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 2015

British Smaller Companies VCT2 plc ("the Company") today announces its unaudited interim results for the six months to 30 June 2015.

Financial Highlights

· Increase in total return of 2.1 pence per ordinary share to 108.5 pence per ordinary share (106.4 pence per ordinary share as at 31 December 2014).

· Investment portfolio has increased to £33.20 million at 30 June 2015, from £28.22 million at 31 December 2014 including a value gain of £1.66 million, a 5.9 per cent increase over opening value.

· Increase in net asset value per share ("NAV") to 65.0 pence per ordinary share prior to the payment of dividends during the period totalling 2.5 pence per ordinary share. This growth was 3.3 per cent of the opening NAV of 62.9 pence per ordinary share.

· Total cumulative dividends paid since inception of 46.0 pence per ordinary share.

· 91 per cent invested in qualifying holdings giving significant headroom relative to the minimum 70 per cent VCT tax rule test, providing significant resilience to withstand the current period of uncertainty due to changes in VCT investment rules.

Chairman's Statement

The stable performance of the UK economy of 2014 has continued into the current year notwithstanding that since my last Statement at the end of March we have seen a General Election and a second budget.

The Company's portfolio has continued to perform well against this backdrop. The overall value of your Company's investments has increased by 5.9 per cent since the start of the year despite there being trading challenges for those exporting to Europe where businesses have had to increase trading volumes to counteract the effects of a strong pound. The Company's larger and more diversified portfolio has also continued to deliver an increasing level of income. Overall the total return to shareholders has increased by 2.1 pence per ordinary share.

A further two new investments have been added to the portfolio in this period, these being Scottish based womenswear brand Ness (Holdings) Limited and AIM listed Gooch & Housego plc, amounting to, in aggregate, £1.4 million.

Proposed Regulatory Changes

There are a number of proposed changes emanating from the Summer budget that may restrict the pool of investments available to the VCT industry as a whole. The detailed legislation relating to these changes is in the process of being drafted and is expected to be finalised in the autumn. The board is keeping these changes under review and will appraise shareholders in due course.

In the meantime there is still an encouraging pipeline of investment opportunities reflecting the strong demand for equity funding among smaller UK businesses which we are progressing, although we might expect some slowing down in gaining HMRC approval for transactions until the new legislation is finalised.

Financial Results and Dividends

In the six months to 30 June 2015 the Company's total return increased by 2.1 pence per ordinary share from 106.4 pence per ordinary share at 31 December 2014 to 108.5 pence per ordinary share. This equates to an increase of 3.3 per cent on the opening net assets value at 31 December 2014.

Significant progress has been made by many of the portfolio companies resulting in a value gain of £1.66 million, representing a 5.9 per cent increase over the opening value and equivalent to an increase in value for shareholders of 1.9 pence per ordinary share. The increased income generation from the existing portfolio contributed a further £0.35 million gain net of costs, equivalent to 0.4 pence per ordinary share.

During the period a final dividend in respect of the year ended 31 December 2014 of 2.5 pence per ordinary share was paid, bringing the cumulative dividends paid to date to 46.0 pence per ordinary share.

Your Board remains committed to achieving the objective of a consistent and, where possible, increasing dividend stream over time whilst seeking to maintain capital value. For the period to 30 June 2015 the Board has proposed an interim dividend of 2.0 pence per ordinary share, taking dividends paid over the last year to 4.5 pence per ordinary share, the same as last year, representing 7.2 per cent of net assets per share. It is intended that of the total interim dividend 0.48 pence per ordinary share will be paid from revenue reserves and 1.52 pence per ordinary share from capital reserves, representing unrealised gains. The interim dividend will be paid on 28 September 2015 to shareholders on the register at 28 August 2015.

Shareholder Relations

As part of its review of costs, and in line with current Environmental, Social & Corporate Governance, the Company is committed to promoting electronic communications with shareholders. The Board has decided to implement an electronic communications policy, whereby documents such as the annual report will in future be disseminated via the website www.bscfunds.com rather than by post. This will save on printing costs and be more environmentally friendly. Further details have been included in the letter which accompanied the recent quarterly shareholder update.

In addition we are refreshing the Company's website. The emphasis being on providing a comprehensive level of information in a user-friendly format.

Outlook

Good progress continues to be made across the portfolio to position businesses to grow and realise shareholder value. The growth in income generation from the portfolio has added further resilience to future investment returns.

The recent budget announcements have introduced uncertainty in the processing of advanced assurances from HMRC in the short term which is expected to resolve later in the year. Whilst it does seem that for the VCT industry as a whole there may be some reduction in the overall pool of investments, your Company has available funds to invest and a strong pipeline of opportunities which comply with the new draft VCT regulations. We will continue to take a cautious approach to protect the tax status of investors and maintain our strong long-term investment record.

Objectives and Strategy

The Company's objective is to provide investors with an attractive long-term tax free dividend yield whilst seeking to maintain and build the capital value of their investment and maintain the Company's status as a venture capital trust.

The investment strategy of the Company is to create a portfolio with a mix of companies operating in traditional industries and those that offer opportunities in the development and application of innovation. The Company invests in UK businesses across a broad range of sectors including but not limited to Software, IT & Telecommunications, Business Services, Manufacturing & Industrial Services, Retail & Brands and Healthcare in VCT qualifying and non-qualifying unquoted and AIM traded securities.

Investment Review

The Company has continued to diversify its portfolio which at 30 June 2015 had a value of £33.2 million consisting of £30.5 million (91.8 per cent) in unquoted investments and £2.7 million (8.2 per cent) in quoted investments. The strategy to increase the portfolio diversity is signified insofar as the largest single investment represents just 5.4 per cent of the net asset value.

Over the six months to 30 June 2015 the portfolio saw an underlying value gain of £1.66 million with good progress being made across a number of companies. The most significant movements in valuations in the period were:

· IO Outsourcing (value gain of £0.56 million) following strong profit growth and new contract wins in the first years following investment.

· TeraView Limited (value gain of £0.49 million) which closed a $10 million funding round including a new investment from a US trade investor.

· GTK (Holdco) Limited (value gain of £0.18 million) delivered another year of sales and profit growth with a focus on gradually building average order value, and

· AB Dynamics plc (value gain of £0.17 million) saw further growth and received planning permission for its factory expansion plans.

New and Follow-on Investments

In the six months to 30 June 2015 the Company has completed 2 new investments totalling £1.40 million as set out in the table below.

The Company also made a follow-on investment of £0.26 million in March 2015 into Brady plc.

As at 30 June 2015 the Company had approved a further £1.30 million of investment by way of follow-on and new investment.

Realisation of Investments

During the six months to 30 June 2015 the Company received cash proceeds of £0.51 million relating to the repayment of loan capital from the Company's portfolio, and £0.32 million from the sale of quoted shareholdings.

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 2014. 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:

• Loss of approval as a Venture Capital Trust;

• Economic;

• Investment and strategic;

• Regulatory;

• Reputational;

• Operational;

• Financial;

• Market/liquidity.

Full details of the principal risks can be found in the financial statements for the year ended 31 December 2014 on pages 30 and 31, a copy of which is available at www.bscfunds.com.

Directors' Responsibilities Statement

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 and 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.

Richard Last

Chairman

14 August 2015

Unaudited Statement of Comprehensive Income

For the six months ended 30 June 2015

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 ('IFRSs'). 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') 2014 published by the Association of Investment Companies.

Unaudited Balance Sheet

As at 30 June 2015

Signed on behalf of the Board

Richard Last

Chairman

14 August 2015

Unaudited Statement of Changes in Equity

For the six months ended 30 June 2015

Unaudited Statement of Changes in Equity

For the six months ended 30 June 2015

* Other reserves include the capital redemption reserve and other reserve.

Reserves available for distribution

Under the Companies Act 2006 the capital reserve and the revenue reserve are distributable reserves. The table below shows amounts that are available for distribution.

** The revenue reserve of £414,000 is only distributable once the interim financial statements are filed at Companies House.

The capital reserve (£22,324,000) and the revenue reserve (£901,000) are both distributable reserves and total £23,225,000 (30 June 2014: £13,726,000 and 31 December 2014: £25,422,000), a decrease of £2,197,000 in the period since 31 December 2014 (30 June 2014: £921,000 decrease). The directors also take into account the level of investment holding gains and losses reserve and the future requirements of the Company when determining the level of dividend payments.

Of the potentially distributable reserves of £23,225,000 shown above, £487,000 (2014: £182,000) relates to interest receivable in 2018 and 2019, £85,000 (2014: £115,000) of deferred proceeds receivable in 2016, and £1,343,000 of share premium (2014: Nil) which becomes distributable from 1 January 2018.

On filing the interim financial statements at Companies House, the reserves available for distribution will be £21,310,000.

Unaudited Statement of Cash Flows

For the six months ended 30 June 2015

Notes to the Unaudited Condensed Financial Statements

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

The 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 2014 do not constitute full financial statements and have been extracted from the Company's financial statements for the year ended 31 December 2014. 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 2014.

The financial statements for the year ended 31 December 2014 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, 10, 11, 14 and 15 and amendments to IAS16, 27, 28, 32 and 38. 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 2015 the Company held cash balances and fixed term deposits with a combined value of £20,078,000. 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 period.

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 approximately £1,734,000 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 £2,006,000 (30 June 2014: profit of £58,000) and 79,407,872 (30 June 2014: 53,185,770) ordinary shares being the weighted average number of ordinary shares in issue during the period.

The basic and diluted revenue earnings per ordinary share is based on the revenue profit attributable to equity shareholders of £569,000 (30 June 2014: £271,000) and 79,407,872 (30 June 2014: 53,185,770) ordinary shares being the weighted average number of ordinary shares in issue during the period.

The basic and diluted capital earnings (loss) per ordinary share is based on the capital profit attributable to equity shareholders of £1,437,000 (30 June 2014: loss £213,000) and 79,407,872 (30 June 2014: 53,185,770) ordinary shares being the weighted average number of ordinary shares in issue during the period.

During the period the Company allotted 677,522 new ordinary shares in respect of its dividend re-investment scheme and 23,665,149 new ordinary shares under the offer for subscription with British Smaller Companies VCT plc.

The Company has repurchased 217,981 of its own shares in the period and these shares are held in the capital reserve. The total of 2,128,003 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.

The only potentially dilutive shares are those shares which, subject to certain criteria, being achieved in the future, may be issued by the Company to meet its obligations under the Investment Advisor Agreement. No such shares have been issued or are currently expected to be issued.

6. Financial Assets at Fair Value through Profit or Loss 

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 have been no transfers between these classifications in the period (2014: none). 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 55 of the financial statements for the year ended 31 December 2014, a copy of which can be found at www.bscfunds.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 loss on disposal in the table above is £55,000 whereas that shown in the Statement of Comprehensive Income is £53,000. The difference comprises the gain of £2,000 arising on deferred proceeds 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 2015, 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 £2,177,000 (7.1 per cent) lower. Using the upside alternative the value would be increased by £2,522,000 (8.3 per cent).

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 £1,214,000 (2.2 per cent of net assets). A change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit by £1,131,000 (2.1 per cent of net assets).

Of the Company's equity investments, 8.2 per cent are quoted on AIM (31 December 2014: 8.0 per cent). A five per cent increase in stock prices as at 30 June 2015 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £137,000 (31 December 2014: £106,000). 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 91.8 per cent are in unquoted companies held at fair value (December 2014: 92.0 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 an 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 (1.0 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.

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 2014: none)

The Company has completed investments totalling £2.50 million into five acquisition vehicles.

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 £54,140,000 (30 June 2014 and 31 December 2014: £39,330,000 and £39,333,000 respectively) and 86,681,566 (30 June 2014 and 31 December 2014: 62,269,837 and 62,556,876 respectively) ordinary shares in issue at 30 June 2015.

The 2,128,003 (30 June 2014: 1,840,918 and 31 December 2014: 1,910,022) treasury shares have been excluded in calculating the number of ordinary shares in issue at 30 June 2015. 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.

The only potentially dilutive shares are those shares which, subject to certain criteria being achieved in the future, may be issued by the Company to meet its obligations under the Investment Advisor Agreement. No such shares have been issued or are currently expected to be issued. There are, therefore, considered to be no potentially dilutive shares in issue at 30 June 2015, 31 December 2014 or 30 June 2014.

8. Total Return

Total return per share is calculated on cumulative dividends paid of 46.0 pence per ordinary share (30 June 2014: 41.5 pence per ordinary share and 31 December 2014: 43.5 pence per ordinary share) plus the net asset value as calculated in note 7.

9. Directors

The directors of the Company are: Richard Last, Robert Martin Pettigrew, and Peter Charles Waller.

10. Other Information

Copies of the interim report can be obtained from the Company's registered office: 5th Floor, Valiant Building, 14 South Parade, Leeds, LS1 5QS or from www.bscfunds.com.

11. Interim Dividend for the six months ended 30 June 2015

Further to the announcement of its interim results for the 6 months to 30 June 2015, the Company confirms that an interim dividend of 2.0 pence per ordinary share ("Interim Dividend") will be paid on 28 September 2015 to those shareholders on the Company's register at the close of business on 28 August 2015. The ex-dividend date for the Interim Dividend will be 27 August 2015.

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 14 September 2015.

For further information, please contact:

David Hall YFM Equity Partners Limited Tel: 0113 244 1000

James Maxwell Nplus 1 Singer Advisory LLP Tel: 0207 496 3000