British Smaller Companies VCT2 plc
Annual Report
for the year ended 31 December 2021
Transforming small businesses
bscfunds.com
Winner
Best VCT Report
and Accounts
Financial Overview
2 Financial Highlights
4 Five Year Summary
4 Financial Calendar
5 Your Portfolio
Strategic Report
6 Chairman’s Statement
10 Objectives and Key Policies
11 Processes and Operations
12 Key Performance Indicators
16 Portfolio Composition
18 Investment Review
24 Case Studies
25 Portfolio Summary
at 31 December 2021
26 Summary of Portfolio Movement
since 31 December 2020
27 Investee Company Information
32 Risk Factors
35 Other Matters
35 Section 172 Statement
Corporate Governance
37 Directors
38 Directors’ Report
42 Corporate Governance
49 Directors’ Remuneration Report
52 Directors’ Responsibilities
Statement
Independent Auditor’s Report
53 Independent Auditor’s Report
Financial Statements
60 Statement of Comprehensive
Income
61 Balance Sheet
62 Statement of Changes in Equity
64 Statement of Cash Flows
65 Notes to the Financial Statements
Company Information
91 Notice of the Annual General
Meeting
95 Form of Proxy
Advisers to the Company
CONTENTS
About us
Registered Number:
04084003
British Smaller Companies VCT2 plc was
formed in 2000. It aims to provide
investors exposure to a diversified
portfolio of UK businesses that offer
opportunities in the application and
development of innovation in their
products and services, across established
and emerging industries. The investment
portfolio has a valuation of £70.0 million
as at 31 December 2021.
Discover more about
British Smaller Companies VCT2 plc
www.bscfunds.com
British Smaller Companies VCT2 plc Annual Report & Accounts 1
BRITISH SMALLER
COMPANIES VCT2 PLC
Transforming small businesses
Share Buy-Backs
Share buy-backs enable shareholders to obtain some
liquidity in an otherwise illiquid market when there is
a need to dispose of shares. This policy is kept under
active review to ensure that any decisions taken are in
the interests of shareholders as a whole. The current
rate of discount at which ordinary shares will be bought
back is targeted to be no more than five per cent of the
latest reported net asset value.
Dividend Re-Investment Scheme (“DRIS”)
The Company operates a DRIS which gives
shareholders the opportunity to re-invest any cash
dividends. Currently, dividends are re-invested at the
latest reported net asset value as adjusted for the
relevant dividend in question if this has not already
been recognised. Any dividends that are re-invested
by shareholders are eligible for income tax relief at 30
per cent of the amount invested, subject to an annual
investment limit of £200,000, or, if lower, the amount
of a shareholder’s income tax liability. The Finance Act
2014 confirmed that shares acquired at any time under
dividend re-investment schemes will not impact tax relief
on sales of, or subscriptions for, VCT shares, unless in
the latter case it results in a breach of the £200,000
investment limit.
Manager
YFM Private Equity Limited (“the Manager”) is a
wholly owned subsidiary of YFM Equity Partners LLP
and is a small Authorised Investment Fund Manager
(AIFM), authorised and regulated by the Financial
Conduct Authority.
Investment Policy
The investment strategy of British Smaller Companies
VCT2 plc (“the Company”) is to invest in UK businesses
across a broad range of sectors that blends a mix of
businesses operating in established and emerging
industries that offer opportunities in the application
and development of innovation in their products
and services.
These investments will all meet the definition of a
Qualifying Investment* and be primarily in unquoted
UK companies. It is anticipated that the majority of
these businesses will be re-investing their profits
for growth and the investments will comprise mainly
equity investments. Further details of the Company’s
investment policy can be found in the Strategic
Report on page 10.
Dividend Policy
The Board remains committed to achieving the
objective, over time, of paying tax free dividends from
realised investment returns. This depends upon the
level of investment income and realisations that the
Company is able to make or achieve in any one period
and cannot be guaranteed.
The tax reliefs that are available for an investment
in a Venture Capital Trust are of particular benefit for
shareholders as there is no income tax payable on
the dividend received, or need to declare them in a
tax return.
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
*Under Chapter 3 Part 6 of the Income Tax Act 2007
2 British Smaller Companies VCT2 plc Annual Report & Accounts
Financial
Highlights
FINANCIAL OVERVIEW
TOTAL RETURN IN THE YEAR
1
26.4%
139.5p
The Company’s Total Return increased
by 14.5 pence, from 125.0 pence per
ordinary share to 139.5 pence per
ordinary share, which includes
cumulative dividends paid of 78.0 pence
per ordinary share. The increase is
equivalent to a return of 26.4 per cent
of the opening net asset value.
DIVIDENDS PAID IN THE YEAR
Total Dividends
8.0p
Total dividends paid were 8.0 pence
per ordinary share, which equates to
14.5 per cent of the opening net asset
value per ordinary share.
h
INVESTED
for 2021
£6.1m
Your Company completed a total of ten
investments of which three were new
additions to the portfolio.
REALISATION PROCEEDS
£7.7m over cost
£11.7m
Realisations of investments and loan
repayments generated total proceeds
of £11.7 million in the year, a gain of
£5.3 million over the opening carrying
value and £7.7 million over cost.
h
British Smaller Companies VCT2 plc Annual Report & Accounts 3
1. Total Return (“TR”) and Investment Growth are defined
as Alternative Performance Measures. The Board considers
TR to be the primary measure of shareholder value and
Investment Growth to be the key measure of the portfolio’s
performance.
TR
is calculated as the total of current net asset value plus cumulative
dividends paid since inception of the Company.
Investment Growth
is calculated as the gain arising from the portfolio (see page 60)
during the period as a percentage of the portfolio’s value at the
start of the period.
The Annual Report contains a number of Alternative Performance
Measures (“APMs”). APMs are financial measures that are in
addition to those defined or specified in the Company’s financial
reporting framework.
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FUNDS RAISED
for 2021
£31.0m
£24.2 million raised at the end of the
year and allotted in January 2022,
as well as £6.8 million raised in a
non-prospectus top up fundraising
in March 2021
4 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL OVERVIEW
Five Year
Summary
Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December
2021 2020 2019 2018 2017
Income £000 661 2,752 1,076 1,684 1,413
Profit before and after taxation £000 20,389 4,251 4,536 4,454 2,069
Net assets attributable to
ordinary shares £000 87,375 70,929 72,333 64,054 59,056
Profit per ordinary share 14.71p 3.27p 3.60p 4.17p 2.07p
Dividends per ordinary share
paid in the year 8.0p 3.5p 8.0p 3.0p 3.0p
Net asset value per
ordinary share 61.5p 55.0p 55.2p 59.9p 58.8p
Total Return per ordinary share
1
139.5p 125.0p 121.7p 118.4p 114.3p
Increase in Total Return
per ordinary share
1
14.5p 3.3p 3.3p 4.1p 2.1p
Average annual investment
rate of return
1
27.5%
Cumulative 3 year increase in
Total Return per ordinary share
1
21.1p
Cumulative 5 year increase in
Total Return per ordinary share
1
27.3p
1. These are Alternative Performance Measures. The Board considers Total Return to be the primary measure of shareholder value. The
average annual investment rate of return comprises the cumulative dividends paid plus the NAV at 31 December 2021.
Results Announced 21 March 2022
Ex-dividend date 31 March 2022
Record date 1 April 2022
DRIS Election date 19 April 2022
Interim dividend paid 6 May 2022
Annual General Meeting 13 June 2022
Financial Calendar
British Smaller Companies VCT2 plc Annual Report & Accounts 5
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Your
Portfolio
Better Informed Journeys
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6 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
In my third annual statement I am pleased to report that,
despite the prevailing pandemic and post Brexit fallout,
the resilience and growth of the portfolio that was seen
in the latter part of 2020 has continued throughout 2021.
The weighting towards business-to-business services
emphasising technology-enabled solutions, data
management, analytics, protection and migration
continues to benefit from the accelerated trends that the
pandemic has provided. Meanwhile the more retail and
leisure focused companies have proven themselves
adept at flexing their businesses and adapting to an
ever changing landscape, with many now emerging in
a more focused and streamlined guise to capture their
customers’ return to the market.
This progress is reflected in the performance of the
Company in the year to 31 December 2021, with
positive valuation growth in the period. This means that
over the two years since the outbreak of the pandemic,
the Company has seen a total return of 32.2 per cent
on the net asset value of 55.2 pence per share at 31
December 2019.
I and my fellow Board members were pleased to see
this shared by our investors, and were delighted to close
the Company’s fundraising after just seven weeks, with
funds allotted shortly after the end of the financial year.
We thank you for your ongoing support of the Company.
Financial Performance
In 2021, the Company delivered a 14.5 pence per
ordinary share increase in Total Return, which is
equivalent to 26.4 per cent of the opening net asset
value at 31 December 2020. Total Return is now
139.5 pence per ordinary share.
This was driven by the portfolio, which generated a
return of £26.0 million, 53.0 per cent over its opening
value, of which £5.3 million was realised and £20.7
million unrealised. New and follow-on investments
totalling £6.1 million were completed.
Realisations in the Year
Realisations of investments generated total proceeds of
£10.3 million, a gain of £5.3 million over the opening
carrying value and £8.0 million over the original cost.
There were three significant realisations in the year:
Deep Secure in July 2021; the partial realisation of
Matillion in October 2021; and Tissuemed in December
2021. Additional proceeds of £1.4 million were
generated from loan repayments.
The Deep Secure exit generated capital proceeds of
£3.3 million, delivering a realised gain of £2.8 million
above cost, an uplift of £1.3 million on the carrying value
at the beginning of the year. Including income, the total
return from this investment was £3.9 million over a 12
year holding period, producing an internal rate of return
of 23 per cent and a multiple of 7.7x cost.
The Company realised 20 per cent of its investment in
Matillion as part of its Series E funding round. The
proceeds from this partial exit were £5.9 million, which
represents an uplift on the carrying value at the
beginning of the year of £3.4 million and a return to date
of 3.3x the total cost of the Company’s investment. The
value of the Company’s residual investment in Matillion
is £25.1 million. This is an outstanding outcome to date,
in a company which continues to experience fast
growth.
The Tissuemed exit generated capital proceeds of £0.6
million delivering a realised gain of £0.5 million above
cost, an uplift of £0.5 million on the carrying value at the
beginning of the year. Including income, the total return
from this investment was £0.6 million over a 16 year
holding period, producing an internal rate of return of
18 per cent and a multiple of 13.1x cost.
New Investments
Three new investments were made in the year, totalling
£3.4 million. In our continued support of the portfolio,
seven companies received follow-on funding in the year,
totalling £2.7 million in aggregate. The new investments
are:
Investment Sector
Outpost Visual effects for film and TV
Vuealta Business planning software and
services
Vypr Cloud-based data validation
platform
Chairman’s
Statement
British Smaller Companies VCT2 plc Annual Report & Accounts 7
Financial Results
During the year, the Board paid interim dividends of 8.0 pence per ordinary share in respect of the year ended 31
December 2021, bringing the cumulative dividends paid to 31 December 2021 to 78.0 pence per ordinary share.
The movement in net asset value (“NAV”) per ordinary share and the dividends paid are set out in the table below:
Pence per
ordinary share £000
NAV at 31 December 2020 55.0 70,929
Increase in portfolio value 14.6 20,702
Gain on disposal of investments 3.8 5,342
Gain arising from the portfolio 18.4 26,044
Net operating costs (0.8) (1,248)
Incentive fee (3.1) (4,407)
Issue/(buy-back) of new shares - 7,072
Total Return in year 14.5 27,461
NAV before the payment of dividends 69.5 98,390
Dividends paid (8.0) (11,015)
NAV at 31 December 2021 61.5 87,375
Cumulative dividends paid 78.0
Total Return: at 31 December 2021 139.5
at 31 December 2020 125.0
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The charts on page 12 show in greater detail the
movement in Total Return and Net Asset Value
over time.
The investments held at the beginning of the financial
year, amounting to £49.1 million, delivered a return over
the year of £26.0 million.
The current portfolio’s net valuation increased by £20.7
million. Within this there were valuation gains of £24.5
million, offset by £3.8 million of downward movements.
As anticipated by the impact of the changes to VCT
regulations in 2015, the composition of the portfolio
continues to evolve towards younger, higher growth
companies which are reinvesting earnings for further
growth. This, along with the ongoing realisation of
earlier, more income-focused investments, results in the
ongoing reduction of the Company’s income. During the
year, income was £0.7 million, compared to £0.8 million
(excluding the exceptional £1.9 million dividend received
from ACC Aviation) in the previous financial year and
£1.1 million in 2019. This trend is expected to continue
as the proportion of new investments continues to grow.
8 British Smaller Companies VCT2 plc Annual Report & Accounts
Chairman’s
Statement
(continued)
STRATEGIC REPORT
Dividends
Dividends paid in the year totalled 8.0 pence per
ordinary share. These comprised interim dividends of
8.0 pence per ordinary share for the year ended 31
December 2021. Cumulative dividends paid as at 31
December 2021 were 78.0 pence per ordinary share.
An interim dividend for the year ending 31 December
2022 of 1.5 pence per ordinary share will be paid on 6
May 2022, to shareholders on the register at 1 April
2022.
Dividend Re-investment Scheme (“DRIS”)
Your Company operates a DRIS, which gives
shareholders the opportunity to re-invest any cash
dividends and is open to all shareholders, including
those who invested under the recent offers. The main
advantages of the DRIS are:
1 the dividends remain tax free; and
2 any DRIS investment attracts income tax relief at
the rate of 30 per cent.
For the financial year ended 31 December 2021, £2.3
million was re-invested by way of the DRIS, from overall
dividend proceeds of £11.0 million.
Liquidity and Fundraising
The Company announced a new share offer on 2
February 2021, alongside British Smaller Companies
VCT plc, with the intention of raising up to £7.05 million.
The related allotment took place on 11 March 2021,
following which the Company received net proceeds of
£6.8 million.
At 31 December 2021 the Company’s cash reserves of
£21.2 million represented 24.3 per cent of net assets.
Having previously assessed its expected cash
requirements the Company announced a new share
offer on 22 September 2021, alongside British Smaller
Companies VCT plc, with the intention of raising up to
£60 million, in aggregate which included an over-
allotment facility of £20 million, in aggregate. This was
fully subscribed and closed on 12 November 2021. The
related allotment of 40,224,521 ordinary shares took
place post year-end, on 7 January 2022, following which
the Company received net proceeds of £24.2 million.
Share Premium Cancellation
Following shareholder approval at a General Meeting,
the Company, subject to the sanction of the High Court,
is cancelling the balance of its Share Premium,
£44.3 million, which will be transferred to the Capital
Reserve. This will give the Company greater flexibility to
continue to pay regular dividends to shareholders
and to provide its periodic offer to buy back shares from
shareholders. As set out on page 63 this will become
available for distribution, if approved, at various times
over the period to 1 January 2026.
Shareholder Relations
The electronic communications policy continues to be a
success, with 82 per cent of shareholders now receiving
communications in this way. Documents such as the
annual report are published on the website
www.bscfunds.com rather than by post, saving on
printing costs, as well as being more environmentally
friendly.
The Company’s website, www.bscfunds.com, is
refreshed on a regular basis and provides a
comprehensive level of information in what I hope is a
user-friendly format.
SHAREHOLDER RELATIONS
Annual General Meeting
13 June 2022
The Annual General Meeting of the Company
will be held at 12:00 noon on 13 June 2022 at
33 St James Square, London SW1Y 4JS. Full
details of the agenda for this meeting are
included in the Notice of the Annual General
Meeting on page 91.
British Smaller Companies VCT2 plc Annual Report & Accounts 9
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
In 2021, we again had to change our plans for the
Investor Workshops, subsequently holding two webinars
in conjunction with British Smaller Companies VCT plc,
on 25 June 2021 and 9 December 2021.
We are pleased to announce the return of an in-person
Investor Workshop, to be held jointly with British Smaller
Companies VCT plc on 29 June 2022 at 1 Great George
Street, Westminster, London SW1P 3AA. After the
success of the webinars over the past couple of years,
we will also continue providing these once per year, with
the next event planned for December 2022.
Post Balance Sheet Events
As noted above, the Company allotted a successful
£24.2 million fundraising on 7 January 2022.
Ukraine
During the build up to and subsequent to the recent
invasion of Ukraine by Russia, we have been closely
monitoring the impact of the war on our portfolio. There
is minimal direct impact, which has principally been in a
small number of cases where portfolio company
software development teams have been based in
Ukraine. From a business perspective, continuity of
supply and service has been secured, although we are
aware of a small number of developers who we believe
are directly caught in the conflict and our thoughts are
with them and all those suffering the humanitarian
impact of the war.
Outlook
There’s little doubt that current market conditions are not
straightforward. Many companies are currently
navigating challenges from supply chain inflation, a
highly competitive market for hiring talent as well as
political challenges, both domestically and overseas.
However, as we have seen through the pandemic the
value of having the right management teams in place,
and the right supportive advisers at their side, provides
confidence that the portfolio has the capacity to chart a
path through the current conditions and achieve
success.
Thanks to investors’ continued support, the Company is
well positioned to both continue to support the existing
portfolio and to continue to seek out the most promising
new opportunities to augment the portfolio. I look
forward to updating investors on this progress later in
the year.
Peter Waller
Chairman
21 March 2022
10 British Smaller Companies VCT2 plc Annual Report & Accounts
The Company’s objective is to
maximise Total Return and provide
investors with a long-term tax free
dividend yield whilst maintaining the
Company’s status as a venture capital
trust.
Investment Policy
The investment strategy of the Company is to invest in
UK businesses across a broad range of sectors that
blends a mix of businesses operating in established and
emerging industries that offer opportunities in the
application and development of innovation in their
products and services.
These investments will all meet the definition of a
Qualifying Investment and be primarily in unquoted UK
companies. It is anticipated that the majority of these
businesses will be re-investing their profits for growth
and the investments will comprise mainly equity
investments.
The Company seeks to build a broad portfolio of
investments in early stage companies focussed on
growth with the aim of spreading the maturity profiles
and maximising return as well as ensuring compliance
with the VCT guidelines in this regard.
Objectives and
Key Policies
STRATEGIC REPORT
Borrowing
The Company does not borrow and has no borrowing
facilities, choosing to fund investments from its own
resources.
Co-investment
British Smaller Companies VCT2 plc and British Smaller
Companies VCT plc (together “the VCTs”) typically co-
invest in investments, allocating such investments 40
per cent to the Company and 60 per cent to British
Smaller Companies VCT plc. However, the Board of the
Company has discretion as to whether or not to take up
its allocation; where British Smaller Companies VCT plc
does not take its allocation, the Board may opt to
increase the Company’s allocation in such opportunities.
The VCTs may invest alongside co-investment funds
managed by YFM, the Manager of the VCTs. The VCTs
have first choice on the initial £4.5 million of all equity
investment opportunities meeting the VCT qualifying
criteria. Amounts above £4.5 million are allocated two
thirds to the VCTs and one third to YFM’s co-investment
funds.
Asset Mix
Cash which is pending investment in VCT-qualifying
securities is primarily held in interest bearing instant
access and short-notice bank accounts.
Remuneration Policy
The Company’s policy on the remuneration of its
directors, all of whom are non-executive, can be found
on page 49.
Other Key Policies
Details of the Company’s policies on the payment of
dividends, the DRIS and the buy-back of shares are
given on page 1. In addition to these the Company’s
anti-bribery and environmental and social
responsibilities policies can be found on page 36.
British Smaller Companies VCT2 plc Annual Report & Accounts 11
The Manager is responsible for the
sourcing and screening of investment
opportunities, carrying out suitable
due diligence investigations and
making submissions to the Board
regarding potential investments. Post
investment, the Manager intensively
works with the businesses and
management teams in which the
Company is invested, monitoring
progress, effecting change and,
where applicable, redefining
strategies with a view to maximising
values through structured exit
processes.
The Board approves all investment and divestment
decisions, save in that new investments up to £250,000
in companies whose securities are traded on a regulated
stock exchange and where the decision is required
urgently, in which case the Chairman of the Board of
Directors, if appropriate, may act in consultation with the
Manager.
Processes and
Operations
The Board regularly monitors the performance of the
portfolio and the investment requirements set by the
relevant VCT legislation. Reports are received from the
Manager regarding the trading and financial position of
each investee company and senior members of the
Manager regularly attend the Company’s Board
meetings. Monitoring reports are also received each
quarter from the Manager on compliance with VCT
regulations so that the Board can monitor that the
Venture Capital Trust status of the Company is
maintained and take corrective action if appropriate.
Monitoring reports carrying out an independent review of
this compliance are received twice a year.
The Board reviews the terms of YFM Private Equity
Limited’s appointment as Manager at least annually.
YFM Private Equity Limited has performed investment
advisory, management, administrative and secretarial
services for the Company since its inception on 28
November 2000. The principal terms of the agreement
under which these services are performed are set out in
note 3 to the financial statements.
In the opinion of the directors, the continuing
appointment of YFM Private Equity Limited as Manager
is in the interests of the shareholders as a whole, in view
of its experience in managing venture capital trusts and
in making, managing and exiting investments of the kind
falling within the Company’s investment policies.
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12 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
70.034.5 39.0 43.5 48.0 52.5 55.5 58.5 66.5
55.0
78.0
61.5
65.5
65.6
62.9
62.9
59.7
58.8
59.9
55.2
125.0
139.5
100.0
104.6
106.4
110.9
112.2
114.3
118.4
121.7
Key Performance
Indicators
Total Return, calculated by reference to the
cumulative dividends paid plus net asset value
(excluding tax reliefs received by shareholders), is
the primary measure of performance in the VCT
industry.
Total Return
(as at 31 December)
Total Return with DRIS
(as at 31 December)
Total Return (pps)
NAV (pps)
Cumulative dividends (pps)
Total Return (pps)
The evaluation of comparative success
of the Company’s Total Return is by way
of reference to the Share Price Total
Return for an index of generalist VCTs
which are members of the AIC (based on
figures provided by Morningstar). This is
the Company’s stated benchmark index.
A comparison and explanation of the
calculation of this return is shown in
the Directors’ Remuneration Report
on page 51.
The chart illustrates the Total Return
(excluding tax reliefs received by
shareholders) for investors who
subscribed to the first fundraising in
2000/01 who have re-invested their
dividends.
2012 2013 2014 2015 2016 2017 2018 2019 20212020
102.1
108.2
111.0
118.0
120.4
124.3
132.0
140.1
147.9
182.0
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British Smaller Companies VCT2 plc Annual Report & Accounts 13
Average investment rate of return p.a.
over 1, 2, 3, 5 and 10 year periods*
(to 31 December 2021)
Excluding the benefits of all tax reliefs
* includes the benefits of the timing of dividend receipts.
Shareholder Returns
The Board considers Total Return to be the primary measure of shareholder value. The table below shows the
cumulative dividends, the Total Return on each fundraising round per ordinary share and the IRR if a shareholder had
not opted to participate in the Company’s DRIS. The cumulative dividend, total return and IRR figures in this table
exclude the benefits of all tax reliefs.
Year of issue Cumulative
NAV at dividends Total
Offer 31 December paid since Return to
price
1
2021 fundraising date
2
IRR
3
Pence Pence Pence Pence %
2001 100.0 61.5 78.0 139.5 2.1%
2002 100.0 61.5 78.0 139.5 2.3%
2010 77.3 61.5 56.0 117.5 4.9%
2011 70.3 61.5 52.0 113.5 6.1%
2012 70.5 61.5 48.0 109.5 6.1%
2013 68.0 61.5 43.5 105.0 6.6%
2014 68.0 61.5 39.0 100.5 6.5%
2015 65.0 61.5 34.5 96.0 7.4%
2016 63.0 61.5 30.0 91.5 7.7%
2017 62.2 61.5 25.5 87.0 8.3%
2018 59.4 61.5 22.5 84.0 10.9%
2019 56.3 61.5 14.5 76.0 12.5%
Notes
1. The offer price for the relevant year excluding the benefit of income tax relief available to investors at the time of the offer.
2 Total Return to date is cumulative dividends paid plus the 31 December 2021 net asset value in pence per ordinary share. This is an Alternative Performance Measure.
3 IRR is the unaudited annual rate of return that equates the offer price at the date of the original investment, with the value of subsequent dividends plus the 31 December 2021
net asset value per ordinary share. This excludes the benefit of any initial tax relief.
Set out below is the average annual annualised investment rate of return over 1, 2, 3, 5 and 10 years to 31 December
2021. The average annual investment rate of return is calculated with reference to the cumulative dividends paid in the
period plus the unaudited NAV at 31 December 2021.
1 yr 3 yrs2 yrs 5 yrs 10 yrs
15.9%
27.5%
12.3%
9.1%
6.3%
14 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
Expenses
Ongoing Charges
The Ongoing Charges figure, as calculated in line with
the AIC recommended methodology, is used by the
Board to monitor expenses. This figure shows
shareholders the costs of the Company's recurring
operational expenses, expressed as a percentage of the
average net asset value. Whilst based on historical
information, this provides an indication of the likely level
of costs that will be incurred in managing the Company
in the future.
Year to Year to
31 December 31 December
2021 2020
(%) (%)
Ongoing Charges figure* 2.16 2.45
* Alternative Performance Measure
Expenses Cap
The total costs incurred by the Company in the year
(excluding any performance related fees, trail commission
payable to financial intermediaries and VAT) is capped at
2.9 per cent of the total net asset value as at the relevant
year end. The treatment of costs in excess of the cap is
described in note 3 on page 71. There was no breach of
the expenses cap in the current or prior year.
Compliance with VCT Legislative Tests
A principal risk facing the Company is the retention of its
VCT qualifying status. The Board receives regular
reports on compliance with the VCT legislative tests
from its Manager. In addition, the Board receives formal
reports from its VCT Status Adviser (Philip Hare &
Associates LLP) twice a year. The Board can confirm
that during the period, all of the VCT legislative tests
have been met.
Under Chapter 3 Part 6 of the Income Tax Act 2007, in
addition to the requirement for a VCT’s ordinary share
capital to be listed in the Official List on a European
regulated market throughout the period, there are further
specific tests that VCTs must meet following the initial
three year provisional period.
Income Test
The Company’s income in the period must be derived
wholly or mainly (70 per cent) from shares or securities.
Retained Income Test
The Company must not retain more than 15 per cent of
its income from shares and securities.
Qualifying InvestmentsTest
At least 80 per cent by value of the Company’s
investments must be represented throughout the period
by shares or securities comprised in Qualifying
Investments of investee companies.
For shares issued in accounting periods beginning on or
after 6 April 2018, at least 30 per cent of those share
issues must be invested in Qualifying Investments of
investee companies by the anniversary of the
accounting period in which those shares are issued.
Eligible Shares Test
At least 70 per cent of the Company’s Qualifying
Investments must be represented throughout the period
by holdings of non-preferential shares.
Investments made before 6 April 2018 from funds raised
before 6 April 2011 are excluded from this requirement.
At least 10 per cent of the Company’s total investment in
each Qualifying Investment must be in eligible shares.
In addition, monies are not permitted to be used to
finance buy-outs or otherwise to acquire existing
businesses or shares.
Investment Limits
There is an annual limit for each investee company
which provides that they may not raise more than £5
million of state aided investment (including from VCTs) in
the 12 months ending on the date of each investment
(£10 million for Knowledge Intensive Companies).
There is also a lifetime limit that a business may not raise
more than £12 million of state aided investment
(including from VCTs); the limit for Knowledge Intensive
companies is £20 million.
Key Performance
Indicators
(continued)
Maximum Single Investment Test
The value of any one investment must not, at any time
in the period, represent more than 15 per cent of the
Company’s total investment value. This is calculated at
the time of investment and updated should there be
further additions; as such, it cannot be breached
passively.
The Board can confirm that during the period, all of the
VCT legislative tests set out above have been met,
where required.
Further restrictions placed on VCTs are:
Dividends from Cancelled Share Premium
The Finance Act 2014 introduced a restriction with
respect to the use of monies in respect of VCTs. In
particular, no dividends can be paid out of cancelled
share premium arising from shares allotted on or after 6
April 2014 until at least three full financial years have
elapsed from the date of allotment.
The Company is cancelling, subject to the approval of
the High Court, the balance of its Share Premium,
£44.3 million, which will be transferred to the Capital
Reserve. As set out on page 63, this will become
available for distribution, if approved, at various times
over the period to 1 January 2026.
Other
No more than seven years can have elapsed since the
first commercial sale achieved by the business (ten
years in the case of a Knowledge Intensive Company),
unless:
a. the business has previously received an investment
from a source that has received state aid; or
b. the investment comprises more than 50 per cent of
the average of the previous five years’ turnover and
the funds are to be used in the business to fund
growth into new product markets and/or new
geographies.
Wherever possible, the Company self-assures that an
investment is a Qualifying Investment, subject to the
receipt of professional advice.
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
British Smaller Companies VCT2 plc Annual Report & Accounts 15
Portfolio
Composition
Diversity
Less than 1 year
Between 1 and 3 years
Between 3 and 5 years
Greater than 5 years
7
2021
26
5
62
6
2020
27
31
36
Value above cost
At cost
Value below cost
2021
85
15
2020
76
9
15
AGE OF
INVESTMENTS (%)
VALUE COMPARED
TO COST (%)
Portfolio Structure
The broad range of the investment portfolio
is illustrated with 62 per cent of the portfolio
valuation being held for more than five
years, whilst 85 per cent is held at cost or
above. 21 per cent of the portfolio value is
held in loans and preference shares,
although loans now account for only
5 per cent of the value.
16 British Smaller Companies VCT2 plc Annual Report & Accounts
Loan
Preference shares
Equity
2021 - 21%
2020 - 25%
2021
L
P
79
L
P
2020
L
P
75
INVESTMENT
INSTRUMENT (%)
STRATEGIC REPORT
British Smaller Companies VCT2 plc Annual Report & Accounts 17
Strategic Report
Portfolio Diversity
Also included below is a profile of the investment
portfolio by investments made before and after the
VCT rule changes in 2015, and the break down by
industry sector.
1
12
5
VCT
rules post
2015
56
26
VCT
rules pre
2015
38
4
36
12
2
8
Data & Analytics
Software Applications
Business Services
New Media
Advanced Manufacturing
Retail & Brands
Other
VCT RULES (%)
Investments made prior to rule change in 2015
Investments made following rule change in 2015
78
2021
22
64
2020
36
INDUSTRY SECTOR (%)
Investment
Review
STRATEGIC REPORT
The portfolio delivered a strong
performance in the year, with a
return of £26.0 million on the
opening value of £49.1 million.
The Portfolio
£70.0 million
Fair value of the portfolio
(2020: £49.1 million)
22
Number of portfolio
companies with a value
of more than £0.5 million
(2020: 19)
£0.7 million
Income from the portfolio
(2020: £0.8 million*)
£6.1 million
Level of investment
(2020: £4.0 million)
£26.0 million
Return from portfolio
(2020: £5.2 million*)
* excluding exceptional dividend of £1.9 million
received from ACC Aviation
The portfolio has performed well during the period,
adding £25.9 million of value on the opening fair value of
£49.1 million. The composition of investments continues
to show its dynamism, with £6.2 million invested in the
period and cash proceeds of £11.2 million received.
Table A
Portfolio
£million
Opening fair value at 1 January 2021 49.1
Additions 6.2
Disposal proceeds* (11.2)
Valuation movement 25.9
Closing fair value at 31 December 2021 70.0
* excluding deferred consideration
At 31 December 2021 the investment portfolio was
valued at £70.0 million, representing 80.1 per cent of net
assets (69.2 per cent at 31 December 2020). Cash and
fixed term deposits at 31 December 2021 of £21.2
million represented 24.3 per cent of net assets (29.6 per
cent at 31 December 2020).
Fair value changes
The ongoing portfolio delivered a value gain of £20.7
million in the year. While Matillion continues to be a
significant driver of value, it is pleasing to see the fair
value increases arising across a range of companies,
including tech-focused businesses such as Force24
and Elucidat, as well as companies benefiting from the
ongoing post-pandemic recovery of the retail sector,
such as Tonkotsu and Frescobol.
Some decreases in value have been seen; Arraco and
Arcus Global have both struggled somewhat over the
past 12 months, but we continue to work closely with
the companies’ management teams to navigate their
current challenges.
A further £5.2 million of value arose from investments
which were realised in the year, including the partial
realisation of Matillion (£3.4 million), Deep Secure
(£1.3 million) and Tissuemed (£0.5 million).
18 British Smaller Companies VCT2 plc Annual Report & Accounts
British Smaller Companies VCT2 plc Annual Report & Accounts 19
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company InformationStrategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Table B
Investment Portfolio
£million %
Gain in fair value 20.7 80
Gain on disposal over opening value 5.2 20
Valuation movement above 25.9 100
Deferred proceeds received in
respect of assets previously
disposed of 0.1 -
Gain arising from the portfolio 26.0 100
Other Significant Investment Movements
Investments
During the year ended 31 December 2021, the
Company completed ten investments, totalling £6.1
million. This comprised three new investments of £3.4
million and seven follow-on investments of £2.7 million.
The analysis of these investments is shown in Table C.
The case study on page 24 gives more information on
the investment in Outpost.
Table C
Investments
Investments made
New Follow-on Total
Company £million £million £million
Vuealta 1.4 - 1.4
Outpost 1.0 - 1.0
Vypr 1.0 - 1.0
Wooshii - 1.0 1.0
SharpCloud - 0.8 0.8
Sipsynergy - 0.3 0.3
Other follow-on investments - 0.6 0.6
Invested in the year 3.4 2.7 6.1
Capitalised income 0.1
Total additions in the year 6.2
20 British Smaller Companies VCT2 plc Annual Report & Accounts
Investment
Review
(continued)
STRATEGIC REPORT
Disposal of Investments
During the year to 31 December 2021 the Company
received proceeds from disposals and repayments of
loans of £11.7 million, a gain of £5.3 million over the
opening carrying value and £7.7 million over cost. This
included the very successful realisation of Deep Secure
and the partial realisation of Matillion. The Company’s
investment in Friska was disposed of for nil proceeds;
the investment had been fully written down in previous
periods. Further details are given in the Chairman’s
statement on page 6.
Table D
Disposal of Investments
Net Opening
proceeds value
from sale 31 December Gain on
of investments 2020 opening value
£million £million £million
Total investment disposals 11.7 6.4 5.3
Further analysis of all investments sold in the year
can be found in note 7 to the financial statements on
page 78.
Portfolio Composition
As at 31 December 2021 the portfolio was valued at
£70.0 million, comprising wholly of unquoted
investments. An analysis of the movements in the year is
shown on page 75.
The portfolio has 22 investments valued above £0.5
million (2020: 19) with the single largest investment,
Matillion, representing 28.7 per cent of the net asset
value.
The charts on pages 16 and 17 show the diversity of the
portfolio, splitting it by industry sector, age of investment,
investment instrument and the valuation compared to
cost.
Valuation Policy
Unquoted investments are valued in accordance with
both IFRS 13 ‘Fair Value Measurement’ and
International Private Equity and Venture Capital
Guidelines, December 2018 edition (IPEV Guidelines).
Initially, at the first quarter-end following investment,
investments are valued at the price of the funding round;
following this, the valuation switches to a new primary
basis for all subsequent periods.
The valuation methodology applied depends upon the
facts and circumstances of each individual investment.
This may be with reference to revenue multiples,
earnings multiples, net assets, discounted cash flows or
calibrated from the price of the most recent investment.
The full valuation policy is set out in note 1 on pages 66
and 67.
Table E shows the value of investments within each
valuation category as at 31 December 2021; no
investments are currently valued using discounted cash
flow methodologies.
With continued investment in earlier stage businesses
that are investing for growth, an increasing proportion of
valuations are based on revenue multiples.
British Smaller Companies VCT2 plc Annual Report & Accounts 21
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Table E
Valuation Policy
2021 2020
% of % of
Valuation portfolio portfolio
£million by value by value
Revenue multiple 54.6 78 60
Earnings multiple 13.4 19 29
Net assets, reviewed for change in fair value 1.9 3 4
Cost or price of recent investment, reviewed for change in fair value 0.1 - 7
Total 70.0 100 100
Grow our economy Improve our society
Value their people Protect the environment
Sustainable Investment and Environmental, Social
and Governance (“ESG”) Management
The Company backs small UK businesses to help them
to grow and produce strong financial returns for
shareholders with the additional aim of building better
businesses that are ultimately more sustainable.
In order to deliver more sustainable businesses, and to
meet its commitments under the Principles for
Responsible Investment (PRI), the Manager has
continued to develop its processes in this area. The
Manager’s approach is based on the belief that good
businesses:
These aims are consistent with the Company’s financial
aims because businesses which improve in these areas
also strengthen their resilience and value creation
potential through their increased attractiveness to
customers, employees, suppliers and eventual future
owners and investors.
Sustainable Investment Principles
This set of principles guides the Manager’s investment
process:
> To seek to understand the ESG related impacts and
potential impacts of investments, aiming to grow
and enhance positive impacts and to avoid, reduce
or minimise any negative impacts over an
investment’s lifetime, leaving them overall better
businesses.
> To play a positive role in the investor, business and
wider communities by promoting good practice in
ESG management, and by being transparent in the
way that investments are made and how the
Manager behaves.
> To increase focus on the challenge of climate
change both as it may be affected by our
investments, and as it may impact on them and
their resilience to possible climate change
scenarios.
> To show leadership by managing the Manager’s
own business’ ESG impacts to the best of their
ability.
> To be a proactive signatory to the PRI and to
integrate its principles into the Manager’s business
practices.
In line with the PRI the Manager has developed
processes to help the portfolio businesses to be better in
each of these spheres, by assessing them in terms of
creating positive impacts and outcomes and preventing
or minimising negative ones.
The Manager has more recently developed and
integrated its ESG management processes, which are:
> Pre-investment Phase:
Structured processes at the pre-investment stage to
identify areas of potential ESG improvement as part
of the due diligence and pre-investment
deliberations. Appropriate data is collected and
assessed on each business against ESG criteria at
the point of investment as a benchmark against
which to evaluate future progress.
> Portfolio Phase:
For those investments made since 2020, based on
the data collected at the point of investment at the
start of the portfolio phase, bespoke areas for
improvement are agreed with each management
team together with consequent objectives and
targets. A similar process has been applied to the
significant majority of investments made prior to
2020. Improvements are then measured and
recorded against a set of ESG criteria using the
Manager’s bespoke ESG framework, refreshing
targets annually and placing focus on any new
issues as they become more material in the
management of the company and in meeting the
expectations of its stakeholders.
> Reporting:
Annual reports will be produced, using the
Manager’s ESG framework for consistency,
recording the relevant initiatives, impacts and ESG
KPI performance of each company and providing
an overview of progress across the Manager’s
portfolios.
Note that Investment Companies are not eligible for
reporting under the Task Force on Climate-Related
Financial Disclosures (TCFD); and the Company does
not use more than 40,000kWh of energy and therefore is
not required to report on its energy usage within
Streamlined Energy and Carbon Reporting regulations.
ESG Performance Data and Reporting
ESG KPI data analysis
The Manager has developed its ESG KPI data collation
process. They have established a data set reflecting the
above ESG themes and a means of collecting this to
make year on year comparisons for each company and
across all of its portfolios. Where possible baseline data
has been collected from the date of investment with a
view to showing where the Manager’s support has made
a difference during the hold period to the reporting date.
Annual company specific ESG performance progress
report
The reviews that the Manager has been conducting
enabled the identification of relative strengths and
weaknesses and agreement of programmes of action
with each business.
In 2021 the Manager has moved to recording annual
updates and agreed actions in a more visual and
detailed report on both qualitative and quantitative
aspects of each company’s progress. As well as using
this for portfolio reporting to investors it will be used as
an engagement tool with the senior management teams
of each company.
2021 ESG KPI Report for Investments held in YFM’s
VCT funds
> £31.3 million of R&D investment during 2021
> £37.8 million of export sales achieved in 2021
> 95 per cent of companies were independently
chaired in 2021
> 40 per cent of companies had female directors on
boards, with 25 per cent having a female CEO
> 25 per cent of businesses had a designated board
member with responsibility for improving ESG
issues
22 British Smaller Companies VCT2 plc Annual Report & Accounts
Investment
Review
(continued)
STRATEGIC REPORT
Growing
our economy
Improving
our society
British Smaller Companies VCT2 plc Annual Report & Accounts 23
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Valuing
our people
Protecting
our environment
> 30 per cent of the portfolio workforce was female in
2021
> 866 new jobs were created from date of investment
to 2021
> 65 per cent had mental wellbeing programmes in
place and 55 per cent held regular employee
engagement surveys
> Over 22,000 hours of training was given to
employees
> 60 per cent of companies had active carbon
reduction strategies (up from 15 per cent at
investment)
> 25 per cent offset all or a defined portion of their
carbon impact
> But only 15 per cent formally measure their carbon
footprint
Summary and Outlook
It has been pleasing to see the continued positive
progression of the portfolio during the year, both from the
continued growth of the Company’s technology-enabled
and software-focused investments, but also from the
recovery of businesses which were heavily impacted by
the pandemic.
We continue to help all of our companies navigate a fluid
economic environment, with many facing obstacles
relating to inflation, hiring of talent and an ever-changing
political landscape.
Despite these challenges, we continue to see a strong
pipeline of potential investments in a range of growth
companies, as well as opportunities to further support
the continued growth of the current portfolio. We thank
investors for their ongoing support from the Company’s
January 2022 fundraising, and are looking forward to
putting the funds raised to work.
David Hall
YFM Private Equity Limited
21 March 2022
24 British Smaller Companies VCT2 plc Annual Report & Accounts
Case Studies
AMOUNT INVESTED
£1.0 million
BUSINESS AT INVESTMENT
A visual effects (‘VFX’) company supplying
subscription video on demand (eg. Netflix), television
and feature film markets.
THE INVESTMENT
Funding to expand operations globally.
RATIONALE FOR THE DEAL
Bolstered by the rapid growth in video on demand
companies such as Netflix and Amazon, VFX studios
are experiencing unprecedented demand for their
work. Differentiated from competitors by a distinctive
culture, Outpost is able to attract the best talent and
consequently, delivers high quality work on time and
in budget. This has resulted in a brand valued by
customers and poised for rapid growth.
SINCE INVESTMENT
The business was significantly impacted by Covid-19
in the initial phase of the investment. As the effects of
Covid abated, Outpost accelerated revenues and
opened or expanded offices in LA, Montreal and
Mumbai as well as its presence in the UK and has won
significant work on high quality productions since
investment.
AMOUNT INVESTED
£2.0 million
BUSINESS AT INVESTMENT
A lead platform connecting customers with financial
advisors covering investment mortgages and life
insurance advice.
THE INVESTMENT
Growth capital to enhance the platform and broaden
the service offering at the same time increasing
consumer awareness of the marketplace.
RATIONALE FOR THE DEAL
A leader in its field, with the opportunity to build
additional services, moving into other market sectors
with the potential for expansion into overseas
geographies.
SINCE INVESTMENT
Unbiased has demonstrated the ability to grow its
offering into multiple service verticals, increasing the
value of its offering, expanding its reach to over
27,000 IFAs to help all access financial advice.
STRATEGIC REPORT
British Smaller Companies VCT2 plc Annual Report & Accounts 25
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Valuation at Realised &
Date of Current 31 December Proceeds unrealised
Page Name of initial Industry cost 2021 to date value to date*
No company investment Location Sector £000 £000 £000 £000
28 Matillion Limited Nov-16 Manchester Data & Analytics 1,456 25,050 5,946 30,996
28 Springboard Research Oct-14 Milton Keynes Data & Analytics 1,881 3,959 120 4,079
Holdings Limited
29 Intelligent Office UK May-14 Alloa Business Services 1,956 3,163 - 3,163
(IO Outsourcing Limited
t/a Intelligent Office)
29 Wooshii Limited May-19 London New Media 2,440 3,162 - 3,162
29 Unbiased EC1 Limited Dec-19 London Software Applications 1,964 3,082 - 3,082
30 SharpCloud Software Limited Oct-19 London Data & Analytics 2,271 2,927 - 2,927
30 Elucidat Ltd May-19 Brighton Software Applications 1,800 2,926 - 2,926
30 Force24 Ltd Nov-20 Leeds Software Applications 1,600 2,773 - 2,773
31 ACC Aviation Group Limited** Nov-14 Reigate Business Services 145 2,450 1,233 3,683
31 KeTech Enterprises Limited Nov-15 Nottingham Data & Analytics 10 1,976 1,775 3,751
Investment companies Apr-15 - - 2,500 1,895 - 1,895
DisplayPlan Holdings Limited Jan-12 Stevenage New Media 70 1,891 820 2,711
Ncam Technologies Limited Mar-18 London New Media 1,675 1,636 87 1,723
Outpost VFX Limited Feb-21 Bournemouth New Media 1,000 1,614 - 1,614
Sipsynergy (via Hosted Network Jun-16 Hampshire Software Applications 1,636 1,561 - 1,561
Services Limited)
Tonkotsu Limited Jun-19 London Retail & Brands 1,592 1,520 - 1,520
Vuealta Group Limited Sep-21 London Software Applications 1,399 1,491 - 1,491
Vypr Validation Jan-21 Manchester Data & Analytics 1,000 1,386 - 1,386
Technologies Limited
Arcus Global Limited May-18 Cambridge Software Applications 2,050 1,324 - 1,324
Frescobol Carioca Ltd Mar-19 London Retail & Brands 1,200 1,148 - 1,148
Traveltek Group Holdings Limited Oct-16 East Kilbride Software Applications 1,163 983 - 983
Panintelligence Nov-19 Leeds Data & Analytics 1,000 750 - 750
(via Paninsight Limited)
e2E Engineering Limited Sep-17 Welwyn Business Services 600 688 - 688
Garden City
Other investments below £0.5 million 9,629 664 5,384 6,048
Total investments 42,037 70,019 15,365 85,384
Full disposals to date 37,885 - 56,000 56,000
Total portfolio 79,922 70,019 71,365 141,384
* represents proceeds received to date plus the unrealised valuation at 31 December 2021
** additional ordinary dividends of £1.93 million have also been received
Portfolio Summary
at 31 December 2021
Investment Additions Valuation Investment
valuation at including gains including valuation at
31 December Disposal capitalised profits/(losses) 31 December
2020 proceeds income on disposal 2021
Name of Company £000 £000 £000 £000 £000
Matillion Limited 12,695 (5,946) - 18,301 25,050
Force24 Ltd 1,600 - - 1,173 2,773
Tonkotsu Limited 605 - - 915 1,520
Elucidat Limited 2,031 - - 895 2,926
Frescobol Carioca Ltd 326 - - 822 1,148
Outpost VFX Limited - - 1,000 614 1,614
Wooshii Limited 1,566 - 1,000 596 3,162
SharpCloud Software Limited 1,544 - 811 572 2,927
Unbiased EC1 Limited 2,512 - - 570 3,082
Vypr Validation Technologies Limited - - 1,000 386 1,386
e2E Engineering Limited 434 - - 254 688
Traveltek Group Holdings Limited 808 - - 175 983
Sipsynergy (via Hosted Network Services Ltd) 1,113 - 327 121 1,561
Vuealta Group Limited - - 1,399 92 1,491
Ncam Technologies Limited 1,476 (87) 175 72 1,636
Other investments £0.5 million and below 109 - 160 41 310
Panintelligence (via Paninsight Limited) 1,000 - - (250) 750
Arcus Global Limited 2,160 - 100 (936) 1,324
Arraco Global Markets Limited 1,500 - 120 (1,620) -
Investments made after November 2015 31,479 (6,033) 6,092 22,793 54,331
Deep-Secure Ltd 1,966 (3,279) - 1,313 -
Springboard Research Holdings Limited 2,678 - 59 1,222 3,959
KeTech Enterprises Limited 2,601 (1,275) - 650 1,976
Displayplan Holdings Limited 1,267 - - 624 1,891
Tissuemed Limited 65 (599) - 534 -
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) 3,156 - - 7 3,163
ACC Aviation Group Limited 2,993 - - (543) 2,450
Other investments £0.5 million and below 2,910 - - (661) 2,249
Investments made prior to November 2015 17,636 (5,153) 59 3,146 15,688
Total investments 49,115 (11,186) 6,151 25,939 70,019
26 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
Summary of Portfolio Movement
since 31 December 2020
British Smaller Companies VCT2 plc Annual Report & Accounts 27
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Investee Company
Information
Fair Value
£36.3m
2020: £20.6m
Number of companies
7
2020: 6
Fair Value
£14.8m
2020: £12.9m
Number of companies
7
2020: 7
Fair Value
£8.3m
2020: £4.3m
Number of companies
6
2020: 5
Fair Value
£6.3m
2020: £8.1m
Number of companies
5
2020: 5
Business
Services
New MediaData
& Analytics
Software
Applications
Fair Value
£0.4m
2020: £1.1m
Number of companies
3
2020: 3
Fair Value
£1.2m
2020: £1.2m
Number of companies
6
2020: 7
OtherAdvanced
Manufacturing
Fair Value
£2.7m
2020: 0.9m
Number of companies
2
2020: 3
Retail and
Brands
Matillion is a leading provider of cloud-based data
extraction and transformation tools. The company helps
businesses interpret their data in the cloud for insight and
decision making and is headquartered in Manchester
with offices in Denver, Seattle and New York.
www.matillion.com
Cost: £1,456,000
Valuation: £25,050,000
Date of initial investment: November 2016
Equity held: 2.4%
Valuation basis: Revenue multiple
2020 2019
Year ended 31 December $million $million
Revenue 29.98 16.05
LBITA (11.57) (16.43)
Loss before tax (11.89) (15.53)
Retained losses (36.88) (24.83)
Net assets 22.89 33.18
Matillion Limited
Manchester
Portfolio
The top 10 investments had a combined value
of £51.5 million, 73.6 per cent of the total portfolio.
28 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
Springboard Research is the leading provider of
performance insights for the retail industry across
Europe and North America. The company has seen a
significant increase in usage of its products as the
industry reacts to the new retail environment created
by Covid-19.
www.spring-board.info
Cost: £1,881,000
Valuation: £3,959,000
Date of initial investment: October 2014
Equity held: 13.0%
Valuation basis: Revenue multiple
Interest: £47,566 (2020 £94,632)
Dividends: £59,136 (2020 £59,298)
2020 2019
Year ended 31 December £million £million
Revenue 7.39 6.34
EBITA 1.77 0.50
Profit (loss) before tax 0.51 (0.70)
Retained losses (3.14) (3.46)
Net liabilities (0.01) (0.33)
Springboard Research Holdings Limited
Milton Keynes
British Smaller Companies VCT2 plc Annual Report & Accounts 29
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Unbiased is a technology-enabled marketplace that
connects consumers to Independent Financial
Advisers, Mortgage Brokers and Accountants. The
company has a strong, well-established position and
brand awareness in the IFA market with a high level of
recurring subscription income from the thousands of
professionals in their network.
www.unbiased.co.uk
Cost: £1,964,000
Valuation: £3,082,000
Date of initial investment: December 2019
Equity held: 10.6%
Valuation basis: Revenue multiple
2020 2019
Year ended 30 September £million £million
Revenue 5.02 4.02
(LBITA) EBITA (0.83) 0.20
(Loss) profit before tax (1.10) 0.06
Retained (losses) profits (0.96) 0.23
Net (liabilities) assets (0.96) 0.23
Accounts for the trading company Unbiased Limited are shown
Unbiased EC1 Limited
London
Intelligent Office UK is a leading provider of support
services to the legal sector. The company has more
than 900 employees in over 60 client sites across the
UK, as well as four onshore shared services centres.
www.intelligentofficeuk.com
Cost: £1,956,000
Valuation: £3,163,000
Date of initial investment: May 2014
Equity held: 17.8%
Valuation basis: Earnings multiple
Interest: £39,316 (2020 £39,423)
Dividends: £60,894 (2020 £60,894)
2020 2019
Year ended 30 September £million £million
Revenue 27.55 30.01
EBITA 1.42 1.51
Profit (loss) before tax 0.27 (0.50)
Retained losses (3.90) (3.93)
Net assets 1.64 1.61
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office)
Alloa
Wooshii is a global video production agency using
technology to manage a geographically distributed
network of creative professionals. The company offers
clients the convenience and quality of a traditional
video marketing agency combined with cutting edge
video management tools. It has an impressive client list
including Coca Cola, Google, Microsoft and Amazon.
www.wooshiivideoagency.com
Cost: £2,440,000
Valuation: £3,162,000
Date of initial investment: May 2019
Equity held: 13.3%
Valuation basis: Revenue multiple
Dividends: £90,074 (2020 £64,978)
2021* 2020*
Year ended 31 March £million £million
Revenue 2.63 2.18
LBITA (1.07) (1.73)
Loss before tax (1.24) (1.87)
Retained losses (4.52) (3.39)
Net liabilities (2.95) (1.83)
* Unaudited
Wooshii Limited
London
30 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
Elucidat provides a cloud-based e-learning authoring
platform which allows its customers to drive down the
cost of producing business-critical training. The
company has impressive customer retention and a
client list including Tesco, Target and Walmart.
www.elucidat.com
Cost: £1,800,000
Valuation: £2,926,000
Date of initial investment: May 2019
Equity held: 8.1%
Valuation basis: Revenue multiple
Interest: £20,000 (2020 £877)
2020 2019*
Year ended 31 December £million £million
Revenue 3.00 1.42
LBITA (0.49) (0.24)
Loss before tax (0.92) (0.41)
Retained losses (1.12) (0.40)
Net assets 2.41 3.12
* unaudited 7 months to 31 December 2019.
Elucidat Ltd
Brighton
SharpCloud provides a leading decision making
platform for managers. It provides the ability to
aggregate fragmented data into easily interpretable
top-down output that shortens decision making cycles
and eliminates decision waste.
www.sharpcloud.com
Cost: £2,271,000
Valuation: £2,927,000
Date of initial investment: October 2019
Equity held: 13.0%
Valuation basis: Revenue multiple
2020* 2019*
Year ended 31 December £million £million
Revenue 1.65 1.24
LBITA (2.09) (0.58)
Loss before tax (2.20) (0.74)
Retained losses (3.25) (0.87)
Net assets 0.74 3.12
* Unaudited
SharpCloud Software Limited
London
Force24 provides cloud-based personalised marketing
automation technology trusted by over 350 businesses
including household brands such as Michelin, Tarmac
and Children In Need.
www.force24.co.uk
Cost: £1,600,000
Valuation: £2,773,000
Date of initial investment: November 2020
Equity held: 11.4%
Valuation basis: Revenue multiple
2020 2019
Year ended 31 December £million £million
Revenue 3.48 2.98
(LBITA) EBITA (0.38) 0.23
Loss before tax (0.66) (0.01)
Retained (losses) profits (0.22) 0.63
Net assets 3.59 0.82
Force24 Ltd
Leeds
British Smaller Companies VCT2 plc Annual Report & Accounts 31
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
ACC Aviation is the market leader in airline-to-airline
“wet lease” brokerage and associated services. The
company serves clients globally in all aspects of
aircraft charter, leasing, interiors, and aviation support.
www.accaviation.com
Cost: £145,000
Valuation: £2,450,000
Date of initial investment: November 2014
Equity held: 18.5%
Valuation basis: Earnings multiple
Dividends: £nil (2020 £1,934,000)
2020 2019
Year ended 31 December £million £million
Revenue 34.91 175.90
(LBITA) EBITA (0.67) 12.24
(Loss) profit before tax (3.75) 9.27
Retained profits 12.28 8.04
Net assets 12.30 26.21
ACC Aviation Group Limited
Reigate
KeTech specialises in the provision of enhanced, real-
time information systems for transport operators and
passengers. It offers a range of products including train
safety and passenger information systems. Clients
include mainline train operators and London
Underground.
www.ketech.com
Better Informed Journeys
Cost: £10,000
Valuation: £1,976,000
Date of initial investment: November 2015
Equity held: 15.8%
Valuation basis: Earnings multiple
Interest: £50,987 (2020 £93,472)
Dividends: £44,198 (2020 £48,300)
2020 2019
Year ended 31 August £million £million
Revenue 5.43 6.01
EBITA 0.87 1.06
Profit before tax 0.30 0.82
Retained profits 0.17 0.67
Net assets 0.67 0.90
KeTech Enterprises Limited
Nottingham
32 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
The Board carries out a regular
review of the risk environment in
which the Company operates. The
emerging and principal risks and
uncertainties identified by the Board
and techniques used to mitigate these
risks are set out in this section.
The Covid-19 pandemic and the current conflict in Ukraine
created heightened uncertainty for the Company, but the
Board do not consider that it has changed the nature of
the principal risks. The Board considers that the present
processes for mitigating those risks remain appropriate.
The Board seeks to mitigate its emerging and principal
risks by setting policy, regularly reviewing performance
and monitoring progress and compliance. In the mitigation
and management of these risks, the Board rigorously
applies the principles detailed in section 4: “Audit, Risk and
Internal Control” of The UK Corporate Governance Code
issued by the Financial Reporting Council in July 2018.
Details of the Company’s internal controls are contained in
the Corporate Governance Internal Control section on
pages 47 and 48 and further information on exposure to
risks, including those associated with financial instruments,
can be found in note 16a of the financial statements.
Risk
Factors
Loss of Approval as a VCT
Risk – The Company must comply with Chapter 3 Part 6
of the Income Tax Act 2007, which allows it to be exempted
from corporation tax on capital gains. Any breach of these
rules may lead to the Company losing its approval as a
VCT, which would result in qualifying shareholders who
have not held their shares for the designated holding
period having to repay the income tax relief they obtained,
while future dividends paid by the Company would be
subject to tax. The Company would also lose its exemption
from corporation tax on capital gains.
Mitigation – One of the Key Performance Indicators
monitored by the Company is the compliance with legislative
tests. These tests are closely monitored by the Manager on
an ongoing basis and regularly reported to and reviewed by
the Board. The Company also makes use of external
experts, who review the Company’s compliance with VCT
rules on a regular basis. Details of how the Company
manages these requirements can be found under the
heading “Compliance with VCT Legislative Tests” on pages
14 and 15.
Economic
Risk – Events such as recession and interest rate
fluctuations could affect investee companies’
performance and valuations.
Mitigation – As well as the response to the ‘Investment and
Strategic’ risk below, the Company has a clear investment
policy (summarised on page 10) and a diversified portfolio
operating in a range of sectors. The Manager actively
monitors investee company performance, which provides
quality information for monthly reviews of the portfolio. The
Manager ensures that the portfolio has plans to manage the
impact of economic risk.
Investment and Strategic
Risk – Inappropriate strategy, poor asset allocation or
consistently weak stock allocation may lead to
underperformance and poor returns to shareholders.
The quality of enquiries, investments, investee company
management teams and monitoring, and the risk of not
identifying investee company difficulties may lead to
underperformance by the Company and poor returns to
shareholders.
Mitigation – The Board reviews strategy annually. At each of
the Board meetings, the directors review the appropriateness
of the Company’s objectives and stated strategy in response
to changes in the operating environment and peer group
activity.
The Manager carries out due diligence on potential investee
companies and their management teams and utilises external
reports where appropriate to assess the viability of investee
businesses before investing. Wherever possible, a non-
executive director will be appointed to the board of the
investee company on behalf of the Company.
British Smaller Companies VCT2 plc Annual Report & Accounts 33
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Regulatory
Risk – The Company is required to comply with the
Companies Act 2006, the rules of the UK Listing
Authority, the Financial Conduct Authority’s Prospectus
Rules and UK adopted international accounting
standards; it is also subject to the AIFMD EU Exit
Regulations. Breach of any of these might lead to
suspension of the Company’s Stock Exchange listing,
financial penalties or a qualified audit report.
Mitigation – The Manager and the Company Secretary
have procedures in place to ensure recurring Listing Rules
requirements are met and actively consult with brokers,
solicitors and external compliance advisers as appropriate.
The Manager ensures that it hires suitably qualified
members of staff who are experienced with regulatory
requirements and relevant accounting standards.
The key controls around regulatory compliance are
explained on pages 47 and 48.
Reputational
Risk – Inadequate or failed controls might result in
breaches of regulations or loss of shareholder trust.
Mitigation – The Board is comprised of directors with
suitable experience and qualifications who report annually
to the shareholders on their independence. The Manager is
well-respected, with a proven track record. It has a formal
recruitment process to employ experienced investment staff.
Allocation rules relating to co-investments with other funds
managed by the Manager have been agreed between the
Manager and the Company. Advice is sought from external
advisors where required. Both the Company and the
Manager maintain appropriate insurances.
Operational
Risk – Failure of the Manager’s and administrator’s
accounting systems or disruption to its business might
lead to an inability to provide accurate reporting and
monitoring.
Mitigation – The Manager has a documented business
continuity plan, which provides for back-up services in the
event of a system breakdown. The Manager’s systems are
protected against viruses and other cyber-attacks. The
Manager implemented its business continuity plan through
the Covid-19 pandemic with no loss of service.
Cyber/IT
Risk – Inadequate IT systems and controls might lead
to business interruption, the inability of the Manager to
provide accurate reporting and monitoring or the loss
of Company records.
Mitigation – The Manager has in place significant
cybersecurity controls, including two factor authentication,
email protection software, monitored firewalls and regularly
updated electronic devices. The Manager is Cyber
Essentials Plus certified. Staff at the Manager regularly
receive training in relation to their cybersecurity
obligations.
34 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
Risk
Factors
(continued)
Climate
Risk – The Company, the Manager and the portfolio
companies may fail to positively contribute towards,
and adapt to, the global transition towards
decarbonisation, which could result in regulatory
breaches, reduced investor and/or employee attraction
and the reduced ability of portfolio companies to attract
lending to fund their growth.
Mitigation – In 2021, the Manager published its first
Sustainable Investment Report, detailing the steps it has
taken in this area to date. The Manager is a signatory of
the UN’s Principles for Responsible Investment; it has
published its Sustainable Investment Principles; and has
rewritten its Ethical Policy. Its investment process now
includes a set of over 50 thematic ESG KPIs, with which it
is now tracking its portfolio over time across four key areas:
Improve our Society; Protect our Environment; Grow our
Economy; and Value our People. Further details can be
found on pages 21 to 23.
Financial
Risk – Inadequate controls might lead to misappropriation
of assets. Inappropriate accounting policies might lead to
misreporting or breaches of regulations.
Mitigation – The Company’s internal control and risk
management processes are described on pages 47 and 48.
Market/Liquidity
Risk – Lack of liquidity in both the venture capital and
public markets.
By their nature, investments in unquoted companies
involve a higher degree of risk than investments in
companies trading on public markets. In particular,
smaller companies often have limited product lines,
markets or financial resources; they may be dependent
on a smaller number of key individuals.
For quoted companies, the fact that a share is traded on
the public market does not guarantee its liquidity. The
spread between the buying and selling price of such
shares may be wide and thus the price used for
valuation may not be achievable. In addition, smaller
companies’ shares are often less liquid than larger
companies, bringing with it potential difficulties in
acquiring, valuing and disposing of such stock.
Mitigation – Overall liquidity risks are monitored on an
ongoing basis by the Manager and on a quarterly basis by
the Board.
The Company’s valuation methodology takes account of
potential liquidity restrictions in the markets in which it
invests.
For any publicly listed investments, accounting standards
require an ongoing assessment of the liquidity of the stock.
The Manager regularly reviews its exit plans for investee
companies to allow the assets to be optimised to identify a
willing buyer. As part of a planned exit, the assistance of a
third party adviser will normally be sought, with a view to
identifying the largest number of possible purchasers.
British Smaller Companies VCT2 plc Annual Report & Accounts 35
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Section 172 Statement
This Section 172 Statement should be read in
conjunction with the other contents of the Strategic
Report, on pages 6 to 36.
Section 172 of the Companies Act 2006 requires that a
director must act in the way that they consider, in good
faith, would be most likely to promote the success of the
company for the benefit of its members as a whole, and
in doing so have regard (amongst other matters) to:
> The likely consequences of any decision in the long
term;
> The interests of the company's employees;
> The need to foster the company's business
relationships with suppliers, customers and others;
> The impact of the company's operations on the
community and the environment;
> The desirability of the company maintaining a
reputation for high standards of business conduct;
and
> The need to act fairly as between members of the
company.
The Company takes a number of steps to understand
the views of investors and other key stakeholders and
considers these, along with the matters set out above, in
Board discussions and decision making.
Key Stakeholders
As an investment company with no employees, the
Company’s key stakeholders are its investors, its service
providers and its portfolio companies.
Investors
The Board engages and communicates with
shareholders in a variety of ways.
The Company encourages shareholders to attend its
Annual General Meeting (AGM), but unfortunately the
2021 AGM had to be held as a “closed” meeting due to
the restrictions on social gatherings at the time. It was
not possible to hold the AGM electronically because
such general meetings were not yet permitted by the
Company’s Articles of Association and the legislation
permitting electronic general meetings had not been
passed at the time. A resolution was presented and
passed at the 2021 AGM to allow electronic general
meetings to be held in future.
Along with British Smaller Companies VCT plc, the
Company normally holds an annual Investor Workshop,
which is always well attended. As with the 2021 AGM, it
was not possible to hold this in its normal format, so two
online workshops were held, in June 2021 and
December 2021, which were attended by almost 200
shareholders. The Manager also carried out a
shareholder survey during 2021.
Maintaining the Company’s status as a VCT is critical to
meeting the Company’s objective to maximise Total
Return and provide investors with an attractive long-term
tax-free dividend yield. The Company receives regular
reports on this issue from the Manager and has taken
various steps in the year to ensure that the relevant tests
are met.
The Board also aims for investors to continue to have
tax efficient opportunities to invest in the Company, and
to generate tax-free returns from both capital
appreciation and ongoing dividends.
After carefully considering its funding needs, the
Company announced a non-prospectus offer to raise up
to £7.1 million on 2 February 2021. At the same time, the
Company issued an unaudited net asset value per
ordinary share as at 31 December 2020, following the
material increase in the final quarter of 2020. The related
allotment took place on 11 March 2021 following which
your Company received net proceeds of £6.8 million.
On 22 September 2021, the Company issued a
prospectus, alongside British Smaller Companies VCT
plc, to raise up to £60 million in aggregate for the
2021/22 tax year. The related allotment took place on 7
January 2022, following which the Company received
net proceeds of £24.2 million.
During the year the Board kept its arrangements for
dividends, share buy-backs and the dividend re-
investment scheme under constant review. Along with
normal dividends totalling 3.0 pence per ordinary share,
a special dividend of 5.0 pence per ordinary share was
paid in November 2021, following the partial realisation
of the Company’s investment in Matillion.
Manager
The Company’s most important service provider is its
Manager. There is regular contact with the Manager, and
members of the Manager’s board attend all of the
Company’s Board meetings. There is also an annual
strategy meeting with the Manager, alongside the board
of British Smaller Companies VCT plc.
Other Matters
36 British Smaller Companies VCT2 plc Annual Report & Accounts
STRATEGIC REPORT
The Manager maintains strong relationships with
relevant media publications and a wide range of
distributors for the Company’s shares, including wealth
managers, independent financial advisers and
execution-only brokers. RAM Capital acts as a promoter
of the Company’s shares to smaller distributors.
The Company is a member of the Association of
Investment Companies which promotes the interests of
investment companies, including VCTs. The Manager is
a founder member of the Venture Capital Trust
Association, which promotes the interests of VCTs in a
variety of ways.
Portfolio Companies
The Company holds minority investments in its portfolio
companies and has delegated the management of the
portfolio to the Manager. The Manager provides the
Board with regular updates on the performance of each
portfolio company at least quarterly and the Board is
made aware of all major issues.
The Manager has a dedicated Portfolio team to assist
the portfolio companies with the challenges that they
face as fast-growing companies. The Manager promotes
ongoing, sustainable growth within the businesses; this
often involves improving systems and processes, as well
as significant job creation.
The Covid-19 pandemic highlighted the Manager’s
ongoing commitment to support its portfolio companies.
At the start of the pandemic, the Manager put in place
weekly monitoring reviews, as well as providing the
portfolio with regular updates on the availability of
government funding initiatives. Cash flow forecasts were
kept under constant review and additional funding was
provided where appropriate.
Employees
The Company has no employees. The Board is
composed of one female non-executive director and two
male non-executive directors. For a review of the
policies used when appointing directors to the Board of
the Company, please refer to the Directors’
Remuneration Report.
Environment and Community
The Company seeks to ensure that its business is
conducted in a manner that is responsible to the
environment. The management and administration of the
Company is undertaken by the Manager, YFM Private
Equity Limited, who recognises the importance of its
environmental responsibilities and has signed up to the
United Nations’ Principles for Responsible Investment.
More details of the work that the Manager has done in
this area are set out on pages 21 to 23. Its Sustainable
Investment Policy can be found at www.yfmep.com/who-
we-are/our_impact/.
Business Conduct
The Company has a zero tolerance approach to bribery.
The following is a summary of its policy:
> It is the Company’s policy to conduct all of its
business in an honest and ethical manner. The
Company is committed to acting professionally,
fairly and with integrity in all its business dealings
and relationships;
> The directors of the Company, the Manager and
any other service providers must not promise, offer,
give, request, agree to receive or accept financial or
other advantage in return for favourable treatment,
to influence a business outcome or gain any
business advantage on behalf of the Company or
encourage others to do so;
> The Company has communicated its anti-bribery
policy to the Manager and its other service
providers and, in turn, the Manager ensures that
portfolio companies implement appropriate policies
of their own; and
> The Manager has its own Anti-Bribery and Anti-
Slavery policies and ensures that portfolio
companies adopt a similar policy.
The Strategic Report on pages 6 to 36 is approved by
order of the Board.
Peter Waller
Chairman
21 March 2022
Other Matters
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 37
Peter Charles Waller Chairman
Peter Waller (appointed 1 November 2010) Chair of the
board - is an experienced chairman and director with
extensive UK and international executive experience in
the IT technology, software and services sector. He
initially worked with IBM and Hitachi then with Spring
plc, at that time one of the UK’s largest recruitment and
training businesses. He was appointed as Chair of the
Company in May 2019. Peter is also Chair of KeyPoint
Technologies (UK) Limited and the Director and Founder
of Turnberry Management Company Limited. Over the
past two decades Peter has worked as a board member
with multiple private and public companies. His
particular skills are in sales and marketing and working
with companies to develop successful sales growth
strategies.
Barbara Lawson Anderson
(appointed 1 October 2020) - is an experienced Non-
Executive Director and Chair who has worked
extensively with SMEs, third sector and PLCs in
regulated sectors, international private companies and
venture capital specialists. Amongst other roles, Barbara
is currently Non-Executive Director and Chair of Audit &
Risk at Sovereign Housing Association, Independent
Board Member and Chair of Audit & Risk at SmartDCC
Ltd and Non-Executive Director and Chair of the
Remuneration Committee at British Business Bank plc.
Her expertise includes innovation for growth and
sustainability including ESG, strategic planning, start-up
acceleration and business transformation.
Roger Steven McDowell
Roger McDowell (appointed 6 March 2019) Chair of the
Audit & Risk Committee - has considerable experience
as a chairman and non-executive director of a wide
range of technology, business services and
manufacturing businesses. Following the flotation of his
family’s business and subsequent trade sale, he began
his plural career in 2000, when he took board roles in
three private equity backed technology businesses. He
is Chairman of Hargreaves Services Plc, Avingtrans Plc,
Flowtech Fluidpower Plc and Brand Architekts Group Plc
and Non-Executive Director of Tribal Group Plc and
Proteome Sciences Plc. Roger is Chairman of the Audit
& Risks Committee at Proteome Sciences.
Directors
CORPORATE GOVERNANCE
Secretary
The City Partnership (UK) Limited
110 George Street
Edinburgh
EH2 4LH
Registered No: SC269164
Registered Office
of the Company
5th Floor
Valiant Building
14 South Parade
Leeds
LS1 5QS
Registered No:
04084003
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
38 British Smaller Companies VCT2 plc Annual Report & Accounts
The directors present their report and
audited financial statements of
British Smaller Companies VCT2 plc
("the Company") for the year ended
31 December 2021.
Principal Activity
The Company is a public limited company incorporated
and domiciled in the United Kingdom. The address of
the registered office and principal place of business is
5th Floor, Valiant Building, 14 South Parade, Leeds, LS1
5QS.
The Company has its primary, and sole, listing on the
London Stock Exchange.
The principal activity of the Company is the making of
long term equity and loan investments, mainly in
unquoted businesses.
The Company operates as a venture capital trust
(“VCT”) and has been approved by HM Revenue &
Customs as an authorised venture capital trust under
Chapter 3 Part 6 of the Income Tax Act 2007. It is the
directors’ intention to continue to manage the
Company’s affairs in such a manner as to comply with
Chapter 3 Part 6 of the Income Tax Act 2007.
Business Performance and Future Prospects
A detailed and fair review of the Company’s business, its
development, its financial performance during and at the
end of the financial year, and its future prospects is set
out in the Strategic Report on pages 6 to 36. The
principal risks and uncertainties the Company faces are
detailed on pages 32 to 34.
Results and Dividends
The Statement of Comprehensive Income is set out on
page 60. The profit before and after taxation for the year
amounted to £20,389,000 (2020: £4,251,000).
During the year the Company paid a total of £11,015,000
(2020: £4,538,000) in dividends totalling 8.0 pence per
ordinary share (2020: 3.5 pence). A detailed review can
be found in note 5 on page 73.
The net asset value per ordinary share at 31 December
2021 was 61.5 pence (2020: 55.0 pence). The transfer
to and from reserves is given in the Statement of
Changes in Equity on page 62.
Going Concern
The directors have carefully considered the issue of
going concern in view of the Company’s activities and
associated risks. The Company has a well-diversified
portfolio with businesses in a variety of sectors, many of
which are well funded. Some portfolio companies may
require additional funding in the near- to medium-term in
order to manage the impact of the Covid-19 pandemic;
the Company is well placed to provide this, where
appropriate.
The Company has a significant level of liquidity, further
enhanced by the recent fundraising post-period-end. In
addition, the Board has control over the Company’s
major outgoings, which predominantly comprise
investments, dividends and share buybacks.
The directors have also assessed whether material
uncertainties exist and their potential impact on the
Company’s ability to continue as a going concern; They
have concluded that no such material uncertainties exist.
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 12 months from the date of
this report. As at 31 December 2021, the Company held
cash balances and fixed term deposits with a combined
value of £21,189,000 and raised additional net proceeds
of £24,216,000 from the recent fundraising. 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. In the year ended 31
December 2021, the Company’s costs and discretionary
expenditures were:
£’000
Administrative expenses
(before incentive fee) 1,909
Share buybacks 1,942
Dividends (before DRIS) 11,015
Total 14,866
Taking all of the above into consideration, the directors
are satisfied that the Company has sufficient resources
to meet its obligations for at least 12 months from the
date of this report and therefore believe that it is
appropriate to continue to apply the going concern basis
of accounting in preparing the financial statements.
Directors’
Report
For the year ended 31 December 2021
CORPORATE GOVERNANCE
British Smaller Companies VCT2 plc Annual Report & Accounts 39
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Statement on Long-term Viability
The AIC’s Code of Corporate Governance requires the
Board to assess the Company’s viability over an
appropriate period. The directors believe that a period of
three years is appropriate to assess the Company’s
viability because the Company is required to invest
funds raised within this timeframe in order to retain its
status as a VCT.
In making their assessment, the directors have reviewed
the types of investment that the Company will be able to
make under the current VCT legislation and they believe
that the existing portfolio and future investments will be
able to deliver the Company’s objective “to maximise
total return and provide investors with a long-term tax
free dividend yield whilst maintaining the Company’s
status as a venture capital trust”.
The directors have also taken into account the emerging
and principal risks and their mitigation identified in the
strategic report on pages 32 to 34, the nature of the
Company’s business, including its substantial reserves
of cash following the recent fundraising, the potential of
its venture capital portfolio to generate returns in the
future and, as noted above, the ability of the directors to
minimise the level of cash outflows, should this be
necessary.
Taking into account the Company’s current position and
principal risks, the directors have concluded that there is
a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they
fall due over that period.
Corporate Governance
The statement on corporate governance set out on
pages 42 to 48 is included in the Directors’ Report by
reference.
Directors’ and Officers’ Liability Insurance
The Company has, as permitted by the Companies Act
2006, maintained insurance cover on behalf of the
directors, indemnifying them against certain liabilities
which may be incurred by any of them in relation to the
Company.
Provision of Information to the External Auditor
The directors confirm that so far as each director is
aware, there is no relevant audit information of which the
Company’s auditor is unaware; and that each of the
directors has taken all the steps that they ought to have
taken as a director in order to make themselves aware
of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
Share Capital
As shown in note 11 of the financial statements, the
Company has only one class of share, being ordinary
shares of 10 pence each.
Buy-Back and Issue of Ordinary Shares
Under the existing authority, which expires on the
conclusion of the Company’s Annual General meeting in
2022 or on 7 May 2022, whichever is the later, the
Company has the power to purchase shares up to 14.99
per cent of the Company’s ordinary share capital as at
22 March 2019, being 16,379,154 ordinary shares. This
authority will be renewed at the forthcoming AGM.
During the year, the Company purchased 3,553,377
ordinary shares of 10 pence each in the market (as
disclosed in the table below), for aggregate consideration
(including costs) of £1,942,000. These shares are held in
treasury. The buyback was in accordance with the
Company’s buy-back policy, and under the authority set
out above.
The directors have unconditional authority to allot shares
in the Company or to grant rights to subscribe for or to
convert any security into ordinary shares in the
Company up to an aggregate nominal amount of
£10,000,000 (equivalent to 100,000,000 shares),
expiring on 10 September 2022.
This authority will be replaced by a new authority to
issue shares up to an aggregate nominal amount of
£10,000,000 at this year’s Annual General Meeting.
12,756,951 shares were issued during the year arising
from the Company’s March 2021 fundraising. Further
details are given in note 11 on page 83. A further
40,224,521 shares were issued on 7 January 2022
arising from the January 2022 fundraising.
In addition, the directors have authority to allot shares
and waive pre-emption rights in the Company in
connection with the Company’s Dividend Re-investment
Scheme (DRIS), up to an aggregate nominal amount of
£2,000,000 (equivalent to 20,000,000 shares) until 7
May 2024.
During the year to 31 December 2021, a total of
3,995,494 ordinary shares were issued under the
Company’s DRIS.
40 British Smaller Companies VCT2 plc Annual Report & Accounts
CORPORATE GOVERNANCE
Directors’
Report
(continued)
Capital Disclosures
The following information has been disclosed in
accordance with Schedule 7 of the Large and Medium
Sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended):
> The Company’s capital structure is summarised in
note 11 to the financial statements. Each ordinary
share carries one vote. There are no restrictions on
voting rights or any agreement between holders of
securities that result in restrictions on the transfer of
securities or on voting rights;
> There are no securities carrying special rights with
regard to the control of the Company;
> The Company does not have an employee share
scheme;
> The rules concerning the appointment and
replacement of directors, amendments to the
Articles of Association and powers to issue or buy-
back the Company’s shares are contained in the
Articles of Association of the Company and the
Companies Act 2006;
> With the exception of the Manager’s Incentive
Agreement, there are no agreements to which the
Company is party that take effect, alter or terminate
upon a change in control following a takeover bid;
and
> There are no agreements between the Company
and its directors providing for compensation for loss
of office that may occur because of a takeover bid.
Environment
The Company is a low energy user and is therefore
exempt from the reporting obligations under the
Companies (Director’s Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations
2018. The Company has no greenhouse gas emissions
to report from the operations of the Company, nor does it
have responsibility for any emissions producing sources
including those within its underlying investment portfolio
under part 7 of schedule 7 to the Large and Medium-
sized Companies and Groups (Accounts and Reports)
Regulations 2008, as amended.
Directors and their Interests
The directors of the Company at 31 December 2021,
their interests and contracts of significance are set out in
the Directors’ Remuneration Report on pages 49 to 51.
Substantial Shareholdings
The directors are not aware of any substantial
shareholdings representing 3 per cent or more of the
Company's issued share capital as at 31 December
2021 and the date of this report.
Independent Auditor
BDO LLP has indicated its willingness to continue in
office and a resolution concerning its re-appointment will
be proposed at the Annual General Meeting.
The only audit-related assurance service provided by
BDO LLP during the year was a review of the unaudited
interim report for the six months ended 30 June 2021.
Buy-back of Shares
Number of Percentage Consideration
Ordinary shares of issued paid per
of 10p share capital ordinary
Date bought back at that date share (pence)
25 March 2021 1,488,378 1.04% 51.33
24 June 2021 736,420 0.52% 53.04
27 September 2021 675,308 0.48% 59.40
15 December 2021 653,231 0.46% 57.69
British Smaller Companies VCT2 plc Annual Report & Accounts 41
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Financial Instruments
Details of the financial instruments held by the Company
and the risks associated with them are set out on pages
84 to 89 and this information is accordingly incorporated
into the Directors’ Report by reference.
Employment Policies
The employment policies of the Company are set out on
page 50.
Events after the Balance Sheet Date
The Company announced a new share offer on 22
September 2021, alongside British Smaller Companies
VCT plc, with the intention of raising up to £40 million, in
aggregate with an over-allotment facility of £20 million, in
aggregate. This was fully subscribed and closed on 12
November 2021. The related allotment of 40,224,521
ordinary shares took place post year-end, on 7 January
2022, following which the Company received net
proceeds of £24.2 million.
Annual General Meeting
Shareholders will find the Notice of the Annual General
Meeting on pages 91 to 94 of these financial statements.
Ordinary Resolution
Resolution 7 is proposed to ensure the directors retain
the authority to allot shares in the Company until the
later of 13 September 2023 or the date of the 2023
Annual General Meeting up to an aggregate nominal
amount of £10,000,000 (representing approximately 55
per cent of the issued ordinary share capital of the
Company as at 21 March 2022, excluding treasury
shares).
Special Resolutions
Resolution 8 is proposed to empower the directors to
allot shares under the authority granted by resolution 7
and to sell treasury shares without regard to any rights of
pre-emption on the part of the existing shareholders.
Resolution 9 is proposed to amend the Articles of
Association to increase the cap on aggregate director
fees to £110,000 in order to provide greater flexibility on
the future composition of the Board.
Resolution 10 is proposed to empower the directors to
buy back up to 27,338,720 ordinary shares.
This report was approved by the Board on 21 March
2022 and signed on its behalf by
Peter Waller
Chairman
British Smaller Companies VCT2 plc
Registered number 04084003
42 British Smaller Companies VCT2 plc Annual Report & Accounts
CORPORATE GOVERNANCE
The Board is committed to the
principle and application of sound
corporate governance and confirms
that the Company has taken steps,
appropriate to a venture capital trust
and relevant to its size and
operational complexity, to comply
with the principles and
recommendations of the Association
of Investment Companies’ Code of
Corporate Governance issued in
February 2019 (“AIC Code”) available
on the AIC website www.theaic.co.uk.
The AIC Code addresses all the principles set out in the
UK Corporate Governance Code issued by the Financial
Reporting Council (“FRC”), as well as setting out
additional principles and recommendations on issues
which are of specific relevance to the Company.
The UK Corporate Governance Code can be found on
the website of the FRC at www.frc.org.uk.
The Board considers that reporting against the principles
and recommendations of the AIC will provide better
information to shareholders.
The Company is committed to maintaining the highest
standards of corporate governance and during the year
to 31 December 2021 complied with the
recommendations of the AIC Code and relevant
provisions of the UK Corporate Governance Code,
except as set out below.
The UK Corporate Governance Code includes
provisions relating to the appointment of a chief
executive and a recognised senior independent non-
executive director, those relating to the establishment of
an independent Remuneration Committee, the
presumption concerning the Chairman’s independence
and the need for an internal audit function. For reasons
set out in the AIC Code, and in the introduction to the UK
Corporate Governance Code, the Board considers these
provisions are not relevant to the position of British
Smaller Companies VCT2 plc, which is an externally
advised venture capital trust. The Company has
therefore not reported further in respect of these
provisions.
Role of the Board
An agreement between the Company and YFM Private
Equity Limited sets out the matters over which the
Manager has authority. This includes monitoring of the
Company’s assets and the provision of accounting,
company secretarial, administration and some marketing
services. All other matters are reserved for the approval
of the Board. A formal schedule of matters reserved to
the Board for decision has been approved. This includes
determination and monitoring of the Company’s
investment objectives and policy and its future strategic
direction, gearing policy, management of the capital
structure, appointment and removal of third party service
providers, review of key investment and financial data
and the Company’s corporate governance, risk control
and custody arrangements.
The Board meets at least quarterly; additional meetings
are arranged as necessary. Full and timely information is
provided to the Board to enable it to function effectively
and to allow directors to discharge their responsibilities.
There is an agreed procedure for directors to take
independent professional advice if necessary, at the
Company’s expense. This is in addition to the access
that every director has to the advice and services of the
Company Secretary, who is responsible to the Board for
ensuring that applicable rules and regulations are
complied with and that Board procedures are followed.
The Company indemnifies its directors and officers and
has purchased insurance to cover its directors. Neither
the insurance nor the indemnity provide cover if the
director has acted fraudulently or dishonestly.
Board Composition
The Board consists of three non-executive directors, all
of whom are regarded by the Board as independent of
each other and also of the Company’s Manager,
including the Chairman. The independence of the
Chairman was assessed upon his appointment.
Although The UK Corporate Governance Code
presumes that the chairman of a company is deemed
Corporate
Governance
British Smaller Companies VCT2 plc Annual Report & Accounts 43
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
not to be an independent director, the remaining
directors, having considered the nature of the role in the
Company, are satisfied that Mr P C Waller fulfils the
criteria for independence as a non-executive director.
The directors have a breadth of investment, business
and financial skills and experience relevant to the
Company’s business and provide a balance of power
and authority including recent and relevant financial
experience. Brief biographical details of each director
are set out on page 37.
A review of Board composition and balance is included
as part of the annual performance evaluation of the
Board, details of which are given below.
There are no executive officers of the Company. Given
the structure of the Board and the fact that the
Company’s administration is conducted by YFM Private
Equity Limited, the Company has not appointed a chief
executive officer or a senior independent non-executive
director. In addition, the directors consider that the role
of a senior independent non-executive director is taken
on by all of the directors. Shareholders are therefore
able to approach any director with any queries they may
have.
Boardroom Diversity
The Board is committed to ensuring that the Company is
run in the most effective manner. Consequently the
Board monitors the diversity of all directors to ensure an
appropriate level of experience and qualification.
The Board believes in the value and importance of
diversity in the boardroom but does not consider that it is
appropriate or in the best interests of the Company and
its shareholders to set prescriptive targets for gender or
nationality on the Board.
Diversity of thought, experience and approach are all
important and the directors will always seek to appoint
on merit against objective criteria.
Tenure
Directors are initially appointed until the following Annual
General Meeting when, under the Company’s Articles of
Association, it is required that they be elected by
shareholders. Thereafter, it is the Board’s policy that a
director’s appointment will run for a term of one year until
the next Annual General Meeting. Subject to the
performance evaluation carried out each year, the Board
will agree whether it is appropriate for the director to
seek a further term. The Board, when making a
recommendation, will take into account the ongoing
requirements of The UK Corporate Governance Code,
including the need to refresh the Board and its
Committees.
The Board seeks to maintain a balance of skills and the
directors are satisfied that as currently composed the
balance of experience and skills of the individual
directors is appropriate for the Company, in particular
with regards to investment appraisal and investment risk
management.
The terms and conditions of directors’ appointments are
set out in formal letters of appointment, copies of which
are available for inspection on request at the Company’s
registered office and at the Annual General Meeting. Mr
P C Waller’s, Mr R S McDowell’s and Ms B L Anderson’s
appointment are terminable by either the director or the
Company on three months’ notice.
The directors recommend the re-election of Mr P C
Waller, Ms B L Anderson, and Mr R S McDowell at this
year’s Annual General Meeting, because of their
commitment, experience and contribution to the
Company.
Meetings and Committees
The Board delegates certain responsibilities and
functions to Committees. Directors who are not
members of Committees may attend at the invitation of
the Chairman.
The table on page 44 details the number and function of
the meetings attended by each director.
During the year there were nine formal Board meetings,
three Audit & Risk Committee meetings, two
Nominations & Remuneration Committee meetings, one
Allotment Committee meeting and one General meeting.
The directors met via video, telephone and electronic
conferences on 30 other occasions.
44 British Smaller Companies VCT2 plc Annual Report & Accounts
CORPORATE GOVERNANCE
Meetings Attended
Mr P C Mr R S Ms B L
Director Waller McDowell Anderson Total
Board meetings 9 9 9 9
Audit & Risk Committee 3 3 3 3
Nominations & Remuneration
Committee 2 2 2 2
Allotment Committee 1 - - 1
Video, telephone &
electronic conferences 30 30 30 30
General meeting* 1 - - 1
Total 46 44 44 46
* only the Chairman was permitted to attend due to government restrictions
In addition, there were three DRIS allotment meetings
which the directors were not required to attend, but
which were attended by the Company Secretary.
Training and Appraisal
On appointment, the Manager and Company Secretary
provide all directors with induction training. Thereafter,
regular briefings are provided on changes in regulatory
requirements that affect the Company and its directors.
Directors are encouraged to attend industry and other
seminars covering issues and developments relevant to
VCTs.
The performance of the Board has been evaluated in
respect of the financial year ended 31 December 2021.
The Board, led by the Chairman, has conducted a
performance evaluation to determine whether it and
individual directors are functioning effectively.
The factors taken into account were based on the
relevant provisions of The UK Corporate Governance
Code and included attendance and participation at
Board and Committee meetings, commitment to Board
activities and the effectiveness of their contribution. The
results of the overall evaluation process are
communicated to the Board. Performance evaluation
continues to be conducted on an annual basis.
The Chairman has confirmed that the performance of
the other directors being proposed for re-election
continues to be effective and that they continue to show
commitment to the role. The independent directors have
similarly appraised the performance of the Chairman.
They considered that the performance of Mr P C Waller
continues to be effective.
Audit & Risk Committee
The Audit & Risk Committee consists of the directors of
the Company. It meets at least three times each year.
The directors consider that it is currently appropriate that
the Chairman of the Committee should be Mr R S
McDowell due to his experience in the role. The
members of the Committee consider that they have the
requisite skills and experience to fulfil the responsibilities
of the Committee, and that the Chair of the Committee
meets the requirements of The UK Corporate
Governance Code as to recent and relevant financial
experience.
The Audit & Risk Committee’s terms of reference include
the following roles and responsibilities:
> Monitoring and making recommendations to the
Board in relation to the Company’s published
financial statements (including in relation to the
valuation of the Company’s unquoted investments)
and other formal announcements relating to the
Company’s financial performance;
> Monitoring and making recommendations to the
Board in relation to the Company’s internal control
(including internal financial control) and risk
management systems;
> Annually considering the need for an internal audit
function;
> Making recommendations to the Board in relation to
the appointment, re-appointment and removal of the
external auditor and approving the remuneration
and terms of engagement of the external auditor;
> Reviewing and monitoring the external auditor’s
independence and objectivity and effectiveness of
the audit process, taking into consideration relevant
UK professional and regulatory requirements;
> Monitoring the extent to which the external auditor
is engaged to supply non-audit services; and
> Ensuring that the Manager has arrangements in
place for the investigation and follow-up of any
concerns raised confidentially by staff in relation to
the propriety of financial reporting or other matters.
It reviews the terms of the investment agreement and
examines the effectiveness of the Company’s internal
control and risk management systems, receives
information from the Manager’s compliance department
and reviews the scope and results of the external audit,
its cost effectiveness and the independence and
objectivity of the external auditor.
Corporate
Governance
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 45
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
The directors’ statement on the Company’s system of
internal control is set out on pages 47 and 48.
The Audit & Risk Committee has written terms of
reference, which clearly define its responsibilities, copies
of which are available for inspection on request at the
Company’s registered office and at the Annual General
Meeting, and also on the Company’s website at
www.bscfunds.com.
The Company does not have an independent internal
audit function as it is not deemed appropriate given the
size of the Company and the nature of the Company’s
business. However, the Committee considers annually
whether there is a need for such a function and, if so,
would recommend this to the Board.
During the year ended 31 December 2021 the Audit &
Risk Committee discharged its responsibilities by:
> Reviewing and approving the external auditor’s
terms of engagement, remuneration and
independence;
> Reviewing the external auditor’s plan for the audit of
the Company’s financial statements, including
identification of key risks;
> Reviewing YFM Private Equity Limited’s statement
of internal controls operated in relation to the
Company’s business and assessing the
effectiveness of those controls in minimising the
impact of key risks;
> Reviewing reports on the effectiveness of the
Manager’s compliance procedures;
> Reviewing the appropriateness of the Company’s
accounting policies;
> Reviewing the Company’s draft annual financial
statements, half yearly results statement and
interim management statements prior to Board
approval, including the proposed fair value of
investments as determined by the directors;
> Reviewing the external auditor’s detailed reports to
the Audit & Risk Committee on the annual financial
statements; and
> Recommending to the Board and shareholders the
re-appointment of BDO LLP as the Company’s
external auditor.
The key areas of risk that have been identified and
considered by the Audit & Risk Committee in relation to
the business activities and financial statements of the
Company are as follows:
> Valuation of unquoted investments; and
> Compliance with HM Revenue & Customs’
conditions for maintenance of approved venture
capital trust status.
These issues were discussed with the Manager and the
auditor at the pre-year-end audit planning meeting and
at the conclusion of the audit of the financial statements.
Valuation of Unquoted Investments
The Audit & Risk Committee reviewed the estimates and
judgements made in the investment valuations and was
satisfied that they were appropriate. The Manager
confirmed to the Audit & Risk Committee that the
investment valuations had been carried out consistently
with prior periods and in accordance with published
industry guidelines, including IPEV’s Special Valuation
Guidance issued in March 2020 in response to the
impact of the Covid-19 pandemic, taking account of the
latest available information about investee companies;
current market data; and a report from the auditor,
including key audit findings in respect of the valuations.
Venture Capital Trust Status
The Manager confirmed to the Audit & Risk Committee
that the conditions for maintaining the Company’s status
as an approved venture capital trust had been complied
with throughout the year. The position was also reviewed
by the Company’s advisers.
Financial Statements
The Manager confirmed to the Audit & Risk Committee
that it was not aware of any material unadjusted
misstatements. Having reviewed the reports received
from the Manager and the auditor, the Audit & Risk
Committee is satisfied that the key areas of risk and
judgement have been appropriately addressed in the
financial statements and that the significant assumptions
used in determining the value of assets and liabilities
and revenue recognition have been properly appraised
and are sufficiently robust.
46 British Smaller Companies VCT2 plc Annual Report & Accounts
CORPORATE GOVERNANCE
Corporate
Governance
(continued)
Relationship with the Auditor
As part of the review of audit effectiveness and
independence, BDO LLP has confirmed that it is
independent of the Company and has complied with
applicable auditing standards. BDO LLP was appointed
as the result of a competitive tendering process in 2016.
As a consequence, this is their sixth year of office as
auditor; in accordance with professional guidelines the
initial engagement partner was rotated off the audit after
five years; as such, this is the first year of the current
partner’s tenure.
Having completed its review, the Audit & Risk Committee
is satisfied that BDO LLP remained effective and
independent in carrying out its responsibilities up to the
date of signing this report and its recommendation for
reappointment is endorsed by the Board. The only audit-
related assurance services provided by BDO LLP during
the year was a review of the unaudited interim report for
the six months ended 30 June 2021.
Nominations & Remuneration Committee
The Company has a Nominations & Remuneration
Committee, which consists of the directors, all of whom
are considered by the Board to be independent of the
Manager. The Chairman of the Board acts as Chairman
of the Nominations & Remuneration Committee.
In considering appointments to the Board, the
Nominations & Remuneration Committee takes into
account the ongoing requirements of the Company and
the need to have a balance of skills and experience
within the Board.
Meetings are held as and when required. There were
two Nominations & Remuneration Committee meetings
during the year.
The Board considers succession planning at least
annually, especially in relation to the positions of the
Chairman and the Chairman of the Audit & Risk
Committee.
The Directors’ Remuneration Report may be found on
pages 49 to 51.
The Director’s Remuneration Report on page 49
includes details of how directors’ remuneration is set.
Investment Committee
The Board has determined that, due to the investment
procedures currently in place, in its opinion there is no
role for an independent Investment Committee.
Allotment Committee
The Company has an Allotment Committee, which
consists of the directors, all of whom are considered by
the Board to be independent of the Manager. The
quorum for Committee meetings is one director, unless
otherwise determined by the Board. In addition, the
Company Secretary has an authority to allot shares
under the DRIS.
The Committee considers and, if appropriate, authorises
the allotment of shares. The Committee ensures that the
total number of shares to be issued does not exceed the
authority given by the shareholders. There are no written
terms of reference.
Relations with Shareholders
The Board regularly monitors the shareholder profile of
the Company. It aims to provide shareholders with a full
understanding of the Company’s activities and
performance, and reports formally to shareholders at
least twice a year by way of the Annual Report and the
Interim Report. This is supplemented by the daily
publication of the Company’s share price and the
publication of the net asset value of the Company for the
two quarters of the year where an Annual or Interim
Report is not normally issued (31 March and 30
September), through the London Stock Exchange.
All shareholders have the opportunity, and are
encouraged, to attend the Company’s Annual General
Meeting, at which the directors and representatives of
the Manager are available in person to meet with and
answer shareholders’ questions. In addition,
representatives of the Manager periodically hold
shareholder workshops which review the Company’s
performance and industry developments, and which give
shareholders a further opportunity to meet members of
the Board and chief executives or chairpersons of some
of the investee companies. During the year, the
Company’s Manager has held regular discussions with
shareholders. A shareholder’s survey was undertaken
British Smaller Companies VCT2 plc Annual Report & Accounts 47
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
during the year and the directors are made fully aware of
shareholders’ views. The Chairman and directors make
themselves available, as and when required, to address
shareholder queries. The directors may be contacted
through the Company Secretary, whose details are
shown on page 37.
The Company’s Annual Report is published in time to
give shareholders at least 21 clear days’ notice of the
Annual General Meeting. Shareholders wishing to raise
questions in advance of the meeting are encouraged to
write to the Company Secretary at the address shown
on page 37. Separate resolutions are proposed for each
separate issue. Proxy votes will be counted and the
results announced at the Annual General Meeting for
and against each resolution.
Internal Control and Risk Management
Under an agreement dated 28 November 2000,
superseded by an agreement dated 31 October 2005
and as varied by agreements dated 8 December 2010,
26 October 2011, 16 November 2012, 17 October 2014,
7 August 2015 and 13 November 2019, certain functions
of the Company have been sub-contracted to YFM
Private Equity Limited. The Board receives operational
and financial reports on the current state of the
Company and on appropriate strategic, financial,
operational and compliance issues. These matters
include, but are not limited to:
> A clearly defined investment strategy for the
Manager to the Company;
> All decisions concerning the acquisition or disposal
of investments are ratified by the Board;
> Regular reviews of the Company’s investments,
liquid assets and liabilities, revenue and
expenditure;
> Regular reviews of compliance with the VCT
regulations to retain its status; and
> The Board receives copies of the Company’s
management accounts on a regular basis showing
comparisons with budget. These include a report by
the Manager with a review of performance.
Additional information is supplied on request.
The Board confirms the procedures to implement the
guidance detailed in Principle O of the AIC Code were in
place throughout the year ended 31 December 2021
and up to the date of this report. A detailed review of the
risks faced by the Company and the techniques used to
mitigate these risks can be found in the Strategic Report
on pages 32 to 34.
The Board acknowledges that it is responsible for
overseeing the Company's system of internal control and
for reviewing its effectiveness. Such a system is
designed to manage rather than eliminate the risk of
failure to achieve business objectives and can only
provide reasonable and not absolute assurance against
material misstatement or loss.
The Board arranges its meeting agenda so that risk
management and internal control is considered on a
regular basis and a full robust risk and control
assessment takes place no less frequently than twice a
year. There is an ongoing process for identifying,
evaluating and managing the significant risks faced by
the Company. This process has been in place for longer
than the year under review and up to the date of
approval of the Annual Report. The process is formally
reviewed bi-annually by the Board. However, due to the
size and nature of the Company, the Board has
concluded that it is not necessary at this stage to set up
an internal audit function. This decision will be kept
under review. The directors are satisfied that the
systems of risk management that they have introduced
are sufficient to comply with the FRC Guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting.
In particular the Board, together with the Audit & Risk
Committee, is responsible for overseeing and reviewing
internal controls concerning financial reporting. In
addition to those controls sub-contracted as listed
above, the following controls have been in place
throughout the year:
> A robust system of internal control is maintained by
the Manager over the preparation and reconciliation
of investment portfolio valuations;
> Monthly reconciliation of assets held as cash or on
fixed term deposit;
> Independent review of the valuations of portfolio
investments by the Board (quarterly);
48 British Smaller Companies VCT2 plc Annual Report & Accounts
CORPORATE GOVERNANCE
Corporate
Governance
(continued)
> The Audit & Risk Committee’s review of financial
reporting and compliance (as set out on pages 44
to 46);
> The Board reviews financial information including
the Annual Report, Interim Report and interim
management statements prior to their external
communication; and
> The Board reviews the financial information in any
prospectus or offer for subscription issued by the
Company in connection with the issue of new share
capital.
The Company was registered with the FCA as a Small
Registered Alternative Fund Manager until 24 March
2020 and up to that date held its own investments. From
that date, the Manager became the Company’s
Alternative Investment Fund Manager and took over
responsibility for the custody of the Company’s
investments. All certificates and other documents
evidencing title (whether or not in registered form) will be
received by the Company and will be held in the
Company’s name and held in custody by the Manager.
No third party custodian has been appointed. The
Company will take legal ownership of its assets.
The Board has reviewed the effectiveness of the
Company’s systems of internal control and risk
management for the year and up to the date of this
Report. The Board is of the opinion that the Company’s
systems of internal, financial, and other controls are
appropriate to the nature of its business activities and
methods of operation given the size of the Company,
and the Board has a reasonable expectation that the
Company will continue in operational existence for the
foreseeable future.
Conflicts of Interest
The directors have declared any conflicts or potential
conflicts of interest to the Board, which has the authority
to authorise such situations if appropriate. The Company
Secretary maintains the Register of Directors’ Interests,
which is reviewed quarterly by the Board, when changes
are notified, and the directors advise the Company
Secretary and the Board as soon as they become aware
of any conflicts of interest. Directors who have conflicts
of interest which have been approved by the Board do
not take part in discussions or decisions which relate to
any of their conflicts.
Corporate Governance in Relation to Investee
Companies
The Company delegates responsibility for monitoring its
investments to its Manager whose policy, which has
been noted by the Board, is as follows:
YFM Private Equity Limited is committed to introducing
corporate governance standards into the companies in
which its clients invest. With this in mind, the Company’s
investment agreements contain contractual terms
specifying the required frequency of management board
meetings and of annual shareholders’ meetings, and for
representation at such meetings through YFM Private
Equity Limited. In addition, provision is made for the
preparation of regular and timely management
information to facilitate the monitoring of an investee
company performance in accordance with best practice
in the private equity sector.
Co-Investment
Typically, the Company invests alongside other venture
capital funds and other private equity funds managed by
the Manager, such syndication spreading investment
risk. Details of the amounts invested in individual
companies are set out in the Strategic Report. Co-
investments are detailed in note 7 to the financial
statements on page 80.
Management
The Board has delegated the monitoring of the
investment portfolio to the Manager.
This report was approved by the Board on 21 March
2022 and signed on its behalf by
Peter Waller
Chairman
British Smaller Companies VCT2 plc
Registered number 04084003
British Smaller Companies VCT2 plc Annual Report & Accounts 49
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
The Board has prepared this report in
accordance with the requirements of
the Large and Medium Sized
Companies and Groups (Accounts
and Reports) (Amendment)
Regulations 2013. An ordinary
resolution for the approval of this
report will be put to the members at
the forthcoming Annual General
Meeting.
The law requires the Company’s auditor, BDO LLP, to
audit certain information included in this report. Where
disclosures have been audited, they are indicated as
such. The auditor’s opinion is included in the
Independent Auditor’s Report on pages 53 to 59.
Directors’ Remuneration Policy
This statement of the Directors’ Remuneration Policy
took effect following approval by shareholders at the
Annual General Meeting held on 16 June 2020. A
resolution to approve the Directors’ Remuneration Policy
will be put to shareholders every three years.
The Board comprised three directors, all of whom are
non-executive. The Board does not have a separate
Remuneration Committee due to the size of the Board
and the remuneration procedures currently in place. In
the directors’ opinion and under the Listing Rules, there
is no requirement for an independent Remuneration
Committee.
The Board has not retained external advisors in relation
to remuneration matters but has access to information
about directors’ fees paid by other companies of a
similar size and nature and this is used as a reference
when setting directors’ renumeration. Shareholders’
views in respect of the directors’ remuneration are
communicated at the Company’s AGM and are taken
into consideration in formulating the Directors’
Remuneration Policy.
At the last Annual General Meeting, 95 per cent of
shareholders who exercised their voting rights voted for
the resolution approving the Directors’ Remuneration
Report, showing significant shareholder approval.
The Board’s policy is that the remuneration of non-
executive directors should reflect the experience of the
Board as a whole, to be fair and comparable to that of
other relevant venture capital trusts that are similar in
size and have similar investment objectives and
structures. Furthermore, the level of remuneration should
be sufficient to attract and retain the directors needed to
properly oversee the Company and to reflect the duties
and responsibilities of the directors and the value and
amount of time committed to the Company’s affairs.
It is not considered appropriate that directors’
remuneration should be performance-related, and as
such the directors are not eligible for bonuses, share
options, pension benefits, long-term incentive schemes
or other benefits in respect of their services as non-
executive directors of the Company.
It is the Board’s policy that directors do not have service
contracts, but new directors are provided with a letter of
appointment. The terms of directors’ appointments
provide that directors should retire and be subject to
election at the first Annual General Meeting after their
appointment. Thereafter, it has been agreed that all
directors will offer themselves for re-election on an
annual basis. All director’s appointments are terminable
by each director or the Company on three months’
notice. Any director who ceases to hold office is not
entitled to receive any payment other than accrued fees
(if any) for past services. There were no payments for
loss of office made during the period.
The policy will continue to be applied in the forthcoming
year.
Brief biographical notes on the directors are given on
page 37.
Statement by the Chairman of the Nominations
Committee
The directors’ fees payable by the Company have been
fixed from 1 April 2018 by the Board at £40,000 per
annum for the Chairman and £24,000 per annum for the
other directors. The directors have reviewed the level of
director’s fees and agreed that with effect from 1 March
2022, they will be increased to £42,500 per annum for
the Chairman and £26,500 per annum for the other
directors. In accordance with the Directors’
Remuneration Policy, the directors have agreed that they
should be reviewed again in March 2023.
The cap on aggregate fees is £100,000. As noted on
page 41, the Board proposes to increase the cap on
aggregate fees to £110,000 in order to provide greater
flexibility on the future composition of the Board.
Directors’
Remuneration Report
50 British Smaller Companies VCT2 plc Annual Report & Accounts
CORPORATE GOVERNANCE
Directors’ Remuneration for the year ended 31
December 2021 (audited)
The directors who served in the year and the previous
year received the following emoluments in the form of
fees, which represent the entire remuneration payable to
directors (see Table A):
There are no executive directors (2020: none).
Table A
Total Fees Paid (audited)
2021 2020
£ £
P C Waller 40,000 40,000
B L Anderson 24,000 6,000
R S McDowell 24,000 24,000
R M Pettigrew - 24,000
88,000 94,000
The annual salary of Ms B L Anderson from the date of
her appointment as a non-executive director on 1
October 2020 is £24,000. There has been no change to
the annual salaries of any of the directors in the year.
Directors and their Interests (audited)
The directors of the Company at 31 December 2021 and
their beneficial interests in the share capital of the
Company (including those of immediate family
members) were as shown in Table B:
Table B
Directors and their interests (audited)
Number of Percentage of
ordinary shares at: voting rights:
31 December 31 December 31 December 31 December
2021 2020 2021 2020
P C Waller 44,439 44,439 0.03% 0.04%
B L Anderson 9,112 - 0.01% -
R S McDowell 266,391 266,391 0.19% 0.21%
None of the directors held any options to acquire
additional shares at the year end.
The number of ordinary shares allotted to the directors
on 7 January 2022 as a result of the fundraising were as
shown in Table C:
Table C
Cumulative
Number of number of
ordinary ordinary shares
shares held
P C Waller 9,617 54,056
B L Anderson 323,920 333,032
R S McDowell 322,259 588,650
The Company has not set out any formal requirement or
guidelines concerning their ownership of shares in the
Company.
Relative Importance of Spend on Pay
Directors’ remuneration, dividend distribution and share
buy-backs are shown in Table D.
Table D
Relative Importance of Pay
2021 2020
£ £
Dividends 11,015,000 4,538,000
Share buy-backs 1,942,000 1,508,000
Total directors fees 88,000 94,000
Consideration of Employment Conditions
of Non-director Employees
The Company does not have any employees.
Accordingly, the disclosures required under paragraph
38 and 39 of Schedule 8 to the Large and Medium-sized
Companies and Groups (Accounts and Reports)
Regulations 2008 are not required.
Directors’
Remuneration Report
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 51
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Company Performance
The Board is responsible for the Company’s investment
strategy and performance, although the management of
the Company’s investment portfolio is delegated to the
Manager through the advisory agreement, as referred to
in the Directors’ Report.
Net asset value Total Return (calculated by reference to
the net asset value and cumulative dividends paid, as
set out in note 13 of these financial statements and
excluding tax reliefs received by shareholders) is the
primary recognised measure of performance in the VCT
industry. This measure is shown on page 12.
The graph above shows a comparison over the last ten
years of the movements in both the Company’s Share
Price Total Return and the Share Price Total Return for
an index of generalist VCTs which are members of the
AIC (based on figures provided by Morningstar). In line
with the index all the relative performance measures
have been rebased to 100 as at December 2011. The
directors consider this to be the most appropriate
published index on which to report on comparative
performance.
This report was approved by the Board and signed on its
behalf on 21 March 2022.
Peter Waller
Chairman
VCT Generalist Share Price Total Return
(Source: Index compiled by Morningstar)*
BSC2 - Share Price Total Return*
* assumes dividends re-invested
100
150
200
250
300
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Percentage movement per ordinary share
52 British Smaller Companies VCT2 plc Annual Report & Accounts
CORPORATE GOVERNANCE
The directors are responsible for
preparing the annual report and the
financial statements in accordance
with international accounting
standards in conformity with the
requirements of the Companies Act
2006 and applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors are required to prepare the financial statements
in accordance with international accounting standards in
conformity with the requirements of the Companies Act
2006. Under Company law the directors must not approve
the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Company and of the profit or loss for the Company for that
period.
In preparing these financial statements, the directors are
required to:
> Select suitable accounting policies and then apply
them consistently;
> Make judgements and accounting estimates that are
reasonable and prudent;
> State whether they have been prepared in
accordance with international accounting standards in
conformity with the requirements of the Companies
Act 2006, subject to any material departures
disclosed and explained in the financial statements;
> Prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business; and
> Prepare a directors’ report, a strategic report and
directors’ remuneration report which comply with the
requirements of the Companies Act 2006.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements
comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other
irregularities. The directors are responsible for ensuring
that the annual report and accounts, taken as a whole, are
fair, balanced, and understandable and provide the
information necessary for shareholders to assess the
performance, business model and strategy.
Website Publication
The directors are responsible for ensuring the annual
report and the financial statements are made available
on a website. Financial statements are published on the
Company’s website www.bscfunds.com in accordance
with legislation in the United Kingdom governing the
preparation and dissemination of financial statements,
which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is
the responsibility of the directors. The directors'
responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Directors’ Responsibilities Pursuant to DTR4
The directors confirm to the best of their knowledge:
> The financial statements have been prepared in
accordance with accounting standards in conformity
with the requirements of the Companies Act 2006
and give a true and fair view of the assets, liabilities,
financial position and profit and loss of the
Company; and
> The annual report includes a fair review of the
development and performance of the business and
the financial position of the Company, together with
a description of the principal risks and uncertainties
that they face.
The names and functions of all the directors are stated
on page 37.
This statement was approved by the Board and signed
on its behalf on 21 March 2022.
Peter Waller
Chairman
Directors’ Responsibilities
Statement
British Smaller Companies VCT2 plc Annual Report & Accounts 53
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Opinion on the financial statements
In our opinion the financial statements:
> give a true and fair view of the state of the
Company’s affairs as at 31 December 2021 and of
its profit for the year then ended;
> have been properly prepared in accordance with
UK adopted international accounting standards; and
> have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements of British
Smaller Companies VCT2 plc (the ‘Company’) for the
year ended 31 December 2021 which comprise the
Statement of Comprehensive Income, the Balance
Sheet, the Statement of Changes in Equity, the
Statement of Cash Flows and the notes to the financial
statements, including a summary of significant
accounting policies. The financial reporting framework
that has been applied in their preparation is applicable
law and UK adopted international accounting standards.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the
audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our
opinion. Our audit opinion is consistent with the
additional report to the audit committee.
Independence
Following the recommendation of the audit committee,
we were appointed by the Board of Directors and
subsequently by the shareholders at the AGM on 10
May 2017 to audit the financial statements for the year
ending 31 December 2016 and subsequent financial
periods. The period of total uninterrupted engagement
including retenders and reappointments is 6 years,
covering the years ending 31 December 2016 to 31
December 2021. We remain independent of the
Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as
applied to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance
with these requirements. The non-audit services
prohibited by that standard were not provided to the
Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded
that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements
is appropriate. Our evaluation of the Directors’
assessment of the Company’s ability to continue to
adopt the going concern basis of accounting included:
> Evaluating the appropriateness of the Directors’
method of assessing the going concern assumption
by reviewing the information used by the Directors
in completing their assessment; and
> Challenging Directors’ assumptions and
judgements made in their base case and stress
tested forecasts including consideration of current
cash levels, future expenses with reference to
historic expenditure and cash ouflows relating to
new investments in order to continue meeting VCT
compliance rules.
Based on the work we have performed, we have not
identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast
significant doubt on the Company’s ability to continue as
a going concern for a period of at least twelve months
from when the financial statements are authorised for
issue.
In relation to the Company’s reporting on how it has
applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to
the Directors’ statement in the financial statements about
whether the Directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the
Directors with respect to going concern are described in
the relevant sections of this report.
Independent
Auditor’s Report
to the members of British Smaller Companies VCT2 plc
INDEPENDENT AUDITOR’S REPORT
54 British Smaller Companies VCT2 plc Annual Report & Accounts
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of unquoted
investments (Note 1 and
Note 7)
We consider the valuation of
unquoted investments to be the
most significant audit area as there
is a high level of estimation
uncertainty involved in determining
the unquoted investment valuations.
There is an inherent risk of
management override arising from
the unquoted investment valuations
being prepared by the Manager,
who is remunerated based on
factors including the net asset value
of the Company.
Our sample for the testing of unquoted investments was stratified according to
risk considering, inter alia, the value of individual investments, the nature of the
investment, the extent of the fair value movement and the subjectivity of the
valuation technique.
Our investments sample comprised those valued using more subjective
techniques (earnings and revenue multiples).
For all investments in our sample we:
> Recalculated the value attributable to the Company, having regard to the
application of enterprise value across the capital structures of the investee
companies;
> Challenged whether the valuation methodology was the most appropriate in
the circumstances under the International Private Equity and Venture Capital
Valuation (“IPEV”) Guidelines. We tested the key assumptions made in the
valuation as described below;
INDEPENDENT AUDITOR’S REPORT
Independent
Auditor’s Report
(continued)
Overview
2021 2020
Key audit matters
Valuation of Unquoted Investments 3 3
Materiality
£1,400,000 (2020: £980,000) based on 2% (2020: 2%)
of value of investments
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of
the Company and its environment, including the
Company’s system of internal control, and assessing the
risks of material misstatement in the financial
statements. We also addressed the risk of management
override of internal controls, including assessing whether
there was evidence of bias by the Directors that may
have represented a risk of material misstatement.
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where
the directors made subjective judgements, for example
in respect of the valuation of investments which have a
high level of estimation uncertainty involved in
determining the unquoted investment valuations.
British Smaller Companies VCT2 plc Annual Report & Accounts 55
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Key audit matter How the scope of our audit addressed the key audit matter
> Challenged and corroborated the inputs to the valuation with reference to
management information of investee companies, market data and our own
understanding, and assessed the impact of the estimation uncertainty
concerning these assumptions and the disclosure of these uncertainties in
the financial statements;
> Reviewed the historical financial statements and any recent management
information available to support assumptions about maintainable revenues
and earnings used in the valuations;
> Considered the revenue or earnings multiples applied by reference to
observable listed company market data; and
> Challenged the consistency and appropriateness of adjustments made to
such market data in establishing the earnings multiple applied in arriving at
the valuations adopted by obtaining independent multiples and performing
sensitivity analysis on the investment valuations.
Where appropriate, we performed a sensitivity analysis by developing our own
point estimate where we considered that alternative input assumptions could
reasonably have been applied and we considered the overall impact of such
sensitivities on the portfolio of investments in determining whether the valuations
as a whole are reasonable and free from bias.
Key observations
Based on the procedures performed we did not identify any indicators which
may suggest that the unquoted investment valuations are inappropriate
considering the level of estimation uncertainty.
56 British Smaller Companies VCT2 plc Annual Report & Accounts
INDEPENDENT AUDITOR’S REPORT
Independent
Auditor’s Report
(continued)
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the
magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable
users that are taken on the basis of the financial
statements.
In order to reduce to an appropriately low level the
probability that any misstatements exceed materiality,
we use a lower materiality level, performance materiality,
to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole and
performance materiality as follows:
Company financial statements
2021 2020
£’000 £’000
Materiality 1,400 980
Basis for determining 2% (2020: 2%) of
materiality investments
Rationale for the As a Venture Capital
benchmark applied Trust, the value of
investments is the key
measure of performance.
Performance materiality 1,000 740
Basis for determining 75% (2020: 75%) of
performance materiality materiality based on our
knowledge and
experience of the client,
history of errors identified
and low level of expected
misstatements.
Lower testing threshold
We determined that for Revenue return before tax, a
misstatement of less than materiality for the financial
statements as a whole, could influence users of the
financial statements as it is a measure of the Company’s
performance of income generated from its investments
after expenses. We have set a lower testing threshold
for those items impacting revenue return of £190,000
(2020: £166,000) which is based on 10% of total
expenditure excluding the incentive fee (2020: 10% of
total expenditure excluding the credit risk fair value
movement).
Reporting threshold
We agreed with the audit committee that we would
report to them all individual audit differences in excess of
£70,000 (2020: £49,000). We also agreed to report
differences below this threshold that, in our view,
warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information.
The other information comprises the information
included in the Annual Report other than the financial
statements and our auditor’s report thereon. Our opinion
on the financial statements does not cover the other
information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of
assurance conclusion thereon. Our responsibility is to
read the other information and, in doing so, consider
whether the other information is materially inconsistent
with the financial statements or our knowledge obtained
in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we
are required to determine whether this gives rise to a
material misstatement in the financial statements
themselves. If, based on the work we have performed,
we conclude that there is a material misstatement of this
other information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors’
statement in relation to going concern, longer-term
viability and that part of the Corporate Governance
Statement relating to the Company’s compliance with
the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of
the Corporate Governance Statement is materially
consistent with the financial statements or our
knowledge obtained during the audit.
British Smaller Companies VCT2 plc Annual Report & Accounts 57
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Going concern and > The Directors’ statement with regards to the appropriateness of
longer-term viability adopting the going concern basis of accounting and any material
uncertainties identified; and
> The Directors’ explanation as to their assessment of the Company’s
prospects, the period this assessment covers and why the period is
appropriate.
Other Code provisions > Directors’ statement on fair, balanced and understandable;
> Board’s confirmation that it has carried out a robust assessment of the
emerging and principal risks;
> The section of the annual report that describes the review of
effectiveness of risk management and internal control systems; and
> The section describing the work of the audit committee.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required
by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report and In our opinion, based on the work undertaken in the course of the audit:
Directors’ report
> The information given in the Strategic report and the Directors’ report
for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
>
The Strategic report and the Directors’ report have been prepared in
accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its
environment obtained in the course of the audit, we have not identified
material misstatements in the strategic report or the Directors’ report.
Directors’ remuneration In our opinion, the part of the Directors’ remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
Matters on which we are required We have nothing to report in respect of the following matters in relation to
to report by exception which the Companies Act 2006 requires us to report to you if, in our opinion:
> Adequate accounting records have not been kept by the Company, or
returns adequate for our audit have not been received from branches
not visited by us; or
> The Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with the
accounting records and returns; or
> Certain disclosures of Directors’ remuneration specified by law are not
made; or
> We have not received all the information and explanations we require
for our audit.
58 British Smaller Companies VCT2 plc Annual Report & Accounts
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement, the Directors are responsible for the
preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary
to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the Directors are
responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting unless the Directors either
intend to liquidate the Company or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free
from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities,
including fraud is detailed below:
We gained an understanding of the legal and regulatory
framework applicable to the Company and the industry
in which it operates from enquiries with management
and from our sector knowledge, and considered the risk
of acts by the Company which were contrary to
applicable laws and regulations, including fraud. These
included but were not limited to compliance with
Companies Act 2006, the FCA listing and DTR rules, the
principles of the AIC Code of Corporate Governance,
industry practice represented by the AIC SORP, UK
adopted international accounting standards, and
qualification as a VCT under UK tax legislation as any
breach of this would lead to the Company losing various
deductions and exemptions from corporation tax.
The engagement partner has assessed and confirmed
that the engagement team collectively had the
appropriate competence and capabilities to identify or
recognize non-compliance with laws and regulations.
We communicated relevant identified laws and
regulations and potential fraud risks to all engagement
team members and remained alert to any indications of
fraud or non-compliance with laws and regulations
throughout the audit.
Our procedures included:
> Agreement of the financial statement disclosures to
underlying supporting documentation;
> Enquiries of management and those charged with
governance to confirm whether they are aware of
any fraud or non-compliance with laws and
regulations;
> Review of minutes of Board and other Committee
meetings throughout the period for instances of
non-compliance with laws and regulations and
fraud;
> Obtaining an understanding of the control
environment in monitoring compliance with laws
and regulations; and
> Obtaining the VCT compliance reports during the
year and as at year end and reviewing their
calculations to check that the Company was
meeting its requirements to retain VCT status
INDEPENDENT AUDITOR’S REPORT
Independent
Auditor’s Report
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 59
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
We assessed the susceptibility of the financial
statements to material misstatement, including fraud and
determined the areas most susceptible to fraud to be
management override of controls and the valuation of
investments. Our procedures include those set out in the
Key Audit Matters section above. We also:
> Recalculated investment management fees in total;
and
> Obtained independent confirmation of bank
balances.
In addressing the risk of management override of
internal controls we tested a sample of journals based
on risk criteria and agreed these journals to supporting
documentation and evaluated whether there was
evidence of bias by the Directors that represented a risk
of material misstatement due to fraud.
Our audit procedures were designed to respond to risks
of material misstatement in the financial statements,
recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are
inherent limitations in the audit procedures performed
and the further removed non-compliance with laws and
regulations is from the events and transactions reflected
in the financial statements, the less likely we are to
become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s
members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the
Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we
have formed.
Vanessa-Jayne Bradley
(Senior Statutory Auditor)
For and on behalf of BDO LLP,
Statutory Auditor
London, UK
21 March 2022
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number
OC305127).
60 British Smaller Companies VCT2 plc Annual Report & Accounts
2021 2020
Revenue Capital Total Revenue Capital Total
Notes £000 £000 £000 £000 £000 £000
Gain on disposal
of investments 7 - 5,342 5,342 - 1,669 1,669
Gains on investments
held at fair value 7 - 20,702 20,702 - 1,615 1,615
Gain arising from the portfolio - 26,044 26,044 - 3,284 3,284
Income 2 661 - 661 2,752 - 2,752
Total income 661 26,044 26,705 2,752 3,284 6,036
Administrative expenses:
Manager’s fee (374) (1,118) (1,492) (301) (903) (1,204)
Incentive fee - (4,407) (4,407) - - -
Other expenses (417) - (417) (581) - (581)
3 (791) (5,525) (6,316) (882) (903) (1,785)
(Loss) profit before taxation (130) 20,519 20,389 1,870 2,381 4,251
Taxation 4 - - - - - -
(Loss) profit for the year (130) 20,519 20,389 1,870 2,381 4,251
Total comprehensive (expense)
income for the year (130) 20,519 20,389 1,870 2,381 4,251
Basic and diluted (loss)
earnings per ordinary share 6 (0.09p) 14.80p 14.71p 1.44p 1.83p 3.27p
The accompanying notes on pages 65 to 90 are an integral part of these financial statements.
The Total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in
accordance with UK adopted international accounting standards. The supplementary Revenue and Capital columns
are prepared under the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies
and Venture Capital Trusts’ (issued in April 2021 – “SORP”) published by the AIC.
Statement of
Comprehensive Income
For the year ended 31 December 2021
FINANCIAL STATEMENTS
British Smaller Companies VCT2 plc Annual Report & Accounts 61
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
2021 2020
Notes £000 £000
ASSETS
Non-current assets at fair value through profit or loss
Financial assets at fair value through profit or loss 7 70,019 49,115
Accrued income and other assets 8 493 444
70,512 49,559
Current assets
Accrued income and other assets 8 217 511
Current asset investments 9 1,988 1,988
Cash and cash equivalents 9 19,201 19,002
21,406 21,501
LIABILITIES
Current liabilities
Trade and other payables 10 (4,543) (131)
Net current assets 16,863 21,370
Net assets 87,375 70,929
Shareholders’ equity
Share capital 11 15,808 14,133
Share premium account 24,122 16,735
Capital redemption reserve 88 88
Other reserves 2 2
Merger reserve 5,525 5,525
Capital reserve 12,818 22,461
Investment holding gains and losses reserve 7 28,009 9,254
Revenue reserve 1,003 2,731
Total shareholders’ equity 87,375 70,929
Net asset value per ordinary share 12 61.5p 55.0p
The accompanying notes on pages 65 to 90 are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board of Directors and were signed on its
behalf on 21 March 2022.
Peter Waller
Chairman
At 31 December 2021
Balance Sheet
62 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
Statement of
Changes in Equity
For the year ended 31 December 2021
Investment
Share holding gains
Share premium Other Capital and losses Revenue Total
capital account reserves* reserve reserve reserve equity
£000 £000 £000 £000 £000 £000 £000
Balance at 31 December 2019 14,041 16,436 5,615 25,223 9,948 1,070 72,333
Revenue return for the year -----1,870 1,870
Expenses charged to capital - - - (903) - - (903)
Investment holding gain on
investments held at fair value ----1,615 - 1,615
Realisation of investments in the year - - - 1,669 - - 1,669
Total comprehensive
income for the year - - - 766 1,615 1,870 4,251
Issue of shares – DRIS 92 319 - - - - 411
Issue costs ** - (20) - - - - (20)
Purchase of own shares - - - (1,508) - - (1,508)
Dividends - - - (4,329) - (209) (4,538)
Total transactions
with owners 92 299 - (5,837) - (209) (5,655)
Realisation of prior year
investment holding gains - - - 2,309 (2,309) - -
Balance at 31 December 2020 14,133 16,735 5,615 22,461 9,254 2,731 70,929
Revenue return for the year -----(130) (130)
Expenses charged to capital - - - (5,525) - - (5,525)
Investment holding gain on
investments held at fair value ----20,702 - 20,702
Realisation of investments
in the year - - - 5,342 - - 5,342
Total comprehensive
(expense) income for the year - - - (183) 20,702 (130) 20,389
Issue of share capital 1,276 5,774 - - - - 7,050
Issue of shares – DRIS 399 1,851 - - - - 2,250
Issue costs ** - (238) - (48) - - (286)
Purchase of own shares - - - (1,942) - - (1,942)
Dividends - - - (9,456) - (1,559) (11,015)
Total transactions
with owners 1,675 7,387 - (11,446) - (1,559) (3,943)
Realisation of prior year
investment holding gains - - - 1,986 (1,947) (39) -
Balance at 31 December 2021 15,808 24,122 5,615 12,818 28,009 1,003 87,375
The accompanying notes on pages 65 to 90 are an integral part of these financial statements.
British Smaller Companies VCT2 plc Annual Report & Accounts 63
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Reserves available for distribution
Under the Companies Act 2006 the capital reserve and the revenue reserve are distributable reserves. The table
below shows amounts that are available for distribution.
Capital Revenue
reserve reserve Total
£000 £000 £000
Distributable reserves as shown on previous page 12,818 1,003 13,821
Less: income not yet distributable - (968) (968)
Reserves available for distribution*** 12,818 35 12,853
* Other reserves include the capital redemption reserve, the merger reserve and the other reserve, which are non-distributable. The
other reserve was created upon the exercise of warrants, the capital redemption reserve was created for the purchase and cancellation
of own shares, and the merger reserve was created on the merger with British Smaller Technologies Company VCT plc.
** Issue costs include both fundraising costs and costs incurred from the Company’s DRIS.
*** Following the circulation of the Annual Report to shareholders.
The merger reserve was created to account for the difference between the nominal and fair value of shares issued as
consideration for the acquisition of the assets and liabilities of British Smaller Technology Companies VCT plc. The
reserve was created after meeting the criteria under section 131 of the Companies Act 1985 and the provisions of the
Companies Act 2006 for merger relief. The merger reserve is a non-distributable reserve.
The capital reserve and revenue reserve are both distributable reserves. The reserves total £13,821,000, representing
a decrease of £11,371,000 during the year. The directors also take into account the level of the investment holding
gains and losses reserve and the future requirements of the Company when determining the level of dividend payments.
Of the potentially distributable reserves of £13,821,000 shown above, £968,000 relates to income not yet distributable.
The Company held a General Meeting on 25 February 2022, at which shareholders approved the cancellation of the
Company’s share premium account, subject to the sanction of the High Court. If approved,total share premium cancelled
(including that arising from the fundraising allotment on 7 January 2022) will be available for distribution from the following
dates:
£000
Once relevant accounts incorporating the share premium cancellation have been filed 4,351
1 January 2023 12,085
1 January 2024 299
1 January 2025 7,387
Share premium account at 31 December 2021 24,122
1 January 2026 20,193
Cancelled share premium not yet distributable 44,315
For the year ended 31 December 2021
64 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
2021 2020
Notes £000 £000
Net cash (outflow) inflow from operating activities (1,419) 938
Cash flows generated from (used in) investing activities
Purchase of financial assets at fair value through profit or loss 7 (6,092) (3,997)
Proceeds from sale of financial assets at fair value through profit or loss 7 11,182 5,772
Deferred consideration 7 471 -
Net cash inflow from investing activities 5,561 1,775
Cash flows from (used in) financing activities
Issue of ordinary shares 7,050 -
Costs of ordinary share issues* (286) (20)
Purchase of own ordinary shares (1,942) (1,508)
Dividends paid 5 (8,765) (4,127)
Net cash outflow from financing activities (3,943) (5,655)
Net increase (decrease) in cash and cash equivalents 199 (2,942)
Cash and cash equivalents at the beginning of the year 19,002 21,944
Cash and cash equivalents at the end of the year 9 19,201 19,002
* Issue costs include both fundraising costs and expenses incurred from the Company’s DRIS
Reconciliation of Profit before Taxation to Net Cash (Outflow) Inflow from
Operating Activities
2021 2020
£000 £000
Profit before taxation 20,389 4,251
Increase (decrease) in trade and other payables 4,412 (35)
(Increase) decrease in accrued income and other assets (117) 65
Gain on disposal of investments (5,342) (1,669)
Gains on investments held at fair value (20,702) (1,615)
Capitalised income (59) (59)
Net cash (outflow) inflow from operating activities (1,419) 938
The accompanying notes on pages 65 to 90 are an integral part of these financial statements.
Statement of
Cash Flows
For the year ended 31 December 2021
British Smaller Companies VCT2 plc Annual Report & Accounts 65
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
1. Principal Accounting Policies
Basis of Preparation
The accounts have been prepared on a going concern basis and in accordance with UK adopted international
accounting standards. The directors’ assessment of going concern is set out in the Director’s Report on page 38.
The financial statements have been prepared under the historical cost basis as modified by the measurement of
investments at fair value through profit or loss.
The accounts have been prepared in compliance with the recommendations 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 (issued in April 2021 – “SORP”) to the extent that they do not conflict
with International Accounting Standards in conformity with the Companies Act 2006.
The financial statements are prepared in accordance with UK adopted international accounting standards (IFRSs)
and interpretations in force at the reporting date. New standards coming into force during the year have not had
a material impact on these financial statements.
The Company has carried out an assessment of accounting standards, amendments and interpretations that have
been issued by the IASB and that are effective for the current reporting period. The Company has determined
that the transitional effects of the standards do not have a material impact.
The financial statements are presented in sterling and all values are rounded to the nearest thousand (£000),
except where stated.
Financial Assets held at Fair Value through Profit or Loss - Investments
Financial assets designated as at fair value through profit or loss (“FVPL”) at inception are those that are managed
and whose performance is evaluated on a fair value basis, in accordance with the documented investment strategy
of the Company. Information about these financial assets is provided internally on a fair value basis to the
Company’s key management. The Company’s investment strategy is to invest cash resources in venture capital
investments as part of the Company’s long-term capital growth strategy. Consequently, all investments are
classified as held at fair value through profit or loss.
All investments are measured at fair value on the whole unit of account basis with gains and losses arising from
changes in fair value being included in the Statement of Comprehensive Income as gains or losses on investments
held at fair value.
Transaction costs on purchases are expensed immediately through profit or loss.
Redemption premiums are designed to protect the value of the Company’s investment. These are accrued daily
on an effective rate basis and included within the capital valuation of the investment (and thus classified under
“Gains on investments held at fair value” in the Statement of Comprehensive Income).
Although the Company holds more than 20 per cent of the equity of certain companies, it is considered that the
investments are held as part of the investment portfolio, and their value to the Company lies in their marketable
value as part of that portfolio. These investments are therefore not accounted for using equity accounting, as
permitted by IAS 28 ‘Investments in associates’ and IFRS 11 ‘Joint arrangements’ which give exemptions from
equity accounting for venture capital organisations.
Under IFRS 10 “Consolidated Financial Statements”, control is presumed to exist when the Company has power
over an investee (whether or not used in practice); exposure or rights; to variable returns from that investee, and
ability to use that power to affect the reporting entities returns from the investees. The Company does not hold
more than 50 per cent of the equity of any of the companies within the portfolio. The Company does not control
any of the companies held as part of the investment portfolio. It is not considered that any of the holdings represent
investments in subsidiary undertakings.
Notes to the
Financial Statements
66 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
1. Principal Accounting Policies (continued)
Valuation of Investments
Unquoted investments are valued in accordance with IFRS 13 “Fair Value Measurement” and using the
International Private Equity and Venture Capital Valuation Guidelines (“the IPEV Guidelines”) updated in December
2018. A detailed explanation of the valuation policies of the Company is included below.
Initial Measurement
The best estimate of the initial fair value of an unquoted investment is the cost of the investment. Unless there are
indications that this is inappropriate, an unquoted investment will be held at this value within the first three months
of investment.
Subsequent Measurement
Based on the IPEV Guidelines we have identified 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.
Unquoted Investments
> Revenue multiples. An appropriate multiple, given the risk profile and revenue growth prospects of the
underlying company, is applied to the revenue of the company. The multiple is adjusted to reflect any risk
associated with lack of marketability and to take account of the differences between the investee company and
the benchmark company or companies used to derive the multiple.
> Earnings multiple. An appropriate multiple, given the risk profile and earnings growth prospects of the
underlying company, is applied to the maintainable earnings of the company. The multiple is adjusted to reflect
any risk associated with lack of marketability and to take account of the differences between the investee
company and the benchmark company or companies used to derive the multiple.
> Net assets. The value of the business is derived by using appropriate measures to value the assets and
liabilities of the investee company.
> Discounted cash flows of the underlying business. The present value of the underlying business is derived
by using reasonable assumptions and estimations of expected future cash flows and the terminal value, and
discounted by applying the appropriate risk-adjusted rate that quantifies the risk inherent in the company.
> Discounted cash flows from the investment. Under this method, the discounted cash flow concept is applied
to the expected cash flows from the investment itself rather than the underlying business as a whole.
> Price of recent investment. This may represent the most appropriate basis where a significant amount of
new investment has been made by an independent third party. This is adjusted, if necessary, for factors relevant
to the background of the specific investment such as preference rights and will be benchmarked against other
valuation techniques. In line with the IPEV Guidelines the price of recent investment will usually only be used
for the initial period following the round and after this an alternative basis will be found.
Due to the significant subjectivity involved, discounted cash flows are only likely to be reliable as the main basis
of estimating fair value in limited situations. Their main use is to support valuations derived using other
methodologies and for assessing reductions in fair value.
One of the valuation methods described above is used to derive the gross attributable enterprise value of the
company. This value is then apportioned appropriately to reflect the respective debt and equity instruments in the
event of a sale at that level at the reporting date.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 67
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Quoted Investments
Quoted investments are valued at active market bid price. An active market is defined as one where transactions
take place regularly with sufficient volume and frequency to determine price on an ongoing basis.
Income
Dividends and interest are received from financial assets measured at fair value through profit or loss and are
recognised on the same basis in the Statement of Comprehensive Income. This includes interest and preference
dividends rolled up and/or payable at redemption. Interest income is also received on cash, cash equivalents and
cash deposits. Dividend income on unquoted equity shares is recognised at the time when the right to the income
is established.
Expenses
Expenses are accounted for on an accruals basis. Expenses are charged through the Revenue column of the
Statement of Comprehensive Income, except for the Manager’s fee and incentive fees. Of the Manager’s fees,
75 per cent are allocated to the Capital column of the Statement of Comprehensive Income, to the extent that
these relate to an enhancement in the value of the investments and in line with the Board’s expectation that over
the long term 75 per cent of the Company’s investment returns will be in the form of capital gains.
Tax relief is allocated to the Capital Reserve using a marginal basis.
Incentive Fee
The incentive fee is accounted for on an accruals basis. As further detailed in note 3, the incentive fee is calculated
as 20 per cent of the amount by which the cumulative dividends per ordinary share paid as at the last business
day in December in any year, plus the average of the Company’s middle market price per ordinary share on the
five dealing days prior to that day, exceeds the Hurdle (as defined on page 71), multiplied by the number of ordinary
shares issued and the ordinary shares under option. At the end of each reporting period, an accrual is recognised
based upon the cumulative dividends per ordinary share paid to the reporting date, plus the average of the
Company’s middle market price per ordinary share on the five dealing days prior to the reporting date. The incentive
fee is charged wholly through the Capital column.
Cash and Cash Equivalents
Cash and cash equivalents include cash at hand as this meets the definition in IAS 7 ‘Statement of cash flows’ of
a short term highly liquid investment that is readily convertible into known amounts of cash and subject to
insignificant risk of change in value.
Balances held in fixed term deposits are not classified as cash and cash equivalents, unless they are due for
maturity within three months, as they do not meet the definition in IAS 7 ‘Statement of cash flows’ of short-term
highly liquid investments.
Cash flows classified as “operating activities” for the purposes of the Statement of Cash Flows are those arising
from the Revenue column of the Income Statement, together with the items in the Capital column that do not fall
to be easily classified under the headings for “Investing Activities” given by IAS 7 ‘Statement of cash flows’, being
Manager’s fees and incentive fees payable to the Manager. The capital cash flows relating to acquisition and
disposal of investments are presented under “investing activities” in the Statement of Cash Flows in line with both
the requirements of IAS 7 and the positioning given to these headings by general practice in the industry.
68 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
1. Principal Accounting Policies (continued)
Share Capital and Reserves
Share Capital
This reserve contains the nominal value of all shares allotted under offers for subscription.
Share Premium Account
This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted
under offers for subscription, to the extent that it has not been cancelled.
Capital Redemption Reserve
The nominal value of shares bought back and cancelled is held in this reserve, so that the Company’s capital is
maintained.
Capital Reserve
The following are included within this reserve:
> Gains and losses on realisation of investments;
> Realised losses upon permanent diminution in value of investments;
> 75 per cent of the Manager’s fee expense, together with the related taxation effect to this reserve in accordance
with the policy on expenses in note 1 of the financial statements;
> Incentive fee payable to the Manager;
> Capital dividends paid to shareholders;
> Purchase and holding of the Company’s own shares; and
> Credits arising from the cancellation of any share premium account.
Investment Holding Gains and Losses Reserve
Increases and decreases in the valuation of investments held at the year-end are accounted for in this reserve,
except to the extent that the diminution is deemed permanent.
Revenue Reserve
This reserve includes all income from investments along with any costs associated with the running of the
Company – less 75 per cent of the Manager’s fee expense as detailed in the Capital Reserve above.
Taxation
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, no provision for taxation is required in respect of any
realised or unrealised appreciation of the Company’s investments which arises. Deferred tax is recognised on all
temporary differences that have originated, but not reversed, by the balance sheet date.
Deferred tax assets are only recognised to the extent that they are regarded as recoverable. Deferred tax is
calculated at the tax rates that are expected to apply when the asset is realised. Deferred tax assets and liabilities
are not discounted.
Dividends Payable
Dividends payable are recognised only when an obligation exists. Interim and special dividends are recognised
when paid and final dividends are recognised when approved by shareholders in general meetings.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 69
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Segmental Reporting
In accordance with IFRS 8 ‘Operating segments’ and the criteria for aggregating reportable segments, segmental
reporting has been determined by the directors based upon the reports reviewed by the Board. The directors are
of the opinion that the Company has engaged in a single operating segment - investing in equity and debt securities
within the United Kingdom - and therefore no reportable segmental analysis is provided.
Critical Accounting Estimates and Judgements
The preparation of financial statements in conformity with generally accepted accounting practice requires the
use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Although
these estimates are based on management’s best knowledge of the amount, event or actions, actual results may
ultimately differ from those estimates. The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year are those used
to determine the fair value of investments at fair value through profit or loss, as disclosed in note 7 to the financial
statements.
The fair value of investments at fair value through profit or loss is determined by using valuation techniques. As
explained above, the Board uses its judgement to select from a variety of methods and makes assumptions that
are mainly based on market conditions at each balance sheet date. The Board does not consider that there is any
particular impact of climate change that would materially affect the estimate of fair value.
2. Income
2021 2020
£000 £000
Dividends from unquoted companies* 328 2,237
Interest on loans to unquoted companies 273 391
Income from investments held at fair value through profit or loss 601 2,628
Interest on bank deposits 60 124
661 2,752
* 2020 includes an ordinary dividend of £1.93 million received from ACC Aviation
70 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
3. Administrative Expenses
2021 2020
£000 £000
Manager's fee 1,492 1,204
Administration fee 70 69
1,562 1,273
Incentive fee 4,407 -
Other expenses:
Directors’ remuneration 96 105
General expenses 63 71
Listing and registrar fees 55 56
Auditor's remuneration - audit fees (excluding irrecoverable VAT) 41 35
Printing 34 33
Trail commission 33 60
Irrecoverable VAT 25 30
6,316 1,663
Fair value movement related to credit risk - 122
6,316 1,785
Ongoing charges figure 2.16% 2.45%
Directors’ remuneration comprises only short term benefits including social security contributions of £8,000 (2020:
£9,000).
The directors are the Company’s only key management personnel.
No fees are payable to the auditor in respect of other services (2020: £nil), apart from costs of £12,000 (2020:
£nil) for audit-related assurance services which were charged to the share premium account.
YFM Private Equity Limited has acted as Manager and performed administrative and secretarial duties for the
Company under an agreement dated 28 November 2000, superseded by an agreement dated 31 October 2005
and as varied by agreements dated 8 December 2010, 26 October 2011, 16 November 2012, 17 October 2014,
7 August 2015 and 13 November 2019 (the “IA”). The agreement may be terminated by not less than twelve
months’ notice given by either party at any time. Under an Investment Agreement dated 13 November 2019, YFM
Private Equity Limited was appointed as the Company’s Alternative Investment Fund Manager. As a result, the
Company was de-registered by the Financial Conduct Authority as a Small Registered Alternative Fund Manager
on 24 March 2020 and responsibility for the custody of the Company’s investments passed to YFM Private Equity
Limited on that date.
The key features of the agreement are:
> YFM Private Equity Limited receives a Manager’s fee, payable quarterly in advance, calculated at half-yearly
intervals as at 30 June and 31 December. The fee is allocated between capital and revenue as described in
note 1;
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 71
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> The annual Manager’s fee payable to the Manager is 1.0 per cent on all surplus cash, defined as all cash
above £10 million, unless the Hurdle has been met triggering an incentive payment in which case the amount
determined to be surplus will be the excess over £5 million. The annual fee on all other assets is 2.0 per
cent of net assets per annum. Based on the Company’s net assets at 31 December 2021 of £87,375,000,
cash of £21,189,000 at that date, and the incentive payment for the year ended 31 December 2021 being
made prior to 30 June 2022 this equates to approximately £1,611,000 per annum;
> YFM Private Equity Limited shall bear the annual operating costs of the Company (including the Manager’s
fee set out above but excluding any payment of the performance incentive fee, details of which are set out
below and excluding VAT and trail commissions) to the extent that those costs exceed 2.9 per cent of the
net asset value of the Company; and
> Under the IA YFM Private Equity Limited also provides administrative and secretarial services to the
Company for a fee of £46,000 per annum plus annual adjustments to reflect movements in the Retail Prices
Index. This fee is charged fully to revenue, and totalled £70,000 for the year ended 31 December 2021
(2020: £69,000).
When the Company makes investments into its unquoted portfolio, the Manager charges that investee an advisory
fee. With effect from 1 October 2013, if the average of relevant fees exceeds 3.0 per cent of the total invested into
new portfolio companies and 2.0 per cent into follow-on investments over the Company’s financial year, this excess
will be rebated to the Company. As at 31 December 2021, the Company was due a rebate from the Manager of
£nil (2020: £nil).
Monitoring and directors’ fees the Manager receives from the investee companies are limited to a maximum of
£40,000 (excluding VAT) per annum per company.
The total remuneration payable to YFM Private Equity Limited under the IA in the year was £1,562,000 (2020:
£1,273,000).
Under the IA, YFM Private Equity Limited is entitled to receive fees from investee companies in respect of the
provision of non-executive directors and other advisory services. YFM Private Equity Limited is responsible for
paying the due diligence and other costs incurred in connection with proposed investments which for whatever
reason do not proceed to completion. In the year ended 31 December 2021 the fees receivable by YFM Private
Equity Limited from investee companies which were attributable to advisory and directors’ and monitoring fees
amounted to £1,235,000 (2020: £1,009,000) of which £113,000 (2020: £93,000) was borne by the Company.
Under the Subscription Rights Agreement dated 23 November 2001 between the Company, YFM Private Equity
Limited and Chord Capital Limited (“Chord” formerly Generics Asset Management Limited), as amended by an
agreement between those parties dated 31 October 2005, YFM Private Equity Limited and Chord have a
performance-related incentive, structured so as to entitle them to an amount equivalent to 20 per cent of the
amount by which the cumulative dividends per ordinary share paid as at the last business day in December in
any year, plus the average of the middle market price per ordinary share on the five dealing days prior to that day,
exceeds 120 pence per ordinary share, multiplied by the number of ordinary shares issued and the ordinary shares
under option (if any) (the “Hurdle”). Under the terms of the Subscription Rights Agreement, once the Hurdle has
been exceeded it is reset at that value going forward, which becomes the new Hurdle. Any subsequent exercise
of these rights will only occur once the new Hurdle has been exceeded. The subscription rights are exercisable in
the ratio 95:5 between the Manager and Chord Capital Limited.
By a Deed of Assignment dated 19 December 2003 (together with a supplemental agreement dated 5 October
2005), the benefit of the YFM Private Equity Limited subscription right was assigned to YFM Private Equity Limited
Carried Interest Trust (the “Trust”), an employee benefit trust formed for the benefit of certain employees of YFM
Private Equity Limited and associated companies. Pursuant to a deed of variation dated 16 November 2012
between the Company, the trustees of the Trust and Chord, the Subscription Rights Agreement was varied so
that the subscription rights will be exercisable in the ratio of 95:5 between the trustees of the Trust and Chord.
Pursuant to a deed of variation dated 5 August 2014 the Subscription Rights Agreement was varied so that the
recipient was changed from the Trust to YFM Private Equity Limited. Pursuant to a deed of variation dated 13
November 2019 the Subscription Rights Agreement was varied so that the recipients can elect to receive the
incentive in the form of shares or cash.
72 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
3. Administrative Expenses (continued)
As at 31 December 2021 the total of cumulative cash dividends paid and mid-market price was 135.5 pence per
ordinary share. Consequently the Hurdle was exceeded and a performance related incentive of £4,407,000 is
payable. The Hurdle for the year ending 31 December 2022 is reset at 135.5 pence per ordinary share.
If the IA is terminated the beneficiaries of the Incentive Agreement will continue to be entitled to the Incentive
Payment. The Incentive Payment will be modified so as to entitle the recipients to an Incentive Payment that is
fair, having regard to all the circumstances.
Under the terms of the offer launched with British Smaller Companies VCT plc on 2 February 2021, YFM Private
Equity Limited was entitled to 2.5 per cent of gross subscriptions, less the cost of re-investment of intermediary
commission. The net amount to be paid to YFM Private Equity Limited under this offer amounted to £176,000.
Under the terms of the offer launched with British Smaller Companies VCT plc on 22 September 2021, YFM
Private Equity Limited was entitled to 3.0 per cent of gross subscriptions, (3.5 per cent for Applications received
from Applicants who did not invest their money through a financial intermediary advisor and invested directly into
the Company) less the cost of re-investment of intermediary commission. The net amount to be paid to YFM
Private Equity Limited under this offer amounted to £744,000.
The details of directors’ remuneration are set out in the Directors’ Remuneration Report on page 50 under the
heading “Directors’ Remuneration for the year ended 31 December 2021 (audited)”.
4. Taxation
2021 2020
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
(Loss) profit before taxation (130) 20,519 20,389 1,870 2,381 4,251
(Loss) profit before taxation
multiplied by standard rate
of corporation tax in UK
of 19% (2020 :19%) (25) 3,899 3,874 355 453 808
Effect of:
UK dividends received (62) - (62) (412) - (412)
Non-taxable profits on investments - (4,948) (4,948) - (624) (624)
Deferred tax not recognised 87 1,049 1,136 57 171 228
Tax charge ------
The Company has no provided or unprovided deferred tax liability in either year.
Deferred tax assets of £3,072,000 (2020: £1,198,000) calculated at 25% (2020: 19%) in respect of unrelieved
management expenses (£12.29 million as at 31 December 2021 and £6.31 million as at 31 December 2020) have
not been recognised as the directors do not currently believe that it is probable that sufficient taxable profits will
be available against which assets can be recovered.
Due to the Company’s status as a venture capital trust and the continued intention to meet with the conditions
required to comply with Section 274 of the Income Tax Act 2007, the Company has not provided for deferred tax
on any capital gains or losses arising on the revaluation or realisation of investments.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 73
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
5. Dividends
Amounts recognised as distributions to equity holders in the period to 31 December:
2021 2020
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Interim dividend for the year ended
31 December 2021 of 1.5p
(2020: 2.0p) per ordinary share - 1,934 1,934 189 2,409 2,598
Second interim dividend for the
year ended 31 December 2021 of 1.5p
(2020: 1.5p per ordinary share) 1,559 544 2,103 20 1,920 1,940
Third interim dividend for the
year ended 31 December 2021
of 5.0p per ordinary share - 6,978 6,978 ---
1,559 9,456 11,015 209 4,329 4,538
Shares allotted under DRIS (2,250) (411)
Dividends paid in Statement
of Cash Flows 8,765 4,127
The first interim dividend of 1.5 pence per ordinary share was paid on 5 March 2021 to shareholders on the register
as at 5 February 2021.
The second interim dividend of 1.5 pence per ordinary share was paid on 25 October 2021 to shareholders on
the register as at 24 September 2021.
The third interim dividend of 5.0 pence per ordinary share was paid on 16 November 2021 to shareholders on the
register as at 15 October 2021.
An interim dividend of 1.5 pence per ordinary share in respect of the year ending 31 December 2022, amounting
to approximately £2,700,000, will be paid on 6 May 2022. This dividend was not recognised in the year ended 31
December 2021 as the obligation did not exist at the balance sheet date.
6. Basic and Diluted Earnings per Ordinary Share
The basic and diluted earnings per ordinary share is based on the profit after tax attributable to shareholders of
£20,389,000 (2020: £4,251,000) and 138,592,343 (2020: 129,987,842) ordinary shares being the weighted
average number of ordinary shares in issue during the year.
The basic and diluted revenue (loss) earnings per ordinary share is based on the revenue (loss) profit for the year
attributable to shareholders of £130,000 (2020: profit of £1,870,000) and 138,592,343 (2020: 129,987,842) ordinary
shares being the weighted average number of ordinary shares in issue during the year.
The basic and diluted capital earnings per ordinary share is based on the capital profit for the year attributable to
shareholders of £20,519,000 (2020: £2,381,000) and 138,592,343 (2020: 129,987,842) ordinary shares being
the weighted average number of ordinary shares in issue during the year.
During the year the Company allotted 3,995,494 new ordinary shares in respect of its DRIS and 12,756,951 new
ordinary shares from the fundraising.
74 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
6. Basic and Diluted Earnings per Ordinary Share (continued)
The Company has also repurchased 3,553,337 of its own shares in the year, and these shares are held in the
capital reserve. The total of 15,929,774 treasury shares has been excluded in calculating the weighted average
number of ordinary shares for 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.
The Company has no potentially dilutive shares and consequently, basic and diluted earnings per ordinary share
are equivalent in both the year ended 31 December 2021 and 31 December 2020.
7. Financial Assets at Fair Value through Profit or Loss - Investments
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 of 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 and other
fixed income securities classified as held at fair value through profit or loss. The Company held no such instruments
in the current or prior year.
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 revenue or earnings multiples. If
one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
All of the Company’s investments fall into this category at 31 December 2021.
Each investment is reviewed at least quarterly to ensure that it has not ceased to meet the criteria of the level in
which it is included at the beginning of each accounting period. The change in fair value for the current and previous
year is recognised through profit or loss.
There have been no transfers between these classifications in either period.
All items held at fair value through profit or loss were designated as such upon initial recognition.
Valuation of Investments
Full details of the methods used by the Company are set out in note 1 of these financial statements. Where
investments are held in quoted stocks, fair value is set at the market bid price.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 75
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Movements in investments at fair value through profit or loss during the year to 31 December 2021 are summarised
as follows:
IFRS 13 measurement classification Level 3
Unquoted
Investments
£000
Opening cost 39,891
Opening investment holding gain 9,224
Opening fair value at 1 January 2021 49,115
Additions at cost 6,092
Capitalised income 59
Disposal proceeds (11,186)
Net profit on disposal* 5,237
Change in fair value 20,539
Foreign exchange gain 163
Closing fair value at 31 December 2021 70,019
Closing cost 42,037
Closing investment holding gain** 27,982
Closing fair value at 31 December 2021 70,019
* The net profit on disposal in the table above is £5,237,000 whereas that shown in the Statement of
Comprehensive income is £5,342,000. The difference comprises deferred proceeds of £105,000 in respect of
assets which have been disposed of in prior years and are not included in the portfolio at 1 January 2021 (see
page 78).
** Following the merger between the Company and British Smaller Technologies Company VCT plc a total of
£975,000 of negative goodwill was recognised in the investment holding gains and losses reserve in respect of
the investments acquired. The relevant amount per investment is realised at the point of disposal to the capital
reserve. At 31 December 2021 a total of £27,000 (2020: £30,000) was held on investments yet to be realised
in the investment holdings gains and losses reserve.
There were no individual reductions in fair value during the year that exceeded 5 per cent of the total assets of the
Company (2020: £nil).
Level 3 valuations include assumptions based on non-observable market 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 revenue or
earnings multiples. IFRS 13 requires an entity to disclose quantitative information about the significant
unobservable inputs used. Of the Company’s investments, 78 per cent are held on a revenue multiple basis and
19 per cent on an earnings multiple basis, which have significant judgement applied to the valuation inputs. The
table on page 76 sets out the range of Revenue Multiple (RM), Earnings Multiple (EM) and discounts applied in
arriving at investments valued on these bases. The remaining 3 per cent are valued based on net asset value
reviewed for change in fair value.
76 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
7. Financial Assets at Fair Value through Profit or Loss - Investments (continued)
New Data & Retail & Software
Revenue Multiple inputs Media Analytics Brands Applications
2021 Revenue Multiple Range 1.80-8.70 4.10-26.90 1.27 1.13-8.70
Revenue Multiple
Weighted Average 6.96 21.68 1.27 8.07
2020 Revenue Multiple Range 5.4 6.50-15.30 1.47 3.50-6.50
Revenue Multiple
Weighted Average 5.4 13.78 1.47 5.40
2021 Combined RM and/or
Marketability Discount
Range 60%-68% 19%-72% 44% 52%-76%
Combined RM and/or
Marketability Discount
Weighted Average 64% 28% 44% 63%
2020 Combined RM and/or
Marketability Discount
Range 52%-60% 20%-72% 68% 60%-72%
Combined RM and/or
Marketability Discount
Weighted Average 56% 28% 68% 67%
New Data & Business Retail & Software Advanced
Earnings Multiple inputs Media Analytics Services Brands Applications Manufacturing
2021 Earnings Multiple Range 10.16-15.15 13.66 6.90-15.15 15.00 10.76 11.73
Earnings Multiple
Weighted Average 15.15 13.66 11.94 15.00 10.76 11.73
2020 EM Multiple Range 32.54 32.54-45.86 32.54 13.80 13.76 32.51
EM Multiple
Weighted Average 32.54 39.10 32.54 13.80 13.76 32.51
2021 Combined EM and/or
Marketability Discount
Range 36%-64% 60% 20%-60% 24% 40% 60%
Combined EM and/or
Marketability Discount
Weighted Average 64% 60% 44% 24% 40% 60%
2020 Combined EM and/or
Marketability Discount
Range 76% 60%-76% 72%-76% 76% 20% 76%
Combined EM and/or
Marketability Discount
Weighted Average 76% 68% 76% 76% 20% 76%
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 77
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
The standard also 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 the fair value
measurement. Each unquoted portfolio company has been reviewed in order to identify the sensitivity of the
valuation methodology to using alternative assumptions. Where discounts have been applied (for example to
revenue/earnings levels or multiple ratios) alternatives have been considered which still fall within the IPEV
Guidelines (see page 66). For each unquoted investment, two scenarios have been modelled: more prudent
assumptions (downside case) and more optimistic assumptions (upside case). Applying the downside alternative
the value of the unquoted investments would be £3.6 million or 5.1 per cent lower. Using the upside alternative
the value would be increased by £4.0 million or 5.7 per cent.
Movements in investments at fair value through profit or loss during the previous year to 31 December 2020 are
summarised as follows:
IFRS 13 measurement classification Level 3
Unquoted
Investments
£000
Opening cost 37,995
Opening investment holding gain 9,918
Opening fair value at 1 January 2020 47,913
Additions at cost 3,997
Capitalised income 59
Disposal proceeds (6,138)
Net profit on disposal 1,669
Change in fair value 1,801
Foreign exchange loss (186)
Closing fair value at 31 December 2020 49,115
Closing cost 39,891
Closing investment holding gain 9,224
Closing fair value at 31 December 2020 49,115
78 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
7. Financial Assets at Fair Value through Profit or Loss - Investments (continued)
The following disposals took place in the year:
Opening
carrying
Net proceeds value as at Profit (loss)
from sale Cost 1 January 2021 on disposal
£000 £000 £000 £000
Unquoted investments:
Matillion Limited 5,946 321 2,539 3,407
Deep-Secure Ltd 3,279 500 1,966 1,313
KeTech Enterprises Limited 1,275 1,490 1,292 (17)
Tissuemed Limited 599 48 65 534
Ncam Technologies Limited 87 87 87 -
Macro Art Holdings Limited - 159 - -
Friska Limited - 1,400 - -
Total from unquoted investments 11,186 4,005 5,949 5,237
Deferred proceeds
Business Collaborator Limited 300 - 300 -
Bagel Nash Group Limited 100 - 66 34
Ness (Holdings) Limited 71 - - 71
Deferred proceeds received 471 - 366 105
Total proceeds received* 11,657 4,005 6,315 5,342
* The total from disposals in the year in the table above is £11,657,000 whereas that shown in the Statement of
Cash Flows is £11,653,000. The difference comprises proceeds of £4,000 which were received after the year
end.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 79
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
The following disposals took place in the year to 31 December 2020:
Opening
carrying
Net proceeds value as at Profit (loss)
from sale Cost 1 January 2020 on disposal
£000 £000 £000 £000
Unquoted investments:
Business Collaborator Limited 5,390 1,340 3,458 1,932
RMS Group Holdings Limited 562 70 611 (49)
Springboard Research Holdings Limited 120 120 120 -
Bagel Nash Group Limited 66 630 280 (214)
Total from unquoted investments 6,138 2,160 4,469 1,669
Significant Interests
YFM Private Equity Limited, the Company’s Manager, also acts as manager to certain other funds that have
invested in some of the companies within the current portfolio of the Company. Details of these investments are
summarised in the following tables.
At 31 December 2021 the Company held a significant holding of at least 20 per cent of the issued ordinary share
capital, either individually or alongside commonly managed funds, in the following companies:
Percentage
Percentage of class held
No of shares of class held by commonly
held by the by the managed
Company Principal activity Company Company* funds*
ACC Aviation Group Limited Business Services 146,850 19% 69%
Arcus Global Limited Software Applications 304,457 16% 37%
Biz2Mobile Limited Data & Analytics 3,861,591 10% 26%
DisplayPlan Holdings Limited New Media 1,260 12% 34%
EL Support Services Limited** Investment Company 3,500 50% 100%
Elucidat Ltd Software Applications 2,301 8% 20%
Force24 Ltd Software Applications 18,582 11% 34%
Immunobiology Limited** Lifesciences 62,485,280 27% 27%
Intelligent Office UK
(IO Outsourcing Limited
t/a Intelligent Office) Business Services 106,609 18% 44%
KeTech Enterprises Limited Data & Analytics 128,333 16% 47%
Macro Art Holdings Limited New Media 100,000 13% 32%
NB Technology Services Limited** Investment Company 3,500 50% 100%
Ncam Technologies Limited New Media 1,186,915 15% 51%
OC Engineering Services Limited** Investment Company 3,500 50% 100%
Outpost VFX Limited New Media 2,389,486 8% 24%
80 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
7. Financial Assets at Fair Value through Profit or Loss - Investments (continued)
Percentage
Percentage of class held
No of shares of class held by commonly
held by the by the managed
Company Principal activity Company Company* funds*
Panintelligence (via Paninsight Limited) Data & Analytics 22,712 10% 35%
Seven Technologies Holdings Limited Advanced Manufacturing 613,515 14% 60%
SH Healthcare Services Limited** Investment Company 3,500 50% 100%
SharpCloud Software Limited Data & Analytics 26,340 13% 40%
Sipsynergy (via Hosted
Network Services Limited) Software Applications 6,093,201 20% 62%
SP Manufacturing Services Limited** Investment Company 3,500 50% 100%
Springboard Research Holdings Limited Data & Analytics 171,892 13% 32%
Tonkotsu Limited Retail & Brands 33,662 12% 38%
Traveltek Group Holdings Limited Software Applications 36,190 15% 47%
Unbiased EC1 Limited Software Applications 774,096 11% 30%
Vuealta Group Limited Software Applications 2,207 7% 20%
Vypr Validation Technologies Limited Data & Analytics 7,655 9% 22%
Wakefield Acoustics
(via Malvar Engineering Limited) Advanced Manufacturing 49,600 15% 37%
Wooshii Limited New Media 972,207 13% 38%
* Fully diluted holding.
** The registered office of these significant holdings is given on the inside back cover.
The amounts shown below are the net cost of investments as at 31 December 2021 and exclude those companies
which are in receivership or liquidation.
British Smaller British Smaller Other commonly
Companies Companies managed
VCT2 plc VCT plc funds Total
£000 £000 £000 £000
ACC Aviation Group Limited 145 220 185 550
Arcus Global Limited 2,050 3,075 - 5,125
Arraco Global Markets Limited 1,620 2,430 - 4,050
Biz2Mobile Limited 1,265 1,898 - 3,163
DisplayPlan Holdings Limited 70 130 - 200
e2E Engineering Limited 600 900 - 1,500
Eikon Holdco Limited 500 750 250 1,500
EL Support Services Limited 500 500 - 1,000
Elucidat Ltd 1,800 2,700 - 4,500
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 81
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
British Smaller British Smaller Other commonly
Companies Companies managed
VCT2 plc VCT plc funds Total
£000 £000 £000 £000
Force24 Ltd 1,600 2,400 800 4,800
Frescobol Carioca Ltd 1,200 1,800 - 3,000
Intamac Systems Limited 905 302 - 1,207
Intelligent Office UK (IO Outsourcing Limited t/a Intelligent Office) 1,956 2,934 - 4,890
KeTech Enterprises Limited 10 10 10 30
Macro Art Holdings Limited 321 481 - 802
Matillion Limited 1,456 1,778 549 3,783
NB Technology Services Limited 500 500 - 1,000
Ncam Technologies Limited 1,675 2,512 1,577 5,764
OC Engineering Services Limited 500 500 - 1,000
Outpost VFX Limited 1,000 1,500 500 3,000
Panintelligence (via Paninsight Limited) 1,000 1,500 1,000 3,500
Seven Technologies Holdings Limited 1,221 1,677 6,046 8,944
SH Healthcare Services Limited 500 500 - 1,000
SharpCloud Software Limited 2,271 3,407 1,322 7,000
SP Manufacturing Services Limited 500 500 - 1,000
Springboard Research Holdings Limited 1,881 2,822 - 4,703
Sipsynergy (via Hosted Network Services Ltd) 1,636 2,163 1,201 5,000
TeraView Limited 377 377 - 754
Tonkotsu Limited 1,592 2,388 995 4,975
Traveltek Group Holdings Limited 1,163 1,715 3,577 6,455
Unbiased EC1 Limited 1,964 2,946 640 5,550
Vuealta Group Limited 1,399 2,099 428 3,926
Vypr Validation Technologies Limited 1,000 1,500 - 2,500
Wakefield Acoustics (via Malvar Engineering Limited) 720 1,080 - 1,800
Wooshii Limited 2,440 3,660 591 6,691
82 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
8. Accrued income and other assets
2021 2020
£000 £000
Non-current assets:
Accrued income on financial assets 493 444
Current assets:
Accrued income on financial assets 107 479
Accrued income on cash, cash equivalents and cash deposits 3 3
Prepayments and accrued income 107 29
217 511
Non-current assets relates to income receivable on exit from the relevant investee company where this is expected
to be more than one year from the balance sheet date.
The carrying amounts of the Company’s accrued income are denominated in sterling.
9. Cash and Cash Equivalents
2021 2020
£000 £000
Cash at bank 19,201 19,002
Cash and Cash Equivalents 19,201 19,002
At 31 December 2021 a further £1.99 million (2020: £1.99 million) was also held in fixed term deposit accounts which
were due to mature in April 2022. In accordance with the definition of cash and cash equivalents the amounts in
both the current and prior year are shown separately as current asset investments on the face of the balance sheet.
10. Trade and Other Payables
2021 2020
£000 £000
Amounts payable within one year:
Incentive fee 4,407 -
Accrued expenses 136 131
4,543 131
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 83
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11. Called-up Share Capital
2021 2020
Allotted, Allotted,
called-up and called-up and
fully paid fully paid
£000 £000
Ordinary shares of 10 pence
Issued 158,084,973 (2020: 141,332,528) including 15,929,774 shares
held in treasury (2020: 12,376,437) 15,808 14,133
The movement in the year was as follows:
Share
Price Number Capital
pence Date of shares £000
Total as at 1 January 2021 141,332,528 14,133
Issue of shares DRIS 53.5 5 Mar 2021 742,805 74
Issue of shares Fundraising 54.872-54.943 11 Mar 2021 12,756,951 1,276
Issue of shares DRIS 57.0 25 Oct 2021 760,733 76
Issue of shares DRIS 57.0 16 Nov 2021 2,491,956 249
As at 31 December 2021 (including treasury shares) 158,084,973 15,808
As at 31 December 2021 (excluding treasury shares) 142,155,199
The movement in the previous year to 31 December 2020 was as follows:
Share
Price Number Capital
pence Date of shares £000
Total as at 1 January 2020 140,409,638 14,041
Issue of shares DRIS 44.56 21 Sep 2020 922,890 92
As at 31 December 2020 (including treasury shares) 141,332,528 14,133
As at 31 December 2020 (excluding treasury shares) 128,956,091
During the year the Company purchased 3,553,337 (2020: 3,067,345) of its own shares and these shares are
held on the balance sheet in the Capital Reserve. Full details of the share purchases are set out in the Directors’
Report under the heading ‘Buy-Back and Issue of Shares’. The treasury shares have been included in calculating
the number of ordinary shares in issue, and excluded in calculating the number of ordinary shares with voting
rights in issue, at 31 December 2021 and 31 December 2020.
84 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
12. 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 £87,375,000 (2020:
£70,929,000) and 142,155,199 (2020: 128,956,091) ordinary shares in issue at the year end.
The treasury shares have been excluded in calculating the number of ordinary shares in issue at 31 December
2021.
The Company has no potentially dilutive shares and consequently, basic and diluted net asset values per ordinary
share are equivalent in both the years ended 31 December 2021 and 31 December 2020.
13. Total Return per Ordinary Share
The Total Return per ordinary share is calculated on cumulative dividends paid of 78.0 pence per ordinary share
(2020: 70.0 pence per ordinary share) plus the net asset value as calculated per note 12.
14. Financial Commitments
There are no financial commitments at 31 December 2021 or 31 December 2020.
15. Events after the Balance Sheet Date
The Company announced a new share offer on 22 September 2021, alongside British Smaller Companies VCT
plc, with the intention of raising up to £40 million, in aggregate with an over-allotment facility of £20 million, in
aggregate. This was fully subscribed and closed on 12 November 2021. The related allotment of 40,224,521
ordinary shares took place post year-end, on 7 January 2022, following which the Company received net proceeds
of £24.2 million.
16. Financial Instruments
The Company has no derivative financial instruments and has no financial asset or liability for which hedge
accounting has been used in either year. The Company classifies its financial assets as either fair value through
profit or loss or at amortised cost, and its financial liabilities, primarily accrued expenses, at amortised cost.
It is the directors’ opinion that the carrying value of financial assets and liabilities approximates their fair value.
Therefore, the directors consider all assets and liabilities to be carried at a valuation which equates to fair value.
Investments are made in a combination of equity, fixed rate and variable rate financial instruments so as to comply
with VCT legislation and provide potential future capital growth. Surplus funds are held in bank deposits until
suitable qualifying investment opportunities arise.
The Company has reviewed all contracts for embedded derivatives that are required to be separately accounted
for if they do not meet certain criteria set out in the standard. No embedded derivatives have been identified by
the Company.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 85
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The accounting policies for financial instruments have been applied to the items below:
Assets as per balance sheet
2021 2020
Assets at Assets at
fair value fair value
Other through profit Other through profit
assets or loss assets or loss
£000 £000 £000 £000
Non-current assets at fair value through profit or loss
Financial assets - 70,019 - 49,115
Accrued income on financial assets - 493 - 444
Current assets
Cash and cash equivalents 19,201 - 19,002 -
Cash on fixed term deposit 1,988 - 1,988 -
Accrued income on financial assets - 107 - 479
Accrued income on cash, cash equivalents and cash deposits 3-3-
21,192 70,619 20,993 50,038
Other assets – not financial instruments 107 - 29 -
21,299 70,619 21,022 50,038
Liabilities as per balance sheet
2021 2020
Other Other
financial financial
liabilities liabilities
£000 £000
Trade and other payables (136) (131)
Performance incentive fee (4,407) -
(4,543) (131)
Assets classified as fair value through profit or loss were designated as such upon initial recognition.
The Company’s investing activities expose it to various types of risk that are associated with the financial
instruments and markets in which it invests. The most important types of financial risk to which the Company is
exposed are market risk, credit risk and liquidity risk. The nature and extent of the financial instruments outstanding
at the balance sheet date and the risk management policies employed by the Company are discussed below.
There have been no changes since last year in the objectives, policies, and processes for managing and measuring
risks facing the Company.
86 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
16. Financial Instruments (continued)
16a Market Risk
Market Price Risk
The Company invests in new and expanding businesses, the shares of which may not be traded on the stock
market. Consequently, exposure to market factors, in relation to many investments, stems from market based
measures that may be used to value unlisted investments.
The market also defines the value at which investments may be sold. Returns are therefore maximised when
investments are bought or sold at appropriate times in the economic cycle.
Market price risk arises from uncertainty about the future prices of financial instruments held in accordance with
the Company’s investment objectives. It represents the potential loss that the Company might suffer through
holding market positions in the face of market movements. In addition, the ability of the Company to purchase or
sell investments is also constrained by requirements set down for VCTs.
All of the Company’s investments, are in unquoted companies held at fair value (2020: 100 per cent). The valuation
methodology for these investments includes the application of externally produced revenue/earnings multiples.
Therefore the value of the unquoted element of the portfolio is also indirectly affected by price movements on the
listed markets. Investments have been valued in line with the valuation guidelines described within note 1. Those
using revenue and earnings multiple methodologies include judgements regarding the level of discount applied to
that revenue and earnings 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 for the year by £4,336,000 (5.0 per cent of
net assets). An equal change in the opposite direction would have decreased net assets attributable to the
Company's shareholders and the total profit for the year by £4,587,000 (5.2 per cent of net assets) .
The largest single concentration of risk relates to the Company’s investment in Matillion Limited which constitutes
28.7 per cent of the net assets attributable to the Company’s shareholders. The Board seeks to mitigate this risk
by diversifying the portfolio and monitors the status of all investments on an ongoing basis. The average
investment, excluding those that have had their fair value reduced to nil, is 2.7 per cent (2020: 2.0 per cent) of the
value of net assets.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 87
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Comparison of Realised Proceeds to Unrealised Valuations
The table below shows a comparison of the realised proceeds to the unrealised valuations one year prior to sale,
for all disposals of unquoted investments over the last ten years. The uplift in valuation achieved by many portfolio
companies partly reflects ongoing trading and also partly the removal of discounts on valuations due to decreasing
risks relating to execution and marketability.
Sale Valuation
proceeds one year Increase
Date of to date earlier (decrease)
Disposal £000 £000 £000
Primal Pictures Limited Aug-12 1,916 1,008 908
Sirigen Group Limited Aug-12 1,962 517 1,445
Digital Healthcare Limited Aug-13 1,285 1,156 129
Waterfall Services Limited Jan-14 964 489 475
Insider Technologies (Holdings) Limited Oct-15 773 587 186
Callstream Group Limited Mar-16 785 773 12
Cambrian Park & Leisure Homes Limited Mar-17 - 1,251 (1,251)
Ness (Holdings) Limited Mar-17 152 509 (357)
Selima Holding Company Ltd May-17 1,406 462 944
Harvey Jones Holdings Limited Aug-17 559 617 (58)
PowerOasis Limited Sep-18 - 365 (365)
GTK (Holdco) Limited Dec-18 2,465 1,801 664
Mangar Health Limited Dec-18 3,675 2,641 1,034
Gill Marine Holdings Limited Dec-18 2,844 1,922 922
Leengate Holdings Limited Apr-19 1,291 1,179 112
The Heritage Window Company
Holdco Limited Jun-19 - 280 (280)
Eikon Holdco Limited (partial realisation) Oct-19 4,209 1,500 2,709
Business Collaborator Limited Mar-20 5,390 2,441 2,949
RMS Group Holdings Limited Jun-20 562 353 209
Bagel Nash Group Limited Oct-20 100 405 (305)
Deep-Secure Ltd Jul-21 3,279 1,479 1,800
Tissuemed Limited Dec-21 599 65 534
34,216 21,800 12,416
Interest Rate Risk
The Company’s venture capital investments include £3,755,000 (2020: £5,959,000) of loan stock in unquoted
companies. The majority of this loan stock at 31 December 2021 is at fixed rates to guard against fluctuations in
interest rates. As a result the Company is only exposed to cash flow interest rate risk on £611,000 (2020: £750,000)
of its loan stock portfolio.
88 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
16. Financial Instruments (continued)
The Company has some exposure to interest rates as a result of interest earned on bank deposits. Other financial
assets (being accrued income) and other financial liabilities (being accrued expenses) attract no interest. A
sensitivity analysis has not been performed as the amounts involved are not considered to be significant.
2021 2020
Weighted Weighted
average average
Weighted time for Weighted time for
average which rate average which rate
interest rate is fixed interest rate is fixed
£000 % Months £000 % Months
Fixed rate loan stock and
preference shares 8,002 7.6 15 9,205 8.8 14
Cash on fixed term deposit 1,988 1.0 3 1,988 1.0 3
Combined 9,990 6.3 12 11,193 7.4 12
Exchange Rate Risk
Of the Company’s financial assets through profit or loss, 35 per cent (2020: 26 per cent) are denominated in US
dollars. A 5% increase in the £:$ exchange rate at 31 December 2021 would have decreased the net assets
attributable to the Company’s shareholders and the total profit for the year by £1,193,000 (2020: £605,000). An
equal change in the opposite direction would have increased the net assets attributable to the Company’s
shareholders and the total profit for the year by £1,318,000 (2020: £668,000).
16b Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. The Manager has in place a monitoring procedure in
respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets
excluding equity investments total £36,218,000 (2020: £34,339,000) which best represents the maximum credit
risk exposure at the balance sheet date.
The Company does not invest in floating rate instruments other than, on occasion, unquoted loan stock. Credit
risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed
above.
The fair value of other assets is not regarded as having changed due to the changes in credit risk in either year.
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to
unsettled transactions is considered to be small due to the short settlement period involved and the high credit
quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further
mitigate this risk. Bankruptcy or insolvency of the broker may cause the Company’s rights with respect to
securities held by the broker to be delayed or limited. The Manager monitors the Company’s risk by reviewing
the broker’s internal control reports on a regular basis.
The only significant assets not held at fair value are cash and cash equivalents and cash on fixed term deposit.
The cash held by the Company is held across a number of banks to spread the risk. Bankruptcy or insolvency
of these banks may cause the Company’s rights with respect to the cash held by the bank to be delayed or
limited. The banks used by the Company are large and reputable. Should the credit quality or the financial
position of the banks deteriorate significantly the Manager will move the cash holdings to another bank.
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 89
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
The maturities of the loan stock portfolio are as follows:
2021 2020
£000 £000
<1 year 1-2 years 2-5 years <1 year 1-2 years 2-5 years
Unquoted loan investments 2,053 591 1,111 4,330 832 797
An aged analysis of the unquoted loan investments included above, which are past due but not individually
impaired, is set out below. For this purpose these loans are considered to be past due when any payment due
date under the loan’s contractual terms (such as payment of interest) is received late or missed. The full value of
the loan is given even though, in some cases, the only default is in respect of interest.
2021 2020
£000 £000
< 1 year < 1 year < 1-2 years
Loans to investee companies past due 400 1,332 400
Included within unquoted loan investments are £nil (2020: £nil) of loans which are past their due date but have
been re-negotiated.
16c Liquidity Risk
The risk to the Company relates to liabilities which fall due within one year. These liabilities are deemed immaterial
and as such the risk associated with them is minimal.
The Company needs to retain enough liquid resources to support the financing needs of its investment businesses.
To meet this aim the Company places its surplus funds in bank interest deposit accounts. Investments in liquid
funds are held for the purpose of liquidity whilst waiting for suitable qualifying investment opportunities to arise.
The Company’s liquidity risk is managed on an ongoing basis by the Manager in accordance with policies and
procedures in place. The cash requirements of the Company in respect of each investment are assessed at
monthly portfolio meetings.
The Company’s overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains
sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.
Of the Company’s assets 22.0 per cent (2020: 26.8 per cent) are in the form of liquid cash. There are no undrawn
committed borrowing facilities at either year end. The Company does not have a material amount of liabilities at
the year end.
90 British Smaller Companies VCT2 plc Annual Report & Accounts
FINANCIAL STATEMENTS
17. Capital Management
The Company’s objectives when managing capital are:
> To safeguard its ability to continue as a going concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
> To ensure sufficient liquid resources are available to meet the funding requirements of its investments and to
fund new investments where identified.
The Company has no external debt; consequently all capital is represented by the value of share capital,
distributable and other reserves. Total shareholder equity at 31 December 2021 was £87,375,000 (2020:
£70,929,000).
In order to maintain or adjust its capital structure the Company may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets.
There have been no changes in capital management objectives or the capital structure of the business from the
previous year. The Company is not subject to any externally imposed capital requirements.
18. Related Party Transactions
Fees payable during the year to the directors and their interests in the shares of the Company are disclosed within
the Directors’ Remuneration Report on page 50. There were no amounts outstanding and due to the directors at
31 December 2021 (2020: £nil).
Notes to the
Financial Statements
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 91
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
BRITISH SMALLER COMPANIES VCT2 PLC
No: 04084003
Notice of the
Annual General Meeting
Ordinary Resolutions
(1) That the annual report and accounts for the year
ended 31 December 2021 be received.
(2) That the Directors' Remuneration Report for the year
ended 31 December 2021 be approved other than
the part of such report containing the Directors’
Remuneration Policy.
(3) That Mr P C Waller be re-elected as a director.
(4) That Ms B L Anderson be re-elected as a director.
(5) That Mr R S McDowell be re-elected as a director.
(6) That BDO LLP be re-appointed as auditor to the
Company to hold office until the conclusion of the
next general meeting at which accounts are laid
before the Company and that the directors be
authorised to fix their remuneration.
(7) That the directors be and are hereby generally and
unconditionally authorised in accordance with
Section 551 of the Companies Act 2006 (the "Act")
to exercise all the powers of the Company to allot
shares in the Company or to grant rights to subscribe
for or to convert any security into shares in the
Company up to an aggregate nominal amount of
£10,000,000, during the period commencing on the
passing of this Resolution and expiring on the later
of 15 months from the passing of this Resolution or
the next Annual General Meeting of the Company
(unless previously revoked, varied or extended by
the Company in general meeting), but so that this
authority shall allow the Company to make before
the expiry of this authority offers or agreements
which would or might require shares in the Company
to be allotted, or rights to subscribe for or to convert
any security into shares to be granted, after such
expiry and that all previous authorities given to the
directors be and they are hereby revoked, provided
that such revocation shall not have retrospective
effect.
Special Resolutions
(8) That the directors be and are hereby empowered in
accordance with Section 570(1) of the Act during the
period commencing on the passing of this
Resolution and expiring at the conclusion of the
Company's next Annual General Meeting, or on the
expiry of 15 months following the passing of this
Resolution, whichever is the later, (unless previously
revoked, varied or extended by the Company in
general meeting), to allot equity securities (as
defined in Section 560 of the Act) for cash pursuant
to the general authority conferred upon the directors
in Resolution 7 above as if Section 561 of the Act did
not apply to any such allotment provided that this
power is limited to the allotment of equity securities
in connection with the allotment for cash of equity
securities up to an aggregate nominal amount of
£10,000,000, but so that this authority shall allow the
Company to make offers or agreements before the
expiry and the directors may allot securities in
pursuance of such offers or agreements as if the
powers conferred hereby had not so expired. This
power applies in relation to a sale of shares which is
an allotment of equity securities by virtue of Section
560(3) of the Act as if in the first paragraph of this
Resolution the words "pursuant to the general
authority conferred upon the directors in Resolution
7 above" were omitted.
(9) That the Articles of Association of the Company be
amended to increase the limit on the aggregate
remuneration of the non-executive directors from
£100,000 to £110,000 by replacing the figure of
£100,000 appearing in Article 128 with £110,000.
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of the Company will be held at 33 St James
Square, London SW1Y 4JS on 13 June 2022 at 12:00 noon for the following purposes:
To consider and, if thought fit, pass the following Resolutions:
COMPANY INFORMATION
92 British Smaller Companies VCT2 plc Annual Report & Accounts
(10) That in substitution for any existing authority but
without prejudice to the exercise of any such power
prior to the date hereof, the Company be generally
and unconditionally authorised to make market
purchases (within the meaning of Section 693(4) of
the Act) of ordinary shares of 10 pence in the capital
of the Company provided that:
[1] the maximum aggregate number of ordinary
shares that may be purchased is 27,338,720,
being 14.99 per cent of the issued ordinary
shares as at 21 March 2022;
[2] the maximum price (excluding expenses)
which may be paid for an ordinary share is an
amount equal to the maximum amount
permitted to be paid in accordance with the
rules of the UK Listing Authority in force as at
the date of purchase;
[3] the minimum price (excluding expenses) which
may be paid for an ordinary share is its nominal
value;
[4] this authority shall take effect from 13 June
2022 and shall expire on the conclusion of the
Company’s Annual General Meeting in 2025 or
on 13 June 2025, whichever is the later; and
[5] the Company may make a contract or
contracts to purchase ordinary shares under
this authority before the expiry of the authority,
which will or may be executed wholly or partly
after the expiry of the authority and may make
a purchase of ordinary shares in pursuance of
any such contract or contracts.
By order of the Board
The City Partnership (UK) Limited
Company Secretary
21 March 2022
Registered office:
5th Floor, Valiant Building, 14 South Parade, Leeds LS1 5QS
Information regarding the Annual General Meeting, including the
information required by section 311A of the Companies Act 2006, is
available from www.bscfunds.com.
COMPANY INFORMATION
Notice of the
Annual General Meeting
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 93
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Notes:
(a) Any member of the Company entitled to attend and vote at the
Annual General Meeting is also entitled to appoint one or more
proxies to attend, speak and vote instead of that member. Any
such appointment can only be made using the procedures set
out in these notes and the notes of the Form of Proxy. A
member may appoint more than one proxy in relation to the
Annual General Meeting provided that each proxy is appointed
to exercise the rights attached to a different share or shares
held by that member. A proxy may demand, or join in
demanding, a poll. A proxy need not be a member of the
Company but must attend the Annual General Meeting in order
to represent their appointer. A member entitled to attend and
vote at the Annual General Meeting may appoint the Chairman
or another person as their proxy although the Chairman will not
speak for the member. A member who wishes their proxy to
speak for them should appoint their own choice of proxy (not
the Chairman) and give instructions directly to that person. If
you are not a member of the Company but you have been
nominated by a member of the Company to enjoy information
rights, you do not have a right to appoint any proxies under the
procedures set out in these notes. Please read note (k) below.
Under section 319A of the Companies Act 2006, the Company
must answer any question a member asks relating to the
business being dealt with at the Annual General Meeting
unless:
• answering the question would interfere unduly with the
preparation for the Annual General Meeting or involve the
disclosure of confidential information;
• the answer has already been given on a website in the
form of an answer to a question; or
• it is undesirable in the interests of the Company or the
good order of the Annual General Meeting that the
question be answered.
(b) To be valid, a Form of Proxy must be completed and signed
and with the power of attorney or other written authority, if any,
under which it is signed or an office or notarially certified copy
or a copy certified in accordance with the Powers of Attorney
Act 1971 of such power and written authority, must be delivered
to Link Group, PXS1 Central Square, Wellington Street, Leeds,
LS1 4DL not less than 48 hours (excluding weekends and
public holidays) before the time appointed for holding the
Annual General Meeting or adjourned meeting at which the
person named in the Form of Proxy proposes to vote. In the
case of a poll taken more than 48 hours (excluding weekends
and public holidays) after it is demanded, the document(s) must
be delivered as aforesaid not less than 24 hours (excluding
weekends and public holidays) before the time appointed for
taking the poll, or where the poll is taken not more than 48 hours
(excluding weekends and public holidays) after it was
demanded, be delivered at (and prior to the commencement
of) the meeting at which the demand is made. If no voting
indication is given in the Form of Proxy, your proxy will vote (or
abstain from voting) as they think fit in relation to any matter
put to the Annual General Meeting.
(c) To be valid, any Form of Proxy or other instrument appointing
a proxy, must be returned by no later than 12:00 noon on 9
June 2022 through any one of the following methods:
i) by post, courier or (during normal business hours only)
hand to the Company’s UK registrar at:
Link Group
PXS1
Central Square
Wellington Street
Leeds LS1 4DL;
ii) electronically through the website of the Company’s UK
registrar at www.signalshares.com; or
iii) in the case of shares held through CREST, via the
CREST system (see note (p) below).
(d) If you return more than one proxy appointment, either by paper or
electronic communication, the appointment received last by the
Registrar before the latest time for the receipt of proxies will take
precedence. You are advised to read the terms and conditions of
use carefully. Electronic communication facilities are open to all
shareholders and those who use them will not be disadvantaged.
(e) The return of a completed Form of Proxy, electronic filing or any
CREST Proxy Instruction (as described in note (p) below) will
not prevent a shareholder from attending the Meeting and
voting in person if they wish to do so.
(f) In order to revoke a proxy instruction a member will need to
inform the Company by sending a signed hard copy notice
clearly stating the intention to revoke the proxy appointment to
Link Group, PXS1, Central Square, Wellington Street, Leeds,
LS1 4DL. In the case of a member which is a company, the
revocation notice must be executed under its common seal or
signed on its behalf by an officer of the company or an attorney
for the company. Any power of attorney or any other authority
under which the revocation notice is signed (or a duly certified
copy of such power or authority) must be included with the
revocation notice. The revocation notice must be received by
Link Group before the Annual General Meeting or the holding
of a poll subsequently thereto. If a member attempts to revoke
their proxy appointment but the revocation is received after the
time specified then, subject to note (g) directly below, the proxy
appointment will remain valid.
(g) Completion and return of a Form of Proxy will not preclude a
member of the Company from attending and voting in person.
If a member appoints a proxy and that member attends the
Annual General Meeting in person, the proxy appointment will
automatically be terminated.
(h) Copies of the directors’ Letters of Appointment, the Register of
Directors’ Interests in the ordinary shares of the Company, a
copy of the amended articles of association (marked up to show
the changes) and a copy of the current articles of association
of the Company will be available for inspection at the registered
office of the Company during usual business hours on any
weekday (weekends and public holidays excluded) from the
date of this Notice, until the end of the Annual General Meeting
and at the Annual General Meeting venue itself for at least 15
minutes prior to and during the meeting.
(i) Pursuant to Regulation 41 of the Uncertificated Securities
Regulations 2001, the Company has specified that only those
holders of the Company’s shares registered on the Register of
Members of the Company as at close of business on 9 June
2022 or, in the event that the Annual General Meeting is
adjourned, on the Register of Members at close of business on
the day two days before the time of any adjourned meeting,
shall be entitled to attend and vote at the said Annual General
Meeting in respect of such shares registered in their name at
the relevant time. Changes to entries on the Register of
Members after close of business on 9 June 2022 or, in the
event that the Annual General Meeting is adjourned, on the
Register of Members less than 48 hours before the time of any
adjourned meeting, shall be disregarded in determining the
right of any person to attend and vote at the Annual General
Meeting.
(j) As at 21 March 2022 the Company's issued share capital
comprised 182,379,720 ordinary shares of 10 pence each with
a further 15,929,774 shares held in treasury. Those treasury
shares represented 8.0 per cent of the total issued share capital
(including treasury shares) at the aforementioned date. Each
ordinary share carries one voting right at the Annual General
Meeting of the Company and so the total number of voting
rights in the Company as at 21 March 2022 was 182,379,720.
The website referred to above will include information on the
number of ordinary shares and voting rights.
(k) If you are a person who has been nominated under section 146
of the Companies Act 2006 to enjoy information rights
(“Nominated Person”):
• You may have a right under an agreement between you
and the member of the Company who has nominated you
to have information rights (“Relevant Member”) to be
appointed or to have someone else appointed as a proxy
for the Annual General Meeting;
• If you either do not have such a right or if you have such
a right but do not wish to exercise it, you may have a right
under an agreement between you and the Relevant
Member to give instructions to the Relevant Member as
to the exercise of voting rights;
• Your main point of contact in terms of your investment in
the Company remains the Relevant Member (or, perhaps
your custodian or broker) and you should continue to
contact them (and not the Company) regarding any
changes or queries relating to your personal details and
your interest in the Company (including any
administrative matters). The only exception to this is
where the Company expressly requests a response from
you.
(l) A company which is a member can appoint one or more
corporate representatives who may exercise, on its behalf, all
its powers as a member provided that no more than one
corporate representative exercises powers over the same
share.
(m) In the case of joint members, any one of them may sign the
Form of Proxy. The vote of the person whose name stands first
in the register of members of the Company will be accepted to
the exclusion of the votes of the other joint holders.
(n) A vote withheld is not a vote in law, which means that the vote
will not be counted in the calculation of votes for or against the
resolution. If no voting indication is given on the Form of Proxy,
the proxy will vote or abstain from voting at their discretion. The
proxy will vote (or abstain from voting) as they think fit in relation
to any other matter which is put before the Annual General
Meeting.
(o) Members may not use any electronic address provided either
in this Notice of Annual General Meeting, or any related
documents (including the Chairman's letter and Form of Proxy),
to communicate with the Company for any purposes other than
those expressly stated.
(p) CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service may
do so by using the procedures described in the CREST Manual.
CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a
service provider(s), should refer to their CREST sponsor or
voting service provider(s), who will be able to take the
appropriate action on their behalf. In order for a proxy
appointment or instruction made using the CREST service to
be valid, the appropriate CREST message (a “CREST Proxy
Instruction”) must be properly authenticated in accordance with
Euroclear UK & Ireland’s specifications, and must contain the
information required for such instruction, as described in the
CREST Manual (available via www.euroclear.com/CREST).
The message, regardless of whether it constitutes the
appointment of a proxy or is an amendment to the instruction
given to a previously appointed proxy must, in order to be valid,
be transmitted so as to be received by the issuer’s agent (ID
RA10) not less than 48 hours (excluding weekends and public
holidays) before the time of the Annual General Meeting. For
this purpose, the time of receipt will be taken to be the time (as
determined by the time stamp applied to the message by the
CREST Application Host) from which the issuer’s agent is able
to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions
to proxies appointed through CREST should be communicated
to the appointee through other means.
94 British Smaller Companies VCT2 plc Annual Report & Accounts
Notice of the
Annual General Meeting
(continued)
COMPANY INFORMATION
To be used at the Annual General Meeting of the Company
to be held at 33 St James Square, London SW1Y 4JS, on 13 June 2022 at 12:00 noon
being a member/members of the above named Company entitled to attend and vote at the Annual General Meeting
of the Company hereby appoint the Chairman of the Annual General Meeting or (see notes (2) to (6))
as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 13
June 2022 at 12:00 noon and at any adjournment thereof.
n
Please tick here if this proxy is one of multiple proxy appointments being made (see note 2)
My/our proxy is to vote on the resolutions as indicated below. Please indicate with an “x” how you wish your vote to be
cast. If no voting indication is given, your proxy will vote or abstain from voting on the resolutions at their discretion.
For Against Withheld
Ordinary Resolutions
1. To receive the annual report and accounts
n n n
2. To approve the Directors’ Remuneration Report
n n n
3. To re-elect Mr P C Waller as a director
n n n
4. To re-elect Ms B L Anderson as a director
n n n
5. To re-elect Mr R S McDowell as a director
n n n
6. To re-appoint BDO LLP as auditor
n n n
7. To authorise the directors to allot shares
n n n
Special Resolutions
8. To waive pre-emption rights in respect of the allotment of shares
n n n
9. To increase the limit on directors’ remuneration
n n n
10. To authorise the Company to make purchases of its own shares
n n n
Please refer to notes overleaf.
Please complete, sign and date, detach and return the Form of Proxy in the pre-paid envelope provided OR alternatively
submit your proxy vote using the on-line facility at www.signalshares.com. You will be asked to enter your investor code,
surname and postcode to be able to lodge your vote. Your investor code can be found on your share certificate or recent
tax voucher.
British Smaller Companies VCT2 plc Annual Report & Accounts 95
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
British Smaller Companies VCT2 plc
Form of Proxy
Signature
I / We
of
Dated 2022
#
96 British Smaller Companies VCT2 plc Annual Report & Accounts
COMPANY INFORMATION
NOTES
1. The Notice of the Annual General Meeting is set out on pages
91 to 94 of the annual report.
2. Any member of the Company entitled to attend and vote at the
Annual General Meeting is also entitled to appoint one or more
proxies to attend, speak and vote instead of that member. Any
such appointment can only be made using the procedures set
out in these notes and set out in the Notice of the Annual General
Meeting. A member may appoint more than one proxy in relation
to the Annual General Meeting provided that each proxy is
appointed to exercise the rights attached to a different share or
shares held by that member. A proxy may demand, or join in
demanding, a poll. A proxy need not be a member of the
Company but must attend the Annual General Meeting in order
to represent their appointer. A member entitled to attend and vote
at the Annual General Meeting may appoint the Chairman or
another person as their proxy although the Chairman will not
speak for the member. A member who wishes their proxy to
speak for them should appoint their own choice of proxy (not the
Chairman) and give instructions directly to that person.
3. If you wish to appoint a proxy of your own choice delete the
words “the Chairman of the Annual General Meeting” and insert
the name and address of the person whom you wish to appoint
in the space provided.
4. To be valid, a Form of Proxy and the power of attorney or other
written authority, if any, under which it is signed or an office or
notarially certified copy or a copy certified in accordance with the
Powers of Attorney Act 1971 of such power and written authority,
must be delivered to Link Group, PXS1, Central Square, 29
Wellington Street, Leeds, LS1 4DL not less than 48 hours
(excluding weekends and public holidays) before the time
appointed for holding the Annual General Meeting or adjourned
meeting at which the person named in the Form of Proxy
proposes to vote. In the case of a poll taken more than 48 hours
(excluding weekends and public holidays) after it is demanded,
the document(s) must be delivered as aforesaid not less than 24
hours (excluding weekends and public holidays) before the time
appointed for taking the poll, or where the poll is taken not more
than 48 hours (excluding weekends and public holidays) after it
was demanded, be delivered at (and prior to the commencement
of) the meeting at which the demand is made. If you would like
to submit your form of proxy using the web-based voting facility
go to www.signalshares.com. You will be asked to enter your
investor code, surname and postcode to be able to lodge your
vote. Your investor code can be found on your share certificate
or recent tax voucher.
5. Any alterations to the Form of Proxy must be initialled by the
person who has signed the Form of Proxy.
6. In order to revoke a proxy instruction a member will need to
inform the Company by sending a signed hard copy notice clearly
stating the intention to revoke the proxy appointment to Link
Group, PXS1, Central Square, 29 Wellington Street, Leeds, LS1
4DL. In the case of a member which is a company, the revocation
notice must be executed under its common seal or signed on its
behalf by an officer of the company or an attorney for the
company. Any power of attorney or any other authority under
which the revocation notice is signed (or a duly certified copy of
such power or authority) must be included with the revocation
notice. The revocation notice must be received by Link Group
before the Annual General Meeting or the holding of a poll
subsequently thereto. If a member attempts to revoke their proxy
appointment but the revocation is received after the time
specified then, subject to Note 9 below, the proxy appointment
will remain valid.
7. In the case of a company, this Form of Proxy must be executed
under its common seal or signed on its behalf by its attorney or
a duly authorised officer of the company.
8. In the case of joint shareholders, any one of them may sign. The
vote of the person whose name stands first in the register of
members will be accepted to the exclusion of the votes of the
other joint holders.
9. Completion and return of a Form of Proxy will not preclude a
member of the Company from attending and voting in person. If
a member appoints a proxy and that member attends the Annual
General Meeting in person, the proxy appointment will
automatically be terminated.
10. A vote withheld is not a vote in law, which means that the vote
will not be counted in the calculation of votes for or against the
resolution. If no voting indication is given, the proxy will vote or
abstain from voting at their discretion on any other matter which
is put before the Annual General Meeting.
11. CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so by
using the procedures described in the CREST Manual. CREST
Personal Members or other CREST sponsored members, and
those CREST members who have appointed a service
provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on
their behalf.
Please complete, sign and date, detach and return the Form of
Proxy in the pre-paid envelope provided.
Form of Proxy
(continued)
British Smaller Companies VCT2 plc Annual Report & Accounts 97
Strategic Report Financial Overview Corporate Governance Independent Auditor’s Report Financial Statements Company Information
Manager
YFM Private Equity Limited
5th Floor, Valiant Building
14 South Parade
Leeds
LS1 5QS
Registrars
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Solicitors
Howard Kennedy LLP
No.1 London Bridge
London
SE1 9BG
Stockbrokers
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Promoter
RAM Capital Partners LLP
4 Staple Inn
London
WC1V 7QH
Independent Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
VCT Status Adviser
Philip Hare & Associates LLP
Hamilton House
1 Temple Avenue
London
EC4Y 0HA
Bankers
Santander UK plc
44 Merrion Street
Leeds
LS2 8JQ
Company Secretary
The City Partnership (UK) Limited
110 George Street
Edinburgh
EH2 4LH
Advisers to
the Company
Registered Offices of
Significant Holdings
COMPANY INFORMATION
Investment Companies
EL Support Services Limited
NB Technology Services Limited
OC Engineering Services Limited
SH Healthcare Services Limited
SP Manufacturing Services Limited
5th Floor
Valiant Building
14 South Parade
Leeds, LS1 5QS
Immunobiology Limited
Babraham Research Campus
Babraham
Cambridge
CB22 3AT
Sipsynergy (via Hosted Network
Services Limited)
Wessex House
Upper Market Street
Eastleigh
Hampshire
SO50 9FD
Transforming small businesses
bscfunds.com
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