TIDMBDV
RNS Number : 1312X
Baronsmead VCT PLC
14 November 2014
Baronsmead VCT plc
Annual Report and Accounts for the year ended 30 September
2014
Financial Headlines
-- Net asset value ("NAV") per share increased 10.3 per cent to
85.33p in the twelve months to 30 September 2014, before deduction
of dividends.
-- NAV total return to shareholders for every 100.0p invested at launch equals 344.7p
-- Dividends totalled 9.5p for the year to 30 September 2014,
including the second interim dividend of 3.5p paid on 19 September
2014.
-- Net dividend yield was 13.3 per cent and gross annual yield was 17.6 per cent.
Our Investment Objective
The investment objective of the Company is to achieve long-term
investment returns for private investors, including tax free
dividends.
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.
Further details on how this is achieved are contained in the
'Other Matters' section of the Strategic Report below.
Dividend Policy
The Board wishes to maintain a minimum dividend level of around
5.5p per ordinary share if possible, but this depends primarily on
the level of realisations achieved and it cannot be guaranteed.
There will be variations in the amount of dividends paid year on
year.
Chairman's Statement
I am delighted to report that over the year to 30 September 2014
the Net Asset Value ("NAV") grew by 7.97p per share (10.3 per cent)
to 85.33p per share, before payment of dividends. Following a
series of profitable realisations, interim dividends of 6.0p and
3.5p were paid in March 2014 and September 2014, bringing the total
dividend for the year to 9.5p which was significantly higher than
our minimum dividend target of 5.5p.
Results
The increase in the NAV and the dividends paid over the year can
be summarised as follows:
p per
ordinary
share
========================= ==========
NAV as at 1 October
2013 77.36
========================= ==========
Valuation uplift (10.3
per cent) 7.97
========================= ==========
NAV as at 30 September
2014 before dividends 85.33
========================= ==========
Interim dividend paid
on 7 March 2014 (6.00)
========================= ==========
Second interim dividend
paid on 19 September
2014 (3.50)
========================= ==========
NAV as at 30 September
2014 75.83
========================= ==========
This has been another year of strong performance for the
Company.
Dividends
The growth in the NAV per share was largely as a result of the
increase in the value of the investments in AIM companies and Wood
Street Microcap, which increased by 33.2 per cent and 23.9 per cent
respectively. The value of the unquoted portfolio was modestly up
over the year and, as I stated last year, many of the current
investments are still relatively immature.
A series of profitable realisations enabled the Company to pay
dividends of 9.5p per share during the year. This is significantly
ahead of the Company's dividend policy, which seeks to maintain
annual average dividends of 5.5p per ordinary share, and also
represents a substantial increase on the 6.0p dividends paid in the
previous two financial years. Shareholders should note that the
level of future dividends will depend upon further profitable
realisations which vary from year to year.
The 9.5p per share dividend equates to an annual yield of 13.2
per cent based on the 30 September 2014 mid price of 71.75p. For
higher rate taxpayers this is the equivalent of 17.6 per cent.
Long term investment performance
The Company's investment and dividend policies are aimed at
producing consistent returns over the long-term. For founder
shareholders, their original subscription of 100p per share has
returned 345p per share in terms of NAV total return. This is
stated before taking account of the upfront VCT income tax relief
on subscription and the additional benefit of receiving 135.55p per
share in tax free dividends. The Annual Report shows the cash
returned to investors in the original and subsequent fundraisings
based on the subscription price and the income tax rebate available
on subscription. The full record of performance is set out in the
appendices of the Annual Report.
The strong performance this year has continued the cumulative
progress achieved since the onset of the financial crisis of 2008.
The cumulative NAV total return was once again above the level at
which the Manager is due to receive a performance fee. As a result,
a performance fee of GBP0.5 million (the equivalent of 0.49p per
share) is due to the Manager. A performance fee was paid in 2013
but prior to that, a performance fee was last paid in 2007. The
results for the year are stated net of all running costs as well as
the performance fee earned by the Manager. The Performance
Incentive and the other fees and charges received by the Manager
are set out above.
Portfolio
This has been a particularly active year for portfolio
realisations. In the year to 30 September 2014, the Company
realised gross proceeds of approximately GBP23.1 million (this
includes GBP4m received on the wind up of 4 acquisition vehicles)
representing realised gains of approximately GBP7.7 million. The
Manager's Review below provides a commentary on some of the most
significant realisations and the table below summarises the
proceeds received and the return achieved from each realisation.
This was an exceptional level of divestments which equates to
approximately 39% of the value of the investment portfolio at the
beginning of the year.
During the year under review, the Company invested approximately
GBP6.9 million in 10 new and 10 follow-on investments in our
existing portfolio companies. The table below in the Manager's
Review provides a summary of these new and follow-on investments.
As a result, at the year end, there were sixty-five companies in
the unquoted and quoted portfolio and exposure to another forty
investments through the Company's investment in Wood Street
Microcap. Realisations of the unquoted investments in particular
and the increase in value of the quoted portfolio, have had a
significant impact on the portfolio mix as shown in the Annual
Report. The proportion of the Company's assets in unquoted
investments is considered to be at a cyclical low and over the
medium term it is expected that this should rise as the growth in
value of the newer unquoted investments occurs.
Fundraising Update
The Company raised GBP9.7 million net of expenses earlier in the
year and with the GBP23.1 million realised from the sale of
investments in the year to 30 September 2014, it is unlikely that
the Company will seek to raise new funds in the current tax
year.
Annual General Meeting
I look forward to meeting as many shareholders as possible at
our nineteenth Annual General Meeting to be held on Wednesday, 17
December 2014 at the Plaisterers' Hall, One London Wall, London
EC2Y 5JU at 10.30am. As well as my own review of the year, there
will be presentations from the Manager, a light lunch and a
shareholder workshop.
Outlook
I commented on the improved outlook for the UK economy in the
half-yearly report in May earlier in the year. Whether this
improvement in the economic environment in which portfolio
companies operate is sustained, remains to be seen. Concerns over
growth in Europe, China and the emerging economies as well as
political instability in various regions, have led to volatility on
quoted markets. However the Company's portfolio diversity and asset
mix should help to deliver consistent returns over the medium to
long term.
The investment portfolio continues to evolve. Increases in the
value of our newer unquoted investments might be expected to be
more modest during the initial period following our investment. In
addition, the Manager has begun the process of crystallising some
gains in the value of the quoted portfolios by realising profits
from these investments as and when opportunities arise.
Peter Lawrence
Chairman
14 November 2014
Manager's Review
The year has been notable for a very strong level of divestment,
particularly in unquoted investments. In addition investment levels
are also up on the prior year with four new unquoted and six new
quoted investee companies that have been added to the
portfolio.
Strong upward performance has once again been delivered by the
quoted portfolio. The unquoted portfolio performance overall
increased more steadily over the year and has also has contributed
a high level of successful realisations, from some longstanding
holdings.
PORTFOLIO REVIEW
Overview
The net assets of GBP79.6 million were invested as follows:
NAV % of Number of % return
(GBPm) NAV investees in the
Asset class year
----------------------- -------- ----- ----------- ---------
Unquoted 25.0 31 21 6
----------------------- -------- ----- ----------- ---------
Quoted 26.2 33 44 33
----------------------- -------- ----- ----------- ---------
Wood Street Microcap 7.6 10 40 24
----------------------- -------- ----- ----------- ---------
Cash and near
cash 20.8 26 - -
======================= ======== ===== =========== =========
Each quarter the direction of general trading and profitability
of all investee companies is recorded so that the Board can monitor
the overall health and trajectory of the portfolio. At 30 September
2014, 75 per cent of the 65 companies in the portfolio (excluding
Wood Street Microcap) were progressing steadily or better.
The tables below show the breakdown of new investments and
realisations over the course of the year and are followed by
commentary on some of the key highlights in both the unquoted and
quoted portfolios.
Investments in the year
Book cost
Company Location Sector Activity GBP'000
========================== ================= ============== ====================================== =========
Unquoted investments
New
================================================================================================================
CableCom II Networking Internet service provider
Holdings Limited Somerset TMT* for high density accommodation 1,250
========================== ================= ============== ====================================== =========
Carousel Logistics Business Provider of bespoke logistics
Limited Kent Services and supply chain solutions 955
========================== ================= ============== ====================================== =========
Business
Kingsbridge Limited Gloucestershire Services Independent insurance broker 952
========================== ================= ============== ====================================== =========
CR7 Services Limited Kent TMT* Provider of payment services 949
========================== ================= ============== ====================================== =========
Follow on
========================== ================= ============== ====================================== =========
Provider of nursery based
Happy Days Consultancy Healthcare childcare in the South West
Limited Newquay & Education of England 180
========================== ================= ============== ====================================== =========
Crew Clothing Holdings Consumer
Limited London Markets Branded clothing retailer 110
========================== ================= ============== ====================================== =========
Independent Community Healthcare High acuity care for home
Care Management Limited Kettering & Education based care users 12
========================== ================= ============== ====================================== =========
Nexus Vehicle Holdings Business
Limited West Yorkshire Services Vehicle rental broker 7
========================== ================= ============== ====================================== =========
Consumer Restaurant group specialising
Pho Holdings Limited London Markets in Vietnamese street food 3
========================== ================= ============== ====================================== =========
Total unquoted investments 4,418
===================================================================================================== =========
AIM-traded investments
New
================================================================================================================
Consumer Rare book and collectibles
Scholium Group plc London Markets dealer 450
========================== ================= ============== ====================================== =========
Everyman Media Group Consumer Boutique independent cinema
plc London Markets chain 392
========================== ================= ============== ====================================== =========
Consumer UK letting agency franchise
MartinCo plc Bournemouth Markets network 343
========================== ================= ============== ====================================== =========
SME Domain registration &
Daily Internet plc Stockport TMT* hosting 340
========================== ================= ============== ====================================== =========
Consumer
Crawshaw Group plc Rotherham Markets Value meat retailer 200
========================== ================= ============== ====================================== =========
Synety Group plc Leicester TMT* Cloud based telephony platform 113
========================== ================= ============== ====================================== =========
Follow on
========================== ================= ============== ====================================== =========
Sanderson Group plc Coventry TMT* Retail and manufacturing IT 225
========================== ================= ============== ====================================== =========
Business Specialist plastic products
Plastics Capital plc London Services buy and build 189
========================== ================= ============== ====================================== =========
Consumer
Tasty plc London Markets Restaurant chain 125
========================== ================= ============== ====================================== =========
One Media iP Group
plc Buckinghamshire TMT* Content acquisition and distribution 57
========================== ================= ============== ====================================== =========
EG Solutions plc Loan
note Staffordshire TMT* Back office optimisation software 33
========================== ================= ============== ====================================== =========
Total AIM-traded investments 2,467
===================================================================================================== =========
Total investments in the year 6,885
===================================================================================================== =========
* Technology, Media & Telecommunications ("TMT").
Realisations in the year
First Overall
investment Book cost Proceeds++ multiple
Company date GBP'000 GBP'000 return*
========================== ============== ============= ========== =========== =========
Unquoted realisations
=============================================================================================
CableCom Networking Full trade
Holdings Limited sale May 07 1,381 5,818 4.9
========================== ============== ============= ========== =========== =========
Full trade
CSC (World) Limited sale Jan 08 1,607 3,129 2.5
========================== ============== ============= ========== =========== =========
Kafevend Holdings Full trade
Limited sale Oct 05 1,252 2,430 2.5
========================== ============== ============= ========== =========== =========
Inspired Thinking Full trade
Group Limited sale May 10 796 2,315 3.4
========================== ============== ============= ========== =========== =========
Quest Venture Partners
Limited Dissolved Sep 11 1,000 1,000 1.0
========================== ============== ============= ========== =========== =========
Arcas Investments
Limited Dissolved Sep 11 1,000 998 1.0
========================== ============== ============= ========== =========== =========
Riccal Investments
Limited Dissolved Apr 12 1,000 997 1.0
========================== ============== ============= ========== =========== =========
HealthTech Innovation
Partners Limited Dissolved Sep 11 1,000 996 1.0
========================== ============== ============= ========== =========== =========
Empire World Trade Full trade
Limited sale Aug 06 1,297 25 0.0
========================== ============== ============= ========== =========== =========
Music Festivals plc
Loan note Write-off Jun 11 400 9 0.0
-------------------------- -------------- ------------- ---------- ----------- ---------
Total unquoted realisations 10,733 17,717
--------------------------------------------------------- ---------- ----------- ---------
AIM-traded & listed realisations
---------------------------------------------------------------------------------------------
Staffline Group plc Market sale Jul 00 58 1,682 9.0
========================== ============== ============= ========== =========== =========
Full market
Vectura Group plc sale Mar 02 386 1,135 2.9
========================== ============== ============= ========== =========== =========
PROACTIS Holdings Full market
plc sale May 06 619 621 1.0
========================== ============== ============= ========== =========== =========
Chime Communications Full market
plc sale Nov 09 369 560 1.7
========================== ============== ============= ========== =========== =========
Sinclair IS Pharma Full market
plc sale Mar 08 524 546 1.0
========================== ============== ============= ========== =========== =========
Anpario plc Market sale Nov 06 69 284 4.1
========================== ============== ============= ========== =========== =========
Full market
Tristel plc sale Nov 10 217 281 1.3
========================== ============== ============= ========== =========== =========
GB Group plc Market sale Nov 11 42 159 3.7
========================== ============== ============= ========== =========== =========
Bglobal plc Write-off Jun 10 176 51 0.3
========================== ============== ============= ========== =========== =========
Inspired Energy plc Market sale Nov 11 13 49 3.9
========================== ============== ============= ========== =========== =========
Zattikka plc Write-off Apr 12 316 0 0.0
========================== ============== ============= ========== =========== =========
Total AIM-traded & listed realisations 2,789 5,368
========================================================= ========== =========== =========
Total realisations in the year 13,522 23,085
--------------------------------------------------------- ---------- ----------- ---------
++ Proceeds at time of realisation of unquoted investments include redemption
premium and interest.
* Full realisations include interest/dividends received, loan note redemptions
and partial realisations accounted for in prior periods.
Proceeds of GBP14,000 were also received in respect of Quantix Limited
and GBP27,000 in respect of Reed & Mackay, both of which had been sold
in a prior period.
Unquoted Portfolio
The unquoted portfolio performance has increased steadily by
around 6 per cent over the course of this year including
capitalised interest and redemption premium income received on the
sale of investments. This reflects the fact that many of the older
investments where the Manager has been able to complete the planned
investment strategy have been successfully divested. Hence, a
greater portion of the current portfolio is skewed towards newer
investments which are still in their development phase.
The unquoted portion of the portfolio is valued using a
consistent process every three months which the Board oversees and
approves. The majority of the value creation in unquoted
investments comes from operational improvements (revenue and margin
growth), rather than financial leverage.
Unquoted Investment Activity
During the year, GBP4.4 million was invested in 9 unquoted
companies including 4 new additions to the unquoted portfolio, one
of which represented a rollover investment following the successful
exit from the original Cablecom investment. The other new unquoted
investments were;
-- Carousel Logistics ("Carousel") is a "next generation"
provider of logistic solutions to its industrial and commercial
clients. Carousel has a proprietary IT system that clients use to
manage their logistics demands. Carousel then manages the provision
of downstream logistics through multiple outsourced providers of
transport with its IT system selecting the best carrier for each
sub category of work. This allows Carousel to develop tailored
solutions for clients with complex transport demands in areas such
as automotive or luxury goods. The business has strong growth
momentum and ISIS will support the company to invest further in its
innovative IT and expand its offering across Europe.
-- Kingsbridge is a top 100 independent insurance broker. It has
a specialist business-to-business (B2B) advisory business focusing
on the water industry, environmental risks and professional
services. It also has a fast growing division called KPSol which
provides business insurance services to contractors, freelancers
and self employed professionals in professions such as engineering
and IT. The ISIS investment will support the growth of the KPSol
division including new product development and management team
development.
-- CR7 services has a UK operating division called Optomany. CR7
is led by an experienced team of executives who have achieved
success before in the international field of card payment
processing. Optomany has developed a new advanced payment
processing platform for merchants accepting card payments which is
new to the UK market. The investment by ISIS has enabled CR7 to
make an acquisition of another company, 123 Send, which will form a
second division for the group. 123 Send is a major UK provider of
point of sale card terminals and services, with an estate of 15,000
terminals placed in 11,000 merchants.
Unquoted Divestment Activity
The year saw an exceptional level of divestment. Excluding the
dissolution of four acquisition vehicles there were five
realisations and one write-off which yielded proceeds of close to
GBP14 million for Baronsmead VCT.
-- CableCom Networking Holdings has been in the portfolio since
2007 and manages internet services to high density accommodation
such as student accommodation. The business was sold in October
2013 via a secondary management buy-out and the realisation
delivered 4.9 times the original cost. In addition, a GBP5 million
investment (GBP1.25 million for Baronsmead VCT) was negotiated in
the new transaction on the same terms as the lead private equity
buyer as ISIS believes there is an opportunity for further
growth.
-- CSC (world), which provides software packages for structural
engineers, has been in the Baronsmead portfolio since 2008. During
the investment period, CSC with ISIS support has remained as a UK
market leader through a difficult economic period for the UK
construction sector. The business has also been successful in
growing sales across six continents. The company was sold in
November 2013 to Trimble, a US business listed on NASDAQ,
delivering 2.5x return.
-- Kafevend Holdings is a leading provider of workplace vending
supplying hot drinks, coffee vending machines, water and snack
vending to 10,000 company sites across the UK. ISIS first invested
in 2005 and since then sales have grown to GBP20m in 2013 and staff
numbers grown to 100. A successful exit was achieved to
international trade buyer Eden Springs in December 2013, delivering
2.5x return on cost of investment.
-- The investment in Inspired Thinking Group ("ITG") has been
realised via a secondary MBO supported by a larger private equity
fund. ITG was originally backed in 2010 to fund an acquisition of a
workflow software solution that the company was using extensively
in its clients. ITG supplies the workflow software and related
services to the marketing departments of consumer brands and high
street retailers. During the investment period sales grew from
GBP14m to GBP43m by 2013 and the exit delivered a return on cost of
3.4x.
-- The investment in Empire World Trade has also been realised
in the year but this was not a successful investment for the fund.
Empire World Trade is a well respected and leading importer and
distributor of apples and pears from growers around the world to
the large UK retailers. ISIS invested in 2006 and since then the
market has become increasingly competitive supplying the large
retailers. The valuation of this investment had already been fully
provided previously. After considerable work by the management team
and ISIS, it was ultimately concluded that the business would be
better as part of a large group and the business was acquired by
Univeg UK. There was only a modest return of GBP100,000 on the
investment across the Baronsmead VCTs (GBP25,000 for Baronsmead
VCT).
Quoted Portfolio (AIM traded and other listed investments)
This has been another year with a significant uplift in the
quoted portfolio of 33 per cent, building on the strong positive
re-rating of the small cap sector last year. The performance of the
quoted portfolio also reflects the changes introduced by the ISIS
Quoted Investment Team since 2009. As outlined in last year's
report a number of more significant holdings have now been built
where the team has a closer, more influential relationship and can
utilise some of the good practice from Private Equity experience
and the results from this approach are starting to come
through.
Whilst it is expected that work in the Quoted arena will deliver
future positive growth over the long term, the high annual growth
rates achieved in the last two years should be considered as
exceptional.
Quoted Investment Activity
The level of new quoted investment for Baronsmead VCT of GBP2.5
million was made across six new and five follow on investments. Two
of the larger new investments were:
-- Scholium Group ("Scholium") is a niche high end art and
collectibles retail and trading business that provides exposure to
the growing high net worth segment of the consumer market. Scholium
has an experienced management team who intend to use the additional
capital raised at IPO to grow the inventory they are able to offer
and also work with a network of dealer experts to trade selected
products.
-- Everyman Media Group ("Everyman") offers a differentiated
proposition in the independent UK cinema market. It provides a
premium product with a greater emphasis on comfort as well as high
quality food and drink offering for the cinema visitor. Everyman
has potential to grow through improving spend per customer at the
current sites and through rolling out new sites across the UK. The
management team are known to ISIS through their involvement in
successful investments in Tasty and Prezzo.
Quoted Divestment Activity
Realisations during the year from the quoted portfolio totalled
GBP5.4 million and delivered an aggregate return of 1.9x cost.
Notably within this is the full realisation of Vectura Group (2.9x
cost) which had been held by Baronsmead VCT as both an unquoted and
quoted investment and the partial sales in the market of Staffline
Group (at 9.0x cost) and Anpario (4.1x cost).
The Investment Manager has pursued a deliberate policy of
realising a higher than normal level of quoted investments to take
advantage of strong pricing and improved liquidity which can often
be a constraint when looking to divest stakes in smaller quoted
companies.
Wood Street
Wood Street Microcap Investment Fund ("Wood Street") was
established by ISIS in May 2009 to provide flexibility for the
Baronsmead VCTs to invest in larger and more liquid non VCT
qualifying AIM and Small Cap opportunities. It represents another
innovation introduced by the ISIS Quoted Team to seek performance
improvement. At 30 September 2014, Baronsmead VCT had invested
GBP3.5 million through Wood Street into a portfolio of 40
companies, now valued at GBP7.6 million. Wood Street generated a
positive return of 24 per cent over the year and as with the wider
quoted portfolio this should be considered an exceptional year
rather than the norm.
Liquid assets (cash and near cash)
Baronsmead VCT had cash and near cash resources of approximately
GBP20.6 million at the year end. This higher than normal level
reflects both the proceeds from the fund raising in early 2014 and
proceeds from high levels of divestment in both the quoted and
unquoted portfolios. 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.
Change of name
The Manager has previously announced that it intends to change
its name and it is expected that the new name will be announced
shortly.
OUTLOOK
Following a period of gradual recovery and improving confidence
in the UK economy, we believe there are more settled conditions for
finding and growing good businesses. However, we remain cautious
due to the potential impact of global events and the uncertainty
likely to be caused by a UK general election in 2015 which may slow
the recovery. We have already seen increased volatility in quoted
markets either side of the year end and continue to monitor the
external environment carefully, although this may also provide
opportunities for investment.
ISIS seeks to invest in businesses that have strong potential
for growth but that are also resilient if conditions become more
challenging. We work closely with these businesses to help them
develop their strategy and operational infrastructure to prepare
for such external challenges. Hence, we believe that Baronsmead
VCT's diversified portfolio is well positioned to continue its
progress in the current market.
ISIS VC LLP
Investment Manager
14 November 2014
Summary Investment Portfolio
Investment Classification at 30 September 2014
Sector by value
Business Services 48%
Consumer Markets 15%
Healthcare & Education 11%
Technology, Media
& Telecommunications
("TMT") 26%
Total Assets by value
Unquoted - loan note 25%
Unquoted - equity 6%
AIM, listed, ISDX
& collective investment
vehicle 43%
Interest bearing securities 14%
Net current assets 12%
Time Investments Held
by value
Less than 1 year 12%
Between 1 and 3 years 30%
Between 3 and 5 years 16%
Greater than 5 years 42%
Ten Largest Investments
The top ten investments by current value at 30 September 2014
illustrate the diversity and size of investee companies within the
portfolio. This financial information is taken from publicly
available information, which has been audited by the auditors of
the investee companies.
1. Nexus Vehicle Holdings Limited - Leeds
Unquoted
All funds managed by ISIS
First investment: February 2008
Total cost: GBP9,535,000
Total equity held: 62.11%
Baronsmead VCT only
Cost: GBP2,374,000
Valuation: GBP5,369,000
Valuation basis: Earnings Multiple
% of equity held: 13.67%
Year ended 30 September
2013 2012
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 41.3 36.5
----------------- ------------ ------------
EBITA: 2.6 3.3
----------------- ------------ ------------
Net Assets: 1.5 1.8
----------------- ------------ ------------
No of Employees
: 130 113
----------------- ------------ ------------
(Source: Nexus Vehicle Holdings Limited, Report & Financial
Statements 30 September 2013)
2. Netcall plc - Hemel Hempstead
Quoted
All funds managed by ISIS
First investment: July 2010
Total cost: GBP4,354,000
Total equity held: 18.00%
Baronsmead VCT only
Cost: GBP869,000
Valuation: GBP3,021,000
Valuation basis: Bid Price
% of equity held: 3.62%
Year ended 30 June
2014 2013
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 16.9 16.1
----------------- ------------ ------------
EBITA: 4.9 3.9
----------------- ------------ ------------
Net Assets: 20.2 16.9
----------------- ------------ ------------
No of Employees
: 146 141
----------------- ------------ ------------
(Source: Netcall plc, Annual Report and Accounts, 30 June
2014)
3. Staffline Group plc - Nottingham
Quoted
All funds managed by ISIS
First investment: July 2000
Total cost: GBP174,000
Total equity held: 2.40%
Baronsmead VCT only
Cost: GBP87,000
Valuation: GBP2,986,000
Valuation basis: Last Traded Price
% of equity held: 1.20%
Year ended 31 December
2013 2012
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 416.0 367.0
----------------- ------------ ------------
EBITA: 12.8 11.1
----------------- ------------ ------------
Net Assets: 113.4 100.0
----------------- ------------ ------------
No of Employees
: 807 693
----------------- ------------ ------------
(Source: Staffline Recruitment Limited, Annual Report 31
December 2013)
4. Crew Clothing Holdings Limited - London
Unquoted
All funds managed by ISIS
First investment: November 2006
Total cost: GBP5,833,000
Total equity held: 25.51%
Baronsmead VCT only
Cost: GBP1,454,000
Valuation: GBP2,445,000
Valuation basis: Earnings Multiple
% of equity held: 6.08%
Year ended 28 October
2013 2012
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 52.7 48.5
----------------- ------------ ------------
EBITA: 1.3 3.5
----------------- ------------ ------------
Net Assets: 6.0 6.0
----------------- ------------ ------------
No of Employees
: 381 363
----------------- ------------ ------------
(Source: Crew Clothing Holdings Limited, Report and Financial
Statements 28 October 2013)
5. Accumuli plc - Salford
Quoted
All funds managed by ISIS
First investment: November 2010
Total cost: GBP2,707,000
Total equity held: 23.20%
Baronsmead VCT only
Cost: GBP505,000
Valuation: GBP1,678,000
Valuation basis: Bid Price
% of equity held: 4.20%
Year ended 31 March
2014 2013
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 16.6 14.1
----------------- ------------ ------------
EBITA: 2.6 2.0
----------------- ------------ ------------
Net Assets: 15.1 14.6
----------------- ------------ ------------
No of Employees
: 73 55
----------------- ------------ ------------
(Source: Accumuli plc, Annual Report and Accounts 2013)
6. Independent Community Care Management Limited - Kettering
Unquoted
All funds managed by ISIS
First investment: October 2011
Total cost: GBP6,070,000
Total equity held: 70.00%
Baronsmead VCT only
Cost: GBP1,358,000
Valuation: GBP1,554,000
Valuation basis: Earnings Multiple
% of equity held: 13.86%
Year ended 31 March
2014 2013
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 9.8 8.4
----------------- ------------ ------------
EBITA: 0.3 0.2
----------------- ------------ ------------
Net Assets: 0.8 0.5
----------------- ------------ ------------
No of Employees
: 441 390
----------------- ------------ ------------
(Source: ICCM Ltd, Directors' report and financial statements 31
March 2014)
7. Create Health Limited - London
Unquoted
All funds managed by ISIS
First investment: March 2013
Total cost: GBP4,750,000
Total equity held: 29.00%
Baronsmead VCT only
Cost: GBP1,065,000
Valuation: GBP1,520,000
Valuation basis: Earnings Multiple
% of equity held: 5.74%
Year ended 31 March
2013 2012
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 4.2 3.5
----------------- ------------ ------------
EBITA: 1.3 1.2
----------------- ------------ ------------
Net Assets: 2.3 1.7
----------------- ------------ ------------
No of Employees # #
:
----------------- ------------ ------------
(Source: Create Health Ltd Abbreviated Accounts 31 March
2013)
# number not disclosed
8. Tasty plc - London
Quoted
All funds managed by ISIS
First investment: September 2006
Total cost: GBP3,223,000
Total equity held: 14.52%
Baronsmead VCT only
Cost: GBP594,000
Valuation: GBP1,474,000
Valuation basis: Bid Price
% of equity held: 2.53%
Year ended 29 December
2013 2012
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 23.2 19.3
----------------- ------------ ------------
EBITA: 1.9 1.6
----------------- ------------ ------------
Net Assets: 17.4 12.3
----------------- ------------ ------------
No of Employees
: 506 453
----------------- ------------ ------------
(Source: Tasty Plc Report and Financial Statements 29 December
2013)
9. Jelf Group Plc - Bristol
Quoted
All funds managed by ISIS
First investment: October 2004
Total cost: GBP2,942,000
Total equity held: 5.60%
Baronsmead VCT only
Cost: GBP692,000
Valuation: GBP1,436,000
Valuation basis: Bid Price
% of equity held: 1.30%
Year ended 30 September
2013 2012
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 76.2 73.0
----------------- ------------ ------------
EBITA: 11.5 10.4
----------------- ------------ ------------
Net Assets: 99.4 96.5
----------------- ------------ ------------
No of Employees
: 941 961
----------------- ------------ ------------
(Source: Jelf Group Plc Annual Report and Accounts for Year End
30 September 2013)
10. TLA Worldwide plc - London
Quoted
All funds managed by ISIS
First investment: November 2011
Total cost: GBP3,604,000
Total equity held: 14.60%
Baronsmead VCT only
Cost: GBP734,000
Valuation: GBP1,382,000
Valuation basis: Bid Price
% of equity held: 2.97%
Year ended 31 December
2013 2012
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 11.3 9.3
----------------- ------------ ------------
EBITA: 4.4 4.1
----------------- ------------ ------------
Net Assets: 21.3 21.4
----------------- ------------ ------------
No of Employees
: 51 51
----------------- ------------ ------------
(Source: Annual Report and Financial Statement Year End 31
December 2013)
Risk Matrix
Principal Risk Context Specific risks we Possible impact Mitigation
face
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Loss of approval as The Company must Breach of any of the The loss of VCT The Board maintains
a Venture Capital comply with section rules enabling the status would result a safety margin on
Trust 274 of the Income Company to hold VCT in shareholders who all VCT tests to
Tax Act 2007 which status could result have not held their ensure that breaches
enables its in the loss shares for the are very unlikely
investors of that status. designated holding to be caused by
to take advantage of period having to unforeseen events or
tax relief on their repay the income tax shocks. The
investment and on relief they had Investment Manager
future returns. already obtained monitors all of the
and future dividends VCT
and gains would be tests on an ongoing
subject to income basis and the Board
tax and capital reviews the status
gains tax. of these tests on a
quarterly basis.
Specialist advisors
audit the tests on a
bi-annual basis and
report to the audit
committee
on their findings.
---------------------- ====================== ====================== ---------------------- ----------------------
Investment The Company invests Investment in poor Reduction in both The Company has a
performance in small, mainly UK quality companies the capital value of diverse portfolio
based companies, with the resultant investors where the cost of
both unquoted and risk of a high level shareholdings and in any one investment
quoted. Smaller of failure in the level of income is typically less
companies often have the portfolio. distributed. than 5% of NAV
limited product thereby limiting the
lines, markets or impact of any one
financial resources failed investment.
and may be dependent The Board has
for their management appointed
on a smaller number an Investment
of key individuals Manager that has a
and hence tend to be strong and
riskier than consistent track
larger businesses. record over a long
period, invests
in profitable
companies in sectors
in which it has
specialised for the
past sixteen 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.
---------------------- ====================== ====================== ====================== ======================
Regulatory & The Company is Failure of the The Company's The Board and the
Compliance authorised as a self Company to comply performance could be Investment Manager
managed Alternative with any of its impacted severely by employ the services
Investment Fund regulatory or legal financial penalties of leading
Manager under the obligations could and a loss of regulatory lawyers,
Alternative result reputation resulting sponsors,
Investment Fund in the suspension of in the alienation of auditors and other
Managers Directive its listing by the shareholders, a advisers to ensure
and is also subject UKLA and/or significant demand the company complies
to the Prospectus financial penalties to buy back shares with all of its
and Transparency and sanction by the and an inability to regulatory
Directives. It is regulator or a attract future obligations.
required to comply qualified audit investment. The The Board has strong
with the Companies report. suspension of its systems in place to
Act 2006, the UKLA shares would result ensure that the
listing Rules. in Company complies
the loss of its VCT with all of its
taxation status and regulatory
most likely the responsibilities.
ultimate liquidation The Investment
of the Company. Manager has a strong
compliance culture
and employs
dedicated compliance
specialists within
its team who support
the Board in
ensuring that the
Company is
compliant.
---------------------- ====================== ====================== ====================== ======================
Legislative VCTs were A change in The Company might The Board and the
established in 1995 government policy not be able to Investment Manager
to encourage private regarding the maintain its asset engage on a regular
individuals to funding of small base leading to its basis with HMT and
invest in early companies or changes gradual decline and industry
stage companies made to potentially an representative
that are considered VCT regulations to inability to bodies to
to be risky and comply with EU State maintain either its demonstrate the cost
therefore have Aid rules could buy back or dividend benefit of VCTs to
limited funding result in a policies. the economy in terms
options. In return cessation of the tax of employment
the reliefs generation
state provides these for VCT investors or and taxation
investors with tax changes to the revenue. In addition
reliefs which fall reliefs that make the Board and the
under the definition them less attractive Investment Manager
of state aid. to investors. 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.
---------------------- ====================== ====================== ---------------------- ----------------------
Economic, political Whilst the Company Events such as Reduction in the The Company invests
and external factors invests in economic recession, value of the in a diversified
predominantly UK movement in interest Company's assets portfolio of
businesses, its or currency rates, with a corresponding companies across a
relies heavily on civil unrest, war impact on its share number of industry
Europe as or political price sectors
one of its largest uncertainty or may result in the which provides
trading partners. pandemics can loss of investors protection against
This together with adversely affect the through buybacks and shocks as the impact
the increase in trading environment may limit its on individual
globalisation means for underlying ability to pay sectors can vary
that economic unrest investments and dividends. depending
and shocks in other impact on their upon the
jurisdictions, as results and circumstances. In
well as in the UK, valuations. addition, the
can impact on Manager uses a
UK companies, limited amount of
particularly smaller bank gearing in
ones that are more its investments
vulnerable to which enables its
changes in trading investments to
conditions. continue trading
through difficult
economic
conditions. The
Company always
maintains healthy
cash balances so
that it can support
portfolio
companies with
further investment
should the
investment case
support it. The
Board reviews
the make up and
progress of the
portfolio each
quarter to ensure
that it remains
appropriately
diversified and
funded.
---------------------- ====================== ====================== ---------------------- ----------------------
Operational The Company relies The risk of failure Errors in The Board has
on a number of third of the systems and shareholders records appointed an audit
parties including controls of any of or shareholdings, committee who, along
the Investment the Company's incorrect marketing with the external
Manager to provide advisers leading to literature, non auditors, review the
it with the an inability to compliance internal control
necessary services service shareholder with listing rules, (ISAE3402) and / or
such as registrar, needs adequately, to loss of assets, internal audit
sponsor, custodian, provide accurate breach of legal reports from all
receiving agent, reporting and duties and inability significant third
lawyers accounting to provide accurate party
and tax advisers. and to ensure reporting and service providers,
adherence to all VCT accounting all including the
legislation rules. leading to Investment Manager,
reputational risk on a biannual basis
and the potential to ensure that they
for litigation. 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.
Business Model
Baronsmead VCT has appointed an Investment Manager (ISIS) to
help achieve the investment objective of the Company. The key
elements of the investment strategy and its application are
outlined below.
Access to an attractive, diverse portfolio
Baronsmead VCT plc gives shareholders access to a diverse
portfolio of growth businesses, both unquoted and AIM-traded
companies.
Each business has already demonstrated profitable success from
its business model before investment to provide a degree of
stability and a foundation from which to build. Each business is
led by an entrepreneurial management team that are aspiring to
achieve above average growth from attractive and differentiated
market positions.
The Manager's approach to investing
The Manager, ISIS, aspires to select the best opportunities and
has a distinctive selection criteria based on;
-- Businesses that demonstrate elements of market leadership in their niche
-- Management teams that can develop and deliver profitable and sustained growth
-- The company being able to be an attractive asset appealing to
a range of buyers at the appropriate time to exit
In order to ensure there is a strong pipeline of opportunities,
ISIS invests in sector knowledge and networks. It then undertakes
significant pro-active marketing to interesting unquoted targets in
preferred sectors. This is building a database of businesses that
are keen to maintain a relationship with ISIS ahead of possible
investment opportunities.
ISIS as an influential shareholder
For unquoted investments, ISIS is an involved shareholder (on
behalf of the Baronsmead family of VCTs) and representatives of the
Manager join the investee board. The role of ISIS is to ensure that
strategy is clear, the business plan is well thought through and
the management resources are in place to deliver profitable growth.
The intention is to build on the initial platform and grow the
business so that it can become an attractive target able to be
either sold or floated in the medium term.
The investment strategy for AIM-traded companies has
increasingly focused on taking more influential stakes through the
collective shareholdings of the Baronsmead family of VCTs.
A more detailed explanation of how the business model is applied
is provided in the Other Matters section of the Strategic Report
below.
Other Matters
Applying the Business Model
The Company's investment objective and investment policy are set
out above. This section of the Strategic Report sets out the
practical steps that the Board has taken in order to achieve the
investment objective and adhere to the investment policy.
Appointment of the right investment manager
The Board has delegated the management of the investment
portfolio to ISIS VC LLP ("ISIS" 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.
On 22 July 2014 the Company was registered as a Small UK
registered AIFM (Alternative Investment Fund Manager) under the
Alternative Investment Fund Managers Directive ("AIFMD"). In
preparation for this the investment management agreement between
the Company and ISIS EP LLP dated 20 December 2006 was novated to
ISIS VC LLP (previously named FPPE LLP), a MiFID (Markets in
Financial Instruments Directive) authorised company with the same
controlling members as ISIS EP LLP. The terms of the agreement and
the personnel involved in providing management and investment
management services to the Company have not changed as a result of
the implementation of these arrangements.
The Board have also engaged the Manager to provide or procure
company secretarial, accounting and administrative services to the
Company.
Investing in the right companies
Investment securities
The Company invests in a range of securities including, but not
limited to, ordinary and preference shares, loan stocks,
convertible securities and interest bearing securities as well as
cash. Unquoted investments are usually structured as a combination
of ordinary shares and loan stocks, while AIM-traded investments
are primarily held in ordinary shares. Pending investment in VCT
qualifying and non-VCT qualifying unquoted, AIM-traded and other
quoted securities (which may be held directly or indirectly through
collective investment vehicles), cash is primarily held in interest
bearing accounts, money market open ended investment companies
("OEICs"), UK gilts and treasury bills.
UK companies
Investments are primarily made in companies which are
substantially based in the UK, although many of these investees may
have some trade overseas.
VCT regulation
The investment policy is designed to ensure that the Company
continues to qualify and is approved as a VCT by HM Revenue and
Customs. Amongst other conditions, the Company may not invest more
than 15 per cent by value of its investments calculated in
accordance with Section 278 of the Income Tax Act 2007 (as amended)
("VCT Value") in a single company or group of companies and must
have at least 70 per cent of its investments by VCT Value
throughout the period in shares and securities comprised of
qualifying holdings. At least 70 per cent by VCT Value of
qualifying holdings must be in "eligible shares", which are
ordinary shares which have no preferential rights to assets on a
winding up and no rights to be redeemed, but may have certain
preferential rights to dividends. For funds raised before 6 April
2011, at least 30 per cent by VCT Value of qualifying holdings must
be in "eligible shares" which are ordinary shares which do not
carry any rights to be redeemed or preferential rights to dividends
or to assets on a winding up. At least 10 per cent of each
qualifying investment must be in "eligible shares".
The companies in which investments are made must have no more
than GBP15 million of gross assets at the time of investment to be
classed as a VCT qualifying holding.
The Company has retained PricewaterhouseCoopers LLP ("PwC") as
its VCT Tax Status Advisers to advise it on compliance with VCT
requirements. PwC reviews new investment opportunities, as
appropriate, and reviews regularly the investment portfolio of the
Company. PwC works closely with the Manager but reports directly to
the Board.
Asset mix
The Company aims to be at least 90 per cent invested, directly
or indirectly, in VCT qualifying and non-qualifying growth
businesses subject always to the quality of investment
opportunities and the timing of realisations. It is intended that
at least 75 per cent of any funds raised by the Company will be
invested in VCT qualifying investments. Non-VCT qualifying
investments held in unquoted, AIM traded and other quoted companies
may be held directly or indirectly through collective investment
vehicles.
Borrowing powers
The Company's policy is to use borrowing for short term
liquidity purposes only up to a maximum of 25 per cent of the
Company's gross assets, as permitted by the Company's articles. The
Company currently has no borrowing.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses
within different qualifying industry sectors using a mixture of
securities. Generally no more than GBP2.5 million, at cost, is
invested in the same company. The maximum the Company will invest
in a single company (including a collective investment vehicle) is
15 per cent of its investments by 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.
Investment style
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.
Co-investment
The Company aims to invest in larger more mature unquoted and
AIM-traded companies and to achieve this it invests alongside the
other Baronsmead VCTs.
Incentivising and remunerating the Manager
Performance and Key Performance Indicators ("KPIs")
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 primary
KPIs outlined in the Annual Report and Accounts.
The investment management agreement
Under the Investment management agreement, the Manager receives
a fee of 2 per cent per annum of the net assets of the Company. In
addition, the Manager receives an annual secretarial and accounting
fee of GBP85,103 (linked to the movement in RPI), subject to annual
review. Annual running costs are capped at 3.5 per cent of the
average net assets of the Company during the period (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 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 due
to it and any interest due on unpaid fees.
Performance fees
No performance fee is payable to the Manager until the total
return on shareholders' funds exceeds an annual threshold of the
higher of 4 per cent or base rate plus 2 per cent calculated on a
compound basis. 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 shall be
capped at 5 per cent of shareholders' funds for that period.
During the financial year the threshold has been exceeded and a
performance fee of GBP519,000 (2013: GBP1,144,000) is payable.
Management retention
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 and every
unquoted investment made by the Baronsmead VCTs. 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. In addition, 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 Board is keen to ensure that the Manager continues to have
one of the best investment teams in the VCT and private equity
sector and 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 since 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 executives participating in the co-investment scheme
subscribe jointly for a proportion (currently 12 per cent) of the
ordinary shares available to the Baronsmead VCTs in each unquoted
investment. The level of participation was increased from 5 per
cent in 2007 when the Manager's performance fee was reduced from 20
per cent to its current level of 10 per cent.
Since the formation of the scheme in 2004, 58 executives have
invested a total of GBP838k in 40 companies. At 30 September 2014
20 of these investments have been realised generating proceeds of
GBP175m for the Baronsmead VCTs and GBP8.9m for the co-investment
scheme. For Baronsmead VCT the average money multiple on these
twenty realisations was 2.1 times cost. Had the co-investment
shares been held instead by the Baronsmead VCTs that money multiple
would have been 2.2 times cost. Over the period of ten years (based
upon the current number of shares in issue) this equates to
approximately 2.1p per share.
The board regularly monitors the co-investment scheme
arrangements.
Advisory Fees
During the year to 30 September 2014, the Manager received
income of GBP89,000 (2013: GBP146,000) in connection with advisory
fees and incurred abort fees of GBP1,000 (2013: GBP1,000) with
respect to investments attributable to Baronsmead VCT.
Directors' fees of GBP207,000 (2013: GBP203,000) were received
during the year in relation to services provided to companies in
the investment portfolio, with respect to investments attributable
to Baronsmead VCT.
Environmental, Human Rights, Employee, Social and Community
Issues
The Company is required, by company law, to provide details of
the environmental matters (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 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.
Information that is relevant to these matters has been set out
below:
Responsible Investment
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.
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 two female and
two male Directors. The Manager has an equal opportunity policy and
currently employs 34 men and 24 women.
Returns to investors
Dividend policy
The Board wishes to maintain a minimum dividend level of around
5.5p per ordinary share if possible, but this depends primarily on
the level of realisations achieved and it cannot be guaranteed.
There will be variations in the amount of dividends paid year on
year.
Since launch the average annual tax free dividend paid to
shareholders has been 7.1p per ordinary share (equivalent to a
pre-tax return of 9.5p per ordinary share for a higher rate
taxpayer). For shareholders who received up front tax reliefs of 20
per cent, 30 per cent or 40 per cent, their returns will 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
VCT 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 issue costs. The Company's
offer for subscription launched in January 2014 to raise GBP10
million (GBP9.7 million after costs) was fully subscribed.
Dividend Reinvestment Plan | The Company offers a Dividend
Reinvestment Plan which enables shareholders to purchase additional
shares through the market in lieu of cash dividends. Approximately
1,317,000 shares were bought in this way during the year to 30
September 2014.
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 1,356,000 shares were bought by investors in
the Company's existing shares in the year to 30 September 2014.
On behalf of the Board
Peter Lawrence
Chairman
14 November 2014
Extract of the Directors Report
Share capital
The Company issued an offer for subscription for new ordinary
shares of the Company in January 2014. The offer was fully
subscribed and 12,546,774 new ordinary shares (nominal value
GBP1,254,677.40) were allotted on 14 March 2014 at a price of
79.70p per share, representing 11.2 per cent of the issued share
capital following allotment. The terms of issue were set out in the
prospectus dated 22 January 2014 and the offer price was set on 14
March 2014.
During the year the Company bought back a total of 435,000
ordinary shares to be held in Treasury, representing 0.4 per cent
of the issued share capital as at 30 September 2014, with an
aggregate nominal value of GBP43,500. The total amount paid for
these shares was GBP323,025. The Company's remaining authority to
buy back shares from the 2013 AGM is 13,758,582.
On 10 March 2014, the Company sold 150,000 ordinary shares from
Treasury at a price of 73.5p per share.
As at the date of this report the Company's issued share capital
was as follows:
% of
Shares Nominal
Shares Total in issue Value
------------------ ----------- ---------- ----------------
In issue 111,686,205 100.00 GBP11,168,620.50
------------------ ----------- ---------- ----------------
Held In treasury 6,738,751 6.03 GBP673,875.10
------------------ ----------- ---------- ----------------
In circulation 104,947,454 93.97 GBP10,494,745.40
------------------ ----------- ---------- ----------------
The number of shares held in Treasury at the date of the report
was the maximum held during the year. 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.
Dividends
The Company paid the following dividends for the year ended 30
September 2014:
Dividend GBP'000
----------------------------- -------
Interim dividend of 6.0p
per ordinary share paid
on 7 March 2014 5,543
----------------------------- -------
Second interim dividend
of 3.5p per ordinary share
paid on 19 September 2014* 3,678
----------------------------- -------
Total dividends paid for
the year 9,221
----------------------------- -------
*the second interim dividend was paid in lieu of a final
dividend.
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 2014, the Company held cash
balances and investments in UK Treasury Bills with a combined value
of GBP20,553,000. Cash flow projections have been reviewed and show
that the Company has sufficient funds to meet both its contracted
expenditure and its discretionary cash outflows in the form of the
share buyback programme and dividend policy. The Company has no
external loan finance in place and therefore is not exposed to any
gearing or covenants.
The Directors have chosen to include its report on global
greenhouse emissions in its Strategic Report under the section on
environmental, human rights, employee, social and community
issues.
By Order of the Board
ISIS VC LLP
Secretary
100 Wood Street London EC2V 7AN
14 November 2014
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 ("UK GAAP").
The financial statements are required by law to 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 judgments and estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that 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
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 comply 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 www.baronsmeadvct.co.uk. Visitors to the website
should be aware that 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 UK
Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
Company;
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the Company
together with a description of the principal risks and
uncertainties that they face; and
-- the report and accounts, taken as a whole, are fair,
balanced, and understandable and provide the necessary information
for shareholders to assess the Company's performance, business
model and strategy.
On behalf of the Board,
Peter Lawrence
Chairman
14 November 2014
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 30 September 2014
and 30 September 2013 but is derived from those accounts. Statutory
accounts for 2013 have been delivered to the Registrar of
Companies, and those for 2014 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.baronsmeadvct.co.uk
Income Statement
For the year ended 30 September 2014
2014 2013
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 - 7,538 7,538 - 8,272 8,272
Realised gains
on disposal of
investments 2.3 - 447 447 - 896 896
Income 2.5 2,037 - 2,037 3,366 - 3,366
Investment management
fee 2.6 (363) (1,608) (1,971) (333) (2,146) (2,479)
Other expenses 2.6 (440) - (440) (411) - (411)
Profit on ordinary
activities before
taxation 1,234 6,377 7,611 2,622 7,022 9,644
Taxation on ordinary
activities 2.9 (174) 174 - (517) 517 -
Profit on ordinary
activities after
taxation 1,060 6,551 7,611 2,105 7,539 9,644
Return per ordinary
share
Basic 2.2 1.06p 6.59p 7.65p 2.33 8.35p 10.68p
=========================== ===== ======== ======== ======== ======== ======== ========
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.
Reconciliation of Movements in Shareholders' Funds
For the year ended 30 September 2014
2014 2013
Notes GBP'000 GBP'000
Opening shareholders' funds 71,706 61,978
Profit on ordinary activities after taxation 7,611 9,644
Net proceeds of share issues & costs of buy-backs 9,486 8,906
Other costs charged to capital - (5)
Dividends paid 2.4 (9,221) (8,817)
Closing shareholders' funds 79,582 71,706
================================================== ===== ======== ========
Balance Sheet
As at 30 September 2014
2014 2013
Notes GBP'000 GBP'000
Fixed assets
Investments 2.3 69,837 68,228
Current assets
Debtors 2.7 1,318 1,963
Cash at bank & on deposit 9,557 3,109
10,875 5,072
Creditors (amounts falling due within one year) 2.8 (1,130) (1,594)
Net current assets 9,745 3,478
Net assets 79,582 71,706
Capital and reserves
Called-up share capital 3.1 11,169 9,914
Share premium 3.2 20,101 11,655
Capital reserve 3.2 32,943 35,062
Revaluation reserve 3.2 15,027 14,777
Revenue reserve 3.2 342 298
Equity shareholders' funds 2.1 79,582 71,706
Net asset value per share
- Basic 2.1 75.83p 77 36p
- Treasury 2.1 75.58p 77.06p
================================================ ===== ======== ========
The financial statements were approved by the Board of Directors
on 14 November 2014 and were signed on its behalf by:
Peter Lawrence
Chairman
Cash Flow Statement
For the year ended 30 September 2014
2014 2013
GBP'000 GBP'000
Operating activities
Investment income received 2,775 2,651
Deposit interest received 31 17
Other income 15 -
Investment management fees paid (2,560) (1,281)
Other cash payments (411) (416)
Net cash (outflow)/inflow from operating activities (150) 971
Tax - 17
Financial investment
Purchases of investments (57,510) (28,623)
Disposals of investments 63,746 29,017
Net cash inflow from financial investment 6,236 394
Equity dividends paid (9,221) (8,817)
Net cash outflow before financing (3,135) (7,435)
Financing
Net proceeds of share issues & costs of buy-backs 9,583 8,906
Other costs charged to capital - (5)
Net cash inflow from financing 9,583 8,901
Increase in cash 6,448 1,466
Reconciliation of net cash flow to movement in net cash
Increase in cash 6,448 1,466
Opening cash position 3,109 1,643
Closing cash at bank & on deposit 9,557 3,109
Reconciliation of profit on ordinary activities before
taxation to net cash (outflow)/inflow from operating
activities
Profit on ordinary activities before taxation 7,611 9,644
Gains on investments (7,985) (9,168)
Decrease/(increase) in debtors 784 (700)
(Decrease)/increase in creditors (560) 1,195
Net cash (outflow)/inflow from operating activities (150) 971
========================================================== ======== ========
Notes to the Accounts
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.
Where possible, wording has been simplified to provide clearer
commentary on the financial performance of the Company
1. Basis of Preparation
1.1 Basis of accounting
These financial statements have been prepared under UK Generally
Accepted Accounting Practice ("UK GAAP") 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 January 2009 and on the assumption
that the Company maintains VCT status.
2. Investments, performance and shareholder returns
2.1 Net asset value per share
Number Net asset value Net asset value
of ordinary shares per share attributable attributable
=========================== ======================= ========================= ==================
2014 2013 2014 2013 2014 2013
number number pence pence GBP'000 GBP'000
Ordinary shares (basic) 104,947,454 92,685,680 75.83 77 36 79,582 71,706
Ordinary shares (Treasury) 111,686,205 99,139,431 75.58 77.06 84,417 76,401
=========================== =========== ========== ============ =========== ======== ========
The Treasury net asset value per share as at 30 September 2014
included ordinary shares held in Treasury valued at the mid share
price of 71.75p at 30 September 2014 (2013: 72.75p).
2.2 Return per share
Weighted average Net profit on ordinary
number of ordinary Return per activities after
shares ordinary share taxation
======== ====================== ================= ========================
2014 2013 2014 2013 2014 2013
number number pence pence GBP'000 GBP'000
Revenue 99,430,657 90,244,833 1.06 2.33 1,060 2,105
Capital 99,430,657 90,244,833 6.59 8.35 6,551 7,539
Total 7.65 10.68 7,611 9,644
======== ========== ========== ======== ======= =========== ===========
2.3 Investments
Purchases or sales of investments are recognised at the date of
transaction.
Investments are measured at fair value. For AIM-traded, ISDX and
listed 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 net asset value basis.
Gains and losses arising from changes in the fair value of the
investments are included in the Income Statement for the period as
a capital item. Transaction costs on acquisition are included
within the initial recognition and the profit or loss on disposal
is calculated net of transaction costs on disposal.
All investments are initially recognised and subsequently
measured at fair value. Changes in fair value are recognised in the
income statement.
The 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 on
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.
2014 2013
GBP'000 GBP'000
Level 1
Listed interest bearing securities 10,996 2,999
Investments traded on AIM 25,736 20,800
Investments traded on ISDX 485 346
Investments listed on LSE 24 1,457
37,241 25,602
Level 2
Collective investment vehicle (Wood Street Microcap Investment
Fund) 7,608 6,141
Level 3
Unquoted investments 24,988 36,485
69,837 68,228
=============================================================== ======== ========
Level 1 Level 2 Level 3
Interest Collective
bearing Traded Traded Listed investment
securities on AIM on ISDX on LSE vehicle Unquoted Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening book cost 2,999 15,718 227 1,344 3,525 29,637 53,450
Opening unrealised
appreciation - 5,082 119 113 2,616 6,848 14,778
Opening valuation 2,999 20,800 346 1,457 6,141 36,485 68,228
Movements in the
year:
Purchases at cost 51,580 2,467 - - - 4,418 58,465
Sales - proceeds (43,583) (3,672) - (1,696) - (15,889) (64,840)
-
realised gains/(loss)
on sales - 959 - 289 - (801) 447
Unrealised gains
realised during
the year - 679 - 652 - 5,957 7,288
Increase/(decrease)
in unrealised appreciation - 4,503 139 (678) 1,467 (5,182) 249
Closing valuation 10,996 25,736 485 24 7,608 24,988 69,837
Closing book cost 10,996 16,151 227 589 3,525 23,322 54,810
Closing unrealised
appreciation/(depreciation) - 9,585 258 (565) 4,083 1,666 15,027
Closing valuation 10,996 25,736 485 24 7,608 24,988 69,837
Equity shares - 25,703 485 24 7,608 5,240 39,060
Loan notes - 33 - - - 19,748 19,781
Fixed income securities 10,996 - - - - - 10,996
Closing valuation 10,996 25,736 485 24 7,608 24,988 69,837
The gains and losses included in the above table have all been
recognised in the Income Statement above.
For Level 3 unquoted investments, the effect on fair value of
changing one or more assumptions to reasonably possible
alternatives has been considered. The portfolio has been reviewed
and both downside and upside reasonable possible alternatives have
been identified and applied to the valuation of each of the
investments. The inputs flexed in determining the reasonably
possible alternative assumptions include the earnings stream and
marketability discount.
Applying the downside alternatives the value of the unquoted
investments would be GBP1.2 million or 5.0 per cent lower. Using
the upside alternatives the value would be increased by GBP1.7
million or 6.7 per cent.
2.4 Dividends
2014 2013
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
year:
For the year ended 30 September
2014
-
First interim dividend
of 6.0p per ordinary share
paid on 7 March 2014 1,016 4,527 5,543 - - -
-
Second interim dividend
of 3.5p per ordinary share
paid on 19 September 2014 - 3,678 3,678 - - -
For the year ended 30 September
2013
-
First interim dividend
of 2.5p per ordinary share
paid on 15 June 2013 - - - 418 1,900 2,318
-
Second interim dividend
of 3.5p per ordinary share
paid on 20 September 2013 - - - 1,668 1,576 3,244
For the year ended 30 September
2012
-
Final dividend of 3.5p
per ordinary
share paid on 18 January
2013 - - - 325 2,930 3,255
1,016 8,205 9,221 2,411 6,406 8,817
==================================== ======== ======== ======== ======== ======== ========
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
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.
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
2014 2013
Quoted Unquoted Quoted Unquoted
securities securities Total securities securities Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income from investments
UK franked 445 - 445 422 - 422
UK unfranked 17 877 894 6 2,466 2,472
Redemption premium - 652 652 - 455 455
462 1,529 1,991 428 2,921 3,349
Other income*
Other income 46 17
Total income 2,037 3,366
Total income comprises:
Dividends 445 422
Interest 1,592 2,944
2,037 3,366
======================== =========== =========== ======== =========== =========== ========
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 designated fair value
through profit or loss.
2.6 Investment management fee and other expenses
All expenses are recorded on an accruals basis
2014 2013
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 363 1,089 1,452 333 1,002 1,335
Performance fee - 519 519 - 1,144 1,144
363 1,608 1,971 333 2,146 2,479
========================== ======== ======== ======== ======== ======== ========
Management fees are allocated 25 per cent income: 75 per cent
capital. This allocation is derived in accordance with the Board's
expected split between long term income and capital returns.
Performance fees are allocated 100 per cent to capital.
The management agreement may be terminated by either party
giving twelve months' notice of termination. The Manager, ISIS VC
LLP, receives a fee of 2 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 if the total return
on shareholders' funds exceeds an annual threshold of the higher of
UK base rate plus 2 per cent or 4 per cent on shareholders' funds
(calculated on a compound basis for the relevant period). The
Manager is entitled to a fee of 10 per cent of the excess over the
annual threshold. The amount of any performance fee payable in a
year will be capped at 5 per cent of shareholders' funds at the end
of the period. A performance fee was last paid in the 2013
financial year.
Amounts payable to the Manager at the year end are disclosed in
note 2.8.
Other expenses
2014 2013
GBP'000 GBP'000
Directors' fees 85 78
Secretarial and accounting fees paid to the Manager 107 104
Remuneration of the auditors and their associates:
- audit 23 22
- other services supplied relating to taxation 7 6
- other services supplied relating to financial statements'
reorganisation 6 6
Other costs 212 195
440 411
============================================================ ======== ========
The directors consider the auditors were best placed to provide
the other services shown above. The Audit Committee reviews the
nature and extent of non-audit services to ensure that independence
is maintained.
Information on directors' remuneration is given in the
directors' remuneration table in the full Annual Report and
Accounts.
2.7 Debtors
2014 2013
GBP'000 GBP'000
Prepayments and accrued income 224 1,008
Amounts due from brokers 1,094 -
Amounts paid future settlement - 955
1,318 1,963
=============================== ======== ========
2.8 Creditors (amounts falling due within one year)
2014 2013
GBP'000 GBP'000
Management, performance, secretarial and accounting fees
due to the Manager 948 1,536
Amount due for Buyback 97 -
Other creditors 85 58
1,130 1,594
========================================================= ======== ========
2.9 Tax
UK corporation tax payable is provided on taxable profits at the
current rate.
Provision is made for deferred taxation 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:
2014 2013
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit on ordinary activities
before taxation 1,234 6,377 7,611 2,622 7,022 9,644
Corporation tax at a rate
of 22%
(2013: 23.5%) 272 1,403 1,675 616 1,650 2,266
Effect of:
Non-taxable gains - (1,757) (1,757) - (2,154) (2,154)
Non-taxable dividend income (98) - (98) (99) - (99)
Other movements - 180 180 - (13) (13)
Tax charge/(credit) for
the year 174 (174) - 517 (517) -
============================= ======== ======== ======== ======== ======== ========
At 30 September 2014 the Company had surplus management expenses
of GBP1,555,565 (2013: GBP738,644) 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 period in excess of
the deductible expenses of that future period 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
99,139,431 ordinary shares of 10p each listed at 30 September
2013 9,914
12,546,774 ordinary shares of 10p each issued during the year 1,255
111,686,205 ordinary shares of 10p each listed at 30 September
2014 11,169
6,453,751 ordinary shares of 10p each held in treasury at 30
September 2013 (645)
(150,000) ordinary shares of 10p each sold during the year previously
held in treasury 15
435,000 ordinary shares of 10p each repurchased during the year
and held in treasury (44)
6,738,751 ordinary shares of 10p each held in treasury at 30
September 2014 (674)
104,947,454 ordinary shares of 10p each in circulation* at 30
September 2014 10,495
* Carrying one vote each.
During the year the Company bought back 435,000 ordinary shares
and sold from treasury 150,000 ordinary shares, representing 0.3
per cent of the shares in issue at 30 September 2013.
There were no changes in share capital between the year end and
when the financial statements were approved.
Treasury shares
When the Company reacquires its own shares, they are held as
Treasury shares and not cancelled.
Shareholders have authorised the Board to sell 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 provided 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 2013 35,062 298 35,360 11,655 14,777 26,432
Gross proceeds of share
issues - - - 8,746 - 8,746
Purchase of shares for
Treasury (323) - (323) - - -
Sale of shares from treasury
- cost 114 - 114 - - -
Sale of shares from treasury
- loss (4) - (4) - - -
Expenses of share issue
and costs
of buy-backs (2) - (2) (300) - (300)
Reallocation of prior year
unrealised gains 7,288 - 7,288 - (7,288) (7,288)
Realised gain on disposal
of investments(#) 447 - 447 - - -
Net increase in value of
investments(#) - - - - 7,538 7,538
Management fee capitalised(#) (1,608) - (1,608) - - -
Revenue profit on ordinary
activities after taxation(#) - 1,060 1,060 - - -
Dividends paid in the year (8,205) (1,016) (9,221) - - -
Taxation relief from capital
expenses(#) 174 - 174 - - -
At 30 September 2014 32,943 342 33,285 20,101 15,027 35,128
============================== ======== ======== ======== ======== =========== ========
* Changes in fair value of investments are dealt with in this
reserve.
(#) The total of these items is GBP7,611,000 which agrees to the
total profit on ordinary activities.
Share premium is recognised net of issue costs.
The Company does not have any externally imposed capital
requirements.
3.3 Financial instruments risks
The Company's financial instruments comprise equity and fixed
interest investments, cash balances and liquid resources including
debtors and creditors. The Company holds financial assets in
accordance with its investment policy to invest in a diverse
portfolio of UK growth businesses.
The Company's investing activities expose it to a range of
financial risks. These key risks and the associated risk management
policies to mitigate these risks are described below.
Market risk
Market risk includes price risk on investments and interest rate
risk on investments and other financial assets and liabilities.
Price risk
The investment portfolio is managed in accordance with the
policies and procedures described above in the Strategic
Report.
Investments in unquoted stocks AIM & ISDX 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.
2014 2013
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
LSE, AIM and ISDX 38 1,312 (1,312) 33 1,130 (1,130)
Unquoted 36 1,249 (1,249) 53 1,824 (1,824)
================== =========== ============ =========== =========== ============ ===========
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:
2014 Weighted 2013 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 19,781 9.17 # 25,578 9.27 #
Fixed interest instruments 10,996 0.33 22 2,999 0.23 14
Cash at bank & on deposit 9,557 - - 3,109 - -
40,334 31,686
================================ =========== ====================== =========== ======================
# Due to the complexity of the instruments and uncertainty
surrounding timing of realisation the weighted average time for
which the rate is fixed has not been calculated.
Credit risk
Credit risk refers to the risk that a 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:
2014 2013
GBP'000 GBP'000
Investments in fixed rate instruments 10,996 2,999
Cash at bank & on deposit 9,557 3,109
Interest, dividends and other receivables 1,318 1,963
21,871 8,071
========================================== ======== ========
Credit risk arising on fixed interest instruments is mitigated
by investing in UK Government Stock.
Credit risk on unquoted loan stock held within unlisted
investments is considered to be part of market risk as disclosed
earlier in the note.
Credit risk arising on transactions with brokers relates to
transactions awaiting settlement. Risk relating to unsettled
transactions is considered to be small due to the short settlement
period involved and the high credit quality of the brokers used.
The Board monitors the quality of service provided by the brokers
used to further mitigate this risk.
All the assets of the Company which are traded on a recognised
exchange are held by JP Morgan Chase ("JPM"), the Company's
custodian. The Board monitors the Company's risk by reviewing the
custodian's internal controls reports as described in the Corporate
Governance section of this report.
The cash held by the Company is held by JPM and Lloyds. 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 2014 or 30 September 2013. No
individual investment exceeded 6.7 per cent of the net assets
attributable to the Company's shareholders at 30 September 2014
(2013: 7.6 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 and ISDX 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 2014 these investments were valued at GBP20,553,000
(2013: GBP6,108,000).
3.4 Related parties
Related party transactions include Management, Secretarial,
Accounting and Performance fees payable to the Manager, ISIS 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 Extract from the
Report of the Directors above, whereby employees of the Manager are
entitled to participate in all unquoted investments alongside the
Company.
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
Annual General Meeting
The Company's Annual General Meeting will be held on 17 December
2014 at 10:30 am at the Plaisterers' Hall, One London Wall, London,
EC2Y 5JU.
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 USRBRSUAAAAA
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