Half Yearly Report

Ventus 2 VCT plc

Half-yearly Financial Report

for the six month period ended 31 August 2012

Registered No: 05667210

Chairman's Statement

I am pleased to present the financial report of Ventus 2 VCT plc (the "Company") for the six month period ended 31 August 2012. The period has seen significant uplifts in the net asset value of both of the Company's share funds. After payment of the final dividends for the year ended 29 February 2012, the NAV per ordinary share increased by 12.0p and the NAV per "C" share increased by 12.6p.

The ordinary share fund has a portfolio of four companies with operational wind farms and one company which operates landfill gas generators, all of which are generating strong cash yields in the form of dividends and loan interest payments. The ordinary share fund's investment in Osspower Limited was written up by £1.49 million during the period as the small hydro scheme built by this investee company became operational.

The "C" share fund's portfolio now includes two companies with operating wind farms, a company with a wind farm in construction and four other companies developing wind farms.

In the Company's most recent annual report, which was published on 31 May 2012, the Directors set out their intentions and objectives with respect to future dividends. The Directors stated their intention to pay a minimum annual dividend of 3.5p per ordinary share for the next three years and an annual dividend of 3p to 4p per share per "C" share for the next two years. The Directors affirm these intentions and believe that, for the year ending 28 February 2013, the Company will be in a position to pay full-year dividends in line with the statements in the most recent annual report, that is, at least 3.5p per ordinary share and at least 3p per "C" share.  It should be stressed that these are intentions only, and no forecasts are intended or are to be inferred.

The "C" share fund has approximately £2.6 million of cash available to be invested. The Investment Manager has identified suitable investments to invest these funds and expects the "C" share fund to be substantially invested by the end of the financial year.

Group

The Company has a shareholding of 60% of the ordinary shares issued by each of Redeven Energy Limited and Spurlens Rig Wind Limited. These shareholdings constitute controlling interests therefore these companies are subsidiaries of the Company. The consolidated financial statements of the Company and its subsidiaries (the "Group") are presented in this half-yearly report.

Net Asset Value, Results and Dividend - Ordinary Shares

At 31 August 2012, the net asset value of the ordinary share fund of the Company attributable to equity shareholders stood at £17,292,000 or 70.8p per ordinary share. At 31 August 2012, the net asset value of the Group attributable to equity holders stood at £16,899,000.

The Group's revenue profit attributable to ordinary shareholders for the six month period ended 31 August 2012 was £663,000 or 2.70p per ordinary share. The Group's capital gain attributable to ordinary shareholders for the period was £2,420,000 or 9.90p per ordinary share, resulting in a net gain to ordinary shareholders for the period of £3,083,000 or 12.60p per ordinary share (six months ended 31 August 2011: net loss of £3,770,000 or 15.36p per ordinary share; year ended 29 February 2012: net loss of £3,967,000 or 16.15p per ordinary share).

The value of investments and investments in subsidiaries held by the Company's ordinary share fund at 31 August 2012 was £14,205,000 compared to £13,048,000 at 29 February 2012. During the six months to 31 August 2012, the Company received a repayment of its loan investment with Broadview Energy Limited of £1,800,000 plus interest which has significantly improved the cash position of the Company. The Investment Manager's Report gives details of investments made during the period together with information about the valuation of all investee company holdings within the portfolio.

The income generated in the ordinary share fund during the period comprised interest earned on loan stock and cash deposits, fees earned on loan stock and dividends earned from investee companies. Total income attributable to the ordinary share fund for the six month period to 31 August 2012 was £921,000 compared to £505,000 for the six month period ended 31 August 2011. The increase in revenue was due to higher dividends from wind farm investee companies which resulted from higher output during last winter, a significant dividend from Renewable Power Systems (Dargan Road) Limited which followed the sale of a generator and an early repayment fee on the loan made to Broadview Energy Limited which was repaid during the period.

The Company has declared an interim dividend of 1.75p per ordinary share which will be paid on 16 January 2013 to all ordinary shareholders on the register as at the close of business on 14 December 2012.

Net Asset Value, Results and Dividend - "C" Shares

At the period end, the net asset value per "C" share of the Company stood at £11,834,000 or 104.5p per "C" share. The revenue profit attributable to "C" shareholders for the period was £143,000 or 1.26p per "C" share. The capital gain attributable to "C" shareholders for the period was £1,390,000 or 12.28p per "C" share, resulting in a net profit attributable to "C" shareholders for the six months ended 31 August 2012 of £1,533,000 or 13.54p per "C" share (six months ended 31 August 2011: net profit of £42,000 or 0.37p per "C" share; year ended 29 February 2012: net loss of £59,000 or 0.51p per "C" share).

The value of investments held at 31 August 2012 by the "C" share fund was £8,483,000 compared to £8,183,000 at 29 February 2012.

The income generated in the "C" share fund during the period comprised interest and fees earned on loan stock investments and cash on deposit. Total income attributable to the "C" share fund for the six months to 31 August 2012 was £275,000 (six months ended 31 August 2011: £210,000). The increase in income resulted from recognition of a facility fee of £90,000 on a short-term loan, offset by a reduction in interest income resulting from loan investments having been repaid during the period.

The Company has declared an interim dividend of 1.20p per "C" share which will be paid on 16 January 2013 to all "C" shareholders on the register as at the close of business on14 December 2012.

The Company's Investment Manager, Temporis Capital LLP, continues to be actively engaged in managing the portfolio of existing investments and in identifying and negotiating potential investment opportunities to invest the share capital that has been raised. The investments made constitute the important events of the period.

Group Key Performance Indicators

Company Key Performance Indicators

1 The "per share" value is determined in respect of the weighted average number of shares in issue during the period, except in respect of the dividends paid in the period, which is determined on the basis of the number of shares eligible to receive dividends at the time the dividends were paid.

2 The on-going charges ratio represents the Group or Company's total operating expenditure respectively during the period (excluding irrecoverable VAT, tender costs and investment costs) as a percentage of the net asset value of the Group attributable to equity holders or the net asset value of the Company at the period end respectively, as determined in the Investment Management Agreement.

3 The "per share" value is determined in respect of the number of shares in issue at the period end, except in respect of the dividends paid, which is determined on the basis of the number of shares eligible to receive dividends at the time the dividends were paid.

4 The total shareholder return represents the net asset value of the Group attributable to equity holders at period end plus the cumulative dividends paid since incorporation.

The performance of the Group is reviewed in the Investment Manager's Report, including the Company's compliance with HM Revenue & Customs ("HMRC") Venture Capital Trust ("VCT") regulations. The Group's prospects are considered in the UK Market Outlook section of the Investment Manager's Report.

Investments

As at 31 August 2012, the ordinary share fund of the Company held investments in 16 companies including two subsidiaries, with a total value of £14.21 million. The "C" share fund held investments in eight companies with a total investment value of £8.48 million.

The Investment Manager's Report provides details of the investments held as at 31 August 2012. All investments are structured so as to be treated as qualifying holdings for the purposes of VCT regulations, unless otherwise stated.

Principal Risks and Uncertainties

Under the Financial Services Authority's Disclosure and Transparency Rules, the Directors are required to identify those material risks to which the Company is exposed and take appropriate steps to mitigate those risks. Other than the inherent risks associated with investment activities, which are discussed in the Investment Manager's Report, the risks described below are those which the Directors consider to be material. The Directors do not expect that the risks and uncertainties presented will change significantly over the current financial year.

·; Failure to meet the investment requirements for compliance with HMRC VCT regulations

The Board mitigates this risk by regularly reviewing investment management activity with appropriately qualified advisers and by obtaining pre-approval from HMRC for each qualifying investment.

·; Inadequate control environment at service providers

The Board mitigates this risk by only appointing service providers of a high standing under agreements that set out their responsibilities and by obtaining assurances from them that all exceptions have been reported to the Board. In addition, the Board has appointed an independent internal auditor, Roffe Swayne, to report directly to the Board in respect of the Company's internal controls undertaken by the Investment Manager.

·; Non-compliance with the Listing Rules of the Financial Services Authority, Companies Act legislation, HMRC VCT regulations and other applicable regulations

The Board mitigates this risk by employing external advisers fully conversant with applicable statutory and regulatory requirements who report regularly to the Board on the Company's compliance.

·; Reliance on the UK Government's continued support for the renewable energy sector

The future level of Government-mandated support for renewables has important implications for the industry and could impact the value of investments the Company has made in companies developing renewable projects. However, the Directors believe that any future reductions in renewable energy tariffs should not impact any existing investments in companies operating renewable energy assets, as the UK Government has a consistent history of grandfathering financial support mechanisms for existing projects.

VCT Qualifying Status

The Company retains PricewaterhouseCoopers LLP to review its compliance with VCT regulations. The Directors are satisfied that the Company has continued to fulfil the conditions for maintaining VCT status.

Alan Moore OBE

Chairman

29 October 2012

Responsibility Statement

The Directors acknowledge responsibility for the interim results and approve this half-yearly report. The Directors confirm that to the best of their knowledge:

(a) the condensed financial statements have been prepared in accordance with International Accounting Standard 34 ("IAS 34") Interim Financial Reporting and give a true and fair view of the assets, liabilities and financial position of the Company and Group and the profit of the Group as required by Disclosure and Transparency Rule ("DTR") 4.2.4R;

(b) the interim management report, included within the Chairman's Statement and Investment Manager's Report, includes a fair review of the information required by DTR 4.2.7R, being the significant events of the first half of the year and the principal risks and uncertainties for the remaining six months of the year; and

(c) the financial statements include a fair review of related party transactions and changes thereto, as required by DTR 4.2.8R.

The Responsibility Statement has been approved by the Board.

Paul Thomas

Director

29 October 2012

Investment Manager's Report

Temporis Capital LLP (the "Investment Manager") presents a review of the investment activities of the Company since the last annual report.

Ordinary share portfolio

A summary of the ordinary share fund's investment valuations as at 31 August 2012 and gains and losses during the six months ended 31 August 2012 is given below.

Q Investment complies with VCT regulations on qualifying holdings.

PQ  Part of the investment complies with VCT regulations on qualifying holdings.

 * A company in which the ordinary share fund of Ventus VCT plc has also invested. The Company and Ventus VCT plc are both managed by Temporis Capital LLP.

** Through development funding agreements entered into by Redeven Energy Limited, the Company holds the right to invest in companies which hold lease options on sites for which Redeven Energy Limited has obtained planning permission (further details are presented below). On the Company's Statement of Financial Position, the value attributed to Redeven Energy Limited is apportioned between investments, in respect of the investment rights attached to the development funding agreement and investments in subsidiaries in respect of the Company's holding in Redeven Energy Limited.

*** Spurlens Rig Wind Limited is accounted for within investments in subsidiaries on the Company Statement of Financial Position.

During the six months ended 31 August 2012, the Company's ordinary share fund advanced net new funds of £65,000 to acquire a 50% shareholding in Eye Wind Power Limited. As part of this transaction, the Company disposed of its entire interest in Wind Power Renewables Limited. This interest consisted of 48% of the ordinary shares of Wind Power Renewables Limited as well as a loan of £138,000 plus accrued interest of £31,000. The cost of the Company's investment in Eye Wind Power Limited is recorded as £234,000, representing the cash advanced plus disposal of the Wind Power Renewables Limited loan (including accrued interest), however the value of the investment is considered to be the price of recent investment made by Ventus VCT plc for the same shareholding, which was £352,000.

During the period, Broadview Energy Limited repaid the Company a loan of £1,800,000 together with interest accrued of £778,000 and a prepayment fee of £162,000.

Summary of Investments

Details of the valuations of the investments held by the ordinary share fund are shown in the table above.

OPERATIONAL WIND

Each of the following investee companies owns and operates a single wind farm:

The Company's investments in companies which own an operating wind farm are valued using discounted cash flow models. The values of Craig Wind Farm Limited and Achairn Energy Limited increased during the six months ended 31 August 2012 primarily because the underlying project debt in each company decreased during the period and the Investment Manager amended the valuation models to reflect a more realistic distribution profile subsequent to full repayment of senior debt. The value of A7 Lochhead Limited was also impacted by these factors but decreased during the six month period because of a change in the profile of the projected cash flows combined with the impact of discounting a shorter period of projected future cash flows at 31 August 2012 than at 29 February 2012. The value of Greenfield Wind Farm Limited increased significantly during the six months ended 31 August 2012 because the investment was still held at cost as at 29 February 2012 and has subsequently been revalued on a discounted cash flow basis in line with the Company's accounting policy which is discussed in more detail below.

Set out below is a brief summary of the performance of the investee companies operating wind farms. All the companies operating wind farms experienced good availability during the six months ended 31 August 2012, however wind speeds were below average, resulting in output across the portfolio being 18% below budget. In the 12-month period ended 31 August 2012, all the wind farms operated by investee companies of the Company produced at least 95% of budgeted output, with an average across the portfolio of 100%. It should be noted that there considerable lags between the production of electricity of a wind farm operated by an investee company and the ultimate payment of dividends from the investee company to the Company.

Craig Wind Farm Limited

The electricity production of Craig Wind Farm Limited during the six months ended 31 August 2012 was 83% of budget. The Company received dividends and mezzanine interest cash payments totalling £60,000 from Craig Wind Farm Limited in the six months ended 31 August 2012, representing a 7.2% cash yield during the six-month period on the cost of investment. The value of the Company's investment in Craig Wind Farm Limited increased by £21,000 during the six months ended 31 August 2012.

Achairn Energy Limited

The electricity production of Achairn Energy Limited during the six months ended 31 August 2012 was 78% of budget. The Company received dividends and mezzanine interest cash payments totalling £167,000 from Achairn Energy Limited in the six months ended 31 August 2012, representing a 6.6% cash yield during the six-month period on the cost of investment. The value of the Company's investment in Achairn Energy Limited increased by £110,000 during the six months ended 31 August 2012.

A7 Lochhead Limited

The electricity production of A7 Lochhead Limited during the six months ended 31 August 2012 was78% of budget. The Company received dividends and mezzanine interest cash payments totalling £79,000 from A7 Lochhead Limited in the six months ended 31 August 2012, representing an 11.5% cash yield during the six-month period on the cost of investment. The value of the Company's investment in A7 Lochhead Limited decreased by £9,000 during the six months ended 31 August 2012.

Greenfield Wind Farm Limited

Greenfield Wind Farm Limited began exporting electricity to the grid in January 2011 and became fully operational in March 2011. Electricity production during the six months ended 31 August 2012 was 83% of budget. The ordinary share fund of the Company received mezzanine interest cash payments totalling £360,000 from Greenfield Wind Farm Limited in the six months ended 31 August 2012, representing an 18.1% cash yield during the six-month period on the cost of investment. The value of the ordinary share fund's investment in Greenfield Wind Farm Limited increased by £745,000 during the six months ended 31 August 2012. Although Greenfield Wind Farm Limited's wind farm had been operating for over a year as at 29 February 2012, it had not been taken over because there were technical issues which had not been resolved to the satisfaction of the lender's engineer at that date. The take-over was approved by the senior lender's engineer on 30 April 2012. As take-over of Greenfield Wind Farm Limited's wind farm had not occurred as at 29 February 2012, it was not considered appropriate to revalue the investment based on discounted cash flows as at that date. See discussion of the application of the Company's valuation policy below and in note 1 to the financial statements.

OPERATIONAL COMPANIES IN THE WIND SECTOR

Broadview Energy Limited

Broadview Energy Limited is an independent renewable energy company that develops, constructs and operates wind farms throughout the UK. In May 2012, Broadview completed the sale of two operating wind farms and one wind farm in construction (comprising 25.35 megawatts in total). The consideration received by Broadview Energy Limited for these assets has now been reported in the annual financial statements of Infinis Wind Holdings Limited as £17.4 million including £5.3 million consideration deferred until completion of the wind farm in construction. In addition to the net cash resulting from the sale of these assets and the deferred consideration, Broadview has a development portfolio comprised of two consented projects with a total of eight turbines (16 to 24 megawatts in total), two further projects in the planning process (totalling nine turbines and 18 to 27 megawatts) and several other projects at earlier stages of the development process. One of the Broadview Energy Limited's consented projects, Spring Farm Ridge, was approved on appeal in July 2012, however this appeal decision is now facing a legal challenge in the High Court by local residents.

The Company's holding of ordinary shares in Broadview Energy Limited has been valued based on the reported value of the assets sold and the Investment Manager's estimate of the market value of the value of the remaining consented wind energy projects and the development pipeline. The valuation as at 31 August 2012 is unchanged from the valuation at 29 February 2012.

At 29 February 2012, the Company had a secured mezzanine loan investment of £1,800,000 with Broadview Energy Limited that accrued interest at 11% per annum. This mezzanine loan, which was secured by one of the wind farm assets recently sold by Broadview Energy Limited, had a final maturity date of 31 March 2024. In connection with the sale of the wind farm asset securing this mezzanine loan, the loan was repaid in full, including accrued interest, on 4 May 2012. In accordance with the terms of the mezzanine loan, Broadview Energy Limited also paid an early repayment fee of £162,000.

As well as the equity investment made by the ordinary share fund, the Company's "C" share fund had two mezzanine loans outstanding at 29 February 2012 to subsidiaries of Broadview Energy Limited, which were also repaid in full, including accrued interest, on 4 May 2012. See the discussion of BEGL 2 Limited and BEGL3 Limited below.

Firefly Energy Limited

Firefly Energy Limited is the parent company of a group of trading subsidiaries that have entered into long term power purchase agreements with customers for 41.7 megawatts of generating capacity across five wind farm developments. The five wind farm projects are fully operational and generating revenues. Each of the five power purchase agreements expires on 31 March 2016. In addition to earning a margin on the five long-term power purchase agreements, Firefly Energy Limited also provided power purchase agreement and management accounting services to third-party renewable energy project operators.

The Company has a loan investment in Firefly Energy Limited which had a principal amount outstanding at 31 August 2012 of £160,000 and which accrues interest at 9% per annum. The loan is valued in the Company's accounts based on the discounted projected future cash flows from the five power purchase agreement on which the company earns a spread, net of projected administration costs. As at 31 August 2012, the value of the loan was £139,000. The loan, as valued, is projected to be paid off, with interest, by the end of 2016. The Company also holds 50% of the ordinary shares of Firefly Energy Limited (cost of £200,000) which were written down to nil value in the year ended 29 February 2012.

OPERATIONAL LANDFILL GAS

Redimo LFG Limited

Redimo LFG Limited operates four landfill gas electricity generation sites in the north of England. Redimo LFG Limited is not paying dividends to the Company and has been held in the accounts at a nil valuation since late 2010. Given the senior debt commitments of the Redimo LFG Limited's subsidiaries, it is highly unlikely that the Company will recover any part of its investment in Redimo LFG Limited therefore the loss in value in respect of this investment is treated as a realised loss.

Renewable Power Systems (Dargan Road) Limited

Renewable Power Systems (Dargan Road) Limited operates a landfill gas electricity generation site in Northern Ireland. The site performed in line with expectations over the six months to 31 August 2012 and disposed of the first of its five generators as the volume of gas at the site reduced. The disposal of the generator resulted in significant cash inflow for the investee company. The Company received dividends and loan interest payments totalling £255,000 from Renewable Power Systems (Dargan Road) Limited in the six months ended 31 August 2012, representing a 13.4% cash yield during the six-month period on the cost of investment.

The investment in Renewable Power Systems (Dargan Road) Limited is valued by applying a discount rate to the revenues the Company expects to receive from the company. The revenue streams are finite and so, all other things being equal, this will mean that the holding value will fall over time as the projected revenues are realised and paid over to the Company. However, the value of the Company's investment in Renewable Power Systems (Dargan Road) Limited increased by £398,000 in the six months ended 31 August 2012 because the total future cash flows available for distribution from the investment has been revised upwards. Also the lower risk profile of this investment has led to a decision to reduce the discount factor applied in the valuation analysis. The impact of the reduction in the discount factor on the value of the investment in prior periods is not considered to be material.

OPERATIONAL SMALL HYDRO

Osspower Limited

The Company holds 50% of the ordinary shares of Osspower Limited, which owns and operates a 1.99 megawatt hydro project at Allt Fionn Ghlinne in Scotland. The Allt Fionn Ghlinne site was commissioned by June 2012, on schedule and on budget. The Company did not receive dividends from Osspower Limited in the six months ended 31 August 2012. The value of the Company's investment in Osspower Limited increased by £1,490,000 during the six months ended 31 August 2012, as Osspower Limited is now valued based on the discounted cash flows of the Allt Fionn Ghlinne project.

Osspower Limited has consent for a further three small hydro projects on the same estate as the Allt Fionn Ghlinne project. The Investment Manager is working with the management of Osspower Limited to develop the appropriate strategy for financing the construction of those three projects.

The Company entered into a cost overrun guarantee in May 2011 with the lending bank on behalf of Osspower Limited in the amount of £750,000. The guarantee is in the form of a loan to be drawn down in the event of the construction costs of this scheme exceeding £7.5 million. As at the date of this report, the Investment Manager considers the probability of the guarantee being drawn down to be very low and the value of the liability associated with the guarantee is considered to be insignificant at 31 August 2012. Further details are presented in note 19 of the financial statements.

DEVELOPMENT AND PRE-PLANNING

The Small Hydro Company Limited

The Small Hydro Company Limited holds planning permission on five low-head run-of-river small hydroelectric projects in England and is currently assessing the strategic options for raising further finance to construct and operate the projects. The schemes are expected to be eligible under the Feed-In Tariff regime.

The Company made an equity investment of £115,000 and holds 22.5% of the ordinary shares of The Small Hydro Company Limited. The Company has also provided a shareholder loan facility of £534,000. Because of uncertainty about the economics of the consented projects, uncertainty regarding the future tariff levels and the requirement for further funding to take the projects forward, in the financial year ended 29 February 2012 the Company recorded a write-down in its investment in The Small Hydro Company Limited of £649,000 as well as a write-down of accrued interest on the loan of £89,000. The Investment Manager, with Canal & River Trust, also a shareholder, is considering ways in which to restructure the investment in order that the Company may realise value from the consented schemes. The restructuring will include the discharging of the loan and accrued interest owed by The Small Hydro Company Limited to the Company, therefore the write down of the loan investment is considered to be a realised loss in the Company's accounts.

Redeven Energy Limited

Through development funding agreements entered into by Redeven Energy Limited, the Company holds investment rights in three companies intending to develop and operate wind farms in East Anglia. Each of the three companies holds a lease option over a site for which planning permission has been sought and received. The planning permissions on the three sites total nine turbines. The Company is working with the three development companies to proceed with the building out of the projects as soon as possible.

Spurlens Rig Wind Limited

Spurlens Rig Wind Limited is the developer of a six-turbine site in the Scottish Borders which was refused for planning in December 2011. There are no plans to appeal the planning refusal, so the proposed six-turbine project is no longer viable. As such, the Company's holding of 60% of the ordinary shares of Spurlens Rig Wind Limited has been written down in value to £32,000 as at 29 February 2012. The valuation of Spurlens Rig Wind Limited is equal to the company's net current assets which, primarily, comprise VAT receivable. The Spurlens Rig development team is reviewing the options to re-apply for permission to build a smaller project on the same site which might address the reasons for refusal.

Eye Wind Power Limited

On 11 July 2012 the ordinary share funds of the Company and Ventus VCT plc participated in a transaction where each acquired a 50% shareholding in Eye Wind Power Limited, a company which holds a site in Suffolk with planning consent to build a two-turbine, 6 megawatt wind farm. The pre-planning development of this site had been undertaken by Wind Power Renewables Limited, a company in which the Company previously held 48% of the ordinary shares and to which the Company had an outstanding loan of £138,000 plus accrued interest of £31,000. In executing this transaction, the Company advanced net new funds of £65,000 and disposed of its entire interest, both equity and debt, in Wind Power Renewables Limited. The Company and Ventus VCT plc intend to finance Eye Wind Power Limited to allow it to construct and operate the two-turbine wind farm. The investment made in Eye Wind Power Limited is not a qualifying holding for the purposes of the VCT regulations. The value of the investment is held at £352,000 as discussed in the introduction to the Investment Manager's report. On 25 October 2012, the Company committed to invest a further £750,000 in ordinary shares of Eye Wind Power Limited and to provide a loan facility of £1,050,000. This further investment has been structured to be a qualifying holding for the purposes of the VCT regulations.

Wind Power Renewables Limited

The Company disposed of its investment in Wind Power Renewables Limited on 11 July 2012 as discussed above.

Olgrinmore Limited

Olgrinmore Limited was a potential two-turbine site in Caithness which was refused in planning and is being held at nil value. The lease option held by Olginmore Limited has expired and the directors are taking steps to close down the company and have it struck off the register. The Company's investment in Olgrinmore Limited was written down to nil value in the previous financial period. The amount by which the company's value has been written down is considered to be a realised loss.

WASTE WOOD BIOMASS

PBM Power Limited

Sandsfield Heat & Power Limited

Twinwoods Heat & Power Limited

PBM Power Limited, Sandsfield Heat & Power Limited and Twinwoods Heat & Power Limited are companies that constructed biomass power plants fired with waste wood. The plant run by the companies experienced severe operating difficulties. The three investments had all been written down to nil value in previous accounting periods. During the six months ended 31 August 2012, the Company's interest in Twinwoods Heat & Power Limited (comprising 50% of the ordinary shares and a mezzanine loan of £400,000) was sold for a nominal consideration. Sandsfield Heat & Power Limited is currently in administration and is expected to go into liquidation by the end of 2012. There is no possibility of any recovery from PBM Power Limited and Sandsfield Heat & Power Limited, therefore the loss in value in respect of these investments is a realised loss. PBM Power Limited is not considered to be a qualifying holding.

"C" share portfolio

A summary of the "C" share fund's investment valuations as at 31 August 2012 and gains during the six months ended 31 August 2012 is given below.

Q Investment complies with VCT regulations on qualifying holdings.

PQ Part of the investment complies with VCT regulations on qualifying holdings.

* A company in which the "C" share fund of Ventus VCT plc has also invested. The Company and Ventus VCT plc are both managed by Temporis Capital LLP.

During the six months ended 31 August 2012, the Company's "C" share fund invested £17,500 in Iceni Renewables Limited and has made an initial investment of £20,000 in Blackhaugh Wind Limited. During the period, the Company received payment of £1,200,000 plus accrued interest with respect to short-term investments with renewable energy companies. These short-term investments, in the form of secured loans, had been made in order to generate investment yields for the Company during the "C" share investment period as the wind investment portfolio was developed. The interest on these secured loans has helped defray the "C" share fund's running costs and allowed the Company to pay dividends to holders of "C" shares. There is one remaining short-term investment outstanding, a secured loan to EcoGen Limited in the amount of £410,000 plus accrued interest of 12% per annum. This loan is scheduled for repayment on 31 December 2012.

The Company's "C" share fund has approximately £2.6 million of cash and cash equivalents available to be invested. The Investment Manager has identified suitable investments to invest these funds and expects the "C" share funds to be substantially invested by the end of the current financial year.

Summary of Investments

Details of the valuations of the investments held by the "C" share fund are shown in the table above.

OPERATIONAL WIND

Each of the following investee companies owns and operates a single wind farm:

Wind farm

capacity

 (megawatts) Operational since Location

Greenfield Wind Farm Limited 12.3 March 2011 South Lanarkshire, Scotland

White Mill Windfarm Limited 14.35 August 2012 Cambridgeshire, England

The Company's investments in companies which own an operating wind farm are valued using discounted cash flow models. The valuesof Greenfield Wind Farm Limited and White Mill Windfarm Limited increased during the six months ended 31 August 2012. Each investment was valued using a discounted cash flow model as at 31 August 2012, whereas at 29 February 2012 each investment was held at cost.

Greenfield Wind Farm Limited

This investment is held by both the ordinary and "C" share funds and is discussed above. The "C" share fund of the Company received mezzanine interest cash payments totalling £271,000 from Greenfield Wind Farm Limited in the six months ended 31 August 2012, representing an 18.1% cash yield during the six-month period on the cost of investment. The value of the "C" share fund's investment in Greenfield Wind Farm Limited increased by £559,000 during the six months ended 31 August 2012.

White Mill Windfarm Limited

White Mill Windfarm Limited began exporting electricity to the grid in May 2012 and became fully operational in August 2012. The Company did not receive dividends or mezzanine interest cash payments from White Mill Windfarm Limited in the six months ended 31 August 2012. The value of the Company's investment in White Mill Windfarm Limited increased by £904,000 during the six months ended 31 August 2012.

WIND UNDER CONSTRUCTION

AD Wind Farmers Limited

The Company's investment of £1,000,000 in AD Wind Farmers Limited was completed in December 2011. The Company owns 50% of the ordinary share capital of AD Wind Farmers Limited. AD Wind Farmers Limited is an investor in Allt Dearg Wind Farmers LLP, which is constructing a 10.2 megawatt wind farm near Lochgilphead, Scotland. The wind farm will operate 12 Vestas V52 turbines. Construction of the wind farm commenced in December 2011 and is currently on schedule and on budget. The turbines have been erected and the wind farm is scheduled for take-over in December 2012.

DEVELOPMENT AND PRE-PLANNING

Ovalau Investments 1 Limited

Ovalau Investments 2 Limited

In February 2012, the Company invested £1,000,000 in Ovalau Investments 1 Limited and £1,000,000 in Ovalau Investments 2 Limited. These two companies have been established to construct wind farms on identified sites which have planning consent. Ovalau Investments 1 Limited and Ovalau Investments 2 Limited are currently in negotiations with turbine suppliers and civil works contractors in connection with the construction of two wind farms. The development of these sites by the companies is dependent on the outcome of commercial negotiations which have not yet been concluded.

Iceni Renewables Limited

Through Iceni Renewables Limited, the Company has invested £417,000 for the development of two wind energy development projects in Scotland. The first, named Craigannet, is a six-turbine project which was submitted for planning on 27 January 2012. The other site is known as Merkins and was also submitted for planning on 27 January 2012. Lomond Energy Limited is the development manager of these sites. Determination of both these planning applications is expected before the end of 2012, although further delays are possible. The investment in Iceni Renewables Limited is not a qualifying holding for the purposes of the VCT regulations.

Blackhaugh Wind Limited

The Company made an investment in Blackhaugh Wind Limited during the six months ended 31 August 2012, a company which intends to apply for planning permission to construct a wind farm in the Scottish Borders. The investment in Blackhaugh Wind Limited is not a qualifying holding for the purposes of the VCT regulations.

SHORT-TERM INVESTMENTS WITH RENEWABLE ENERGY COMPANIES

Renewable Power Systems Limited

The loan from the Company's "C" share fund to Renewable Power Systems Limited, which had a balance of £200,000 at 29 February 2012, was repaid in full, along with accrued interest, on 3 August 2012.

BEGL 2 Limited and BEGL 3 Limited

The loans from the Company's "C" shares fund to BEGL 2 Limited and BEGL 3 Limited, which each had a balance of £500,000 at 29 February 2012, were repaid in full, along with accrued interest, on 4 May 2012.

EcoGen Limited

The Company has provided a loan facility of £410,000 to EcoGen Limited, a developer and operator of wind energy projects. This loan, together with a matching loan made by the "C" share fund of Ventus VCT plc, is secured against EcoGen Limited's one-third shareholding in Fenpower Limited, a company in which the Ventus VCT plc ordinary share fund holds an investment. The Company and Ventus VCT plc are both managed by Temporis Capital LLP. The loan accrues interest at the rate of 12% per annum. The loan, together with accrued interest, is to be repaid in full no later than 31 December 2012. The investment in EcoGen Limited is not a qualifying investment for the purposes of VCT regulations.

Valuation of Investments

It is the accounting policy of the Company to hold its investments at fair value. In this report, the Company's investments in investee companies which operate renewable energy assets are valued using a discounted cash flow methodology, unless material uncertainties exist as to the future receipt of cash flows, in which case an investment is valued at cost subject to an impairment review. In prior periods the Company had applied its valuation policy in a manner such that investments in companies operating renewable energy assets were valued at cost until a deemed satisfactory period of operations of between six and 18 months had passed. Based on the Company's experience over the past six years with investee companies developing wind and hydro projects, and given that the projects of such investee companies use well-established technology and benefit from manufacturer and contractor warranties, manufacturer performance guarantees and insurance, the Investment Manager believes the satisfactory operation of such projects should be determined based on the specific circumstances and that an arbitrary waiting period of six to 18 months is unnecessarily prudent. The impact of the change in application of this policy resulted in unrealised gains of £2,394,000 reported in the current period.

The key assumptions that have a significant impact on discounted cash flow valuations for these assets are the discount rate used, the price at which the power and associated benefits can be sold, the amount of electricity the investee companies' generating assets are expected to produce and operating costs.

The fair value of the Company's investments in project companies which have not passed an initial satisfactory operational period, or are engaged in seeking planning permission, are determined to be the price of investment subject to a periodic impairment review.

The Company's valuation of its holding in Broadview Energy Limited is discussed above. The Company's valuation policy, including the change to the application of the policy in respect of the time period to determine satisfactory operations, is discussed in more detail in note 1 of the financial statements.

Investment Policy

The Company is focused on investing in companies developing renewable energy projects with installed capacities of two to 20 megawatts, although larger projects may also be considered. Given the target investment size, investments will generally be in companies developing projects initiated by specialist small-scale developers and smaller projects which are not attractive to large development companies and utilities.

Asset Allocation

The Investment Manager seeks to allocate the Company's investments in equity securities and loan stock of companies owning renewable energy projects, primarily wind energy. Up to 10% of net proceeds raised from the initial share offer and the "C" share offers, respectively, may be allocated to development funding for early stage renewable energy projects prior to planning permissions being obtained.

The Company's policy is to maintain cash reserves of at least 5% of net proceeds raised from the initial share offer and the "C" share offer for the purpose of meeting operating expenses and purchasing its shares in the market. Circumstances may arise which would require the Company to hold less than 5% of net proceeds in cash for a limited period of time.

In order to comply with VCT requirements, at least 70% by value of the Company's investments are required to be comprised of qualifying investments.

The Company typically owns 25% to 50% of the equity share capital of each investee company and a portion of its investment in each investee company may be in the form of loan stock.

The Company's uninvested funds are placed on deposit or invested in short-term fixed income securities until suitable investment opportunities are found.

Risk Diversification

The geographical focus of the portfolio is the UK and the majority of investments made to date are in the wind sector. Funds are invested with a range of small-scale independent developers so project risk is not concentrated on only a few developers. The portfolio contains projects at different stages of the asset lifecycle, ranging from pre-planning to construction and then into operation. Investments are made via subscriptions for new share capital, or acquiring existing share capital, or via loan stock instruments in order to secure a negotiated level of return from the project. The majority of investments are made in special purpose companies set up specifically to develop each project and bank debt financing is non-recourse to the Company. The Company intends to continue to have a portfolio concentrated on wind energy assets.

The returns from projects depend on the UK Government's continued support for renewable energy, primarily under the Renewables Obligation and Feed-in Tariff mechanisms. The effects of any negative change to this policy are mitigated by the UK Government's historic practice of grandfathering financial support mechanisms for existing assets. This risk is further mitigated by the Company typically negotiating fixed and/or floor price mechanisms into the power purchase agreements entered into by project companies for the sale of their generated output.

Gearing

The Company does not intend to borrow funds for investment purposes. However the Company is exposed to gearing through its investee companies which typically fund the construction costs of each project through senior bank debt finance. The Investment Manager is involved in assisting investee companies in negotiating the terms of this finance to ensure competitive terms are achieved. The interest rate is typically fixed via an interest rate swap for the duration of the bank loan so that investee companies are not exposed to changes in market interest rates.

To the extent that borrowing should be required by the Company for any purpose, the Directors shall restrict the borrowings of the Company. The aggregate principal amount at any time outstanding in respect of money borrowed by the Company shall not, without the previous sanction of an ordinary resolution of the Company, exceed a sum equal to 10% of the adjusted share capital and reserves of the Company in accordance with its Articles.

Maximum Exposures

In order to gauge the maximum exposure of the funds to various risks, the following can be used as a guide:

i) Investments in qualifying holdings

70-95% of the funds will be invested in qualifying holdings no later than three years after the date that provisional approval by HMRC of the Company's status as a VCT becomes effective. The relevant compliance date for the initial share offer was 1 March 2009 and for the first "C" share offer and ordinary share "top-up" offer was 1 March 2012. The relevant compliance date for the second "C" share offer is 1 March 2013.

For the purposes of the 70% qualifying holdings requirement, disposals of qualifying investments for cash may be disregarded for a period of six months. Where a VCT breaches one or more of the requirements due to factors outside of its control, it may apply to HMRC for a determination that the breach will be disregarded for a period of 90 days while the breach is remedied.

ii) Concentration limits

Under VCT regulations no more than 15% of the Company's total assets should be in a single investee company at the time the investment is made in that investee company.

iii) Investments in pre-planning projects

In accordance with the Company's investment policy, a maximum of 10% of the net funds raised from each of the initial share offer and "C" share offer respectively may be invested in pre-planning projects.

VCT Regulations

The Finance Bill 2012, which became law on 19 July 2012, includes measures to increase limits on certain restrictions relating to VCT Qualifying Investments in respect of investments made on or after 6 April 2012. The limit on the number of employees of an investee company has increased from 50 to 250, the limit on gross assets immediately prior to investment has increased from £7 million to £15 million, the limit on gross assets immediately after investment has increased from £8 million to £16 million and the limit on the amount that can be invested in an individual company in any 12-month period has increased from £2 million to £5 million. The £5 million limit on the amount of funds an investee company can receive in any 12-month period must take into account VCT funding from all sources, as well as EIS investment and other state-aided investment. The Finance Bill 2012 also removed the annual £1 million limit on the amount a VCT can invest in a Qualifying Investment, except where the investee company trades through a partnership or joint venture. Finally, the Finance Bill 2012 has provisions relating to a "disqualifying purpose" test, which will enable HMRC to deny Qualifying Investment status for investments structured specifically in a way to access VCT tax reliefs when the investment would otherwise not have been a Qualifying Investment.

Market Outlook

According to the Department of Energy and Climate Change (DECC), approximately one-fifth of the UK's electricity generating capacity will shut down over the next decade as old coal and nuclear power stations close. DECC predicts that more than £110 billion in investment is needed to replace this generation capacity and upgrade the grid. In the longer term, by 2050, DECC expects electricity demand to double, as the UK shifts more transport and heating onto the electricity grid. This would likely create upward pressure on wholesale electricity prices in the long term.

Although the renewable energy industry in the UK benefits from the favourable long-term price outlook for electricity, the industry continues to operate in a state of political uncertainty. There is clear disagreement within the governing coalition on how renewable energy policy should be implemented, with a significant group of Conservative MPs, including certain ministers, having expressed public opposition to onshore wind. On the positive side, the Government has consistently re-affirmed the concept that existing projects will always be "grandfathered" with respect to future changes in tariffs. Furthermore, the Scottish Government (where a significant portion of the Company's investments are based) continues to provide strong support for renewables.

In May of this year, the UK Government published legislation for electricity market reform (EMR) and stated that it expects the provisions in the reform package to begin taking effect in 2014. The proposed law is meant to encourage the development of a balanced portfolio of renewable generation capacity, new nuclear generation capacity and carbon capture and storage (CCS) and to ensure that these technologies can compete in the market-place. Many industry observers are sceptical about the timeline for implementation of the reforms or even whether the reforms as set out will be implemented. Recent developments in the nuclear sector, have added to uncertainty about the implementation of EMR, as RWE and E.ON have announced their withdrawal from the nuclear sector in the UK, and industry sources estimate that a Government-backed floor price of £120 to £150 per megawatt-hour will be required in order to support new nuclear plant.

In July, the Government confirmed the level of support for new onshore wind projects at 0.9 Renewables Obligation Certificates ("ROCs") per megawatt-hour from 1 April 2013 to 31 March 2014, although the level of ROCs for onshore wind beyond 31 March 2014 will be subject to further consultation. Although the level of ROCs for onshore wind is important for the industry, the level of ROCs for new wind farms does not impact on any existing wind farms operated by the Company's investee companies. The Investment Manager's analysis of any future investments by the Company always take into account the level of ROCs expected to be available for projects operated by investee companies at the time of commissioning. Because the Company's target returns remain unchanged, any future changes in ROC banding for onshore wind will be reflected in the price the Company will pay for investments.

Also in July, the Government confirmed tariff levels, tariff digression rates and rules around pre-accreditation and site definition for small hydro projects. The tariffs and rules, which were in line with industry expectations, are relevant to the Company because of its investment in Osspower Limited.

Wholesale electricity prices have been reasonably stable in 2012. The Company has relatively little exposure to short-term wholesale electricity prices, as its investee companies sell their electricity output pursuant to power purchase agreements with wholesale electricity prices that are fixed over the medium term.

Turbine prices (primarily denominated in Euros) have remained relatively stable over the past year. The UK market for turbines has been tight in the past year as developers have rushed to order turbines to be built and commissioned prior to 1 April 2013, when ROCs for onshore wind will be reduced by 10%. Although orders for turbines to be commissioned prior to 1 April 2013 have already been placed, there may well be a further period of tightening in the UK turbine market as developers endeavour to commission projects prior to 1 April 2014, as there is uncertainty as to the level of ROCs for onshore wind beyond that date. (See above for a discussion of the ROC regime for onshore UK wind projects). On the positive side, the recent strength of Sterling against the Euro has been favourable for UK operators acquiring turbines with prices denominated in Euros.

The banking market for renewable energy projects remains challenging. There is limited availability of senior debt finance for renewable energy projects of 5 to 20 megawatts, which is the typical size range for investee companies of the Company. Lending margins and arrangement fees remain very wide by historical standards and banks are unable to lend over the same term as they had previously. Although the debt market has made it more difficult to finance renewable energy projects, the shortage and cost of senior debt has created an opportunity for the Company to invest greater amounts of equity in companies with lower leverage (which has been facilitated by the recent changes in the VCT rules removing the annual £1 million limit on the amount a VCT can invest in a portfolio company). Investments in portfolio companies with lower leverage should reduce the volatility in dividends from those companies compared to the dividends from portfolio companies with higher leverage. Existing investments of the Company are not impacted by the current lending environment for renewable energy projects.

Temporis Capital LLP

Investment Manager

29 October 2012

Directors and Advisers

Directors

Alan Moore (Chairman)

Paul Thomas

Colin Wood

Company Secretary

The City Partnership (UK) Limited

Thistle House

21 Thistle Street

Edinburgh

EH2 1DF

Auditor

PKF (UK) LLPFarringdon Place

20 Farringdon Road

London

EC1M 3AP

Principal Banker

HSBC Bank plc

60 Queen Victoria Street

London

EC4N 4TR

Investment Manager

Temporis Capital LLP

Berger House

36/38 Berkeley Square

London

W1J 5AE

Registrar & Registered Office

Capita Registrars

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

Broker

Matrix Corporate Capital LLP

1 Vine Street

London

W1J 0AH

VCT Taxation Adviser

PricewaterhouseCoopers LLP

1 Embankment Place

London

WC2N 6RH

Solicitors

Berwin Leighton Paisner LLP

Adelaide House

London Bridge

London

EC4R 9HA

Howard Kennedy LLP

19 Cavendish Square

London

W1A 2AW

Independent Review Report to Ventus 2 VCT plc

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six month period ended 31 August 2012 which comprise the Group Statement of Comprehensive Income, the Group and Company Statements of Financial Position, the Group and Company Statements of Changes in Equity, the Group and Company Statements of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 August 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PKF (UK) LLP

London, UK

29 October 2012

Group Statement of Comprehensive Income

for the six month period ended 31 August 2012 (unaudited)

The Group has only one class of business and derives its income from investments made in the UK.

The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union. The revenue and capital columns shown above constitute supplementary information prepared under the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" 2009 ("SORP") published by the Association of Investment Companies. 

The accompanying notes on form an integral part of these financial statements.

Group Statement of Comprehensive Income

for the six month period ended 31 August 2011 (unaudited)

The Company has only one class of business and derives its income from investments made in the UK.

The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union. The revenue and capital columns shown above constitute supplementary information prepared under the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" 2009 ("SORP") published by the Association of Investment Companies. 

The accompanying notes on form an integral part of these financial statements.

Group Statement of Comprehensive Income

for the year ended 29 February 2012 (audited)

The Group has only one class of business and derives its income from investments made in the UK.

The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union. The revenue and capital columns shown above constitute supplementary information prepared under the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" 2009 ("SORP") published by the Association of Investment Companies.

The accompanying notes on form an integral part of these financial statements.

Group Statement of Financial Position

as at 31 August 2012 (unaudited)

Approved by the Board and authorised for issue on 29 October 2012.

Paul Thomas

Director

Ventus 2 VCT plc. Registered No: 05667210

The accompanying notes on form an integral part of these financial statements.

Company Statement of Financial Position

as at 31 August 2012 (unaudited)