Final Results

AIM VCT2 PLC 24 January 2005 To: Company Announcements From: AiM VCT2 plc Date: 24 January 2004 Investment Objective To provide shareholders with a tax efficient means of gaining long term capital growth and an attractive dividend stream primarily through investment in a diversified portfolio of AiM companies and unquoted companies which anticipate a stock market listing within 18 months. • Net asset value per share of 87.83 pence • 29 new investments made during the year, taking the total equity portfolio to 90 companies • First capital dividend of 2.0 pence per share • All VCT tests met by a comfortable margin The Chairman, Gordon Brough, said: 'AiM VCT 2's fourth anniversary marked the end of a transitional period during which the Company moved from holding the majority of its assets in cash or fixed interest security into holding a diverse portfolio of VCT eligible shares of qualifying companies. The Investment Managers have taken advantage of the generally buoyant market for fundraising by smaller companies and have made a number of exciting new investments during the year. The progress made with the investment programme has resulted in AiM VCT2 ending the year, to a large extent, fully invested in qualifying companies thus fulfilling one of the objectives set out in the original prospectus. Results and Dividends A consequence of the transition from holding interest bearing government securities into holding shares in companies at the relatively early stages of their development is that revenues from investments have fallen. This was to be expected and although we anticipate a good number of AiM VCT 2's investments will pay dividends in due course the overall level of investment income will be modest for the time being. In the current year the Company made a revenue loss of £178,000 and the Board is not in the position to recommend an income dividend. However, one of the advantages of the VCT is the ability to pay capital dividends from the profitable sale of underlying investments. To this end I am delighted to report the Managers have been in a position to actively manage the portfolio and have taken some early profits from a number of holdings. These profits have enabled the Board to recommend AiM VCT2's first capital distribution to shareholders of 2 pence per share, which will be paid to shareholders on 8 April 2005. Following this distribution AiM VCT2 will have paid 7.5 pence per share back to shareholders since launch. It continues to be the Board's intention to seek to realise profitable investments, as market conditions and individual business plans permit, in order to create further capital dividends in the future. Performance Stock markets started the year with the continued positive performance that characterised 2003.The markets for smaller companies and AiM in particular also reflected this buoyant mood and made strong advances in the first quarter. Increases in valuations served as an encouraging indicator to other companies wishing to raise new capital and join the public markets and 2004 has turned out to be AiM's most prolific year for new issues and capital raisings. However during the summer months stock markets lost some of their early gains. Fears about increasing oil prices, rising interest rates, the deteriorating housing market and the potential for terrorist activities all weighed on equity valuations and continue to be a concern as we look forward into 2005. Nevertheless, the FTSE AiM Index made strong progress in the final quarter and rose 21.9% in the twelve months to November 2004. The main driver of the performance in the AiM Index was strong appreciation from its largest constituent - the resource sector, which makes up over 30% of the value of the market. Resource stocks, which include companies involved in oil and gas exploration and production and most other areas of mineral exploration and production are usually, by their nature, geographically located outside the UK. As such they fall outside what is deemed to be a qualifying investment for VCT purposes. With the resource sector making such strong gains in 2004 it was therefore difficult for AiM VCTs to keep up with the AiM Index. As already highlighted this was a transitional year for AiM VCT2. Over the past eighteen months the Company has moved from holding 50% of its assets in cash or short dated government security to being close to 97% invested in VCT qualifying holdings, thus fulfilling one of the objectives set out in the initial prospectus. A consequence of completing this heavy investment programme is that the majority of the portfolio holdings are relatively new and many of the companies themselves are in the early stages of their business development. What progress they have made to date may not yet be reflected in share price appreciation. The portfolio has had some early winners such as Amino, Widney, Straight and Debt Free Direct, but has also suffered some early disappointments from the likes of Cyberes, Prestbury Holdings, Lo-Q and Rhetorical, which is to be expected from the entrepreneurial nature of AiM VCT investments. The performance of the portfolio overall is flat for the year. After taking into account the proposed 2 pence per share capital distribution AiM VCT2 ended the year with a net asset value per share of 87.83 pence, down from 88.59 pence on 30 November 2003. Since launch AiM VCT2 will have paid back to shareholders 7.5 pence per share resulting in a total return of minus 4.7%, which still compares favourably against a total return of minus 30.0% for the FTSE AiM Index and minus 10.3% for the FTSE All Share Index over the same period and is commensurate with its peer group of other AiM based VCTs launched at or around the end of the year 2000. Investment Programme This year has been another busy period for AiM VCT2 with continued progress being made with the investment programme. AiM VCT2 has been in a good position to take advantage of the generally favourable market background and the strong flow of new investment opportunities which have been forthcoming. The AiM market has grown from 731 companies at 30 November 2003 to welcoming its 1,000th constituent in early December 2004. A healthy proportion of the new companies joining the market during 2004 have been eligible for VCT investment, from which the Managers chose twenty nine new holdings for AiM VCT2 as well as investing further amounts into a number of existing holdings. The Managers have continued to follow a strategy of investing in a wide number of companies in order to increase diversification and spread risk. A result of this strategy is that at the year end AiM VCT2's portfolio comprised 90 individual holdings with the largest accounting for just 3.8% of total assets and the top ten holdings accounting for 28.2%. The total amount invested during the year was £10.9 million. A number of portfolio investments have risen in value and the liquidity in their shares has been such that the Managers have been able to make profitable sales of proportions of each. The most notable sales include Amino Technologies, Bond International Software, Neutec Pharma, Pilat Media Global, RingProp and Scott Tod. Whilst some profits have been taken from these holdings and others, which have enabled the proposal of a tax free capital distribution to shareholders, they remain important and substantial holdings within AiM VCT2's portfolio. Shareholder issues I am pleased that during the year a number of shareholders took advantage of the various top up offers made available by AiM VCT2. In the last offer for subscribers to enable the rollover of capital gains into new shares, which closed on 7 April 2004, a sum of £1.6 million was raised. At the AGM in April shareholders approved the launch of a further 14.9% offer for subscription, which raised £2.3 million by its closing on 30 November 2004. This offer reflected the changes in taxation benefits announced in the budget on 17 March 2004. These new benefits were designed to enhance further the attraction of subscription into VCTs with an upfront income tax relief of 40% on subscription amounts, combined with a doubling to £200,000 of the individual annual investment limit. The ability to defer a liability to capital gains tax in new shares has been withdrawn however. As we look forward to 2005 it appears that the market for fundraisings by companies will remain robust and we anticipate a continued strong flow of investment opportunities. The Board and the Managers are keen to expose AiM VCT2 to further new investment opportunities but in order to do so the Company would need to raise further capital. Whilst some capital could be raised from selling existing investments, these holdings are relatively new and have not yet been given a chance to mature. To this end AiM VCT2 will continue to offer new shares up to a total value of £4 million to the end of May 2005. These new shares will have the benefit of investing into the existing portfolio of AiM VCT2. The Board is also considering making available a larger offer of new shares in the next tax year and will inform shareholders nearer the time. At the beginning of November 2004 I wrote to draw shareholders' attention to the fall in the Company's share price from a mid price of 79.5 pence to 72.5 pence, which occurred on 27 October 2004. This price fall occurred after a marked increase in the volume of sales of shares in AiM VCT2 following the introduction of the new 40% income tax relief. In the year to 30 November 2004 the Company has bought back and cancelled 2.3 million shares at a cost of £1.8 million. Most of these share buy backs had been transacted at around 10% discount to the Company's NAV. However, given the increase in selling pressure on the Company's shares, the Board reviewed the basis on which AiM VCT2 might buy back shares for cancellation. Looking at matters as a whole, the Board took the view that it was not in the interests of the Company and its shareholders to continue to make share purchases at the discount at which these had previously been taken and that cash would be better retained to fund future tax free distributions to all shareholders as well as new investment opportunities. The Board chose to let market forces determine the share price but agreed that, if the discount widened further and shares were made available by the market, the Company might again make purchases. Since the fall in the share price the volume of shares being offered by the market to the Company has fallen, enabling cash to be retained in the Company to help pay for the proposed 2 pence per share distribution to all shareholders. The Board continues to monitor the position and will do everything practicable to ensure that the discount at which the shares are traded is as narrow as possible. Change in fund managers' circumstances Shareholders will also have recently received notification of a change in circumstances of the Fund Managers. The Board was informed that Robert Mitchell and his colleagues Bill Brown and Stuart Rollason, who are principally responsible for the management of AiM VCT2's portfolio, will leave F&C Asset Management plc (formerly ISIS Asset Management plc) - the Company's current Manager, to establish their own specialist smaller company investment management company, once the necessary regulatory approvals have been received. Following discussions with F&C and the Fund Managers, the Board is delighted that an arrangement has been arrived at which: provides continuity of investment management for the Company; provides continuity of Secretarial and Administration services via F&C for the Company; and will result in F&C continuing to have an ongoing interest in the Fund Managers' new business. The Board, advised by Intelli Corporate Finance, believes that these proposed changes are in the interests of shareholders as a whole and looks forward to working with the Managers and their new investment management company in fulfilling the shareholder objectives of AiM VCT2. Outlook Whilst there are a number of uncertainties regarding the wider economic background in 2005 relating to a weaker domestic housing market, high levels of consumer debt and the weak dollar, the outlook for smaller companies looks generally favourable. Domestic interest rates appear to be near their peak, inflation is under control and labour markets remain robust - all key ingredients, which should benefit smaller companies. The AiM market has made great progress in 2004 and looks set to enter 2005 with a continued strong flow of investment opportunities, from which I would like AiM VCT2 to benefit. The portfolio itself is shaping up well with many companies at early stages of development but showing much promise. I look forward to reporting on progress as the portfolio matures. ' Enquiries: Robert Mitchell / Bill Brown Investment Managers Tel: 0207 506 1100 Rhonda Nicoll Secretary F&C Asset Management plc Tel: 0131 465 1074 Audited Profit and Loss Account of the Company Year to 30 November 2004 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 758 758 Income 321 - 321 Investment management fee (226) (679) (905) Other expenses (260) - (260) (Loss)/profit on ordinary activities before taxation (165) 79 (86) Tax on ordinary activities (13) - (13) (Loss)/profit on ordinary activities after taxation (178) 79 (99) Dividends payable (1) (868) (869) Transfer from reserves (179) (789) (968) Return per ordinary share: (0.42)p 0.19p (0.23)p Statement of Total Recognised Gains and Losses 2004 2004 2004 Revenue Capital Total £'000 £'000 £'000 (Loss)/profit on ordinary activities after taxation (178) 79 (99) Unrealised gain on revaluation of investments - 252 252 ---------- ---------- ----------- Total recognised (loss)/gain during the year (178) 331 153 ---------- ---------- ----------- Total recognised (loss)/gain per ordinary share (0.42)p 0.78p 0.36p ---------- ---------- ---------- Audited Profit and Loss Account of the Company Year to 30 November 2003 As As restated restated Revenue Capital Total £'000 £'000 £'000 Loss on realisation of investments - (207) (207) Income 1,187 - 1,187 Investment management fee (194) (580) (774) Other expenses (292) - (292) Profit/(loss) on ordinary activities before taxation 701 (787) (86) Tax on ordinary activities (179) 175 (4) Profit/(loss) on ordinary activities after taxation 522 (612) (90) Dividends payable (498) - (498) Transfer to/(from) reserves 24 (612) (588) Return per ordinary share: 1.26p (1.48)p (0.22)p Statement of Total Recognised Gains and Losses 2003 2003 2003 As restated As restated Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities after taxation 522 (612) (90) Unrealised gain on revaluation of investments - 5,179 5,179 ---------- ---------- ----------- Total recognised gain during the year 522 4,567 5,089 ---------- ---------- ----------- Total recognised gain per ordinary share 1.26p 11.03p 12.29p ---------- ---------- ---------- Audited Balance Sheet As at As at 30 November 30 November 2004 2003 £'000 £'000 Fixed Assets Quoted on the Alternative Investment Market 31,829 22,263 Quoted on OFEX 2,457 2,238 Listed investments 97 - UK government security - 7,719 Unquoted investments 3,540 4,714 37,923 36,934 Net current assets/(liabilities) 187 (179) Net assets 38,110 36,755 Financed by: Shareholders' funds 38,110 36,755 Net asset value per ordinary share: 87.83p 88.59p Ordinary shares in issue 43,390,309 41,490,367 Summarised Audited Statement of Cash Flows Year to Year to 30 November 30 November 2004 2003 £'000 £'000 Net cash (outflow)/inflow from operating activities (840) 824 Tax paid (14) (136) Capital expenditure and financial investment (1,111) 1,756 Equity dividends paid (250) (662) ----------- ----------- Net cash (outflow)/inflow before financing (2,215) 1,782 Financing 1,887 134 ----------- ----------- (Decrease)/increase in cash (328) 1,916 ----------- ----------- Reconciliation of net cash flow to movement in net cash (Decrease)/increase in cash (328) 1,916 Net cash at 1 December 2,223 307 ----------- ----------- Net cash at 30 November 1,895 2,223 ----------- ----------- Reconciliation of net revenue before taxation to net cash (outflow)/ inflow from operating activities Loss on ordinary activities before taxation (86) (86) (Profit)/loss on realisation of investments (758) 207 (Increase)/decrease in debtors (3) 674 Increase in creditors 7 29 ----------- ----------- Net cash (outflow)/inflow from operating activities (840) 824 ----------- ----------- Notes 1. The audited results which cover the year to 30 November 2004 have been prepared under the historical cost convention, modified to include the revaluation of fixed asset investments. These financial statements are presented in accordance with the Investment Trust Companies SORP (including the provision of additional information) except when departures are necessary to comply with schedule 4 of the Companies Act 1985 as a result of the fact that the Company has relinquished its investment company status under the Act. 2. There were 43,390,309 ordinary shares in issue at 30 November 2004 (2003: 41,490,367). During the year the Company issued 4,158,942 ordinary shares raising net proceeds of £3,880,000 and bought back for cancellation 2,259,000 ordinary shares at a cost of £1,809,000 (2003: 143,000 ordinary shares at a cost of £102,000). 3. Revenue and capital returns for the year to 30 November 2004 are based on a weighted average of 42,603,642 (2003: 41,403,710) ordinary shares in issue during the year. 4. Income for the year to 30 November is derived from: 2004 2003 £'000 £'000 Dividend Income 112 58 Fixed interest investment 146 1,081 Deposit interest 63 48 321 1,187 5. The final proposed capital dividend of 2.0 pence per ordinary share will be paid on 8 April 2005, subject to shareholder approval, to eligible shareholders on the register on 11 March 2005. 6. These are not full accounts in terms of Section 240 of the Companies Act 1985. Full audited accounts for the year to 30 November 2003 have been lodged with the Registrar of Companies. The annual report for the year to 30 November 2004 will be sent to shareholders shortly and will then be available for inspection at Exchange House, Primrose Street, London, the registered office of the Company. Both the audited accounts for the year to 30 November 2004 and 2003 contain unqualified audit reports. 7. The Annual General Meeting will be held on 7 April 2005 at 11.00am. This information is provided by RNS The company news service from the London Stock Exchange

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