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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 | 55.50 | 55.50 | 55.50 | 0.00 | 08:00:03 |
| 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 : 0368X
Baronsmead Second Venture Trust PLC
21 November 2017
Baronsmead Second Venture Trust plc
Annual Financial Report for the year ended 30 September 2017
Financial Headlines
-- Net asset value ("NAV") per share increased 5.9 per cent to 97.60p before deduction of dividends in the year ended 30 September 2017.
-- NAV total return of 313.5p to shareholders for every 100.0p invested at launch.
-- Dividends totalled 7.5p in the year to 30 September 2017, including the proposed final dividend of 4.5p to be paid on 2 February 2018.
-- GBP8.9m new investment made in the year - GBP5.5m unquoted investments and GBP3.4m quoted investments.
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 5.89 per cent (5.43p) increase in NAV per share for the year to 30 September 2017 before dividend payments. The Board has proposed final dividend of 4.5p per share, subject to shareholder approval, in order to maintain annual dividends of 7.5p per share.
Merger Information and Financial Reporting
On 30 November 2016, Baronsmead Second Venture Trust plc ("BSVT" or the "Company") merged with Baronsmead VCT 5 plc ("BVCT5") (the "BVCT5 Merger") resulting in the Company having a combined NAV of approximately GBP182m making it one of the largest VCTs in the industry.
The BVCT5 Merger was undertaken by way of the transfer of the assets and liabilities of BVCT5 in consideration for the issue of new shares in BSVT, on a NAV for NAV basis, to the shareholders of BVCT5. As a result, these mergers are accounted for as acquisitions in the Company's financial reports.
Results
In the year to 30 September 2017, the NAV grew by 5.43p per share (5.89 per cent) to 97.60p before payment of dividends. This growth (together with reserves accumulated from successful realisations) has enabled us to recommend a final dividend of 4.5p making a total of 7.5p for the year.
Hot Features
Premium
pence
per
ordinary
share
-------------------------- ----------
NAV as at 1 October 2016 92.17
-------------------------- ----------
Valuation uplift (5.89
per cent) 5.43
-------------------------- ----------
NAV as at 30 September
2017
before dividends 97.60
-------------------------- ----------
Less:
Interim dividend paid on
31 March 2017 (3.00)
-------------------------- ----------
Proposed final dividend
of 4.5p payable, after
shareholder approval, on
2 February 2018 (4.50)
-------------------------- ----------
Illustrative NAV as at
30 September 2017 after
proposed final dividend 90.10
========================== ==========
Over the past 10 years the Company has provided its shareholders with an annual average tax-free dividend of 9.64p per share. With a share price of 89.50p per share this is equivalent to a net tax-free yield of 10.77 per cent representing an excellent return for the Company's loyal shareholders and one that the Board is proud of.
Portfolio Review
As at 30 September 2017, the portfolio comprised direct investments in 71 unquoted and AIM-traded companies providing shareholders with a diverse range of investments. During the year to 30 September 2017, the underlying value of the unquoted portfolio increased by 5.36 per cent reflecting the continued positive performance of most of the investments. The AIM-traded portfolio increased by 7.93 per cent and CF Livingbridge UK Micro Cap Fund has had a particularly strong year with a 26.87 per cent increase in value.
Investments and Divestments
Following a period of adjustment to the more restrictive VCT investment rules introduced in November 2015, the Company invested a total of GBP8.93m in seven new and two follow on investments in the year to 30 September 2017. The Investment Manager has had to adapt its investment strategy to focus on the provision of development capital to younger companies. This is likely to result in greater volatility in returns over time, albeit the existing portfolio of larger investments will continue to determine returns for a number of years to come.
Livingbridge has continued to invest in its programme of proactively approaching prospective investee companies in order to identify a supply of new and attractive investment opportunities. Additionally, its value strategy team provides ongoing support and expertise to portfolio companies following the initial investment.
Following a period of divestments of the Company's more mature investments in 2015 and 2016, the pace of realisations slowed in 2017. A total of GBP9.06m was realised from the full and partial sale of investments and from loan note redemptions during the year.
Details of the Company's investments and divestments during the year are set out in the tables below and further commentary on portfolio companies is provided in the Managers Report below.
VCT Legislation and Policy Review
As reported at the interim stage, following on from the changes to VCTs introduced in November 2015, earlier this year the Government announced that tax advantaged venture capital schemes (SEIS, EIS and VCTs) were to be included in the Patient Capital Review which aims "to ensure that high growth businesses can access the long-term capital that they need to fund productivity enhancing investment."
This resulted in the publication of the "Financing growth in innovative firms" consultation in August 2017, with the aim that any policy recommendations concerning VCTs and the other tax advantaged venture capital schemes would be presented to the Chancellor ahead of the Autumn Budget Statement on 22 November 2017. Over the summer, the Manager, along with others in the VCT industry including managers and industry representative bodies, have consulted with HM Treasury ("HMT") and provided evidence to support the view that VCTs are meeting the Governments policy objectives of providing financial support to developing high growth businesses and represent value for money for taxpayers.
We await the outcome of the consultation and the proposals to be announced in the Autumn Budget and hope that any changes to the VCT scheme will not constrain this support and will enable VCTs to continue to invest money and expertise in small, entrepreneurial UK companies in line with the Government's policy objectives.
Fundraising
Following the realisations achieved in 2015 and 2016 and the slowing down of the new investment rate in that period, the Company did not raise new funds in the 2016/17 year. As a result of the subsequent decrease in the rate of realisations and an improvement in the rate of new investment, in August 2017, the Board announced its intention to raise new funds to enhance the Company's resources available for new and follow on investments over the next two to three years. Consequently, on 4 October 2017 the Company launched an offer for subscription to raise GBP24m (before costs). As at 17 November 2017 shareholders had invested GBP20.6m. We would like to thank the Company's existing shareholders who so far have invested a further GBP11.1m and welcome the Company's new shareholders who invested GBP9.5m.
Annual General Meeting
I look forward to meeting as many new and longstanding shareholders as possible at the Annual General Meeting to be held at 11.00 am on 30 January 2018, at Saddlers' Hall, 40 Gutter Lane, London, EC2V 6BR. As well as my own review of the year, there will also be presentations from the Manager followed by lunch for all shareholders.
OUTLOOK
Given the continued uncertainty over the timing and terms of the UK's exit from the European Union, the impact of Brexit on the UK economy remains unknown and largely unquantifiable. Although the UK economy has remained largely resilient to date, recent inflationary pressures and some softening in consumer confidence may serve to weaken that resilience over the short term. As we await the outcome of HMT's deliberations over the Patient Capital Review it is hoped that HMT understand the industry's representations and will take full account of the benefits VCTs provide to the UK economy. We will know more following the Autumn Budget Statement on 22 November 2017.
Despite, these macro-economic and regulatory uncertainties, I believe our diverse investment portfolio exhibits a strength that underpins the returns to our shareholders. Our Investment Manager continues to invest in those systems and people that will help our portfolio companies to deliver profitable growth from which all our shareholders will benefit over the medium to long term.
Anthony Townsend
Chairman
21 November 2017
MANAGER'S REVIEW
The year has seen another strong performance from the investment portfolio. We have begun to increase the rate of investment following a period of adapting to VCT Legislation introduced in November 2015.
PORTFOLIO REVIEW
Overview
The net assets of GBP187m were invested as follows:
NAV % of Number of % return
(GBPm) NAV * investees in
the year**
----------------------- -------- ------- ----------- ------------
Unquoted 61 33 20 5
----------------------- -------- ------- ----------- ------------
AIM-traded companies 88 47 51 8
----------------------- -------- ------- ----------- ------------
CF Livingbridge
UK Microcap Fund 20 11 44 27
----------------------- -------- ------- ----------- ------------
CF Livingbridge
UK Multi Cap Fund 3 1 43 5
----------------------- -------- ------- ----------- ------------
Liquid Assets 15 8 N/A -
----------------------- -------- ------- ----------- ------------
Totals 187 100 - -
======================= ======== ======= =========== ============
* By value as at 30 September 2017.
** Return includes interest received on unquoted realisations during the year.
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 2017, 77 per cent of the 71 companies directly held in the portfolio (excluding the investments held by Collective Investment Vehicles) were progressing steadily or better.
The tables below show the breakdown of new investments and realisations over the course of the year and below is commentary on some of the key highlights in both the unquoted and quoted portfolios.
Unquoted Portfolio
The unquoted portfolio performance has been positive, growing by around 5.4 per cent over the course of the year. 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.
Investment Activity
During the year, GBP8.9m was invested in 9 companies including 7 new additions to the portfolio and 2 follow on investments. The largest investments were:
-- In the style Fashion Ltd (unquoted) is a trend-led, fast growing purely online fashion retailer. Its popularity has been driven, in part by the business' royalty-based collaborations with celebrities and fashion influencers. Our investment will be used to support the business in scaling up its operations including upgrading IT and infrastructure, growth of the team and moving into international markets.
-- Symphony Ventures Ltd (unquoted) is a leader in Robotic Process Automation ("RPA"). Symphony provides consulting, implementation and managed services to enterprise clients looking to automate operational processes that are manual, repetitive, complex and time consuming through RPA and Intelligent Automation solutions. Our investment will support new hires and extend Symphony's capabilities into new geographies.
-- FreeAgent Holdings Plc (quoted) provides cloud-based accounting software solutions and mobile applications designed specifically for UK micro-SMEs. The company offers intuitive tools to complete tasks such as time tracking, invoicing, expense management and tax related workstreams. Our investment will be used for the growth and development of the business.
Unquoted Divestment Activity
Following a number of years of strong realisation activity this financial year has seen limited divestments from the portfolio.
Yeo Bridge and Kalyke Investments were two acquisitions vehicles set up in 2015, these became non-qualifying during the year and are subsequently being dissolved. There are now no acquisition vehicles in the portfolio and no intention to set up any new ones.
There was also a partial loan note redemption from Create Health during the year.
Quoted Portfolio (AIM-traded investments)
The quoted portfolio has shown strong overall performance over the year with an increase of 7.9 per cent. Stand out performers were Bioventix, a developer of antibodies for use in clinical diagnostics, following strong financial results and upgraded forecasts and Wey Education, a provider of online education services, following the achievement of a maiden group profit.
These were partially offset by weaker share price performance from Tasty, a casual dining restaurant operator, which downgraded forecasts on the back of well publicised restaurant sector weakness; and TLA Worldwide, which announced that certain accounting misstatements would result in a worse than expected 2016 financial result.
Quoted Divestment Activity
Proceeds from the sale of Electric Word totalled GBP2.78m making a return of 1.2x cost. GBP0.55m of proceeds were also received in the year following the partial sale of Escher Group Holdings and Ubisense Group making a return of 1.0x cost and 0.23x cost respectively.
Collective Investment Vehicles
CF Livingbridge UK Micro Cap Fund ("Micro Cap") performed strongly over the year increasing by 26.9 per cent (2016: 1 per cent). At 30 September 2017, BSVT's cumulative GBP6.2m investment was valued at GBP20.4m. As at 30 September 2017, the Micro Cap Fund held investments in 44 AIM-traded and listed companies. An investment was made in CF Livingbridge UK Multi Cap Income Fund ("Multi Cap") in July and since then the value has increased by 4.5 per cent. As at 30 September 2017, the Multi Cap held investments in 43 AIM-traded and listed companies.
Liquid assets (cash and cash equivalents)
Baronsmead Second Venture Trust had cash and cash equivalents of approximately GBP16m at the year-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
Investee companies continue to perform well, providing good returns over the year and a firm foundation for future returns. Having had a lull in the rate of new investment in 2016, we continue to adapt our deal origination and sourcing activities which have resulted in the Company adding 4 unquoted and 3 AIM-traded companies to the portfolio and we look forward to making further additions over the coming year.
Livingbridge VC LLP
Investment Manager
21 November 2017
Investments in the year
Book
cost
Company Location Sector Activity GBP'000
--------------------------- ---------------- -------------- ------------------------------------ ---------
Unquoted investments
New
--------------------------- ---------------- -------------- ------------------------------------ ---------
In the Style Fashion Consumer
Ltd Manchester Markets Fast online fashion retailer 2,750
--------------------------- ---------------- -------------- ------------------------------------ ---------
Robotic Process Automation
Business implementation and consultancy
Symphony Ventures Ltd London Services business 1,924
--------------------------- ---------------- -------------- ------------------------------------ ---------
Consumer
SilkFred Ltd London Markets Online fashion market place 550
--------------------------- ---------------- -------------- ------------------------------------ ---------
Consumer
Custom Materials Ltd London Markets Retailer of customisable products 275
--------------------------- ---------------- -------------- ------------------------------------ ---------
Total unquoted investments 5,499
--------------------------------------------------------------------------------------------------- ---------
AIM-traded Investments
New
--------------------------- ---------------- -------------- ------------------------------------ ---------
FreeAgent Holdings plc Edinburgh TMT* Online accounting software 788
--------------------------- ---------------- -------------- ------------------------------------ ---------
Rosslyn Data Technologies
plc London TMT* Data analytics software platform 527
--------------------------- ---------------- -------------- ------------------------------------ ---------
Healthcare Develops and manufactures medical
Collagen Solutions plc London & Education grade collagen 412
--------------------------- ---------------- -------------- ------------------------------------ ---------
Follow on
--------------------------- ---------------- -------------- ------------------------------------ ---------
Business
Plant Impact plc Hertfordshire Services Crop enhancing products 1,100
--------------------------- ---------------- -------------- ------------------------------------ ---------
CloudCall Group plc Leicestershire TMT* Cloud based telephony platform 599 --------------------------- ---------------- -------------- ------------------------------------ --------- Total AIM-traded investments 3,426 --------------------------------------------------------------------------------------------------- --------- Total investments in the year ------------------------------ 8,925 --------------------------------------------------------------------------------------------------- ---------
* Technology, Media & Telecommunications ("TMT").
All investments other than investments in FreeAgent Holdings plc and CloudCall Group plc were made after BSVT acquired the assets of BVCT5 on 30 November 2016. Hence, the book cost of new investments shown (except for FreeAgent Holdings plc and CloudCall Group plc) relate only to the investments made by BSVT post merger. BSVT acquired the BVCT5 investment portfolio (total GBP39,138,000) on 30 November 2016.
Realisations in the year
First Overall
investment Proceeds++ multiple
Company date GBP'000 return*
-------------------------------- ---------------- ------------- ------------- ----------
Unquoted realisations
-------------------------------- ---------------- ------------- ------------- ----------
Yeo Bridge Ltd Dissolved** Apr 15 2,312 1.0
-------------------------------- ---------------- ------------- ------------- ----------
Kalyke Investments Ltd Dissolved** Apr 15 2,310 1.0
-------------------------------- ---------------- ------------- ------------- ----------
Create Health Ltd Loan Repayment Mar 13 1,100 1.3
-------------------------------- ---------------- ------------- ------------- ----------
Part trade
CR7 Services Ltd sale Aug 14 13 1.0
-------------------------------- ---------------- ------------- ------------- ----------
Total unquoted realisations 5,735
----------------------------------------------------------------- ------------- ----------
AIM-traded realisations
-------------------------------- ---------------- ------------- ------------- ----------
Electric Word plc Cash offer Mar 08 2,783 1.2
-------------------------------- ---------------- ------------- ------------- ----------
Part market
Escher Group Holdings plc sale Aug 11 490 1.0
-------------------------------- ---------------- ------------- ------------- ----------
Part market
Ubisense Group plc sale Jun 11 55 0.2
-------------------------------- ---------------- ------------- ------------- ----------
Marwyn Management Partners
plc Write off Nov 09 0 0.0
-------------------------------- ---------------- ------------- ------------- ----------
Total AIM-traded realisations 3,328
----------------------------------------------------------------- ------------- ----------
Total realisations in the year 9,063
----------------------------------------------------------------- ------------- ----------
++ Proceeds at time of realisation including interest.
* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.
** Acquisition vehicle dissolved during the year.
Deferred consideration of GBP60,000 was received in respect of Kingsbridge Risk Solutions and GBP7,000 in respect of Fisher Outdoor Leisure Holdings, both of which had been sold in a prior period.
No realisations were made before the acquisition of the BVCT5 investment portfolio and proceeds shown relate to those made after 30 November 2016.
Ten Largest Investments
The top ten investments by current value at 30 September 2017 illustrate the diversity of investee companies within the portfolio. For consistency across the top ten and based on guidance from the AIC, data extracted from the last set of published audited accounts is shown in the tables below. However, this may not always be representative of underlying financial performance for several reasons. Published accounts lodged at Companies House are out of date and the Manager works from up to date management accounts and has access to draft but unpublished annual audited accounts prepared by the auditor. In addition, pre-tax profit in statutory accounts is often not a representative indicator of underlying profitability as it can be impacted by, for example, deductions of non-cash items such as amortisation that relates to investment structures rather than operating performance.
1. IDOX Plc - Berkshire
All funds managed by Livingbridge
First investment: May 2002
Total original cost: GBP1,641,000
Total equity held: 4.2%
Baronsmead Second Venture Trust only
Original book cost: GBP1,028,000
Valuation: GBP7,141,000
Valuation basis: Last Traded Price
% of equity held: 2.7%
Year ended 31 October
2016 2015
GBP million GBP million
Sales: 76.7 62.6
Pre-tax profits 13.0 9.8
Net Assets: 65.2 53.6
No. of Employees: 676 572
(Source: IDOX plc Annual Report & Accounts 2016.)
2. Netcall Plc - Hertfordshire
All funds managed by Livingbridge
First investment: July 2010
Total original cost: GBP4,354,000
Total equity held: 17.3%
Baronsmead Second Venture Trust only
Original cost: GBP2,616,000
Valuation: GBP7,100,000
Valuation basis: Bid Price
% of equity held: 10.4%
Year ended 30 June
2017 2016
GBP million GBP million
Sales: 16.1 16.6
Pre-tax profits 1.7 1.7
Net Assets: 21.0 22.6
No. of Employees: 169 156
(Source: Netcall plc, Annual Report and Accounts, 30 June 2017.)
3. Bioventix Plc - Surrey
All funds managed by Livingbridge
First investment: June 2013
Total original cost: GBP1,008,000
Total equity held: 7.5%
Baronsmead Second Venture Trust only
Original cost: GBP555,000
Valuation: GBP5,712,000
Valuation basis: Bid Price
% of equity held: 4.1%
Year ended 30 June
2016 2015
GBP million GBP million
Sales: 5.5 4.3
Pre-tax profits 4.2 3.1
Net Assets: 8.2 6.6
No. of Employees: 14 13
(Source: Bioventix plc, Annual Report and Accounts, 30 June 2016.)
4. Dods Group PLC - London
All funds managed by Livingbridge
First investment: March 2003
Total original cost: GBP5,289,000
Total equity held: 20.1%
Baronsmead Second Venture Trust only
Original book cost: GBP3,268,000
Valuation: GBP5,551,000
Valuation basis: Bid Price
% of equity held: 12.1%
Year ended 31 March
2017 2016
GBP million GBP million
Sales: 20.0 19.6
Pre-tax profits 1.5 1.1
Net Assets: 27.3 25.7
No. of Employees: 196 210
(Source: Dods (Group) PLC Annual Report 31 March 2017.)
5. Inspired Energy Plc - Lancashire
All funds managed by Livingbridge
First investment: November 2011
Total original cost: GBP1,437,000
Total equity held: 8.0%
Baronsmead Second Venture Trust only
Original book cost: GBP861,000
Valuation: GBP5,337,000
Valuation basis: Bid Price
% of equity held: 4.8%
Year ended 31 December
2016 2015
GBP million GBP million
Sales: 21.5 15.2
Pre-tax profits 4.0 3.5
Net Assets: 14.9 11.3
No. of Employees: 200 119
(Source: Inspired Energy plc Annual Report 31 December 2016.)
6. Pho Holdings Limited - London
All funds managed by Livingbridge
First investment: July 2012
Total original cost: GBP4,415,000
Total equity held: 28.0%
Baronsmead Second Venture Trust only
Original book cost: GBP2,422,000
Valuation: GBP5,139,000
Valuation basis: Earnings Multiple
% of equity held: 13.6%
Year ended 28 February
2016* 2015**
GBP million GBP million
Sales: 19.4 14.1
Pre-tax profits 0.0 0.0
Net Assets: 4.5 4.7
No. of Employees: 399 290
(Source: Pho 2012 Limited, Directors' Report and Financial Statements 28 February 2016.)
* 52 week period ended 28 February 2016.
** 53 week Period ended 1 March 2015.
7. Crew Clothing Holdings Limited - London
All funds managed by Livingbridge
First investment: November 2006
Total original cost: GBP5,833,000
Total equity held: 31.0%
Baronsmead Second Venture Trust only
Original book cost: GBP2,904,000
Valuation: GBP5,032,000
Valuation basis: Earnings Multiple
% of equity held: 15.1%
Year ended 30 October
2016* 2015**
GBP million GBP million
Sales: 58.3 55.0
Pre-tax profits (2.8) (2.6)
Net Assets: 0.3 3.3
No. of Employees: 427 411
(Source: Crew Clothing Holdings Limited, Report and Financial Statements 30 October 2016.)
* 53 week period ended 30 October 2016.
** Year ended 25 October 2015.
8. Happy Days Consultancy Limited - Cornwall
All funds managed by Livingbridge
First investment: April 2012
Total original cost: GBP7,617,000
Total equity held: 65.0%
Baronsmead Second Venture Trust only
Original book cost: GBP 4,180,000
Valuation: GBP5,029,000
Valuation basis: Earnings Multiple
% of equity held: 31.5%
Year ended 31 December
2016 2015
GBP million GBP million
Sales: 7.0 6.2
Pre-tax profits (1.8) (1.6)
Net Assets: (4.2) (2.5)
No. of Employees: 309 258
(Source: H. Days Holdings Limited Annual Report and Financial Statements 31 December 2016.)
9. Ideagen Plc - Nottinghamshire
All funds managed by Livingbridge
First investment: January 2013
Total original cost: GBP3,000,000
Total equity held: 5.6%
Baronsmead Second Venture Trust only
Original book cost: GBP1,650,000
Valuation: GBP4,904,000
Valuation basis: Bid Price
% of equity held: 3.1%
Year ended 30 April
2017 2016
GBP million GBP million
Sales: 27.1 21.9
Pre-tax profits 1.0 1.0
Net Assets: 46.4 33.7
No. of Employees: 305 248
(Source: Ideagen plc, Annual Report & Accounts, 30 April 2017.)
10. Carousel Logistics Ltd - Kent
All funds managed by Livingbridge
First investment: October 2013
Total original cost: GBP5,595,000
Total equity held: 40.0%
Baronsmead Second Venture Trust only
Original book cost: GBP2,336,000
Valuation: GBP4,672,000
Valuation basis: Earnings Multiple
% of equity held: 14.7%
Year ended 31 December
2016 2015
GBP million GBP million
Sales: 21.4 16.8
Pre-tax profits 2.0 1.7
Net Assets: 4.1 2.4
No. of Employees: 92 71
(Source: Carousel Logistics Limited Financial Statement 31 December 2016.)
Principal Risks & Uncertainties
The Board has included below details of the principal risks & uncertainties facing the Company and the appropriate measures taken in order to mitigate these risks as far as practicable.
Principal Context Specific risks Possible impact Mitigation
Risk
--------------- ------------------------ ------------------------ ------------------------ -----------------------
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 margin on all
as a Venture with section 274 of the Company to hold shareholders VCT tests to ensure
Capital the Income Tax Act VCT status could who have not held that breaches are
Trust 2007 which enables result in the loss their shares for the very
its investors to take of that status. designated holding unlikely to be caused
advantage of tax period having to repay by unforeseen events
relief the income tax relief or shocks. The
on their investment they had already Investment Manager
and on future returns. obtained monitors
and future dividends all of the VCT tests
and gains would be on an ongoing basis
subject to income and the Board reviews
tax and capital gains the status of these
tax. 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 Manager
private individuals the funding of small maintain engage
to invest in early companies or changes its asset base leading on a regular basis
stage companies that made to VCT to its gradual decline with HMT and industry
are considered to regulations and potentially an representative bodies
be risky and therefore to comply with EU inability to maintain to demonstrate the
have limited funding State Aid rules either its buy back cost benefit of VCTs
options. In return, could result in or dividend policies. to the economy in
the state provides a cessation of the terms
these investors with tax reliefs for of employment
tax reliefs which VCT investors or generation and
fall under the changes to the reliefs taxation revenue.
definition that make them less In addition the Board
of state aid. attractive to and the Investment
investors. 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 portfolio
based companies, both with the resultant of investors where
unquoted and quoted. risk of a high level shareholdings the cost of any one
Smaller companies of failure in the and in the level of investment is
often have limited portfolio. income distributed. typically
product lines, markets less than 5 per cent
or financial resources of NAV thereby
and may be dependent limiting
for their management the impact of any one
on a smaller number failed investment.
of key individuals The Board has
and hence tend to appointed an
be riskier than larger Investment Manager
businesses. that 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 diversified
and other predominantly recession, movement assets portfolio
external UK businesses, it in interest or with a corresponding of companies across a
factors relies heavily on currency impact on its share number of industry
Europe as one of its rates, civil unrest, price may result in sectors which
largest trading war or political the loss of investors provides protection
partners. uncertainty or through buybacks and against
This, together with pandemics may limit its ability shocks as the impact
the increase in can adversely affect to pay dividends. on individual sectors
globalisation, the trading can vary depending
means that economic environment upon the
unrest and shocks for underlying circumstances.
in other investments In addition, the
jurisdictions, and impact on their Manager uses a
as well as in the results and limited
UK, can impact on valuations. amount of bank
UK companies, gearing in its
particularly investments
smaller ones that which enables its
are more vulnerable investments to
to changes in trading continue
conditions. In trading through
addition difficult economic
the potential impact conditions.
of leaving the The Company always
European maintains healthy
Union remains cash
uncertain. 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 Manager
as a self-managed of its regulatory could be impacted employ
Alternative Investment or legal obligations severely by financial the services of
Fund Manager ("AIFM") could result in penalties and a loss leading regulatory
under the Alternative the suspension of of reputation lawyers,
Investment Fund its listing by the resulting sponsors, auditors
Managers UKLA and/or financial in the alienation and other advisers to
Directive ("AIFMD") penalties and sanction of shareholders, a ensure the Company
and is also subject by the regulator significant demand complies with all of
to the Prospectus or a qualified audit to buy back shares its regulatory
and Transparency report. and an inability to obligations. The
Directives. attract future Board has
It is required to investment. strong systems in
comply with the The suspension of place to ensure that
Companies its shares would the
Act 2006 and the UKLA result Company complies with
listing Rules. in the loss of its all of its regulatory
VCT taxation status responsibilities. The
and most likely the Investment Manager
ultimate liquidation has a strong
of the Company. 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 audit
parties, in particular controls of any shareholdings, committee
the Investment of the Company's incorrect marketing who, along with the
Manager, advisers leading literature, non external auditors,
to provide it with to an inability compliance review
the necessary services to service shareholder with listing rules, the internal control
such as registrar, needs adequately, loss of assets, breach (ISAE3402) and/or
sponsor, custodian, to provide accurate of legal duties and internal
receiving agent, reporting and inability to provide audit reports from
lawyers accounting accurate reporting all significant third
and tax advisers. and to ensure and accounting all party service
adherence leading to providers, including
to all VCT legislation reputational the Investment
rules. risk and the potential Manager, on a
for litigation. 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 the full Annual Report and Financial Statements, is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs.
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 PricewaterhouseCoopers LLP ("PwC") as VCT Tax Status Advisers to advise it on compliance with VCT requirements. PwC reviews new investment opportunities, as appropriate, and regularly reviews the investment portfolio of the Company. PwC 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 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 to assess 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 four male Directors. The Manager has an equal opportunity policy and currently employs 47 men and 38 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 Manager is responsible for providing all secretarial, administrative and accounting services to the Company. The Manager has appointed Link Alternative Fund Administrators Limited to provide these services to the Company on its behalf. The Company is responsible for paying the fee charged by Link Alternative Fund Administrators Limited to the 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 2017 was 2.7 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 year to 30 September 2017 (2016: 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 eligible 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 eligible 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, 72 executives have invested a total of GBP896,000 in 49 companies. At 30 September 2017, 33 of these investments have been realised generating proceeds of GBP275.6m for the Baronsmead VCTs and GBP13.9m for the co-investment scheme. For Baronsmead Second Venture Trust the average money multiple on these 33 realisations was 1.8 times cost. Had the co-investment shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been the equivalent of 3.6p 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 and Directors' Fees
During the year the Manager and an affiliate received GBP48,000 (2016: GBPnil) advisory fees, GBP448,000 (2016: GBP252,000) directors' fees for services provided to companies in the investment portfolio and incurred GBP14,000 (2016: GBP12,000) abort fees with respect to investments attributable to BSVT.
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 ("AIC Code"), the Directors have assessed the prospects of the Company over the three year period to 30 September 2020. 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 2020.
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.
Since launch, 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. The Company launched an offer for subscription to raise GBP24m (before costs) on 4 October 2017.
-- 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 753,000 shares were bought in this way during the year to 30 September 2017.
-- 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 1,417,000 shares were bought by investors in the Company's existing shares in the year to 30 September 2017.
On behalf of the Board
Anthony Townsend
Chairman
21 November 2017
Extract of the Directors Report
Shares and Shareholders
Share capital
As a result of the reconstruction and winding up of Baronsmead VCT 5 plc, on 30 November 2016, the Company allotted 47,077,911 ordinary shares.
During the year, the Company bought back a total of 2,604,000 ordinary shares to be held in Treasury, representing 1.25 per cent of the issued share capital as at 30 September 2017, with an aggregate nominal value of GBP260,400. The total amount paid for these shares was GBP2.30m. The Company's remaining authority to buy back shares from the AGM held in 2017 is 18,884,696. During the year, there were no ordinary shares sold from Treasury.
Since the year end, on 26 October 2017, the Company allotted 13,797,365 new ordinary shares pursuant to the offer for subscription set out in the prospectus published on 4 October 2017. These new shares were allotted at a price of 97.60 pence per share, representing 6.19 per cent of the issued share capital following the allotment with an aggregate nominal value of GBP1.38m, raising a further GBP13.47m of new funds (before expenses).
A second allotment of shares pursuant to the prospectus published on 4 October 2017 was completed on 21 November 2017. The Company allotted 7,350,154 new ordinary shares at a price of 97.10 pence per share, representing 3.19 per cent of the issued share capital following the allotment, with a nominal value of GBP0.74m, raising a further GBP7.14m of new funds (before expenses).
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 230,185,440 100.00 GBP23,018,544.00
================== ============ ========= =================
Held in Treasury 11,695,214 5.08 GBP1,169,321.40
================== ============ ========= =================
In circulation 218,492,226 94.92 GBP21,849,222.60
================== ============ ========= =================
The maximum number of shares held in Treasury during the year was 11,693,214. 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 & Financial Statements 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 AGM held in 2017 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 year to ended 30 September 2017:
Dividends GBP'000 ============================== ======= First interim dividend of 3.0p per ordinary share paid on 31 March 2017 5,987 ============================== ======= Final dividend of 4.5p per ordinary share to be paid on 2 February 2018 9,833 ============================== ======= Total dividends paid for the year 15,820 ============================== =======
Subject to shareholder approval at the AGM, a final dividend of 4.5p per share will be paid to shareholders on the register at 5 January 2018.
Annual General Meeting
The notice of the AGM of the Company to be held at 10.00am on 30 January 2018 at Saddlers' Hall, 40 Gutter Lane, London EC2V 6BR will be sent to shareholders and will be available on the Company's website.
Directors
Appointments
The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association and the Companies Act 2006. Further details in relation to the appointed Directors and the governance arrangements of the Board can be found in the Annual Report and Financial Statements.
Directors are entitled to a payment in lieu of three months' notice by the Company for loss of office in the event of a takeover bid.
Directors' indemnity
Directors' and Officers' liability insurance cover is in place in respect of the Directors. The Company's Articles of Association provide, subject to the provisions of UK legislation, an indemnity for Directors in respect of costs which they may incur relating to the defence of any proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour by the Court.
Save for such indemnity provisions in the Company's Articles of Association and in the Directors' letters of appointment, there are no qualifying third party indemnity provisions in force.
Conflicts of Interest
The Directors have declared any conflicts or potential conflicts of interest to the Board of Directors which has the authority to approve such situations. The Company Secretary maintains the Register of Directors' Conflicts of Interests which is reviewed quarterly by the Board, when changes are notified, and the Directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest do not take part in discussions which relate to any of their conflicts.
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 2017, the Company held cash balances and investments in readily realisable securities with a value of GBP16.0m. 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
21 November 2017
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;
-- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
-- use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
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 its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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 financial statements, 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
21 November 2017
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the periods ended 30 September 2016 and 2017 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies, and those for 2017 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 year ended 30 September 2017
Year ended Period ended
30 September 2017 30 September 2016
-------------------------------- ---------------------------------
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 - 12,987 12,987 - 5,920 5,920
Realised gains on disposal
of investments 2.3 - 251 251 - 2,216 2,216
Income 2.5 3,119 - 3,119 1,221 - 1,221
Investment management fee 2.6 (1,092) (3,276) (4,368) (616) (1,847) (2,463)
Other expenses 2.6 (832) - (832) (810) - (810)
------------------------------------- ------- -------- ------------ -------- -------- ------------ ---------
Profit/ (loss) before taxation 1,195 9,962 11,157 (205) 6,289 6,084
Taxation 2.9 - - - - - -
------------------------------------- ------- -------- ------------ -------- -------- ------------ ---------
Profit/ (loss) for the
period, being total comprehensive
income for the year 1,195 9,962 11,157 (205) 6,289 6,084
------------------------------------- ------- -------- ------------ -------- -------- ------------ ---------
Return per ordinary share:
Basic and Diluted 2.2 0.63p 5.20p 5.83p (0.16p) 4.83p 4.67p
------------------------------------- ------- -------- ------------ -------- -------- ------------ ---------
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 year ended 30 September 2017
Non- Distributable reserves Distributable Reserves
----------------------------- --- -------------------------------------- ------------------------ ------------
Called-up Share Revaluation Capital Revenue
share capital premium Reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --- -------------- --------- ----------- ----------- ----------- ------------
At 1 October 2016 16,196 81,466 24,357 18,394 495 140,908
Shares issued following
the acquisition
of Baronsmead VCT5
plc 4,708 38,245 - - - 42,953
Cancellation of
share premium - (119,711) - 119,711 -
Share premium cancellation
costs - - - (29) (29)
Profit / (loss) - - 14,055 (4,093) 1,195 11,157
Net Cost of share
buybacks - - - (2,313) - (2,313)
Dividends paid 2.4 - - - (5,887) (100) (5,987)
----------------------------- --- -------------- --------- ----------- ----------- ----------- ------------
At 30 September 2016 20,904 - 38,412 125,783 1,590 186,689
---------------------------------- -------------- --------- ----------- ----------- ----------- ------------
For the period ended 30 September 2016
Non-distributable reserves Distributable Reserves
------------------------ ----- ------------------------------------- ------------------------
Called-up Share Revaluation Capital Revenue
share capital premium reserve reserve reserve Total
Notes 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
Shares issued following
the acquisition
of Baronsmead VCT4
plc 6,800 63,884 - - - 70,684
Profit/(loss) after
taxation - - 8,897 (2,608) (205) 6,084
Net proceeds of
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
------------------------ ----- -------------- -------- ----------- ----------- ----------- ---------
Balance Sheet
As at 30 September 2017
As at As at
30 September 30 September
2017 2016
Notes GBP'000 GBP'000
--------------------------------------- ------ -------------- --------------
Fixed assets
Investments 2.3 187,364 116,579
Current assets
Debtors 2.7 260 1,464
Cash at bank 515 24,110
--------------------------------------- ------ -------------- --------------
775 25,574
Creditors (amounts falling due within
one year) 2.8 (1,450) (1,245)
--------------------------------------- ------ -------------- --------------
Net current (liabilities) / assets (675) 24,329
--------------------------------------- ------ -------------- --------------
Net assets 186,689 140,908
--------------------------------------- ------ -------------- --------------
Capital and reserves
Called-up share capital 3.1 20,904 16,196
Share premium 3.2 - 81,466
Capital reserve 3.2 125,783 18,394
Revaluation reserve 3.2 38,412 24,357
Revenue reserve 3.2 1,590 495
--------------------------------------- ------ -------------- --------------
Equity shareholders' funds 2.1 186,689 140,908
--------------------------------------- ------ -------------- --------------
NAV per share
- Basic 2.1 94.60p 92.17p
- Treasury 2.1 94.31p 91.89p
--------------------------------------- ------ -------------- --------------
The financial statements were approved by the Board of Directors of Baronsmead Second Venture Trust on 21 November 2017 and were signed on its behalf by:
Anthony Townsend
Chairman
Statement of Cash Flows
For the year ended 30 September 2017
Year ended Period ended
30 September 30 September
2017 2016
GBP'000 GBP'000
Cash flows from operating activities
Investment income received 3,068 1,757
Deposit interest received 7 59
Investment management fees paid (4,249) (2,371)
Other cash payments (525) (444)
Merger costs paid (455) (157)
Net cash outflow from operating activities (2,154) (1,156)
---------------------------------------------------- ------------- -------------
Cash flows from investing activities
Purchases of investments (43,015) (28,999)
Disposals of investments 24,606 39,739
Net cash (outflow)/inflow from investing activities (18,409) 10,740
---------------------------------------------------- ------------- -------------
Equity dividends paid (5,987) (25,695)
---------------------------------------------------- ------------- -------------
Net cash inflow before financing activities (26,550) (16,111)
Cash flows from financing activities
Net (costs) / proceeds of share issues, share
buybacks & sale of shares from treasury (1,048) 9,378
Net proceeds received from merger 4,008 19,539
Share premium cancellation costs (5) -
---------------------------------------------------- ------------- -------------
Net cash inflow from financing activities 2,955 28,917
(Decrease) / increase from financing activities (23,595) 12,806
Reconciliation of net cash flow to movement
in net cash
(Decrease) / increase in cash (23,595) 12,806
Opening cash position 24,110 11,304
Closing cash at bank and on deposit 515 24,110
---------------------------------------------------- ------------- -------------
Reconciliation of profit before taxation to
net cash outflow from operating activities
Profit before taxation 11,157 6,084
Gains on investments (13,328) (8,136)
(Increase) / decrease in debtors (57) 448
Increase in creditors 169 635
Written off expenses from merger (185) (187)
Net cash outflow from operating activities (2,154) (1,156)
==================================================== ============= =============
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. All accounting policies are included within an outlined box. -------------------------------------------------------------------------------------- 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 updated in January 2017 and on the assumptions
that the Company maintains VCT status.
The application of the Company's accounting policies requires judgement, estimation
and assumptions about the carrying amount of assets and liabilities. These estimates
and associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from these estimates.
The key source of estimation uncertainty relates to the assumptions made in
the determination of the fair value of the unquoted investments as set out in
note 2.3.
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 30 September 30 September 30 September 30 September 30 September
2017 2016 2017 2016 2017 2016
number number pence pence GBP'000 GBP'000
=========================== ============ ============ ============ ============ ============ ============
Ordinary shares (basic) 197,344,707 152,870,796 94.60 92.17 186,689 140,908
Ordinary shares (including
treasury) 209,037,921 161,960,010 94.31 91.89 197,154 148,827
=========================== ============ ============ ============ ============ ============ ============
The treasury NAV per share as at 30 September 2017 has been calculated by assuming that all shares held in treasury were sold to the market at the mid-share price of 89.50p at 30 September 2017 (2016: 87.13p).
2.2 Return per share
Weighted average Net profit on ordinary
number of ordinary Return per activities after
shares ordinary share taxation
======== ========================== ========================== ==========================
30 September 30 September 30 September 30 September 30 September 30 September
2017 2016 2017 2016 2017 2016
Number number pence pence GBP'000 GBP'000
Revenue 191,452,309 130,242,740 0.63 (0.16) 1,195 (205)
Capital 191,452,309 130,242,740 5.20 4.83 9,962 6,289
Total 5.83 4.67 11,157 6,084
======== ============ ============ ============ ============ ============ ============
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 year 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 30 September
2017 2016
GBP'000 GBP'000
=============================== ====================== ============
Level 1
Investments traded on AIM 86,120 58,093
Level 2
Collective investment vehicles 38,490 9,200
Level 3
Unquoted investments 61,163 49,286
Investments traded on AIM* 1,591 -
=============================== ====================== ============
187,364 116,579
=============================== ====================== ============
*TLA Worldwide plc has been changed to a level 3 investment due to a suspension of trading during the year.
Level 1 Level 2 Level 3
=================================================== ==================
Collective
Traded on investment Traded
AIM vehicles on AIM Unquoted Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================================================== ========
Opening book cost 47,957 3,525 - 40,740 92,222
Opening unrealised appreciation 10,136 5,675 - 8,546 24,357
--------------------------------------------------- --------- ----------- -------- -------- --------
Opening valuation 58,093 9,200 - 49,286 116,579
--------------------------------------------------- --------- ----------- -------- -------- --------
Movements in the year:
Transfers between levels (3,429) - 3,429 - -
Purchases at cost 3,426 34,090 - 5,499 43,015
Holdings acquired following
the acquisition of Baronsmead
VCT5 plc 23,251 6,810 - 9,077 39,138
Sale - proceeds (3,328) (16,100) - (5,178) (24,606)
* realised gains / (losses) on sales 860 - - (609) 251
Unrealised losses realised
during the year (1,067) - - (1) (1,068)
Increase/ (decrease) in
unrealised appreciation
/ (depreciation) 8,314 4,490 (1,838) 3,089 14,055
--------------------------------------------------- --------- ----------- -------- -------- --------
Closing valuation 86,120 38,490 1,591 61,163 187,364
--------------------------------------------------- --------- ----------- -------- -------- --------
Closing book cost 67,670 28,325 3,429 49,528 148,952
Closing unrealised appreciation
/ (depreciation) 18,450 10,165 (1,838) 11,635 38,412
--------------------------------------------------- --------- ----------- -------- -------- --------
Closing valuation 86,120 38,490 1,591 61,163 187,412
--------------------------------------------------- --------- ----------- -------- -------- --------
Equity shares 86,120 - 1,591 21,081 108,792
Loan notes - - - 40,082 40,082
Collective Investment vehicles - 38,490 - - 38,490
Closing valuation 86,120 38,490 1,591 61,163 187,364
--------------------------------------------------- --------- ----------- -------- -------- --------
The gains and losses included in the above table have all been recognised in the Income Statement above.
TLA Worldwide plc has been changed to a level 3 investment due to a suspension of trading during the year.
2.4 Dividends
Year ended Period ended
30 September 2017 30 September 2016
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 year ended 30 September
2017
* Interim dividend of 3.0p per ordinary
share paid on 31 March 2017 100 5,887 5,987 - - -
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
100 5,887 5,987 - 25,695 25,695
---------------------------------------------------------- -------- ----------- ---------- ------- ------- -------
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 year
ended 30 September 2017.
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.
-------------------------------------------------------------------------------------
Year ended Period ended
30 September 2017 30 September 2016
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
Dividend income 1,479 - 1,479 676 - 676
Interest income 17 1,618 1,635 18 470 488
1,496 1,618 3,114 694 470 1,164
------------------------ ----------- ----------- -------- ----------- ----------- --------
Other income++
Deposit interest 5 57
Total income 3,119 1,221
------------------------ ----------- ----------- -------- ----------- ----------- --------
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.
------------------------------------------------
Year ended Period ended
30 September 2017 30 September 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fee 1,092 3,276 4,368 616 1,847 2,463
Performance fee - - - - - -
---------------------- -------- -------- -------- -------- -------- --------
1,092 3,276 4,368 616 1,847 2,463
---------------------- -------- -------- -------- -------- -------- --------
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 12 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 year ended 30 September 2017 (period ended 30 September 2016: GBPnil).
Other expenses
Year ended Period ended
30 September 30 September
2017 2016
GBP'000 GBP'000
Directors' fees 100 86
Secretarial and accounting fees paid to the Manager 162 110
Remuneration of the auditors and their associates:
- audit 33 29
- other services supplied pursuant to legislation
(interim review) 6 6
Merger costs 302 365
Other 229 214
832 810
==================================================== ============ ============
Information on directors' remuneration is given in the Directors' emoluments table in the full Annual Report and Financial Statements.
Charges for other services provided by the Auditors in the year ended 30 September 2017 were in relation to the interim review. 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 30 September
2017 2016
GBP'000 GBP'000
============================================== ============ ============
Prepayments and accrued income 260 203
Amounts due from sale of shares from treasury - 1,261
============================================== ============ ============
260 1,464
============================================== ============ ============
2.8 Creditors (amounts falling due within one year)
As at As at
30 September 30 September
2017 2016
GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Management, secretarial and accounting fees due
to the Manager 1,215 922
Merger costs 55 208
Share premium cancellation costs 24 -
Other creditors 156 115
================================================ ============ ============
1,450 1,245
================================================ ============ ============
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:
Year ended Period ended
30 September 2017 30 September 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit / (loss) on ordinary
activities before taxation 1,195 9,962 11,157 (205) 6,289 6,084
---------------------------- -------- -------- -------- -------- -------- --------
Corporation tax at 19.5
per cent
(30 September 2016: 20.0
per cent)* 233 1,943 2,176 (41) 1,258 1,217
Effect of:
Non-taxable gains - (2,581) (2,581) - (1,627) (1,627)
Non-taxable dividend income (288) - (288) (135) - (135)
Non-deductible expenses 59 - 59 - - - Losses carried forward (4) 638 634 176 369 545 ============================ ======== ======== ======== ======== ======== ======== Tax charge/(credit) for - - - - - - the period ============================ ======== ======== ======== ======== ======== ========
* The corporation tax rate applied is based on the average tax rates for the financial years ended 30 September 2017 and 2016. The actual rates were 20 per cent until 31 March 2017 and 19 per cent from 1 April 2017.
At 30 September 2017 the Company had surplus management expenses of GBP9,609,937 (2016: GBP6,728,994) 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 =============================================================== ======= 161,960,010 ordinary shares of 10p each listed at 1 October 2016 16,196 47,077,911 ordinary shares of 10p each issued as consideration shares following the acquisition of BVCT5 4,708 209,037,921 ordinary shares of 10p each listed at 30 September 2017 20,904 --------------------------------------------------------------- ------- 9,089,214 ordinary shares of 10p each held in treasury at 1 October 2016 (909) 2,604,000 ordinary shares of 10p each repurchased during the year and held in treasury (260) 11,693,214 ordinary shares of 10p each held in treasury at 30 September 2017 (1,169) --------------------------------------------------------------- ------- 197,344,707 ordinary shares of 10p each in circulation* at 30 September 2017 19,735 --------------------------------------------------------------- -------
* Carrying one vote each.
On 30 November 2016, the Company acquired the assets of Baronsmead VCT 5 plc ("BVCT5") in exchange for the issue of new shares to BVCT5 shareholders. This resulted in a total consideration, as shown above and Note 3.2, of GBP42,953,000 being transferred to the Company which included investments, as shown in Note 2.3, totalling GBP39,138,000. The remaining assets, including cash and other net current assets and liabilities, totalled GBP3,815,000. All identified assets and liabilities were recognised at cost which approximated fair value and no goodwill was recognised on acquisition.
During the period the Company bought back into treasury 2,604,000 ordinary shares, representing 1.61 per cent of the ordinary shares in issue at the beginning of the financial year.
On 26 October 2017, the Company allotted 13,797,365 new ordinary shares and a further 7,350,154 new ordinary shares on 21 November 2017. See above for further details.
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 October 2016 18,394 495 18,889 81,466 24,357 105,823
Shares issued as consideration
following the acquisition
of BVCT5 - - - 38,245 - 38,245
Cancellation of share premium 119,711 - 119,711 (119,711) - (119,711)
Share premium cancellation
costs (29) - (29) - - -
Purchase of shares for
treasury (2,302) - (2,302) - - -
Net cost of share buybacks (11) - (11) - - -
Reallocation of prior year
unrealised losses (1,068) - (1,068) - 1,068 1,068
Realised gain on disposal
of investments(#) 251 - 251 - - -
Net increase in value of
investments(#) - - - - 12,987 12,987
Management fee capitalised(#) (3,276) - (3,276) - - -
Profit after taxation(#) - 1,195 1,195 - - -
Dividends paid in the period (5,887) (100) (5,987) - - -
=============================== ======== ============== ======== ========= ================ ===============
At 30 September 2017 125,783 1,590 127,373 - 38,412 38,412
=============================== ======== ============== ======== ========= ================ ===============
* Changes in fair value of investments are dealt with in this reserve.
(#) The total of these items is GBP11,157,000 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.
On 20 September 2017, the share premium account was cancelled by an Order of Court following the passing of a Special Resolution. The credit arising of GBP119,711,000 has been applied in creating a special reserve, within the capital reserve, which shall be able to be applied in any manner in which the Company's profits available for distribution (as determined in accordance with section 649 of the Companies Act 2006) are able to be applied.
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 above.
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. Management are comfortable that a 5% movement in share price is a reasonable estimate of the upside and downside alternatives.
As at 30 September 2017 As at 30 September 2016
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 & CIV 67 6,310 (6,310) 58 3,365 (3,365)
Unquoted 33 3,058 (3,058) 42 2,464 (2,464)
========== =========== =========== =========== =========== =========== ===========
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 2017 As at 30 September 2016
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 40,082 9.13 2.39 37,022 9.01 2.06
Fixed rate sterling
liquidity funds 15,490 - - - - -
Cash at bank and on
deposit 515 - - 24,110 - -
56,087 61,132
===================== ============ ====================== ============== ======================
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 September
2017 2016
GBP'000 GBP'000
------------------------------------------ ------------ ------------
Cash at bank and on deposit 515 24,110
Interest, dividends and other receivables 260 1,464
775 25,574
========================================== ============ ============
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 the Annual Report and Financial Statements.
The cash held by the Company is held by JPM. 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 2017 or 2016. No individual investment in a portfolio company exceeded 3.8 per cent of the net assets attributable to the Company's shareholders at 30 September 2017 (2016: 5.4 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 2017 these investments were valued at GBP16,005,000 (2016: GBP24,110,000).
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 in the Annual Accounts and Financial Statements, whereby employees of the Manager are entitled to participate in all unquoted investments alongside the Company.
During the year the Manager and an affiliate received GBP48,000 (2016: GBPnil) advisory fees, GBP448,000 (2016: GBP252,000) directors' fees for services provided to companies in the investment portfolio and incurred GBP14,000 (2016: GBP12,000) abort fees with respect to investments attributable to BSVT.
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 events
Realisations
Following the Balance Sheet date the Company realised its investment in IP Solutions Limited at the trading company level with funds being retained at the group level at present, this realisation is expected to return proceeds to the Company totalling GBP1.02m and making a return of 0.43x cost.
Following the Balance Sheet date the Company realised its investment in Eque2 Limited returning proceeds totalling GBP5.13m and making a return of 2.74x cost.
Fundraising
Since the year end on 26 October 2017 the Company allotted 13,797,365 new ordinary shares pursuant to the offer for subscription set out in the prospectus published on 4 October 2017. These new shares were allotted at a price of 97.60 pence per share, representing 6.19 per cent of the issued share capital following the allotment with an aggregate nominal value of GBP1.38m, raising a further GBP13.47m of new funds (before expenses).
The Company allotted 7,350,154 new ordinary shares on 21 November 2017 pursuant to the offer for subscription set out in the prospectus published on 4 October 2017. These shares were allotted at a price of 97.10 pence per share, representing 3.19 per cent of the issued share capital following the allotment with an aggregate nominal value of GBP0.74m, raising a further GBP7.14m of new funds (before expenses).
TLA Worldwide plc
The suspension for trading on AIM was lifted on 16 November 2017.
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
END
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 FEWESSFWSEIF
(END) Dow Jones Newswires
November 21, 2017 02:01 ET (07:01 GMT)
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