Interim Results

British SmallerTechCompaniesVCT2PLC 04 August 2006 04 August 2006 BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC Unaudited interim results for the 6 months to 30 June 2006 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 interim results for the six months to 30 June 2006. Chairman's Statement The first six months to 30 June 2006 has seen a steady performance from your Company's investments. Realised gains together with net positive valuation movements on the balance of the portfolio were sufficient to offset the net operating costs and contributed to a small increase in net asset value per share to 74.8 pence during the period under review. This is the first period of trading as the new enlarged Company following the acquisition of British Smaller Technology Companies VCT plc. I am pleased to report that the operating costs of the combined Company during the period were 22% lower than the sum of the expenditure of the two individual companies in the same period last year. Your Board continues to look for cost savings to improve the Company's financial performance. Operations The significant event in the period was the flotation of Optos plc in February 2006 which I mentioned in the last Annual Report. The company floated at a price of 250 pence per share and, after an initial fall, the share price rose to 284 pence per share by the end of March 2006. Since that time there has been a gradual fall to the current position where the share price is around 200 pence per share. Your Board took the opportunity to lock in some profits and disposed of a small number of shares at prices between 240.5 and 265.5 pence per share. Optos reported good progress in its initial interim results to 31 March 2006 and has recently won the UK's most prestigious engineering innovation accolade - The Royal Academy of Engineering 2006 MacRobert Award. In addition to the sale of a small holding of Optos shares, your Board took the decision to realise its holding in two quoted investments, Focus Solutions Group plc and Sosei Co. Limited. This produced a small combined loss of £21,000. Both companies were relatively small in value and your Board felt that there was little likelihood of improved performance in either case. The net asset value after the first quarter of trading in this new financial year was 76.2 pence per share. The fall in the second quarter was due to a general fall in AIM stock values, reflected in all quoted companies in the portfolio, with the exception of Cozart. Of these quoted companies, Optos and Allergy Therapeutics continue to report good news in the form of operating milestones and revenue increases. Oxonica has shown some revenue generation and has completed a small acquisition, but the company remains relatively small and is still far from profitability. The share price of ART Technology has fallen in line with the NASDAQ index but analysts remain positive about growth prospects. Investor appetite for technology-focused businesses as a whole is still evident with early stage interest in some companies within the portfolio continuing, both for trade sales and possible flotations. Although no formal offers or proposals have yet been made, these initial indications are at valuations in excess of your Company's carrying value. Financial Results The result for the six months ended 30 June 2006 was a profit of £19,000 or 0.11 pence per share (30 June 2005: loss of £652,000; (8.41) pence per share). The prior period comparison is for the original single entity whereas the current year includes the enlarged business following the acquisition of British Smaller Technology Companies VCT plc at the end of last year; hence the relative increase in income and administrative expenses. The result of the net gain to profit and loss account, taken with the effect of the share buy back following the announcement of the 2005 results in April 2006, is a small increase in net asset value of 0.6 pence per share to 74.8 pence per share over the six month period to 30 June 2006. Net asset value at the end of the period was £12.44 million. No interim dividend is being paid as realisations in the period were small in absolute terms. Cash and cash equivalents at the period end were £2.73 million, representing 22% of net asset value. Your Board considers that this is sufficient to support the current portfolio and allow some limited investments in selective new opportunities. Further realisations should enhance this cash reserve after distributing an appropriate proportion to shareholders as a tax free dividend. Shareholder Relations Following the announcement of the 2005 annual results, your Board authorised the buy back of 665,867 shares that were available in the market at a price of 63 pence per share. Following that transaction, your Board became aware that further substantial holdings were about to be offered for buy back. It was clear to the Board that, if accepted, this would prejudice the interests of the other shareholders and would substantially reduce the liquid funds available to support the Company's investment portfolio. The Board therefore announced that it was withdrawing its share buy back policy for an indefinite period. Following that announcement the share price has fallen to 44 pence per share and the discount to the announced net asset value has widened to 42%. This is obviously not ideal but reflects the long term nature of VCT shares and the effects of the VCT legislation that only offers the 30% income tax rebate on the subscription to a new issue of shares. Thus, the after market remains largely illiquid which is reflected in the discount of share price to net asset value. The reason for the decision to end the Company's policy of buying back shares in the market at a fixed discount to net asset value was to concentrate the Company's cash resources and management efforts on supporting the expansion plans of key businesses in the existing portfolio whilst selectively making new investments in business opportunities that have a proven market acceptance and which provide potential for significant growth. Your Board considers that this is still valid and, although it will consider the reinstatement of a similar policy at the appropriate time, that is unlikely to be in the foreseeable future. Outlook The economic outlook remains reasonably encouraging although current developments in the Middle East are a cause for serious concern. The investment portfolio has shown improvement over the course of the first six months. There will always be some volatility to the quoted stock valuations but all these companies are making progress against their business plans and we are optimistic about their prospects relative to the overall stock market sentiments. There continues to be early stage corporate interest in a number of investments within the portfolio, but it is still too early to say if this would lead to realisations. Nevertheless, it gives grounds for your Board's longer term optimistic view for growth in portfolio value. The overall development of the portfolio at this current time remains satisfactory. Sir Andrew Hugh Smith 04 August 2006 Income Statement For 6 months ended 30 June 2006 Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Notes Income 149 37 82 ------- ------- ------- Administrative expenses: Investment advisory fee (190) (88) (172) Other expenses (147) (95) (186) ------- ------- ------- (337) (183) (358) ------- ------- ------- Excess of acquirer's interest in the fair value of the acquiree's identifiable assets, liabilites and and contingent liabilities over cost - - 975 Gain on realisation of investments (net) 28 7 251 Unrealised gains (losses) on investments held at fair value (net) 179 (513) (1,371) ------- ------- ------- Profit (loss) on ordinary activities before taxation 19 (652) (421) Taxation 2 - - - ------- ------- ------- Profit (loss) for the period from continuing operations 19 (652) (421) ======= ======= ======= Basic and diluted earnings(loss) per Ordinary share 3 0.11p (8.41)p (5.14)p ======= ======= ======= Balance Sheet As at 30 June 2006 Unaudited Unaudited Audited 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Notes Assets Non-current assets Investments at fair value through profit or loss 9,588 3,664 9,503 ------- ------- ------- Current assets Trade and other receivables 193 215 150 Cash and cash equivalents 2,733 2,699 3,834 ------- ------- ------- 2,926 2,914 3,984 Liabilities Current liabilities Trade and other payables (74) (108) (647) ------- ------- ------- Net current assets 2,852 2,806 3,337 ------- ------- ------- Net assets 12,440 6,470 12,840 ======= ======= ======= Shareholders' equity Share capital 1,664 772 1,731 Share premium 69 60 69 Capital redemption reserve 88 21 21 Merger reserve 5,525 - 5,525 Special reserve - 5,213 - Other reserve 2 2 2 Retained earnings 5,092 402 5,492 ------- ------- ------- Total Shareholders' equity 12,440 6,470 12,840 ======= ======= ======= Net asset value per Ordinary share 4 74.8p 83.8p 74.2p ======= ======= ======= Unaudited Statement of Changes in Shareholders' Equity For the 6 months ended 30 June 2006 Share Share premium Merger Other Retained Total capital account reserve reserves* earnings equity £000 £000 £000 £000 £000 £000 Balance at 31 Decemmber 2005 1,731 69 5,525 23 5,492 12,840 Profit for the period - - - - 19 19 Purchase of own shares (67) - - 67 (419) (419) ------- ------- ------- ------- ------- ------- Balance at 30 June 2006 1,664 69 5,525 90 5,092 12,440 ======= ======= ======= ======= ======= ======= * Other reserves include the capital redemption reserve and other reserve. Summarised Cash Flow Statement For the 6 months ended 30 June 2006 Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Net cash outflow from operating activities (286) (188) (290) ------- ------- ------- Net cash from (used in) investing activities 27 (466) 811 ------- ------- ------- Net cash (used in) from financing (765) (482) (519) ------- ------- ------- Net (decrease) increase in cash and cash equivalents (1,024) (1,136) 2 Cash and cash equivalents at the beginning of the period 3,834 3,824 3,824 Effect of market value changes in cash equivalents (77) 11 8 ------- ------- ------- Cash and cash equivalents at the end of the period 2,733 2,699 3,834 ======= ======= ======= Notes to the Financial Statements 1. 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 forthe year ended 31 December 2005 do not constitute full financial statements and have been extracted from the Company's financial statements for the year ended 31 December 2005. Those accounts were reported upon without qualification by the auditors and have been delivered to the Registrar of Companies. The financial statements for the year ended 31 December 2005 were prepared in accordance with the International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and the International Accounting Standards Committee (IASC) as adopted by the European Union and those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The comparatives for the six months ended 30 June 2005 were previously presented in accordance with UK accounting standards. Following the transaction with British Smaller Technology Companies VCT plc in December 2005, the Board decided to adopt IFRS for the financial statements for the year ended 31 December 2005. The effective date of transition to IFRS was therefore 1 January 2004. Consequently, the comparatives for the six months ended 30 June 2005 have been restated in accordance with IFRS. The impact of the adoption of IFRS was explained in the financial statements for the year ended 31 December 2005 which have been filed with the Registrar of Companies and sent to shareholders in June 2006. 2. Taxation charge Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Profit (loss) on ordinary activities multiplied by standard small company rate of corporation tax in the UK of 19% (2005:19%) 4 (124) (80) Effect of: Non taxable (profits) losses on investments (39) 96 213 Excess management expenses 35 28 (133) ------- ------- ------- Current tax charge for period - - - ======= ======= ======= The Company has no provided, or unprovided, deferred tax liability in either year. Deferred tax assets in respect of losses have not been recognised as management do not currently believe that it is more likely than not sufficient taxable profits will be available against which the assets can be recovered. Due to the Company's status as a venture capital trust, and the continued intention to meet the conditions required to comply with Section 842AA of the Income and Corporation Taxes Act 1988, the Company has not provided deferred tax on any capital gains or losses arising on the revaluation or realisation of investments. 3. The earnings (loss) per Ordinary share is based on the net profit from ordinary activities after tax of 19,000 (30 June 2005: net loss of £652,000 and 31 December 2005: net loss of £421,000) and on 17,120,000 (30 June 2005: 7,757,000 and 31 December 2005: 8,185,000) shares, 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 basic and diluted earnings (loss) per share are the same. 4. The net asset value per Ordinary share is calculated on attributable assets of £12,440,000 (30 June 2005: £6,470,000 and 31 December 2005: £12,840,000) and 16,641,257 (30 June 2005: 7,718,777 and 31 December 2005: 17,307,124) shares in issue at the period end. 5. Copies of the interim report can be obtained from the Company's registered office: Saint Martins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ. For further information, please contact: Phil Cammerman, YFM Private Equity Limited Tel: 0113 294 5000 David Hall, YFM Private Equity Limited Tel: 0161 832 7603 Jonathan Becher, Teather & Greenwood Limited Tel: 0207 426 3269 Michael Bellamy, Teather & Greenwood Limited Tel: 0207 426 9547 This information is provided by RNS The company news service from the London Stock Exchange

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