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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Baronsmead Second Venture Trust Plc | LSE:BMD | London | Ordinary Share | GB0030028103 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 55.50 | 54.00 | 57.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | -1.2M | -6.91M | -0.0192 | -28.91 | 200.12M |
From Apr 2019 to Apr 2024
TIDMBMD
RNS Number : 4003P
Baronsmead Second Venture Trust PLC
17 November 2016
Baronsmead Second Venture Trust plc
Annual Financial Report for the period 1 January to 30 September 2016
Financial Headlines
-- Net asset value ("NAV") per share increased 2.5 per cent to 109.17p before deduction of dividends in the 9 month period ended 30 September 2016.
-- NAV total return of 295.8p to shareholders for every 100.0p invested at launch.
-- Dividends totalled 17.0p in the 9 month period to 30 September 2016, after the second interim dividend of 10.0p paid on 30 September 2016.
-- Net annual dividend yield of 19.5 per cent and gross annual yield of 28.9 per cent for higher rate tax payers.
Our Investment Objective
Baronsmead Second Venture Trust is a tax efficient listed company which aims to achieve long-term investment returns for private investors.
Investment Policy
-- To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.
-- Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.
Dividend Policy
The board of Baronsmead Second Venture Trust has the objective to maintain a minimum annual dividend level of around 4.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed.
CHAIRMAN'S STATEMENT
I am pleased to report a 2.5 per cent (2.7p) increase in NAV per share for the nine months to 30 September 2016 before dividend payments.
Tax free dividends totalling 17.0p per share were paid during the period: an interim dividend of 7.0p was paid in June 2016 and a second interim dividend of 10.0p was paid in September 2016, in lieu of a final dividend. Other than in the year to 31 December 2014 when dividends totalling 17.0p per share were also paid, in eight of the previous nine years the Company paid annual dividends of 7.5p per share. The dividends paid in the nine months to 30 September 2016 should therefore be viewed as exceptional.
Merger Information and Financial Reporting
On 11 March 2016, Baronsmead VCT 3 plc ("BVCT3") merged with Baronsmead VCT 4 plc ("BVCT4") (the "BVCT4 Merger") and the enlarged BVCT3 changed its name to Baronsmead Second Venture Trust plc ("BSVT" or the "Company"). In addition, on 17 October 2016 the Company and Baronsmead VCT 5 plc ("BVCT5") published circulars in connection with recommended proposals for their merger (the "BVCT5 Merger") and convened general meetings at which these proposals would be voted on by their respective shareholders. At the general meetings held by the Company and BVCT5 on 8 November 2016, the Company's shareholders and the shareholders of BVCT5 voted in favour of their respective resolutions concerning the BVCT5 Merger proposals. At the time of writing, the proposed merger with BVCT5 remains subject to the shareholders of BVCT5 approving the resolution to place BVCT5 into members' voluntary liquidation to be proposed at a general meeting to be held on 30 November 2016. Should this resolution be approved, the BVCT5 Merger would become effective resulting in the Company having a combined NAV of approximately GBP180.0m making it one of the largest VCTs in the industry.
The BVCT4 Merger was undertaken by way of the transfer of the assets and liabilities of BVCT4 in consideration for the issue of new shares in BSVT, on a NAV for NAV basis, to the shareholders of BVCT4. As a result, these mergers are accounted for as acquisitions in the Company's financial reports. If approved, the BVCT5 Merger will be completed on similar terms to the BVCT4 Merger.
In August 2016, the Company changed its financial year end to 30 September. As a result this report and accounts cover the nine months to 30 September 2016 during which the BVCT4 Merger became effective. Consequently, the comparative figures in these accounts only relate to the Company prior to the BVCT4 Merger and are therefore not a true comparison to the period under review.
Results
During the nine months to 30 September 2016, the Company's NAV per share increased 2.5 per cent from 106.46 to 109.17p before dividends.
Hot Features
Premium
pence
per
ordinary
share
-------------------------- ----------
NAV as at 1 January 2016 106.46
-------------------------- ----------
Valuation increase (2.5
per cent) 2.71
-------------------------- ----------
NAV as at 30 September
2016
before dividends 109.17
-------------------------- ----------
Less:
Interim dividend paid on
3 June 2016 (7.00)
-------------------------- ----------
Second interim dividend
paid on
30 September 2016 (10.00)
-------------------------- ----------
NAV as at 30 September
2016
after dividends 92.17
========================== ==========
Historically, the Company's annual dividend payments have exceeded the dividend policy target of 4.5p as annual dividends have averaged 7.6p per share since the Company's launch in 2001. To achieve this, the Directors have sought to spread the distribution of realised capital profits from years when more gains are realised to years of fewer gains. However, the fiscal rules for VCTs do penalise the Company for holding cash. As a result, during a period when the amount realised from the sale of investments has exceeded the amount invested in new investments, we have paid a much higher dividend out of necessity.
Future dividends are, of course, subject to our ability to achieve profitable realisations as well as the impact of VCT rules. The dividends will therefore vary from time to time although we will strive to deliver the average dividend in accordance with our policy.
Portfolio Review
At 30 September 2016, the Company's portfolio comprised investments in 68 unquoted and AIM traded companies. In addition, the Company's investment in Wood Street Microcap provides investment exposure to a further 42 AIM-traded and fully listed companies.
The underlying value of the unquoted portfolio increased by 13.8 per cent over the period with many of the current investments trading well. However, volatility has been a feature of the quoted markets since the beginning of 2016. As a result, there were modest increases in the value of the AIM-traded portfolio and the investment in Wood Street Microcap of 1.3 per cent and 0.7 per cent respectively.
Investments and Divestments
In the period to 30 September 2016, the Company invested a total of GBP2.0m in 2 new and 1 follow-on investment. The amount invested is lower than in previous years principally due to the introduction of new, more restrictive VCT rules in November 2015. These changes have required the Investment Manager to adapt its investment strategy to focus on the provision of development capital to younger companies. As a result, in common with other VCTs, the rate of new investment has slowed since their introduction. In the meantime, the Company continues to comply with the 70 per cent test and will continue to search for quality investments.
The Investment Manager has an active programme for directly approaching prospective investee companies and continues to invest in its capabilities to identify a supply of new and attractive investment opportunities. The pipeline of suitable investment opportunities is improving, although it is now taking longer to establish compliance with the new VCT rules and the subsequent conversion to completed investments has proved difficult. The Investment Manager has a long track record of delivering good investment opportunities and is working hard to ensure a good supply of new investments which will, should they prove successful, secure the Company's future investment performance.
A total of GBP8.3m was realised from the sale of investments during the period, taking account of amounts realised by Baronsmead VCT 4 plc prior to the merger with the Company. This includes the sale of Kingsbridge Risk Solutions which generated a return of 3.2 times the original cost of the investments. Against this success, losses were realised on underperforming investments such as Valldata Group and Fisher Outdoor Leisure Holding.
Full details about the investments and divestments during the period are set out in the tables below and in view of the new VCT rules, the Company has updated and simplified its Investment Policy which is set out in the full Annual Report and Accounts.
Fundraising
The Company raised GBP9.7m net of expenses in February 2016 and realised approximately GBP8.3m from the sale of investments in the nine months to 30 September 2016. As a result, it is unlikely that the Company will seek to raise new funds in the current tax year, preferring to continue investing from the currently available cash resources.
Annual General Meeting
I look forward to meeting as many shareholders as possible at the Annual General Meeting to be held on 23 March 2017 at 10.00 at Saddlers Hall 40 Gutter Lane, London, EC2V 6BR. As well as my own review of the year, there will be presentations from the Manager. Should the BVCT5 Merger become effective, the invitation to the Company's Annual General Meeting will be extended to those BVCT5 shareholders who are not already shareholders of the Company and they will be especially welcome to attend.
OUTLOOK
The impact of Brexit on the UK economy has yet to be determined as its form and timetable is not yet known. This uncertainty will undoubtedly lead to much commentary in the press and increased volatility in financial markets. In particular, it is too early to determine what the implications will be with regard to the VCT rules that have been heavily influenced by the EU State Aid rules since 2007.
In the meantime, the short to medium term outlook for the companies in our diverse investment portfolio remains good. Not only has it increased substantially through the BVCT4 Merger but the steady progress of those companies' trading activity seems set to continue with a number of investments nearing maturity. The VCT industry continues to adapt to the new VCT investment rules introduced a year ago and the number of investment opportunities being considered by the Investment Manager is growing. The Manager is one of the most experienced in the sector with a track record of investing for the long term and we remain confident that it has the skills and experience necessary to deliver good quality investments that will sustain the Company's investment performance track record in the years to come.
Anthony Townsend
Chairman
17 November 2016
MANAGER'S REVIEW
The nine month period has seen another strong performance from the unquoted portfolio. There have been a number of successful divestments across the portfolio including some longer held unquoted and quoted companies.
PORTFOLIO REVIEW
Overview
The net assets of GBP140.9m were invested as follows:
NAV % of Number of % return
(GBPm) NAV * investees in
the 9 month
Asset class period **
----------------------- -------- ------- ----------- -------------
Unquoted 49.3 35 18 13.8
----------------------- -------- ------- ----------- -------------
AIM-traded companies 58.1 41 50 1.3
----------------------- -------- ------- ----------- -------------
Wood Street Microcap
Investment Fund 9.2 7 42 0.7
----------------------- -------- ------- ----------- -------------
Liquid Assets 24.3 17 N/A
----------------------- -------- ------- ----------- -------------
Totals 140.9 100 110
======================= ======== ======= =========== =============
* By value as at 30 September 2016.
** Return includes interest received on unquoted realisations during the period.
Each quarter the direction of general trading and profitability of all investee companies is assessed so that the Board can monitor the overall health and trajectory of the portfolio. At 30 September 2016, 88 per cent of the 68 companies directly held in the portfolio (excluding the investments held by Wood Street Microcap) were progressing steadily or better.
The "Investment in the period" and "Realisations in the period" tables below show the breakdown of new investments and realisations over the course of the nine month period and below is commentary on some of the key highlights in both the unquoted and quoted portfolios.
Investment Activity
During the nine month period, GBP2.0m was invested in 3 companies including 2 new additions to the portfolio and 1 follow on investment:
-- Eden Research (quoted) is focused on IP exploitation in the area of crop science where it has strong patents around micro encapsulation which is a method of safely and effectively delivering active ingredients to particular crops focused on disease prevention. Our investment will be used to fund product development.
-- LoopUp Group (quoted) is an audio conferencing software and services provider. We had tracked the business from an early stage player through to profitability and invested as part of its AIM IPO to fund its rapid growth and development.
-- SysGroup (quoted) was a follow on investment into a promising business in the IT managed services sector. As part of the transaction we secured the right to appoint a director which has subsequently been taken up.
Unquoted Portfolio
The unquoted portfolio performance has been strong, growing by around 14 per cent over the nine month period. This includes capitalised interest received on the sale of investments. The portfolio is valued by the Board using a consistent process every quarter. The majority of the value created by portfolio companies comes from trading and operational improvements Including revenue and margin growth, rather than financial leverage.
Unquoted Divestment Activity
During the period there were five full realisations which returned proceeds of approximately GBP7.8m for Baronsmead Second Venture Trust.
-- Kingsbridge Risk Solutions generated a return of 3.2x its original cost when it was sold in May 2016 after a relatively short investment period of only 26 months. Kingsbridge Risk Solutions is a specialist insurance broker providing services to freelance contractors in professions such as engineering and IT.
-- Fisher Outdoor Leisure Holdings is a distributor of cycle accessories which Baronsmead Second Venture Trust has held since 2006. The investment was realised in April 2016 for 0.8x cost which was a recovery from the full provision in 2014.
-- Following a period of strong realisations, there have been two less successful exits to report. Independent Community Care Management (high acuity care) has been partially realised recovering 0.5x the original cost. Additionally, there was no recovery of the investment in Valldata Group, (payment processing for not-for-profit sector) which was sold to an investor.
While it is disappointing to have two poor realisations in one financial period, it is in the nature of private equity investment that some investments will fail to achieve their full potential. Our track record of realisations over many years remains strong.
Quoted Portfolio (AIM-traded investments)
The quoted portfolio has remained flat with a small increase in value of 1 per cent over the nine month period following a number of years of strong performance. This performance reflects the volatility of the quoted markets particularly in the months since the following the Brexit decision. The Manager is satisfied that the quoted portfolio is well diversified and positioned for longer term prospects, not withstanding volatility which affects quoted markets from time to time.
Quoted Divestment Activity
GBP0.5m was received in proceeds from the realisation of Tangent Communications and delivered a return of 0.5x cost.
Wood Street
Wood Street Microcap Investment Fund ("Wood Street") was established by Livingbridge in May 2009 to provide flexibility for the Baronsmead VCTs to invest in larger and more liquid non VCT qualifying AIM and Small Cap opportunities. It represents another innovation introduced by the Livingbridge Quoted Team to seek performance improvement. At 30 September 2016, Baronsmead Second Venture Trust's GBP3.5m investment was valued at GBP9.2m, following a gain of a further 1 per cent over the period (2015: 19 per cent; 2014: 9 per cent; 2013: 55 per cent). As at 30 September 2016, Wood Street held investments in 42 AIM-traded and listed companies.
Liquid assets (cash and near cash)
Baronsmead Second Venture Trust had cash of approximately GBP24.0m at the period end. This asset class is conservatively managed to take minimal or no capital risk, a strategy outlined in prospectuses that have been issued in the past.
Outlook
The current portfolio is diversified and provides a good foundation for the Company. The immediate challenge as highlighted in the Chairman's statement is to continue adapting to the new VCT regulations and increase the new investment rate whilst keeping a close eye on the risk/reward balance of the new investment activity.
Livingbridge VC LLP
Investment Manager
17 November 2016
Investments in the period
Book
cost
Company Location Sector Activity GBP'000
------------------------ ----------------- ----------- ------------------------------------ ---------
AIM-traded Investments
New
------------------------ ----------------- ----------- ------------------------------------ ---------
Business Developer of biological fungicides
Eden Research plc Gloucestershire Services and bio equivalents 900
------------------------ ----------------- ----------- ------------------------------------ ---------
LoopUp Group plc London TMT* Audio conferencing solutions 504
------------------------ ----------------- ----------- ------------------------------------ ---------
Follow on
------------------------ ----------------- ----------- ------------------------------------ ---------
SysGroup plc (formerly
Daily Internet plc) Liverpool TMT* IT managed services and hosting 612
------------------------ ----------------- ----------- ------------------------------------ ---------
Total investments in the year 2,016
---------------------------------------------------------------------------------------------- ---------
* Technology, Media & Telecommunications ("TMT").
BSVT acquired the BVCT4 investment portfolio (total GBP51,334,000) on 11 March 2016.
Realisations in the Period
First Overall
investment Proceeds++ multiple
Company date GBP'000 return*
--------------------------------------- ------------- ------------- ------------- ----------
Unquoted realisations
--------------------------------------- ------------- ------------- ------------- ----------
Full trade
Kingsbridge Risk Solutions Ltd sale Jan 14 5,196 3.2
--------------------------------------- ------------- ------------- ------------- ----------
Fisher Outdoor Leisure Holdings Full trade
Ltd sale Jun 06 2,013 0.8
--------------------------------------- ------------- ------------- ------------- ----------
Independent Community Care Management Full trade
Ltd sale Oct 11 548 0.5
--------------------------------------- ------------- ------------- ------------- ----------
Full trade
Valldata Group Ltd sale Jan 11 0 0.5
--------------------------------------- ------------- ------------- ------------- ----------
Total unquoted realisations 7,757
--------------------------------------------------------------------- ------------- ----------
AIM-traded realisations
--------------------------------------- ------------- ------------- ------------- ----------
Full market
Tangent Communications plc sale Mar 07 500 0.5
--------------------------------------- ------------- ------------- ------------- ----------
Total AIM-traded realisations 500
--------------------------------------------------------------------- ------------- ----------
Total realisations in the Period 8,257
--------------------------------------------------------------------- ------------- ----------
++ Proceeds at time of realisation including interest.
* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.
Deferred consideration of GBP56,000 was received in respect of CableCom II Networking Holdings, which had been sold in a prior period. Carnell Contractors was fully realised on receipt of final earn-out dividend of GBP686,000.
With the exception of Kingsbridge Risk Solutions, Fisher Outdoor Leisure Holdings, Valldata Group and Tangent Communications all realisations were made before the acquisition of the BVCT4 investment portfolio and proceeds shown relate to those made prior to 11 March 2016.
Ten Largest Investments
The top ten investments by current value at 30 September 2016 illustrate the diversity and size of investee companies within the portfolio. This financial information is taken from publicly available information, which has been audited by the auditors of the investee companies.
1. IDOX Plc - Berkshire
All funds managed by Livingbridge
First investment: May 2002
Total original cost: GBP1,641,000
Total equity held: 4.80%
Baronsmead Second Venture Trust only
Original book cost:: GBP1,028,000
Valuation: GBP7,555,000
Valuation basis: Last Traded
% of equity held: 3.15%
Year ended 31 October
2015 2014
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 62.6 60.7
----------------- ------------ ------------
EBITA: 17.4 15.6
----------------- ------------ ------------
Net Assets: 53.6 48.6
----------------- ------------ ------------
No of Employees
: 572 554
----------------- ------------ ------------
(Source: IDOX plc Annual Report & Accounts 2015)
2. Netcall Plc - Hertfordshire
All funds managed by Livingbridge
First investment: July 2010
Total original cost: GBP4,354,000
Total equity held: 17.83%
Baronsmead Second Venture Trust only
Original book cost:: GBP1,738,000
Valuation: GBP5,249,000
Valuation basis: Bid Price
% of equity held: 7.15%
Year ended 30 June
2016 2015
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 16.6 17.2
----------------- ------------ ------------
EBITA: 4.3 5.0
----------------- ------------ ------------
Net Assets: 22.6 22.7
----------------- ------------ ------------
No of Employees
: 156 148
----------------- ------------ ------------
(Source: Netcall plc, Annual Report and Accounts, 30th June 2016)
3. Crew Clothing Holdings Limited - London
All funds managed by Livingbridge
First investment: November 2006
Total original cost: GBP5,833,000
Total equity held: 28.10%
Baronsmead Second Venture Trust only
Original book cost: GBP2,904,000
Valuation: GBP5,023,000
Valuation basis: Earnings Multiple
% of equity held: 13.40%
Year ended 25 October
2014 2014
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 55.0 59.2
----------------- ------------ ------------
EBITA: 2.0 1.1
----------------- ------------ ------------
Net Assets: 4.6 5.8
----------------- ------------ ------------
No of Employees
: 411 401
----------------- ------------ ------------
(Source: Crew Clothing Holdings Ltd, Report and Financial Statements 25 October 2015)
4. Create Health Ltd - London
All funds managed by Livingbridge
First investment: March 2013
Total original cost: GBP4,235,000
Total equity held: 29.00%
Baronsmead Second Venture Trust only
Original book cost: GBP1,906,000
Valuation: GBP4,800,000
Valuation basis: Earnings Multiple
% of equity held: 11.48%
Year ended 31 March
2015 2014
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 7.6 4.9
------------------ ------------ ------------
EBITA: 1.4 1.1
------------------ ------------ ------------
Net Assets: 4.5 3.3
------------------ ------------ ------------
No of Employees: 90 58
------------------ ------------ ------------
(Source: Create Health Ltd Abbreviated Accounts 31st March 2015)
5. Tasty Plc - London
All funds managed by Livingbridge
First investment: September 2006
Total original cost: GBP3,223,000
Total equity held: 14.40%
Baronsmead Second Venture Trust only
Original book cost: GBP1,188,000
Valuation: GBP4,045,000
Valuation basis: Bid Price
% of equity held: 5.00%
Year ended 27 December
2015 2014
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 35.8 29.7
------------------ ------------ ------------
EBITA: 3.3 2.8
------------------ ------------ ------------
Net Assets: 22.3 19.6
------------------ ------------ ------------
No of Employees: 846 642
------------------ ------------ ------------
(Source: Tasty Plc, Report and Financial Statements 27 December 2015)
6. Happy Days Consultancy Ltd - Cornwall
All funds managed by Livingbridge
First investment: April 2012
Total original cost: GBP7,617,000
Total equity held: 65.00%
Baronsmead Second Venture Trust only
Original book cost: GBP3,420,000
Valuation: GBP4,005,000
Valuation basis: Earnings Multiple
% of equity held: 25.74%
Year ended 31 December
2015 2014
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 6.2 5.7
------------------ ------------ ------------
EBITA: (0.5) (0.4)
------------------ ------------ ------------
Net Assets: 8.8 5.5
------------------ ------------ ------------
No of Employees: 258 212
------------------ ------------ ------------
(Source: H. Days Holdings Ltd, Annual Report and Financial Statements 31 December 2015 )
7. Pho Holdings Ltd - London
All funds managed by Livingbridge
First investment: July 2012
Total original cost: GBP4,415,000
Total equity held: 28.00%
Baronsmead Second Venture Trust only
Original book cost: GBP1,982,000
Valuation: GBP3,851,000
Valuation basis: Earnings Multiple
% of equity held: 11.09%
Year ended 1 March
2015* 2014
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 14.1 9.7
------------------ ------------ ------------
EBITA: 0.9 0.4
------------------ ------------ ------------
Net Assets: 2.0 1.3
------------------ ------------ ------------
No of Employees: 290 205
------------------ ------------ ------------
(Source: Pho Holdings Ltd, Directors' Report and Financial Statements 1st March 2015)
*53 week period ended 1st March 2015.
8. Dods (Group) plc - London
All funds managed by Livingbridge
First investment: March 2003
Total original cost: GBP5,289,000
Total equity held: 20.12%
Baronsmead Second Venture Trust only
Original book cost: GBP 2,210,000
Valuation: GBP3, 777,000
Valuation basis: Bid Price
% of equity held: 8. 23%
Year ended 31 March
2016 2015
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 19.6 18.3
------------------ ------------ ------------
EBITA: 2.3 0.2
------------------ ------------ ------------
Net Assets: 25.7 24.6
------------------ ------------ ------------
No of Employees: 210 268
------------------ ------------ ------------
(Source: Dods (Group) plc, Annual Report 2016)
9. CableCom II Networking Holdings Ltd - Clevedon
All funds managed by Livingbridge
First investment: October 2013
Total original cost: GBP5,000,000
Total equity held: 10.54%
Baronsmead Second Venture Trust only
Original book cost: GBP2,500,000
Valuation: GBP3,187,000
Valuation basis: Earnings Multiple
% of equity held: 4.91%
Year ended 31 October
2015 2014
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 17.5 17.9
------------------ ------------ ------------
EBITA: 1.9 2.0
------------------ ------------ ------------
Net Assets: (17.5) (10.9)
------------------ ------------ ------------
No of Employees: 104 83
------------------ ------------ ------------
(Source: Cablecom Bidco Limited Report and Financial Statements 31 October 2015)
10. Carousel Logistics Ltd - Kent
All funds managed by Livingbridge
First investment: October 2013
Total original cost: GBP5,595,000
Total equity held: 40.00%
Baronsmead Second Venture Trust only
Original book cost: GBP1,912,000
Valuation: GBP3,062,000
Valuation basis: Earnings Multiple
% of equity held: 12.04%
Year ended 31 October
2015 2014
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 16.8 16.3
------------------ ------------ ------------
EBITA: 1.7 1.6
------------------ ------------ ------------
Net Assets: 2.4 2.2
------------------ ------------ ------------
No of Employees: 71 63
------------------ ------------ ------------
(Source: Carousel Logistics Limited Financial Statement 31 December 2015)
Principal Risks & Uncertainties
The Board has included below details of the principal risks and uncertainties facing the Company and the appropriate measures taken in order to mitigate these risks as far as practicable.
Principal Context Specific risks we Possible impact Mitigation
Risk face
--------------- ------------------------ ------------------------ ------------------------ -----------------------
Loss of The Company must Breach of any of The loss of VCT status The Board maintains a
approval comply the rules enabling would result in safety
as a Venture with section 274 of the Company to hold shareholders margin on all VCT
Capital the Income Tax Act VCT who have not held tests to
Trust 2007 which enables status could result their shares for the ensure that breaches
its investors to take in the loss of that designated holding are
advantage of tax status. period having to repay very unlikely to be
relief the income tax relief caused
on their investment they had already by unforeseen events
and on future returns. obtained or shocks.
and future dividends The Investment
and gains would be Manager monitors
subject to income all of the VCT tests
tax and capital gains on an
tax. ongoing basis and the
Board
reviews the status of
these
tests on a quarterly
basis.
Specialist advisors
audit
the tests on a
bi-annual
basis and report to
the audit
committee on their
findings.
--------------- ------------------------ ------------------------ ------------------------ -----------------------
Legislative VCTs were established A change in government The Company might The Board and the
in 1995 to encourage policy regarding not be able to Investment
private individuals the funding of maintain Manager engage on a
to invest in early small companies its asset base leading regular
stage companies that or changes made to its gradual decline basis with HMT and
are considered to to VCT regulations and potentially an industry
be risky and therefore to inability to maintain representative bodies
have limited funding comply with EU State either its buy back to
options. In return Aid rules could or dividend policies. demonstrate the cost
the result in a cessation benefit
state provides these of of VCTs to the
investors with tax the tax reliefs economy in
reliefs which fall for VCT investors terms of employment
under the definition or changes to the generation
of state aid. reliefs that and taxation revenue.
make them less In
attractive addition the Board
to investors. and the
Investment Manager
have considered
the options available
to
the Company in the
event
of the loss of tax
reliefs
to ensure that it can
continue
to provide a strong
investment
proposition for its
shareholders
despite the loss of
tax reliefs.
--------------- ------------------------ ------------------------ ------------------------ -----------------------
Investment The Company invests Investment in poor Reduction in both The Company has a
performance in small, mainly UK quality companies the capital value diverse
based companies, both with the resultant of portfolio where the
unquoted and quoted. risk investors cost
Smaller companies of a high level shareholdings of any one investment
often have limited of failure in the and in the level of is
product lines, markets portfolio. income distributed. typically less than
or financial resources 5 per cent of NAV
and may be thereby
dependent for their limiting the impact
management on a of any
smaller one failed
number of key investment. The
individuals Board has appointed
and hence tend to an Investment Manager
be riskier than larger that
businesses. has a strong and
consistent
track record over a
long
period, invests in
profitable companies
in sectors
in which it has
specialised
for the past eighteen
years,
undertakes
extensive due
diligence on
all prospective
investments,
has an experienced
value
enhancement
team who actively
manage
its investments and
who take
board seats and
appoint experienced
non
executive Directors
on all
unquoted and
significant
quoted investments.
--------------- ------------------------ ------------------------ ------------------------ -----------------------
Economic, Whilst the Company Events such as Reduction in the value The Company invests
political invests in economic of the Company's in a
and other predominantly recession, movement assets diversified portfolio
external UK businesses, its in interest or with a corresponding of
factors relies heavily on currency impact on its share companies across a
Europe as one of its rates, civil unrest, price may result in number
largest trading war or political the loss of investors of industry sectors
partners. uncertainty or through buybacks and which
This, together with pandemics may limit its ability provides protection
the increase in can adversely affect to pay dividends. against
globalisation, the trading shocks as the impact
means that economic environment on individual
unrest and shocks for underlying sectors can vary
in other investments depending
jurisdictions, and impact on their upon the
as well as in the results and circumstances. In
UK, can impact on valuations. addition, the Manager
UK companies, uses
particularly a limited amount of
smaller ones that bank
are more vulnerable gearing in its
to changes in trading investments
conditions. which enables its
investments
to continue trading
through
difficult economic
conditions.
The Company always
maintains
healthy cash balances
so
that it can support
portfolio
companies with
further investment
should the investment
case
support it. The Board
reviews
the make up and
progress
of the portfolio each
quarter
to ensure that it
remains
appropriately
diversified
and funded.
--------------- ------------------------ ------------------------ ------------------------ -----------------------
Regulatory The Company is Failure of the Company The Company's The Board and the
& Compliance authorised to comply with any performance Investment
as a self managed of its regulatory could be Manager employ the
Alternative Investment or legal obligations impacted severely services
Fund Manager ("AIFM") could result in by financial penalties of leading regulatory
under the Alternative the suspension of and a loss of lawyers,
Investment Fund its listing reputation sponsors, auditors
Managers by the UKLA and/or resulting in the and other
Directive ("AIFMD") financial penalties alienation advisers to ensure
and is also subject and sanction by of shareholders, a the Company
to the Prospectus the regulator or significant demand complies with all of
and Transparency a qualified audit to buy back shares its
Directives. report. and an inability to regulatory
It is required to attract future obligations.
comply with the investment. The Board has strong
Companies The suspension of systems
Act 2006 and the UKLA its shares would in place to ensure
listing Rules. result that the
in the loss of its Company complies with
VCT taxation status all
and most likely the of its regulatory
ultimate liquidation responsibilities.
of the Company. The Investment
Manager has
a strong compliance
culture
and employs dedicated
compliance
specialists within
its team
who support the Board
in
ensuring that the
Company
is compliant.
--------------- ------------------------ ------------------------ ------------------------ -----------------------
Operational The Company relies The risk of failure Errors in shareholders The Board has
on a number of third of the systems and records or appointed an
parties, in particular controls of any shareholdings, audit committee who,
the Investment of the Company's incorrect marketing along
Manager, advisers leading literature, non with the external
to provide it with to an inability compliance auditors,
the necessary services to service shareholder with listing rules, review the internal
such as registrar, needs adequately, loss of assets, breach control (ISAE3402)
sponsor, custodian, to provide accurate of legal duties and and/or
receiving agent, reporting and inability to provide internal audit
lawyers accounting accurate reporting reports from
and tax advisers. and to ensure and accounting all all significant third
adherence leading to party
to all VCT legislation reputational service providers,
rules. risk and the potential including
for litigation. the Investment
Manager, on
a bi-annual basis to
ensure
that they have strong
systems
and controls in
place including
Business
Continuity Plans. The
Board
regularly reviews the
performance
of its service
providers to ensure
that
they continue to have
the
necessary expertise
and resources
to provide a high
class service and
always
where there has been
any
changes in key
personnel
or ownership.
--------------- ------------------------ ------------------------ ------------------------ -----------------------
The financial risks faced by the Company are covered within the notes to the Financial Statements below.
Extract from the Strategic Report
Applying the Business Model
This section of the Strategic Report sets out the practical steps that the Board has taken in order to apply the business model, achieve the investment objective and adhere to the investment policy. The investment policy, which is set out in full in the Annual Report and Accounts, is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs. As referred to in the Chairman's Statement, the investment policy has been updated and simplified, in light of the new VCT rules.
Investing in the Right Companies
Investments are primarily made in companies which are substantially based in the UK, although many of these investees may have some trade overseas. Investments are selected in the expectation that the application of private equity disciplines, including an active management style for unquoted companies, will enhance value and enable profits to be realised from planned exits.
The Board has delegated the management of the investment portfolio to Livingbridge VC LLP ("Livingbridge" or the "Manager"). The Manager has adopted a 'top-down, sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the business environment, then the sector and finally the specific potential investment opportunity.
Based on its research, the Manager has selected a number of sectors that it believes will offer attractive growth prospects and investment opportunities. Diversification is also achieved by spreading investments across different asset classes and making investments for a variety of different periods.
The Manager's Review above provides a review of the investment portfolio and of market conditions during the year, including the main trends and factors likely to affect the future development, performance and position of the business.
Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. The maximum the Company will invest in a single company (including a collective investment vehicle) is 15 per cent of its investments by value of its investments calculated in accordance with Section 278 of the Income Tax Act 2007 (as amended) ("VCT Value"). The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale.
The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities and permitted non qualifying investments as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks or preferred shares, while AIM-traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying investments, the Company's cash and liquid funds are held in permitted non qualifying investments.
VCTs are required to comply with a number of different regulations and the Company has appointed Philip Hare & Associates LLP as its VCT Tax Status Advisers to advise it on compliance with VCT requirements. Philip Hare & Associates reviews new investment opportunities, as appropriate, and regularly reviews the investment portfolio of the Company. Philip Hare & Associates works closely with the Manager but reports directly to the Board.
Environmental, Human Rights, Employee, Social and Community Issues
The Company seeks to conduct its affairs responsibly and the Manager is encouraged to consider environmental, human rights, social and community issues, where appropriate, with regard to investment decisions.
The Company is required, by company law, to provide details of environmental (including the impact of the Company's business on the environment), employee, human rights, social and community issues; including information about any policies it has in relation to these matters and the effectiveness of these policies. The Company does not have any employees and as a result does not maintain specific policies in relation to these matters.
Livingbridge as Manager has an Environmental, Social and Governance ("ESG") policy. As a responsible investor, Livingbridge fully incorporates ESG factors into its investment programme. The ESG policy focuses on environmental, social and corporate governance factors, including risks and opportunities, affecting both the Company and/or specific portfolio companies.
Livingbridge undertakes an in-house risk assessment questionnaire pre-investment to highlight any significant or material ESG issues. Should any such issues be identified, these are then addressed via specific due diligence pre-investment.
Upon completion of an investment the completed in-house questionnaires are assessed by an external consultant to corroborate risks identified, advise the company how to address any ESG issues and also to identify any potential upside opportunities (e.g. energy savings). Relevant ESG matters are then included in the portfolio company board meetings as appropriate and also in the standard Livingbridge portfolio progress reports allowing Livingbridge toassess the impact of any interventions or recommendations.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, including those within its underlying investment portfolio.
Gender Diversity
The Board of Directors of the Company comprises three male Directors. The Manager has an equal opportunity policy and currently employs 45 men and 30 women.
Appointment of the manager
The Board expects the Manager to deliver a performance which meets the objective of achieving long-term investment returns, including tax free dividends. A review of the Company's performance during the financial year, the position of the Company at the year end and the outlook for the coming year is contained within the Chairman's Statement above. The Board assesses the performance of the Manager in meeting the Company's objective against the Key Performance Indicators ("KPIs").
The management agreement
Under the management agreement, the Manager receives a fee of 2.5 per cent per annum of the net assets of the Company. In addition, the Investment Manager is responsible for providing all secretarial, administrative and accounting services to the Company. The Investment Manager has appointed Capita Sinclair Henderson to provide these services to the Company on its behalf. The Company is responsible for paying the fee charged by Capita Sinclair Henderson to the Investment Manager in relation to the performance of these services.
Annual running costs are capped at 3.5 per cent of the net assets of the Company (excluding any performance fee payable to the Manager and irrecoverable VAT), any excess being refunded by the Manager by way of an adjustment to its management fee. The running cost as at 30 September 2016 was 2.9 per cent
The management agreement may be terminated at any date by either party giving twelve months' notice of termination, and if terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees.
Performance fees
A performance fee is payable to the Manager when the total return on net proceeds of the ordinary shares exceeds 8 per cent per annum (simple). To the extent that the total return exceeds the threshold over the relevant period then a performance fee of 10 per cent of the excess will be paid to the Manager. The amount of any performance fee which is paid in an accounting period is capped at 5 per cent of net assets.
No performance fee was payable for the 9 month period to 30 September 2016 (2015: GBPnil).
Management retention
The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity sector. A co-investment scheme was introduced in November 2004 under which members of the Manager's investment team invest their own money into a proportion of the ordinary shares of each unquoted investment made by the Baronsmead VCTs. The Board regularly monitors the co-investment scheme arrangements but considers the scheme to be essential in order to attract, retain and incentivise the best talent. The scheme is in line with current market practice in the private equity industry and the Board believes that it aligns the interests of the Manager with those of the Baronsmead VCTs.
Executives have to invest their own capital in every unquoted transaction and cannot decide selectively which investments to participate in. In addition the co-investment only delivers a return after each VCT has realised a priority return built into the structure. The shares held by the members of the co-investment scheme in any portfolio company can only be sold at the same time as the investment held by the Baronsmead VCTs is sold. Any prior ranking financial instruments, such as loan stock, held by the Baronsmead VCTs have to be repaid in full together with the agreed priority annual return before any gain accrues to the ordinary shares. This ensures that the Baronsmead VCTs achieve a good priority return before profits accrue to the co-investment scheme.
The executives participating in the co-investment scheme subscribe jointly for a proportion (currently 12 per cent) of the ordinary shares available to the Baronsmead VCTs in each unquoted investment. The level of participation was increased from 5 per cent in 2007 when the Manager's performance fee was reduced from 20 per cent to its current level of 10 per cent
Since the formation of the scheme in 2004, 58 executives have invested a total of GBP895,000 in 47 companies. At 30 September 2016, 30 of these investments have been realised generating proceeds of GBP259m for the Baronsmead VCTs and GBP13.4m for the co-investment scheme. For Baronsmead Second Venture Trust the average money multiple on these 30 realisations was 1.9 times cost. Had the co-investment shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been 4.3p a share (based on the current number of shares in issue). The Board considers this small cost to retain quality people to be in the best interests of shareholders.
Advisory fees
During the 9 month period to 30 September 2016, the Manager received income of GBPnil (2015: BVCT3 GBP57,000 & BVCT4 GBP57,000) in connection with advisory fees and incurred abort fees of GBP12,000 (2015: BVCT3 GBP10,000 & BVCT4 GBP10,000), with respect to investments attributable to Baronsmead Second Venture Trust.
Directors' fees of GBP252,000 (2015: BVCT3 GBP207,000 & BVCT4 GBP207,000) were received by the Manager in relation to services provided to companies in the investment portfolio, during the year, with respect to investments attributable to Baronsmead Second Venture Trust.
Alternative Investment Fund Manager's Directive ("AIFMD")
The AIFMD regulates the management of alternative investment funds, including VCTs. On 22 July 2014 the Company was registered as a Small UK registered Alternative Investment Fund Manager under the AIFMD.
Viability Statement
In accordance with principle 21 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over the three year period to 30 September 2019. This period is used by the board during the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that we request from the Manager and the estimated time line for finding, assessing and completing investments.
In making this statement the Board carried out a robust assessment of the principal risks facing the Company, including those that might threaten its business model, future performance, solvency, or liquidity.
The Board also considered the ability of the Company to raise finance and deploy capital. Their assessment took account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact of the underlying risks.
This review has considered the principal risks as outlined above. The Board concentrated its efforts on the major factors which affect the economic, regulatory and political environment. The Board also paid particular attention to the importance of its close working relationship with the Manager, Livingbridge.
The Directors have also considered the Company's income and expenditure projections and find these to be realistic and sensible.
Based on the Company's processes for monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model, asset allocation and the portfolio risk profile, 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 the three year period to 30 September 2019.
Returns to Investors
Dividend policy
The Board of Baronsmead Second Venture Trust has the objective to maintain a minimum annual dividend level of around 4.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed.
Since 2007, the average annual tax free dividend paid to shareholders has been 7.6p per ordinary share (equivalent to a pre-tax return of 11.3p per ordinary share on dividends otherwise subject to tax at the higher rate of 32.5 per cent). For shareholders who received up front tax reliefs of 20 per cent, 30 per cent or 40 per cent, their returns would have been even higher.
Shareholder choice
The Board wishes to provide shareholders with a number of choices that enable them to utilise their investment in Baronsmead Second Venture Trust in ways that best suit their personal investment and tax planning and in a way that treats all shareholders equally.
-- Fund raising | From time to time the Company seeks to raise additional funds by issuing new shares at a premium to the latest published net asset value to account for costs. In February 2016, the Company's offer for subscription to raise GBP10m (GBP9.7m after costs) was fully subscribed.
-- Dividend Reinvestment Plan | The Company offers a Dividend Reinvestment Plan which enables shareholders to purchase additional shares through the market in lieu of cash dividends. Approximately 3,200,000 shares were bought in this way during the 9 month period to 30 September 2016.
-- Buy back of shares | From time to time the Company buys its own shares through the market in accordance with its share price discount policy. Subject to certain conditions, the Company seeks to maintain a mid-share price discount of approximately 5 per cent to net asset value.
Secondary market | The Company's shares are listed on the London Stock Exchange and can be bought using a stockbroker or authorised share dealing service in the same way as shares of any other listed company. Approximately 262,000 shares were bought by investors in the Company's existing shares in the 9 month period to 30 September 2016.
On behalf of the Board
Anthony Townsend
Chairman
17 November 2016
Extract of the Directors Report
Shares and Shareholders
Share capital
As a result of the reconstruction and winding up of Baronsmead VCT 4 plc, on 15 March 2016, the Company allotted 68,003,674 ordinary shares. On 15 March 2016, the Company also allotted a further 9,328,156 ordinary shares as a result of an offer for subscription.
During the year the Company bought back a total of 1,255,000 ordinary shares to be held in Treasury, representing 0.77 per cent of the issued share capital as at 30 September 2016, with an aggregate nominal value of GBP125,500. The total amount paid for these shares was GBP1,232,756.25. The Company's remaining authority to buy back shares from the 2016 Annual General Meeting ("AGM") is 21,488,696. During the year the Company also sold 2,400,000 ordinary shares from Treasury. These shares were sold for a total amount of GBP2,178,250.
As at the date of this report the Company's issued share capital was as follows:
% of
Shares
Share Total in issue Nominal Value
================== ============ ========= ==============
In issue 161,960,010 100.00 GBP16,196,001
================== ============ ========= ==============
Held in Treasury 9,089,214 5.61 GBP908,921
================== ============ ========= ==============
In circulation 152,870,796 94.39 GBP15,287,079
================== ============ ========= ==============
The maximum number of shares held in Treasury during the year was 11,204,214. Shares will not be sold out of Treasury at a discount wider than the discount at which the shares were initially bought back by the Company.
Shareholders
Each 10p ordinary share entitles the holder to attend and vote at general meetings of the Company, to participate in the profits of the Company, to receive a copy of the Annual Report & Accounts and to a final distribution upon the winding up of the Company.
There are no restrictions on voting rights, no securities carry special rights and the Company is not aware of any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights. There are no agreements to which the Company is party that may affect its control following a takeover bid.
In addition to the powers provided to the Directors under UK company law and the Company's Articles of Association, at each AGM the shareholders are asked to authorise certain powers in relation to the issuing and purchasing of the Company's own shares. Details of the powers granted at the 2016 AGM, all of which remain valid, can be found in the previous Notice of AGM.
The Board is not, and has not been throughout the year, aware of any beneficial interests exceeding 3 per cent of the total voting rights.
Dividends
The Company paid the following dividends for the 9 month period ended 30 September 2016:
Dividends GBP'000 ============================= ======= First interim dividend of 7.0p per ordinary share paid on 3 June 2016 10,553 ============================= ======= Second interim dividend of 10.0p per ordinary share paid on 30 September 2016 15,142 ============================= ======= Total dividends paid for the year 25,695 ============================= =======
Annual General Meeting
The notice of the AGM of the Company to be held at 10.00am on Thursday, 23 March 2017 at Saddlers Hall, 40 Gutter Lane, London, EC2V 6BR will be sent to shareholders and will be available on the Company's website.
Directors
Responsibility for Accounts and Going Concern
The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 30 September 2016, the Company held cash balances with a value of GBP24,110,000.Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing or covenants.
The Directors have chosen to include their report on global greenhouse emissions in the Strategic Report under the section on environmental, human rights, employee, social and community issues.
By Order of the Board
Livingbridge VC LLP
Secretary
100 Wood Street London EC2V 7AN
17 November 2016
Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
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 of 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 estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
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 have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company taken as a whole; and
-- the strategic report/directors' report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's position and performance, business model and strategy.
On behalf of the Board
Anthony Townsend
Chairman
17 November 2016
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the period ended 30 September 2016 or year ended 31 December 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies, and those for 2016 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.baronsmeadvcts.co.uk
Income Statement
For the period ended 30 September 2016
Period ended Year ended
30 September 2016 31 December 2015
-------------------------------------------- ----------------------------------------
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------- --------------- ------------- ------------ ---------------- ------------ --------
Unrealised gains on
movements
in fair value of
investments 2.3 - 5,920 5,920 - 5,788 5,788
Realised gains on
disposal
of investments 2.3 - 2,216 2,216 - 4,034 4,034
Income 2.5 1,221 - 1,221 1,627 - 1,627
Investment
management fee 2.6 (616) (1,847) (2,463) (477) (1,430) (1,907)
Other expenses 2.6 (810) - (810) (475) - (475)
--------------------- ------- --------------- ------------- ------------ ---------------- ------------ --------
(Loss)/profit on
ordinary
activities
before taxation (205) 6,289 6,084 675 8,392 9,067
Taxation on ordinary
activities 2.9 - - - - - -
--------------------- ------- --------------- ------------- ------------ ---------------- ------------ --------
(Loss)/profit for
the period,
being total
comprehensive
income
for the period (205) 6,289 6,084 675 8,392 9,067
--------------------- ------- --------------- ------------- ------------ ---------------- ------------ --------
Return per ordinary
share:
Basic 2.2 (0.16p) 4.83p 4.67p 0.90p 11.23p 12.13p
--------------------- ------- --------------- ------------- ------------ ---------------- ------------ --------
All items in the above statement derive from continuing operations.
There are no recognised gains and losses other than those disclosed in the Income Statement.
The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and the proportion of the management fee charged to capital.
The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 by the Association of Investment Companies ("AIC SORP").
Statement of Changes in Equity
For the period ended 30 September 2016
Non-distributable reserves Distributable reserves
------------------------ ----- ----------------------------------------------- ------------------------ --------
Called-up Share Other Revaluation Capital Revenue
share capital premium reserve Reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- -------------- -------- -------- ----------- ----------- ----------- --------
At 1 January 2016 8,463 8,815 - 15,460 45,758 700 79,196
Profit/(loss) on
ordinary activities
after taxation - - - 8,897 (2,608) (205) 6,084
Shares issued following
the acquisition
of
Baronsmead VCT
4 plc 6,800 63,884 - - - - 70,684
Net proceeds of
share issues, share
buybacks & sale
of shares from
treasury 933 8,767 - - 939 - 10,639
Dividends paid 2.4 - - - - (25,695) - (25,695)
------------------------ ----- -------------- -------- -------- ----------- ----------- ----------- --------
At 30 September 2016 16,196 81,466 - 24,357 18,394 495 140,908
------------------------------- -------------- -------- -------- ----------- ----------- ----------- --------
For the year ended 31 December 2015
Non-distributable reserves Distributable reserves
--------------------- ----- ----------------------------------------------- ------------------------ ---------
Called-up Share Other Revaluation Capital Revenue
share capital premium reserve reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ----- -------------- -------- -------- ----------- ----------- ----------- ---------
At 1 January 2015 8,463 8,813 33,716 12,521 12,410 694 76,617
Movement between
reserves - - (33,716) - 33,716 - -
Profit/(loss) on
ordinary activities
after taxation - - - 2,939 5,453 675 9,067
Net proceeds of
share buybacks
& sale of shares
from treasury - 2 - - (914) - (912)
Dividends paid 2.4 - - - - (4,907) (669) (5,576)
--------------------- ----- -------------- -------- -------- ----------- ----------- ----------- ---------
At 31 December
2015 8,463 8,815 - 15,460 45,758 700 79,196
--------------------- ----- -------------- -------- -------- ----------- ----------- ----------- ---------
Balance Sheet
As at 30 September 2016
As at As at
30 September 31 December
2016 2015
Notes GBP'000 GBP'000
--------------------------------------- ------ -------------- ---------------------
Fixed assets
Investments 2.3 116,579 67,849
Current assets
Debtors 2.7 1,464 651
Cash at bank and on deposit 24,110 11,304
--------------------------------------- ------ -------------- ---------------------
25,574 11,955
Creditors (amounts falling due within
one year) 2.8 (1,245) (608)
--------------------------------------- ------ -------------- ---------------------
Net current assets 24,329 11,347
--------------------------------------- ------ -------------- ---------------------
Net assets 140,908 79,196
--------------------------------------- ------ -------------- ---------------------
Capital and reserves
Called-up share capital 3.1 16,196 8,463
Share premium 3.2 81,466 8,815
Capital reserve 3.2 18,394 45,758
Revaluation reserve 3.2 24,357 15,460
Revenue reserve 3.2 495 700
--------------------------------------- ------ -------------- ---------------------
Equity shareholders' funds 2.1 140,908 79,196
--------------------------------------- ------ -------------- ---------------------
NAV per share
- Basic 2.1 92.17p 106.46p
- Treasury 2.1 91.89p 105.80p
--------------------------------------- ------ -------------- ---------------------
The financial statements were approved by the Board of Directors on 17 November 2016 and were signed on its behalf by:
Anthony Townsend
Chairman
Statement of Cash Flows
For the period ended 30 September 2016
Period ended Year ended
30 September 31 December
2016 2015
GBP'000 GBP'000
Cash flows from operating activities
Investment income received 1,757 1,266
Deposit interest received 59 36
Investment management fees paid (2,371) (1,891)
Other cash payments (444) (484)
Merger costs paid (157) -
Net cash outflow from operating activities (1,156) (1,073)
------------------------------------------------------ ------------- ------------
Cash flows from investing activities
Purchases of investments (28,999) (40,761)
Disposals of investments 39,739 49,303
Net cash inflow from investing activities 10,740 8,542
------------------------------------------------------ ------------- ------------
Equity dividends paid (25,695) (5,576)
------------------------------------------------------ ------------- ------------
Net cash (outflow)/inflow before financing activities (16,111) 1,893
Cash flows from financing activities
Net proceeds of share issues, share buybacks
& sale of shares from treasury 9,378 (912)
Net proceeds received from merger 19,539 -
Net cash inflow/(outflow) from financing activities 28,917 (912)
------------------------------------------------------ ------------- ------------
Increase in cash 12,806 981
Reconciliation of net cash flow to movement in
net cash
Increase in cash 12,806 981
Opening cash position 11,304 10,323
Closing cash at bank and on deposit 24,110 11,304
------------------------------------------------------ ------------- ------------
Reconciliation of profit on ordinary activities
before taxation to net cash outflow from operating
activities
Profit on ordinary activities before taxation 6,084 9,067
Gains on investments (8,136) (9,822)
Decrease/(increase) in debtors 448 (322)
Increase in creditors 635 7
Written off expenses from merger (187) -
Interest reinvested - (3)
Net cash outflow from operating activities (1,156) (1,073)
====================================================== ============= ============
Notes to the Financial Statements
We have grouped notes into sections under three key categories:
1. Basis of preparation
2. Investments, performance and shareholder returns
3. Other required disclosures
The key accounting policies have been incorporated throughout the Notes to the Financial Statements adjacent to the disclosure to which they relate.
1. Basis of Preparation
1.1 Basis of accounting
These Financial Statements have been prepared under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") in November 2014 and on the assumptions that the Company maintains VCT status. The Company has early adopted the amendments made to FRS 102 paragraph 34.22 issued in March 2016, revising the fair value hierarchy disclosure requirements.
The Financial Statements have been prepared on a going concern basis, under historical cost convention. The functional currency in which the Company operates is Sterling.
2. Investments, Performance and Shareholder Returns
2.1 NAV per share
Number Net asset value Net asset value
of ordinary shares per share attributable attributable
=========================== ========================= ========================= =========================
30 September 31 December 30 September 31 December 30 September 31 December
2016 2015 2016 2015 2016 2015
number number pence pence GBP'000 GBP'000
=========================== ============ =========== ============ =========== ============ ===========
Ordinary shares (basic) 152,870,796 74,393,966 92.17 106.46 140,908 79,196
Ordinary shares (including
treasury) 161,960,010 84,628,180 91.89 105.80 148,827 89,533
=========================== ============ =========== ============ =========== ============ ===========
The treasury NAV per share as at 30 September 2016 has been calculated by assuming that all shares held in treasury were sold to the market at the mid-share price of 87.13p at 30 September 2016 (31 December 2015: 101.00p).
2.2 Return per share
Weighted average Net profit on ordinary
number of ordinary Return per activities after
shares ordinary share taxation
======== ========================= ========================= =========================
30 September 31 December 30 September 31 December 30 September 31 December
2016 2015 2016 2015 2016 2015
number number pence pence GBP'000 GBP'000
Revenue 130,242,740 74,732,308 (0.16) 0.90 (205) 675
Capital 130,242,740 74,732,308 4.83 11.23 6,289 8,392
Total 4.67 12.13 6,084 9,067
======== ============ =========== ============ =========== ============ ===========
2.3 Investments
The Company has fully adopted sections 11 and 12 of FRS 102.
Purchases or sales of investments are recognised at the date of transaction.
Investments are measured at fair value. For AIM-traded securities this is either bid price or the last traded price, depending on the convention of the exchange on which the investment is traded.
In respect of unquoted investments, these are valued at fair value by the Directors using methodology which is consistent with the International Private Equity and Venture Capital Valuation guidelines ("IPEV"). This means investments are valued using an earnings multiple, which has a discount or premium applied which adjusts for points of difference to appropriate stock market or comparable transaction multiples. Alternative methods of valuation will include application of an arm's length third party valuation, a provision on cost or a NAV basis.
Gains and losses arising from changes in the fair value of the investments are included in the Income Statement for the period as a capital item. Transaction costs on acquisition are included within the initial recognition and the profit or loss on disposal is calculated net of transaction costs on disposal.
All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement. The details of which are set out above.
The methods of fair value measurement are classified into a hierarchy based on reliability of the information used to determine the valuation.
-- Level 1 - Fair value is measured based on quoted prices in an active market.
-- Level 2 - Fair value is measured based on directly observable current market prices or indirectly being derived from market prices.
-- Level 3 - Fair value is measured using a valuation technique that is not based on data from an observable market.
30 September 31 December
2016 2015
GBP'000 GBP'000
==================================================== ===================== ===========
Level 1
Listed interest bearing securities - 4,498
Investments traded on AIM 58,093 27,548
58,093 32,046
==================================================== ===================== ===========
Level 2
Collective investment vehicle (Wood Street Microcap
Investment Fund) 9,200 9,133
==================================================== ===================== ===========
Level 3
Unquoted investments 49,286 26,670
==================================================== ===================== ===========
116,579 67,849
==================================================== ===================== ===========
Level 1 Level 2 Level 3
Listed
interest Collective
bearing Traded investment
securities on AIM vehicle Unquoted Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================================== ========
Opening book cost 4,498 19,442 3,525 24,924 52,389
Opening unrealised appreciation - 8,106 5,608 1,746 15,460
---------------------------------------- ----------- -------- ----------- -------- --------
Opening valuation 4,498 27,548 9,133 26,670 67,849
---------------------------------------- ----------- -------- ----------- -------- --------
Movements in the year:
Transfers between levels - 900 - (900) -
Purchases at cost 26,983 2,016 - 791 29,790
Holdings acquired following
the acquisition of Baronsmead
VCT 4 plc - 26,295 - 25,039 51,334
Sale - proceeds (31,481) (500) - (8,549) (40,530)
* realised gains on sales - 248 - 1,968 2,216
Unrealised losses realised
during the year - (444) - (2,533) (2,977)
Increase in unrealised appreciation - 2,030 67 6,800 8,897
---------------------------------------- ----------- -------- ----------- -------- --------
Closing valuation - 58,093 9,200 49,286 116,579
---------------------------------------- ----------- -------- ----------- -------- --------
Closing book cost - 47,957 3,525 40,740 92,222
Closing unrealised appreciation - 10,136 5,675 8,546 24,357
---------------------------------------- ----------- -------- ----------- -------- --------
Closing valuation - 58,093 9,200 49,286 116,579
---------------------------------------- ----------- -------- ----------- -------- --------
Equity shares - 58,093 9,200 12,264 79,557
Loan notes - - - 37,022 37,022
Closing valuation - 58,093 9,200 49,286 116,579
---------------------------------------- ----------- -------- ----------- -------- --------
The gains and losses included in the above table have all been recognised in the Income Statement above.
For Level 3 unquoted investments, the effect on fair value of changing one or more assumptions to reasonably possible alternatives has been considered. The portfolio has been reviewed and both downside and upside reasonable possible alternatives have been identified and applied to the valuation of each of the investments. The inputs flexed in determining the reasonably possible alternative assumptions include the earnings stream and marketability discount.
Applying the downside alternatives the value of the unquoted investments would be GBP3.5 million or 7.1 per cent lower. Using the upside alternatives the value of the unquoted investments would be increased by GBP3.0 million or 6.0 per cent
2.4 Dividends
Period ended Year ended
30 September 2016 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------------- ------- ------------ ----------- ------- ------- -------
Amounts recognised as distributions
to equity holders in the period:
For the period ended 30 September
2016
* First interim dividend of 7.0p per ordinary
share paid on 3 June 2016 - 10,553 10,553 - - -
* Second interim dividend of 10.0p per
ordinary share paid on 30
September 2016 - 15,142 15,142 - - -
For the year ended 31 December
2015
* First interim dividend of 3.0p per
ordinary share paid on 18
September 2015 - - - 223 2,005 2,228
* Second interim dividend of 4.5p per
ordinary share paid on 18
December 2015 - - - 446 2,902 3,348
- 25,695 25,695 669 4,907 5,576
--------------------------------------------------- ------- ------------ ----------- ------- ------- -------
2.5 Income
Interest income on loan notes and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful.
Where the terms of unquoted loan notes only require interest or a redemption premium to be paid on redemption, the interest and the redemption premium is recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return the redemption premium should be recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. No redemption premiums were received in the period ended 30 September 2016.
Income from fixed interest securities and deposit interest is included on an effective interest rate basis.
Dividends on quoted shares are recognised as income when the related investments are marked ex-dividend and where no dividend date is quoted, when the Company's right to receive payment is established.
Period ended Year ended
30 September 2016 31 December 2015
Quoted Unquoted Quoted Unquoted
securities securities Total securities securities Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income from investments
UK franked 664 - 664 1,068 - 1,068
UK unfranked 30 470 500 24 495 519
UK unfranked - reinvested - - - - 3 3
694 470 1,164 1,092 498 1,590
-------------------------- ----------- ----------- -------- -------------- -------------- ----------
Other income++
Deposit interest 57 37
Total income 1,221 1,627
-------------------------- ----------- ----------- -------- -------------- -------------- ----------
Total income comprises:
Dividends 676 1,070
Interest 545 557
1,221 1,627
-------------------------- ----------- ----------- -------- -------------- -------------- ----------
All investments have been designated at fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss.
++ Other income on financial assets not included at fair value through profit or loss.
2.6 Investment management fee and other expenses
All expenses are recorded on an accruals basis.
Period ended 30 September Year ended 31 December
2016 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fee 616 1,847 2,463 477 1,430 1,907
Performance fee - - - - - -
---------------------- --------- -------- -------- -------- -------- --------
616 1,847 2,463 477 1,430 1,907
---------------------- --------- -------- -------- -------- -------- --------
Management fees are allocated 25 per cent income and 75 per cent capital derived in accordance with the board's expected split between long term income and capital returns. Performance fees are allocated 100 per cent to capital.
The management agreement may be terminated by either party giving twelve months notice of termination.
The Manager, Livingbridge VC LLP, receives a fee of 2.5 per cent per annum of the net assets of the Company, calculated and payable on a quarterly basis.
The Manager is entitled to a performance fee when the total return on net proceeds of the ordinary shares exceeds 8 per cent per annum (on a simple basis). The Manager is entitled to 10 per cent of the excess. The amount of any performance fee which is paid in respect of a calculation period shall be capped at 5 per cent of the shareholders' funds at the end of the calculation period. No performance fee is payable for the period ended 30 September 2016 (31 December 2015: GBPnil).
Other expenses
Period ended Year ended
30 September 31 December
2016 2015
GBP'000 GBP'000
Directors' fees 86 98
Secretarial and accounting fees paid to the Manager 110 136
Remuneration of the auditors and their associates:
- audit 29 24
- other services supplied pursuant to legislation
(interim review) 6 6
- other services supplied relating to taxation 7 6
Merger costs 365 -
Other 207 205
810 475
==================================================== ============ ===========
Information on directors' remuneration is given in the Directors' emoluments table in the full Annual Report and Accounts.
Charges for other services provided by the Auditors in the period ended 30 September 2016 were in relation to the interim review and tax compliance work (including iXBRL). The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the Auditors were best placed to provide such services.
2.7 Debtors
As at As at
30 September 31 December
2016 2015
GBP'000 GBP'000
============================================== ============ ===========
Prepayments and accrued income 203 651
Amounts due from sale of shares from treasury 1,261 -
============================================== ============ ===========
1,464 651
============================================== ============ ===========
2.8 Creditors (amounts falling due within one year)
As at As at
30 September 31 December
2016 2015
GBP'000 GBP'000
------------------------------------------------ ------------ -----------
Management, secretarial and accounting fees due
to the Manager 922 530
Merger costs 208 -
Other creditors 115 78
================================================ ============ ===========
1,245 608
================================================ ============ ===========
2.9 Tax
UK corporation tax payable is provided on taxable profits at the current rate.
Provision is made for deferred taxation on the liability method, without discounting, on all timing differences calculated at the current rate of tax relevant to the benefit or liability.
The tax charge for the year is lower than the standard rate of corporation tax in the UK for a company. The differences are explained below:
Period ended Year ended
30 September 2016 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Loss)/profit on ordinary
activities before taxation (205) 6,289 6,084 675 8,392 9,067
---------------------------- -------- -------- -------- -------- -------- --------
Corporation tax at 20.0
per cent
(31 December 2015: 20.25
per cent)* (41) 1,258 1,217 137 1,699 1,836
Effect of:
Non-taxable gains - (1,627) (1,627) - (1,989) (1,989)
Non-taxable dividend income (135) - (135) (217) - (217)
Losses carried forward 176 369 545 80 290 370
============================ ======== ======== ======== ======== ======== ========
Tax charge/(credit) for - - - - - -
the period
============================ ======== ======== ======== ======== ======== ========
* The corporation tax rate applied is based on the average tax rates for the financial periods ended 30 September 2016 and 31 December 2015. The actual rates were 21 per cent until 31 March 2015 and 20 per cent from 1 April 2016.
At 30 September 2016 the Company had surplus management expenses of GBP6,728,994 (31 December 2015: GBP4,005,000) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future year in excess of the deductible expenses of that future year and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
3. Other Required Disclosures
3.1 Called-up share capital
Allotted, called-up and fully paid:
Ordinary shares GBP'000 =============================================================== ======= 84,628,180 ordinary shares of 10p each listed at 31 December 2015 8,463 9,328,156 ordinary shares of 10p each issued during the period 933 68,003,674 ordinary shares of 10p each issued as consideration shares following the acquisition of BVCT4 6,800 =============================================================== ======= 161,960,010 ordinary shares of 10p each listed at 30 September 2016 16,196 --------------------------------------------------------------- ------- 10,234,214 ordinary shares of 10p each held in treasury at 31 December 2015 (1,024) 1,255,000 ordinary shares of 10p each repurchased during the period and held in treasury (125) (2,400,000) ordinary shares of 10p each sold from treasury during the period 240 --------------------------------------------------------------- ------- 9,089,214 ordinary shares of 10p each held in treasury at 30 September 2016 (909) --------------------------------------------------------------- ------- 152,870,796 ordinary shares of 10p each in circulation* at 30 September 2016 15,287 --------------------------------------------------------------- -------
* Carrying one vote each.
During the period the Company bought back into treasury 1,255,000 ordinary shares and sold from treasury 2,400,000 ordinary shares, representing (1.35) per cent of the ordinary shares in issue at the beginning of the financial period.
There were no changes in share capital between the period end and when the financial statements were approved.
Treasury shares
When the Company re-acquires its own shares, they are currently held as treasury shares and not cancelled.
Shareholders have authorised the board to re-issue treasury shares at a discount to the prevailing NAV subject to the following conditions:
-- It is in the best interests of the Company;
-- Demand for the Company's shares exceeds the shares available in the market;
-- A full prospectus must be produced if required; and
-- HMRC will not consider these 'new shares' for the purposes of the purchasers' entitlement to initial income tax relief.
3.2 Reserves
Gains and losses on realisation of investments of a capital nature are dealt with in the capital reserve. Purchases of the Company's own shares to be either held in treasury or cancelled are also funded from this reserve. 75 per cent of management fees are allocated to the capital reserve in accordance with the board's expected split between long term income and capital returns.
Distributable reserves Non-distributable reserves
=============================== ================================== =================================================
Capital Revenue Share Revaluation
reserve reserve Total premium reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ======== ============== ======== ============= ================ ==============
At 1 January 2016 45,758 700 46,458 8,815 15,460 24,275
Gross proceeds of share
issues - - - 9,067 - 9,067
Shares issued as consideration
following the acquisition
of BVCT4 - - - 63,884 - 63,884
Purchase of shares for
treasury (1,233) - (1,233) - - -
Sale of shares from treasury 2,178 - 2,178 - - -
Expenses of share issue
and buybacks (6) - (6) (300) - (300)
Reallocation of prior year
unrealised losses (2,977) - (2,977) - 2,977 2,977
Realised gain on disposal
of investments# 2,216 - 2,216 - - -
Net increase in value of
investments# - - - - 5,920 5,920
Management fee capitalised# (1,847) - (1,847) - - -
Revenue return on ordinary
activities after taxation# - (205) (205) - - -
Dividends paid in the period (25,695) - (25,695) - - -
=============================== ======== ============== ======== ============= ================ ==============
At 30 September 2016 18,394 495 18,889 81,466 24,357 105,823
=============================== ======== ============== ======== ============= ================ ==============
* Changes in fair value of investments are dealt with in this reserve.
# The total of these items is GBP6,084,000 which agrees to the total profit on ordinary activities.
Distributable reserves include any net unrealised loss on investments whose prices are quoted in an active market and deemed readily realisable in cash.
Share premium is recognised net of issue costs.
The Company does not have any externally imposed capital requirements.
3.3 Financial instruments risks
The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of UK growth businesses.
The Company's investing activities expose it to a range of financial risks. These key risks and the associated risk management policies to mitigate these risks are described below.
Market risk
Market risk includes price risk on investments and interest rate risk on investments and other financial assets and liabilities.
Price Risk
The investment portfolio is managed in accordance with the policies and procedures described in the full Annual Report and Accounts.
Investments in unquoted stocks and AIM-traded companies involve a higher degree of risk than investments in the main market. The Company aims to reduce this risk by diversifying the portfolio across business sectors and asset classes.
Management performs continuing analysis on the fair value of investments and the Company's overall market positions are monitored by the board on a quarterly basis.
As at 30 September 2016 As at 31 December 2015
5% increase 5% decrease 5% increase 5% decrease
in share in share in share in share
price price price price
effect on effect on effect on effect on
net assets net assets net assets net assets
% of total and profit and profit % of total and profit and profit
investment GBP'000 GBP'000 investment GBP'000 GBP'000
AIM and CIV 58 3,365 (3,365) 54 1,834 (1,834)
Unquoted 42 2,464 (2,464) 39 1,334 (1,334)
============ =========== =========== =========== =========== =========== ===========
Valuation methodology includes the application of earnings multiples derived from either listed companies with similar characteristics or recent comparable transactions. Therefore the value of the unquoted element of the portfolio may also indirectly be affected by price movements on the listed exchanges.
Interest rate risk
The Company has the following investments in fixed and floating rate financial assets:
As at 30 September 2016 As at 31 December 2015
Weighted Weighted
Weighted average Weighted average
average time for average time for
Total interest which rate Total interest which rate
investment rate is fixed investment rate is fixed
GBP'000 % days GBP'000 % days
-------------------------------- ----------- --------- ----------- ------------- --------- -----------
Fixed rate loan note securities 37,022 9.01 # 19,403 8.50 #
Fixed interest instruments - - - 4,498 0.30 11
Cash at bank and on deposit 24,110 - - 11,304 - -
61,132 35,205
================================ =========== ====================== ============= ======================
# Due to the complexity of the instruments and uncertainty surrounding timing of realisation the weighted average time for which the rate is fixed has not been calculated.
Credit risk
Credit risk refers to the risk that counterparty will default on its obligation resulting to a financial loss to the Company. The Investment Manager monitors credit risk on an ongoing basis.
At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:
As at As at
30 September 31 December
2016 2015
GBP'000 GBP'000
---------------------------------------- ------------ -----------
Investments in fixed rate instruments - 4,498
Cash at bank and on deposit 24,110 11,304
Interest, dividends & other receivables 1,464 651
25,574 16,453
======================================== ============ ===========
Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed earlier in the note.
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.
All the assets of the Company which are traded on a recognised exchange are held by JP Morgan Chase ("JPM"), the Company's custodian. The board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section of this report.
The cash held by the Company is held by JPM and Lloyds Bank. The board monitors the Company's risk by reviewing regularly the internal control reports of these banks. Should the credit quality or the financial position of either bank deteriorate significantly the Investment Manager will seek to move the cash holdings to another bank.
There were no significant concentrations of credit risk to counterparties at 30 September 2016 or 31 December 2015. No individual investment in a portfolio company exceeded 5.4 per cent of the net assets attributable to the Company's shareholders at 30 September 2016 (31 December 2015: 4.1 per cent).
Liquidity risk
The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market, as well as AIM-traded equity investments, all of which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.
The Company's liquidity risk is managed on an ongoing basis by the Investment Manager. 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. At 30 September 2016 these investments were valued at GBP24,110,000 (31 December 2015: GBP15,802,000).
3.4 Related parties
Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Livingbridge VC LLP, as disclosed in notes 2.6 and 2.8, and fees paid to the Directors as disclosed in note 2.6. In addition, the Manager operates a Co-investment Scheme, detailed in the Management retention section of the Strategic Report, whereby employees of the Manager are entitled to participate in all unquoted investments alongside the Company.
During the period ended 30 September 2016, the Manager received income of GBPnil (31 December 2015: BVCT3 GBP57,000 & BVCT4 GBP57,000) in connection with advisory fees and incurred abort fees of GBP12,000 (31 December 2015: BVCT3 GBP10,000 & BVCT4 GBP10,000), with respect to investments attributable to Baronsmead Second Venture Trust.
Directors' fees of GBP252,000 (31 December 2015: BVCT3 GBP207,000 &BVCT4 GBP207,000) were received by the Manager in relation to services provided to companies in the investment portfolio, during the year, with respect to investments attributable to Baronsmead Second Venture Trust.
3.5 Segmental reporting
The Company has one reportable segment being investing in primarily a portfolio of UK growth businesses, whether unquoted or traded on AIM.
3.6 Post balance sheet event
On 17 October 2016 the Company and Baronsmead VCT 5 plc ("BVCT5") published circulars in connection with recommended proposals for their merger (the "BVCT5 Merger") and convened general meetings at which these proposals would be voted on by their respective shareholders. At the general meetings held by the Company and BVCT5 on 8 November 2016, the Company's shareholders and the shareholders of BVCT5 voted in favour of their respective resolutions concerning the BVCT5 Merger proposals. At the time of writing, the proposed merger with BVCT5 remains subject to the shareholders of BVCT5 approving the resolution to place BVCT5 into members' voluntary liquidation to be proposed at a general meeting to be held on 30 November 2016. Should this resolution be approved, the BVCT5 Merger would become effective resulting in the Company having a combined NAV of approximately GBP180.0m, making it one of the largest VCTs in the industry.
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: http://www.morningstar.co.uk/uk/NSM
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FFAESMFMSELF
(END) Dow Jones Newswires
November 17, 2016 02:01 ET (07:01 GMT)
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