Interim Results

Baronsmead VCT 2 PLC
06 November 2003

To:          RNS

From:     Baronsmead VCT 2 plc

Date:          6 November 2003

Interim Results - For the six months ended 30 September 2003


  • Net asset value increased by 12.4 per cent before distributions

  • Cash returns to shareholders totalled 5.9p per share, including 5.3p
    capital, in the period

  • Interim revenue dividend of 0.6p per share declared

  • Investments in period increased to 51 companies

  • Total return since launch in April 1998 - 30.2 per cent

Investment Objective

Baronsmead VCT 2 is a tax efficient listed company, which aims to achieve
long-term capital growth and generate tax-free dividends for private investors.


Introduction

The last six months has been a period of high activity within the portfolio with
ten new investments and four realisations. NAV per share (before dividends
declared) increased by 12.4 per cent. This uplift came predominantly from the
profits achieved from these successful realisations and an increase in the
market value of the Aim portfolio.

Achieved results

During the six months to 30 September 2003 the net asset value per share
increased by 12.4 per cent from 89.7p to 100.8p. This reduces to 5.9% having
returned 5.9p to shareholders by way of the proposed interim dividend of 1.2p
and the July 2003 distribution of 4.7p per share.


Since launch Baronsmead VCT 2 has generated a total return (dividends paid plus
change in NAV) of 30.2 per cent which compares to a 16.7 per cent reduction in
the FTSE All-Share Index over the same period. This differential is further
increased if the VCT tax reliefs are taken into account.


The Board has declared an interim dividend of 1.2p (including a further capital
distribution of 0.6p) per share (1.0p in 2002) which will be paid on 12 December
2003 to shareholders on the register at close of business on 14 November 2003.
Total dividends of 26.3p per share have been paid since launch in April 1998.



Investment environment

UK economic conditions have become more settled and we believe they are likely
to create a better environment within which both unquoted and Aim portfolio
companies can prosper. There also appears to be greater momentum behind the
buying and selling of investee companies, which has been evident for Baronsmead
VCT 2 in terms of new investment and realisations from the portfolio.


The enlarged team at ISIS Equity Partners adopts a sector-based approach from
its three offices in London, Birmingham and Manchester. The number of investment
opportunities has increased sharply with the new but experienced team in the
North-west and there has been a higher level of conversion into new investments.
In previous reports to shareholders, I have shared the need to meet our 70%
test, for VCT purposes, without sacrificing quality standards and I am pleased
to report that this strategy appears to be working well.


Portfolio

We set out to create a portfolio of 50 companies at this time last year and this
has now been achieved. Ten new investments were made in the six-month period to
30 September 2003 totalling £5.0m including future commitments. In addition to
the four Aim and one technology investment reported in the quarterly fact sheet
to 30 June 2003, the following investments were made:


Americana - Branded fashion clothing

Based in Manchester, Americana designs and retails clothing aimed at the youth
market under the brand names of 'Bench' and 'Hooch'. Baronsmead VCT 2 provided
£698,000 of the £6.4m provided to finance a management buy-out.


Ardana Biosciences -Speciality pharmaceuticals

Based in Cambridge, Ardana is an early stage drug discovery company that
specialises in the reproductive health market. £350,000 was invested as part of
the £20m raised for this third round financing.


ASSA Training and Learning - Provision of work place training

Based in Washington, ASSA is a training developer and provider specialising in
the marketing and delivery of public sector funded vocational training to the
automotive and manufacturing sectors. £1,028,000 was invested/committed as part
of the £3m provided to finance a management buy-out.


Communicandum - Provision of language services

Based in London, Communicandum is a leading provider of interpretation and
language services to UK public sector organisations. £785,000 was invested as
part of the £7.2m provided to finance a management buy-out.


Martin Audio - Suppliers of professional speaker systems

Based in High Wycombe, Martin Audio designs, assembles and markets high
performance speaker systems for use in the concert and public entertainment
markets, in the UK and overseas. £1,045,000 was invested/committed as part of
the £3.05m provided to finance a management buy-out


i-documentsystems - provider of document management systems

Based in London, i-documents provides document and management solutions to local
authorities. Baronsmead VCT 2 invested £400,000 originally in 2002 and provided
a further £200,000 as part of the £1.0m raised to acquire Mandoforms, a designer
and supplier of electronic forms.


Since the period end, one new unquoted and further investment into three
existing Aim investees has taken place.


Realisations

In the six-month period to 30 September 2003, we sold the following four
investments.



                      First investment    Cost     Proceeds    Multiple       
                      date                £'000    £'000       return 
        
  Thomas Sanderson    2001                667      1689        2.53           

  Blue 8              2001                321      647         2.02           

  AIMS Group          2002                1,000    1924        1.92           

  R&R                 2002                527      479         0.91           


The sale of the first three companies was described in the fact sheet circulated
to shareholders for the quarter ended on 30 June 2003. R&R, which had been held
for 16 months, was sold at a small loss to THB Group plc. The original
investment was to finance their new software activity into SME outsourcing but
this failed to secure sufficient new clients to succeed as planned.


All four companies were sold to trade buyers who were seeking a tight strategic
fit and scope for synergies. For all but R&R, the level of annual returns was in
excess of 40%. In part this high rate of return was due to the relatively short
holding period for each investment and such returns cannot be expected across
the portfolio as a whole.


Meeting shareholders needs

The Board of Baronsmead VCT 2 plc is dedicated to providing shareholders with
clear and regular communication as well as offering financial planning choices.
We are aware that electronic means of communication is becoming more popular and
so hope to add relevant reports and presentations to the ISIS and Baronsmead web
sites. This will include commentary and illustrations as to how investment in
VCTs can be versatile in meeting different tax and financial planning needs for
shareholders.


The high level of cash returned to shareholders which is, of course, available
for reinvestment, reinforces our belief that VCTs like Baronsmead VCT 2 can be
used successfully as part of pension planning by reinvesting dividends (tax
effectively) prior to retirement and taking income subsequently.


In the six months to 30 September 2003, 607,578 new shares were issued at an
average price of 89p under the dividend reinvestment scheme. The Board has
decided that, on this occasion, it will not be making a top-up offer to
shareholders. The three and five year qualifying holding periods, for
subscribers after 6 April 2000 and in Spring 1998 expired in April 2003 and
since then 500,000 shares have been bought back at a cost of £417,000.


Outlook

The pipeline of suitable opportunities remains strong at a moment when we
believe there is a degree of stability for long term investment. We have a
well-diversified portfolio and our strategy continues to be both protecting and
gradually growing the value of net assets, while paying a good rate of return
from dividends and realisations arising from the portfolio.




Enquiries: David Thorp 0207 506 1100, ISIS Equity Partners plc

Gary Fraser 0131 465 1000, ISIS Asset Management plc






Unaudited Profit and Loss Account of the Company

For the six months to 30 September 2003
                                                                                2003             2003          2003
                                                                             Revenue          Capital         Total
                                                                               £'000            £'000         £'000

Gains on realisation of Investments                                                -              855           855
Income                                                                           566                -           566
Investment management fee                                                       (94)            (281)         (375)
Other expenses                                                                 (129)                -         (129)
                                                                          ----------      -----------   -----------

Profit on ordinary activities before taxation                                    343              574           917

Taxation on ordinary activities                                                 (64)               64             -
                                                                          ----------      -----------   -----------

Profit on ordinary activities after taxation                                     279              638           917

Dividends paid                                                                 (246)          (2,166)       (2,412)
                                                                         -----------      -----------   -----------
Retained profits/(losses) transferred to/(from) reserves                          33          (1,528)       (1,495)
                                                                          ----------       ----------   -----------

Earnings per ordinary share                                                    0.68p            1.55p         2.23p

                                                                              ______            _____         _____







Statement of Total Recognised Gains and Losses
                                                                                2003             2003          2003
                                                                             Revenue          Capital         Total
                                                                               £'000            £'000         £'000

Profit on ordinary activities after taxation                                     279              638           917
Unrealised gain on revaluation of investments                                      -            3,614         3,614
                                                                          ----------      -----------   -----------
Total recognised gain during the year                                            279            4,252         4,531
                                                                          ----------      -----------   -----------
Total recognised gain per ordinary share                                       0.68p           10.34p        11.02p
                                                                              ______           ______        ______







Unaudited Profit and Loss Account of the Company

For the six months to 30 September 2002
                                                                            2002             2002              2002
                                                                         Revenue          Capital             Total
                                                                           £'000            £'000             £'000

Losses on realisation of Investments                                           -              (6)               (6)
Income                                                                       878                -               878
Investment management fee                                                   (99)            (298)             (397)
Other expenses                                                             (150)                -             (150)
                                                                      ----------      -----------       -----------

Profit/(loss) on ordinary activities before taxation                         629            (304)               325

Taxation on ordinary activities                                            (146)               92              (54)
                                                                      ----------      -----------       -----------

Profit/(loss) on ordinary activities after taxation                          483            (212)               271

Dividends paid                                                             (408)                -             (408)
                                                                     -----------      -----------       -----------
Retained profit/(loss) transferred to/(from) reserves                         75            (212)             (137)
                                                                      ----------       ----------       -----------

Earnings/(loss) per ordinary share                                         1.18p          (0.52)p             0.66p

                                                                          ______            _____             _____







Statement of Total Recognised Gains and Losses
                                                                            2002             2002              2002
                                                                         Revenue          Capital             Total
                                                                           £'000            £'000             £'000

Profit/(loss) on ordinary activities after taxation                          483            (212)               271
Unrealised loss on revaluation of investments                                  -          (2,679)           (2,679)
                                                                      ----------      -----------       -----------
Total recognised gain/(loss) during the year                                 483          (2,891)           (2,408)
                                                                      ----------      -----------       -----------
Total recognised gain/(loss) per ordinary share                            1.18p          (7.06)p           (5.88)p
                                                                          ______           ______            ______







Unaudited Profit and Loss Account of the Company

For the year ended 31 March 2003
                                                                            2003             2003              2003
                                                                         Revenue          Capital             Total
                                                                           £'000            £'000             £'000

Losses on realisation of Investments                                           -            (267)             (267)
Income                                                                     1,809                -             1,809
Investment management fee                                                  (193)            (580)             (773)
Other expenses                                                             (295)                -             (295)
                                                                      ----------      -----------       -----------

Profit/(loss) on ordinary activities before taxation                       1,321            (847)               474

Taxation on ordinary activities                                            (349)              187             (162)
                                                                      ----------      -----------       -----------

Profit/(loss) on ordinary activities after taxation                          972            (660)               312

Dividends paid                                                             (858)          (2,004)           (2,862)
                                                                     -----------      -----------       -----------
Retained profit/(loss) transferred to/(from) reserves                        114          (2,664)           (2,550)
                                                                      ----------       ----------       -----------

Earnings/(loss) per ordinary share                                         2.37p          (1.61)p             0.76p

                                                                          ______            _____             _____







Statement of Total Recognised Gains and Losses
                                                                            2003             2003              2003
                                                                         Revenue          Capital             Total
                                                                           £'000            £'000             £'000

Profit/(loss) on ordinary activities after taxation                          972            (660)               312
Unrealised loss on revaluation of investments                                  -          (1,926)           (1,926)
                                                                      ----------      -----------       -----------
Total recognised gain/(loss) during the year                                 972          (2,586)           (1,614)
                                                                      ----------      -----------       -----------
Total recognised gain/(loss) per ordinary share                            2.37p          (6.31)p           (3.94)p




Unaudited Balance Sheet
                                                                          As at                 As at              As at
                                                                   30 September          30 September           31 March
                                                                           2003                  2002               2003
                                                                          £'000                 £'000              £'000
Fixed Assets
Listed investments                                                          560                   364                343
Unquoted investments                                                     13,200                11,308             12,212
Quoted on the Alternative Investment Market                              10,625                 5,785              6,625
Quoted on OFEX                                                              299                   147                310
Listed fixed interest investments                                         5,039                20,557              7,155
                                                                         ______                ______             ______
                                                                         29,723                38,161             26,645
Net current assets                                                        9,176                   233             10,006
                                                                         ______                ______             ______
Net assets                                                               38,899                38,394             36,651
                                                                         ______                ______             ______
Financed by
Equity shareholders' funds                                               38,899                38,394             36,651
                                                                         ______                ______             ______

Net asset value per ordinary share                                       94.90p                93.69p             89.65p

Ordinary shares in issue                                             40,989,300            40,981,575         40,881,722



Summarised Unaudited Group Statement of Cash Flows


                                 Six months to    Six months to     Year to 
                                    30 September     30 September    31 March 
                                            2003             2002        2003 
                                           £'000            £'000       £'000 

  Net cash inflow from                       137              371       1,201 
  operating activities                                                        
  Taxation                                     -                -       (217) 
  Capital expenditure and                  1,391          (2,374)       9,747 
  financial investment                                                        
  Equity dividends paid                  (1,920)            (614)     (3,477) 
  Net cash (outflow)/inflow                (392)          (2,617)       7,254 
  before financing                                                            
  Financing                                  164             (54)       (117) 
  (Decrease)/increase in cash              (228)          (2,671)       7,137 

  Reconciliation of net cash flow to movement in                              
  net cash                                                                    

  (Decrease)/increase in cash              (228)          (2,671)       7,137 
  Net cash at 1 April                      9,889            2,752       2,752 
  Net cash at 30 September/31              9,661               81       9,889 
  March                                                                       

  Reconciliation of operating profit to net cash flow from operating          
  activities                                                                  

  Net return before finance                  917              325         474 
  costs and taxation                                                          
  (Profit)/loss on realisation             (855)                6         267 
  of investments                                                              
  Changes in working capital                  75               40         460 
  and other non-cash items                                                    

  Net cash flow from operating               137              371       1,201 
  activities                                                                  



Notes


        1.     The unaudited interim results have been prepared on the basis of
        the accounting policies set out in the statutory accounts of the Company
        for the year ended 31 March 2003. Unquoted investments have been valued
        in accordance with BVCA guidelines. Quoted investments are stated at
        middle market prices in accordance with Generally Accepted Accounting
        Practice.



        2. Earnings for the period should not be taken as a guide to the results 
           of the full year.


        3.     Return per ordinary share is based on a weighted average of
        41,101,147 ordinary shares in issue (31 March 2003 - 40,961,609, 30
        September 2002 - 40,959,970).


        4.     During the six months ended 30 September 2003 the Company issued
        607,578 ordinary shares and bought for cancellation 500,000 ordinary
        shares at a cost of £417,000. There were 40,989,300 ordinary shares in
        issue at 30 September 2003 (31 March 2003 - 40,881,722, 30 September
        2002 - 40,981,575).


        5.     The interim dividend of 1.2p per ordinary share will be paid on
        12 December 2003 to shareholders on the register on 14 November 2003.


        6.      These are not statutory accounts in terms of Section 240 of the
        Companies Act 1985 and are unaudited. The full audited accounts for the
        year ended 31 March 2003, which were unqualified, have been lodged with
        the Registrar of Companies. No statutory accounts in respect of any
        period after 31 March 2003 have been reported on by the Company's
        auditors or delivered to the Registrar of Companies.


        7.      Copies of the Interim Report, which have been reviewed by the
        Company's auditors, will be mailed to shareholders and will be available
        from the Registered Office of the Company at 100 Wood Street, London
        EC2V 7AN.



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