitigatestheriskbymonitoringthequalityofserviceprovidedbythebrokers.

Thecompany’sinterest-bearingdepositaccounts,includingshorttermcashdeposits,aremaintainedwithmajorUKclearingbanks.

Therewerenosignificantconcentrationsofcreditrisktocounterpartiesat31March2018or31March2017.

Liquidity risk

Thecompany’sfinancialassetsincludeinvestmentsinunquotedequitysecuritieswhicharenottradedonarecognisedstockexchangeandwhichgenerallymaybeilliquid.Asaresult,thecompanymaynotbeabletorealisesomeofitsinvestmentsintheseinstrumentsquicklyatanamount closetotheirfairvalueinordertomeetitsliquidityrequirements,ortorespondtospecificeventssuchasadeteriorationinthecreditworthiness ofanyparticularissuer.

Thecompany’slistedfixed-interestinvestmentsareconsideredtobereadilyrealisableastheyareofhighcreditqualityasoutlinedabove.

Thecompany’sliquidityriskismanagedonacontinuingbasisbytheinvestmentmanagerinaccordancewithpoliciesandprocedureslaiddown bytheboard.Thecompany’soverallliquidityrisksaremonitoredonaquarterlybasisbytheboard.

Thecompanymaintainssufficientinvestmentsincashandreadilyrealisablesecuritiestopayaccountspayableandaccruedexpenses. At31March2018theseinvestmentswerevaluedat£33,134,000(31March2017£26,699,000).

18. ContingenciesAt31March2018contingentassetsnotrecognisedinthefinancialstatementsinrespectofpotentialdeferredproceedsfromthesaleofinvesteecompaniesamountedtoapproximately£142,000(31March2017£371,000).Theextenttowhichtheseamountswillbecomereceivableinduecourse is dependent on future events.

Thecompanyhadnocontingentliabilitiesat31March2018or31March2017.


Northern 2 VCT PLC Time Central 32Gallowgate NewcastleuponTyneNE14SN

T 0191 244 6000 F 0191 244 6001 [email protected]

www.nvm.co.uk

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ewcastleuponTyne

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