BRITISH SMALLER COMPANIES VCT PLC

Earnings Release • Jun 30, 2014

British Smaller Companies VCT2 plc

Interim Report

for the 6 months ended 30 June 2014

Transforming Small Businesses

The Company's total return has increased by 0.1 pence per ordinary share from 104.6 pence per ordinary share as at 31 December 2013. This includes cumulative dividends paid of 41.5 pence per ordinary share.

0.2% Net Asset Value Increase

Your Company continues to make progress with an overall increase in net asset value ("NAV") of 0.2 per cent prior to the payment of dividends totalling 2.5 pence per ordinary share, with the NAV standing at 63.2 pence per ordinary share at 30 June 2014.

41.5p Cumulative Dividends Paid

A final dividend of 2.5 pence per ordinary share in respect of the year ended 31 December 2013 (year ended 31 December 2012: 2.5 pence per ordinary share) was paid on 30 June 2014 taking cumulative dividends paid since the Company's inception to 41.5 pence per ordinary share.

2.0p Interim Dividend Proposed

The Board has proposed an interim dividend of 2.0 pence in respect of the period to 30 June 2014 making a total of 4.5 pence for the last 12 months.

Contents

Financial Overview
Financial Highlights	2
Financial Summary	3
Financial Calendar	3
Strategic Report
Chairman's Statement	4
Investment Review	6
Investment Portfolio	8
Our Portfolio at a Glance	10
Principal Risks and Uncertainties	11

Directors' Responsibilities Statement	11
Financial Statements
Unaudited Statement of
Comprehensive Income	12
Unaudited Balance Sheet	13
Unaudited Statement of Changes
in Equity	14
Unaudited Statement of Cash Flows	16
Notes to the Unaudited
Financial Statements	17
Advisers to the Company	25
Investor Workshop

The chart below shows how the total return of your Company, calculated by reference to the net asset value per ordinary share plus cumulative dividends paid per ordinary share, has developed over the last five years.

Total Return and Dividends Paid and Proposed

Results Announced 15 August 2014 Ex-Dividend Date 3 September 2014 Record Date 5 September 2014 DRIS Election Date 22 September 2014 Dividend Paid 7 October 2014

Investment rates continue to climb as the improved economic climate increases confidence amongst business owners. Your Company has made seven new unquoted investments in the last year, including four in the six months to 30 June 2014.

I am pleased to report a strong six months of investment activity, with £5.5 million invested in the period and a total of £10.0 million in the 12 months to 30 June 2014. Your Company continues to focus on investing in established businesses with strong potential for growth located in the UK regions. Of the seven investments completed, three were in the Midlands; two were in the South East and one each in Wales and Scotland. As at 30 June 2014 your Board had approved a further £2.0 million of investment and since the period end has approved another £2.1 million. These investments, totalling £4.1 million, are expected to complete in the near future.

I am delighted to report the success of our recent share offers which closed on 29 May 2014 and raised new funds of £10.2 million, which is approximately the same amount the Company invested in the last twelve months. Demand for investment continues to increase and the pipeline of new investments is extremely encouraging.

Financial Results and Dividends

In the six months to 30 June 2014 the Company's total return increased by 0.1 pence per ordinary share from 104.6 pence per ordinary share at 31 December 2013.

Significant progress was made by many of the portfolio companies however, due to timing delays in the closure of new sales, provisions totalling £0.74 million were made against two of our investments. These were offset by gains elsewhere across the portfolio and both investments continue to be held above cost.

During the period a final dividend of 2.5 pence per ordinary share was paid, bringing cumulative dividends paid to date to 41.5 pence per ordinary share. For the period to 30 June 2014 the Board has proposed an interim dividend of 2.0 pence per ordinary share, making a total of 4.5 pence per ordinary share over the last year. It is intended that of the total interim dividend 0.27 pence per ordinary share will be paid from revenue reserves and 1.73 pence per ordinary share from capital reserves. The interim dividend will be paid on 7 October 2014 to shareholders on the register at 5 September 2014.

Shareholder Relations

Following the success of the 19th shareholder workshop in February 2014, the Company is pleased to announce that its next workshop will be held at Freemasons Hall, London on 4 February 2015 (see inside back page for further information). Details will be circulated nearer the time.

Regulatory Changes

The EU Alternative Investment Fund Managers Directive (AIFMD) became part of UK law in July 2013, with a 12 month transitional period to July 2014. The Directive regulates the management of alternative investment funds, including venture capital funds such as VCTs. The Board is pleased to announce that the Financial Conduct Authority approved the Company's application to become a Small Registered UK Alternative Investment Fund Manager on 21 July 2014. YFM Private Equity Limited continues to provide investment, advisory and administrative services to the Company.

As expected, the 2014 Finance Bill, which received Royal Assent on 17 July 2014, included measures to prevent "enhanced" share buy-backs, where a VCT offers to buy back shares from investors on condition that the proceeds are applied in subscribing for a fresh issue of shares. Income tax relief for subscriptions of shares in a VCT is also restricted where an investor disposes of shares in the same VCT within six months of the subscription. Furthermore, where new VCT shares are allotted on or after 6 April 2014, VCTs will be prevented for a specified period from paying dividends to shareholders out of share capital or distributable reserves created by cancelling the share premium account arising on the allotment of such shares. The Company's balance sheet already has ample distributable reserves amounting to £13.43 million and we do not expect the new rules to have any impact on future dividend streams.

Outlook

Good progress continues to be made across the portfolio to position businesses to grow and realise shareholder value. At the same time our Company continues to see strong demand for investment in the UK regions, with £10.0 million deployed in the last twelve months which has significantly increased the diversity of the portfolio.

The Company continues to see an increase in new investment opportunities. In order for the Company to continue to take advantage of these new opportunities the Board will be seeking to raise further funds, details of which will follow in due course.

Richard Last Chairman 15 August 2014

The Company currently has an increasingly diversified portfolio which at 30 June 2014 had a value of £20.66 million consisting of £18.26 million (88.4 per cent) unquoted investments and £2.40 million (11.6 per cent) quoted investments. The high level of current investment rates has significantly increased the portfolio diversity with the largest single investment representing just 5.2 per cent of the net asset value.

Over the six months to 30 June 2014 the portfolio saw a small underlying value gain of £0.01 million and good progress has been made across the portfolio to position businesses to grow and realise shareholder value. This has been displayed in a mixture of strong profit growth from some businesses as well as some strategic and organisational restructuring of others to maximise profits in the year ahead. The most significant movements in valuations in the period were:

• Waterfall Services Limited (increase of £0.30 million) saw strong profit growth from new contracts last year and expects to also benefit from the imminent introduction of free primary school meals.

• Pressure Technologies plc (increase of £0.26 million) reported significantly improved profits from its core pressure container production and successful diversification into the biogas sector.

• Sirigen Limited (increase of £0.26 million) delivered many key milestones to achieve additional deferred consideration following its trade sale in 2012.

• DisplayPlan Holdings Limited (increase of £0.15 million) saw continued strong cash generation.
• Seven Technologies Holdings Limited (reduction of £0.47 million) suffered public sector budgetary constraints in its core US and UK markets last year which are now showing signs of easing.
• Deep-Secure Ltd (decrease of £0.27 million) experienced some public sector contract slippage and a delay in the launch of a product through a significant new strategic partnership.

New Investments

In the six months to 30 June 2014 the Company has completed four new investments totalling £5.19 million, as set out in the table opposite.

The Company has made follow-on investments into AIM listed EKF Diagnostics plc and AB Dynamics plc totalling £0.32 million.

As at 30 June 2014 the Company had approved £2.0 million of investment by way of follow-on and new investment. Since that date it has approved another two new investments of £2.1 million in aggregate.

Name of Company	Business	Date of investment	Amount invested (£m)
Mangar Heath Limited	Healthcare Equipment	January 2014	1.64
The management buyout of Mangar Health, a world leader in inflatable lifting and handling and bathing equipment for the elderly, disabled and emergency services markets. Headquartered in Presteigne, Wales Mangar distributes its products to care providers, local authorities, ambulance services and care homes, and has a growing international presence.
Intelligent Office UK Ltd Support Services May 14
The management buyout of Intelligent Office, a leading provider of business process outsourcing solutions to the UK legal sector. Its Managed Services division works within firms' own premises to help them transform and manage key administrative functions of print and mail, reception, document production and secretarial services. Its Transcription Services division provides document production services from a secure shared services centre.
Macro Art Holdings Limited	Digital Printer	June 14	0.84
The management buyout and growth capital funding for Macro Art, a specialist wide-format digital printer which has printed building wraps for Selfridges and Harrods London stores and holds the Guinness World Record for the largest printed movie poster. In recent years the business has invested in specialist UV and dye sublimation print technology and expanded into the profitable exhibitions and high-end retail sectors.
Intamac Systems Limited	IT & Software	June 14	0.75
The provision of growth capital funding to Intamac Systems which develops technology to connect physical products via the internet so they can be monitored and controlled using smart mobile phones and computers. The cloud-based software platform is used by several blue chip companies including Scottish Power, Securitas, TDC and Belgacom. The strategy is to partner with established hardware suppliers and embed software into their next generation products to become a key enabler of the Internet of Things. Applications range from alarms, cameras, heating controls, safety equipment, healthcare monitoring and white goods.

Realisation of Investments

During the six months to 30 June 2014 the Company received proceeds from disposals of investments of £1.11 million. This resulted in a gain on disposal of investments of £0.35 million and an uplift of £0.60 million compared to the original cost of the investments. Of this £0.49 million of proceeds were realised from the sale of shares in the quoted portfolio, namely Iomart plc, Optos plc,

Pressure Technologies plc and Vianet Group plc, representing a £0.27 million uplift on original cost. The remainder was due to the repayment of loans generating proceeds of £0.36 million with premiums on redemption totalling £0.07 million.

£1.37 million was received in June 2014 from the sale of the Company's remaining gilt portfolio at the original investment cost.

The top 10 unquoted investments have a combined value of £13.40 million, 64 per cent of the total portfolio.

Manufacturing and Industrial Services		Retail and Brands	Software, IT and Telecommunications			Healthcare	Business Services
	Name of Company		Date of Initial Investment		Current Cost £000	Realised Proceeds to Date £000	Investment Valuation at 30 June 2014 £000	Valuation plus proceeds to date £000
		DisplayPlan Holdings Limited	January 12		525	228	2,062	2,290
	DisplayPlan provides retail display solutions from design to finished product delivery to branded product manufacturers and UK retailers. Very strong profits have been achieved since investment to support the management buyout but a key focus is to also increase the diversity of the customer base to reduce volatility. Baldock, Herts – www.displayplan.com
	Intelligent Office UK Limited		May 14		1,956	–	1,956	1,956
	In May 2014 the Company supported the management buyout of Intelligent Office, a leading provider of process outsourcing solutions to UK legal practices. The Managed Services division works within firms' own premises to help them transform and manage key administrative functions and secretarial services. Alloa, Scotland – www.intelligentofficeuk.com
		Gill Marine Holdings Limited	September 13		1,870	–	1,870	1,870
		Gill Marine is a manufacturer of technical sailing and clothing accessories and official sponsor for the internationally renowned Aberdeen Asset Management Cowes Week Regatta. Exports account for over 70% of turnover. The strategy is to develop the brand further and increase market share in existing and new markets. Nottingham – www.gillmarine.com
	Mangar Health Limited		January 14		1,640	–	1,640	1,640
	Powys – www.mangar.co.uk	Mangar is a world leader in inflatable lifting and handling and bathing equipment for the elderly, disabled and emergency services markets. It distributes its products to care providers, local authorities, ambulance services and care homes. Products facilitate extended independence for elderly users.
		Seven Technologies Holdings Limited	April 12		1,238	762	1,238	2,000
		Seven Technologies is an engineering business specialising in the development and manufacture of bespoke electronics and communications applications for operation in inhospitable environments. The strategy is to increase the company's international presence and grow average contract sizes. Belfast– www.seventechnologies.co.uk
	GTK (UK) Limited		October 13		1,084	66	1,084	1,150
		GTK is a manufacturer of cable assemblies, connectors, optoelectronics and manufacturing solutions for high technology customers. With a small sourcing team in Taiwan, it provides design, procurement and manufacturing services of essential but non-core electronic components for customers in sectors such as precision instrumentation, defence/security and contract equipment manufacturing. Basingstoke – www.gtk.co.uk

	Name of Company	Date of Initial Investment	Current Cost £000	Realised Proceeds to Date £000	Investment Valuation at 30 June 2014 £000	Valuation plus proceeds to date £000
	Immunobiology Limited	June 03	1,932	–	987	987
	Immunobiology has developed a new platform technology to produce high efficacy vaccines for infectious diseases including tuberculosis, meningitis and bacterial pneumonia. It is co-developing a TB vaccine in China and, separately, is seeking regulatory clearance to commence human trials for its pneumonia vaccine. Cambridge – www.immbio.com
	Leengate Holdings Limited	December 13	934	–	934	934
	Leengate Valves is a wholesaler, stockist and distributor, supplying one of the largest ranges of industrial valves in the UK to leading re-sellers in the gas, water and industrial sectors. It also supplies engineering actuation and automation packages, offering a next day service and high quality technical advice. Derbyshire – www.leengatevalves.co.uk
	Macro Art Holdings Limited	June 14	840	–	840	840
	Macro Art is a specialist wide-format digital printer, whose clients include Selfridges and Harrods. Significant recent investment in new technology has positioned the business well to expand its higher margin activities supporting exhibition displays and retail sector promotions. Cambridgeshire – www.macroart.co.uk
	Waterfall Services Limited	February 07	26	458	792	1,250
	Waterfall is a contract caterer specialising in the care home and educational sector, which has expanded its services and geographical coverage in recent years. As a key supplier of primary school meals in Sheffield and Durham it is well placed to benefit from the launch of free school meals in September 2014. Warrington – www.waterfall-services.co.uk
	Top 10 Unquoted Investments		12,045	1,514	13,403	14,917
Telecoms Internet Software Retail Software Retail Industrial Software Software	Remaining Unquoted Portfolio Callstream Group Limited Intamac Systems Limited Deep-Secure Ltd Bagel Nash Group Limited Insider Technologies (Holdings) Limited Harvey Jones Holdings Limited RMS Group Holdings Limited Selima Limited PowerOasis Limited Other investments < £0.1 million	September 10 June 14 December 09 July 11 August 12 May 07 July 07 March 12 November 11	415 750 500 771 780 389 70 300 567 2,104	131 – – 53 – – 349 – – –	771 750 644 613 587 451 398 300 284 60	902 750 644 666 587 451 747 300 284 60
			18,691	2,047	18,261	20,308
Quoted Portfolio Manufacturing Medical Manufacturing Manufacturing Internet Software Bus.Services Healthcare Healthcare	Pressure Technologies plc EKF Diagnostics Holdings plc AB Dynamics plc Hargreaves Services plc Iomart Group plc Brady plc Vianet Group plc Cambridge Cognition Holdings plc Allergy Therapeutics plc	June 07 July 11 May 13 August 12 May 11 December 10 October 06 May 02 October 04	121 437 253 325 119 134 181 240 350 2,160 20,851	493 – – – 209 163 45 – – 910 2,957	583 407 376 314 247 171 132 102 70 2,402 20,663	1,076 407 376 314 456 334 177 102 70 3,312 23,620
Full disposals to date			13,502	20,679	–	20,679
Total			34,353	23,636	20,663	44,299

Our Portfolio at a Glance

Principal Risks and Uncertainties

In accordance with DTR 4.2.7, the Board confirms that the principal risks and uncertainties facing the Company have not materially changed from those identified in the Annual Report and Accounts for the year ended 31 December 2013. The Board acknowledges that there is regulatory risk and continues to manage the company's affairs in such a manner as to comply with section 274 income Tax Act 2007.

In summary, the principal risks are:

• Economic;
• Investment and strategic;
• Loss of approval as a Venture Capital Trust;
• Regulatory;
• Reputational;
• Operational;
• Financial; and
• Market/liquidity risk

Full details of the principal risks can be found in the financial statements for the year ended 31 December 2013 on pages 29 and 30, a copy of which is available at www.yfmep.com.

Di rectors' Responsibilities Statement

The directors of British Smaller Companies VCT2 plc confirm that, to the best of their knowledge, the condensed set of financial statements in this interim report have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the EU, and give a fair view of the assets, liabilities, financial position and profit or loss of British Smaller Companies VCT2 plc, and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

The directors ofBritish Smaller Companies VCT2 plc are listed in Note 9 of these interim financial statements.

Richard Last Chairman 15 August 2014

UnauditedStatement ofComprehensive Income

For the six months ended 30 June 2014

			Unaudited 6 months ending 30 June 2014			Unaudited 6 months ending 30 June 2013
	Notes	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Gain on disposal of investments (Losses) gains on investments held		–	347	347	–	9	9
at fair value		–	(336)	(336)	–	1,097	1,097
Income	2	543	–	543	365	–	365
Administrative expenses:
Investment adviser's fee		(75)	(225)	(300)	(68)	(204)	(272)
Other expenses		(196)	–	(196)	(168)	–	(168)
		(271)	(225)	(496)	(236)	(204)	(440)
Profit before taxation		272	(214)	58	129	902	1,031
Taxation	3	(1)	1	–	–	–	–
Profit for the period		271	(213)	58	129	902	1,031
Total comprehensive income (expense)
for the period attributable to equity shareholders		271	(213)	58	129	902	1,031
Basic and diluted earnings (loss) per
ordinary share	5	0.51p	(0.40p)	0.11p	0.30p	2.06p	2.36p

The Total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRSs'). The supplementary Revenue and Capital columns are prepared under the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') 2009 published by the Association of Investment Companies.

Unaudited Balance Sheet As at 30 June 2014

	Notes	Unaudited 30 June 2014 £000	Unaudited 30 June 2013 £000	Audited 31 December 2013 £000
Assets Non-current assets Investments Fixed income government securities		20,663 –	12,377 901	16,255 890
Financial assets at fair value through profit or loss Trade and other receivables	6	20,663 297	13,278 108	17,145 132
Current assets Trade and other receivables Cash on fixed term deposits Cash and cash equivalents		20,960 572 4,500 13,415	13,386 114 3,500 13,393	17,277 123 4,500 8,680
Liabilities Current liabilities Trade and other payables		18,487 (117)	17,007 (135)	13,303 (122)
Net current assets		18,370	16,872	13,181
Net assets		39,330	30,258	30,458
Shareholders' equity Share capital Share premium account Capital redemption reserve Merger reserve Other reserve Capital reserve Investment holding (losses) gains – net Revenue reserve		6,411 13,736 88 5,525 2 13,377 (158) 349	4,800 4,835 88 5,525 2 17,028 (2,149) 129	4,822 4,926 88 5,525 2 14,568 448 79
Total shareholders' equity		39,330	30,258	30,458
Net asset value per ordinary share	7	63.2p	65.3p	65.6p

Signed on behalf of the Board

Richard Last Chairman 15 August 2014

Unaudited Statement of Changes in Equity

For the six months ended 30 June 2014

	Share capital	Share premium	Other reserves*	Merger reserve	reserve	Capital Investment holding gains (losses)	Revenue reserve	Total equity
	£000	£000	£000	£000	£000	reserve £000	£000	£000
At 31 December 2012	4,271	14,806	90	5,525	7,225	(4,919)	154	27,152
Revenue return for the period Capital expenses Investment holding gain on	– –	– –	– –	– –	– (204)	– –	129 –	129 (204)
investments held at fair value Realisation of investments	–	–	–	–	– 9	1,097	–	1,097 9
in the period	–	–	–	–		–	–
Total comprehensive income for the period	–	–	–	–	(195)	1,097	129	1,031
Issue of share capital	504	2,964	–	–	–	–	–	3,468
Issue of shares – DRIS	25	130	–	–	–	–	–	155
Issue costs	–	(160)	–	–	–	–	–	(160)
Purchase of own shares	–	–	–	–	(224)	–	–	(224)
Dividends Cancellation of Share Premium	– –	– (12,905)	– –	– –	(1,001) 12,896	– –	(154) –	(1,155) (9)
Total transactions with shareholders Realisation of prior year	529	(9,971)	–	–	11,671	–	(154)	2,075
investment holding losses	–	–	–	–	(1,673)	1,673	–	–
At 30 June 2013	4,800	4,835	90	5,525	17,028	(2,149)	129	30,258
Revenue return for the period Capital expenses	– –	– –	– –	– –	– (217)	– –	79 –	79 (217)
Investment holding gain on investments held at fair value	–	–	–	–	–	651	–	651
Gain on disposal of investments in the period	–	–	–	–	587	–	–	587
Total comprehensive income for the period	–	–	–	–	370	651	79	1,100
Issue of shares – DRIS	22	109	–	–	–	–	–	131
Issue costs	–	(18)	–	–	–	–	–	(18)
Purchase of own shares	–	–	–	–	(85)	–	–	(85)
Dividends	–	–	–	–	(799)	–	(129)	(928)
Total transactions with shareholders	22	91	–	–	(884)	–	(129)	(900)
Realisation of prior year investment holding gains	–	–	–	–	(2,123)	2,123	–	–
Realisation of negative goodwill	–	–	–	–	177	(177)	–	–
At 31 December 2013	4,822	4,926	90	5,525	14,568	448	79	30,458

	Share capital	Share premium	Other reserves*	Merger reserve	reserve	Capital Investment holding gains (losses)	Revenue reserve	Total equity
	£000	£000	£000	£000	£000	reserve £000	£000	£000
At 31 December 2013	4,822	4,926	90	5,525	14,568	448	79	30,458
Revenue profit for the period Capital expenses Investment holding loss on	– –	– –	– –	– –	– (224)	– –	271 –	271 (224)
investments held at fair value Gain on disposal of investments in the period	– –	– –	– –	– –	– 347	(336) –	– –	(336) 347
Total comprehensive income for the period	–	–	–	–	123	(336)	271	58
Issue of ordinary share capital Issue of shares – DRIS Issue costs of ordinary shares Purchase of own shares Dividends	1,551 38 – – –	9,200 191 (581) – –	– – – – –	– – – – –	– – – (36) (1,548)	– – – – –	– – – – (1)	10,751 229 (581) (36) (1,549)
Total transactions with shareholders Realisation of prior year investment holding losses Realisation of negative goodwill	1,589 – –	8,810 – –	– – –	– – –	(1,584) 257 13	– (257) (13)	(1) – –	8,814 – –
At 30 June 2014	6,411	13,736	90	5,525	13,377	(158)	349	39,330

* Other reserves include the capital redemption reserve and other reserve, which are non-distributable.

The capital reserve includes £115,000 (2013: £nil) of deferred proceeds receivable in 2016. The revenue reserve includes £182,000 (2013: £nil) of interest receivable in 2018 and 2019. These amounts should be excluded in the calculation of the Company's distributable reserves at 30 June 2014.

Unaudited Statement of Cash Flows

For the six months ended 30 June 2014

	Unaudited 6 months ended 30 June 2014 £000	Unaudited 6 months ended 30 June 2013 £000	Audited year ended 31 December 2013 £000
Net cash (outflow) inflow from operating activities	(262)	90	(79)
Cash flows from investing activities Purchase of financial assets at fair value through profit or loss Proceeds from sale of financial assets at fair value through	(5,978)	(954)	(5,499)
profit or loss	2,114	1,062	2,926
Cash placed on fixed term deposit	–	–	(4,500)
Cash received back from fixed term deposit	–	3,548	7,048
Deferred consideration	–	90	125
Net cash (outflow) inflow from investing activities	(3,864)	3,746	100
Cash flows from financing activities
Issue of ordinary shares	10,509	3,412	3,412
Cost of ordinary shares	(328)	(106)	(122)
Purchase of own shares	–	(224)	(309)
Dividends paid	(1,320)	(1,000)	(1,797)
Share premium cancellation costs	–	(9)	(9)
Net cash inflow from financing activities	8,861	2,073	1,175
Net increase in cash and cash equivalents	4,735	5,909	1,196
Cash and cash equivalents at the beginning of the period	8,680	7,484	7,484
Cash and cash equivalents at the end of the period	13,415	13,393	8,680

Notes to the Unaudited Financial Statements

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

These half year statements have been approved by the directors whose names appear at note 9, each of whom has confirmed that to the best of his knowledge:

• The Interim Management Report includes a fair review of the information required by rules 4.2.7 and 4.2.8 of the Disclosure Rules and the Transparency Rules.
• The half year statements have been prepared in accordance with IAS 34 'Interim financial reporting' and the Disclosure and Transparency Rules of the Financial Services Authority.

The half year statements are unaudited and have not been reviewed by the auditors pursuant to the Auditing Practices Board (APB) guidance on Review of Interim Financial Information. They do not constitute full financial statements as defined in section 435 of the Companies Act 2006. The comparative figures for the year ended 31 December 2013 do not constitute full financial statements and have been extracted from the Company's financial statements for the year ended 31 December 2013. Those accounts were reported upon without qualification by the auditors and have been delivered to the Registrar of Companies.

The accounting policies and methods of computation followed in the half year statements are the same as those adopted in the preparation of the audited financial statements for the year ended 31 December 2013.

The financial statements for the year ended 31 December 2013 were prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Where guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies in January 2009 ("SORP") is consistent with the requirements of IFRS, the financial statements have been prepared in compliance with the recommendations of the SORP.

Other standards and interpretations have been issued which will be effective for future reporting periods but have not been adopted early in these financial statements. These include amendments to IFRS 9, IFRS 10, IFRS 11 and IFRS 12, and amendments to IAS 24, IAS 27, IAS 28, IAS 32 and IAS 36. A full impact assessment has not yet been completed in order to assess whether these new standards will have a material impact on the financial statements.

Going Concern: The directors have carefully considered the issue of going concern and are satisfied that the Company has sufficient resources to meet its obligations as they fall due for a period of at least twelve months from the date these half year statements were approved. As at 30 June 2014 the Company held cash balances and fixed term deposits with a combined value of £17,915,000. Cash flow projections show the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of share buy-backs and the dividend policy. The directors therefore believe that it is appropriate to continue to apply the going concern basis of accounting in preparing these half year statements.

2. Income

	Unaudited 6 months ended 30 June 2014 £000	Unaudited 6 months ended 30 June 2013 £000
Income from investments
– Dividends from unquoted companies	24	28
– Dividends from AIM quoted companies	19	22
	43	50
– Interest on loans to unquoted companies	421	187
– Fixed interest Government securities	7	10
Income from investments held at fair value through profit or loss	471	247
Interest on bank deposits	72	118
	543	365

3. Taxation

		Unaudited 6 months ended 30 June 2014		Unaudited 6 months ended 30 June 2013
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Profit before taxation	272	(214)	58	129	902	1,031
Profit before taxation multiplied by standard small company rate of corporation tax in UK of 20% (2013: 20%) Effect of:	54	(43)	11	26	180	206
UK dividends received Non taxable profits on investments Excess management expenses	(8) – (45)	– (2) 44	(8) (2) (1)	(10) – (16)	– (221) 41	(10) (221) 25
Tax charge (credit)	1	(1)	–	–	–	–

The Company has no provided, or unprovided, deferred tax liability in either year.

Deferred tax assets in respect of losses have not been recognised as the directors do not currently believe that it is probable that sufficient taxable profits will be available against which the assets can be recovered.

Due to the Company's status as a venture capital trust, and the continued intention to meet the conditions required to comply with Chapter 3 Part 6 of the Income Tax Act 2007, the Company has not provided deferred tax on any capital gains or losses arising on the revaluation or realisation of investments.

4. Dividends

	Unaudited 6 months ended 30 June 2014				Unaudited 6 months ended 30 June 2013			Audited year ended 31 December 2013
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Final dividend for the year ended 31December 2013 of 2.5p (2012 year end 2.5p) per ordinary share	1	1,548	1,549	154	1,001	1,155	154	1,001	1,155
Interim dividend for the year ended 31 December 2013
of 2.0p	–	–	–	–	–	–	129	799	928
	1	1,548	1,549	154	1,001	1,155	283	1,800	2,083

Amounts recognised as distributions to equity holders in the period:

An interim dividend of 2.0 pence per ordinary share, amounting to £1,245,000 is proposed. The dividend has not been recognised in these half year financial statements as the obligation did not exist at the balance sheet date.

5. Basic and Diluted Earnings per Ordinary Share

The basic and diluted earnings per ordinary share is based on the profit after tax attributable to equity shareholders of £58,000 (30 June 2013: profit of £1,031,000) and 53,185,770 (30 June 2013: 43,683,333) ordinary shares being the weighted average number of ordinary shares in issue during the period.

The basic and diluted revenue return per ordinary share is based on the revenue profit attributable to equity shareholders of £271,000 (30 June 2013: £129,000) and 53,185,770 (30 June 2013: 43,683,333) ordinary shares being the weighted average number of ordinary shares in issue during the period.

The basic and diluted capital loss per ordinary share is based on the capital loss attributable to equity shareholders of £213,000 (30 June 2013: capital return based on a profit of £902,000) and 53,185,770 (30 June 2013: 43,683,833) ordinary shares being the weighted average number of ordinary shares in issue during the period.

During the period the Company allotted 377,855 new ordinary shares in respect of its dividend re-investment scheme and 15,511,615 new ordinary shares under the joint offer for subscription with British Smaller Companies VCT plc.

The Company has repurchased 63,196 of its own shares in the period and these shares are held in the capital reserve. The total of 1,840,918 treasury shares has been excluded in calculating the weighted average number of ordinary shares during the period. The Company has no securities that would have a dilutive effect and hence basic and diluted earnings per ordinary share are the same.

6. Financial Assets at Fair Value through Profit or Loss

IFRS 7 and IFRS 13, in respect of financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level within the following fair value measurement hierarchy:

• Level 1: quoted prices in active markets for identical assets or liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in Level 1 and comprise AIM quoted investments or government securities and other fixed income securities classified as held at fair value through profit or loss.
• Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. The Company held no such instruments in the current or prior year.
• Level 3: the fair value of financial instruments that are not traded in an active market (for example, investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Each investment is reviewed at least quarterly to ensure that it has not ceased to meet the criteria of the level in which it was included at the beginning of each accounting period. There has been no transfers between these classifications in the period (2013: one). The change in fair value for the current and previous year is recognised through profit or loss.

All items held at fair value through profit or loss were designated as such upon initial recognition and are subject to recurring valuations on at least a quarterly basis.

Valuation of Investments

Initial Measurement: Financial assets are initially measured at fair value. The best estimate of the initial fair value of a financial asset that is either quoted or not quoted in an active market is the transaction price (i.e. cost).

Subsequent Measurement: The International Private Equity and Venture Capital (IPEVC) Valuation Guidelines ("the Guidelines") identify six of the most widely used valuation methodologies for unquoted investments. The Guidelines advocate that the best valuation methodologies are those that draw on external, objective market based data in order to derive a fair value.

Full details of the methods used by the Company were set out on page 27 of the financial statements for the year ended 31 December 2013, a copy of which can be found at www.yfmep.com. Where investments are in quoted stocks, fair value is set at the market price.

The primary methods used for valuing non-quoted investments, and the key assumptions relating to them are:

Price of recent investment, reviewed for changes in fair value: the cost of the investment, adjusted for background factors specific to the investment, is taken as a reasonable assessment of the fair value for a period of up to one year. During this period performance is monitored for evidence of changes to this initial fair value. Valuations may be re-based following substantial investment by a third party when this offers evidence that there has been a change to fair value.

Earnings multiple: the appropriate sector FTSE® multiples are used as a market-based indication of the enterprise value of an investment company. A discount is applied to the multiple based on perceived market interest in that company or sector and on any benefit that may be observed by holding a significant shareholding or superior rights.

Movements in investments at fair value through profit or loss during the six months to 30 June 2014 are summarised as follows:

IFRS 13 measurement classification	Level 3	Level 1		Level 1
	Unquoted investments £000	Quoted equity investments £000	Total quoted and unquoted £000	Fixed income securities £000	Total investments £000
Opening cost Opening valuation (loss) gain	13,792 (4)	2,061 406	15,853 402	888 2	16,741 404
Opening fair value at 1 January 2014	13,788	2,467	16,255	890	17,145
Additions at cost Capitalised interest Disposal proceeds Net profit on disposal* Change in fair value	5,185 8 (359) 34 (395)	318 – (492) 50 59	5,503 8 (851) 84 (336)	475 – (1,365) – –	5,978 8 (2,216) 84 (336)
Closing fair value at 30 June 2014	18,261	2,402	20,663	–	20,663
Closing cost Closing valuation (loss) gain**	18,691 (430)	2,160 242	20,851 (188)	– –	20,851 (188)
Closing fair value at 30 June 2014	18,261	2,402	20,663	–	20,663

* The net profit on disposal in the table above is £84,000 whereas that shown in Statement of Comprehensive Income is £347,000. The difference comprises deferred proceeds of £263,000 in respect of assets which have been disposed and are not included within the investment portfolio at the period end.

** Following the merger between the Company and British Smaller Technology Companies VCT plc, a total of £975,000 of negative goodwill was recognised in the investment holding gains and losses reserve in respect of investments acquired. The relevant amount per investment is released at the point of disposal to the capital reserve, At 30 June 2014, a total of £30,000 was held on investments yet to be realised in the investment holding gains and losses reserve. Level 3 valuations include assumptions based on non-observable data, such as discounts applied either to reflect changes in fair value of financial assets held at the price of recent investment, or to adjust earnings multiples.

IFRS13 requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to fair value measurement. The portfolio has been reviewed and both downside and upside alternative assumptions have been identified and applied to the valuation of each of the unquoted investments. Applying the downside alternative the value of the unquoted investments would be £1,480,000 (8.1 per cent) lower. Using the upside alternative the value would be increased by £2,200,000 (12.0 per cent).

Of the Company's equity investments, 11.6 per cent are quoted on AIM (31 December 2013: 15.2 per cent). A five per cent increase in stock prices as at 30 September 2013 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £120,000 (31 December 2013: £123,000). An equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the period by an equal amount.

Of the Company's equity investments 88.4 per cent are in unquoted companies held at fair value (December 2013: 84.8 per cent). The valuation methodology for these investments includes the application of externally produced FTSER® multiples. Therefore the value of the unquoted element of the portfolio is also indirectly affected by price movements on the listed market. Those using an earnings multiple methodology include judgements regarding the level of discount applied to that multiple. A 10 per cent decrease in the discount applied would have increased the net assets attributable to the Company's shareholders and the total profit by £550,000 (1.4 per cent of net assets). A change in the opposite direction would have decreased net assets attributable to the Company's shareholders and the total profit for the period by the same amount.

The total of fair value adjustments below cost made against investments at 30 June 2014 amounted to £275,000 (31 December 2013: £524,000).

There have been no individual fair value adjustments downwards during the period that exceeded five per cent of the total assets of the Company (31 December 2013: none).

Fixed income securities comprise UK Government stocks and are classified as financial assets through profit or loss. Their use is as temporary holdings until capital investment opportunities arise.

The disposals shown in the table opposite took place during the period (all companies are unquoted unless otherwise stated).

	Net proceeds from sale £000	Cost £000	Opening carrying value as at 1 January 2014 £000	Gain over opening carrying value £000	Profit (loss) on original cost £000
Loan repayments
DisplayPlan Holdings Limited	228	175	191	37	53
GTK (UK) Limited	56	56	56	–	–
Bagel Nash Group Limited	40	40	40	–	–
Callstream Group Limited	35	23	38	(3)	12
	359	294	325	34	65
Equity disposals
Pressure Technologies plc*	200	47	148	52	153
Iomart Group plc*	97	30	90	7	67
Vianet Group plc*	45	61	42	3	(16)
Optos plc*	150	80	162	(12)	70
	492	218	442	50	274
Total disposals	851	512	767	84	339
Deferred Proceeds
Sirigen Group Limited
(included in receivables)	263	–	–	263	263
Total proceeds from quoted and
unquoted investments	1,114	512	767	347	602
Fixed income securities	1,365	1,365	1,365	–	–
Total	2,479	1,877	2,132	347	602

*Designates AIM quoted investments

7. Basic and Diluted Net Asset Value per Ordinary Share

The basic and diluted net asset value per ordinary share is calculated on attributable assets of £39,330,000 (30 June 2013 and 31 December 2013: £30,258,000 and £30,458,000 respectively) and 62,269,837 (30 June 2013 and 31 December 2013: 46,371,537 and 46,443,563 respectively) ordinary shares in issue at 30 June 2014.

The 1,840,918 (30 June 2013: 1,632,722 and 31 December 2013: 1,777,722) treasury shares have been excluded in calculating the number of ordinary shares in issue at 30 June 2014. The Company has no securities that would have a dilutive effect and hence basic and diluted net asset value per ordinary share are the same.

8. Total Return

Total return per share is calculated on cumulative dividends paid of 41.5 pence per ordinary share (30 June 2013: 37.0 pence per ordinary share and 31 December 2013: 39.0 pence per ordinary share) plus the net asset value as calculated in note 7.

9. Directors

The directors of the Company are: Mr R Last, Mr R M Pettigrew, and Mr P C Waller.

10. Other Information

Copies of this interim report can be obtained from the Company's registered office: Saint Martins House, 210-212 Chapeltown Road, Leeds, LS7 4HZ or from www.bscfunds.com.

Directors

Richard Last Robert Martin Pettigrew Peter Charles Waller

Investment Adviser

YFM Private Equity Limited Saint Martins House 210-212 Chapeltown Road Leeds LS7 4HZ

Registrars

Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

Solicitors

hlw Keeble Hawson LLP Protection House 16-17 East Parade Leeds LS1 2BR

Stockbrokers

Nplus1 Singer Advisory LLP 1 Bartholomew Lane London EC2N 2AX

Independent Auditor

Grant Thornton UK LLP 2 Broadfield Court Sheffield S8 0XF

VCT Status and Tax Adviser

PricewaterhouseCoopers LLP

1 Embankment Place London WC2N 6RH

Bankers

The Royal Bank of Scotland plc 27 Park Row Leeds LS1 5QB

Lloyds Banking Corporate Markets 40 Spring Gardens Manchester M2 1EN

Company Secretary

KHM Secretarial Services Limited Old Cathedral Vicarage St James Row Sheffield S1 1XA

Investor Workshop Wednesday 4 February 2015

Following the success of the 19th Shareholder Workshop in February 2014, the next Shareholder Workshop is being held on Wednesday 4 February 2015 at Freemasons' Hall, 60 Great Queen Street, London, WC2B 5AZ. The Hall is a very short walk from Holborn Tube Station.

Freemasons' Hall is the headquarters of the United Grand Lodge of England and was built between 1927-1932 as a memorial to the Freemasons who died in the first World War. It is one of the finest Art Deco buildings in England.

The stunning corridors, Grand Temple and distinctive exteriors of Freemasons' Hall have played a crucial supporting role on screen, where scenes from Poirot, Sherlock Holmes, Spooks and Hitchhikers Guide to the Galaxy, to name but a few, have all been filmed.

Registration is at 10.30 am with tea and coffee available from 10.00 am. The presentations will start at

11.00 am. You will have the opportunity to meet representatives of YFM and some investee companies. Lunch will be provided at around 1.15 pm.

In the afternoon, the management team will be hosting a Question and Answer session for shareholders. This provides the opportunity for shareholders to submit questions in advance and also participate on the day. Alternatively you may take a guided tour of this historic building. Please indicate on the reply form if you would like to join the Q&A session or take the guided tour. These additional sessions start at 2.30 pm.

Further information

If you wish to attend the Workshop please complete the reply form included with the covering letter. For any queries, please contact Tracey Nice on 0113 294 5055 or tracey.nice@yfmep.com

British Smaller Companies VCT2 plc

Saint Martins House T: 0113 294 5000 210-212 Chapeltown Road F: 0113 294 5002 Leeds LS7 4HZ E: info@yfmep.com

yfmep.com Transforming Small Businesses