Final Results

British SmallerTechCompaniesVCT2PLC 15 March 2004 BRITISH SMALLER TECHNOLOGY COMPANIES VCT 2 PLC UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003 British Smaller Technology Companies VCT 2 plc ("the Company"), the venture capital trust specialising in growing smaller technology companies, today announces its unaudited preliminary results for the year to 31 December 2003. Financial highlights Unaudited Audited 2003 2002 Income £256,000 £296,000 Net revenue (loss) return before and after tax £(32,000) £5,000 Total loss per share (7.09)p (2.41)p Net assets £6.62m £7.17m NAV per share 84.6p 91.6p In his overview of the year, the Chairman, Sir Andrew Hugh Smith, said that the technology sector had begun to show signs of recovery. With a greater confidence in financial markets and a growing interest in new share issues, he expects to see increasing exit opportunities for some of the Company's investments. Investments Reporting on the investment portfolio, Sir Andrew said that the improving market environment was already in evidence with the acquisition of Amacis Group by NASDAQ quoted Primus Knowledge Solutions. A total of £275,000 had been invested in Amacis in April 2003. The acquisition by Primus took place in December 2003 and the consideration, in the form of Primus shares, was valued at £598,000 at the year end. Sir Andrew added, "Although this does not yet represent a cash realisation, it does give an encouraging indication of the portfolio's potential in terms of growth and exit opportunities." The net movement on the portfolio valuation in the year was a reduction of £388,000. Sir Andrew commented on the revised British Venture Capital Association (BVCA) valuation guidelines that became effective on 1 August 2003 and which the Company has adopted. He said that, although it is difficult to make precise comparisons, the change from the former guidelines to the revised basis had not materially affected the reported net asset value. Financial Results and Dividend The total return for the year was a net loss of 7.1 pence per share, reducing net asset value per share to 84.6 pence per share. At 31 December 2003, liquid resources stood at just under £4.1m. David Hall, Managing Director of Yorkshire Fund Managers, the Investment Adviser to the Company, said, "We are continually reviewing the anticipated funding which may be required by existing portfolio companies to take them through to realisation. We believe that the Company has adequate funds to support those businesses that merit further support and also to make selective new investments as part of strong syndicates in companies close to commercial viability." Turning to the VCT legislative requirements, Sir Andrew said that this was the first year end for which the Company needed to formally comply with the requirement to hold at least 70% of its investments in qualifying holdings. In order to meet this requirement, but not compromise the quality of investments or available reserves for follow-on funding, the Company had placed sufficient monies on non-interest bearing deposit. Sir Andrew commented, "This will result in a small reduction in the Company's income over the forthcoming year but the Board is of the opinion that this action is in the best interests of Shareholders in protecting their existing tax benefits and creating the opportunity for future capital gains." Shareholder Relations Sir Andrew reported that the Court had now approved the share buy-back arrangements agreed by Shareholders at the last Annual General Meeting. He said that the Company was now in a position to buy back a limited number of shares where the directors consider this to be in the best interests of other Shareholders. John Ashcroft It was with deep sadness that Sir Andrew formally reported the death of John Ashcroft who had been a non-executive director of this Company since its initial launch. Paying tribute to Mr Ashcroft, he said, "John had been fighting against illness for some time, yet his energy and perceptive contributions to boardroom debates continued, as always, to be a source of inspiration to me and his fellow directors. He will be greatly missed by all who knew him." Outlook Commenting on the Company's prospects, Sir Andrew said, "The Stock Market recovery during 2003 has provided a much welcome impetus for smaller, growing companies in their exit plans and the mood into 2004 has remained optimistic. We continue to work with strong syndicates in making new investments and to ensure that we have adequate reserves to support portfolio companies on the road to market acceptance of their products. The early signs of corporate activity give encouragement for realisation opportunities in the future." For further information, please contact: David Hall Yorkshire Fund Managers Limited Tel: 0161 832 7603 Alan Davies Yorkshire Fund Managers Limited Tel: 0113 294 5000 Keith Williams Brewin Dolphin Securities Limited Tel: 0113 241 0130 Chairman's Statement During 2003 the technology sector began to show signs of recovery as a general economic recovery took hold and as the uncertainties surrounding the Iraq war faded. During the year our benchmark index, the FTSE TechMARK All-Share rose 42%. With greater confidence in financial markets and growing interest in new share issues, we expect to see increasing exit opportunities for some of our investments; indeed one, Amacis Group, has been acquired by a US based company quoted on NASDAQ. Investment Valuations I gave notice in my interim report that, with effect from 1 August 2003, the British Venture Capital Association (BVCA) has revised its guidelines for the valuation of venture capital investments. Your Board has adopted these revised guidelines and the investment portfolio at 31 December 2003 has been valued accordingly. For early stage companies that are typical of this portfolio, the main change is a move away from a cost base and provisioning in standard banding of 25% increments to applying more specifically defined methodologies, which aim to produce reliable fair valuations. Although it is not possible to measure precisely, the directors' view is that this change has not had a material effect on the reported net asset value. This revision to the valuation methodology represents a change in the basis of measurement and not a change in accounting policy. Therefore, the prior year comparative figures have not been restated. Operations A total of £1.6m was invested in eight businesses over the year. Five of these businesses were new additions to the portfolio with the remaining three being follow-on investments. I commented on the investments made in the first half of the year in my interim report circulated to Shareholders in September. In the second half of the year, your Company invested £811,000. There were two new investments in this period, Purely Proteins and Self Timed Solutions. Purely Proteins is an innovative, informatics-led, protein purification company. The investment of £200,000 was part of a first round venture capital fund raising to exploit the increasing potential of human proteins in pharmaceutical research. With this funding, Purely Proteins will now be able to expand its existing range of informatics and protein-based products, as well as begin to apply its technologies to the discovery of new therapies. Self Timed Solutions, a spin out company from Manchester University, has developed asynchronous chip technology that has a number of advantages in both chip design and energy consumption. Your Company invested £121,000 as part of a much larger £2m syndicate of investors. The signs of increasing corporate activity were underlined at the end of the year when Amacis Group was bought by Primus Knowledge Solutions Inc., a US based company quoted on NASDAQ. Primus develops award-winning software solutions for mid-market and Global 2000 organisations. Primus' knowledge sharing software is used in call centres, help desks, and Web self-service environments to increase customer satisfaction, improve employee efficiency and lower operating costs. Its current customers include 3Com, Airbus, Boeing, Fujitsu, IBM, Motorola and T-Mobile. Your Company invested £275,000 in Amacis in April 2003. The consideration received by your Company was in the form of Primus shares, valued at £598,000 at 31 December 2003. Although this does not yet represent a cash realisation it does give an encouraging indication of the portfolio's potential in terms of growth and exit opportunities. Financial Results The result for the period was a total return loss of 7.09 pence per share with a revenue loss of 0.41 pence per share and a capital loss of 6.68 pence per share. The net asset value at 31 December 2003 was 84.6 pence per share representing a decrease of 7.6% over the year as a whole. Liquid Resources and Rate of Investment At the year end, liquid resources available to the Company stood at just under £4.1m. Therefore, your Company still has a significant level of funds to invest in growing businesses. The board and its Investment Adviser, Yorkshire Fund Managers, is constantly reviewing the portfolio to assess the likely level of follow-on funding that will be required by the existing investments. This will dictate the level of cash resources that can be made available for new investment opportunities. 31 December 2003 was the first year end for which your Company had to formally comply with the VCT legislation that requires, amongst other things, at least 70% of investments to be in qualifying holdings (as defined by the legislation). In order to meet this requirement, but not compromise the quality of investments or available reserves for follow-on funding demands, sufficient funds were placed on non-interest bearing deposit prior to the reporting date and will continue to be held as such until suitable qualifying investments are made. This will result in a small reduction in the Company's income over the forthcoming year but the Board is of the opinion that this action is in the best interests of Shareholders in protecting their existing tax benefits and creating the opportunity for future capital gains. Warrants A notice will be sent to Shareholders and Warrantholders in April 2004 alerting them to the dates on which Warrants can be exercised in the current year. Shareholder Relations As I reported in September 2003, the proposals to enable your Company to buy back its own shares were approved by Shareholders at the Annual General Meeting held on 15 May 2003. I am pleased to confirm that Court approval has been granted and the Company is now in a position to buy back a limited number of shares where the directors determine it is in the best interests of other Shareholders to do so, taking account of the price per share and the cash reserves of the Company at the time. In the year under review, Yorkshire Fund Managers held a total of four investor workshops that were well attended and received by many Shareholders across the three venture capital trusts under its management. The forum provides a good opportunity for Shareholders to get a better understanding of the companies in the portfolio, the strategic and operating issues of these VCTs and changes to the legislative environment in which this type of company operates. Your board and Yorkshire Fund Managers are keen to continue this programme and the next workshop will be held on 21 April 2004 in London. John Ashcroft It is with deep sadness that I have to report to you the death of John Ashcroft who had been an independent non-executive director of this Company, and of British Smaller Technology Companies VCT, since the initial issue. John had been fighting against illness for some time, yet his energy and perceptive contributions to boardroom debates continued, as always, to be a source of inspiration to me and his fellow directors. Our heartfelt condolences go out to his wife, Alison, and family. He will be greatly missed by all who knew him. Outlook The Stock Market recovery during 2003 has provided a much welcome impetus for smaller, growing companies in their exit plans. Although the performance in the middle six months of the year, for smaller quoted companies in particular, did slacken off toward the end of 2003, the mood into 2004 has remained optimistic. There is a general consensus that UK interest rates will continue to rise in 2004, but as long as this is kept to forecast levels it should not unduly dampen the current increase being seen in corporate finance activity. The main risk to business confidence is likely to come from the US where the market is perceived as overvalued and the presidential elections may cause nervousness in the markets. If this does happen, I would expect there to be some feedback into the UK economy. We continue to look to work with strong syndicates in making new investments and to ensure that we have adequate reserves to support portfolio companies on the road to market acceptance of their products. The early signs of corporate activity, both generally and within our own portfolio, give encouragement for realisation opportunities in the medium term. Sir Andrew Hugh Smith Chairman Unaudited Statement of Total Return (incorporating the Revenue Account) for the year ended 31 December 2003 Unaudited Year ended Audited Year ended 31 December 2003 31 December 2002 Notes Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 Net losses on investments - (466) (466) - (127) (127) Income 256 - 256 296 - 296 Investment advisory fee (131) (56) (187) (141) (61) (202) Other expenses (157) - (157) (150) - (150) ------ ------ ------ ------ ------ ------ Net (loss)return on ordinary activities before taxation (32) (522) (554) 5 (188) (183) Tax on ordinary activities 2 - - - - - - ------ ------ ------ ------ ------ ------ Net (loss)return on ordinary activities after taxation (32) (522) (554) 5 (188) (183) Dividends 3 - - - - - - ------ ------ ------ ------ ------ ------ Transfer(from) to reserves (32) (522) (554) 5 (188) (183) ====== ====== ====== ====== ====== ====== Return per Ordinary share Basic and diluted 4 (0.41)p (6.68)p (7.09)p 0.07p (2.48)p (2.41)p Notes The revenue column of this statement is the profit and loss account of the Company. All activity has arisen from continuing operations. There is no difference between the net revenue (loss) return on ordinary activities before taxation and the transfer (from) to reserves in either year and their historic cost equivalents. Unaudited Balance Sheet at 31 December 2003 Unaudited Audited Notes 2003 2002 £000 £000 Fixed Assets Investments 2,535 1,317 -------- -------- Current Assets Debtors 26 116 Investments 1,026 5,737 Cash 3,057 34 -------- -------- 4,109 5,887 Creditors: amounts payable within one year (28) (31) -------- -------- Net Current Assets 4,081 5,856 -------- -------- Total Net Assets 6,616 7,173 ======== ======== Capital and Reserves Called-up share capital 782 783 Share premium account - 6,595 Capital reserve Realised (118) (35) Unrealised (647) (208) -------- -------- (765) (243) Warrant reserve 4 5 Special reserve 6,592 - Other reserve 1 - Capital redemption reserve 1 - Revenue reserve 1 33 -------- -------- Equity shareholders' funds 6,616 7,173 ======== ======== Net asset value per Ordinary share 5 84.6p 91.6p ======== ======== Unaudited Cash Flow Statement for the year ended 31 December 2003 Unaudited Audited Year ended Year ended 31 December 2003 31 December 2002 £000 £000 Net cash outflow from operating activities (1) (68) -------- -------- Investing activities Purchase of investments (1,606) (1,194) -------- -------- Net cash outflow before management of liquid resources and financing (1,607) (1,262) -------- -------- Management of liquid resources Purchase of fixed interest government stocks (1,980) (650) Proceeds from the sale of fixed interest Government stocks 6,613 594 -------- -------- Net cash inflow (outflow) from management of liquid resources 4,633 (56) -------- -------- Financing Issue of Ordinary shares 3 956 Issue expenses - (41) Purchase of own shares and associated warrants (6) - -------- -------- Net cash (outflow) inflow from financing (3) 915 -------- -------- Increase (decrease) in cash in the year 3,023 (403) ======== ======== Notes to Financial Statements for the year ended 31 December 2003 1. Basis of reporting This preliminary announcement, which has been prepared on a basis consistent with the previous year, does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. This announcement has been agreed with the company's auditors for release. The information for the year ended 31 December 2002 is an extract from the statutory accounts to that date which have been delivered to the Registrar of Companies. Those accounts included an audit report which was unqualified and which did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2003, upon which the auditors have still to report, will be delivered to the Registrar following the Company's annual general meeting. 2. Tax on Ordinary activities Year ended 31 December 2003 Year ended 31 December 2002 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 Corporation tax payable at 19.00% - - - - - - (2002: 19.25%) ------ ------ ------ ------ ------ ------ 3. Dividends No dividends have been paid or proposed in the year (2002: Nil). 4. Return per Ordinary share The basic revenue return per Ordinary share is based on net loss from ordinary activities after tax of £32,000 (2002: net revenue return £5,000) and 7,812,000 (2002: 7,566,000) shares, being the weighted average number of shares in issue during the year. The basic capital return per Ordinary share is based on net capital loss from ordinary activities after tax of £522,000 (2002: £188,000) and 7,812,000 (2002: 7,566,000) shares being the weighted average number of shares in issue during the year. The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted return per share are the same. 5. Net Asset Value per Ordinary share The basic and diluted net asset value per Ordinary share is calculated on attributable assets of £6,616,000 (2002: £7,173,000) and 7,823,000 (2002: 7,833,000) shares in issue at the year end. The Company has no securities that would have a dilutive effect in either period and hence the basic and diluted net asset value per share are the same. 6. Annual General Meeting Copies of the full financial statements for the period ended 31 December 2003 will be available to the public at the registered office of the Company at Saint Martins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ thereafter. The Company's AGM is due to be held at 1p.m. on 6 May 2004 at 23 Berkeley Square, London, W1J 6HE. This information is provided by RNS The company news service from the London Stock Exchange

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