Interim Results

British SmallerTechCompaniesVCT2PLC 19 September 2003 19 September 2003 BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC Unaudited preliminary results for the 6 months to 30 June 2003 • £295,000 invested to support the growth of two existing portfolio businesses • £500,000 invested in three new businesses • £5m of liquid resources still available • Investment policy widened to include later stage technology-based businesses British Smaller Technology Companies VCT 2 plc ("the Company"), the venture capital trust specialising in growing smaller technology companies across a range of industrial sectors, today announces its unaudited preliminary results for the six months to 30 June 2003. Financial highlights: Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2003 2002 2002 Gross revenue £128,000 £145,000 £296,000 Net revenue (loss) return before and £(33,000) £(10,000) £5,000 after tax Revenue return per share (0.42)p (0.14)p 0.07p Total return per share (3.54)p (1.69)p (2.41)p Net assets £6.90m £7.21m £7.17m Net asset value per share 88.1p 92.5p 91.6p Announcing the results, the Chairman, Sir Andrew Hugh Smith, reported that the continued difficult economic conditions had proved to be a restriction on the short-term growth prospects of the relatively small, early stage technology-based businesses in which the Company was invested. Commenting on the valuations, Sir Andrew said, "In these conditions and with a portfolio of relatively new investments, the Board feels unable to make any upward revisions in investee values. On the other hand, under the valuation guidelines of the British Venture Capital Association, it is necessary to take account of under performance against plan by making a provision against certain investments." Investments and Liquid Resources During the period a total of £795,000 was invested in five companies, two of which were follow-on investments in companies within the existing portfolio. Both of these were made to support the further expansion of these businesses and were part of a much larger syndicate of investors. The three new investments were in Broadreach Networks Limited, a provider of broadband access to the public, Amacis Group Limited, a leading provider of electronic communication management solutions and Immunobiology Limited, a company which specialises in the development of vaccines for the treatment of infectious diseases. The Company still has a significant level of funds to take advantage of attractive propositions as they arise and at a time when entry valuations are at more realistic levels. At the same time, the investment policy has been widened to include some later stage technology-based businesses that will complement the existing portfolio. Commenting on the VCT legislative requirement to have at least 70% of the Company's investments in qualifying holdings by the end of December 2003, Sir Andrew said that plans were already in place to ensure the maintenance of quality in the portfolio and retention of sufficient funds for follow-on support were not compromised by the legislative requirement. He said that, "This will result in a small reduction in the Company's income but will have the more important advantage of retaining Shareholder tax benefits whilst permitting the construction of a balanced portfolio of technology-based companies that will offer Shareholders the opportunity for longer term capital growth." Financial Results The result for the period was a total return loss of 3.54 pence per share. The net asset value at 30 June 2003 was 88.1 pence per share representing a 3.8% fall in the first six months of the year. This compares to a 5% increase in the FTSE(TM) techMARK(TM) All-Share index over that same period. No dividend can be paid. Shareholder Relations The Board continues to look at ways to enhance communications with Shareholders and improving liquidity in the Company's shares. The procedures to enable the buy back of the Company's own shares are now in place and the special distributable reserve created on the cancellation of the share premium account will better enable the Company to distribute gains on future realisations. The Company's Investment Adviser, Yorkshire Fund Managers Limited, has held three investor workshops in the period to date with a fourth to be held in Edinburgh on 15 October 2003. These workshops have proved very popular and a new programme is being arranged for next year. Outlook Commenting on the prospects for the medium and longer term, Sir Andrew said that, with a good deal of the international political uncertainty removed during the earlier part of the year, there are signs that certain economies, particularly the UK and US, are showing early signs of recovery. He added, "There are excellent opportunities to invest in both early and later stage businesses that can demonstrate clear innovative advantage in their current or future market". For further information, please contact: Phil Cammerman, Yorkshire Fund Managers Limited Tel: 0113 294 5050 Neil Baldwin, Brewin Dolphin Securities Limited Tel: 0113 241 0130 Chairman's Statement The economic conditions in the six months to 30 June 2003 have remained difficult, and for relatively small and early stage technology companies this has proved a restriction on their short-term growth prospects. In these conditions and with a portfolio of relatively new investments, the Board feels unable to make any upward revisions in investee values. On the other hand, under the valuation guidelines of the British Venture Capital Association (BVCA), it is necessary to take account of under performance against plan by making a provision against certain investments. The effect of this in the six months to 30 June 2003 has been to reduce the net asset value by 3.8%. This compares to a 5% increase in the FTSE(TM) techMARK(TM) All-Share index over the same period, which, given the focus of businesses that your Company is looking to invest in, remains the most appropriate quoted index benchmark. Investment Operations During the period £795,000 was invested in five companies. Two of these were follow-on investments in businesses within the existing portfolio, Amino Holdings and Vibration Technology. Both were made as part of a larger syndicate to support the further expansion of these two businesses. The three new investments were made in Broadreach Networks Limited, Amacis Group Limited and Immunobiology Limited. Broadreach Networks provides broadband access to the public through both fixed access sites and wireless "hot spots". A total investment of £250,000 was approved by your Board in February 2003 with the first tranche of £125,000 invested that same month as part of a larger syndicate of institutional and trade investors. Following the company's progress since investment and the achievement of certain key objectives, the drawdown of the remaining balance of the initial commitment is expected shortly. Amacis Group is a leading provider of electronic communication management solutions to global organisations. An investment of £275,000 was made in April 2003 as part of a £1.55m funding package. The £100,000 investment in Immunobiology was made in June 2003 as part of a larger funding package to finance the continuing development of the company, which specialises in the development of vaccines for the treatment of infectious diseases and cancers. Financial Results The result for the period was a total return loss of 3.54 pence per share with a revenue loss of 0.42 pence per share and a capital loss of 3.12 pence per share. The net asset value at 30 June was 88.1 pence per share. As mentioned above, provisions against investments have been made in accordance with the BVCA valuation guidelines as at 30 June 2003. Shareholders should be aware that, with effect from 1 August of this year, these guidelines have been revised, particularly in so far as they relate to early stage technology investments. The move is away from a cost basis and standard provisioning in bands of 25% to more intuitive measurements of a company's performance, discounted cash flows and other perceptions of value. Liquid Resources and Rate of Investment Liquid fund resources at the period end amounted to just under £5m in a mixture of cash and gilt investments. Therefore, your Company still has a significant level of funds to invest in growing businesses at a time when entry valuations have become much more attractive. Your Board is looking to invest in some later stage technology companies over the coming period that will complement the early stage businesses in the current portfolio. The VCT legislation requires that, by 31 December 2003, at least 70% of the Company's investments must be in qualifying holdings (as defined by the legislation). However, it is also important to ensure that the quality of investments and the need to retain sufficient reserves for follow-on investments is not compromised by the need to meet legislative requirements. Accordingly, if necessary, part of the Company's liquid funds will be deposited in a non-interest bearing bank account, which does not represent an investment within the legislative definitions. This will result in a small reduction in the Company's income but will have the more important advantage of retaining Shareholder tax benefits whilst permitting the construction of a balanced portfolio of technology-based companies that will offer Shareholders the opportunity for longer term capital growth. Shareholder Relations The proposals to enable your Company to buy back its own shares were approved by Shareholders at the Annual General Meeting held on 15 May 2003. This is in continuance of your Board's active policy of improving Shareholder liquidity in what is, by nature, an illiquid market through a combination of enhancing information to Shareholders and providing a mechanism to realise holdings in the last resort, albeit to a limited amount. The special distributable reserve created on the cancellation of the share premium account as part of the process for enabling the buy back of shares will also be available for other corporate purposes. In particular, your Board is proposing that it may be utilised to eliminate losses accumulated on capital reserve. This will better enable the Company to distribute gains on future realisations to Shareholders. Over the last six months, your Board's Investment Adviser, Yorkshire Fund Managers, has held three investor workshops - in London, Leeds and Birmingham. Over 100 Shareholders from across the three VCTs managed by Yorkshire Fund Managers have attended. It has become clear that this provides a much better forum for Shareholders to voice their comments than the Annual General Meeting. The final workshop for 2003 will be held in Edinburgh on 15 October 2003. Outlook Continued progress in our portfolio of investments depends as much on the progress of the US and Global economies as on the efforts of the companies and their management. With a good deal of the international political uncertainty removed during the earlier part of 2003, there are early signs of recovery in some economies, notably the UK and the US. Currently, there are excellent opportunities to invest in both early and later stage businesses that can demonstrate clear innovative advantage in their current or future market. We look to work with strong syndicates in making new investments and to ensure that we have adequate reserves to support investee companies on their road to market acceptance of their products. Sir Andrew Hugh Smith Chairman Statement Of Total Return Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2003 2002 2002 £000 £000 £000 Notes Revenue Gross revenue 128 145 296 Administrative expenses (161) (155) (291) Taxation 2 - - - ------- ------- ------- (33) (10) 5 Capital Realised gains (losses) (net) 68 (5) (4) Unrealised losses net (271) (74) (123) Management fee allocated to (39) (35) (61) capital ------- ------- ------- (242) (114) (188) Total return (275) (124) (183) ======= ======= ======= Appropriated: Revenue Transfer (from) to revenue (33) (10) 5 reserve ------- ------- ------- Capital Decrease on reserves (242) (114) (188) ------- ------- ------- Basic and diluted return per Ordinary share Revenue (0.42)p (0.14)p 0.07p Capital (3.12)p (1.55)p (2.48)p ------- ------- ------- 3 (3.54)p (1.69)p (2.41)p ======= ======= ======= Notes The revenue section of this statement is the profit and loss account of the Company All activity has arisen from continuing operations. Balance Sheet Unaudited Unaudited Audited 30 June 30 June 31 December 2003 2002 2002 £000 £000 £000 Notes Fixed assets Investment portfolio 1,938 889 1,317 ------- ------- ------- Current assets Short-term investments 2,640 5,733 5,737 Debtors 99 207 116 Cash and short-term deposits 2,324 419 34 ------- ------- ------- 5,063 6,359 5,887 Creditors: amounts payable within (100) (36) (31) one year ------- ------- ------- Net current assets 4,963 6,323 5,856 ------- ------- ------- Total net assets 6,901 7,212 7,173 ======= ======= ======= Capital and reserves Called-up share capital 784 780 783 Share premium account 4 - 6,577 6,595 Capital reserve (485) (168) (243) Revenue reserve - 18 33 Warrant reserve 4 5 5 Special reserve 4 6,597 - - Other reserve 1 - - ------- ------- ------- Equity shareholders' funds 6,901 7,212 7,173 ======= ======= ======= Net asset value per Ordinary share 5 88.1p 92.5p 91.6p ======= ======= ======= Summarised Cash Flow Statement Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2003 2002 2002 £000 £000 £000 Net cash inflow (outflow) from operating activities 14 (143) (68) Financial investment (795) (664) (1,194) -------- -------- -------- Net cash outflow before management of liquid resources and financing (781) (807) (1,262) Management of liquid resources 3,068 (105) (56) -------- -------- -------- Net cash inflow (outflow) before financing 2,287 (912) (1,318) Financing 3 894 915 -------- -------- -------- Increase (decrease) in cash 2,290 (18) (403) -------- -------- -------- Notes to the Financial Statements 1. The interim financial statements have been prepared on a basis consistent with the statutory financial statements for the year ended 31 December 2002. The interim financial statements, which have been approved by the directors, are unaudited and do not constitute full financial statements as defined in section 240 of the Companies Act 1985. The comparative figures for the year ended 31 December 2002 do not constitute full financial statements and have been extracted from the Company's financial statements for the year ended 31 December 2002 which have been reported upon without qualification by the auditors and have been delivered to the Registrar of Companies. 2. Taxation charge Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2003 2002 2002 £000 £000 £000 Loss on ordinary activities multiplied by standard small company rate of corporation tax in the UK of 19% (2002:20%) (52) (25) (36) Effect of: Non taxable (gains) losses on investments (i) 39 16 24 Movement in excess management expenses (ii) 13 9 12 ------ ------ ------ Current tax charge for period - - - ------ ------ ------ (i) Venture Capital Trusts are not subject to corporation tax on these items (ii) The Company has no deferred tax liability 3. The basic revenue return per share is based on net loss from ordinary activities after tax attributable to shareholders of £33,000 (30 June 2002: net loss £10,000 and 31 December 2002: net revenue £5,000) and on 7,790,000 shares (30 June 2002: 7,314,000 and 31 December 2002: 7,566,000, being the weighted average number of shares in issue during the period. The Company has no securities that would have a dilutive effect and hence the basic and diluted return per share are the same. 4. The special distributable reserve which was created following the approval of the Court and the resolution of the Shareholders to cancel the Company's share premium account will be available for use for other corporate purposes of the Company. In particular, the special reserve may be utilised to eliminate losses accumulated on the capital reserve prior to 1 January 2003. As at 31 December 2002 the accumulated losses on the capital reserve (realised and unrealised) stood at £243,000. Section 266 of the Companies Act 1985 prohibits an investment company from distributing its capital profits. At such time as the Board determines that it is appropriate to revoke such status by giving notice in the prescribed form to the registrar that it no longer wishes to be an investment company, such prohibition will no longer apply. 5. The net asset value per Ordinary share is calculated on attributable assets of £6,901,000 and 7,836,000 shares in issue at the period end (30 June 2002: £7,212,000 and 7,798,000 shares, 31 December 2002: £7,173,000 and 7,833,000 shares). 6. Copies of the interim report can be obtained from the Company's registered office: Saint Martins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ thereafter. This information is provided by RNS The company news service from the London Stock Exchange

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