Br.small Co.2 Regulatory News (BSC)

British Smaller Companies VCT2 plc

Unaudited interim Results and Interim Management Report

For the 6 months ended 30 June 2014

British Smaller Companies VCT2 plc ("the Company") today announces its unaudited interim results for the six months to 30 June 2014.

Chairman's Statement

Investment rates continue to climb as the improved economic climate increases confidence amongst business owners. Your Company has made seven new unquoted investments in the last year, including four in the six months to 30 June 2014.

I am pleased to report a strong six months of investment activity, with £5.5 million invested in the period and a total of £10.0 million in the 12 months to 30 June 2014. Your Company continues to focus on investing in established businesses with strong potential for growth located in the UK regions. Of the seven investments completed, three were in the midlands; two were in the South East and one each in Wales and Scotland.

As at 30 June 2014 your board had approved a further £2.0 million of investment and since the period end has approved another £2.1 million. These investments, totalling £4.1 million, are expected to complete in the near future.

I am delighted to report the success of our recent share offers which closed on 29 May 2014 and raised new funds of £10.2 million, which is approximately the same amount the Company invested in the last twelve months. Demand for investment continues to increase and the pipeline of new investments is extremely encouraging.

Financial Results and Dividends

In the six months to 30 June 2014 the Company's total return increased by 0.1 pence per ordinary share from 104.6 pence per ordinary share at 31 December 2013.

Significant progress has been made by many of the portfolio companies however, due to timing delays in the closure of new sales, provisions totalling £0.74 million were made against two of our investments. These were offset by gains elsewhere across the portfolio and both investments continue to be held above cost.

During the period a final dividend of 2.5 pence per ordinary share was paid, bringing cumulative dividends paid to date to 41.5 pence per ordinary share. For the period to 30 June 2014 the Board has proposed an interim dividend of 2.0 pence per ordinary share, making a total of 4.5 pence per ordinary share over the last year. It is intended that of the total interim dividend 0.27 pence per ordinary share will be paid from revenue reserves and 1.73 pence per ordinary share from capital reserves. The interim dividend will be paid on 7 October 2014 to shareholders on the register at 5 September 2014.

Shareholder Relations

Following the success of the 19th Shareholder workshop in February 2014, the Company is pleased to announce that its next workshop will be held at Freemasons Hall, London on 4 February 2015. Details will be circulated nearer the time.

Regulatory Changes

The EU Alternative Investment Fund Managers Directive (AIFMD) became part of UK law in July 2013, with a 12 month transitional period to July 2014. The Directive regulates the management of alternative investment funds, including venture capital funds such as VCTs. The Board is pleased to announce that the Financial Conduct Authority approved the Company's application to become a Small Registered UK Alternative Investment Fund Manager on 21 July 2014. YFM Private Equity Limited continues to provide investment advisory and administrative services to the Company.

As expected, the 2014 Finance Bill, which received Royal Assent on 17 July 2014, included measures to prevent "enhanced" share buy-backs, where a VCT offers to buy back shares from investors on condition that the proceeds are applied in subscribing for a fresh issue of shares. Income tax relief for subscriptions of shares in a VCT is also restricted where an investor disposes of shares in the same VCT within six months of the subscription. Furthermore, where new VCT shares are allotted on or after 6 April 2014, VCTs will be prevented for a specified period from paying dividends to shareholders out of share capital or distributable reserves created by cancelling the share premium account arising on the allotment of such shares. The Company's balance sheet already has ample distributable reserves amounting to £13.43 million and we do not expect the new rules to have any impact on future dividend streams.

Outlook

Good progress continues to be made across the portfolio to position businesses to grow and realise shareholder value. At the same time our Company continues to see strong demand for investment in the UK regions, with £10 million deployed in the last twelve months which has significantly increased the diversity of the portfolio.

The Company continues to see an increase in new investment opportunities. In order for the Company to continue to take advantage of these new opportunities the Board will be seeking to raise further funds, details of which will follow in due course.

Strategic Report

Investment Review

The Company currently has an increasingly diversified portfolio which at 30 June 2014 had a value of £20.66 million consisting of £18.26 million (88.4 per cent) unquoted investments and £2.40 million (11.6 per cent) quoted investments. The high level of current investment rates has significantly increased the portfolio diversity with the largest single investment representing just 5.2 per cent of the net asset value.

Over the six months to 30 June 2014 the portfolio saw a small underlying value gain of £0.01 million and good progress has been made across the portfolio to position businesses to grow and realise shareholder value. This has been displayed in a mixture of strong profit growth from some businesses as well as some strategic and organisational restructuring of others to maximise profits in the year ahead. The most significant movements in valuations in the period were:

- Waterfall Services Limited (increase of £0.30 million) saw strong profit growth from new contracts last year and expects to also benefit from the imminent introduction of free primary school meals.

- Pressure Technologies plc (increase of £0.26 million) reported significantly improved profits from its core pressure container production and successful diversification into the biogas sector.

- Sirigen Limited (increased by £0.26 million) delivered many key milestones to achieve additional deferred consideration following its trade sale in 2012.

- DisplayPlan Holdings Limited (increase of £0.15 million) saw continued strong cash generation.

- Seven Technologies Holdings Limited (reduction of £0.47 million) suffered public sector budgetary constraints in its core US and UK markets last year which are now showing signs of easing.

- Deep-Secure Ltd (decrease of £0.27 million) experienced some public sector contract slippage and a delay in the launch of a product through a significant new strategic partnership.

New Investments

In the six months to 30 June 2014 the Company has completed four new investments totalling £5.19 million.

The Company has made follow-on investments into AiM listed EKF Diagnostics plc and AB Dynamics plc totalling £0.32 million.

As at 30 June 2014 the Company had approved £2.0 million of investment by way of follow-on and new investment. Since that date it has approved another two new investments of £2.1 million in aggregate.

Realisation of Investments

During the six months to 30 June 2014 the Company received proceeds from disposals of investments of £1.11 million. This resulted in a gain on disposal of investments of £0.35 million and an uplift of £0.60 million compared to the original cost of the investments.. Of this £0.49 million of proceeds were realised from the sale of shares in the quoted portfolio, namely Iomart plc, Optos plc, Pressure Technologies plc and Vianet Group plc, representing a £0.27 million uplift on original cost. The remainder was due to the repayment of loans generating proceeds of £0.36 million with premiums on redemption totalling £0.07 million.

£1.37 million was received in June 2014 from the sale of the Company's remaining gilt portfolio at the original investment cost.

Investment Portfolio

Principal Risks and Uncertainties

In accordance with DTR 4.2.7, the Board confirms that the principal risks and uncertainties facing the Company have not materially changed from those identified in the Annual Report and Accounts for the year ended 31 December 2013. The Board acknowledges that there is regulatory risk and continues to manage the company's affairs in such a manner as to comply with section 274 income Tax Act 2007.

In summary, the principal risks are:

• Economic;

• Investment and strategic;

• Loss of approval as a Venture Capital Trust;

• Regulatory;

• Reputational;

• Operational;

• Financial;

• Market/liquidity risk.

Full details of the principal risks can be found in the financial statements for the year ended 31 December 2013 on pages 29 and 30, a copy of which is available at www.yfmep.com

Responsibility Statement of the Directors

The directors of British Smaller Companies VCT2 plc confirm that, to the best of their knowledge, the condensed set of financial statements in this interim report have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the EU, and give a fair view of the assets, liabilities, financial position and profit or loss of British Smaller Companies VCT2 plc, and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

The directors of British Smaller Companies VCT2 plc are listed in Note 9 of the interim financial statements.

Richard Last

Chairman

15 August 2014

Unaudited Statement of Comprehensive Income

For the six months ended 30 June 2014

The Total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The supplementary Revenue and Capital columns are prepared under the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') 2009 published by the Association of Investment Companies.

Unaudited Balance Sheet

As at 30 June 2013

Signed on behalf of the Board

Richard Last

Chairman

15 August 2014

Unaudited Statement of Changes in Equity

For the six months ended 30 June 2014

* Other reserves include the capital redemption reserve and other reserve which are non-distributable.

The capital reserve includes £115,000 (2013: £nil) of deferred proceeds receivable in 2016. The revenue reserve includes £182,000 (2013: £nil) of interest receivable in 2018 and 2019. These amounts should be excluded in the calculation of the Company's distributable reserves at 30 June 2014.Unaudited Statement of Cash Flows

For the six months ended 30 June 2014

Notes to the Unaudited Financial Statements

1. General information, basis of preparation and principal accounting policies

These half year statements have been approved by the directors whose names appear at note 9, each of whom has confirmed that to the best of his knowledge:

· The Interim Management Report includes a fair review of the information required by rules 4.2.7 and 4.2.8 of the Disclosure Rules and the Transparency Rules.

· The half year statements have been prepared in accordance with IAS 34 'Interim financial reporting' and the Disclosure and Transparency Rules of the Financial Services Authority.

The half year statements are unaudited and have not been reviewed by the auditors pursuant to the Auditing Practices Board (APB) guidance on Review of Interim Financial Information. They do not constitute full financial statements as defined in section 435 of the Companies Act 2006. The comparative figures for the year ended 31 December 2013 do not constitute full financial statements and have been extracted from the Company's financial statements for the year ended 31 December 2013. Those accounts were reported upon without qualification by the auditors and have been delivered to the Registrar of Companies.

The accounting policies and methods of computation followed in the half year statements are the same as those adopted in the preparation of the audited financial statements for the year ended 31 December 2013.

The financial statements for the year ended 31 December 2013 were prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Where guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies in January 2009 ("SORP") is consistent with the requirements of IFRS, the financial statements have been prepared in compliance with the recommendations of the SORP.

Other standards and interpretations have been issued which will be effective for future reporting periods but have not been adopted early in these financial statements. These include amendments to IFRS 9, IFRS 10, IFRS 11 and IFRS 12, and amendments to IAS24, IAS 27, IAS28, IAS32 and IAS 36. A full impact assessment has not yet been completed in order to assess whether these new standards will have a material impact on the financial statements.

Going Concern: The directors have carefully considered the issue of going concern and are satisfied that the Company has sufficient resources to meet its obligations as they fall due for a period of at least twelve months from the date these half year statements were approved. As at 30 June 2014 the Company held cash balances and fixed term deposits with a combined value of £17,915,000. Cash flow projections show the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of share buy-backs and the dividend policy. The directors therefore believe that it is appropriate to continue to apply the going concern basis of accounting in preparing these half year statements.

2. Income

3. Taxation

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 the directors do not currently believe that it is probable that 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 Chapter 3 Part 6 of the Income Tax Act 2007, the Company has not provided deferred tax on any capital gains or losses arising on the revaluation or realisation of investments.

4. Dividends

Amounts recognised as distributions to equity holders in the period:

An interim dividend of 2.0 pence per ordinary share, amounting to £1,245,000 is proposed. The dividend has not been recognised in these half year financial statements as the obligation did not exist at the balance sheet date.

5. Basic and Diluted Earnings per Ordinary Share

The basic and diluted earnings per ordinary share is based on the profit after tax attributable to equity shareholders of £58,000 (30 June 2013: profit of £1,031,000) and 53,185,770 (30 June 2013: 43,683,333) ordinary shares being the weighted average number of Ordinary shares in issue during the period.

The basic and diluted revenue return per ordinary share is based on the revenue profit attributable to equity shareholders of £271,000 (30 June 2013: £129,000) and 53,185,770 (30 June 2013: 43,683,333) ordinary shares being the weighted average number of ordinary shares in issue during the period.

The basic and diluted capital loss per ordinary share is based on the capital loss attributable to equity shareholders of £213,000 (30 June 2013: capital return based on a profit of £902,000) and 53,185,770 (30 June 2013: 43,683,833) ordinary shares being the weighted average number of Ordinary shares in issue during the period.

During the period the Company allotted 377,855 new ordinary shares in respect of its dividend re-investment scheme and 15,511,615 new ordinary shares under the joint offer for subscription with British Smaller Companies VCT plc".

The Company has repurchased 63,196 of its own shares in the period and these shares are held in the capital reserve. The total of 1,840,918 treasury shares has been excluded in calculating the weighted average number of ordinary shares during the period. The Company has no securities that would have a dilutive effect and hence basic and diluted earnings per ordinary Share are the same.

6. Financial Assets at Fair Value through Profit or Loss 

IFRS 7 and IFRS 13, in respect of financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level within the following fair value measurement hierarchy:

· Level 1: quoted prices in active markets for identical assets or liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in Level 1 and comprise AIM quoted investments or government securities and other fixed income securities classified as held at fair value through profit or loss.

· Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. The Company held no such instruments in the current or prior year.

· Level 3: the fair value of financial instruments that are not traded in an active market (for example, investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Each investment is reviewed at least quarterly to ensure that it has not ceased to meet the criteria of the level in which it was included at the beginning of each accounting period. There has been no transfers between these classifications in the period (2013: one). The change in fair value for the current and previous year is recognised through profit or loss.

All items held at fair value through profit or loss were designated as such upon initial recognition and are subject to reoccurring valuations on at least a quarterly basis.

Valuation of Investments

Initial Measurement: Financial assets are initially measured at fair value. The best estimate of the initial fair value of a financial asset that is either quoted or not quoted in an active market is the transaction price (i.e. cost).

Subsequent Measurement: The International Private Equity and Venture Capital (IPEVC) Valuation Guidelines ("the Guidelines") identify six of the most widely used valuation methodologies for unquoted investments. The Guidelines advocate that the best valuation methodologies are those that draw on external, objective market based data in order to derive a fair value.

Full details of the methods used by the Company were set out on page 27 of the financial statements for the year ended 31 December 2013, a copy of which can be found at www.yfmep.com. Where investments are in quoted stocks, fair value is set at the market price.

The primary methods used for valuing non-quoted investments, and the key assumptions relating to them are:

Price of Recent investment, reviewed for changes in fair value: the cost of the investment, adjusted for background factors specific to the investment, is taken as a reasonable assessment of the fair value for a period of up to one year. During this period performance is monitored for evidence of changes to this initial fair value. Valuations may be re-based following substantial investment by a third party when this offers evidence that there has been a change to fair value.

Earnings multiple: The appropriate sector FTSER multiples are used as a market-based indication of the enterprise value of an investment company. A discount is applied to the multiple based on perceived market interest in that company or sector and on any benefit that may be observed by holding a significant shareholding or superior rights.

Movements in investments at fair value through profit or loss during the six months to 30 June 2014 are summarised as follows:

\* The net profit on disposal in the table above is £84,000 whereas that shown in Statement of Comprehensive Income is £347,000. The difference comprises deferred proceeds of £263,000 in respect of assets which have been disposed and are not included within the investment portfolio at the period end.

**Following the merger between the Company and British Smaller Technology Companies VCT plc, a total of £975,000 of negative goodwill was recognised in the investment holding gains and losses reserve in respect of investments acquired. The relevant amount per investment is released at the point of disposal to the capital reserve, At 30 June 2014, a total of £30,000 was held on investments yet to be realised in the investment holding gains and losses reserve.

Level 3 valuations include assumptions based on non-observable data, such as discounts applied either to reflect changes in fair value of financial assets held at the price of recent investment, or to adjust earnings multiples.

IFRS13 requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to fair value measurement. The portfolio has been reviewed and both downside and upside alternative assumptions have been identified and applied to the valuation of each of the unquoted investments. Applying the downside alternative the value of the unquoted investments would be £1,480,000 (X8.1 per cent) lower. Using the upside alternative the value would be increased by £2,200,000 (12.0per cent).

Of the Company's equity investments, 11.6 per cent are quoted on AIM (31 December 2013: 15.2 per cent). A five per cent increase in stock prices as at 30 September 2013 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £120,000 (31 December 2013: £123,000). An equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the period by an equal amount.

Of the Company's equity investments 88.4 per cent are in unquoted companies held at fair value (December 2013: 84.8 per cent). The valuation methodology for these investments includes the application of externally produced FTSER multiples. Therefore the value of the unquoted element of the portfolio is also indirectly affected by price movements on the listed market. Those using and earnings multiple methodology include judgements regarding the level of discount applied to that multiple. A 10 per cent decrease in the discount applied would have increased the net assets attributable to the Company's shareholders and the total profit by £550,000 (4.6 per cent of net assets). A change in the opposite direction would have decreased net assets attributable to the Company's shareholders and the total profit for the period by the same amount.

The total of fair value adjustments below cost made against investments at 30 June 2014 amounted to £275,000 (31 December 2013: £524,000).

There have been no individual fair value adjustments downwards during the period that exceeded five per cent of the total assets of the Company (31 December 2013: none).

Fixed income securities comprise UK Government stocks and are classified as financial assets through profit or loss. Their use is as temporary holdings until capital investment opportunities arise.

The following disposals took place during the period (all companies are unquoted unless otherwise stated).

*Designates AIM quoted investments

7. Basic and Diluted Net Asset Value per Ordinary Share

The basic and diluted net asset value per ordinary share is calculated on attributable assets of £39,330,000 (30 June 2013 and 31 December 2013: £30,258,000 and £30,458,000 respectively) and 62,269,837 (30 June 2013 and 31 December 2013: 46,371,537 and 46,443,563 respectively) ordinary shares in issue at 30 June 2014.

The 1,840,918 (30 June 2013: 1,632,722 and 31 December 2013: 1,777,722) treasury shares have been excluded in calculating the number of ordinary shares in issue at 30 June 2014. The Company has no securities that would have a dilutive effect and hence basic and diluted net asset value per ordinary share are the same.

8. Total Return

Total return per share is calculated on cumulative dividends paid of 41.5 pence per ordinary share (30 June 2013: 37.0 pence per ordinary share and 31 December 2013: 39.0 pence per ordinary share) plus the net asset value as calculated in note 7.

9. Directors

The directors of the Company are: Mr R Last, Mr R M Pettigrew, and Mr P C Waller.

10. Other Information

Copies of the interim report can be obtained from the Company's registered office: Saint Martins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ or from www.bscfunds.com.

11. Interim Dividend for the six months ended 30 June 2014

Further to the announcement of its interim results for the 6 months to 30 June 2013, the Company confirms that an interim dividend of 2.0 pence per ordinary share ("Interim Dividend") will be paid on 7 October 2014 to those shareholders on the Company's register at the close of business on 5 September 2014. The ex-dividend date for the Interim Dividend will be 3 September 2014.

12. Dividend Re-investment Scheme ("DRIS")

The Company operates a dividend reinvestment scheme ("DRIS"). The latest date for receipt of DRIS elections so as to participate in the DRIS in respect of the Interim Dividend is the close of business on 22 September 2014.

For further information, please contact:

David Hall YFM Equity Partners Limited Tel: 0113 294 5039

Gillian Martin Nplus 1 Singer Advisory LLP Tel: 0207 496 3000