Half-yearly Report

Baronsmead VCT 2 plc Half Yearly Financial Report 31 March 2013 The Directors announce the unaudited half-yearly financial report for the six months to 31 March 2013 as follows:- Copies of the half yearly report can be obtained from the following website: www.baronsmeadvct2.co.uk . Investment Objective Baronsmead VCT 2 plc is a tax efficient listed company which aims to achieve long-term investment returns for private investors, including tax free dividends. Investment policy ● To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM. ● Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value. Dividend policy The Board of Baronsmead VCT 2 aims to sustain a minimum annual dividend level at an average of 6.5p per Ordinary Share, mindful of the need to maintain net asset value. The ability to meet these twin objectives depends significantly on the level and timing of profitable realisations and it cannot be guaranteed. There will be variations in the amount of dividends paid year on year. Since launch the average annual tax free dividend paid to ordinary shareholders including the 3.0p interim dividend, has been 6.4p per share (equivalent to a pre-tax return of 8.5p per share for a higher rate taxpayer). For shareholders who claimed tax reliefs on initial subscription of 20 per cent, 30 per cent or 40 per cent, their returns would have been higher. FINANCIAL HEADLINES ● +10.0% - Net asset value ("NAV") per share increased 10.0 per cent to 105.7p in the six months ended 31 March 2013 before deduction of dividends. ● 3.0p - Interim dividend of 3.0p for the six month period to 31 March 2013. ● £2.5m - Invested in three new and six follow on investments in the six months to 31 March 2013. ● 276.3p - NAV total return to shareholders for every 100.0p invested at launch. CHAIRMAN'S STATEMENT This has been an excellent period for the Company. A 10.0 per cent increase in Net Asset Value per share for the six months to 31 March 2013 is attributable to increased valuations in both the unquoted and quoted portfolios. The performance of the AIM market has been particularly strong and this accounts for 70 per cent of the growth. At the same time, our unquoted portfolio continues to develop well. Three profitable realisations generated £4.3 million during the period. In December 2012, the Company raised £4.72 million net of expenses from 832 shareholders. The Board has declared an interim dividend of 3.0p per share. Results Before taking account of the 3.0p per share interim dividend, The Net Asset Value increased to 105.72p per share, up 10.0 per cent from 96.10p per share. Pence per ordinary share NAV as at 1 October 2012 96.10 (after deducting the final dividend of 5.0p) Valuation uplift (10.0 per cent) 9.62 105.72 Less Interim dividend payable on 14 June 2013 (3.00) (to shareholders on the register on 31 May 2013) NAV as at 31 March 2013 102.72 All areas of the portfolio have increased in value during the six months under review. ● The gains have been led by the quoted portfolio (comprising AIM and Wood Street Microcap Investment Fund) which increased by 24.6 per cent (8.0p per share) benefiting from the improvement in quoted share prices generally (the FTSE All Share Total Return index increased by 14.5 per cent over the same period). ● The unquoted portfolio increased in value by 5.2 per cent (2.6p per share) reflecting the continuing steady progress made by these investments. ● The most significant change in the portfolio was the 76.6 per cent increase in the value of the Company's investment in Staffline, a national recruitment and outsourcing organisation. Baronsmead VCT 2 first invested in Staffline in 2000 when it was an unquoted company. Subsequently, Staffline floated on the AIM market in 2004 at a price of 80p and was trading at £3.92 as of 31 March 2013. Although not fully realised and so subject to future sale proceeds, the return on the Company's investment in Staffline has been 5.9 times the cost of the original investment taking account of previous realisations and valuing the unrealised shares at the 31 March 2013 bid price. When the interim dividend of 3.0p per shares is added to the final dividend of 5.0p per share paid in January 2013, the current annual dividend yield based on a mid-market share price of 99.50p is 8.0 per cent after tax (equivalent to 10.7 per cent for a higher rate taxpayer). Long Term Performance The Company is a generalist investor and our investment objective and the investment and dividend policies are aimed at producing consistent returns over the long-term. The NAV total return over the last ten years has been 239.3p (before taxation benefits) for each 100p invested compared with an average of 188.4p for the VCT generalist sector as a whole (source AIC). Over the same period, cumulative tax free dividends paid to shareholders, including the proposed final dividend of 3.0p, amount to 76.0p per share (equivalent to 101.3p for a higher rate taxpayer). The comparable return would be higher if the initial income tax relief available on subscription was included in the computation. The FTSE All-Share Index grew to 275.29p using the same metrics but this index takes no account of the restricted nature of VCT investments or the benefit of tax reliefs available to qualifying investors in VCTs. The Company's stated policy is to maintain a minimum annual dividend of around 6.5p per share if possible. The average annual tax free dividend paid to shareholders (including the interim dividend of 3.0p per share) in the past ten years has been 7.6 p (6.4p since launch), comfortably ahead of the minimum target. The full 15 year performance record is set out on our website, www.baronsmeadvct2.co.uk. Portfolio Review At 31 March 2013, the portfolio comprised 71 companies. The Board receives quarterly reports indicating the trading performance of those companies in order to monitor the health of the portfolio. At 31 March 2013, 83 per cent of companies in the portfolio were reporting steady or better progress. The Company has also invested in Wood Street Microcap, a fund giving investment exposure to a further 36 AIM-traded and fully listed companies. The net assets of £79.4 million were invested as follows: ● 25 Unquoted companies (49 per cent) ● 46 AIM-traded and other listed companies (32 per cent) ● Wood Street Microcap Investment Fund (6 per cent) ● Cash and fixed interest (13 per cent.) New Investment During the six months to 31 March 2013 a total of £2.5 million was invested in three new companies and in some additional funding for existing AIM investments. An investment was made in Create Health, an unquoted London based company which is an internationally renowned fertility clinic specialising in Natural and Mild IVF using methods that are cheaper, safer, and healthier for the mother and baby. The Natural and Mild approach to IVF is common in advanced fertility markets overseas such as Scandinavia, South Korea and Japan, as well as in other parts of Europe. After the period end, a further new unquoted investment of £0.9 million was made in Eque2, a construction industry Enterprise Resource Planning solutions provider. We made two new AIM investments in Ideagen plc (compliance software solutions) and Pinnacle Technology Group plc, a B2B telecoms and IT retailer. Sale of Investments During the six months to 31 March 2013 a total of £4.3 million was realised from three investments. ● Unquoted - the Company's investment in Micro Librarian Systems Ltd ("MLS") was sold to Capita realising £1.1 million, a 2.8x multiple return (see below). ● AIM - ● FFastFill was sold following a recommended offer received from Pattington (part of the ION Group) realising £0.9 million, representing 2.8 times return on the amount invested. ● IDOX was partially sold through the market realising £2.3 million, representing 5.5 times return on the amount invested. MLS is the leading provider of library and resource management systems to the UK education sector. Since Baronsmead VCT 2's investment in 2006 the turnover of MLS almost doubled while the values, culture and dedication to providing best in class systems and services were maintained. Its purchase (by Capita), which represented a return of 2.8 times on the amount invested, fits with Capita's strategy of developing capability in their target markets. FFastFill had been an investment since 2007 and on sale achieved 2.8 times cost resulting in a profit of £0.6 million. In addition, the firmness of the share price in IDOX enabled a proportion of the holding to be sold at 5.5 times cost yielding a capital profit of £1.9 million. Since the period end, the Company sold its unquoted investment in Independent Living Services ("ILS") realising £3.43 million, representing a return of 2.5 times the original cost of the investment. The realisation figure includes interest payments over the life of the investment and the redemption premium received. Part of the Company's quoted holding in Staffline Recruitment Group plc was also sold after the period end, realising £1.58 million. Fund Raising and Shareholder Matters The Company issued a prospectus on 20 November 2012 to raise up to £5 million before expenses. The Offer closed after 19 working days on 17 December 2012 fully subscribed. On behalf of the Board of Directors, I would like to thank the 426 existing shareholders who subscribed to the recent fundraising and extend a warm welcome to the Company's 406 new shareholders. In October 2012, around 3,000 shareholders responded to the shareholder survey that was sent to approximately 10,000 investors in the five Baronsmead VCTs. Several of the questions repeated those asked in the previous survey carried out in October 2006 in order to measure any changes in shareholders' views. Key results included: ● An indication that the investment priority of shareholders had moved slightly from a modest preference for capital growth to a greater desire for income through dividends. ● Confirmation that a significant majority of shareholders intend to hold their shares for the long term. The Board is very grateful to those shareholders who responded to the survey as it provides valuable information on which the Board can base its decisions. Following the shareholder survey, on 16 November 2012 the Directors announced that in an effort to minimise the discount between the share price and the NAV the Company would endeavour, in future, to buy back shares at a 5 per cent instead of at a 10 per cent discount to NAV. This revised share price discount policy will, of course, be kept under continuous review and may be subject to revision. Shares will be bought back depending on market conditions at the time and only where the Directors believe it to be in the best interests of shareholders as a whole. We have made good progress during the period under review in reducing the difference between the share price and the net asset value of the Company's shares. At 31 March 2013 the discount was approximately 6.0 per cent. During the period the Company bought back 1,005,000 shares representing 1.2 per cent of the shares in issue at the period end. The Company buys back its shares through the market and not directly from shareholders. This enables shareholders who wish to sell their shares to do so at a time which suits their own circumstance. It also maximises the opportunity for other investors to buy the Company's existing shares whilst minimising the number of shares bought back by the Company. Outlook The outlook for the UK economy remains mixed with many commentators expecting another drab year. Your Board does not indulge in economic forecasting and much prefers to view the outlook for your Company through the prism of the companies in which we have invested. From that perspective we have been encouraged to see a gradual improvement over the last year or so. The portfolio is widely diversified, well resourced, adequately funded and the vitality and resilience of the entrepreneurial teams in which the Company has invested gives confidence that, mostly, they are well placed to grow profitability. Indeed, based on the experience of our portfolio, the negative views of some commentators regarding the UK economy seem out of place. The progress in the portfolio is encouraging and, furthermore, there are signs of an increase in the number of investment opportunities available and we are hopeful that, over time, this will contribute further to the strength and diversity of the portfolio. Clive Parritt Chairman 17 May 2013 Summary Investment Portfolio Sector by value Percentage Business Services 37% Consumer Markets 17% Financial Services 2% Healthcare & Education 15% Technology, Media & Telecommunications ("TMT") 29% Total Assets by value Percentage Unquoted - loan stock 34% Unquoted - ordinary & preference 15% AIM, listed & collective investment vehicle 38% Listed interest bearing securities 7% Net current assets principally cash 6% Time Investments Held by value Percentage Less than 1 year 10% Between 1 and 3 years 24% Between 3 and 5 years 1% Greater than 5 years 65% Table of Investments and Realisations Investments in the six month period Book cost Company Location Sector Activity £'000 Unquoted investments New Create Health London Healthcare Provider of fertility 1,065 Limited & Education services Follow on Impetus London Business Automotive consultancy and 230 Holdings Services outsourced service provider Limited Total unquoted investments 1,295 AIM-traded & listed investments New Ideagen plc Matlock TMT* Compliance software 225 solutions Pinnacle Stirlingshire TMT* B2B telecoms and IT 169 Technology reseller Group plc Follow on Hangar8 plc Oxford Business Business jet management 344 Services Tangent London Business Digital direct marketing 215 Communications Services plc TLA Worldwide London Business Baseball sports management 113 plc Services and marketing business Accumuli plc Salford TMT* Managed IT security 95 Green Worcester Business Small business compliance 50 Compliance plc Services Total AIM-traded & listed investments 1,211 Total investments in the period 2,506 * Technology, Media & Telecommunications ("TMT"). Realisations in the six month period Realised 30 profit/ September (loss) First 2012 this Overall investment valuation period multiple Company date £'000 £'000 return Unquoted realisations Full trade MLS Limited sale Jul 06 1,036 44 2.8 Total unquoted realisations 1,036 44 AIM-traded & listed realisations IDOX plc Market sale Jan 09 990 566 5.5 Full trade FFastFill plc sale Jun 07 557 317 2.8 Total AIM-traded & listed realisations 1,547 883 Total realisations in the period 2,583 927† † Proceeds of £2,000 were also received in respect of Adventis Group plc, which had been written off in the year ended 30 September 2012. Responsibility statement of the Directors in respect of the half-yearly financial report We confirm that to the best of our knowledge: ● the condensed set of financial statements has been prepared in accordance with the Statement 'Half-yearly financial reports' issued by the UK Accounting Standards Board; ● the Chairman's Statement (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; ● the Statement of Principal Risks and Uncertainties on page 14 is a fair review of the information required by DTR 4.2.7R; and ● the financial statements include a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By Order of the Board, Clive Parritt Chairman 17 May 2013 Unaudited Income Statement For the six months to 31 March 2013 Six months to Six months to Year to 31 March 2013 31 March 2012 30 September 2012* * Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Unrealised gains on investments - 6,998 6,998 - 3,402 3,402 - 5,842 5,842 Realised gains on investments - 929 929 - 524 524 - 750 750 Income 952 - 952 362 - 362 1,101 - 1,101 Investment management fee (186) (1,469) (1,655) (164) (492) (656) (337) (1,011) (1,348) Other expenses (229) - (229) (203) - (203) (381) - (381) Profit/(loss) on ordinary 537 6,458 6,995 (5) 3,434 3,429 383 5,581 5,964 activities before taxation Taxation on ordinary activities (74) 74 - - - - (16) 16 - Profit/(loss)on ordinary activities 463 6,532 6,995 (5) 3,434 3,429 367 5,597 5,964 after taxation Return per ordinary share: Basic 0.63p 8.87p 9.50p (0.01p) 4.97p 4.96p 0.52p 7.93p 8.45p * Figures as at 30 September 2012 are audited. Unaudited Reconciliation of Movement in Shareholders' Funds For the six months to 31 March 2013 Six Six months to Months to Year to 31 March 31 March 30 September 2013 2012 2012* £'000 £'000 £'000 Opening shareholders' funds 72,433 64,999 64,999 Profit for the period 6,995 3,429 5,964 Gross proceeds of share issues 5,000 4,135 4.135 Purchase of shares for treasury (964) (191) (652) Expenses of share issue and buybacks (280) (197) (199) Other costs charged to capital - (10) (10) Dividends paid (3,772) - (1,804) Closing shareholders' funds 79,412 72,165 72,433 * Figures as at 30 September 2012 are audited. Notes 1. The unaudited interim results which cover the six months to 31 March 2013 have been prepared in accordance with applicable accounting standards and adopted the accounting policies set out in the statutory accounts of the Company for the year to 30 September 2012. 2. Return per share is based on a weighted average of 73,664,418 ordinary shares in issue (30 September 2012 - 70,544,594 ordinary shares, 31 March 2012 -69,096,100 ordinary shares). 3. Earnings for the six months to 31 March 2013 should not be taken as a guide to the results of the full financial year to 30 September 2013. 4. During the six months to 31 March 2013 the Company purchased 1,005,000 ordinary shares to be held in treasury at a cost of £964,000. At 31 March 2013 the Company holds 10,223,819 ordinary shares in treasury. These shares may be re-issued below Net Asset Value as long as the discount at issue is narrower than the average discount at which the shares were bought back. Excluding treasury shares, there were 75,114,950 ordinary shares in issue at 31 March 2013 (30 September 2012 - 71,647,952 ordinary shares, 31 March 2012 - 72,167,952 ordinary shares). 5. The interim dividend of 3.0p per share (0.6p revenue and 2.4p capital) will be paid on 14 June 2013 to shareholders on the register on 31 May 2013. The ex-dividend date is 29 May 2013. 6. The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The information for the year to 30 September 2012 has been extracted from the latest published audited financial statements. The audited financial statements for the year to 30 September 2012, which were unqualified, have been filed with the Registrar of Companies. No statutory accounts in respect of any period after 30 September 2012 have been reported on by the Company's auditors or delivered to the Registrar of Companies. 7. Copies of the half-yearly financial report have been made available to shareholders and are available from the Registered Office of the Company at 100 Wood Street, London EC2V 7AN. Unaudited Balance Sheet As at to 31 March 2013 As at As at As at 31 31 30 March March September 2013 2012 2012 £'000 £'000 £'000* Fixed assets Unquoted investments 38,859 30,224 36,720 Traded on AIM 23,756 19,349 20,750 Listed on LSE 1,603 1,164 1,526 Collective investment vehicle - Wood Street Microcap 5,092 3,095 4,183 Investment Fund Listed interest bearing securities 5,619 26,635 5,939 74,929 80,467 69,118 Current assets Debtors 1,820 227 310 Cash at bank 6,908 1,232 465 Cash on deposit 2,500 - 3,000 11,228 1,459 3,775 Creditors (amounts falling due within one year) (6,745) (9,761) (460) Net current assets/(liabilities) 4,483 (8,302) 3,315 Net assets 79,412 72,165 72,433 Capital and reserves Called-up share capital 8,534 8,087 8,087 Share premium account 7,809 3,531 3,531 Capital reserve 44,947 51,198 47,452 Revaluation reserve 17,415 9,100 12,742 Revenue reserve 707 249 621 Equity shareholders' funds 79,412 72,165 72,433 * Figures as at 30 September 2012 are audited. As at As at As at 31 March 31 March 30 September 2013 2012 2012* Net asset value per share 105.72p 100.00p 101.10p Number of shares in circulation 75,114,950 72,167,952 71,647,952 Treasury net asset value per share 104.98p 98.64p 99.83p Number of ordinary shares in circulation 75,114,950 72,167,952 71,647,952 Number of ordinary shares held in 10,223,819 8,698,819 9,218,819 treasury Number of listed ordinary shares in issue 85,338,769 80,866,771 80,866,771 * Figures as at 30 September 2012 are audited. Unaudited Statement of Cash Flow Statement For the six months to 31 March 2013 Six Six months months Year to to to 31 March 31 March 30 September 2013 2012 2012* £'000 £'000 £'000 Net cash outflow from operating activities (2) (90) (337) Capital expenditure and financial investment 6,488 (2,914) 1,833 Equity dividends paid (3,772) - (1,804) Net cash inflow/(outflow) before financing 2,714 (3,004) (308) Net cash inflow from financing 3,229 3,694 3,231 Increase in cash 5,943 690 2,923 Reconciliation of net cash flow to movement in net cash Increase in cash 5,943 690 2,923 Opening cash position 3,465 542 542 Closing cash position 9,408 1,232 3,465 Reconciliation of profit on ordinary activities before taxation to net cash outflow from operating activities Profit on operating activities before taxation 6,995 3,429 5,964 Gains on investments (7,927) (3,926) (6,592) Changes in working capital and other non-cash 930 407 291 items Net cash outflow from operating activities (2) (90) (337) * Figures as at 30 September 2012 are audited. Principal Risks and Uncertainties The Company's assets consist of equity and fixed interest investments, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by the Company include economic, loss of approval as a Venture Capital Trust, investment and strategic, regulatory, reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal risks, risk management and regulatory environment within the Business Review in the Company's Annual Report and Accounts for the year to 30 September 2012. The Company's principal risks and uncertainties have not changed materially since the date of that report. Related Parties ISIS EP LLP ('the Manager') manages the investments of the Company. The Manager also provides or procures the provision of secretarial, administrative and custodian services to the Company. Under the management agreement, the Manager receives a fee of 2.0 per cent per annum of the net assets of the Company. This is described in more detail under the heading Management within the Report of the Directors in the Company's Annual Report and Accounts for the year to 30 September 2012. During the period the Company has incurred management fees of £ 744,000 and secretarial fees of £68,000 payable to the Manager. A performance fee of £911,000 has been accrued at 31 March 2013 to reflect the potential fee that would be payable to the Manager at 30 September 2013 should the current investment performance continue to the end of the current financial year. Going Concern After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 31 March 2013 the Company held cash balances, investments in UK Gilts and Money Market Funds with a combined value of £15,027,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing covenants. Corporate Information Directors Registrar and Transfer Office Clive Parritt (Chairman) Computershare Investor Services PLC Howard Goldring* PO Box 82 Gillian Nott OBE‡ The Pavilions Christina McComb Bridgwater Road Bristol BS99 6ZZ Secretary Tel: 0870 889 3249 ISIS EP LLP Auditors Registered Office KPMG Audit Plc 100 Wood Street Saltire Court London EC2V 7AN 20 Castle Terrace Edinburgh EH1 2EG Investment Manager ISIS EP LLP Solicitors 100 Wood Street Martineau London EC2V 7AN No 1 Colmore Square 020 7506 5717 Birmingham B4 6AA FPPE LLP (listed interest bearing securities only) VCT Status Adviser 100 Wood Street PricewaterhouseCoopers LLP London EC2V 7AN 1 Embankment Place London WC2N 6RH Registered Number 03504214 Website www.baronsmeadvct2.co.uk * Chairman of the Audit Committee ‡ Chairman of the Management Engagement and Remuneration Committee, Chairman of the Nomination Committee and Senior Independent Director. Copies of the half-yearly financial report will shortly be available from the following website: www.baronsmeadvct2.co.uk. National Storage Mechanism A copy of the Half-Yearly Report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do . Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

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