Half-yearly Report

Baronsmead VCT 2 plc Half Yearly Financial Report 31 March 2011 The Directors announce the unaudited half-yearly financial report for the six months to 31 March 2011 as follows:- Copies of the half yearly report can be obtained from the following website: www.baronsmeadvct2.co.uk . Investment Objective Baronsmead VCT 2 plc is a tax efficient listed company which aims to achieve long-term investment returns for private investors, including tax-free dividends. Investment policy ● To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM. ● Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value. Dividend policy The Board of Baronsmead VCT 2 aims to sustain a minimum annual dividend level at an average of 5.5p per Ordinary Share, mindful of the need to maintain net asset value. The ability to meet these twin objectives depends significantly on the level and timing of profitable realisations and it cannot be guaranteed. There will be variations in the amount of dividends paid year on year. Since launch the average annual tax-free dividend paid to ordinary shareholders, including the 2.5p interim dividend, has been 6.3p per share (equivalent to a pre-tax return of 8.3p per share for a higher rate taxpayer). For shareholders who claimed tax reliefs on initial subscription of 20 per cent, 30 per cent or 40 per cent, their returns would have been higher. Secondary market in the shares of Baronsmead VCT 2 plc The existing shares of the Company are listed on the London Stock Exchange and can be bought and sold using a stockbroker in the same way as shares of any other listed company. Qualifying investors* who invest in the existing shares of the Company can benefit from: ● Tax free dividends; ● Realised gains are not subject to capital gains tax (although any realised losses are not allowable); ● No minimum holding period; and ● No need to include VCT dividends in annual tax returns. The UK tax treatment of VCTs is on a first in first out basis and therefore tax advice should be obtained before shareholders dispose of their shares and also if they deferred a capital gain in respect of new shares acquired prior to 6 April 2004. * UK income tax payers, aged 18 or over, who acquire no more than £200,000 worth of VCT shares in a tax year. FINANCIAL HEADLINES ● 7.6% - Increase in Net asset value ("NAV") per share during the period to 98.73p before deduction of the interim dividend. ● 2.5% - Tax free interim dividend payable on 17 June 2011, for the six month period to 31 March 2011. ● 81.4p - Cumulative tax free dividends per share for founder shareholders since 1998, equivalent to an average annual dividend of 6.3p. ● 223.7p - NAV total return to shareholders for every 100p invested since launch. The Share price total return over the same time period is 218.5p. If the tax reliefs available on initial investment were taken into account this return would be improved still further. ● 6.3% - Tax free return of 6.3 per cent has been received by qualifying shareholders, based on the 5.5p dividends paid over the last 12 months, and the mid share price of 86.88p at the period end. The gross equivalent annual yield for a higher rate tax payer is 8.4 per cent. Performance Summary to 31 March 2011 Since Total return * 6 month % 1 year % 3 years % 5 Years % 10 years % launch % Net Asset Value† 7.4 17.4 15.0 17.4 71.2 123.7 Share Price† 10.7 17.8 13.7 21.9 41.3 118.5 FTSE All-Share 8.5 8.7 17.0 20.0 58.0 64.7 * Source: ISIS EP LLP and AIC. † These returns for Baronsmead VCT 2 ignore upfront tax relief and the impact of receiving dividends tax free. Cash Returned to Shareholders The table below shows the cash returned to shareholders dependent on their subscription cost, including their income tax reclaimed on subscription. Income Net Cumulative Gross Subscription tax cash dividends Net equivalent annual price reclaim invested paid* yield± yield† Year subscribed p p p p % % 1998 (April) - 100.0 20.0 80.0 81.4 7.8 10.4 Ordinary 1999 (May) - 102.0 20.4 81.6 77.9 8.1 10.7 Ordinary 2000 (February) 137.0 27.4 109.6 74.7 6.1 8.2 - Ordinary 2000 (March) - 130.0 26.0 104.0 74.7 6.5 8.6 Ordinary 2004 (October) - 100.0 40.0 60.0 32.9 8.4 11.2 C 2009 (April) 91.6 27.5 64.1 13.5 10.6 14.1 C Share dividend calculated using conversion ration of 0.9657 which is the rate the c shares were converted into ordinary shares. * Includes interim dividend of 2.5p to be paid 17 June 2011. ± Represents the cumulative dividends paid expressed as an annualised percentage of the net cash invested. † The gross equivalent yield had the dividends been subject to higher rate tax (32.5 per cent on dividend income at 31 March 2011). The new additional rate of tax on dividend income of 42.5 per cent which came into force from the 2010 / 11 tax year for those shareholders who earn more than £150,000 has not been included. For those shareholders who would otherwise pay this additional rate of tax on dividends, the future gross equivalent yield will be higher than the figures shown. CHAIRMAN'S STATEMENT I am pleased to report a 7.6 per cent growth in Net Asset Value per share continuing the positive trend achieved since the banking crisis in autumn 2008. The growth is due to a number of increased valuations across the portfolio companies arising principally from a combination of reduced levels of debt and improving profits. The 2.5p interim dividend is largely funded by past and recent profits realised on the sale of investments. Results In the six months to 31 March 2011, the Net Asset Value ("NAV") per share increased by 7.6 per cent from 91.79p to 98.73p before payment of a 2.5p per share interim dividend. This increase compares favourably with the FTSE All-Share Index which increased by 7.0 per cent. The share price total return for Baronsmead VCT 2 over the same period was 10.7 per cent compared with the FTSE All-Share Index total return of 8.5 per cent. The 2.5p interim dividend is being paid largely from the capital profits realised in recent years. As explained below we successfully sold Reed & Mackay on 18 April 2011 at 4.76 times the original cost and this will add considerably to reserves available for future dividend payments. The interim results reflect the full proceeds of the Reed & Mackay sale which are included in the investment valuation at 31 March 2011. All of the VCT qualifying tests have been met throughout the six months to 31 March 2011. Long term performance and Shareholder returns We have achieved a significant milestone for founder shareholders - dividends paid now total more than the net cost of their original investment (allowing for the initial VCT tax relief of 20% available at that time). After taking account of the 2.5p interim dividend qualifying founder shareholders will have received tax free dividends totalling 81.4p per share since April 1998. For Shareholders who invested in the Company's four subsequent prospectus offers the cumulative dividends and respective subscription prices are shown in the table of Cash Returned to Shareholders above. In all cases Shareholders have received good after tax returns on their investments. The Net Asset Value total return at 31 March 2011 is 223.7p for each 100p invested since inception (excluding any VCT tax reliefs). The comparable figure for the FTSE All-share index total return over the same period is 164.7p. The NAV total return for qualifying founder shareholders would be 344.0p if this measure of performance was adjusted to take account of 20% initial income tax relief available at inception and reinvesting gross dividends assuming a higher rate of income tax. VCT dividends are tax free for qualifying shareholders and do not need to be declared in a tax return. This means that qualifying shareholders in Baronsmead VCT 2, who are higher and additional rate tax payers do not have to pay income tax equivalent to 25 per cent and 36.1 per cent respectively on the cash dividend they receive from the Company. To generate the same after-tax dividends, it would be necessary for the dividend received from a non-VCT investment to be 33.3 per cent or 56.5 per cent higher, respectively. Portfolio review In the quarter to 31 December 2010 three investments were sold: Advanced Computer Software Plc (2.1x cost), Credit Solutions Limited (1.8x) and Mount Engineering plc (1.2x). In the quarter to 31 March 2011, a further two investments were sold: Craneware plc (2.7x) and Chemistry Communications Group plc (0.8x). In total £3.0 million was received from the sale of investments, realising total net profits of £0.7 million. Shortly after the end of the period, the investment in Reed & Mackay was also sold achieving a net profit of £3.8 million on cash proceeds of £5.0 million. Including previous loan repayments and interest this represents a return of 4.76 times original cost and adds considerably to Baronsmead VCT 2's capacity to continue paying dividends to its shareholders in line with the stated dividend policy. At 31 March 2011, 50 per cent of the portfolio by value was invested in unquoted companies, 23 per cent in AIM-traded and listed companies, 4 per cent in Wood Street Microcap Investment Fund and the balance of 23 per cent remained in cash, interest bearing securities or government securities. The trading of the sixty six portfolio companies remained consistent over the six months with the performance of 85 per cent of investee companies now being classified as steady or growing. The value of the unquoted portfolio increased by 8.5 per cent over the six months under review with good gains in value being achieved by CSC (World) Limited which experienced strong export growth supplying software for structural engineers and Getting Personal Limited, the online retailer of personalised gifts. The AIM-traded portfolio increased by 9.7 per cent including a significant increase in value by IDOX plc, which provides software and IT services. Wood Street Microcap Investment Fund also made good progress in the six month period. The Net Asset Value increased by 18 per cent and the underlying portfolio is now spread across thirty investments. Wood Street Microcap was established by ISIS Equity Partners in May 2009 to provide flexibility for the Baronsmead VCTs to invest in mainly larger and more liquid non-VCT qualifying AIM-traded and Small Cap quoted opportunities. As an open ended investment company, it is providing a means of earning better returns than can be achieved on cash while offering liquidity available to support the VCT qualifying portfolio when necessary or opportune. Baronsmead VCT 2 invested a further £1 million in Wood Street Microcap during the period making the total amount now invested by the Company £2.5 million. This was valued at £3.1 million on 31 March 2011. ISIS receives no additional fee for managing this fund. New investment During the six months to 31 March 2011 a total of £3.6 million was invested in five new investments (one unquoted and four AIM-traded companies), three further funding rounds and four market purchases in existing portfolio investments. The Baronsmead VCTs invested a total of £6.5 million in Valldata Group Limited in January 2011, with Baronsmead VCT 2 providing £1.62 million. Wiltshire based Valldata is the UK's leading provider of outsourced donation processing and fulfilment services for the UK not-for-profit market, servicing over fifty of the largest UK charities. Every year Valldata manages over 8 million interactions with donors and efficiently processes over £100 million of donated funds. The four new AIM-traded investments were in Accumuli plc, Brady plc, Hangar8 plc and Tristel plc. Further investments were completed in Electric Word plc, Green Compliance plc and IS Pharma plc as part of fund raising rounds to support acquisitions within their individual buy and build strategies. Shareholder matters The Board provides a variety of choices to shareholders in an effort to help them meet their personal investment and tax planning requirements. These include opportunities to subscribe for further shares, purchases through the market, share buy back arrangements and the dividend reinvestment plan. In November 2010, existing shareholders were able to top-up their investment in the Company through an offer for subscription to raise the sterling equivalent of up to €2.5m. The offer was fully subscribed resulting in 2,068,746 shares being allotted on 16 December 2010 at a price of 102.5p per share, raising gross proceeds of £2.12 million. I will write to shareholders when the quarterly fact sheet to 30 June 2011 is published in August 2011 to advise whether a similar opportunity will be provided in the 2011/12 tax year. The number of shares bought back by the Company in the six months to 31 March 2011 fell to 360,000 as compared with 1.06 million in the comparable period last year. The level of third party purchases (61,250 shares) coupled with the lower number of shares bought back by the Company are positive indications that private investors recognise the merits of holding Baronsmead VCT 2 shares within their portfolios for the longer term. 281,300 existing shares were also acquired by participants of the dividend reinvestment plan in January 2011. Buying and selling of existing shares is normally facilitated by the Company's brokers, Matrix, who maintain a narrow difference in the spread of prices and limited this to approximately 1.0p over the six month period. Board succession Godfrey Jillings retired from the Board in September 2010 in order to ensure Baronsmead VCT 2 plc did not breach the revised listing rule relating to the independence of directors. The listing rules which now apply to venture capital trusts have made this necessary and the Directors would like to thank him for his very valuable contribution to the Board since the Company's launch in 1998. Godfrey had experience of being a financial regulator and also of the IFA community giving the Board a valuable insight and wise counsel for the benefit of shareholders, in part due to his understanding as a large shareholder in the Company. I am delighted to welcome Christina McComb to the Board, which she joined in February 2011. She is an experienced venture capital investor and fund manager, spanning both private and public sectors. Christina is currently a director of Partnerships UK plc ("PUK"), a public private partnership, where she is responsible for PUK's investment activities, investing in early stage companies emerging from UK universities and research organisations. VCT legislation In the Budget on 23 March 2011 the Chancellor announced welcome proposals to change VCT legislation. This is excellent news both for entrepreneurs and for private investors seeking to invest in the growth of genuine smaller enterprises. We are pleased that the Government has recognised the importance of VCTs in providing financial and advisory support to this important sector of the UK economy. The Association of Investment Companies ("AIC"), on behalf of its VCT members, has undertaken significant research into the funding of private sector companies, especially since the banking crisis. Over the past twelve months, the AIC has published papers illustrating the economic impact of VCTs: `Supporting enterprise and growth: the role of VCTs' in March 2010; responses to `Financing a Private Sector Recovery' in September 2010; and `Closing the finance gap: VCT funding for SMEs' in January 2011. Baronsmead VCT 2 is a member of the AIC and has provided considerable supporting data from its portfolio for these studies. Gillian Nott is also one of the deputy Chairmen of the AIC and provides the board with valuable insight. The government also announced that there is to be a consultation to refocus VCTs to ensure they are targeted at genuine risk investment. ISIS Equity Partners, along with the AIC and the British Venture Capital Association will be fully engaged in this consultation and future dialogue with HM Treasury. Outlook The proposals set out in the 2011 Budget recognise that entrepreneurial companies, like those backed by Baronsmead VCT 2, are critical to creating the UK economic growth, jobs, and wealth that are so essential for Britain's future prosperity. We have the ability to invest in dynamic, entrepreneurial businesses and there is a solid platform within our existing portfolio for further growth. Existing and potential investments can help sustain our performance and generate tangible returns for shareholders. The outlook for the UK economy remains uncertain with many commentators anticipating slower growth as public sector cuts, tax rises and continued high levels of unemployment impact both the corporate and consumer sectors. However, the Baronsmead VCT 2 portfolio on the whole continues to trade well, demonstrating the Manager's ability to select and give ongoing support to companies with good management, operating in attractive markets and with the organisational discipline to enable them to withstand the current economic pressures. ISIS, encouraged by the Board, remains committed to seeking out similar investment opportunities which, in turn, should provide future investment returns for the shareholders. Clive Parritt Chairman 19 May 2011 Table of Investments and Realisations Investments in the six months to 31 March 2011 Company Location Sector Activity Book cost £'000 Unquoted investments New Valldata Group Melksham Business Payment processing 1,616 Limited Services for Charity Sector Total unquoted investments 1,616 AIM-traded & listed investments New Accumuli plc Salford IT & Media Managed IT 333 security Brady plc Cambridge IT & Media Commodities 176 trading software Hangar8 plc Oxford Business Business jet 44 Services management Tristel plc Newmarket Healthcare & Infection control 217 Education Follow on Driver Group plc Rossendale Business Dispute Resolution 64 Services Electric Word plc London IT & Media Business to 238 business publisher Green Compliance Cirencester Business Small business 375 plc Services compliance IS Pharma plc Chester Healthcare & Specialist 278 Education hospital medicines group Netcall plc St Ives IT & Media Communications 156 software STM Group plc Gibraltar Financial Offshore trust & 22 Services administration services Tangent London Business Digital direct 88 Communications plc Services marketing Total AIM-traded & listed 1,991 investments Collective investment vehicle Follow on Wood Street 1,000 Microcap Investment Fund Total collective investment 1,000 vehicle Total investments in the period 4,607 Realisations in the six months to 31 March 2011 30 Sep Realised tember First 2010 profit/ Overall (loss) investment valuation this pe multiple riod Company date £'000 £'000 return * Unquoted realisations Credit Solutions Trade sale May 05 1,253 40 1.8 Limited MLS Limited Loan Jul 06 42 - 1.0 repayment Reed & Mackay Loan Nov 05 182 - 1.0 Limited repayment Total unquoted 1,477 40 realisations AIM-traded,listed & PLUS realisations Chemistry Full trade Dec 00 136 266 0.8 Communications Group sale plc Mount Engineering Full trade Jun 07 413 39 1.2 plc sale Advanced Computer Full market Jul 08 494 31 2.1 Software Group plc sale Craneware plc Full market Se 07 302 (4) 2.7 sale Total AIM-traded,listed & PLUS 1,345 332 realisations Total realisations in the period 2,822 372† *Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods. †Proceeds of £23,000 were also received in respect of an investment, Country Artists, which had been written off in a prior period. Investment Portfolio Investment Classification at 31 March 2011 By Sector* Percentage Business Services 39% Consumer Markets 18% Financial Services 2% Healthcare & Education 10% IT & Media 31% Total Assets* Percentage Unquoted - loan stock 30% Unquoted - ordinary and preference 20% shares AIM, Listed & collective investment 27% vehicle Interest bearing securities 19% Net current assets 4% Time Investments Held* Percentage Less than 1 year 15% Between 1 and 3 years 5% Between 3 and 5 years 45% Greater than 5 years 35% * at 31 March 2011 valuation. Investment Portfolio 30 31 % of % of September March Equity Equity 2010 2011 % of held by held by Book valuation valuation net Baronsmead all cost assets VCT 2 plc funds* Company Sector £'000 £'000† £'000 Unquoted Reed & Mackay Business 1,030 4,247 4,813 7.1 9.5 40.0 Limited^ Services Nexus Vehicle Business 2,367 4,197 4,500 6.6 12.6 57.3 Holdings Services Limited CableCom IT & Media 1,381 2,200 2,543 3.7 10.6 48.0 Networking Holdings Limited Crew Clothing Consumer 984 2,519 2,493 3.7 5.4 22.8 Company Limited Markets Quantix Limited IT & Media 1,194 1,984 2,266 3.3 11.4 48.0 Kafévend Consumer 1,252 1,786 2,023 3.0 15.8 66.5 Holdings Markets Limited Independent Healthcare 1,161 1,755 1,882 2.8 16.2 68.1 Living Services & Education Limited CSC (World) IT & Media 1,606 1,687 1,845 2.7 8.8 40.0 Limited Fisher Outdoor Consumer 1,423 1,777 1,777 2.6 10.5 44.0 Leisure Markets Holdings Limited Getting Consumer 988 988 1,762 2.6 8.3 37.5 Personal Markets Limited Valldata Group Business 1,616 - 1,616 2.4 8.9 40.6 Limited Services MLS Limited IT & Media 739 1,136 1,081 1.6 5.3 22.5 Playforce Business 1,033 1,024 1,052 1.5 9.7 44.0 Holdings Services Limited Inspired Business 796 979 991 1.4 5.0 22.5 Thinking Group Services Limited Empire World Business 1,297 833 936 1.4 ‡ ‡ Trade Limited Services Surgi C Limited Healthcare 1,102 1,102 933 1.4 9.8 44.7 & Education TVC Group IT & Media 1,233 698 747 1.1 13.0 59.3 Limited Carnell Business 1,499 674 337 0.5 8.3 37.5 Contractors Services Limited Kidsunlimited Business 113 113 113 0.2 - - Group Limited Services Xention Healthcare 316 55 0 0.0 0.4 3.0 Discovery & Education Limited Total unquoted 23,130 29,754 33,710 49.6 AIM IDOX plc IT & Media 1,038 1,276 1,969 2.9 3.3 9.8 Staffline Group Business 249 1,534 1,606 2.4 4.2 8.5 plc Services Netcall plc IT & Media 869 504 891 1.3 4.1 20.2 Murgitroyd Business 319 711 803 1.2 3.1 6.2 Group plc Services Jelf Group plc Financial 761 548 707 1.0 1.4 6.3 Services Electric Word IT & Media 616 450 624 0.9 5.2 28.8 plc PROACTIS IT & Media 619 563 563 0.8 5.4 26.5 Holdings plc IS Pharma plc Healthcare 524 217 560 0.8 1.3 6.9 & Education Green Business 781 656 500 0.7 3.4 17.0 Compliance plc Services Brulines Business 646 621 476 0.7 1.8 9.6 Holdings plc Services Accumuli plc IT & Media 333 - 435 0.6 4.7 26.6 Plastics Business 473 180 392 0.6 1.7 9.8 Capital plc Services Ffastfill plc IT & Media 251 288 371 0.6 0.9 6.5 Kiotech Healthcare 275 321 339 0.5 2.2 16.0 International & Education plc InterQuest Business 310 309 338 0.5 1.8 7.3 Group plc Services EG Solutions IT & Media 375 397 335 0.5 3.1 14.2 plc Tasty plc Consumer 469 364 292 0.4 2.5 17.1 Markets Begbies Traynor Financial 231 425 259 0.4 0.6 2.5 Group plc Services Dods Group plc IT & Media 666 246 233 0.3 1.7 4.4 Brady plc IT & Media 176 - 223 0.3 0.6 3.2 Real Good Food Consumer 620 101 216 0.3 0.7 2.3 Company (The) Markets plc Sanderson Group IT & Media 387 170 209 0.3 1.8 6.9 plc Tristel plc Healthcare 217 - 209 0.3 1.0 5.4 & Education Prologic plc IT & Media 310 103 207 0.3 4.1 15.0 Quadnetics Business 296 196 203 0.3 0.6 2.1 Group plc Services Tangent Business 268 42 193 0.3 2.0 10.3 Communications Services plc Stagecoach Consumer 419 198 189 0.3 4.5 9.1 Theatre Arts Markets plc Bglobal plc Business 176 218 169 0.3 0.5 2.7 Services Driver Group Business 503 120 157 0.2 3.5 16.2 plc Services Praesepe plc Consumer 525 155 137 0.2 0.6 3.1 Markets Autoclenz Business 400 122 122 0.2 3.1 12.3 Holdings plc Services STM Group plc Financial 161 49 88 0.1 0.8 4.9 Services Cohort plc Business 179 74 77 0.1 0.3 1.4 Services Colliers Financial 470 63 43 0.1 0.3 0.8 International Services UK plc Strategic IT & Media 35 36 42 0.1 0.4 2.1 Thought Group plc Hangar8 plc Business 44 - 40 0.1 0.5 2.6 Services AorTech Healthcare 285 25 31 0.1 0.3 0.6 International & Education plc Clarity IT & Media 50 48 31 0.1 0.3 6.0 Commerce Solutions plc Adventis Group IT & Media 361 163 30 0.0 3.1 20.7 Plc Zoo Digital IT & Media 438 36 27 0.0 0.2 0.9 Group plc RTC Group plc Business 355 37 26 0.0 4.2 8.5 Services Higham Systems Business 197 6 5 0.0 0.3 1.0 Services Group Services plc Total AIM 16,677 11,572 14,367 21.1 Listed Vectura Group Healthcare 578 615 732 1.0 0.4 1.3 plc & Education Chime IT & Media 369 343 458 0.7 0.2 1.5 Communications plc Marwyn Value Financial 64 59 54 0.1 1.3 6.0 Investors plc Services Total Listed 1,011 1,017 1,244 1.8 New York Stock Exchange Alere Inc Healthcare 157 150 187 0.3 0.0 0.0 & Education Total New York 157 150 187 0.3 Stock Exchange Interest bearing securities UK T-Bill 26/04 1,000 - 1,000 1.5 /11 BlackRock Cash 7,000 7,000 7,000 10.3 Market OEIC JP Morgan 4,800 4,800 4,800 7.0 Europe OEIC Total interest 12,800 11,800 12,800 18.8 bearing securities Collective investment vehicles Wood Street 2,525 1,654 3,079 4.5 Microcap Investment Fund Total 2,525 1,654 3,079 4.5 collective investment vehicles Total investments 56,300 55,947 65,387 96.1 Net current assets 2,623 3.9 Net assets 68,010 100.0 † The total investment valuation at 30 September 2010 per the table above does not agree to the audited accounts due to the purchases and sales since that date. * All VCT funds managed by the same investment manager, ISIS EP LLP, including Baronsmead VCT 2. ‡ Following a restructuring, the effective ownership percentage is dependent on final exit proceeds. ^ Reed & Mackay Limited was void on 18 April 2011. Unquoted, AIM, Listed and NYSE Portfolio Concentration Analysisas at 31 March 2011 % of Investment Book cost Valuation quoted ranking by £'000 £'000 portfolio valuation Top Ten 13,436 26,111 52.7 11-20 9,008 11,671 23.6 21-30 6,460 5,802 11.7 31+ 12,071 5,924 12.0 Total 40,975 49,508 100.0 Independent Review Report to Baronsmead VCT 2 plc Introduction We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2011 which comprises the Income Statement, Reconciliation of Movement in Shareholders' Funds, Balance Sheet and Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules (``the DTR'') of the UK's Financial Services Authority (``the UK FSA''). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA. As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2011 is not prepared, in all material respects, in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board and the DTR of the UK FSA. Simon Pashby for and on behalf of KPMG Audit Plc Chartered Accountants Edinburgh 19 May 2011 Responsibility statement of the Directors in respect of the half-yearly fi nancial report We confirm that to the best of our knowledge: ●the condensed set of financial statements has been prepared in accordance with the Statement `Half-yearly financial reports' issued by the UK Accounting Standards Board; ● the Chairman's Statement (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; ● the Statement of Principal Risks and Uncertainties below is a fair review of the information required by DTR 4.2.7R; and ● the financial statements include a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By Order of the Board, Clive Parritt Chairman 19 May 2011 Unaudited Income Statement For the six months to 31 March 2011 Six months to 31 March Six months to 31 March Year to 30 September 2011 2010 2010* Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Unrealised gains on - 4,055 4,055 - 944 944 - 4,924 4,924 investments Realised gains on - 395 395 - 960 960 - 1,875 1,875 investments Income 1,096 - 1,096 932 - 932 2,218 - 2,218 Investment management (163) (490) (653) (151) (454) (605) (304) (910) (1,214) fee Other expenses (189) - (189) (161) - (161) (360) - (360) Profit on ordinary 744 3,960 4,704 620 1,450 2,070 1,554 5,889 7,443 activities before tax ation Taxation on ordinary (166) 166 - (98) 98 - (354) 354 - activities Profit on ordinary 578 4,126 4,704 522 1,548 2,070 1,200 6,243 7,443 activities after taxa tion Return per share: 0.84p 6.04p 6.88p 0.76p 2.27p 3.03p 1.77p 9.19p 10.96p Basic * These figures are audited. Unaudited Reconciliation of Movement in Shareholders' Funds For the six months to 31 March 2011 Six Six months to months to Year to 31 March 31 March 30 September 2011 2010 2010* £'000 £'000 £'000 Opening shareholders' funds 63,673 61,215 61,215 Profit for the period 4,704 2,070 7,443 Purchase of shares for treasury (314) (830) (1,225) Increase in issued share capital 2,121 - - Expenses of share issues and buybacks (97) (3) (6) Dividends paid (2,077) (2,062) (3,754) Closing shareholders' funds 68,010 60,390 63,673 * These figures are audited. Notes 1. The unaudited interim results which cover the six months to 31 March 2011 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the year to 30 September 2010. 2. Return per share is based on a weighted average of 68,331,711 ordinary shares in issue (30 September 2010 - 67,917,384 ordinary shares, 31 March 2010 - 68,375,739 ordinary shares). 3. Earnings for the six months to 31 March 2011 should not be taken as a guide to the results of the full financial year to 30 September 2011. 4. During the six months to 31 March 2011 the Company purchased 360,000 ordinary shares to be held in treasury at a cost of £314,000. At 31 March 2011 the Company holds 7,913,906 ordinary shares in treasury. These shares may be re-issued below Net Asset Value as long as the discount at issue is narrower than the average discount at which the shares were bought back. Excluding treasury shares, there were 68,885,034 ordinary shares in issue at 31 March 2011 (30 September 2010 - 67,176,288 ordinary shares, 31 March 2010 - 67,676,288 ordinary shares). 5. The interim dividend of 2.5p per share (0.75p revenue and 1.75p capital) will be paid on 17 June 2011 to shareholders on the register on 3 June 2011. The ex-dividend date is 1 June 2011. 6. The financial information contained in this Half-yearly Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The information for the year to 30 September 2010 has been extracted from the latest published audited financial statements. The audited financial statements for the year to 30 September 2010, which were unqualified, have been filed with the Registrar of Companies. No statutory accounts in respect of any period after 30 September 2010 have been reported on by the Company's auditors or delivered to the Registrar of Companies. 7. Copies of the Half-yearly Report have been made available to shareholders and are available from the Registered Office of the Company at 100 Wood Street, London EC2V 7AN. Unaudited Balance Sheet As at to 31 March 2011 As at As at As at 31 March 31 March 30 September 2011 2010 2010 £'000 £'000 £'000* Fixed assets Unquoted investments 33,710 24,649 31,007 Traded on AIM 14,367 11,856 12,781 Traded on PLUS - 130 136 Listed on LSE 1,244 862 1,017 Traded on NYSE 187 225 150 Collective investment vehicle - Wood 3,079 1,034 1,654 Street Microcap Investment Fund Interest bearing securities 12,800 17,798 14,994 Investments 65,387 56,554 61,739 Current assets Debtors 550 207 479 Cash at bank and on deposit 2,516 3,990 1,868 3,066 4,197 2,347 Creditors (amounts falling due within (443) (361) (413) one year) Net current assets 2,623 3,836 1,934 Net assets 68,010 60,390 63,673 Capital and reserves Called-up share capital 7,680 7,473 7,473 Share premium account 14,391 12,573 12,573 Capital redemption reserve 9,254 9,254 9,254 Capital reserve 26,307 29,180 27,590 Revaluation reserve 9,087 844 5,378 Revenue reserve 1,291 1,066 1,405 Equity shareholders' funds 68,010 60,390 63,673 * These figures are audited As at As at As at 31 March 31 March 30 September 2011 2010 2010* Net asset value per share 98.73p 89.23p 94.79p Number of shares in issue 68,885,034 67,676,288 67,176,288 Treasury net asset value per share 97.51p 88.24p 93.42p Number of ordinary shares in issue 68,885,034 67,676,288 67,176,288 Number of ordinary shares held in 7,913,906 7,053,906 7,553,906 treasury Number of listed ordinary shares 76,798,940 74,730,194 74,730,194 * These figures are audited. Unaudited Statement of Cash Flows For the six months to 31 March 2011 Six months Six months Year to to to 31 March 31 March 30 September 2011 2010 2010* £'000 £'000 £'000 Net cash inflow from operating activities 43 136 420 Capital expenditure and financial 951 5,078 4,764 investment Equity dividends paid (2,077) (2,062) (3,754) Net cash (outflow) / inflow before (1,083) 3,152 1,430 financing Net cash inflow / (outflow) from financing 1,731 (846) (1,246) Increase in cash 648 2,306 184 Reconciliation of net cash flow to movement in net cash Increase in cash 648 2,306 184 Net cash at beginning of period 1,868 1,684 1,684 Net cash at end of period 2,516 3,990 1,868 Reconciliation of profit on ordinary activities before taxation to net cash flow from operating activities Profit on operating activities before 4,704 2,070 7,443 taxation Gains on investments (4,450) (1,904) (6,799) Changes in working capital and other (211) (30) (224) non-cash items Net cash inflow from operating activities 43 136 420 *These figures are audited. Principal Risks and Uncertainties The Company's assets consist of equity and fixed interest investments, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by the Company include economic, loss of approval as a Venture Capital Trust, investment and strategic, regulatory, reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal risks, risk management and regulatory environment within the Business Review in the Company's Annual Report and Accounts for the year to 30 September 2010. The Company's principal risks and uncertainties have not changed materially since the date of that report. Related Parties ISIS EP LLP (`the Manager') manages the investments of the Company. The Manager also provides or procures the provision of secretarial, administrative and custodian services to the Company. Under the management agreement, the Manager receives a fee of 2.0 per cent per annum of the net assets of the Company. This is described in more detail under the heading Management within the Report of the Directors in the Company's Annual Report and Accounts for the year to 30 September 2010. During the period the Company has incurred management fees of £ 653,000 and secretarial fees of £60,000 payable to the Manager. Going Concern After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 31 March 2011 the Company held cash balances, investments in UK Gilts and Money Market Funds with a combined value of £15,316,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing covenants. Shareholder Information and Contact Details Shareholder Communication Baronsmead Baronsmead VCT 2's website is www.baronsmeadvct2.co.uk. The Board has a policy of regular and open communication with shareholders based around quarterly statutory reporting. ISIS Equity Partners The Manager for Baronsmead VCT 2 plc is ISIS EP LLP. For information on asset allocations, dividend policies, investment process, DRIP mechanism, share price movements, the share price discount and selling shares please contact: By email: michael.probin@isisep.com: margaret.barff@isisep.com By telephone: Michael Probin 020 7506 5796; Margaret Barff 020 7506 5630. Internet: www.isisep.com For comparative performance data of Baronsmead VCT 2 and other generalist VCTs please visit the AIC performance statistics page at: www.theaic.co.uk/ statistics-publications Computershare The Registrar for Baronsmead VCT 2 is Computershare Investors Services PLC. To change the details held by Computershare in respect of your shareholding, including change of address, bank account details and joining the DRIP, please contact them as follows: Baronsmead shareholder helpline: 0870 703 0137 (calls charged at geographical and national rates) The Baronsmead shareholder helpline is available on UK business days between Monday and Friday, 8.30a.m. to 5p.m. If you wish to speak to someone please press `0'. The automated self-service system is available 24 hours a day, 7 days a week. You will need your Shareholder Reference Number (SRN), which for security reasons you should always keep confidential and is available on your share certificate and dividend tax voucher, in order to: • confirm the latest share price • confirm your current share holding balance • confirm payment history • order a Change of Address, Dividend Bank Mandate or Stock Transfer Form Managing online your own shareholding via the Investor Centre: www.investorcentre.co.uk Computershare's secure website, Investor Centre, enables shareholders to manage their shareholding online. Using your SRN you will be able to do the following: • Holding Enquiry - view balances, values, history, payments and reinvestments • Payments Enquiry - view your dividends and other payment types • Address Change - change your registered address • Bank Details Update - choose to receive your dividend payments directly into your bank account instead of by cheque • e-Comms sign-up - choose to receive email notification when your shareholder communications become available instead of paper communications • Outstanding Payments - reissue payments using our online replacement service • Downloadable Forms - including dividend mandates, stock transfer, dividend reinvestment and change of address forms • By email - web.queries@computershare.co.uk Share Price The Company's shares are listed on the London Stock Exchange. The mid-price of the Company's shares is given daily in the Financial Times in the Investment Companies section of the London Share Service. Share price information can also be obtained from many financial websites. Trading Shares The Company's shares can be bought and sold in the same way as any other quoted company on the London Stock Exchange via a stockbroker. As buying and selling existing shares in VCTs is complex, Shareholders should seek to trade shares on a "best execution" basis if appropriate. The market makers in the shares of Baronsmead VCT 2 plc are: Matrix Corporate Capital LLP 020 3206 7000 (the Company's broker) Singer Capital Markets Limited 020 3205 7500 Winterflood Securities Limited 020 3400 0251 Financial Calendar August 2011 Quarterly Fact Sheet to 30 June 2011 November 2011 Results for the year to 30 September 2011 announced and annual report and accounts sent to shareholders January 2012 Fourteenth Annual General Meeting Additional Information The information provided in this report has been produced in order for shareholders to be informed of the activities of the Company during the period it covers. ISIS EP LLP does not give investment advice and the naming of companies in this report is not a recommendation to deal in them. Baronsmead VCT 2 plc is managed by ISIS EP LLP which is Authorised and regulated by the FSA. Past performance is not necessarily a guide to future performance. Stockmarkets and currency movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount they originally invested. Where investments are made in unquoted securities and smaller companies, their potential volatility may increase the risk to the value of, and the income from, the investment. Corporate Information Directors Registrar and Transfer Office Clive Parritt (Chairman) Computershare Investor Services PLC Howard Goldring* PO Box 82 Christina McComb The Pavilions Gillian Nott OBE‡^† Bridgwater Road Bristol BS99 6ZZ Secretary Tel: 0870 703 0137 ISIS EP LLP Brokers Registered Office Matrix Corporate Capital LLP 100 Wood Street One Vine Street London EC2V 7AN London W1J 0AM Investment Manager Auditors ISIS EP LLP KPMG Audit Plc 100 Wood Street Saltire Court London EC2V 7AN 20 Castle Terrace Edinburgh EH1 2EG Investor Relations Michael Probin Solicitors 020 7506 5796 Martineau No 1 Colmore Square Registered Number Birmingham B4 6AA 03504214 VCT Status Adviser PricewaterhouseCoopers LLP * Chairman of the Audit Committee 1 Embankment Place † Chairman of the Nomination Committee London WC2N 6RH ‡ Chairman of the Management Engagement and Remuneration Committee Website www.baronsmeadvct2.co.uk ^ Senior Independent Director END Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

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