Final Results

AIM VCT2 PLC 16 February 2007 To: Company Announcements From: AiM VCT2 plc Date: 16 February 2007 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. Ordinary Shares • Net asset value per share increase of 8.5 per cent for the year (before capital dividends) • Final capital dividend of 2.0 pence per share, making 3.5 pence per share for the year C Shares • Net asset value increased by 9.9 per cent since launch (based on an issue price of 95 pence after the deduction of launch costs) • A capital dividend of 1.0 pence per share and an income dividend of 1.0 pence per share for the period The Chairman, Gordon Brough, said: 'Performance - The AiM Market - Ordinary shares I am pleased to report that, against challenging conditions on the AiM market, the Company's Net Asset Value produced a total return of 8.5 per cent or 6.0 pence per share for the year. AiM VCT2 was helped by a number of the portfolio's individual investments making positive progress with their business plans and this progress being noticed by investors. The year started well with AiM benefiting from its large exposure to resource companies which, with strong underlying commodity prices, helped propel the FTSE AIM Index higher during the first five months. However, by May, concerns about a deteriorating domestic economic situation and general monetary tightening by authorities led to a period of market weakness, which caused AiM to give up all the gains made up to that point and ending the year just 0.7 per cent ahead. For the second year in a row the AiM market has not participated in the general buoyancy displayed by stock markets around the world despite the number of companies on AiM growing from 979 to 1595 and more than £23 billion of new money being raised. The performance of the market appears to have been held back by the focus given by investors and advisers to the primary capital market, with the unprecedented level of fundraising satisfying much of the investor demand for AiM investments, to the detriment of existing companies on the market. Despite the generally unfavourable market background for small AiM companies, it was encouraging to see a number of the portfolio companies making progress and contributing to the performance of the Company. By far the most positive influence on the performance of the portfolio came from the continued strong share price of the Company's largest holding, Egdon Resources, which increased by 94 per cent and added £2.26 million of value to AiM VCT2. Egdon's share price was driven by confirmation of the technical feasibility for a project to build a major gas storage facility beneath Portland harbour. The Manager took advantage of the share price rise and sold a proportion of the holding for £607,000. Even after this sale, Egdon remains the Company's largest holding, accounting for 11.1 per cent of net assets and the Manager anticipates that a successful planning application for the Portland Gas project would add further value to this important investment. The portfolio also benefited from good operational performance from Tanfield, Bond International Software, Colliers CRE and Jelf Group, as well as the takeover by Novartis of Neutec Pharma. This year's performance would have been even better if it had not been held back by some investments failing to make the progress the Manager had hoped for. In particular poor share performance from Torex (see note 8), Widney, and 1st Dental Laboratories was unhelpful. The value of the portfolio was also adversely affected by the write off of holdings in RingProp, Elevation Events and OBUS SmarterMedia. -C Shares It was disappointing that the C share Offer only raised £2.9 million by its close on 4 April 2006, in what became a very congested market for fundraising in the lead up to the end of the last tax year. However, I am delighted to report that the Manager has made significant progress in building a qualifying portfolio for the C share pool and that the initial investments have on the whole performed well. In the first seven months a sum of £1.1 million, or forty one per cent of funds raised, has been invested across thirteen new holdings. The Net Asset Value per share of the C shares has grown from 95.0 pence (after initial launch costs are taken into account) to 104.4 pence at the year end, an increase of 9.9 per cent. This was achieved against a difficult period for the market when the FTSE AIM Index fell by 11.1 per cent. Earnings and Dividends - Ordinary Shares Revenue losses for the year amounted to £217,000 and the Board is not in the position to recommend an income dividend. However, progress made by individual business plans permitted the realisation, in part or as a whole, of a number of holdings at a profit and, as a result, the Board is able to recommend the payment of a capital dividend of 2.0 pence per share making total dividends for the year of 3.5 pence per share, (2005 - 3.0 pence). Shareholders will have already received an interim capital dividend of 1.5 pence per share in September 2006. The proposed final capital dividend of 2.0 pence per share will be paid on 27 April 2007 to shareholders on the register on 2 March 2007, subject to shareholders' approval at the forthcoming AGM. The total of these dividends will be £1.4 million and have the effect of reducing the Company's assets by 4 per cent. Following this dividend, since launch the Company will have paid 14.0 pence per share to the original ordinary shareholders. It continues to be the Board's intention to seek to encourage the Manager to realise investments, as market conditions and the development of individual business plans permit, in order to facilitate further capital dividends. - C Shares During the period since launch, the C share portfolio has generated net revenue of £35,000. The Board is therefore pleased to propose the payment of an income dividend of 1.0 pence per C share. In addition, as a consequence of the successful realisation of investments in the C Share portfolio, a proposed capital dividend of 1.0 pence per share will also be paid. Subject to shareholders' approval these dividends will be payable on 27 April 2007 to shareholders on the register on 2 March 2007. The total of these dividends will be £59,000. As C shareholders have the opportunity to convert their C shares into ordinary shares or to realise their investment in 2009, the directors are unable to extend the dividend reinvestment scheme available to ordinary shareholders to C shareholders at this time. Portfolio Developments - Ordinary Shares There were periods during the year when trading conditions on the AiM market were favourable, enabling the Manager to continue to actively manage the portfolio and gradually reduce the number of holdings, in line with the Company's investment strategy. To this end the number of holdings was reduced from 85 to 71 by the end of the year, with the concentration of the asset value within the top ten holdings standing at 45 per cent of net assets and the top three holdings accounting for 22 per cent of net assets. During the year a sum of £4.1 million was realised from the sale of twelve holdings in their entirety, as well as the part sale of seven others. Whilst the new issue market on AiM continued unabated, the Manager was restricted from reinvesting much of the sales proceeds back into the portfolio, with most of the available funds were used to satisfy share buy backs and to fund the interim capital dividend. Over the year a sum of £982,000 was re-invested into one new and nine existing holdings for the portfolio. Budget Changes In the April 2006 Budget a number of changes were announced to the regulations governing VCTs. These changes affect both investors in VCTs and the way VCTs are managed. For the investor, the main changes (which took effect from 6 April 2006) were that the up front income tax relief available on the purchase of new shares fell from 40 per cent to 30 per cent and that these new shares have to be held for at least five years (previously three years) in order to retain the up-front tax relief. The most significant change affecting the management of VCTs is to the Gross Asset Test which places an upper limit on the size of qualifying companies into which a VCT is able to invest. This limit has been reduced from companies with gross assets of £15million pre investment and £16million post investment down to £7million pre and £8million post any new fundraising. This means that new VCTs and existing VCTs that raise further funds may have to invest in significantly smaller companies than previously was the case. I am relieved to say that the change in the Gross Asset Test does not impact existing VCTs, which are able to continue to invest funds raised prior to 6 April 2006 under the old rules. Capital Gains reminder I would like to remind shareholders about the use of VCT shares to shelter capital gains. The Board is aware that many shareholders may have sheltered capital gains in new shares issued by AiM VCT2 under the tax benefits available prior to April 2004. On the sale of these shares this capital gain comes back into charge and may be subject to capital gains tax. I mention this because some recent enquiries made by shareholders would suggest to me that this may have been overlooked. I would urge shareholders who are unsure of their tax position to seek professional advice. Share Buy Backs A share buy back facility had been in place for a number of years, in order to give shareholders the flexibility to sell all or part of their holding at a reasonable discount to the prevailing NAV. This was seen as a benefit to both the selling shareholders, as well as those shareholders who continue to hold their investment. Prior to the period which lasted from June to November 2006, most of these share purchases have been transacted at an average discount of 15 per cent, thereby also enhancing the NAV for the remaining shareholders. Market conditions in the first four months of this financial year were helpful to the Manager who was able to raise enough capital from the sale of portfolio investments to fund the repurchase of 1,775,000 shares for cancellation, representing 4.1 per cent of the issued share capital at a cost of £1.3 million. However, increased market volatility in May 2006, which coincided with the Company's interim close period, resulted in the discount between the share price and the Net Asset Value per share widening to as much as 40 per cent over the summer months. With the return to slightly more favourable market conditions in the autumn, as well as the sale of a significant proportion of the Company's holding in Egdon Resources, after a good run in the shares, the Manager was able to resume share buy backs. In the second half of the year a further 970,000 shares were bought back for cancellation at a cost of £642,000 and the result that at the end of the year the discount between the share price and the Net Asset Value per share had once again narrowed to 15.5 per cent. Notwithstanding the need to balance the interests of shareholders who wish to exit with those who wish to retain their shareholding, it remains the Board's opinion that the best way of returning capital to shareholders, in a tax efficient manner is through the distribution of realised capital profit being made to all shareholders. We hope to be in a position to make further capital dividends in the future. Change of Name The Board is proposing to change the name of the Company from AiM VCT2 plc to ' Bluehone AiM VCT2 plc' to reflect the change of name of the Company's Investment Manager, Bluehone Investors LLP, which took place in 2005 and also to provide clarity as there are now a significant number of AiM VCT's listed on the London Stock Exchange. Outlook Stock markets generally have started the year in a cautiously optimistic mood supported by a reasonably healthy outlook for corporate earnings and an easing of fears about energy price induced inflation. Even after their recent strength, equity markets are not expensive by historical standards and have scope for further improvement. However, a key determinant for the outcome of the current year will be the length and severity of the anticipated slowdown in the economy of the USA as well as its impact on the rest of the world. It is difficult at this stage to know whether this will lead to a soft or a hard landing and there may be periods during the year when the outcome will be unclear. During such times investors can be expected to become more risk averse and seek safer homes for their capital, leaving room for market corrections on the downside. The AiM market cannot be immune from this. However, on the domestic front the growth in Gross Domestic Product is expected to be near trend, with interest rates at or near their peak in the current cycle. Against this background we anticipate further progress being made by the portfolio companies. The Manager also expects to continue to introduce new investment opportunities to the C share pool.' Enquiries: Robert Mitchell / Sally Mills Bluehone Investors LLP Investment Managers Tel: 0207 496 8929 Scott Macrae F&C Asset Management plc Secretaries Tel: 0131 718 1073 Audited Income Statement for the year ended 30 November 2006 Ordinary Shares 2006 2006 2006 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 1,116 1,116 Unrealised gains - 2,197 2,197 Income 239 - 239 Investment management fee (204) (611) (815) Other expenses (254) - (254) ----------- ----------- ----------- (Loss)/profit on ordinary activities before taxation (219) 2,702 2,483 Tax on ordinary activities 2 - 2 ---------- ----------- ----------- (Loss) /profit on ordinary activities after taxation (217) 2,702 2,485 ---------- ---------- ----------- Return per ordinary share (0.52p) 6.49p 5.97p ______ ______ _____ Reconciliation of Movement in Ordinary Shareholders' Funds for the year ended 30 November 2006 2006 £'000 Opening shareholders' funds (as restated) 35,700 Profit for the year 2,485 Increase in share capital 56 Purchase of shares (1,920) Dividends paid (1,264) ----------- Closing shareholders' funds 35,057 ----------- Audited Income Statement for the period ended 30 November 2006 C Shares 2006 2006 2006 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 55 55 Unrealised gains - 225 225 Income 64 - 64 Investment management fee (13) (39) (52) Other expenses (16) - (16) ---------- ----------- ----------- Profit on ordinary activities before taxation 35 241 276 Tax on ordinary activities - - - ---------- ----------- ----------- Profit on ordinary activities after taxation 35 241 276 ---------- ---------- ----------- Return per C share 1.39p 9.58p 10.97p ______ ______ _____ Reconciliation of Movement in C Shareholders' Funds for the period ended 30 November 2006 2006 £'000 Opening shareholders' funds - Profit for the period 276 Increase in share capital 2,803 ----------- Closing shareholders' funds 3,079 ----------- Audited Income Statement for the year ended 30 November 2006 Total 2006 2006 2006 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 1,171 1,171 Unrealised gains - 2,422 2,422 Income 303 - 303 Investment management fee (217) (650) (867) Other expenses (270) - (270) ---------- ----------- ----------- (Loss)/profit on ordinary activities before taxation (184) 2,943 2,759 Tax on ordinary activities 2 - 2 ---------- ----------- ----------- (Loss)/profit on ordinary activities after taxation (182) 2,943 2,761 ---------- ---------- ----------- Return per ordinary share/ C share (0.42p) 6.75p 6.33p ______ ______ ______ Reconciliation of Movement in Total Shareholders' Funds for the year ended 30 November 2006 2006 £'000 Opening shareholders' funds (as restated) 35,700 Profit for the year 2,761 Increase in share capital 2,859 Purchase of shares (1,920) Dividends paid (1,264) ----------- Closing shareholders' funds 38,136 ----------- Audited Income Statement for the year ended 30 November 2005 (as restated) Ordinary Shares 2005 2005 2005 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 270 270 Unrealised gains - 20 20 Income 291 - 291 Investment management fee (227) (681) (908) Other expenses (285) - (285) ---------- ----------- ----------- Loss on ordinary activities before taxation (221) (391) (612) Tax on ordinary activities - - - ---------- ----------- ----------- Loss on ordinary activities after taxation (221) (391) (612) ---------- ---------- ----------- Return per ordinary share (0.51p) (0.89p) (1.40p) ______ ______ ______ Reconciliation of Movement in Ordinary Shareholders' Funds for the year ended 30 November 2005 2005 £'000 Opening shareholders' funds (as previously reported) 38,110 Less investments held at fair value changed from mid to bid basis (1,201) Add dividends declared at 30 November 2005 868 ----------- Opening shareholders' funds (as restated) 37,777 Loss for the year (612) Increase in share capital 1,985 Purchase of shares (1,930) Dividends paid (1,520) ----------- Closing shareholders' funds 35,700 ----------- Audited Balance Sheet As at 30 November 2006 Ordinary shares C shares Total £'000 £'000 £'000 Fixed assets Investments 35,093 3,060 38,153 Current assets Debtors 45 54 99 Cash at bank and on deposit 198 44 242 ______ ______ _____ 243 98 341 Creditors (amounts falling due within one year) (279) (79) (358) ______ ______ _____ Net assets less current liabilities (36) 19 (17) ______ ______ _____ Total assets less current liabilities 35,057 3,079 38,136 ______ ______ _____ Financed by: Equity shareholders' funds 35,057 3,079 38,136 ______ ______ _____ Net asset value per share: 86.97p 104.37p Number of shares in issue at the balance sheet date 40,310,023 2,950,085 Audited Balance Sheet As at 30 November 2005 (as restated) Ordinary shares Total £'000 Fixed Assets Investments 34,713 Current assets Debtors 32 Cash at bank and on deposit 1,457 _____ 1,489 Creditors (amounts falling due within one year) (502) _____ Net assets less current liabilities 987 _____ Total assets less current liabilities 35,700 _____ Financed by: Equity shareholders' funds 35,700 _____ Net asset value per share: 83.03p Ordinary shares in issue 42,994,382 Summarised Audited Statement of Cash Flows Year to 30 November 2006 Ordinary C shares shares Total £'000 £'000 £'000 Net cash outflow from operating activities (992) (10) (1,002) Taxation received 2 - 2 Capital expenditure and financial investment 2,788 (2,737) 51 Equity dividends paid (1,264) - (1,264) ----------- ----------- ----------- Net cash inflow/(outflow) before financing 534 (2,747) (2,213) Financing (1,793) 2,791 998 ----------- ----------- ----------- (Decrease)/increase in cash (1,259) 44 (1,215) ----------- ----------- ----------- Reconciliation of net cash flow to movement in net cash (Decrease)/increase in cash (1,259) 44 (1,215) Opening cash 1,457 - 1,457 ----------- ----------- ----------- Net cash at 30 November 2006 198 44 242 ----------- ----------- ----------- Reconciliation of net revenue before taxation to net cash inflow from operating activities Profit on ordinary activities before taxation 2,485 276 2,761 Loss on realisation of investments (1,116) (55) (1,171) Unrealised gains on investments (2,197) (225) (2,422) Increase in debtors (13) (18) (31) (Decrease)/increase in creditors (151) 12 (139) ----------- ----------- ----------- Net cash outflow from operating activities (992) (10) (1,002) ----------- ----------- ----------- Summarised Audited Statement of Cash Flows Year to 30 November 2005 Ordinary shares £'000 Net cash outflow from operating activities (912) Taxation - Capital expenditure and financial investment 1,739 Equity dividends paid (1,520) ----------- Net cash outflow before financing (693) Financing 255 ----------- Decrease in cash (438) ----------- Reconciliation of net cash flow to movement in net cash Decrease in cash (438) Opening cash 1,895 ----------- Net cash at 30 November 2005 1,457 ----------- Reconciliation of net revenue before taxation to net cash inflow from operating activities Loss on ordinary activities before taxation (612) Loss on realisation of investments (270) Unrealised gains on investments (20) Increase in debtors (3) Decrease in creditors (7) ----------- Net cash outflow from operating activities (912) ----------- Notes 1. The audited results which cover the year to 30 November 2006 have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and on the assumption that the Company maintains VCT status. A number of new UK Financial Reporting Standards have been introduced as part of the UK convergence programme with International Accounting Standards. The changes affecting the Company relate to FRS 26 Financial Instruments: Measurement and FRS 21 Events after the Balance Sheet Date. A reconciliation of these changes is set out in Notes 6 and 7 below. The Company is no longer an investment Company as defined by Section 266 of the Companies Act 1985, as Investment Company status was revoked in order to permit the dividend of capital profits. Where presentational guidance set out in the Statement of Recommended Practice ('SORP'), revised December 2005, for Investment Trusts issued by the Association of Investment Trust ('AIC') in January 2003 is consistent with the requirements of UK GAAP, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. In order to better reflect the activities of a VCT and in accordance with the SORP, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. The Net Revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 842 AA Income and Corporation Taxes Act 1988. 2. There were 40,310,023 ordinary shares in issue at 30 November 2006 (30 November 2005: 42,994,382). 60,641 ordinary shares were issued during the year. The Company bought back 2,745,000 ordinary shares during the year. C share issue There were 2,950,085 C shares issued during the year and in issue at 30 November 2006. 3. Returns for the year to 30 November 2006 are based on a weighted average of 41,635,148 (30 November 2005: 43,706,543) ordinary shares in issue during the year. C share issue Returns for the period from 13 February 2006 to 30 November 2006 are based on a weighted average of 2,516,032 C shares, being the weighted average number of C shares in issue during the period. 4. Subject to shareholder approval, the final capital dividend of 2.0 pence per ordinary share, an income dividend of 1.0 pence per C share and a capital dividend of 1.0 pence per C share will be paid on 27 April 2007 to shareholders on the register on 2 March 2007. 5. These are not full accounts in terms of Section 240 of the Companies Act 1985. Full audited accounts for the year to 30 November 2005 have been lodged with the Registrar of Companies. The annual report for the year to 30 November 2006 will be sent to shareholders shortly and will then be available for inspection at F&C Asset Management plc, Exchange House, Primrose Street, London, EC2A 2NY, the registered office of the Company. Both the audited accounts for the year to 30 November 2005 and 30 November 2006 contain unqualified audit reports. 6. (a) Restatement of balances as at and for the year ended 30 November 2005. There have been a number of changes to financial reporting standards that have come into effect for accounting periods beginning on or after 1 January 2005. The principal ones affecting the Company are the requirement to value quoted investments at fair value and only reflect dividends to shareholders when paid. Investments are designated as held at fair value under revised UK GAAP and are carried at bid prices which total £34,713,000. Previously under UK GAAP, they were carried at mid prices. The aggregate differences, being a revaluation downwards of £1,044,000 also decreases the Revaluation reserve. No provision has been made for the final dividend for the year ended 30 November 2005 of £645,000. Under revised UK GAAP, dividends are not recognised until paid. (b) Reconciliation of the Profit and Loss Account to the Income Statement for the year ended 30 November 2005. Under revised UK GAAP the total column of the Income Statement is the equivalent of the Statement of Total Return reported previously. 2005 Notes £'000 Total transfer from reserves per the Statement of Total Return (as previously reported) (2,098) Add unrealised gains on revaluation of investments 1 32 Add back dividends paid and proposed 2 1,297 Investments held at fair value changed from mid to bid basis at 30 November 2004 3 1,201 Investments held at fair value changed from mid to bid basis at 30 November 2005 3 (1,044) Net profit per the Income Statement (612) 1) Unrealised gains on revaluation of investments are reflected in the Income Statement under revised UK GAAP. 2) Dividends declared and paid during the year are dealt with through the Reconciliation of Movements in Shareholders' Funds. 3) The portfolio valuations at 30 November 2004 and 30 November 2005 are required to be valued at fair value under revised UK GAAP. These differ from the previous valuations by £1,201,000 and £1,044,000 respectively. 7. Restatement of opening balances as at 30 November 2004 Investments are designated as held at fair value under revised UK GAAP and are carried at bid prices which total £36,722,000. Previously under UK GAAP, they were carried at mid prices. The aggregate differences, being a revaluation downwards of £1,201,000 also decreases the Revaluation reserve. No provision had been made for a final dividend on the ordinary shares for the year ended 30 November 2004 of £868,000. Under UK GAAP, dividends are not recognised until paid. 8. Post balance sheet event On 26 January 2007, the Alternative Investment Market of the London Stock Exchange announced that at the request of Torex Retail plc the company's ordinary shares of 1 pence each, had been temporarily suspended, pending clarification of its financial position. As at 31 December 2006 the valuation of this investment in AiM VCT2's portfolio was £643,000. 9. The Annual General Meeting will be held on 25 April 2007 at 10.30am. This information is provided by RNS The company news service from the London Stock Exchange

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