Half-yearly Report

Matrix Income & Growth 2 VCT plc ("the Company") Half-Yearly Report for the six months ended 31 October 2011 INVESTMENT OBJECTIVE Matrix Income & Growth 2 VCT plc is a Venture Capital Trust ("VCT") managed by Matrix Private Equity Partners LLP ("MPEP") investing primarily in established, profitable, unquoted companies. The Company's objective is to provide investors with a regular and growing stream of income, arising both from the income generated by the companies selected for the portfolio and from realising capital gains. FINANCIAL HIGHLIGHTS As at 31 October 2011 - Increase of 3.4% in net asset value (NAV) per Ordinary Share over the six month period - Increase of 3.1% in total Ordinary shareholder return (net asset value basis) over the six month period - Increase of 3.8% in total Ordinary shareholder return (share price basis) over the six month period Half-yearly results for the six months ended 31 October 2011 Ordinary Shares of 1 pence (formerly C Shares until 10 September 2010) Net Net Cumulative NAV total Share Share price assets asset dividends return to price total value paid per shareholders (p)1 return to (£ per share (p) since launch shareholders million) Share per Share (p) (NAV) (p) (p) Ordinary Share Fund (formerly C Share Fund until 10 September 2010) As at 31 October 25.2 99.4 10.0 109.4 64.8 74.8 2011 As at 30 April 2011 24.9 96.2 10.0 106.2 62.0 72.0 As at 31 October 24.5 93.0 6.0 99.0 56.0 62.0 2010 As at 30 April 2010 15.2 87.5 5.0 92.5 57.5 62.5 As at 30 April 2009 14.5 86.0 4.0 90.0 74.5 78.5 At close of Offer 8.7 94.5 - - - - for subscription in 2005 Net Net Cumulative NAV total Share Share price assets asset dividends return to price total (£ value paid per shareholders (p)1 return to million) per share (p) since launch shareholders Share per Share (p) (NAV) (p) (p) Former Ordinary Share Fund (raised in 2000/2001) As at 31 October - 82.2 30.1 112.3 - - 2011* As at 30 April 2011 - 79.5 30.1 109.6 - - As at 31 October - 76.9 26.8 103.7 - - 2010 As at 30 April 2010 8.1 72.1 26.8 98.9 40.5 67.3 As at 30 April 2009 7.8 69.0 26.8 95.8 48.5 75.3 At close of Offer 12.4 94.0 - - - - for subscription in 2001 1 Source: London Stock Exchange * The data at 31 October 2011 shows the return on an initial subscription price of 100p at the date of inception of the former Ordinary Share Fund taken from the next table, divided by £10,000. The table below shows the NAV total return at 31 October 2011 for a shareholder that invested £10,000 at £1 per share at the date of launch of a particular fundraising. BEFORE BENEFIT OF INITIAL INCOME TAX RELIEF Fund Number Net Dividends NAV total Profit of Asset paid return to / shares Value to shareholders (loss) held (NAV) shareholders since before post- at since subscription income merger 31 subscription tax October relief 2011 1 (£) (£) (£) (£) Ordinary Share Fund (formerly C Share Fund) 10,000 9,942 1,000 10,942 942 2005/2006 Ordinary Share Fund (formerly C Share Fund) 2008/2009 (10,823 shares 10,823 10,760 649 11,409 1,409 issued for £10,000 at 92.39p per share) Former Ordinary Share Fund 8,2702 8,222 3,010 11,232 1,232 (raised 2000/2001) 1 NAV total return minus initial investment cost (before applicable income tax relief). 2 Number of shares held post-merger has been calculated by multiplying a notional 10,000 former ordinary shares for a £10,000 investment by the merger conversion ratio of 0.827. AFTER BENEFIT OF INITIAL INCOME TAX RELIEF Fund Rate Cost Net Dividends NAV total Profit of net of Asset paid return to / Income income Value to shareholders (loss) tax tax (NAV) shareholders since after relief relief at 31 since subscription income October subscription tax % 2011 relief 2 (£) (£) (£) (£) (£) Ordinary Share Fund (formerly C Share 40% 6,000 9,942 1,000 10,942 4,942 Fund) 2005/2006 Ordinary Share Fund (formerly C Share Fund) 2008/2009 (10,823 shares 30% 7,000 10,760 649 11,409 4,409 issued for £10,000 at 92.39p per share) Former Ordinary Share Fund (raised 20% 1 8,000 8,222 3,010 11,232 3,232 2000/2001) 1 Additional capital gains tax deferral relief of up to £4,000 available to qualifying shareholders. 2 NAV total return minus cost net of income tax relief. INVESTMENT POLICY The VCT's policy is to invest primarily in a diverse portfolio of UK established, profitable, unquoted companies in order to generate capital gains from trade sales and flotations. Investments are structured as part loan and part equity in order to receive regular income and to provide downside protection in the event of under-performance. Investments are made selectively across a number of sectors, primarily in management buyout transactions (MBOs) i.e. to support incumbent management teams in acquiring the business they manage but do not own. Investments are primarily made in companies that are established and profitable. Uninvested funds are held in cash and low risk money market funds. UK Companies The companies in which investments are made must have no more than £15 million of gross assets at the time of investment to be classed as a VCT qualifying holding. The additional £7.3 million funds raised by the Company after 6 April 2006 are subject to a £7 million gross assets test for an investment to be VCT qualifying. VCT regulation The investment policy is designed to ensure that the VCT continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the VCT may not invest more than 15% of its investments in a single company and must achieve at least 70% by value of its investments throughout the period in shares or securities in qualifying holdings, of which a minimum overall of 30% by value must be ordinary shares which carry no preferential rights. In addition, although the VCT can invest less than 30% of an investment in a specific company in ordinary shares it must have at least 10% by value of its total investments in each qualifying company in ordinary shares which carry no preferential rights. Asset mix The Investment Manager aims to hold approximately 80% by value of the VCT's investments in qualifying holdings. The balance of the portfolio is held in readily realisable interest bearing investments and deposits. Risk diversification and maximum exposures Risk is spread by investing in a number of different businesses across different industry sectors. To reduce the risk of high exposure to equities, each qualifying investment is structured using a significant proportion of loan stock (up to 70% of the total investment in each VCT qualifying company). Initial investments in VCT qualifying companies are generally made in amounts ranging from £200,000 to £1 million at cost. Ongoing monitoring of each investment is carried out by the Manager generally through taking a seat on the Board of each VCT qualifying company. Co-investment The VCT aims to invest alongside three other Income and Growth VCTs advised by the Manager with a similar investment policy. This enables the VCT to participate in combined investments by the Investment Manager of up to £5 million. Borrowing The VCT has no borrowing and does not have any current plans for future borrowings. Management The Board has overall responsibility for the Company's affairs including the determination of its investment policy. Investment and divestment proposals are originated, negotiated and recommended by the Manager and are then subject to formal approval by the Directors. Matrix Private Equity Partners LLP provides Investment Advisory, Company Secretarial and Accountancy services to the VCT. CHAIRMAN'S STATEMENT I am pleased to enclose the Half-Yearly Report of Matrix Income & Growth 2 VCT plc (the "Company") for the period from 1 May 2011 to 31 October 2011. Portfolio Overview The first six months of the financial year have seen a progressively deteriorating outlook for the UK economy. The recent Autumn Statement announced by the Chancellor of the Exchequer on 29 November envisages continued downward pressure upon public sector expenditure for many years, which will in turn reduce consumer confidence and spending. In a wider context, as these six months progressed, concerns over the sustainability of the global economic recovery began to re-emerge. The continuing sovereign debt crisis in the Eurozone, exceptionally high levels of borrowing in the US and signs of a slowdown in emerging market economies have all contributed to a heightened sense of uncertainty. The problems caused by excessive levels of debt continue to affect the global economy. The consequences of the above were evident in weak, volatile equity markets towards the end of the half-year. Against this background, it is pleasing to report that the Company's performance has been relatively stable, with a number of portfolio companies continuing to perform well. The Company has invested £2.4 million in the period and a further £1.1 million on 1 November, in three new investments and two follow-on investments. As explained in the Manager's review, the Company has experienced an upward trend in dealflow during this half-year under review, enabling the Company to invest in a number of better priced, profitable and cash generative businesses seeking investment. In June 2011, a further amount was invested in the loan stock of ASL Technology Holdings Limited, to support that company's objective to be a larger player in its sector. In July 2011, the Company invested £1,160,548 in Fullfield Limited to fund the management buy-out of Motorclean Group Limited, part of which is non-qualifying. Motorclean, is a provider of vehicle cleaning and valet services to the car dealership market. As part of a total potential commitment of £192,000, £76,897 was invested in three tranches of loan stock in Monsal Holdings Limited, to provide working capital to enable Monsal to pursue larger contracts in the waste and water sectors. In October, the Company completed an investment in EOTH Limited, trading as Equip Outdoor Technologies Limited. This company operates in the branded outdoor clothing sector. Just after the period end, the Company made a further investment on 1 November 2011, to support a management buyout (MBO) of EMaC Limited. EMaC is the UK market leader in enabling motor manufacturers and dealers to provide service plans to their customers. The Board is pleased to note that the sale of DiGiCo Europe Limited ("DiGiCo") has occurred after the period-end in October 2011, realising cash proceeds of £ 2,138,243. The Company made a substantial disposal of its investment in DiGiCo to ISIS Equity Partners. The Company has received total cash proceeds of £ 3,024,832 representing a 3 times cash return on this investment to date. In addition, the Company retains a 2.39% equity and new loan stock investment in DiGiCo worth £1,334,291. The sale proceeds in cash alone show a good return for the Company, whilst enabling a valuable stake to be retained in the business. DiGiCo is a good example of how a properly financed business with strong management and a quality product can develop a niche opportunity, and achieve good profits. Further details of these portfolio movements are provided in the Manager's Review. Performance The Net Asset Value ("NAV") per Ordinary Share at 31 October 2011 was 99.42 pence. The NAV total return since launch was 109.4 pence per share (30 April 2011: 106.2 pence per share). Shareholders should note that the performance data in my statement relates to the one Ordinary Share class now in existence, which was formerly called the C share class. This single share class was created after a share class merger of the former Ordinary and C share class on 10th September 2010. To assist shareholders to monitor the performance of their original Ordinary or C Share investment in a particular fundraising on a consistent basis, we have included separate performance data. Return to Shareholders The results for this period are set out on the following pages and show a revenue gain (after tax) of 1.08 pence per Ordinary Share (30 April 2011: gain of 0.46 pence). The total gain (after tax) was 2.56 pence per Ordinary Share (30 April 2011: gain of 12.49 pence). Revenue returns have benefited firstly from an increase in loan stock interest of £160,198 and secondly, an increase in dividend income of £81,283 (being increases of 85% and 114% respectively, compared to the comparable period last year). The rise in loan stock interest reflects the new loan stock investments made over the last year, but also the resumption of current interest payments by several investee companies in the last year. The rise in dividend income was mainly due to a doubled dividend from DiGiCo. This return has also benefited from a reduction in other expenses of £51,756, caused by costs last year that this year are treated as part of the Investment Management fees. Last year's costs also included merger costs of £58,797. Liquidity As a result of the investment activity referred to above, the Company retains cash liquidity of £4.2 million. The sum has since been increased by £2.1 million due to the sale of DiGiCo this month. When the investments in acquisition companies are taken into account, the Company remains well positioned to make new investments and support deserving portfolio companies, if required. Share Buybacks During the six months ended 31 October 2011 the Company continued to implement its buy-back policy and bought back 498,309 Ordinary Shares, representing 1.93% of the shares in issue at the start of the year, at a total cost of £315,397. The shares above were bought back for an average price of 63.3 pence per share, at discounts to the net asset value at the date of each buyback ranging from 33.13% to 36.56%. These shares were subsequently cancelled by the Company. Dividends The Board's objective is, subject to the availability of sufficient reserves and liquidity, to distribute regular and consistent dividends. The Board intends to review the level of dividends to be paid at the year-end. Outlook The majority of companies in the portfolio continue to trade profitably and several are also reporting results ahead of their budget and prior year. However, the economic environment will continue to be tough for small companies and your Board and Investment Manager will continue to monitor the portfolio. There will also be a focus on ensuring that existing investee companies remain well equipped to respond to the difficult times that lie ahead. I would like to thank all our Shareholders for their continuing support. Nigel Melville Chairman 20 December 2011 PRINCIPAL RISKS AND UNCERTAINTIES In accordance with Disclosure and Transparency Rule (DTR) 4.2.7, the Board considers 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 30 April 2011. The principal risks faced by the Company are: economic risk; loss of approval as a Venture Capital Trust; investment and strategic risk; regulatory risk; financial and operating risk; market risk; asset liquidity risk; market liquidity risk; credit/counterparty risk. A detailed explanation of the principal risks facing the Company can be found in the 2011 Annual Report and Accounts on page 25. Copies are available from www.mig2vct.co.uk. Related Party Transactions Details of related party transactions in accordance with DTR 4.2.8 can be found in Note 13 to the financial statements. Responsibility Statement The Directors confirm that to the best of their knowledge: the condensed set of financial statements, which have been prepared in accordance with the statement "Half-Yearly Reports" issued by the Accounting Standards Board, give a true and fair view of the assets, liabilities, financial position and loss of the Company as required by DTR 4.2.4; the interim management report included within the Chairman's Statement, Investment Manager's Review and Investment Portfolio Summary includes a fair review of the information required by DTR 4.2.7 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; a description of the principal risks and uncertainties facing the Company for the remaining six months is set out above, in accordance with DTR 4.2.7; and the considered financial statements include a description of the related party transactions in the first six months of the current financial year that have materially affected the financial position or performance of the Company during the period, and any material changes to the related party transactions since the last Annual Report, in accordance with DTR 4.2.8. For and on behalf of the Board: Nigel Melville Chairman 20 December 2011 INVESTMENT MANAGER'S REVIEW Overview The investment market for our target deals has improved, both in new investment and for realisations. Dealflow has shown an upward trend, giving us access to more attractively priced, profitable, well-positioned and cash generative businesses seeking investment. We believe that this is due to two important converging factors which have combined to make our level of investment over recent months the highest for several years, without compromising our quality criteria. Firstly, the lower level of activity in the economy has led to greater realism amongst vendors regarding the value of their companies, leading to more realistic pricing. Secondly, our ability to invest significant levels of capital in a market lacking bank funding means that management buy-out ("MBO") teams are increasingly turning to us as a source of finance. On the sell-side there continues to be interest in a number of our portfolio companies both from trade purchasers and larger private equity firms that have cash to invest and are seeking quality assets. After the year-end, the portfolio's largest investment was part realised in a valuable secondary private equity transaction. Investment Activity Our new investment activity continues to focus on management buyouts. We seek to capitalise companies conservatively at the time of investment so that they are well positioned to contend with an uncertain macro-economic environment. In June 2011, a further £360,265 was invested in the loan stock of ASL Technology Holdings Limited, making the total investment in ASL Technology Holdings £1,360,130, to finance its acquisition of Transcribe Copier Systems Limited, as part of its strategy to be a large player in this sector. In July 2011, the Company invested £1,160,549 in Fullfield Limited to fund the management buy-out of Motorclean Limited, £160,549 of which is non-qualifying. Mortorclean is a supplier of car valeting services to the retail motor sector. Three tranches of the new funding round totalling £76,897 in Monsal Holdings Limited ("Monsal") have been drawn down to date during July and August 2011 and these investments are held at cost. The terms of this new investment provided that it would rank ahead of the existing rounds of investment. With this additional funding, Monsal now has the ability to pursue a number of major contracts in the waste and water sector which will advance the potential for recovery of value in the original investment. Since approval of this facility Monsal has materially advanced its negotiations on a number of new contracts. In October, the Company completed a £817,184 investment in Equip Outdoor Technologies Limited, to support the acquisition of the international intellectual property and assets of Lowe Alpine Srl out of administration in Italy by Equip Outdoor Technologies Limited. Equip operates in the branded outdoor clothing sector. Just after the period end, on 1 November 2011, the Company completed a £ 1,095,723 investment to support a management buyout (MBO) of EMaC Limited. EMaC is another outsourcing company to the UK motor industry, being the UK market leader in enabling motor manufacturers and dealers to provide service plans to their customers. In December 2011, the Company realised a substantial portion of investment in DiGiCo Europe Limited to ISIS Equity Partners. The Company received total cash proceeds of £3,024,832 in addition to continuing to retain a 2.39% equity and new loan stock investment in DiGiCo worth £1,334,291. Overall, the VCT has received a 3 times cash return on this investment to date. DiGiCo manufactures and distributes sound mixing consoles which are in demand at major corporate and sporting events worldwide. Portfolio Highlights At 31 October 2011, the investment portfolio comprised 28 companies at a cost of £19.6 million and current valuation of £21.0 million. On a like for like basis the portfolio has increased by 3.2% compared with the valuations prevailing at 30 April 2011. Over the same period the FTSE All-Share and FTSE SmallCap indices have fallen by 7.8% and 12.4% respectively. The portfolio's performance as a whole continues to be solid. Some investee companies, notably DiGiCo, Iglu.com Holidays and ATG Media, have increased sales and profits despite the challenges of the economic environment. The new investments made since last year, RDL Corporation, Faversham House, Omega Diagnostics Group plc, ASL Technology and Fullfield (Motorclean Group) are all progressing steadily. Fullfield and Faversham continue to be valued at cost while ASL and RDL have been valued at small reductions from original cost. Iglu.com Holidays continues to perform well and has held its value above cost following out-performance of its business plans at the time of investment. DiGiCo and ATG both experienced increased trading and profitability which has contributed to their higher valuations. Blaze Signs continues to return improved results demonstrating a strong recovery from the recession. Focus Pharma continues to trade satisfactorily but is experiencing a fall in profitability, due to investment in new products. It launched two new products during 2011 and expects to progress further with several further product launches planned for 2012. Racoon continues to perform steadily. As a result of agreeing to sell a site upon which planning permission to develop a supermarket has been received, the financial position of BIH has markedly improved. However, the company has recently experienced poor trading, reducing profits and therefore our valuation. ASL's profitability since investment has been slightly below expectation, partly due to initial performance at its new acquisition, which has caused a slight fall in valuation below cost. However its sales and profitability, excluding the new acquisition, have increased from last year. Other companies are still endeavouring to recover from the effects of the continuing downturn. Recovery in the construction and house building sectors remains fragile and this continues to affect the performance of PXP and Plastic Surgeon. In early December, a modest follow on investment in PXP was approved. Youngman has now fully repaid its bank debt since investment and is well positioned to benefit from any upturn in its construction markets. Outlook The outlook for the UK economy is uncertain, but we have been encouraged by developments in the last year in our sector. Although the coming months are likely to prove more testing as the public sector cuts begin to take effect and the economy struggles to stabilise its faltering growth, we consider that good quality companies of the calibre in which we seek to invest, capable of maintaining competitive advantage, still have the potential to succeed in this environment. The difficult economic outlook and the volatility in quoted markets will inevitably continue to impact on the valuations of the companies in the portfolio. However, we believe that the portfolio overall is resilient and essentially of high value which will be released in the long-term. Our strategy of investing primarily in MBOs and structuring investments to include loan stock will continue to mitigate downside risk. Having retained significant uninvested cash, the VCT is well placed to support certain portfolio companies should the need arise and to capitalise on attractive new investment opportunities. Alongside this, the Manager is conscious of the need to ensure that investee companies take appropriate actions to respond to the challenging environment ahead. Matrix Private Equity Partners LLP 20 December 2011 INVESTMENT PORTFOLIO SUMMARY As at 31 October 2011 Date of Total Book Valuation % of first cost net investment assets by value £ £ Qualifying investments AiMquoted investments Omega Diagnostics plc December 2010 214,998 241,873 1.0% Sales promotion activities Vphaseplc (formerly March 2001 254,586 1,609 0.0% Flightstore Group plc) Development of energy saving devices for domestic use ---- ---- ---- 469,584 243,482 1.0% Unquoted investments DiGiCoEurope Limited July 2007 495,651 3,472,534 13.7% Design and manufacture of audio mixing desks ATG Media Holdings Limited October 2008 767,907 1,526,391 6.1% Publisher and online auction platform operator Blaze Signs Holdings Limited April 2006 1,398,498 1,486,544 5.9% Manufacturer and installer of signs ASL Technology Holdings December 2010 1,360,130 1,278,574 5.1% Limited Printer and photocopier services FullfieldLimited July 2011 1,160,549 1,000,000 4.0% (Motorclean Holdings) Vehicle cleaning and valet services BackbarrowLimited April 2010 1,000,000 1,000,000 4.0% Company seeking to invest in food manufacturing, distribution and brand management RuslandManagement Limited April 2011 1,000,000 1,000,000 4.0% Company seeking to acquire businsesses in the brand management, consumer products and retail sectors SawreyLimited March 2011 1,000,000 1,000,000 4.0% Company seeling to acquire businesses in the marketing services and media sectors TorvarLimited April 2011 1,000,000 1,000,000 4.0% Company seeking to acquire businesses in the database management, data mapping and management services to legal and building sectors VanirConsultants Limited October 2008 1,000,000 1,000,000 4.0% The Company acquired EMaC Limited on 1 November 2011, a provider of service plans to the motor trade British International June 2006 1,000,000 952,041 3.7% Holdings Limited Supplier of helicopter services Iglu.com Holidays Limited December 2010 152,326 930,978 3.7% Online ski and cruise travel agent RDL Corporation Limited (formerly Aust Recruitment October 2010 1,000,000 924,454 3.7% Group Limited) Recruitment consultants for the pharmaceutical, business intelligence and IT industries EOTH Limited (trading as Equip Outdoor Technologies October 2011 817,184 817,184 3.1% Limited) Branded outdoor equipment and clothing Focus Pharma Holdings Limited October 2007 660,238 794,405 3.1% Licensing and distribution of generic pharmaceuticals Youngman Group Limited October 2005 1,000,052 589,122 2.3% Manufacturer of ladders and access towers MachineworksLimited April 2006 25,727 426,172 1.7% Software for CAM and machine tool vendors Faversham House December 2010 374,870 374,870 1.5% Publisher, exhibition organiser and operator of websites for the environmental, visual communications and building services sectors Racoon International December 2006 878,527 324,212 1.3% Holdings Limited Supplier of hair extensions, hair care products and training VectairHoldings Limited January 2006 60,293 171,979 0.7% A provider of air care and sanitary washroom products The Plastic Surgeon April 2008 392,264 98,067 0.4% Holdings Limited Snagging and finishing of domestic and commercial properties MonsalHoldings Limited December 2007 847,614 76,897 0.3% Engineering services to water and waste sectors LightworksLimited April 2006 25,727 49,400 0.2% Software for CAD vendors PXP Holdings Limited December 2006 1,163,436 - 0.0% (Pinewood Structures) Designer, manufacturer and supplier of timber frames for housing Legion Group plc (in August 2005 150,000 - 0.0% administration) Provision of manned guarding, mobile patrolling, and alarm response services ---- ---- ---- 18,730,993 20,293,824 80.5% ---- ---- ---- Total qualifying investments 19,200,577 20,537,306 81.5% Non-qualifying investments British International Holdings 160,000 320,000 1.3% Limited Fullfield Limited (Motorclean - 160,549 0.6% Holdings) Fuse 8 plc 250,000 750 0.0% ATG Media Holdings Limited 104 328 0.0% Legion Group plc 106 - 0.0% ---- ---- ---- Total non-qualifying 410,210 481,627 1.9% investments Money market funds 2 4,121,576 16.3% Debtors 215,722 0.9% Cash 112,861 0.4% Creditors (256,309) (1.0%) ---- ---- Net assets 25,212,783 100.0% ==== ==== 1 As at 31 October 2011 the Company held more than 70% of its total investments in qualifying holdings, and therefore complied with the VCT Investment test. For the purposes of the VCT Investment tests, the Company is permitted to disregard disposals of investments for six months from the date of disposal. 2 Disclosed within Current assets as Investments at fair value in the Balance Sheet. UNAUDITED INCOME STATEMENT For the six months ended 31 October 2011 Six months ended 31 October 2011 (unaudited) Notes Revenue Capital Total £ £ £ Unrealised gains on investments held at fair value - 577,783 577,783 Realised gains/(losses) on investments held at fair - - - value Income 3 520,516 - 520,516 Investment management expense 4 (75,443) (226,330) (301,773) Merger costs - - - Other expenses (136,664) - (136,664) ---- ---- ---- Profit/(loss) on ordinary activities before taxation 308,409 351,453 659,862 Tax on profit/(loss) on ordinary activities (31,355) 31,355 - ---- ---- ---- Profit/(loss) on ordinary activities after taxation 277,054 382,808 659,862 ==== ==== ==== Basic and diluted earnings per share Ordinary shares 6 1.08p 1.48p 2.56p Year ended 30 April 2011 (audited) Notes Revenue Capital Total £ £ £ Unrealised gains on investments held at fair value - 2,911,008 2,911,008 Realised gains/(losses) on investments held at fair - 624,055 624,055 value Income 3 637,008 - 637,008 Investment management expense 4 (139,450) (418,352) (557,802) Merger costs (52,928) - (52,928) Other expenses (311,288) - (311,288) ---- ---- ---- Profit/(loss) on ordinary activities before taxation 133,342 3,116,711 3,250,053 Tax on profit/(loss) on ordinary activities (12,181) 12,181 - ---- ---- ---- Profit/(loss) on ordinary activities after taxation 121,161 3,128,892 3,250,053 ==== ==== ==== Basic and diluted earnings per share Ordinary shares 6 0.46p 12.03p 12.49p Six months ended 31 October 2010 (unaudited) Notes Revenue Capital Total £ £ £ Unrealised gains on investments held at fair value - 1,819,526 1,819,526 Realised gains/(losses) on investments held at fair - ( 64,323) ( 64,323) value Income 3 295,154 - 295,154 Investment management expense 4 (63,892) (191,675) (255,567) Merger costs (58,797) - (58,797) Other expenses (188,410) - (188,410) ---- ---- ---- Profit/(loss) on ordinary activities before taxation (15,945) 1,563,528 1,547,583 Tax on profit/(loss) on ordinary activities - - - ---- ---- ---- Profit/(loss) on ordinary activities after taxation (15,945) 1,563,528 1,547,583 ==== ==== ==== Basic and diluted earnings per share Ordinary shares 6 (0.08)p 7.62p 7.54p The total column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. There were no other recognised gains or losses in the period. Other than revaluation movements arising on investments held at fair value through profit and loss there were no differences between the profit/(loss) as stated above and at historical cost. The notes to the unaudited financial statements below form part of these Half-Yearly financial statements. UNAUDITED BALANCE SHEET As at 31 October 2011 31 October 2011 30 April 2011 31 October 2010 (unaudited) (audited) (unaudited) Notes £ £ £ Non-current assets Investments at fair value 9 21,018,933 18,026,151 14,032,202 Current Assets Debtors and prepayments 215,722 441,684 100,482 Investments at fair value 10 4,121,576 6,538,497 10,419,732 Cash at bank 112,861 76,291 119,290 ---- ---- ---- 4,450,159 7,056,472 10,639,504 Creditors: amounts falling due within one year (256,309) (218,655) (179,829) ---- ---- ---- Net current assets 4,193,850 6,837,817 10,459,675 ---- ---- ---- Net assets 25,212,783 24,863,968 24,491,877 ==== ==== ==== Capital and reserves 11 Called up share capital 253,595 258,578 263,392 Capital redemption reserve 53,052 48,069 43,255 Revaluation reserve 1,808,252 1,230,469 (437,102) Special distributable reserve 15,748,617 16,258,990 16,896,264 Profit and loss account 7,349,267 7,067,862 7,726,068 ---- ---- ---- 25,212,783 24,863,968 24,491,877 ==== ==== ==== Net asset value per share Ordinary Shares 7 99.42p 96.16p 92.99p These accounts are unaudited and are not the Company's statutory accounts. UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the six months ended 31 October 2011 Six months Year ended Six months ended 31 30 April ended 31 October 2011 2011 October 2010 (unaudited) (audited) (unaudited) Notes £ £ £ Opening shareholders funds 24,863,968 23,290,949 23,290,949 Net share capital bought back (315,397) (457,264) (173,192) Profit for the year 659,862 3,250,053 1,547,583 Dividends refunded/(paid) in period 8 4,350 (1,219,770) (173,463) ---- ---- ---- Closing shareholders' funds 25,212,783 24,863,968 24,491,877 ==== ==== ==== UNAUDITED CASH FLOW STATEMENT for the six months ended 31 October 2011 Six months ended Year ended 30 Six months ended 31 October 2011 April 2011 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Operating activities Investment income 488,734 614,371 264,365 received Other income - 2,753 - Investment management (301,773) (557,802) (255,567) fees paid Merger costs paid by - (49,988) (28,338) the Company Other cash payments (193,360) (320,136) (200,416) for other expenses ---- ---- ---- Net cash outflow from operating (6,399) (310,802) (219,956) activities Investing activities Acquisition of (2,150,457) (5,951,715) (1,001,717) investments Disposal of investments - 2,631,829 256,185 ---- ---- ---- Net cash outflow (2,150,457) (3,319,886) (745,532) from investing activities Dividends Dividends refunded/(paid) 4,350 (1,219,770) (173,463) ---- ---- ---- Net cash outflow before liquid resource (2,152,506) (4,850,458) (1,138,951) management and financing Movement in money 2,416,921 5,213,916 1,332,681 market and other deposits Financing Purchase of own shares (227,845) (375,591) (162,864) ---- ---- ---- Net cash outflow from (227,845) (375,591) (162,864) financing ---- ---- ---- Increase/(decrease) 36,570 (12,133) 30,866 in cash ==== ==== ==== Reconciliation of net cash flow to movement in net funds £ £ £ Net funds at start of 76,291 88,424 88,424 period Increase/(decrease) 36,570 (12,133) 30,866 in cash for the period ---- ---- ---- Net funds at the end 112,861 76,291 119,290 of the period ==== ==== ==== Reconciliation of profit on ordinary activities before taxation to net cash outflow from operating activities Six months ended Year ended Six months ended 31 October 2011 30 April 2011 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Profit on ordinary activities 659,862 3,250,053 1,547,583 before taxation Net unrealised gains on (577,783) (624,055) (1,819,526) investments Net (gains)/losses on realisations - (2,911,008) 64,323 on investments Increase in debtors (38,580) (20,412) (39,475) (Decrease)/increase in creditors (49,898) (5,380) 27,139 and accruals ---- ---- ---- Net cash outflow from operating (6,399) (310,802) (219,956) activities ==== ==== ==== The notes to the unaudited financial statements below form part of these Half-Yearly financial statements. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS Principal accounting policies The following accounting policies have been applied consistently throughout the period. Full details of principal accounting policies will be disclosed in the Annual Report. a) Basis of accounting The unaudited results cover the six months to 31 October 2011 and have been prepared under UK Generally Accepted Accounting Practice (UK GAAP), consistent with the accounting policies set out in the statutory accounts for the year ended 30 April 2011 and the 2009 Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("the SORP") issued by the Association of Investment Companies. The Half-yearly Report has not been audited, nor has it been reviewed by the auditors pursuant to the Auditing Practices Board (APB)'s guidance on Review of Interim Financial Information. b) Presentation of the Income Statement 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 revenue column of profit attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 Income Tax Act 2007. c) Investments Investments are accounted for on a trade date basis All investments held by the Company are classified as "fair value through profit and loss" as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income. For investments actively traded in organised financial markets, recognition and fair value is determined by reference to Stock Exchange market trading rules and quoted bid prices at the close of business on the balance sheet date. Unquoted investments are valued by the Directors at 'fair value through profit and loss'. Accordingly, in the absence of a market price, the Directors have valued unquoted investments in accordance with International Private Equity Venture Capital Valuation (IPEVCV) guidelines as updated in September 2009, which have not materially changed the results reported last year. All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered: (i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used. (ii) In the absence of i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:- a) an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Manager compared to the sector including, inter alia, a lack of marketability). or:- b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Manager, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value. (iii) Premiums on loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable. (iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied. d) Capital gains and losses Capital gains and losses on investments, whether realised or unrealised, are dealt with in the profit and loss and revaluation reserves and movements in the period are shown in the Income Statement. The Company revoked its status as an investment company on 7 September 2005, so that it can regard realised capital profits as part of the profits available for distribution. Income Six months ended Year ended Six months ended 31 October 2011 30 April 2011 31 October 2010 (unaudited) (audited) (unaudited) Income from investments £ £ £ Dividends 152,285 172,933 71,002 Money-market funds 20,296 24,148 36,726 Loan stock interest 347,597 437,080 187,399 Bank deposit and other interest 338 94 27 Other income - 2,753 - ---- ---- ---- Total Income 520,516 637,008 295,154 ==== ==== ==== Investment management expense Under the terms of a revised investment management agreement dated 10 September 2010, MPEP provides investment advisory, administrative and company secretarial services to the Company, for a fee of 2.0% per annum calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a fee of £104,432 per annum, the latter being subject to changes in the retail prices index each year. This agreement replaced the previous agreements with MPEP dated 10 May 2000 and 20 September 2005, both novated to MPEP on 20 October 2006, and the accounting services agreement and the secretarial services agreement with Matrix-Securities Limited both dated 20 September 2005, all of which were terminated on 10 September 2010. In accordance with the policy statement published under "Management and Administration" in the Company's prospectus dated 10 May 2000, the Directors have charged 75% of the investment management expenses to the capital account. This is in line with the Board's expectation of the long-term split of returns from the investment portfolio of the Company. Taxation There is no tax charge in the period as the Company has tax losses in the current year as tax deductible expenditure charged against the capital return exceeds the taxable revenue return. Basic and diluted earnings per share Six months ended 31 Year ended Six months October 30 April ended 31 2011 2011 October 2010 (unaudited) (audited) (unaudited) Ordinary Shares Ordinary Shares Ordinary Shares £ £ £ Total earnings after taxation: 659,862 3,250,053 1,547,583 Basic and diluted earnings 2.56p 12.49p 7.54p per share (note a) ---- ---- ---- Revenue profit/(loss) from 277,054 121,161 (15,945) ordinary activities after taxation Basic and diluted revenue 1.08p 0.46p (0.08)p earnings per share (note b) ---- ---- ---- Net unrealised capital gains 577,783 624,055 1,819,526 on investments Net gains/(losses) on - 2,911,008 (64,323) realisations on investments Capital management fees (194,975) (406,171) (191,675) less taxation ---- ---- ---- Total capital profit on 382,808 3,128,892 1,563,528 ordinary activities after taxation Basic and diluted capital 1.48p 12.03p 7.62p earnings per share (note c) ---- ---- ---- Weighted average number 25,764,981 26,015,053 20,529,194 of shares in issue in the year ==== ==== ==== Notes Basic and diluted earnings per share is total earnings after taxation divided by the weighted average number of shares in issue. Basic and diluted revenue earnings per share is revenue earnings after taxation divided by the weighted average number of shares in issue. Basic and diluted capital earnings per share is total capital earnings divided by the weighted average number of shares in issue. Net asset value per share As at 31 October 2011 As at 30 April 2011 As at 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Net assets 25,212,783 24,863,968 24,491,877 Number of shares in issue 25,359,455 25,857,764 26,339,245 ---- ---- ---- Net asset value per share (pence) 99.42 p 96.16 p 92.99 p ==== ==== ==== Dividends Six months Year Six months to 31 October 2011 to 30 April 2011 to 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Ordinary shares Dividends paid in period - nil pence per share (30 April - 1,219,770 173,463 2011: 5 pence; 31 October 2010: 1 pence) Dividends refunded* (4,350) ---- ---- ---- (4,350) 1,219,770 173,463 ==== ==== ==== * - This amount represents dividends that were paid on shares that were subsequently bought back by the Company. As a result, the dividends have been refunded to the Company. Summary of non-current asset investments at fair value during the period Traded on Unquoted Preference Qualifying Total AiM or Ordinary Shares loans OFEX shares £ £ £ £ £ Cost at 1 May 2011 719,584 5,571,314 42,017 10,862,873 17,195,788 Unrealised (losses)/gains (223,416) 2,543,304 (17,565) (1,071,854) 1,230,469 at 1 May 2011 Permanent impairment (250,000) (150,106) - - (400,106) at 1 May 2011 ---- ---- ---- ---- ---- Value at 1 May 2011 246,168 7,964,512 24,452 9,791,019 18,026,151 Purchases at cost - 449,329 918 1,964,752 2,414,999 (Decrease)/increase (1,936) 574,592 - 5,127 577,783 in unrealised gains Value at 1 May 2011 246,168 7,964,512 24,452 9,791,019 18,026,151 ---- ---- ---- ---- ---- Cost/valuation at 31 244,232 8,988,433 25,370 11,760,898 21,018,933 October 2011 ==== ==== ==== ==== ==== Book cost at 31 October 2011 719,584 6,020,643 42,935 12,827,625 19,610,787 Unrealised (losses)/gains (475,352) 2,967,790 (17,565) (1,066,727) 1,408,146 at 31 October 2011 ---- ---- ---- ---- ---- Valuation at 31 October 2011 244,232 8,988,433 25,370 11,760,898 21,018,933 ==== ==== ==== ==== ==== Unrealised (losses)/gains (473,416) 2,393,198 (17,565) (1,071,854) 830,363 at 1 May 2011 Net movement in unrealised (depreciation)/appreciation (1,936) 574,592 - 5,127 577,783 in the period ---- ---- ---- ---- ---- (Losses)/gains on investments (475,352) 2,967,790 (17,565) (1,066,727) 1,408,146 at 31 October 2011 ==== ==== ==== ==== ==== Investment purchases shown in the Cash Flow Statement of £2,150,457 differs to that shown above by £264,542. This is due to £360,265 held in escrow at 30 April 2011 and invested into ASL Technology Holdings Limited during the period and £95,723 held in escrow at 31 October 2011 awaiting investment into EMaC Limited. Investments at fair value These comprise investments in four OEIC money market funds (three Dublin based and one London based), managed by Blackrock, Royal Bank of Scotland, Prime Rate Capital Management and Scottish Widows Investment Partnership. £4,121,576 (30 April 2011: £6,538,497; 31 October 2010: £10,418,805) of this sum is subject to same day access, while £nil (30 April 2011: £nil; 31 October 2010: £927) is subject to two day access. The manager of Prime Rate Capital Management liquidity fund is a member of Matrix Group Limited, as is MPEP. There are no arrangements in place to prevent duplicated management fees from these two different parts of the Matrix Group in view of the small amount of fees paid. Capital and reserves for the period ended 31 October 2011 Called up Capital Capital Special Profit and Total share redemption reserve distributable Loss capital reserve (unrealised) reserve Account £ £ £ £ £ £ At 1 May 2011 258,578 48,069 1,230,469 16,258,990 7,067,862 24,863,968 Shares bought (4,983) 4,983 - (315,397) - (315,397) back Transfer of realised capital losses from - - - (194,976) 194,976 - Cancelled Share Premium account (see note below) Dividends - - - - 4,350 4,350 refunded Profit for the - - 577,783 - 82,079 659,862 period ---- ---- ---- ---- ---- ---- At 31 October 253,595 53,052 1,808,252 15,748,617 7,349,267 25,212,783 2011 ==== ==== ==== ==== ==== ==== The cost of shares bought back shown in the Cash Flow Statement of £227,845 differs to that disclosed above by £87,552. This due to an opening share buyback creditor of £81,673 settled during the period and an share buyback creditor of £169,225 as at 31 October 2011 settled following the period end. The cancelled share premium account provides the Company with a special reserve out of which it can fund buy-backs of the Company's Shares as and when it is considered by the Board to be in the interests of the Shareholders, and to absorb any existing and future realised losses. Under Resolution 9 of the Annual General Meeting held on 8 September 2011, each class of Shareholders authorised the Company to purchase its own shares pursuant to section 693(4) of the Companies Act 2006. The authority is limited to a maximum of 14.99 per cent of the issued Ordinary Share Capital of the Company, and will unless, previously revoked or renewed, expire on the conclusion of the Annual General Meeting of the Company to be held in 2012. The maximum price that may be paid for Ordinary Shares will be an amount equal to 105 per cent of the average of the middle market quotation as taken from the London Stock Exchange daily official list for the five business days immediately preceding the day on which that Ordinary Share is purchased. The minimum price that may be paid for Ordinary Shares is 1 penny per share. The authority provides that the Company may make a contract to purchase Ordinary Shares under the authority conferred by this resolution prior to the expiry of such authority which will or may be executed wholly or partly after the expiration of such authority and may make a purchase of Ordinary Shares pursuant to such contract. Related party transactions Kenneth Vere Nicoll is a shareholder in Matrix Group Limited, which owns Matrix-Securities Limited, MPE Partners Limited and has an interest in Prime Rate Capital Management LLP and Matrix Corporate Capital LLP "MCC"). MPE Partners Limited has a 50% interest in Matrix Private Equity Partners LLP, the Company's Investment Manager. Matrix-Securities Limited provided accountancy and company secretarial services to the Company up to 10 September 2010. Matrix Private Equity Partners LLP is the Company's Investment Manager in respect of venture capital investments, administrator and Company Secretary and earned fees of £301,773 (year ended 30 April 2011: £557,802; six months ended 31 October 2010: £255,567), for the period. The Company has invested £2,515,802 in a liquidity fund managed by Prime Rate Capital Management LLP, and earned income of £11,539 (30 April 2011: £24,148, 31 October 2010: £12,756) from this fund in the period. MCC are the Company's brokers and earned fees of £6,000 (30 April 2011: £11,833; 31 October 2010: £5,875). Three (30 April 2011: seven, 31 October 2010: three) share buybacks were undertaken by MCC on the Company's instruction totalling £315,397 (30 April 2011: £457,264, 31 October 2010: £ 173,192) with £169,225 outstanding at the period end (30 April 2011: £81,088, 31 October 2010: £10,327). Post Balance Sheet Events On 1 November 2011, £1,096,723 was invested in EMaC Limited. On 9 December 2011, the Company's investment in DiGiCo Europe Limited was sold to ISIS LLP for net cash proceeds of £2,138,243. In addition, the Company also received £1,331,900 of loan stock, and retained a 2.39% equity holding. The financial information set out 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 ended 30 April 2011 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The auditors have reported on these financial statements and that report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Copies of this statement are being sent to all Shareholders. Further copies are available free of charge from the Company's registered office, One Vine Street, London, W1J 0AH or downloaded via the Company's website at www.mig2vct.co.uk. SHAREHOLDER INFORMATION Shareholders wishing to follow the Company's progress can visit the Company's website at www.mig2vct.co.uk which contains publicly available information or links to information about our largest investments, the latest NAV and the share price. The London Stock Exchange's website at www.londonstockexchange.com /en-gb/pricesnews provides up to the minute details of the share price and latest NAV announcements, etc. A number of commentators such as Allenbridge at www.taxshelterreport.co.uk provide comparative performance figures for the VCT sector as a whole. The share price is also quoted in the Financial Times. The Company circulates a bi-annual newsletter to Shareholders, as well as the usual Annual and Half-Yearly Reports. The next edition will be distributed in October 2011. Net asset value per share The Company's NAV as at 30 April 2011 was 96.16 pence per Ordinary Share . The Company announces its unaudited NAV on a quarterly basis. Dividends The Board is not recommending the payment of an interim dividend in respect of the six months ended 31 October 2011 to Ordinary Shareholders. The Directors will consider the payment of a dividend in respect of the year-ending 30 April 2012 in due course. Shareholders who wish to have future dividends paid directly into their bank account rather than sent by cheque to their registered address can complete a mandate for this purpose. Mandates can be obtained by contacting the Company's Registrars, Capita Registrars, at the address below. Shareholder enquires: For enquiries concerning the investment portfolio, please contact the Investment Manager, Matrix Private Equity Partners LLP, on 020 3206 7000 or by e-mail to info@matrixpep.co.uk. For information on your holding, to notify the Company of a change of address or to request a dividend mandate form (should you wish to have future dividends paid directly into your bank account) please contact the Company's Registrars, Capita Registrars, on 0871 664 0300 (calls cost 10p per minute plus network extras. If calling from overseas please ring +44 208 639 2157) or write to them at The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. Alternatively you can contact them via their website at www.capitaregistrars.com. CORPORATE INFORMATION Directors Nigel Melville (Chairman) Sally Duckworth Adam Kingdon Kenneth Vere Nicoll Company's registered office and head office One Vine Street London W1J 0AH Company Registration Number 3946235 Website www.mig2vct.co.uk Company Secretary Investment Manager, Promoter and Auditors and Tax Matrix Private Equity Company Accountants Advisers Partners LLP Matrix Private Equity Partners LLP PKF (UK) LLP One Vine Street One Vine Street Farringdon Place London London 20 Farringdon Road W1J 0AH W1J 0AH London EC1M 3AP e-mail: e-mail: info@matrixpep.co.uk mig2@matrixgroup.co.uk Bankers Solicitors Stockbrokers Barclays Bank plc Martineau Matrix Corporate PO Box 544 No 1 Colmore Square Capital LLP 54 Lombard Street Birmingham One Vine Street London B4 6AA London W1J 0AH Also at 35 New Bridge Street London EC4V 6BW Registrar VCT Tax Adviser Capita Registrars PricewaterhouseCoopers LLP The Registry 1 Embankment Place 34 Beckham Road London Beckham WC2N 6RN Kent BR3 4TU END DISCLAIMER Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

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