Final Results

Bluehone AIM VCT2 PLC 14 February 2008 To: Company Announcements From: Bluehone AiM VCT2 plc Date: 14 February 2007 Investment Objective To provide shareholders with a tax efficient means of gaining long term capital growth and an attractive dividend stream. Ordinary Shares • Net asset value total return of -12.8% for the year • Final capital dividend of 1.75 pence per share, making 3.5 pence per share for the year C Shares • Net asset value total return of -5.5% for the year • A capital dividend of 1.0 pence per share for the year The Chairman, Gordon Brough, said: 'Performance 2007 has witnessed the most difficult period of trading for the company since its launch. The emergence of the world wide credit crisis in August had a severe negative impact on the valuations of smaller companies as investors became more risk averse and shunned this end of the market. These adverse conditions have continued into 2008. There is widespread concern amongst economic commentators about the possible impact of the credit crisis and whether this will lead to a slowdown in economic activity or even a recession during 2008 and it appears that smaller company valuations have fallen ahead of this even though many have yet to see any change in their operating performance. As a result of the deteriorating market conditions the AiM market gave up most of the gains made in the first half. Although FTSE AiM Index was up 3.4 per cent for the twelve months to 30 November 2007 its performance would have been significantly worse had the positive influence of the resource sector, which rose by 32 per cent, and the oil & gas sector, which rose by 12 per cent, been excluded. Together, these sectors account for 29 per cent of the market's valuation and it must be remembered that most companies in this sector do not qualify for inclusion in VCT portfolios. A clearer indication for how smaller companies have fared during this difficult period is the valuation of smaller companies listed on the main London Stock Market, as measured by the FTSE SmallCap Index. This index fell by 11.7 per cent over the year and by 23.2 per cent in the six months to 30 November 2007. Against very challenging conditions in the AiM market, particularly at the smaller end, it is disappointing that the progress made by the Company's Net Asset Value (NAV) per share during the first half of the year was undone in the second half. The NAV decreased by 12.3 per cent over the year from 84.97p to 74.51p, (before taking into account the interim dividend), having been 97.84p at the interim stage. Whilst the fall in value of smaller companies in general was an unhelpful background for the portfolio, progress was also hampered by a number of holdings in companies which disappointed. This included poor share price performance from some of its largest holdings namely: Colliers CRE; Straight; Torex Retail and Evolutec. On a more positive note a number of individual investments continued to make progress with their business plans which resulted in an improvement in their valuations, although not enough to compensate for the fallers. By far the largest gain came from the sale of most of the shares held in Tanfield, which was one of the largest holdings at the start of the year. The Manager took advantage of a rising share price to realise £4.4 million from this holding. The Company also continued to benefit from exposure to its largest holding Egdon Resources which experienced a 16 per cent increase in its share price over the year and accounted for 16.3 per cent of the ordinary share pool's net assets at the year end. Egdon's shares performed strongly during the summer and your Manager took advantage of this strength to continue to take profits from the holding, realising a further £321,000. It is worth pointing out that over the past few years a sum of £1.3 million has been realised from the holding in Egdon, crystalising a substantial profit and, together with the profit from Tanfield, this has helped to fund recent capital distributions to shareholders. Earnings and Dividends Ordinary Shares Earnings for the period amounted to a loss of £233,000 and as in the past the Board is not in the position to recommend a final income dividend. However, buoyant market conditions at the start of the year enabled the realisation, in part or as a whole of a number of holdings at a profit which resulted in the payment of an interim capital distribution of 1.75 pence per share in August and allows the Board to recommend the payment on 30 April 2008 of a final capital distribution of a further 1.75 pence per share to shareholders on the register on 28 March 2008, making a total distribution of 3.5 pence per share for the year - the same as last year. Following the payment of the final distribution in April the Company will have paid 17.5 pence per ordinary share back to shareholders. Although market conditions during the second half of the year and into the new financial year have been less conducive to the profitable realisation of investments it continues to be the Board's belief that distributions are the most effective and fairest way of returning capital as they are received by all shareholders. To this end the Board will continue to encourage your Manager to realise investments, as market conditions and the development of individual business plans permit, in order to facilitate further capital distributions. During the year a total of 60,073 ordinary shares were issued under the Dividend Reinvestment Scheme. C Shares The investment programme for the new portfolio continued apace during the first half of the year but then slowed as the markets deteriorated. The Manager added a further 17 new holdings with a combined investment of £1.4 million. The portfolio now comprises 29 individual VCT qualifying holdings and this combined investment represents 88 per cent of the value of the pool's investments exceeding the required 70 per cent test well within the three year period. The Net Asset Value of the C share pool was unable to avoid the deterioration of the market in the second half of the year and was also affected by the write off of one of the investments, The Debt Adviser Group. The NAV fell by 5.5 per cent to 95.7 pence per share after taking into account the interim distribution. Following a busy investment programme, which saw the gradual reduction of the holding in fixed interest securities in order to provide the funds for investment into the VCT qualifying portfolio, it was inevitable that the level of income generated from the C share pool would fall. The Board is therefore, not in a position to propose an income dividend. A reduction in the portfolio's holding in Worthington Nicholls at a profit combined with the movement of the NAV per share above the launch NAV enabled the payment of an interim capital distribution of 1.0 pence per share in August 2007. However, the subsequent reduction in the NAV during the second half has precluded the payment of a further capital distribution at the year end. Portfolio Developments Ordinary Shares The three priorities for the use of the free cash within the fund are: to make distributions; to enable the Manager to maintain a balanced and refreshed portfolio and; to undertake share buy backs from time to time. It may not be possible to do all three of these at any one time as they depend on the Manager's ability to actively manage the portfolio in order to generate the necessary cash and this is dependent upon the state of the smaller companies market as well as the optimum timing of divestments from individual investments. By managing our key strategic holdings and generating liquidity, the Manager's strategy has been to maintain the diversity of the portfolio by bringing in new opportunities as well as supporting existing investments. During the year, but mostly in the first half when market conditions were more favourable, a sum of £6.54 million was realised from disposals, including part sales of the holdings in Tanfield, Egdon Resources, Worthington Nicholls, Sirvis IT, Vectura and Bond International, the sale of the entire holding in Pursuit Dynamics, as well as, benefiting from the take-over of Blooms of Bressingham. A total of £2.5 million was reinvested into the portfolio in four new holdings and to support fundraisings from nine existing holdings. In addition, the Board renewed its authority to buy back, as well as issue, a proportion of the Company's shares at this year's AGM held in March 2007. The volume of shares offered by the market for cancellation during the year was 2,073,508 and these were acquired at a cost of £1.7 million and represented 5.1 per cent of the issued share capital at the end of the financial year. Outlook Stock markets generally have started this year in the same bearish mood that they ended 2007, with increasing concern about a possible recession in the USA and its knock on effect on economies around the world. At home it will be difficult for the UK to avoid some slowdown in its own economic growth and we are seeing clear signs of a weakening housing market and a tightening by consumers. The uncertainty of the depth and length of any downturn has unsettled the markets and resulted in increased volatility and a sharp sell off across most asset classes. The riskier assets, which would include smaller quoted companies, have been particularly badly hit as investors become more risk averse. However, after their recent sell-off, equity markets, and in particular smaller company shares, do not appear expensive by historical standards and it is interesting to observe that there has been a recent marked increase in director purchases of their own company shares. It must be hoped that market sentiment improves as the year progresses. Interest rates have hopefully reached their peak in the current cycle and now appear to be on a downward trend, giving room for an improvement in valuations as this looser monetary policy starts to take effect. Bluehone AiM VCT2 has a number of investments at interesting and critical points in their development plans which I hope will have beneficial impact on the value of the Company as they come to fruition in the coming year. Enquiries: Robert Mitchell / Sally Mills Bluehone Investors LLP Investment Managers Tel: 0207 496 8929 Scott Macrae F&C Asset Management plc Secretaries Tel: 0207 628 8000 Audited Income Statement for the year ended 30 November 2007 Ordinary Shares 2007 2007 2007 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 2,218 2,218 Unrealised losses - (5,481) (5,481) Income 224 - 224 Investment management fee (199) (596) (795) Other expenses (258) - (258) ----------- ----------- ----------- Loss on ordinary activities before taxation (233) (3,859) (4,092) Tax on ordinary activities - - - ---------- ----------- ----------- Loss on ordinary activities after taxation (233) (3,859) (4,092) ---------- ---------- ----------- Return per ordinary share (0.60p) (9.86p) (10.46p) ______ ______ _____ Reconciliation of Movement in Ordinary Shareholders' Funds for the year ended 30 November 2007 2007 £'000 Opening shareholders' funds 35,057 Loss for the year (4,092) Increase in share capital 52 Purchase of shares (1,690) Dividends paid (1,464) ----------- Closing shareholders' funds 27,863 ----------- Audited Income Statement for the year ended 30 November 2007 C Shares 2007 2007 2007 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 14 14 Unrealised losses - (136) (136) Income 54 - 54 Investment management fee (18) (54) (72) Other expenses (25) - (25) ---------- ----------- ----------- Profit/(loss) on ordinary activities before taxation 11 (176) (165) Tax on ordinary activities - - - ---------- ----------- ----------- Profit/(loss) on ordinary activities after taxation 11 (176) (165) ---------- ---------- ----------- Return per C share 0.37p (5.96p) (5.59p) ______ ______ _____ Reconciliation of Movement in C Shareholders' Funds for the year ended 30 November 2007 2007 £'000 Opening shareholders' funds 3,079 Loss for the period (165) Dividends paid (90) ----------- Closing shareholders' funds 2,824 ----------- Audited Income Statement for the year ended 30 November 2007 Total 2007 2007 2007 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 2,232 2,232 Unrealised losses - (5,617) (5,617) Income 278 - 278 Investment management fee (217) (650) (867) Other expenses (283) - (283) ---------- ----------- ----------- Loss on ordinary activities before taxation (222) (4,035) (4,257) Tax on ordinary activities - - - ---------- ----------- ----------- Loss on ordinary activities after taxation (222) (4,035) (4,257) ---------- ---------- ----------- Reconciliation of Movement in Total Shareholders' Funds for the year ended 30 November 2007 2007 £'000 Opening shareholders' funds 38,136 Loss for the year (4,257) Increase in share capital 52 Purchase of shares (1,690) Dividends paid (1,554) ----------- Closing shareholders' funds 30,687 ----------- Audited Income Statement for the year ended 30 November 2006 Ordinary Shares 2006 2006 2006 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 1,116 1,116 Unrealised gains - 2,197 2,197 Income 239 - 239 Investment management fee (204) (611) (815) Other expenses (254) - (254) ----------- ----------- ----------- (Loss)/profit on ordinary activities before taxation (219) 2,702 2,483 Tax on ordinary activities 2 - 2 ---------- ----------- ----------- (Loss) /profit on ordinary activities after taxation (217) 2,702 2,485 ---------- ---------- ----------- Return per ordinary share (0.52p) 6.49p 5.97p ______ ______ _____ Reconciliation of Movement in Ordinary Shareholders' Funds for the year ended 30 November 2006 2006 £'000 Opening shareholders' funds 35,700 Profit for the year 2,485 Increase in share capital 56 Purchase of shares (1,920) Dividends paid (1,264) ----------- Closing shareholders' funds 35,057 ----------- Audited Income Statement for the period ended 30 November 2006 C Shares 2006 2006 2006 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 55 55 Unrealised gains - 225 225 Income 64 - 64 Investment management fee (13) (39) (52) Other expenses (16) - (16) ---------- ----------- ----------- Profit on ordinary activities before taxation 35 241 276 Tax on ordinary activities - - - ---------- ----------- ----------- Profit on ordinary activities after taxation 35 241 276 ---------- ---------- ----------- Return per C share 1.39p 9.58p 10.97p ______ ______ _____ Reconciliation of Movement in C Shareholders' Funds for the period ended 30 November 2006 2006 £'000 Opening shareholders' funds - Profit for the period 276 Increase in share capital 2,803 ----------- Closing shareholders' funds 3,079 ----------- Audited Income Statement for the year ended 30 November 2006 Total 2006 2006 2006 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 1,171 1,171 Unrealised gains - 2,422 2,422 Income 303 - 303 Investment management fee (217) (650) (867) Other expenses (270) - (270) ---------- ----------- ----------- (Loss)/profit on ordinary activities before taxation (184) 2,943 2,759 Tax on ordinary activities 2 - 2 ---------- ----------- ----------- (Loss)/profit on ordinary activities after taxation (182) 2,943 2,761 ---------- ---------- ----------- Reconciliation of Movement in Total Shareholders' Funds for the year ended 30 November 2006 2006 £'000 Opening shareholders' funds 35,700 Profit for the year 2,761 Increase in share capital 2,859 Purchase of shares (1,920) Dividends paid (1,264) ----------- Closing shareholders' funds 38,136 ----------- Audited Balance Sheet As at 30 November 2007 Ordinary shares C shares Total £'000 £'000 £'000 Fixed assets Investments 27,601 2,804 30,405 Current assets Debtors 63 6 69 Cash at bank and on deposit 330 35 365 ______ ______ _____ 393 41 434 Creditors (amounts falling due within one year) (131) (21) (152) ______ ______ _____ Net assets less current liabilities 262 20 282 ______ ______ _____ Total assets less current liabilities 27,863 2,824 30,687 ______ ______ _____ Financed by: Equity shareholders' funds 27,863 2,824 30,687 ______ ______ _____ Net asset value per share: 72.76p 95.73p Number of shares in issue at the balance sheet date 38,296,588 2,950,085 Audited Balance Sheet As at 30 November 2006 Ordinary shares C shares Total £'000 £'000 £'000 Fixed assets Investments 35,093 3,060 38,153 Current assets Debtors 45 54 99 Cash at bank and on deposit 198 44 242 ______ ______ _____ 243 98 341 Creditors (amounts falling due within one year) (279) (79) (358) ______ ______ _____ Net assets less current liabilities (36) 19 (17) ______ ______ _____ Total assets less current liabilities 35,057 3,079 38,136 ______ ______ _____ Financed by: Equity shareholders' funds 35,057 3,079 38,136 ______ ______ _____ Net asset value per share: 86.97p 104.37p Number of shares in issue at the balance sheet date 40,310,023 2,950,085 Summarised Audited Statement of Cash Flows Year to 30 November 2007 Ordinary C shares shares Total £'000 £'000 £'000 Net cash outflow from operating activities (861) (9) (870) Taxation received - - - Capital expenditure and financial investment 4,095 89 4,184 Equity dividends paid (1,464) (89) (1,553) ----------- ----------- ----------- Net cash inflow/(outflow) before financing 1,770 (9) 1,761 Financing (1,638) - (1,638) ----------- ----------- ----------- Increase/(decrease) in cash 132 (9) 123 ----------- ----------- ----------- Reconciliation of net cash flow to movement in net cash Increase/(decrease) in cash 132 (9) 123 Opening cash 198 44 242 ----------- ----------- ----------- Net cash at 30 November 2007 330 35 365 ----------- ----------- ----------- Reconciliation of net revenue before taxation to net cash inflow from operating activities Loss on ordinary activities before taxation (4,092) (165) (4,257) Loss on realisation of investments (2,218) (14) (2,232) Unrealised gains on investments 5,481 136 5,617 (Increase)/decrease in debtors (16) 32 16 (Decrease)/increase in creditors (16) 2 (14) ----------- ----------- ----------- Net cash outflow from operating activities (861) (9) (870) ----------- ----------- ----------- Summarised Audited Statement of Cash Flows Year to 30 November 2006 Ordinary C shares shares Total £'000 £'000 £'000 Net cash outflow from operating activities (992) (10) (1,002) Taxation received 2 - 2 Capital expenditure and financial investment 2,788 (2,737) 51 Equity dividends paid (1,264) - (1,264) ----------- ----------- ----------- Net cash inflow/(outflow) before financing 534 (2,747) (2,213) Financing (1,793) 2,791 998 ----------- ----------- ----------- (Decrease)/increase in cash (1,259) 44 (1,215) ----------- ----------- ----------- Reconciliation of net cash flow to movement in net cash (Decrease)/increase in cash (1,259) 44 (1,215) Opening cash 1,457 - 1,457 ----------- ----------- ----------- Net cash at 30 November 2006 198 44 242 ----------- ----------- ----------- Reconciliation of net revenue before taxation to net cash inflow from operating activities Profit on ordinary activities before taxation 2,485 276 2,761 Loss on realisation of investments (1,116) (55) (1,171) Unrealised gains on investments (2,197) (225) (2,422) Increase in debtors (13) (18) (31) (Decrease)/increase in creditors (151) 12 (139) ----------- ----------- ----------- Net cash outflow from operating activities (992) (10) (1,002) ----------- ----------- ----------- Notes 1. The audited results which cover the year to 30 November 2007 have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and on the assumption that the Company maintains VCT status. The Company is no longer an investment Company as defined by Section 266 of the Companies Act 1985, as Investment Company status was revoked in order to permit the distribution of capital profits. Where presentational guidance set out in the Statement of Recommended Practice (SORP), revised December 2005, for Investment Trusts issued by the Association of Investment Companies (AIC) in January 2003 is consistent with the requirements of UK GAAP, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. 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 Net Revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 of the Taxes Act 2007. 2. There were 38,296,588 ordinary shares in issue at 30 November 2007 (30 November 2006: 40,310,023). 60,073 ordinary shares were issued during the year. The Company bought back 2,073,508 ordinary shares during the year. C share issue There were 2,950,085 in issue at 30 November 2007 and 2006. 3. Ordinary shares Returns for the year to 30 November 2007 are based on a weighted average of 39,115,512 (30 November 2006: 41,635,148) ordinary shares in issue during the year. C shares Returns for the year to 30 November 2007 are based on a weighted average of 2,950,085 (30 November 2006: 2,516,032) C shares in issue during the year. 4. Subject to shareholder approval, the final capital dividend of 1.75 pence per ordinary share will be paid on 30 April 2008 to shareholders on the register on 28 March 2008. 5. These are not full accounts in terms of Section 240 of the Companies Act 1985. Full audited accounts for the year to 30 November 2006 have been lodged with the Registrar of Companies. The annual report for the year to 30 November 2007 will be sent to shareholders shortly and will then be available for inspection at F&C Asset Management plc, Exchange House, Primrose Street, London, EC2A 2NY, the registered office of the Company. Both the audited accounts for the year to 30 November 2006 and 30 November 2007 contain unqualified audit reports. 6. The Annual General Meeting will be held on 8 April 2008 at 10.30am. This information is provided by RNS The company news service from the London Stock Exchange

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